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Papers CIG 2018
Themes
bull US Gains from trade
o Costinot Arnaud and Andreacutes Rodriacuteguez-Clare 2018 The US Gains from Trade Valuation
Using the Demand for Foreign Factor Services Journal of Economic Perspectives 32 (2) 3-
24
o Feenstra Robert C 2018 Alternative Sources of the Gains from International Trade
Variety Creative Destruction and Markups Journal of Economic Perspectives 32 (2) 25-
46
bull Brexit
o Sampson Thomas 2017 Brexit The Economics of International Disintegration Journal of
Economic Perspectives 31 (4) 163-84
o Fetzer Thiemo Did Austerity Cause Brexit (July 25 2018) CESifo Working Paper Series No
7159 Available at SSRN httpsssrncomabstract=3251187 (alla fine di questo file)
o Breinlich Holger and Leromain Elsa and Novy Dennis and Sampson Thomas and Usman
Ahmed The Economic Effects of Brexit - Evidence from the Stock Market (August 2018)
CEPR Discussion Paper No DP13147 Available at
SSRN httpsssrncomabstract=3244521 (alla fine di questo file)
o Eichengreen Barry and Mari Rebecca and Thwaites Gregory Will Brexit Age Well
Cohorts Seasoning and the Age-Leave Gradient Past Present and Future (October 2018)
CEPR Discussion Paper No DP13288 Available at
SSRN httpsssrncomabstract=3278663 (alla fine di questo file)
bull Global monetary system (see Journal of Economic Perspectives Summer 2017 3 articles)
o Kassa Woubet and Lartey Emmanuel Kwasi Koranteng Financial Development Exchange
Rate Regimes and Growth Dynamics (August 20 2018) World Bank Policy Research
Working Paper No 8562 Available at SSRN httpsssrncomabstract=3238404 (alla fine di
questo file)
bull China (see Journal of Economic Perspectives Winter 2017 7 articles)
o Kaiji Chen Tao Zha (2018) Macroeconomic Effects of Chinas Financial Policies NBER WP
25222 (alla fine di questo file)
bull Global Value Chains
o Timmer Marcel P Abdul Azeez Erumban Bart Los Robert Stehrer and Gaaitzen J de
Vries 2014 Slicing Up Global Value Chains Journal of Economic Perspectives 28 (2) 99-
118
o De Soyres Francois Michel Marie Raphael and Frohm Erik and Gunnella Vanessa and
Pavlova Elena Bought Sold and Bought Again The Impact of Complex Value Chains on
Export Elasticities (July 13 2018) World Bank Policy Research Working Paper No 8535
Available at SSRN httpsssrncomabstract=3238378 (alla fine di questo file)
o Ahmad N et al (2017) Indicators on global value chains A guide for empirical work
OECD Statistics Working Papers No 201708 OECD Publishing Paris
httpsdoiorg1017878502992f-en
bull Gravity model
o Jacks David S and Novy Dennis Market Potential and Global Growth over the Long
Twentieth Century (August 02 2018) CESifo Working Paper Series No 7164 Available at
SSRN httpsssrncomabstract=3251698 (alla fine di questo file)
bull Economic impact of Climate Change (see Journal of Economic Perspectives Fall 2018 3 articles)
Asset Prices and Macroeconomic Outcomes A Survey
BIS Working Paper No 676
106 Pages Posted 11 Dec 2017
Stijn Claessens
Ayhan Kose
Abstract
This paper surveys the literature on the linkages between asset prices and macroeconomic outcomes It
focuses on three major questions First what are the basic theoretical linkages between asset prices and
macroeconomic outcomes Second what is the empirical evidence supporting these linkages And third
what are the main challenges to the theoretical and empirical findings The survey addresses these
questions in the context of four major asset price categories equity prices house prices exchange rates
and interest rates with a particular focus on their international dimensions It also puts into perspective
the evolution of the literature on the determinants of asset prices and their linkages with macroeconomic
outcomes and discusses possible future research directions
Keywords equity prices exchange rates house prices interest rates credit output consumption
investment real-financial linkages macrofinancial linkages imperfections frictions
Economic Convergence in the Euro Area Coming Together or Drifting Apart
IMF Working Paper No 1810
48 Pages Posted 8 Feb 2018
Jeffrey R Franks
International Monetary Fund affiliation not provided to SSRN
Bergljot Barkbu
International Monetary Fund (IMF)
Rodolphe Blavy
International Monetary Fund (IMF) - African Department
William Oman
International Monetary Fund (IMF)
Hanni Schoelermann
International Monetary Fund (IMF)
Date Written January 2018
Abstract
We examine economic convergence among euro area countries on multiple dimensions While there was
nominal convergence of inflation and interest rates real convergence of per capita income levels has not
occurred among the original euro area members since the advent of the common currency Income
convergence stagnated in the early years of the common currency and has reversed in the wake of the
global economic crisis New euro area members in contrast have seen real income convergence Business
cycles became more synchronized but the amplitude of those cycles diverged Financial cycles showed a
similar pattern sychronizing more over time but with divergent amplitudes Income convergence requires
reforms boosting productivity growth in lagging countries while cyclical and financial convergence can be
enhanced by measures to improve national and euro area fiscal policies together with steps to deepen the
single market
Keywords Business cycles Economic integration Euro Area Financial cycles Convergence
synchronization Economic and Monetary Union Optimum Currency Area Financial Aspects of Economic
Integration
JEL Classification E32 F15 F36 O47
Structural Reforms Growth and Inequality An Overview of Theory Measurement and Evidence
CESifo Working Paper Series No 6812
52 Pages Posted 21 Feb 2018
Nauro F Campos
Brunel University London - Economics and Finance Centre for Economic Policy Research (CEPR) University
of Michigan at Ann Arbor - The William Davidson Institute IZA Institute of Labor Economics
Paul De Grauwe
London School of Economics amp Political Science (LSE) CESifo (Center for Economic Studies and Ifo Institute
for Economic Research) Centre for Economic Policy Research (CEPR)
Yuemei Ji
University College London - School of Slavonic and East European Studies
Multiple version iconThere are 2 versions of this paper
Date Written January 15 2018
Abstract
This paper provides a critical overview of the state of the art in the economics literature on structural
reforms It takes stock of theoretical developments measurement efforts and of the econometric evidence
We start with a simple theoretical framework for the relationship between structural reforms economic
growth and income inequality We argue that whether structural reforms have a positive or negative
impact depends on various factors The type of reform timing sequence and political constraints play
crucial roles in determining the effectiveness of reforms on economic growth and income inequality We
conclude by proposing a 7-point agenda for future research
Keywords structural reforms growth inequality
JEL Classification D600
Immigration assimilation and the future of public education
RyuichiTanaka LidiaFarre FrancescOrtega a
University of Tokyo Japan b
University of Barcelona Spain c
Queens College CUNY USA d
IAE-CSIC Spain
European Journal of Political Economy
Volume 52 March 2018 Pages 141-165
Abstract
This paper analyzes the effects of immigration on the size and quality of public education using a
quantitative political economy model that allows for a heterogeneous immigrant population Our analysis
distinguishes between short and long-run effects and accounts for the consequences of naturalization and
assimilation We use the model to analyze Spains large 2000ndash2008 immigration wave We find that
immigration led to a 15 increase in public enrollment in the short run together with a 3 reduction in
public education spending and almost a 1 percentage-point increase in the share of native households
using private schools Depending on the eventual degree of assimilation these trends will be greatly
intensified or mitigated once immigrants naturalize and gain the right to vote Our analysis suggests that
assimilation in terms of family size and the value assigned to childrens education are the most relevant
dimensions quantitatively We also show that immigration policies that favor one group over another can
significantly alter the overall effects of immigration on the schooling system
Global Financial Cycles and the Exchange Rate
Regime A Perspective from Emerging Markets CEPR Discussion Paper No DP12696
18 Pages Posted 14 Feb 2018
Maurice Obstfeld International Monetary Fund (IMF)
Jonathan D Ostry International Monetary Fund (IMF)
Mahvash Saeed Qureshi International Monetary Fund (IMF) - Research Department
Date Written February 2018
Abstract
This paper examines the relevance of exchange rate regimes in the transmission of global
financial shocks to domestic financial and macroeconomic conditions Our findings suggest
that even in todays highly financially integrated world the nominal exchange rate regime
does matter-at least for emerging market economies The transmission of global financial
shocks to domestic variables is magnified under fixed exchange rate regimes relative to more
flexible regimes For advanced economies however the jury is still out as the recent paucity
of truly fixed regimes among these economies poses a challenge for estimating the effect of
exchange rate flexibility
Keywords emerging market economies global financial cycle trilemma
JEL Classification F31 F36 F41
Firms Left Behind Emigration and Firm Productivity CESifo Working Paper Series No 6815
47 Pages Posted 21 Feb 2018
Yvonne Giesing
CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Nadzeya Laurentsyeva Centre for European Policy Studies (CEPS)
Date Written January 15 2018
Abstract
This paper establishes a causal link between the emigration of skilled workers and firm
performance in source countries Using firm-level panel data from ten Eastern European
countries we show that the emigration of skilled workers lowers firm total factor
productivity We exploit time country and industry differences in the opening of EU labor
markets from 2004 to 2014 as a source of exogenous variation in the emigration rates from
new EU member states We argue that a potential channel behind this effect relates to the
reduction in firm-specific human capital due to a higher worker turnover
Keywords migration firm productivity human capital EU enlargement
JEL Classification O150 D240 F220 J240
Reserve Currency Blocs A Changing International
Monetary System IMF Working Paper No 1820
43 Pages Posted 20 Feb 2018
Camilo E Tovar International Monetary Fund
Tania Mohd Nor International Monetary Fund (IMF)
Date Written January 2018
Abstract
What is the extent of currency diversification in the international monetary system How
hasit evolved over time In this paper we quantify the degree of currency diversification
usingregression methods of currency co-movements to determine the extent to which
nationalcurrencies across the world belong to a reserve currency bloc We then use these
estimates tocalculate the economic size of each currency bloc A key contribution of our paper
is that wequantify the size of the Chinese renminbi bloc Our analysis suggests that the
internationalmonetary system has transitioned from a bi-polar system - consisting of the US
dollar andthe euro - to a tri-polar one that includes the renminbi The dollar bloc is estimated
tocontinue to dominate having the largest share in global GDP (40 percent) followed by
therenminbi (30 percent) and the euro blocs (20 percent) The geographical area of influence
forthe RMB bloc appears to be most evident among the BRICS currencies The British
poundand the Japanese yen blocs appear to play minor roles
Keywords Economic integration Foreign exchange International monetary system
Currency Bloc Internatinal Monetary System International Monetary Arrangements and
Institutions Financial Aspects of Economic Integration Open Economy Macroeconomics
JEL Classification F15 F31 F33 F36 F41 O24
17 The US Gains from Trade Valuation Using the Demand for Foreign Factor Services
by Arnaud Costinot Andres Rodriguez-Clare - 24407 (ITI)
Abstract
About 8 cents out of every dollar spent in the United States is
spent on imports What if because of a wall or some other
extreme policy intervention imports were to remain on the other
side of the US border How much would US consumers be willing to
pay to prevent this hypothetical policy change from taking place
The answer to this question represents the welfare cost from
autarky or equivalently the welfare gains from trade In this
article we discuss how to evaluate these gains using the demand
for foreign factor services The estimates of gains from trade
for the US economy that we review range from 2 to 8 percent of
GDP
httppapersnberorgpapersW24407utm_campaign=ntwamputm_medium=emailamputm_source=ntw
A Dialogue between a Populist and an Economist CEPR Discussion Paper No DP12763
11 Pages Posted 6 Mar 2018
Tito Boeri Bocconi University - Department of Economics Centre for Economic Policy Research (CEPR) IZA Institute
of Labor Economics
Prachi Mishra Government of India - Reserve Bank of India
Chris Papageorgiou International Monetary Fund (IMF) - Research Department
Antonio Spilimbergo
International Monetary Fund (IMF) - Research Department Centre for Economic Policy Research (CEPR)
University of Michigan at Ann Arbor - The William Davidson Institute
Date Written February 2018
Abstract
In this imaginary dialogue a populist and an economist discuss the role of economic shocks to
explain populism A simple correlation between economic shocks and populism is weak
However economic shocks can explain well the phenomenon of populism in countries with
low pre-existent level of trust This is confirmed both at the macro cross-country level and
also by micro evidence obtained from surveys Finally this finding is consistent with the
ideational approach in political science which emphasizes how the populist narrative
opposes the corrupt elite to the virtuous people
Keywords Europe Political parties populism
JEL Classification A10 A12
International Capital Flow Pressures IMF Working Paper No 1830
59 Pages Posted 14 Mar 2018
Linda S Goldberg Federal Reserve Bank of New York National Bureau of Economic Research (NBER)
Signe Krogstrup IMF
There are 3 versions of this paper
Date Written February 2018
Abstract
This paper presents a new measure of capital flow pressures in the form of a recast
ExchangeMarket Pressure index The measure captures pressures that materialize in actual
internationalcapital flows as well as pressures that result in exchange rate adjustments The
formulation istheory-based relying on balance of payments equilibrium conditions and
international assetportfolio considerations Based on the modified exchange market pressure
index the paperalso proposes the Global Risk Response Index which reflects the country-
specific sensitivityof capital flow pressures to measures of global risk aversion For a large
sample of countriesover time we demonstrate time variation in the effects of global risk on
exchange marketpressures the evolving importance of the global factor across types of
countries and thechanging risk-on or risk-off status of currencies
Keywords Exchange Market Pressure Risk aversion Safe haven Capital flows Exchange
Rate Foreign Exchange Reserves Exchange Market Pressure Risk aversion Safe haven
Capital flows Exchange Rate Foreign Exchange Reserves Portfolio Choice General
JEL Classification F23 G11 G20 F32
Sovereign Defaults in Court CEPR Discussion Paper No DP12777
76 Pages Posted 13 Mar 2018
Julian Schumacher European Central Bank (ECB)
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Enderlein Henrik Hertie School of Governance
Date Written March 2018
Abstract
For centuries defaulting governments were immune from legal action by foreign creditors
This paper shows that this is no longer the case Building a dataset covering four decades we
find that creditor lawsuits have become an increasingly common feature of sovereign debt
markets The legal developments have strengthened the hands of creditors and raised the cost
of default for debtors We show that legal disputes in the US and the UK disrupt government
access to international capital markets as foreign courts can impose a financial embargo on
sovereigns The findings are consistent with theoretical models with creditor sanctions and
suggest that sovereign debt is becoming more enforceable We discuss how the threat of
litigation affects debt management government willingness to pay and the resolution of debt
crises
Keywords debt restructuring enforcement government financing sovereign default
JEL Classification F34 G15 H63 K22
Globalization and Income Inequality Revisited CESifo Working Paper Series No 6859
48 Pages Posted 20 Mar 2018
Florian Dorn
CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Clemens Fuest ifo Institute ndash Leibniz Institute for Economic Research at the University of Munich Ludwig-Maximilians-
University Munich Center for Economic Studies (CES)
Niklas Potrafke CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Date Written February 05 2018
Abstract
This paper re-examines the link between globalization and income inequality We use data for
140 countries over the period 1970-2014 and employ an IV approach to deal with the
endogeneity of globalization measures We find that the link between globalization and
income inequality differs across different groups of countries There is a robust positive
relationship between globalization and inequality in the transition countries including China
and most countries of Middle and Eastern Europe In the sample of the most advanced
economies neither OLS nor 2SLS results show any significant positive relationship between
globalization and inequality We conclude that institutions providing income insurance and
education which characterize most advanced economies but are less developed in transition
economies may have moderated effects of globalization on income inequality
Keywords globalization income inequality redistribution instrumental variable estimation
panel econometrics development levels transition economies China
JEL Classification D310 D630 F020 F600 C260 H110 H200
The US Gains from Trade Valuation Using the
Demand for Foreign Factor Services CEPR Discussion Paper No DP12788
34 Pages Posted 20 Mar 2018
Arnaud Costinot University of California San Diego (UCSD) - Department of Economics Massachusetts Institute of
Technology (MIT) - Department of Economics
Andres Rodriguez-Clare Inter-American Development Bank (IDB)
There are 2 versions of this paper
Date Written March 2018
Abstract
About 8 cents out of every dollar spent in the United States is spent on imports What if
because of a wall or some other extreme policy intervention imports were to remain on the
other side of the US border How much would US consumers be willing to pay to prevent this
hypothetical policy change from taking place The answer to this question represents the
welfare cost from autarky or equivalently the welfare gains from trade In this article we
discuss how to evaluate these gains using the demand for foreign factor services The
estimates of gains from trade for the US economy that we review range from 2 to 8 percent of
GDP
A Multidimensional Approach to Trade Policy
Indicators IMF Working Paper No 1832
38 Pages Posted 12 Mar 2018
Diego Cerdeiro International Monetary Fund (IMF)
Rachel Nam International Monetary Fund (IMF)
Date Written February 2018
Abstract
We present and discuss a set of indicators to help assess countries trade policies The
indicators relate to three policy areas - trade in goods trade in services and FDI Given
concerns about the direction of global trade policy we also consider a set of more granular
measures that reflect the evolution of countries policies since the 2008 financial crisis We
propose a simple approach to present the multidimensional aspects of trade policy that by
shedding light on relative openness across areas can facilitate policy discussions In the cross-
section of countries we find a diversity in the type of measures adopted both between and
(since the 2008 financial crisis) within policy areas lending support to the approach based on
multiple indicators The indicators time series suggest that advanced and especially
emerging economies are moving toward more open regimes over time although recently
progress has with some exceptions slowed across the board Lastly our findings also call for
stronger efforts to objectively quantify the different aspects of countries trade regimes More
data both across countries and in terms of policy areas that significantly affect trade are
needed for better-informed policy discussions
Keywords Foreign direct investment Trade policy indicators trade in goods services trade
trade barriers General Country and Industry Studies of Trade
JEL Classification F10 F14
Corporate Indebtedness and Low Productivity
Growth of Italian Firms IMF Working Paper No 1833
47 Pages Posted 12 Mar 2018
Gareth Anderson Bank of England
Mehdi Raissi International Monetary Fund (IMF) - Asia and Pacific Department
Date Written February 2018
Abstract
Productivity growth in Italy has been persistently anemic and has lagged that of the euro area
over the period 1999-2015 while the indebtedness of its corporate sector has increased
Using the ORBIS firm-level database this paper studies the long-term impact of persistent
corporate-debt accumulation on the productivity growth of Italian firms and investigates
whether total factor productivity growthvaries with the level of corporate indebtedness We
employ a novel estimation technique proposed by Chudik Mohaddes Pesaran and Raissi
(2017) to account for dynamics bi-directional feedback effects cross-firm heterogeneity and
cross-sectional dependence arising from unobserved common factors (for example oil price
shocks labor and product market frictions and stance of global financial cycle) Filtering out
the effects of unobserved common factors and controlling for firm specific characteristics we
find significant negative effects of persistent corporate debt build-up on total factor
productivity growth and weak evidence of a threshold level of corporate debt beyond which
productivity growth drops off significantly Our results have strong policy implications for
example the design of the tax system should discourage persistent corporate debt
accumulation and effective and timely frameworks to reduce corporate debt overhangs are
essential
Keywords Productivity Europe Italy Corporate debt dynamic heterogeneous panel
threshold models cross-sectional dependence Models with Panel Data Firm Behavior
Empirical Analysis General
JEL Classification C23 D22 D24 G30
Regulatory Cycles Revisiting the Political Economy of
Financial Crises IMF Working Paper No 188
90 Pages Posted 21 Mar 2018
Jihad C Dagher International Monetary Fund (IMF) - Research Department
There are 2 versions of this paper
Date Written January 2018
Abstract
Financial crises are traditionally analyzed as purely economic phenomena The political
economy of financial booms and busts remains both under-emphasized and limited to isolated
episodes This paper examines the political economy of financial policy during ten of the most
infamous financial booms and busts since the 18th century and presents consistent evidence
of pro-cyclical regulatory policies by governments Financial boomsand risk-taking during
these episodes were often amplified by political regulatory stimuli credit subsidies and an
increasing light-touch approach to financial supervision The regulatory backlash that ensues
from financial crises can only be understood in the context of the deep political ramifications
of these crises Post-crisis regulations do not always survive the following boom The
interplay between politics and financial policy over these cycles deserves further attention
History suggests that politics can be the undoing of macro-prudential regulations
Keywords Political economy Political economy Financial crises Financial Regulation Boom-
Bust Cycles Economic Models of Political Processes Rent-Seeking Elections Legislatures and
Voting Behavior Positive Analysis of Policy-Making and Implementation General
Government Policy and Regulation General
JEL Classification D72 D78 G10 G18 N00 P16
Rationality in Economics Theory and Evidence CESifo Working Paper Series No 6872
26 Pages Posted 21 Mar 2018
Sanjit Dhami University of Leicester - Department of Economics
Ali al-Nowaihi University of Leicester - Department of Economics
Date Written February 12 2018
Abstract
We examine the various senses in which economist use the term ldquorationalityrdquo and then outline
some of the commonly drawn implications and auxiliary assumptions Finally we confront the
implications with the empirical evidence drawing on the insights from the exciting new field
of behavioral economics
Keywords rationality self-regarding preferences efficient markets heuristics optimization
JEL Classification B400
Nudging and Environmental Corporate
Responsibility A Natural Experiment CEIS Working Paper No 426
22 Pages Posted 3 Apr 2018
Leonardo Becchetti University of Rome Tor Vergata - Faculty of Economics
Francesco Salustri University of Rome Tor Vergata - Department of Economics and Finance University of Turin - Department
of Economics and Statistics
Pasquale Scaramozzino University of Rome II - Faculty of Economics University of London - School of Oriental and African Studies
(SOAS) University of London - Centre for Financial and Management Studies (CeFIMS)
Date Written April 3 2018
Abstract
We devise a lsquonudgingrsquo natural experiment to test the impact of a simple form of advertising on
environmentally responsible products withwithout the increase of the responsible product
price We find that the simple use of a small shelf-poster explaining the importance of buying
a green product (withwithout a concurring price increase) generates significant changes in
market shares for some of the product classes for both food and non-food products Part of
the effect is generated by the reduced price elasticity of consumers to the poster-plus-price-
increase treatment
Keywords nudging environmental sustainability randomised field experiment
JEL Classification C93 D12 M14 Q56
11 The Role of Financial Policy
by Roger Farmer - 24498 (EFG ME)
Abstract
I review the contribution and influence of Milton Friedmans 1968
presidential address to the American Economic Association I
argue that Friedmans influence on the practice of central
banking was profound and that his argument in favour of monetary
rules was responsible for thirty years of low and stable
inflation in the period from 1979 through 2009 I present a
critique of Friedmans position that market-economies are
self-stabilizing and I describe an alternative reconciliation of
Keynesian economics with Walrasian general equilibrium theory
from that which is widely accepted today by most neo-classical
economists
httppapersnberorgpapersW24498utm_campaign=ntwamputm_medium=emailamputm_source=ntw
5 Immigrant Entrepreneurship in America Evidence from the Survey of Business Owners 2007 amp 2012
by Sari Pekkala Kerr William R Kerr - 24494 (LS PR)
Abstract
We study immigrant entrepreneurship and firm ownership in 2007
and 2012 using the Survey of Business Owners (SBO) The survival
and growth of immigrant-owned businesses over time relative to
native-founded companies is evaluated by linking the 2007 SBO to
the Longitudinal Business Database (LBD) We quantify the
dependency of the United States as a whole as well as individual
states on the contributions of immigrant entrepreneurs in terms
of firm formation and job creation We describe differences in
the types of businesses started by immigrants and the quality of
jobs created by their firms First-generation immigrants create
about 25 of new firms in the United States but this share
exceeds 40 in some states In addition Asian and Hispanic
second-generation immigrants start about 6 of new firms
Immigrant-owned firms on average create fewer jobs than
native-owned firms but much of this is explained by the industry
and geographic location of the firms Immigrant-owned firms pay
comparable wages conditional on firm traits to native-owned
firms but are less likely to offer benefits
httppapersnberorgpapersW24494utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Effects of Foreign Aid on Refugee Flows CESifo Working Paper Series No 6885
49 Pages Posted 9 Apr 2018
Axel Dreher University of Heidelberg
Andreas Fuchs University of Heidelberg - Alfred Weber Institute for Economics
Sarah Langlotz University of Heidelberg
There are 2 versions of this paper
Date Written February 15 2018
Abstract
This article analyzes whether foreign aid affects the net flows of refugees from recipient
countries Combining refugee data on 141 origin countries over the 1976-2013 period with
bilateral Official Development Assistance data we estimate the causal effects of a countryrsquos
aid receipts on both total refugee flows to the world and flows to donor countries The
interaction of donor-government fractionalization and a recipient countryrsquos probability of
receiving aid provides a powerful and excludable instrumental variable when we control for
country- and time-fixed effects that capture the levels of the interacted variables Although
our results suggest that aid induces recipient governments to encourage the return of their
citizens we find no evidence that aid reduces worldwide refugee outflows or flows to donor
countries in the short term However we observe long-run effects after four three-year
periods which appear to be driven by lagged positive effects of aid on growth
Keywords foreign aid Official Development Assistance migration refugees displaced
people humanitarian crises repatriation policies
JEL Classification F220 F350 F590 H840 O150 O190
The Political Economy of Ideas On Ideas Versus
Interests in Policymaking CEPR Discussion Paper No DP12820
44 Pages Posted 5 Apr 2018
Sharun Mukand University of Warwick - Department of Economics
Dani Rodrik Harvard University - Harvard Kennedy School (HKS) Centre for Economic Policy Research (CEPR)
National Bureau of Economic Research (NBER)
There are 2 versions of this paper
Date Written March 2018
Abstract
We develop a conceptual framework to highlight the role of ideas as a catalyst for policy and
institutional change We make an explicit distinction between ideas and vested interests and
show how they feed into each other In doing so the paper integrates the Keynes-Hayek
perspective on the importance of ideas with the currently more fashionable Stigler-Becker
(in-terests only) approach to political economy We distinguish between two kinds of
ideational politics acircldquo the battle among different worldviews on the efficacy of policy
(worldview politics) versus the politics of victimhood pride and identity (identity politics)
Political entrepreneurs discover identity and policy memes (narratives cues framing) that
shifts beliefs about how the world works or a persons belief of who he is (ie identity) Our
framework identifies a complementarity between worldview politics and identity politics and
illustrates how they may reinforce each other In particular an increase in identity
polarization may be associated with a shift in views about how the world works Furthermore
an increase in income inequality is likely to result in a greater incidence of ideational politics
Finally we show how ideas may not just constrain but also bite the interests that helped
propagate them in the first instance
Should Unemployment Insurance Be Centralized in a
State Union CESifo Working Paper Series No 6898
27 Pages Posted 19 Apr 2018
Robert Fenge University of Rostock - Department of Economics
Max Friese University of Rostock
Date Written February 21 2018
Abstract
This paper compares the decentral organization of unemployment insurance in member
states of a state union with the central organization at the upper unionrsquo level In a model of
two countries the labor force and the firm owners can migrate between the states Labor
markets exhibit unemployment due to trade unionrsquos bargaining about the wage rate In a
decentral scenario the states organize independently unemployment insurance and decide
about the rate on wages contributed to the insurance budget Due to open borders they have
to take account of migration effects However with perfect mobility between the states each
government chooses a socially optimal contribution rate such that workers are fully insured
against unemployment In the central scenario the governments overestimate the costs of
insurance when bargaining about the contribution rate and observing the common insurance
budget of both countries This leads to a less than socially optimal contribution rate
Keywords unemployment insurance policy state union centralization migration
externalities
JEL Classification F660 H770 J650
Paris Climate Agreement and the Global Economy
Winners and Losers World Bank Policy Research Working Paper No 8392
Posted 3 Apr 2018
Muthukumara Mani World Bank
Zekarias Hussein Purdue University
G Badri Narayanan Purdue University - Center for Global Trade Analysis
Deepika Wadhwa India Habitat Centre - Indian Council for Research on International Economic Relations (ICRIER)
Date Written April 2 2018
Abstract
The 2015 Paris Climate Agreement was the first instance of countries adhering to take a
collective action against global warming More than 190 countries came forward and
submitted their contributions in the form of Intended Nationally Determined Contributions
reflective of their ability and capacity to reduce greenhouse gas emissions as each country set
its own targets and actions For some countries it meant a significant decline in their
emissions by 2030 while others like China the United States and India decided on a more
gradual phasing out extending beyond 2030 This paper estimates the economic impacts of
implementation of the Paris Climate Agreement in terms of its implications for welfare gross
domestic product investments and trade for major countries and regions It uses a
computable general equilibrium framework to model global regional and country impacts
The analysis suggests that the economic impacts will be mostly felt in the European Union if
the Paris Agreement is fully implemented The European Union is likely to suffer a welfare
loss of 10 to 15 percent by 2030 Among non-European countries Australia New Zealand
and Mexico will also be affected with an expected welfare loss of about 15 percent Some of
the major emitters such as China and India will experience minimal impacts to their welfare
and the United States will experience a welfare loss of only about 07 by 2030 The sectoral
analysis of production and trade suggests a significant loss to fossil fuelbased sectors while
clean energy sectors can experience significant gains
Keywords International Trade and Trade Rules Energy and Mining Energy and
Environment Energy Demand Global Environment Energy Policies amp Economics Science of
Climate Change Climate Change and Environment Climate Change and Health
Immigrants Residential Choices and Their
Consequences CEPR Discussion Paper No DP12842
59 Pages Posted 12 Apr 2018
Christoph Albert Universitat Pompeu Fabra Students
Joan Monras Sciences Po - Department of Economics Centre for Monetary and Financial Studies (CEMFI)
There are 2 versions of this paper
Date Written April 2018
Abstract
This paper investigates the causes and effects of the spatial distribution of immigrants across
US cities We document that a) immigrants concentrate in large high-wage expensive cities
b) the earnings gap between immigrants and natives is higher in larger more expensive cities
and c) immigrants consume less locally than natives In order to explain these findings we
develop a quantitative spatial equilibrium model in which immigrants consume a fraction of
their income in their countries of origin Thus immigrants care not only about local prices but
also about price levels in their home countries This gives them a comparative advantage
relative to natives for living in high-wage high-price high-productivity cities where they also
accept lower wages than natives These incentives are stronger for immigrants coming from
lower-price index countries of origin We rely on immigrant heterogeneity to estimate the
model With the estimated model we show that current levels of immigration have reduced
economic activity in smaller less productive cities by around 5 percent while they have
expanded it in large productive cities by around 6 percent This has increased total aggregate
output per worker by around 03 percent We also discuss the welfare implications of these
results
Keywords Immigration location choices spatial equilibrium
JEL Classification F22 J31 J61 R11
The Cost of Non-Europe Revisited CEPR Discussion Paper No DP12844
48 Pages Posted 12 Apr 2018
Thierry Mayer Sciences Po
Vincent Vicard Banque de France
Soledad Zignago Banque de France
There are 2 versions of this paper
Date Written April 2018
Abstract
In this paper we quantify the Cost of Non-Europe ie the trade-related welfare gains each
country member has reaped from the European Union Thirty years after the terminology of
Non-Europe was used to give estimates of the gains from further integration we use modern
versions of the gravity model to estimate the trade creation implied by the EU and apply
those to counterfactual exercises where for instance the EU returns to a normal shallow-
type regional agreement or reverts to WTO rules Those scenarios are envisioned with or
without the exit of the United Kingdom from the EU (Brexit) happening which points to
interesting cross-country differences and potential cascade effects in doing and undoing of
trade agreements
Keywords European Union Gravity trade integration
JEL Classification F1
The Political Impact of Immigration Evidence from
the United States CEPR Discussion Paper No DP12848
57 Pages Posted 12 Apr 2018
Anna Maria Mayda
Georgetown University - Department of Economics IZA Institute of Labor Economics
Giovanni Peri University of California Davis - Department of Economics
Walter Steingress Government of Canada - Bank of Canada
Date Written April 2018
Abstract
In this paper we study the impact of immigration to the United States on the vote for the
Republican Party by analyzing county-level data on election outcomes between 1990 and
2010 Our main contribution is to separate the effect of high-skilled and low-skilled
immigrants by exploiting the different geography and timing of the inflows of these two
groups of immigrants We find that an increase in the first type of immigrants decreases the
share of the Republican vote while an inflow of the second type increases it These effects are
mainly due to the local impact of immigrants on votes of US citizens and they seem
independent of the country of origin of immigrants We also find that the pro-Republican
impact of low-skilled immigrants is stronger in low-skilled and non-urban counties This is
consistent with citizens political preferences shifting towards the Republican Party in places
where low-skilled immigrants are more likely to be perceived as competition in the labor
market and for public resources
Keywords Economic and Fiscal Channels Electoral Effects Immigration Republican Party
JEL Classification F22 J61
15 Escaping Import Competition and Downstream Tariffs
by Ana Cecilia Fieler Ann Harrison - 24527 (EEE ITI)
Abstract
We propose and provide evidence for a new source of gains from
trade Firms invest in product differentiation to escape import
competition In the data and in the model these investments are
associated with increases in measured productivity introduction
of new goods and shifts to skill-intensive sectors Investment
in differentiation downstream leads upstream firms to also
invest in differentiation For China these downstream tariff
reductions lead to big increases in measured productivity for
upstream suppliers The effect on measured productivity is
larger for upstream than for downstream firms and we explain
this difference theoretically through heterogeneous changes in
markups
httppapersnberorgpapersW24527utm_campaign=ntwamputm_medium=emailamputm_source=ntw
20 The Production of Cognitive and Non-cognitive Human Capital in the Global Economy
by Chong Xiang Stephen Yeaple - 24524 (ITI)
Abstract
A countrys welfare depends on its ability to accumulate
cognitive and noncognitive human capital However we do not
fully understand what makes some countries successful at
producing human capital and even struggle with measurement eg
international test scores are informative about the cognitive
dimension but neglect the non-cognitive dimension In this
paper we develop a multi-country open-economy
general-equilibrium framework in which countries ability to turn
resources into human capital along the cognitive and
non-cognitive dimensions is revealed by the endogenous
educational and occupational choices of its citizens and their
subsequent performance on international exams Our model allows
us to estimate countries underlying productivities of cognitive
and non-cognitive human capital We find that high test scores
do not necessarily imply high cognitive productivities (eg
Switzerland Hong Kong) and that many countries with low test
scores have high non-cognitive productivities (eg the US and
UK)
We then aggregate over these two dimensions to construct a single
educational quality index and illustrate its intuition using an
iso-education-quality curve We use our model to decompose
variation in output per capita across countries into a component
involving the educational quality index and another involving
output TFP This exact decomposition shows that the differences
in cognitive and noncognitive productivities across countries
have large implications for differences in output per worker
These results help quantify the potential payoffs of education
policies and clarify their objective eg excessive attention
to test scores may decrease aggregate output
International trade plays an important role in our model because
the gains from trade help to compensate a country for uneven
productivity across human capital types In counterfactual
exercises we show that if barriers to trade are completely
eliminated we would obtain a very different
iso-education-quality curve This implies large improvements of
overall education quality and large gains from trade for the
countries with strong comparative advantages in producing
cognitive (eg S Korea would gain 301 to 441 of its
output) or non-cognitive human capital (eg the Netherlands
would gain 188 to 556)
httppapersnberorgpapersW24524utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Il Contributo Della Demografia Alla Crescita
Economica Duecento Anni Di ldquoStoriardquo Italiana (The
Contribution of Demography to Italys Economic
Growth A Two-Hundred-Year-Long Story) Bank of Italy Occasional Paper No 431
37 Pages Posted 20 Apr 2018
Federico Barbiellini Amidei Bank of Italy
Matteo Gomellini Bank of Italy
Paolo Piselli Bank of Italy
Date Written March 28 2018
Abstract
Italian Abstract Questo lavoro esamina il contributo della demografia alla crescita
economica confrontando lrsquoItalia del passato quella di oggi e quella che vivremo in futuro
Attraverso una scomposizione contabile della crescita del PIL e del PIL pro capite si mostra
come le modifiche nella struttura per etagrave della popolazione abbiano prodotto nel passato piugrave
lontano un demographic dividend positivo Al contrario negli ultimi venticinque anni e con
ogni probabilitagrave nel futuro la demografia ha dato e daragrave un contributo diretto sensibilmente
negativo alla crescita economica I flussi migratori previsti limiteranno lrsquoampiezza di tale
contributo negativo ma non saranno in grado di invertirne il segno Nel lavoro si valutano tre
sviluppi potenzialmente indotti dagli stessi fattori demografici o da azioni di policy ndash
lrsquoestensione della vita lavorativa lrsquoaumento della partecipazione femminile al mercato del
lavoro e lrsquoincremento nei livelli di istruzione ndash che potranno contrastare i puri effetti contabili
legati allrsquoevoluzione nella struttura per etagrave
English Abstract This paper examines the contribution of demography to economic growth
in Italy by comparing the countryrsquos past present and future We use an accounting framework
to decompose GDP and per capita GDP growth and we show how changes in the age structure
of the population produced a positive demographic dividend in the past By contrast in the
last twenty-five years and arguably in the future demography has made and will continue to
make a direct negative contribution to economic growth Expected migration flows will
noticeably limit the extent of this negative contribution but they will not be able to reverse its
sign We analyze three possible developments potentially driven by demography itself or
fostered by policy actions ndash longer working lives an increase in female labour market
participation and higher education levels ndash which could counteract the pure negative
accounting effects produced by the evolution of the age structure
Note Downloadable document is in Italian
Keywords economic history demography demographic dividend forecasts
JEL Classification J11 N30
The Effects of Cash Transfers on Adult Labor Market
Outcomes World Bank Policy Research Working Paper No 8404
29 Pages Posted 16 Apr 2018
Sarah Baird George Washington University - School of Public Health and Health Services (SPHHS)
David J McKenzie World Bank - Development Research Group (DECRG) IZA Institute of Labor Economics
Berk Ozler World Bank - Development Economics Research Group (DECRG)
Date Written April 12 2018
Abstract
The basic economic model of labor supply has a very clear prediction of what should be
expected when an adult receives an unexpected cash windfall they should work less and earn
less This intuition underlies concerns that many types of cash transfers ranging from
government benefits to migrant remittances will undermine work ethics and make recipients
lazy This paper discusses a range of additional channels to this simple labor-leisure trade-off
that can make this intuition misleading in low- and middle-income countries including
missing markets price effects from conditions attached to transfers and dynamic and general
equilibrium effects The paper uses this as a lens through which to examine the evidence on
the adult labor market impacts of a wide range of cash transfer programs government
transfers charitable giving and humanitarian transfers remittances cash assistance for job
search cash transfers for business start-up and bundled interventions Overall cash transfers
that are made without an explicit employment focus (such as conditional and unconditional
cash transfers and remittances) tend to result in little to no change in adult labor The main
exceptions are transfers to the elderly and some refugees who reduce work In contrast
transfers made for job search assistance or business start-up tend to increase adult labor
supply and earnings with the likely main channels being the alleviation of liquidity and risk
constraints
Keywords Economic Assistance Disability Services amp Transfers to Poor Access of Poor to
Social Services Employment and Unemployment Labor Markets Rural Labor Markets Health
Care Services Industry
Globalisation and Urban Polarisation CEPR Discussion Paper No DP12877
24 Pages Posted 23 Apr 2018
Anthony J Venables University of Oxford Centre for Economic Policy Research (CEPR)
Date Written April 2018
Abstract
External trade affects the internal spatial structure of an economy promoting growth in some
cities or regions and decline in others Internal adjustment to these changes has often proved
to be extremely slow and painful This paper combines elements of urban and international
economics to draw out the implications of trade shocks for city performance Localisation
economies in production of internationally tradable goods mean that cities divide into two
types those producing tradables and those specialising in sectors producing just for the
national market (non-tradables) Negative trade shocks (and possibly also some positive
ones) reduce the number of cities engaged in tradable production increasing the number
producing just non-tradables This has a negative effect across all non-tradable cities which
lose population and land value Remaining tradable cities boom gaining population and land
value Depending on the initial position city size dispersion may increase this raising the
share of urban land-rents in national income and reducing the share of labour
Keywords de-industrialisation globalisation Polarisation urban
JEL Classification F12 R11 R12
Place-Based Policies for Development World Bank Policy Research Working Paper No 8410
75 Pages Posted 24 Apr 2018
Gilles Duranton University of Pennsylvania - Real Estate Department
Anthony J Venables University of Oxford Centre for Economic Policy Research (CEPR)
There are 3 versions of this paper
Date Written April 17 2018
Abstract
Many development policies such as placement of infrastructure or local economic
development schemes are place-based Such policies are generally intended to stimulate
private sector investment and economic growth in the treated place and as such they are
difficult to appraise and evaluate This paper sets out a framework for analyzing the effects of
such policies and assessing their social value It then reviews the literature on place-based
policies in the contexts of transport improvements economic corridors special economic
zones lagging regions and urban policies
Keywords Transport Services Labor Markets Urban Governance and Management Urban
Housing and Land Settlements Municipal Management and Reform Urban Housing
Macroeconomic Management Economic Forecasting Governance Diagnostic Capacity
Building Textiles Apparel amp Leather Industry Common Carriers Industry Food amp Beverage
Industry Business Cycles and Stabilization Policies Plastics amp Rubber Industry General
Manufacturing Construction Industry Pulp amp Paper Industry
Evidence on Finance and Economic Growth ECB Working Paper No 2115 ISBN 978-92-899-3031-4
79 Pages Posted 8 Dec 2017
Alexander A Popov European Central Bank (ECB)
Date Written December 6 2017
Abstract
This paper reviews and appraises the body of empirical research on the association between
financial markets and economic growth that has accumulated over the past quarter-century
The bulk of the historical evidence suggests that financial development affects economic
growth in a positive monotonic way yet recent research endeavors have provided useful and
important qualifications of this conventional wisdom Moreover the proliferation of micro-
level datasets has enabled researchers to study more precise links between theory and
measurement The paper highlights the mechanisms through which financial markets benefit
society as well as the channels through which finance can slow down long-term growth
Keywords financial markets growth
JEL Classification O4 G1
Why Has Economic Growth Slowed When Innovation Appears to be Accelerating
by Robert J Gordon - 24554 (DAE EFG PR)
Abstract
Measured between quarters with identical unemployment rates U
S economic growth slowed by more than half from 32 percent per
year during 1970-2006 to only 14 percent during 2006-16 and
only half of this GDP growth slowdown is accounted for diminished
productivity growth The paper starts from the proposition that
GDP growth matters not just productivity growth because slower
GDP growth provides fewer resources to address the nations
problems including faltering education aging infrastructure
and the looming shortfall in funding for Social Security and
Medicare and it also implies lower net investment and a reduced
rate at which new capital can embody the latest technology
The paper documents the contribution to slower GDP growth of the
separate components of demography -- fertility mortality life
expectancy and immigration Particular emphasis is placed on
the interaction between rising inequality and the slower secular
rise of life expectancy in the US compared to other developed
countries both in the form of a large gap in life expectancy
between rich and poor and the stagnation of life expectancy for
the lowest income quintile Further contributions to slowing
growth are made by a decline in the population share of both
legal and illegal immigration and a turnaround from rising to
declining labor force participation Rising inequality creates a
gap between the growth of average real per-capita income relative
to that of median real income and alternative measures of the
evolution of this gap are compared and assessed
Causes of declining productivity growth begin with the slowdown
in the rate of increase of educational attainment resulting from
the interplay of demand and supply factors including the
flattening of the college wage premium and the rising relative
price of college education Why did productivity growth decline
after 2006 despite an increase in the rate at which new US
patents were issued in 2006-16 compared to earlier decades Part
of the slowdown is attributed to the maturity of the IT
revolution which also helps to explain the trajectory of the
college wage premium Aspects of the productivity growth
slowdown include the declining productivity of research workers
diminishing returns to drug innovation and the evolutionary
rather than revolutionary impact of robots and artificial
intelligence which are replacing workers slowly and only in a
minority of industrial sectors throughout the economy Also
considered are alternative explanations of slower productivity
growth including low investment and mismeasurement
httppapersnberorgpapersW24554utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Childbearing Postponement its Option Value and the
Biological Clock CEPR Discussion Paper No DP12884
48 Pages Posted 23 Apr 2018
David de la Croix Catholic University of Louvain (UCL) - Institut de Recherches Economiques et Sociales (IRES) Catholic
University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)
Aude Pommeret Universiteacute de Savoie
Date Written April 2018
Abstract
Having children is like investing in a risky project Postponing birth is like delaying an
irreversible investment It has an option value which depends on its costs and benefits and in
particular on the additional risks motherhood brings We develop a parsimonious theory of
childbearing postponement along these lines We derive its implications for asset
accumulation income optimal age at first birth and childlessness The structural parameters
are estimated by matching the predictions of the model to data from the National Longitudinal
Survey of Youth NLSY79 The uncertainty surrounding income growth is shown to increase
with childbearing and this increase is stronger for more educated people This effect alone
can explain why the age at first birth and the childlessness rate both increase with education
We use the model to simulate two hypothetical policies Providing free medically assisted
reproduction technology does not affect the age at first birth much but lowers the
childlessness rate Insuring mothers against income risk is powerful in lowering the age at
first birth
Keywords Assisted reproduction technology Career uncertainty Late parenthood Real
option
JEL Classification D91 J13
Economic Upgrading Through Global Value Chain
Participation Which Policies Increase the Value
Added Gains World Bank Policy Research Working Paper No 8007
45 Pages Posted 1 May 2018
Victor Kummritz World Trade Organization (WTO) Graduate Institute of International and Development Studies (IHEID)
Daria Taglioni European Central Bank (ECB) - Directorate General Economics
Deborah E Winkler World Bank
Date Written March 16 2017
Abstract
The emergence of global value chains has opened up new ways to achieve development and
industrialization However new evidence shows that not all countries have gained from
participating in global value chains and that country-specific characteristics matter for
economic upgrading in global value chains This paper uses two panel data sets of developing
and industrialized countries at the sectoral level to relate global value chain participation as a
buyer and seller to domestic value added These are combined with a wide range of policy
measures at the country level that can play a role in economic upgrading through global value
chains by targeting global value chain integration or the quality and conditions of input and
output factors First the study finds that global value chain integration increases domestic
value added especially on the selling side which holds across all income levels Second the
results highlight the importance of policy for economic upgrading through global value chain
integration Although the study cannot claim causal evidence all the assessed policy areas are
consistently shown to mediate the effects of global value chains and magnify the gains for
domestic value added Third a detailed analysis shows that several policy areas mediate the
gains from global value chains more through integration as a seller Finally the study
observes that many of the results are driven by high- and upper-middle-income countries
Keywords International Trade and Trade Rules Labor Markets Rural Labor Markets Food amp
Beverage Industry Construction Industry Business Cycles and Stabilization Policies General
Manufacturing Common Carriers Industry Textiles Apparel amp Leather Industry Pulp amp Paper
Industry Plastics amp Rubber Industry Global Environment
Job Vacancies and Immigration Evidence from Pre- and Post-Mariel Miami
by Jason Anastasopoulos George J Borjas Gavin G Cook Michael Lachanski - 24580 (LS)
Abstract
How does immigration affect labor market opportunities in a
receiving country This paper contributes to the voluminous
literature by reporting findings from a new (but very old) data
set Beginning in 1951 the Conference Board constructed a
monthly job vacancy index by counting the number of help-wanted
ads published in local newspapers in 51 metropolitan areas We
use the Help-Wanted Index (HWI) to document how immigration
changes the number of job vacancies in the affected labor
markets Our analysis begins by revisiting the Mariel episode
The data reveal a marked decrease in Miamis HWI relative to many
alternative control groups in the first 4 or 5 years after
Mariel followed by recovery afterwards We find a similar
initial decline in the number of job vacancies after two other
supply shocks that hit Miami over the past few decades the
initial wave of Cuban refugees in the early 1960s as well as the
1995 refugees who were initially detoured to Guantanamo Bay We
also look beyond Miami and estimate the generic spatial
correlations that dominate the literature correlating changes in
the HWI with immigration across metropolitan areas These
correlations consistently indicate that more immigration is
associated with fewer job vacancies The trends in the HWI seem
to most strongly reflect changing labor market conditions for
low-skill workers (in terms of both wages and employment) and a
companion textual analysis of help-wanted ads in Miami before and
after the Mariel supply shock suggests a slight decline in the
relative number of low-skill job vacancies
httppapersnberorgpapersW24580utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Somatic Distance Cultural Affinities Trust and Trade CEPR Discussion Paper No DP12895
21 Pages Posted 1 May 2018
Jacques Melitz National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and
Statistics (CREST) Centre for Economic Policy Research (CEPR)
Farid Toubal Ecole Normale Superieure de Cachan (ENS) - Departement of Economics ans Management National
Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics
(CREST) Centre dEtudes Prospectives et dInfo Internationales (CEPII)
Date Written April 2018
Abstract
Somatic distance or differences in physical appearance proves to be extremely important in
the gravity model of bilateral trade in conformity with results in other areas of economics and
outside of it in the social sciences This is also true quite independently of survey evidence
about bilateral trust These findings are obtained in a sample of the 15 members of the
European Economic Association in 1996 Robustness tests also show that somatic distance
has a more reliable influence on bilateral trade than the other cultural variables The article
finally discusses the interpretation and the breadth of application of these results
Keywords Bilateral Trade Cultural interactions Language Somatic distance Trust
The Paradox of Global Thrift CEPR Discussion Paper No DP12894
59 Pages Posted 1 May 2018
Luca Fornaro Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) Barcelona Graduate
School of Economics (Barcelona GSE)
Federica Romei LUISS Guido Carli University
Date Written April 2018
Abstract
This paper describes a paradox of global thrift Consider a world in which interest rates are
low and monetary policy cannot stabilize the economy because it is frequently constrained by
the zero lower bound Now imagine that governments complement monetary policy with
prudential financial and fiscal policies because they perceive that limiting private and public
borrowing during booms will help stabilize the economy by reducing the risk of financial
crises and by creating space for fiscal interventions during busts We show that these policies
while effective from the perspective of individual countries might backfire if applied on a
global scale In a financially integrated world in fact prudential policies generate a rise in the
global supply of savings or equivalently a drop in global aggregate demand In turn weaker
global aggregate demand depresses output in countries whose monetary policy is constrained
by the zero lower bound Due to this effect the world might paradoxically experience a fall in
output and welfare following the implementation of well-intended prudential policies
Keywords aggregate demand externalities Capital Flows current account policies fiscal
policies international cooperation Liquidity traps macroprudential policies zero lower
bound
JEL Classification E32 E44 E52 F41 F42
Multihorizon Currency Returns and Purchasing
Power Parity CEPR Discussion Paper No DP12893
59 Pages Posted 1 May 2018
Mikhail Chernov UCLA Anderson
Drew Creal University of Chicago - Booth School of Business - Econometrics and Statistics
There are 2 versions of this paper
Date Written April 2018
Abstract
Exposures of expected future depreciation rates to the current interest rate differential
violate the UIP hypothesis in a distinctive pattern that is a non-monotonic function of horizon
Conversely forward risk-adjusted expected depreciation rates are monotonic We explain the
two patterns by incorporating the weak form of PPP into a no-arbitrage joint model of the
depreciation rate inflation differential domestic and foreign yield curves Short-term
departures from PPP generate the first pattern The risk premiums for these departures
generate the second pattern
Keywords affine term structure model cointegration multiple horizons purchasing power
parity uncovered interest parity
Networks and Trade CEPR Discussion Paper No DP12891
33 Pages Posted 1 May 2018
Andrew B Bernard Tuck School of Business at Dartmouth National Bureau of Economic Research (NBER) Centre for
Economic Policy Research (CEPR)
Andreas Moxnes University of Oslo - Department of Economics Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
There are 2 versions of this paper
Date Written April 2018
Abstract
Trade occurs between firms both across borders and within countries and the vast majority
of trade transactions includes at least one large firm with many trading partners This paper
reviews the literature on firm-to-firm connections in trade A growing body of evidence
coming from domestic and international transaction data has established empirical
regularities which have inspired the development of new theories emphasizing firm
heterogeneity among both buyers and suppliers in production networks Theoretical work
has considered both static and dynamic matching environments in a framework of many-to-
many matching The literature on trade and production networks is at an early stage and
there are a large number of unanswered empirical and theoretical questions
Keywords International Trade offshoring production networks productivity
JEL Classification F10 F12 F14 L11 L21
One More Time What are Institutions and How Do
They Change World Bank Policy Research Working Paper No 8422
39 Pages Posted 1 May 2018 Last revised 3 May 2018
Roumeen Islam World Bank
Date Written April 30 2018
Abstract
This paper defines institutions presents their basic characteristics and discusses forces for
institutional change It draws on a wealth of research and study by scholars in different fields
and follows from the flagship 2002 World Development Report on this topic including
relevant new research since then that illuminates key issues The definition of institutions
includes rules and organizations (specifically rules guiding peoples actions) The paper
emphasizes the diversity of institutions that can effectively perform similar functions the
arguments for and against standardization of institutions across specific transactions or
groups and the implications of these choices It highlights the relationship between informal
and formal institutions It discusses forces for institutional change influencing all economies
ranging from external shocks (whether they be economic or weather-related shocks or driven
by wars) to internal dynamics such as those following population growth or compositional
changes and those following technological innovations Many of these forces have a two-way
relationship with institutions they are affected by them and in turn influence whether and
when they change A special section is devoted to institutional transplants and their
effectiveness The paper concludes with a discussion of whether and under what conditions
institutional change can be externally directed and the lessons for aid donors
Keywords International Trade and Trade Rules Social Policy Common Property Resource
Development Legal Products Regulatory Regimes Legislation Legal Reform Judicial System
Reform Public Sector Economics Taxation amp Subsidies Public Finance Decentralization and
Poverty Reduction Economic Adjustment and Lending Macro-Fiscal Policy Educational
Sciences Competitiveness and Competition Policy
Globalization Government Popularity and the Great
Skill Divide
CEPR Discussion Paper No DP12897
56 Pages Posted 1 May 2018
Cevat Giray Aksoy European Bank for Reconstruction and Development IZA Institute of Labor Economics
Sergei M Guriev Sciences Po Centre for Economic Policy Research (CEPR) European Bank for Reconstruction and
Development (EBRD)
Daniel Treisman University of California Los Angeles (UCLA) - Department of Political Science
There are 2 versions of this paper
Date Written April 2018
Abstract
How does international trade affect the popularity of governments and leaders We provide
the first large-scale systematic evidence that the divide between skilled and unskilled
workers worldwide is producing corresponding differences in the response of political
preferences to trade shocks Using a unique data set including 118 countries and nearly
450000 individuals we find that growth in high skill intensive exports (of goods and
services) increases approval of the leader and incumbent government among skilled
individuals Growth in high skill intensive imports has the opposite effect There is no effect
on political approval among the unskilled To identify exogenous variation in international
trade we exploit the time-varying effects of air and sea distances in bilateral trade flows Our
findings suggest that the political effects of international trade differ with skill intensity and
that skilled individuals respond differently from their unskilled counterparts to trade shocks
Keywords International trade political approval political polarization skill intensity of
trade
Migratory Pressures in the Long Run International
Migration Projections to 2050 Banco de Espana Article 3817
9 Pages Posted 3 Jan 2018
Rodolfo G Campos Banco de Espantildea
Date Written December 5 2017
Abstract
This article presents bilateral international migration projections to 2050 based on a new
methodology that takes into account the population growth both in countries of origin and
countries of destination To do this the methodology used by Hanson and McIntosh (2016) to
project the future migratory flows to a sample of OECD countries is generalised to all
countries worldwide The United Nations population growth forecasts are used as a basis for
projecting future migratory flows The main findings of the exercise indicate that the number
of migrants is projected to increase from 28 of the world population in 2010 to around
35 in 2050 as a result of the strong increase in migrants from India and sub-Saharan Africa
Against this background and despite the slowdown in demographic growth in Latin America
the United States is expected to continue to receive high net immigration flows and to remain
the country with the highest stock of immigrants globally while continental Europe will post
larger net immigration flows
Immigration and Electoral Support for the Far-Left
and the Far-Right CESifo Working Paper Series No 6918
53 Pages Posted 7 May 2018
Anthony Edo Paris School of Economics (PSE)
Yvonne Giesing CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Jonathan Oumlztunc Barcelona Graduate School of Economics (Barcelona GSE)
Panu Poutvaara Ludwig Maximilian University of Munich - Faculty of Economics CESifo (Center for Economic Studies and
Ifo Institute) - Ifo Institute CESifo (Center for Economic Studies and Ifo Institute) CReAM IZA Institute of
Labor Economics
Date Written March 05 2018
Abstract
Immigration has become one of the most divisive political issues in the United States the
United Kingdom France and several other Western countries We estimate the impact of
immigration on voting for far-left and far-right candidates in France using panel data on
presidential elections from 1988 to 2017 To derive causal estimates we instrument more
recent immigration flows by past settlement patterns in 1968 We find that immigration
increases support for far-right candidates and has no robust effect on far-left voting The
increased support for far-right candidates is driven by low educated immigrants from non-
Western countries
Keywords voting immigration political economy
JEL Classification D720 F220 J150 P160
Institutions Trade and Development A Quantitative
Analysis CESifo Working Paper Series No 6920
64 Pages Posted 7 May 2018
Cosimo Beverelli World Trade Organization (WTO)
Alexander Keck World Trade Organization (WTO)
Mario Larch University of Bayreuth - Faculty of Law Business and Economics University of Bayreuth CESifo Ifo
Institute for Economic Research GEP at the University of Nottingham
Yoto Yotov Drexel University - Department of Economics amp International Business
Date Written March 05 2018
Abstract
We propose and apply methods to quantify the impact of national institutions on international
trade and development We are able to identify the direct impact of country-specific
institutions on international trade within the structural gravity framework Our approach
naturally addresses the prominent issue of endogenous institutions The empirical analysis
offers robust evidence that stronger institutions promote trade A counterfactual analysis
reveals that the changes in institutional quality in the poor countries in our sample between
1996 and 2006 have had via their impact on imports from rich countries significant and
heterogeneous real GDP effects varying between -5 and 5 percent Our methods are readily
applicable to identifying the impact of a wide range of country-specific variables on
international trade
Keywords institutional quality international trade development structural gravity
JEL Classification F130 F140 F160
5 Inference in Structural Vector Autoregressions When the Identifying Assumptions are Not Fully Believed Re-
evaluating the Role of Monetary Policy in Economic Fluctuations
by Christiane Baumeister James D Hamilton - 24597 (EFG ME)
Abstract
Reporting point estimates and error bands for structural vector
autoregressions that are only set identified is a very common
practice However unless the researcher is persuaded on the
basis of prior information that some parameter values are more
plausible than others this common practice has no formal
justification When the role and reliability of prior
information is defended Bayesian posterior probabilities can be
used to form an inference that incorporates doubts about the
identifying assumptions We illustrate how prior information can
be used about both structural coefficients and the impacts of
shocks and propose a new distribution which we call the
asymmetric t distribution for incorporating prior beliefs about
the signs of equilibrium impacts in a nondogmatic way We apply
these methods to a three-variable macroeconomic model and
conclude that monetary policy shocks were not the major driver of
output inflation or interest rates during the Great Moderation
httppapersnberorgpapersW24597utm_campaign=ntwamputm_medium=emailamputm_source=ntw
11 The Political Impact of Immigration Evidence from the United States
by Anna Maria Mayda Giovanni Peri Walter Steingress - 24510 (ITI POL)
Abstract
In this paper we study the impact of immigration to the United
States on the vote for the Republican Party by analyzing
county-level data on election outcomes between 1990 and 2010
Our main contribution is to separate the effect of high-skilled
and low-skilled immigrants by exploiting the different geography
and timing of the inflows of these two groups of immigrants We
find that an increase in the first type of immigrants decreases
the share of the Republican vote while an inflow of the second
type increases it These effects are mainly due to the local
impact of immigrants on votes of US citizens and they seem
independent of the country of origin of immigrants We also find
that the pro-Republican impact of low-skilled immigrants is
stronger in low-skilled and non-urban counties This is
consistent with citizens political preferences shifting towards
the Republican Party in places where low-skilled immigrants are
more likely to be perceived as competition in the labor market
and for public resources
httppapersnberorgpapersW24510utm_campaign=ntwamputm_medium=emailamputm_source=ntw
23 The Impact of Exports on Innovation Theory and Evidence
by Philippe Aghion Antonin Bergeaud Matthieu Lequien Marc J Melitz - 24600 (EFG ITI)
Abstract
This paper investigates the effect of export shocks on
innovation On the one hand a positive shock increases market
size and therefore innovation incentives for all firms On the
other hand it increases competition as more firms enter the
export market This in turn reduces profits and therefore
innovation incentives particularly for firms with low
productivity Overall the positive impact of the export shock on
innovation is magnified for high productivity firms whereas it
may negatively affect innovation in low productivity firms We
test this prediction with patent customs and production data
covering all French manufacturing firms To address potential
endogeneity issues we construct firm-level export proxies which
respond to aggregate conditions in a firms export destinations
but are exogenous to firm-level decisions We show that
patenting robustly increases more with export demand for
initially more productive firms This effect is reversed for the
least productive firms as the negative competition effect
dominates
httppapersnberorgpapersW24600utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Sovereign Defaults in Court CESifo Working Paper Series No 6931
75 Pages Posted 8 May 2018
Julian Schumacher European Central Bank (ECB)
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Enderlein Henrik Hertie School of Governance
There are 3 versions of this paper
Date Written March 08 2018
Abstract
For centuries defaulting governments were immune from legal action by foreign creditors
This paper shows that this is no longer the case Building a dataset covering four decades we
find that creditor lawsuits have become an increasingly common feature of sovereign debt
markets The legal developments have strengthened the hands of creditors and raised the cost
of default for debtors We show that legal disputes in the US and the UK disrupt government
access to international capital markets as foreign courts can impose a financial embargo on
sovereigns The findings are consistent with theoretical models with creditor sanctions and
suggest that sovereign debt is becoming more enforceable We discuss how the threat of
litigation affects debt management government willingness to pay and the resolution of debt
crises
Keywords sovereign default enforcement government financing debt restructuring
JEL Classification F340 G150 H630 K220
ECB Monetary Policy and the Euro Exchange Rate Bank of Italy Temi di Discussione (Working Paper) No 1172
54 Pages Posted 14 May 2018
Martina Cecioni Bank of Italy
Date Written May 3 2018
Abstract
The paper provides empirical evidence on the effects of ECB conventional and unconventional
monetary policy on the euro exchange rate focusing on the period from January 2013 to
September 2017 Innovations to conventional and unconventional monetary policies are
identified through changes in respectively short- and long-term interest rates immediately
after Governing Council meetings Both types of measures contributed to the depreciation of
the euro from mid-2014 surprises associated with conventional measures had a stronger and
more persistent effect than those associated with unconventional ones Time-varying
estimates of the effects of conventional surprises since 1999 show that the responsiveness of
exchange rates to monetary news increased markedly from 2013 State-dependence analysis
finds that the exchange rate became more sensitive to monetary policy when the ECB adopted
a policy of negative interest rates and when conventional and unconventional monetary
surprises moved in the same direction
Keywords unconventional monetary policy exchange rates European Central Bank
JEL Classification E52 E58 F31
The ECBs Fiscal Policy
by Hans-Werner Sinn - 24613 (ME)
Abstract
While the ECB helped mitigate the euro crisis in the aftermath of
Lehman it has stretched its monetary mandate and moved into
fiscal territory This text describes and summarizes the crucial
role played by the ECB in the intervention spiral resulting from
its bid to manage the crisis It also outlines ongoing
competitiveness problems in southern Europe discusses the
so-called austerity policy of the Troika comments on QE and
presents two alternative paths for the future development of
Europe
httppapersnberorgpapersW24613utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Real Convergence in the Euro Area A Long-Term
Perspective ECB Occasional Paper No 203 ISBN 978-92-899-2865-6
102 Pages Posted 5 Dec 2017
Juan Luis Diaz del Hoyo European Central Bank (ECB)
Ettore Dorrucci European Central Bank (ECB)
Frigyes Ferdinand Heinz European Central Bank (ECB)
Sona Muzikarova European Central Bank (ECB)
Date Written December 1 2017
Abstract
In the euro area there is mixed evidence that the GDP per capita of lower-income economies
has been catching up with that of higher-income economies since the start of monetary union
The significant real convergence performance of some of the most recent members contrasts
with that of the economies of southern Europe which have not met expectations However
attributing all the blame for this outcome to the introduction of the single currency simply
misses the point By taking a ldquolong viewrdquo and reviewing the evidence since the 1960s this
paper shows that certain member countries began to face a ldquonon-convergence traprdquo long
before the euro years We also provide stylised facts on (i) the central role of total factor
productivity in driving real convergence in the euro area over time alongside other factors
and (ii) the crucial interaction of real convergence with ldquoMaastricht convergencerdquo and
institutional quality the other two key components of sustainable economic convergence We
conclude that it is critical that the euro area countries facing convergence challenges enhance
the resilience of their economic structures by improving the relevant institutions and
governance
Keywords sustainable economic convergence real convergence nominal convergence GDP
per capita Maastricht convergence criteria institutional quality labour productivity total
factor productivity Five Presidentsrsquo Report Reflection Paper on the Deepening of EMU
JEL Classification E01 F15 J11 O11 O43 O47 O52 O57
Monetary Policy Transmission in the Eastern
Caribbean Currency Union IMF Working Paper No 1870
31 Pages Posted 22 May 2018
Alla Myrvoda International Monetary Fund (IMF)
Julien P M Reynaud International Monetary Fund (IMF) Universiteacute Paris I Pantheacuteon-Sorbonne
Date Written March 2018
Abstract
This paper empirically investigates international and domestic monetary policy transmission
mechanisms in the Eastern Caribbean Currency Union (ECCU) We assess interest rate pass-
through of both the US policy rate and the ECCU minimum saving deposit rate (MSR) into
domestic interest rates through the interest rate channel While economic theory suggests
that the international pass-through should be high in small open economies with fixed
exchange rates and open capital accounts our findings based on regression analysis point to
a low long-run pass-through coefficient of the US interest rate The domestic transmission
channel however is found to operate through changes in the MSR The results hold for
different interest rates (deposit and lending) and are supported by survey-based findings
Keywords Asia and Pacific Antigua and Barbuda Dominica Saint Kitts and Nevis Saint
Lucia Saint Vincent and the Grenadines Grenada Western Hemisphere monetary policy
transmission interest rate pass-through ECCU monetary policy transmission interest rate
pass-through ECCU General Monetary Policy (Targets Instruments and Effects)
JEL Classification E43 E50 E52 F31 F33 F36 O54
On the Impact of Structural Reforms on Output and
Employment Evidence from a Cross-Country Firm-
Level Analysis IMF Working Paper No 1873
36 Pages Posted 22 May 2018
Luiza Antoun de Almeida International Monetary Fund (IMF)
Vybhavi Balasundharam University of Michigan at Ann Arbor
Date Written April 2018
Abstract
This paper analyzes the effects of selected structural reforms on output and employment in
the short and medium term It uses a comprehensive cross-country firm-level dataset
covering both advanced and emerging market economies over the period 2003-2014 In line
with previous studies it finds that structural reforms have in general a positive impact on
output and employment in the medium term Furthermore the paper also assesses whether
the impact of structural reforms varies with firm-specific characteristics such as size
leverage profitability and sector We find evidence that firm characteristics do influence the
effectiveness of structural reforms These findings have relevant policy implications as they
help policymakers tailor the design of structural reforms to maximize their payoffs taking
into account their heterogeneous impact on firms
Keywords Fiscal reforms Cross-country analysis Potential output Employment Developed
countries Emerging markets structural reforms firm-level data Orbis dataset potential
growth
JEL Classification L51 D04 D22
Production Integration in the European Union CESifo Working Paper Series No 6944
34 Pages Posted 17 May 2018
Hakan Nordstrom Swedish Board of Trade
Harry Flam Stockholm University - Institute for International Economic Studies (IIES) CESifo (Center for Economic
Studies and Ifo Institute)
Date Written March 21 2018
Abstract
Measured by trade in intermediate inputs economic integration has increased between 2000
and 2014 between members of the European Union and even more with non-members
Integration is negatively related to economic size and positively to the number of years as a
member Germany is the largest hub in the production network and the centre of gravity has
moved eastward Older member states are increasingly exporting service inputs and new
member states primary and manufacturing inputs Wages are increasing faster in countries
with low initial wages indicating wage convergence as a result of production integration
Keywords global value chains economic integration input-output models wage
convergence
JEL Classification E100 F100 F600 J310
Democratic Tipping Points CESifo Working Paper Series No 6945
36 Pages Posted 17 May 2018
Antonio Ciccone Universitat Pompeu Fabra - Faculty of Economic and Business Sciences Centre for Economic Policy
Research (CEPR) Institute for the Study of Labor (IZA)
There are 2 versions of this paper
Date Written March 21 2018
Abstract
I examine whether transitory events can tip the scales against authoritarian regimes and lead
to persistent democratization I think of situations where this is a possibility as democratic
tipping points The transitory events I focus on are rainfall shocks in the most agricultural
countries in the world I show that while these shocks only affect agricultural output
contemporaneously they have persistent effects on political institutions Authoritarian
regimes experiencing negative rainfall shocks are more likely to be democratic three five and
ten years later
Keywords transitory shocks persistent democratization
Globalization and the New Normal IMF Working Paper No 1875
41 Pages Posted 22 May 2018
Bertrand Candelon University of Maastricht - Department of Economics
Alina Carare International Monetary Fund (IMF)
Jean-Baptiste Hasse
Aix-Marseille University
Date Written April 2018
Abstract
This study expands the empirical specification of Cerra and Saxena (2008) and allows short-
termoutput growth regimes to be determined by globalization Relying on a non-linear
dynamic panelrepresentation it reconciles the earlier results in the literature regarding the
two oppositenarratives of the effects of globalization on output growth Countries experience
higher growth onaverage the more open and integrated they are into the world However
once they reach a certainglobalization threshold (endogenously estimated) countries may
also experience a new normalpersistently lower short-term output growth following a
financial crisis The benefits as well asvulnerabilities accrue earlier in the globalization
process for low- and middle-income countriesTo solely reap the globalization benefits on
growth sound policies should be in place to mitigatethe negative effects stemming from
increased vulnerabilities brought by globalization
Keywords Globalization Financial crisis Banking crisis Output growth New Normal
Globalization Financial crises Banking crises Output growth
JEL Classification F30 F43 F62 F65
Public Policy in an AI Economy
by Austan Goolsbee - 24653 (PE PR)
Abstract
This paper considers the role of policy in an AI-intensive
economy (interpreting AI broadly) It emphasizes the speed of
adoption of the technology for the impact on the job market and
the implications for inequality across people and across places
It also discusses the challenges of enacting a Universal Basic
Income as a response to widespread AI adoption discuss pricing
privacy and competition policy the question of whether AI could
improve policy making itself
httppapersnberorgpapersW24653utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Aggregate and Distributional Effects of Financial
Globalization Evidence from Macro and Sectoral Data IMF Working Paper No 1883
62 Pages Posted 22 May 2018
Davide Furceri International Monetary Fund (IMF)
Prakash Loungani International Monetary Fund (IMF)
Jonathan D Ostry International Monetary Fund (IMF)
Date Written April 2018
Abstract
We take a fresh look at the aggregate and distributional effects of policies to
liberalizeinternational capital flows-financial globalization Both country- and industry-level
resultssuggest that such policies have led on average to limited output gains while
contributing tosignificant increases in inequality-that is they pose an equity-efficiency trade-
off Behindthis average lies considerable heterogeneity in effects depending on country
characteristicsLiberalization increases output in countries with high financial depth and
those that avoidfinancial crises while distributional effects are more pronounced in countries
with lowfinancial depth and inclusion and where liberalization is followed by a crisis
Difference-indifferenceestimates using sectoral data suggest that liberalization episodes
reduce the shareof labor income particularly for industries with higher external financial
dependence thosewith a higher natural propensity to use layoffs to adjust to idiosyncratic
shocks and thosewith a higher elasticity of substitution between capital and labor The
sectoral resultsunderpin a causal interpretation of the findings using macro data
Keywords Globalization Inequality Capital Account Openness Crises Institutions
JEL Classification F13 G32 O11
The Dynamics of Sovereign Debt Crises and Bailouts CEPR Discussion Paper No DP12921
44 Pages Posted 15 May 2018
Francisco Roch International Monetary Fund (IMF)
Harald Uhlig University of Chicago - Department of Economics
There are 2 versions of this paper
Date Written May 2018
Abstract
Motivated by the recent European debt crisis this paper investigates the scope for a bailout
guarantee in a sovereign debt crisis Defaults may arise from negative income shocks
government impatience or a sunspot-coordinated buyers strike We introduce a bailout
agency and characterize the strategy with the minimal actuarially fair intervention which
guarantees the no-buyers-strike fundamental equilibrium relying on the market for residual
financing The intervention makes it cheaper for governments to borrow inducing them
borrow more leaving default probabilities possibly rather unchanged The maximal backstop
will be pulled precisely when fundamentals worsen
Keywords Bailouts default Endogenous Borrowing Constraints Eurozone Debt Crisis long-
term debt OMT Self-fulfilling Crises
JEL Classification F34 F41
Cumulative Impacts of Conditional Cash Transfer Programs Experimental Evidence from Indonesia
by Nur Cahyadi Rema Hanna Benjamin A Olken Rizal Adi Prima Elan Satriawan Ekki
Syamsulhakim - 24670 (CH DEV PE)
Abstract
Conditional cash transfer (CCT) programs have spread worldwide
and are designed to promote comprehensive human capital
investments in children starting from encouraging pre-natal and
maternal care and early childhood health interventions and
continuing through incentivizing school attendance Yet
evaluating these claims over more than a few years is hard as
most CCT experiments extend the program to the control group
after a short experimental period This paper experimentally
estimates the impacts of Indonesias cash transfer program (PKH)
six years after the program launched using data from about
14000 households in 360 sub-districts across Indonesia taking
advantage of the fact that treatment and control locations
remained largely intact throughout the period We find that PKH
continues to have large static incentive effects on many of the
targeted indicators increasing usage of trained health
professionals for childbirth dramatically and halving the share
of children age 7-15 who are not enrolled in school Wage labor
for 13-15 year olds was reduced by at least one-third We also
begin to observe impacts on outcomes that may require cumulative
investments for example six years later we observe large
reductions in stunting and some evidence of increased high school
completion rates The results suggest that CCT investments can
have substantial effects on the accumulation of human capital
and that these effects can persist even when programs are
operating at large-scale without researcher intervention
httppapersnberorgpapersW24670utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Services Development and Comparative Advantage in
Manufacturing World Bank Policy Research Working Paper No 8450
47 Pages Posted 23 May 2018
Xuepeng Liu Kennesaw State University - Department of Economics and Finance
Aaditya Mattoo World Bank - Development Research Group (DECRG)
Zhi Wang George Mason University - Schar School of Policy and Government
Shang-Jin Wei Columbia Business School - Finance and Economics National Bureau of Economic Research (NBER) Centre
for Economic Policy Research (CEPR) International Monetary Fund (IMF) Tsinghua University - School of
Economics amp Management
Date Written May 22 2018
Abstract
Most manufacturing activities use inputs from the financial and business services sectors But
these services sectors also compete for resources with manufacturing activities provoking
concerns about de-industrialization -- financial services in industrial countries like the United
States and the United Kingdom and business services in developing countries like India and
the Philippines This paper examines the implications of services development for the export
performance of manufacturing sectors It develops a methodology to quantify the indirect role
of services in international trade in goods and constructs new measures of revealed
comparative advantage based on domestic value added in gross exports The paper shows
that the development of financial and business services enhances the revealed comparative
advantage of manufacturing sectors that use these services intensively but not that of other
manufacturing sectors It also finds that a country can partially overcome the handicap of an
underdeveloped domestic services sector by relying more on imported services inputs Thus
lower services trade barriers in developing countries can help to promote their
manufacturing exports
Keywords Textiles Apparel amp Leather Industry Pulp amp Paper Industry General
Manufacturing Food amp Beverage Industry Common Carriers Industry Construction Industry
Plastics amp Rubber Industry Business Cycles and Stabilization Policies International Trade and
Trade Rules Trade and Services Financial Economics Finance and Development Economic
Growth Economic Theory amp Research Industrial Economics
Thou Shalt Not Breach The Impact on Sovereign
Spreads of Noncomplying with the EU Fiscal Rules IMF Working Paper No 1887
37 Pages Posted 22 May 2018
Federico Kalan International Monetary Fund (IMF)
Adina Popescu International Monetary Fund (IMF)
Julien P M Reynaud International Monetary Fund (IMF) Universiteacute Paris I Pantheacuteon-Sorbonne
Date Written April 2018
Abstract
There is evidence that fiscal rules in particular well-designed rules are associated with lower
sovereign spreads However the impact of noncompliance with fiscal rules on spreads has not
been examined in the literature This paper estimates the effect of the Excessive Deficit
Procedure (EDP) on sovereign spreads of European Union member states Based on a sample
including the 28 European Union countries over the period 1999 to 2016 sovereign spreads
of countries placed under an EDP are found to be on average higher compared to countries
that are not under an EDP The interpretation of this result is not straight-forward as different
channels may be at play in particular those related with the credibility and the design of the
EU fiscal framework The specification accounts for typical macroeconomic fiscal and
financial determinants of sovereign spreads the System Generalized Method of Moments
estimator is used to control for endogeneity and results are robust to a range of checks on
variables and estimators
Keywords Fiscal rules Fiscal policy noncompliance sovereign spreads General Models
with Panel Data
JEL Classification E62 H60 C23
ldquoUnconventionalrdquo Monetary Policy as Conventional
Monetary Policy A Perspective from the US In the
1920s
FEDS Working Paper No 2018-019
45 Pages Posted 6 Jun 2018
Mark A Carlson Board of Governors of the Federal Reserve System
Burcu Duygan-Bump Federal Reserve Board
Date Written 2018-03-09
Abstract
To implement monetary policy in the 1920s the Federal Reserve utilized administered
interest rates and conducted open market operations in both government securities and
private money market securities sometimes in fairly considerable amounts We show how the
Fed was able to effectively use these tools to influence conditions in money markets even
those in which it was not an active participant Moreover our results suggest that the
transmission of monetary policy to money markets occurred not just through changing the
supply of reserves but importantly through financial market arbitrage and the rebalancing of
investor portfolios The tools used in the 1920s by the Federal Reserve resemble the
extraordinary monetary policy tools used by central banks recently and provide further
evidence on their effectiveness even in ordinary times
Keywords Monetary policy Unconventional monetary policy Central banking Administered
rates Money markets Quantitative easing
JEL Classification E52 E58 N22
New Perspectives on the Decline of US
Manufacturing Employment FEDS Working Paper No 2018-023
37 Pages Posted 7 Jun 2018
Teresa Fort Dartmouth College - Tuck School of Business
Justin R Pierce Federal Reserve Board
Peter Schott Yale School of Management National Bureau of Economic Research (NBER)
Date Written 2018-04-13
Abstract
We use relatively unexplored dimensions of US microdata to examine how US manufacturing
employment has evolved across industries firms establishments and regions from 1977 to
2012 We show that these data provide support for both trade- and technology-based
explanations of the overall decline of employment over this period while also highlighting the
difficulties of estimating an overall contribution for each mechanism Toward that end we
discuss how further analysis of these trends might yield sharper insights
Keywords Employment Manufacturing Output Technology Trade
AI and the Economy
by Jason Furman Robert Seamans - 24689 (PR)
Abstract
We review the evidence that artificial intelligence (AI) is
having a large effect on the economy Across a variety of
statistics--including robotics shipments AI startups and patent
counts--there is evidence of a large increase in AI-related
activity We also review recent research in this area which
suggests that AI and robotics have the potential to increase
productivity growth but may have mixed effects on labor
particularly in the short run In particular some occupations
and industries may do well while others experience labor market
upheaval We then consider current and potential policies around
AI that may help to boost productivity growth while also
mitigating any labor market downsides including evaluating the
pros and cons of an AI specific regulator expanded antitrust
enforcement and alternative strategies for dealing with the
labor-market impacts of AI including universal basic income and
guaranteed employment
httppapersnberorgpapersW24689utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Economic Policy for Artificial Intelligence
by Ajay K Agrawal Joshua S Gans Avi Goldfarb - 24690 (PR)
Abstract
Recent progress in artificial intelligence (AI) - a general
purpose technology affecting many industries - has been focused
on advances in machine learning which we recast as a
quality-adjusted drop in the price of prediction How will this
sharp drop in price impact society Policy will influence the
impact on two key dimensions diffusion and consequences
First in addition to subsidies and IP policy that will influence
the diffusion of AI in ways similar to their effect on other
technologies three policy categories - privacy trade and
liability - may be uniquely salient in their influence on the
diffusion patterns of AI Second labor and antitrust policies
will influence the consequences of AI in terms of employment
inequality and competition
httppapersnberorgpapersW24690utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Missing Profits of Nations
by Thomas R Torslov Ludvig S Wier Gabriel Zucman - 24701 (CF IFM ITI PE)
Abstract
By combining new macroeconomic statistics on the activities of
multinational companies with the national accounts of tax havens
and the worlds other countries we estimate that close to 40 of
multinational profits are shifted to low-tax countries each year
Profit shifting is highest among US multinationals the tax
revenue losses are highest for the European Union and developing
countries We show theoretically and empirically that in the
current international tax system tax authorities of high-tax
countries do not have incentives to combat profit shifting to tax
havens They instead focus their enforcement effort on
relocating profits booked in other high-tax countries--in effect
stealing revenue from each other This policy failure can
explain the persistence of profit shifting to low-tax countries
despite the high costs involved for high-tax countries We
provide a new cross-country database of GDP corporate profits
trade balances and factor shares corrected for profit shifting
showing that the global rise of the corporate capital share is
significantly under-estimated
httppapersnberorgpapersW24701utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Global Financial Cycles and Risk Premiums
by Oscar Jorda Moritz Schularick Alan M Taylor Felix Ward - 24677 (AP DAE IFM ME)
Abstract
This paper studies the synchronization of financial cycles across
17 advanced economies over the past 150 years The comovement in
credit house prices and equity prices has reached historical
highs in the past three decades The sharp increase in the
comovement of global equity markets is particularly notable We
demonstrate that fluctuations in risk premiums and not risk-free
rates and dividends account for a large part of the observed
equity price synchronization after 1990 We also show that US
monetary policy has come to play an important role as a source of
fluctuations in risk appetite across global equity markets
These fluctuations are transmitted across both fixed and floating
exchange rate regimes but the effects are more muted in floating
rate regimes
httppapersnberorgpapersW24677utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Geography of Linguistic Diversity and the Provision of Public Goods
by Klaus Desmet Joseph Gomes Ignacio Ortunyo-Ortin - 24694 (PE POL)
Abstract
This paper analyzes the importance of local interaction between
individuals of different linguistic groups for the provision of
public goods at the national level The micro-founded conceptual
framework we develop predicts that a countrys public goods (i)
decrease in its overall linguistic fractionalization and (ii)
either increase or decrease in its local learning multiplier a
measure of how local interaction affects antagonism towards other
groups in the society at large After constructing a 5 km by 5
km dataset on language use for 223 countries we empirically
explore these theoretical predictions While overall
fractionalization worsens public goods outcomes we find a
positive causal effect of local learning Conditional on a
countrys overall diversity public goods outcomes are maximized
when there are a few large-sized groups and the diversity of each
location mirrors that of the country as a whole Our large-scale
study spanning the entire globe confirms experimental
micro-evidence in favor of contact theory
httppapersnberorgpapersW24694utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Misfits in the Car Industry Offshore Assembly
Decisions at the Variety Level CEPR Discussion Paper No DP12940
39 Pages Posted 21 May 2018
Keith Head University of British Columbia (UBC) - Division of Strategy and Business Economics
Thierry Mayer Sciences Po
Date Written May 2018
Abstract
This paper estimates the role of countryvariety comparative advantage in the decision to
offshore assembly of more than 2000 models of 197 car brands headquartered in 23
countries While offshoring in the car industry has risen from 2000 to 2016 the top five
offshoring brands account for half the car assembly relocated to low-wage countries We show
that the decision to offshore a particular car model depends on two types of cost
(dis)advantage of the home country relative to foreign locations The first type the assembly
costs common to all models is estimated via a structural triadic gravity equation The second
effect model-level comparative advantage is an interaction between proxies for the models
skill and capital intensity and headquarter countrys abundance in these factors
Keywords cars Gravity offshoring
JEL Classification F1
Global Crises and Populism The Role of Eurozone
Institutions CEPR Discussion Paper No DP12944
46 Pages Posted 21 May 2018
Luigi Guiso Einaudi Institute for Economics and Finance (EIEF)
Helios Herrera University of Warwick
Massimo Morelli Bocconi University
Tommaso Sonno Catholic University of Louvain (UCL) London School of Economics amp Political Science (LSE) - Centre for
Economic Performance (CEP)
Date Written May 2018
Abstract
Populist parties are likely to gain consensus when mainstream parties and status quo
institutions fail to manage the shocks faced by their economies Institutional constraints
which limit the possible actions in the face of shocks result in poorer performance and
frustration among voters who turn to populist movements We rely on this logic to explain the
different support of populist parties among European countries in response to the
globalization shock and to the 2008-2011 - financial and sovereign debt crisis We predict a
greater success of populist parties in response to these shocks in Euro zone countries and our
empirical analysis confirms this prediction This is consistent with voters frustration for the
greater inability of the Euro zone governments to react to di cult-to-manage globalization
shocks and financial crises Our evidence has implications for the speed of construction of
political unions A slow staged process of political unification can expose the EU to a risk of
political backlash if hard to manage shocks hit the economies during the integration process
Keywords Financial Dependence Frustration Globalization populism Relocation
JEL Classification D72 D78 F14 F16
Currency Unions Trade and Heterogeneity CEPR Discussion Paper No DP12954
50 Pages Posted 31 May 2018
Natalie Chen University of Warwick - Department of Economics Centre for Economic Policy Research (CEPR)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
Date Written May 2018
Abstract
How do trade costs affect international trade This paper offers a new approach We rely on a
flexible gravity equation that predicts variable trade cost elasticities both across and within
country pairs We apply this framework to the effect of currency unions on international
trade While we estimate that currency unions are associated with a trade increase of around
38 percent on average we find substantial underlying heterogeneity Consistent with the
predictions of our framework we find effects around three times as strong for country pairs
associated with small import shares and a zero effect for large import shares Our results
imply that conventional homogeneous currency union estimates do not provide helpful
guidance for countries considering to join a currency union Instead countries need to take
into account the distribution of their trade shares to assess the impact of trade costs
Keywords Currency Unions euro Gravity Heterogeneity Trade Costs Trade Elasticity
Translog
JEL Classification F14 F15 F33
Fiscal Multipliers and Foreign Holdings of Public Debt CEPR Discussion Paper No DP12960
76 Pages Posted 5 Jun 2018
Fernando Broner CREI Barcelona GSE Universitat Pompeu Fabra CEPR
Daragh Clancy European Stability Mechanism
Aitor Erce European Stability Mechanism Banco de Espantildea - Associate Directorate General International Affairs
Alberto Martin Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) Centre for Economic
Policy Research (CEPR)
There are 2 versions of this paper
Date Written May 2018
Abstract
This paper explores a natural connection between fiscal multipliers and foreign holdings of
public debt Although fiscal expansions can raise domestic economic activity through various
channels they can also have crowding-out effects if the resources used to acquire public debt
reduce domestic consumption and investment Thus these crowding-out effects are likely to
be weaker when public debt is purchased by foreigners We test this hypothesis on (i) post-
war US data and (ii) data for a panel of 17 advanced economies from the 1980s to the
present To do so we assemble a novel database of public debt holdings by domestic and
foreign creditors for a large set of advanced economies We combine this data with standard
measures of fiscal policy shocks and show that indeed the size of fiscal multipliers is
increasing in the share of public debt held by foreigners In particular the fiscal multiplier is
smaller than one when the foreign share is low such as in the US in the 1950s and 1960s
and Japan today and larger than one when the foreign share is high such as in the US and
Ireland today
Keywords Fiscal Multiplier Foreign Holdings of Public Debt Sovereign debt
JEL Classification E62 F32 F34 F36 F41 F62 F65 G15 H63
Refugee Resettlement Redistribution and Growth CESifo Working Paper Series No 6961
26 Pages Posted 30 May 2018
Leonid V Azarnert Ariel University Center
Date Written April 09 2018
Abstract
This paper studies the effect of refugee resettlement on human capital accumulation The
analysis is performed in a growth model with endogenous fertility I show how refugee
resettlement from a more advanced and wealthier economy to a less advanced and less
wealthy economy combined with income transfers is Pareto-improving for indigenous
populations in both countries I also derive conditions for the proposed resettlement policy to
stimulate human capital accumulation and hence economic growth in both economies
Keywords refugee resettlement fertility human capital growth
JEL Classification D300 F220 J100 O100
The Impact of Trade Liberalization on Firm Productivity and Innovation
by Pian Shu Claudia Steinwender - 24715 (ITI PR)
Abstract
This chapter reviews the empirical economics literature on the
impact of trade liberalization on firms innovation-related
outcomes We define and examine four types of shocks to trade
flows import competition export opportunities access to
imported intermediates and foreign input competition Our
review reveals interesting heterogeneities at the country and
firm levels In emerging countries trade liberalization appears
to spur productivity and innovation In developed countries
export opportunities and access to imported intermediates tend to
encourage innovation but the evidence on import competition is
mixed especially for firms in the United States At the firm
level the positive effects of trade on innovation are more
pronounced at the initially more productive firms while the
negative effects are more pronounced at the initially less
productive firms
httppapersnberorgpapersW24715utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The IT Revolution and the Globalization of RampD
by Lee G Branstetter Britta M Glennon J Bradford Jensen - 24707 (ITI PR)
Abstract
Since the 1990s RampD has become less geographically concentrated
and has seen especially fast growth in emerging markets One of
the distinguishing features of the RampD globalization phenomenon
is its concentration within the softwareIT domain the increase
in foreign RampD has been largely concentrated within software and
IT-intensive multinationals and new RampD destinations are also
more software and IT-intensive multinationals than traditional
RampD destinations In this paper we document three important
phenomena (1) the globalization of RampD (2) the growing
importance of software and IT to firm innovation and (3) the
rise of new RampD hubs We argue that the shortage in
softwareIT-related human capital resulting from the large IT-
and software-biased shift in innovation drove US MNCs abroad and
particularly drove them abroad to new hubs with large
quantities of STEM workers who possessed IT and software skills
Our findings support the view that the globalization of US
multinational RampD has reinforced the technological leadership of
US-based firms in the information technology domain and that
multinationals ability to access a global talent base could
support a high rate of innovation even in the presence of the
rising (human) resource cost of frontier RampD
httppapersnberorgpapersW24707utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Global Financial Cycles and Risk Premiums CEPR Discussion Paper No DP12969
60 Pages Posted 5 Jun 2018
Ogravescar Jordagrave Federal Reserve Banks - Federal Reserve Bank of San Francisco
Moritz Schularick University of Bonn - Department of Economics Centre for Economic Policy Research (CEPR)
Alan M Taylor University of California Davis - Department of Economics University of Virginia - Department of
Economics National Bureau of Economic Research (NBER) Centre for Economic Policy Research (CEPR)
Felix Ward Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics
There are 2 versions of this paper
Date Written June 2018
Abstract
This paper studies the synchronization of financial cycles across 17 advanced economies over
the past 150 years The comovement in credit house prices and equity prices has reached
historical highs in the past three decades The sharp increase in the comovement of global
equity markets is particularly notable We demonstrate that fluctuations in risk premiums
and not risk-free rates and dividends account for a large part of the observed equity price
synchronization after 1990 We also show that US monetary policy has come to play an
important role as a source of fluctuations in risk appetite across global equity markets These
fluctuations are transmitted across both fixed and floating exchange rate regimes but the
effects are more muted in floating rate regimes
Keywords asset prices equity return premium financial centers financial cycles policy
spillovers
JEL Classification E50 F33 F42 F44 G12 N10 N20
Automation and Unemployment Help is on the Way CEPR Discussion Paper No DP12974
32 Pages Posted 11 Jun 2018
Hideki Nakamura Osaka City University
Joseph Zeira Hebrew University of Jerusalem - Department of Economics Centre for Economic Policy Research (CEPR)
LUISS Guido Carli DPTEA
Date Written June 2018
Abstract
This paper presents a model of technical change that combines two lines of research together
It is a task based model in which automation turns labor tasks to mechanized ones and there
is also a continuous addition of new labor tasks as in the expanding variety literature We
impose three simple restrictions on the model The first is that all new tasks are adopted The
second is that all new automation innovations are adopted and the third is that the share of
labor does not converge to zero in the long run We show that these restrictions imply that
unemployment due to automation is expected to converge to zero over time
Keywords automation growth Labor Income Share technical change unemployment
JEL Classification J64 O14 O30 O40
Sovereign Default in a Monetary Union CEPR Discussion Paper No DP12976
56 Pages Posted 11 Jun 2018
Sergio de Ferra Stockholm University
Federica Romei LUISS Guido Carli University
Date Written June 2018
Abstract
In the aftermath of the global fi nancial crisis sovereign default risk and the zero lower bound
have limited the ability of policy-makers in the European monetary union to achieve their
stabilization objective This paper investigates the interaction between sovereign default risk
and the conduct of monetary policy when borrowers can act strategically and they share with
their lenders a single currency in a monetary union We address this question in an
endogenous sovereign default model of heterogeneous countries in a monetary union where
the monetary authority may be constrained by the zero lower bound We uncover three main
results First in normal times debtors have a stronger incentive to default to induce more
expansionary monetary policy Second the zero lower bound or constraints on monetary
policy may act as a disciplining device to enforce repayment of sovereign debt Third
sovereign default risk induces countries with a preference for tight monetary policy to accept
a laxer policy stance These results help to shed light on the recent European experience of
high default risk expansionary monetary policy and low nominal interest rates
Keywords Heterogeneous Countries monetary union sovereign default zero lower bound
JEL Classification F34 F42 F45 H63
Evolution of Modern Business Cycle Models Accounting for the Great Recession
by Patrick J Kehoe Virgiliu Midrigan Elena Pastorino - 24741 (EFG IFM LS ME)
Abstract
Modern business cycle theory focuses on the study of dynamic
stochastic general equilibrium models that generate aggregate
fluctuations similar to those experienced by actual economies
We discuss how this theory has evolved from its roots in the
early real business cycle models of the late 1970s through the
turmoil of the Great Recession four decades later We document
the strikingly different pattern of comovements of macro
aggregates during the Great Recession compared to other postwar
recessions especially the 1982 recession We then show how two
versions of the latest generation of real business cycle models
can account respectively for the aggregate and the
cross-regional fluctuations observed in the Great Recession in
the United States
httppapersnberorgpapersW24741utm_campaign=ntwamputm_medium=emailamputm_source=ntw
What Happened Financial Factors in the Great Recession
by Mark Gertler Simon Gilchrist - 24746 (EFG ME)
Abstract
Since the onset of the Great Recession an explosion of both
theoretical and empirical research has investigated how the
financial crisis emerged and how it was transmitted to the real
sector The goal of this paper is to describe what we have
learned from this new research and how it can be used to
understand what happened during the Great Recession In the
process we also present some new evidence on the role of the
household balance sheet channel versus the disruption of banking
We examine a panel of quarterly state level data on house
prices mortgage debt and employment along with a measure of
banking distress Then exploiting both panel data and time
series methods we analyze the contribution of the house price
decline versus the banking distress indicator to the overall
decline in employment during the Great Recession We confirm a
common finding in the literature that the household balance sheet
channel is important for regional variation in employment
However we also find that the disruption in banking was central
to the overall employment contraction
httppapersnberorgpapersW24746utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Changing Structure of Immigration to the OECD
What Welfare Effects on Member Countries CESifo Working Paper Series No 6992
40 Pages Posted 27 Jun 2018
Michał Burzyński Universite du Luxembourg
Freacutedeacuteric Docquier Universiteacute catholique de Louvain CREAM Centre for Research on Environmental Appraisal amp Management
UK IZA Institute of Labor Economics
Hillel Rapoport Paris School of Economics (PSE)
Date Written April 24 2018
Abstract
We investigate the welfare implications of two pre-crisis immigration waves (1991ndash2000 and
2001ndash2010) and of the post-crisis wave (2011ndash2015) for OECD native citizens To do so we
develop a general equilibrium model that accounts for the main channels of transmission of
immigration shocks ndash the employment and wage effects the fiscal effect and the market size
effect ndash and for the interactions between them We parameterize our model for 20 selected
OECD member states We find that the three waves induce positive effects on the real income
of natives however the size of these gains varies considerably across countries and across
skill groups In relative terms the post-crisis wave induces smaller welfare gains compared to
the previous ones This is due to the changing origin mix of immigrants which translates into
lower levels of human capital and smaller fiscal gains However differences across cohorts
explain a tiny fraction of the highly persistent cross-country heterogeneity in the economic
benefits from immigration
Keywords immigration welfare crisis inequality general equilibrium
JEL Classification C680 F220 J240
Anatomy and Impact of Export Promotion Agencies World Bank Policy Research Working Paper No 8470
19 Pages Posted 11 Jun 2018
Marcio Cruz World Bank Federal University of Parana (UFPR) - Departamento de Economia
Daniel Lederman World Bank - Latin America and Caribbean Region
Laura Zoratto World Bank
Date Written June 7 2018
Abstract
Recent literature has shown evidence of positive contributions of export promotion agencies
around the world in raising exports through the intensive and extensive margins of trade The
number of export promotion agencies has increased substantially over the past two decades
and most of them focus on assisting exporters in understanding and finding markets for their
products This paper describes the characteristics of export promotion agencies around the
world using a novel database from the World Bank in collaboration with the International
Trade Center in Geneva covering 2005-10 In addition it presents a short summary of the
literature on the impacts of export promotion agencies
Keywords Export Competitiveness International Trade and Trade Rules Rules of Origin
Trade Policy Trade and Multilateral Issues Trade and Services
Optimal Inflation and the Identification of the Phillips
Curve CEPR Discussion Paper No DP12981
29 Pages Posted 11 Jun 2018
Michael McLeay Bank of England - Monetary Assessment and Strategy Division
Silvana Tenreyro London School of Economics (LSE)
Date Written June 2018
Abstract
This paper explains why inflation follows a seemingly exogenous statistical process unrelated
to the output gap In other words it explains why it is difficult to empirically identify a Phillips
curve We show why this result need not imply that the Phillips curve does not hold -- on the
contrary our conceptual framework is built under the assumption that the Phillips curve
always holds The reason is simple if monetary policy is set with the goal of minimising
welfare losses (measured as the sum of deviations of inflation from its target and output from
its potential) subject to a Phillips curve a central bank will seek to increase inflation when
output is below potential This targeting rule will impart a negative correlation between
inflation and the output gap blurring the identification of the (positively sloped) Phillips
curve
Keywords identification Inflation targeting Phillips curve
GVCs and the Endogenous Geography of RTAs CESifo Working Paper Series No 6980
43 Pages Posted 11 Jun 2018
Lionel Fontagne University of Paris 1 Pantheacuteon Sorbonne Paris School of Economics CEPII
Gianluca Santoni Centre dEtudes Prospectives et dInfo Internationales (CEPII)
Date Written April 19 2018
Abstract
Geography economic size or common history help predicting signed regional trade
agreements (RTAs) However not all signed RTAs are ldquonaturalrdquo according to economic
determinants En-dogeneity and general equilibrium effects of RTAS are the two mechanisms
addressed in this paper We estimate the time-varying probability for a country pair to sign a
trade agreement and build upon structural gravity in general equilibrium to determine how
the patterns of Global Value Chains shape the evolving geography of optimal RTAS Our results
confirm that the endogenous geography of RTAs is shaped by the development of GVCs
Keywords preferential trade agreements global value chains structural gravity
JEL Classification F130 F140 F150
Diversity and Growth CEPR Discussion Paper No DP13011
37 Pages Posted 26 Jun 2018
Mark Gradstein Ben-Gurion University of the Negev - Department of Economics CESifo (Center for Economic Studies and
Ifo Institute) Centre for Economic Policy Research (CEPR) World Bank - Development Research Group
(DECRG)
There are 2 versions of this paper
Date Written June 2018
Abstract
The diversity of social interaction within economic communities affects productivity and
growth and is itself shaped by economic conditions These reciprocal effects raise the
possibility of multiple equilibria of setting a socially polarized economy stagnating in poverty
on a new path of social integration and economic growth through external intervention or an
internal political initiative This paper describes a simple analytical model that captures these
reciprocal effects and sheds light on the role of government capacity community leadership
federation and external credit or aid in achieving economic growth through social integration
The Economics of Language CEPR Discussion Paper No DP13002
85 Pages Posted 26 Jun 2018
Victor Ginsburgh Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics
(ECARES)
Shlomo Weber Southern Methodist University (SMU) - Department of Economics New Economic School
Date Written June 2018
Abstract
The paper brings together methodological theoretical and empirical analysis into the single
framework of linguistic diversity It reflects both historical and contemporary research by
economists and other social scientists on the impact of language on economic outcomes and
public policies We examine whether and how language influences human thinking (including
emotions) and behavior analyze the effects of linguistic distances on trade migrations
financial markets language learning and its returns The quantitative foundations of linguistic
diversity which rely on group identification linguistic distances as well as fractionalization
polarization and disenfranchisement indices are discussed in terms of their empirical
challenges and uses We conclude with an analysis of linguistic policies and shifts of languages
and examine their welfare effects and the trade-offs between the development of labor
markets and the social costs that they generate in various countries
Financial and Fiscal Interaction in the Euro Area
Crisis This Time Was Different CEPR Discussion Paper No DP13016
39 Pages Posted 3 Jul 2018
Alberto Caruso Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics
(ECARES)
Lucrezia Reichlin London Business School Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in
Economics and Statistics (ECARES) Centre for Economic Policy Research (CEPR) European Central Bank
(ECB)
Giovanni Ricco University of Warwick - Department of Economics SciencesPo - OFCE
Date Written June 2018
Abstract
This paper highlights the anomalous characteristics of the Euro Area `twin crises by
contrasting the aggregate macroeconomic dynamics in the period 2009-2013 with the
business cycle fluctuations of the previous decades We report three stylised facts First the
contraction in output was marked by an anomalous downfall in investment while
consumption savings and unemployment followed their historical relation with GDP Second
households and financial corporations debts and house prices deviated from their pre-crisis
trends Third the jump in the public deficit-GDP ratio in 2008-2009 was unprecedented and
so was the fiscal consolidation that followed Our analysis points to the financial nature of the
crisis as a likely explanation for these facts Importantly the `anomaly in public deficit is in
large part explained by extraordinary measures in support of the financial sector which show
up in the stock-flow adjustments and reveal a key interaction between the fiscal and the
financial sectors
Keywords Euro Area Government Debt Recessions
JEL Classification C11 C32 C54 E52 E62 F45
The Shocks Matter Improving Our Estimates of
Exchange Rate Pass-Through CEPR Discussion Paper No DP13037
43 Pages Posted 9 Jul 2018
Kristin J Forbes Massachusetts Institute of Technology (MIT) - Sloan School of Management National Bureau of Economic
Research (NBER)
Ida Hjortsoe
Bank of England
Tsvetelina Nenova Bank of England
There are 4 versions of this paper
Date Written July 2018
Abstract
A major challenge for monetary policy is predicting how exchange rate movements will
impact inflation We propose a new focus directly incorporating the underlying shocks that
cause exchange rate fluctuations when evaluating how these fluctuations pass through to
import and consumer prices A standard open-economy model shows that the relationship
between exchange rates and prices depends on the shocks which cause the exchange rate to
move We build on this to develop a structural Vector Autoregression (SVAR) framework for a
small open economy and apply it to the UK We show that prices respond differently to
exchange rate movements based on what caused the movements For example exchange rate
pass-through is low in response to domestic demand shocks and relatively high in response to
domestic monetary policy shocks This framework can improve our ability to estimate how
pass-through can change over short periods of time For example it can explain why sterlings
post-crisis depreciation caused a sharper increase in prices than expected while the effect of
sterlings 2013-15 appreciation was more muted We also apply this framework to forecast
the extent of pass-through from sterlings sharp depreciation corresponding to the UKs vote
to leave the European Union
Keywords consumer prices exchange rate pass-through import prices inflation vector
autoregressions
JEL Classification E31 F3 F41
Why Has Economic Growth Slowed When Innovation
Appears to Be Accelerating CEPR Discussion Paper No DP13039
29 Pages Posted 9 Jul 2018
Robert J Gordon Northwestern University - Department of Economics National Bureau of Economic Research (NBER)
Centre for Economic Policy Research (CEPR)
There are 2 versions of this paper
Date Written July 2018
Abstract
U S economic growth slowed by more than half from 32 percent per year during 1970-2006
to only 14 percent during 2006-16 and this decline was divided equally between slower
growth in hours of work and slower growth in output per hour In explaining slower growth
in hours particular emphasis is placed on the slower secular rise of life expectancy in the US
compared to other developed countries Further contributions to slowing growth are made by
a decline in the population share of both legal and illegal immigration and a turnaround from
rising to declining labor force participation Causes of declining productivity growth begin
with the slowdown in the rate of increase of educational attainment Why did productivity
growth decline after 2006 despite an increase in the rate at which new US patents were
issued in 2006-16 compared to earlier decades Part of the slowdown is attributed to the
maturity of the IT revolution which also helps to explain the trajectory of the college wage
premium Aspects of the productivity growth slowdown include the declining productivity of
research workers diminishing returns to drug innovation and the evolutionary rather than
revolutionary impact of robots and artificial intelligence
Keywords Economic Growth Immigration Innovation labor force participation Mortality
productivity
JEL Classification D24 E24
On DSGE Models
by Lawrence J Christiano Martin S Eichenbaum Mathias Trabandt - 24811 (EFG ME)
Abstract
The outcome of any important macroeconomic policy change is the
net effect of forces operating on different parts of the economy
A central challenge facing policy makers is how to assess the
relative strength of those forces Dynamic Stochastic General
Equilibrium (DSGE) models are the leading framework that
macroeconomists have for dealing with this challenge in an open
and transparent manner This paper reviews the state of DSGE
models before the financial crisis and how DSGE modelers
responded to the crisis and its aftermath In addition we
discuss the role of DSGE models in the policy process
httppapersnberorgpapersW24811utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Currency Wars Unconventional Monetary Policy Does Not Stimulate Exports
by Andrew K Rose - 24817 (IFM ITI)
Abstract
I investigate whether countries that use unconventional monetary
policy (UMP) experience export booms I use a popular gravity
model of trade which requires neither the exogeneity of UMP nor
instrumental variables for UMP In practice countries that
engage in UMP experience a drop in exports vis-a-vis countries
that are not engaged in such policies holding other things
constant Quantitative easing is associated with exports that
are about 10 lower to countries not engaged in UMP this amount
is significantly different from zero and similar to the effect of
negative nominal interest rates Thus there is no evidence that
countries have gained export markets through unconventional
monetary policy currency wars that have been launched have also
been lost UMP is also associated with a comparable drop in
imports and exchange rates suggesting that countries engage in
UMP when they are experiencing adverse macroeconomic shocks
concurrent with those that eviscerate international trade
httppapersnberorgpapersW24817utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Granular Comparative Advantage
by Cecile Gaubert Oleg Itskhoki - 24807 (EFG IFM IO ITI)
Abstract
Large firms play a pivotal role in international trade shaping
the export patterns of countries We propose and quantify a
granular multi-sector model of trade which combines fundamental
comparative advantage across sectors with granular comparative
advantage embodied in outstanding individual firms We develop
an SMM-based estimation procedure which takes full account of
the general equilibrium of the model to jointly estimate these
fundamental and granular forces using French micro-data with
information on firm domestic and export sales across
manufacturing industries We find that granularity accounts for
about 20 of the variation in realized export intensity across
sectors and is more pronounced in the most export-intensive
sectors In turn idiosyncratic firm dynamics accounts for a
large share of the evolution of a countrys comparative advantage
over time Governments face strong incentives to target trade
policy at large individual foreign exporters and to use lenient
antitrust regulation at home to substitute for
beggar-thy-neighbor trade policy
httppapersnberorgpapersW24807utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The State of New Keynesian Economics A Partial Assessment
by Jordi Gali - 24845 (EFG ME)
Abstract
I provide an overview of recent developments in monetary
economics with an emphasis on extensions of the New Keynesian
framework that assume a zero lower bound on the short term
nominal rate as well as models with household heterogeneity
httppapersnberorgpapersW24845utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Artificial Intelligence Economics and Industrial Organization
by Hal Varian - 24839 (IO PR)
Abstract
Machine learning (ML) and artificial intelligence (AI) have been
around for many years However in the last 5 years remarkable
progress has been made using multilayered neural networks in
diverse areas such as image recognition speech recognition and
machine translation AI is a general purpose technology that is
likely to impact many industries In this chapter I consider how
machine learning availability might affect the industrial
organization of both firms that provide AI services and
industries that adopt AI technology My intent is not to
provide an extensive overview of this rapidly-evolving area but
instead to provide a short summary of some of the forces at work
and to describe some possible areas for future research
httppapersnberorgpapersW24839utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Twenty Five Years of Global Imbalances CEPR Discussion Paper No DP13066
20 Pages Posted 24 Jul 2018
Maurice Obstfeld International Monetary Fund (IMF)
Date Written July 2018
Abstract
As international capital markets expanded in breadth and depth after the middle 1990s
global current account imbalances also expanded markedly Some have linked the origin of
the subsequent Global Financial Crisis (GFC) to these global imbalances This essay proposes
answers to four questions about the recent history of global imbalances Why did global
imbalances expand after the mid-1990s What circumstances and concomitant factors
provide clues about the origins of the GFC If one accepts that a mono-causal story about the
GFC based on global imbalances is inaccurate how should one view the potential threats from
excessive global imbalances today And finally what policy implications follow
Keywords current account global financial crisis (GFC) global imbalances IMF External
Sector Report
Is Automation Labor-Displacing Productivity Growth Employment and the Labor Share
by David Autor Anna Salomons - 24871 (EFG LS)
Abstract
Many technological innovations replace workers with machines but
this capital-labor substitution need not reduce aggregate labor
demand because it simultaneously induces four countervailing
responses own-industry output effects cross-industry
input-output effects between-industry shifts and final demand
effects We quantify these channels using four decades of
harmonized cross-country and industry data where we measure
automation as industry-level movements in total factor
productivity (TFP) that are common across countries We find
that automation displaces employment and reduces labors share of
value-added in the industries in which it originates (a direct
effect) In the case of employment these own-industry losses
are reversed by indirect gains in customer industries and induced
increases in aggregate demand By contrast own-industry labor
share losses are not recouped elsewhere Our framework can
account for a substantial fraction of the reallocation of
employment across industries and the aggregate fall in the labor
share over the last three decades It does not however explain
why the labor share fell more rapidly during the 2000s
httppapersnberorgpapersW24871utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Dynamic Effects of Co-Ethnic Networks on
Immigrants Economic Success CESifo Working Paper Series No 7084
43 Pages Posted 21 Jul 2018
Michele Battisti University of Palermo LUISS Guido Carli University
Giovanni Peri University of California Davis - Department of Economics
Agnese Romiti Government of the Federal Republic of Germany - Institute for Employment Research (IAB)
Date Written June 06 2018
Abstract
This paper investigates how the size of co-ethnic networks at the time of arrival affect the
economic success of immigrants in Germany Applying panel analysis with a large set of fixed
effects and controls we isolate the association between initial network size and long-run
immigrant outcomes We also look at those who were assigned to an initial location
independently of their choice allows a causal interpretation of our estimates We find that
immigrants initially located in places with larger co-ethnic networks are more likely to be
employed at first but have a lower probability of investing in human capital
Keywords networks immigration human capital employment
JEL Classification J240 J610 R230
Immigrant Artists Enrichment or Displacement CEPR Discussion Paper No DP13070
36 Pages Posted 31 Jul 2018
Karol Borowiecki University of Southern Denmark
Kathryn Graddy Brandeis University - Department of Economics
Date Written July 2018
Abstract
In order to investigate the role of immigrant artists on the development of artistic clusters in
US cities we use the US Census and American Community Survey collected every 10 years
since 1850 We identify artists and art teachers authors musicians and music teachers actors
and actresses architects and journalists their geographical location and their status as a
native or an immigrant We look at the relative growth rate of the immigrant population in
these occupations over a ten year period and how it affects the relative growth rate of native-
born individuals in these artistic occupations We find that cities that experienced immigrant
artist inflows also see a greater inflow of native artists
Keywords artistic occupations artists Immigration
JEL Classification J4 J6 N3 N9 Z1
Global Value Chains and Inequality with Endogenous Labor Supply
by Eunhee Lee Kei-Mu Yi - 24884 (ITI)
Abstract
We assess the role of global value chains in transmitting global
integration shocks to aggregate trade as well as distributional
outcomes We develop a multi-country general equilibrium trade
model that features multi-stage production with different stages
having different productivities and using factors (occupations)
with different intensities The model also features a Roy
mechanism in which heterogeneous workers endogenously choose
their sector and occupation Country- and worker-level
comparative advantages interact A reduction in trade costs
leads to countries specializing in their comparative advantage
sectors and production stages This specialization changes labor
demand and also leads to more workers shifting to their
comparative advantage sectors and occupations We calibrate our
model to the US China and the rest of the world in 2000 and
we simulate a decline in Chinas trade costs with the US
designed to mimic Chinas entry into the WTO Our simulation
results imply an increase in the skill premium in both the US
and China and the GVC ie specialization across stages is
critical to this outcome
httppapersnberorgpapersW24884utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Friedman and Phelps on the Phillips Curve Viewed from a Half Centurys Perspective
by Robert J Gordon - 24891 (EFG)
Abstract
In the late 1960s the stable negatively sloped Phillips Curve
(PC) was overturned by the Friedman-Phelps natural rate model
Their PC was vertical in the long run at the natural unemployment
rate and their short-run curve shifted up whenever unemployment
was pushed below the natural rate This paper criticizes the
underlying assumption of the Friedman-Phelps approach that the
labor market continuously clears and that changes in unemployment
down or up occur only in response to fooling of workers firms
or both A preferable and resolutely Keynesian approach
explains quantity rationing by inertia in price and wage setting
The positive correlation of inflation and unemployment in the
1970s and again in the 1990s is explained by joining the
negatively sloped Phillips Curve with a positively sloped dynamic
demand curve For any given growth of nominal GDP higher
inflation caused by adverse supply shocks implies slower real GDP
growth and higher unemployment This triangle model based on
inflation inertia demand and supply worked well to explain why
inflation and unemployment were both positively and negatively
correlated between the 1960s and 1990s but in the past decade
the slope of the short-run Phillips Curve has flattened as
inflation exhibited a muted response to high unemployment in
2009-13 and low unemployment in 2016-2018 It remains to be
seen whether a continuation of low unemployment will cause a
modest and fixed extra amount of inflation thus reviving the
stable Phillips curve of the early 1960s or whether inflation
will continuously accelerate as Friedman and Phelps would have
predicted
httppapersnberorgpapersW24891utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Tax Policy Measures in Advanced and Emerging
Economies A Novel Database IMF Working Paper No 18110
61 Pages Posted 1 Aug 2018
David Amaglobeli International Monetary Fund (IMF)
Valerio Crispolti International Monetary Fund (IMF)
Era Dabla-Norris International Monetary Fund (IMF)
Pooja Karnane International Monetary Fund (IMF)
Florian Misch International Monetary Fund (IMF)
Date Written May 2018
Abstract
This paper describes a new comprehensive database of tax policy measures in 23 advanced
and emerging market economies over the last four decades We extract this information from
more than 900 OECD Economic Surveys and 37000 tax-related news from the International
Bureau of Fiscal Documentation using text-mining techniques The innovation of this dataset
lies in its granularity changes in the rates and bases of personal and corporate income taxes
value added and sale taxes social security contributions excise and property taxes are
systematically documented In addition the database provides information on the
announcement and implementation dates whether the measures represent major changes
are part of a broader tax package and phased in over several years The paper also presents a
range of stylized facts suggesting that information from this database is useful to deepen the
analysis of tax policy changes for research and policy purposes
Keywords Tax policy Tax reforms Personal income taxes Corporate income taxes Value
added taxes Sales taxes Excise taxes Property taxes Developed countries Emerging markets
Tax Reforms Text Mining Tax Policy Implementation Lags Tax Reforms Text Mining Tax
Policy Implementation Lags Methodology for Collecting Estimating and Organizing
Macroeconomic Data General
JEL Classification C82 E61 H20 P16
Inequality Aversion Populism and the Backlash
Against Globalization CEPR Discussion Paper No DP13107
69 Pages Posted 21 Aug 2018
Lubos Pastor University of Chicago - Booth School of Business Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
Pietro Veronesi
University of Chicago - Booth School of Business Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
There are 3 versions of this paper
Date Written August 2018
Abstract
Motivated by the recent rise of populism in western democracies we develop a model in
which a populist backlash emerges endogenously in a growing economy In the model voters
dislike inequality especially the high consumption of the ``elites Economic growth
exacerbates inequality due to heterogeneity in risk aversion In response to rising inequality
rich-country voters optimally elect a populist promising to end globalization Redistribution is
of limited value in containing the backlash against globalization Countries with more
inequality higher financial development and current account deficits are more vulnerable to
populism both in the model and in the data Evidence on who voted for Brexit and Trump in
2016 also largely supports the model
Keywords Brexit Globalization inequality populism risk aversion Trump
JEL Classification D72 F65 G11 G12 G18 P16
Underemployment in the US and Europe
by David NF Bell David G Blanchflower - 24927 (IFM LS ME)
Abstract
Large numbers of part-time workers around the world both those
who choose to be part-time and those who are there involuntarily
and would prefer a full-time job report they want more hours
Full-timers who say they want to change their hours mostly say
they want to reduce them When recession hit in most countries
the number of hours of those who said they wanted more hours
rose sharply and there was a fall in the number of hours that
full-timers wanted their hours reduced by Even though the
unemployment rate has returned to its pre-recession levels in
many advanced countries underemployment in most has not
We produce estimates for a new and better underemployment rate
for twenty-five European countries In most underemployment
remains elevated We provide evidence for the UK and the US as
well as some international evidence that underemployment rather
than unemployment lowers pay in the years after the Great
Recession We also find evidence for the US that falls in the
home ownership rate have helped to keep wage pressure in check
Underemployment replaces unemployment as the main influence on
wages in the years since the Great Recession
httppapersnberorgpapersW24927utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Does Machine Translation Affect International Trade Evidence from a Large Digital Platform
by Erik Brynjolfsson Xiang Hui Meng Liu - 24917 (IO ITI PR)
Abstract
Artificial intelligence (AI) is surpassing human performance in a
growing number of domains However there is limited evidence of
its economic effects Using data from a digital platform we
study a key application of AI machine translation We find
that the introduction of a machine translation system has
significantly increased international trade on this platform
increasing exports by 175 Furthermore heterogeneous
treatment effects are all consistent with a substantial reduction
in translation-related search costs Our results provide causal
evidence that language barriers significantly hinder trade and
that AI has already begun to improve economic efficiency in at
least one domain
httppapersnberorgpapersW24917utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The US Personal Saving Rate IMF Working Paper No 18128
35 Pages Posted 1 Aug 2018
Sam Ouliaris International Monetary Fund (IMF)
Celine Rochon University of Oxford IMF
Date Written June 2018
Abstract
This paper develops a time series model for aggregate consumption to predict the US
personal saving rate It then uses the model to test whether there has been a structural break
in consumption behavior because of the 2008 financial crisis Before the crisis the personal
saving rate was trending downwards However in 2008 there was a significant rise in the
saving rate that continued until the end of 2012 suggesting a permanent change in household
behavior To assess this issue formally the unknown parameters of the model are estimated
using data for 1961Q1-2007Q4 a period which precedes the crisis The model is then used to
predict the saving rate from 2008Q1 onwards and to assess whether the rise in the saving rate
after 2008 was due to sizable but transitory incomewealth shocks or to changes in the
underlying elasticities between saving and its determinants (hence structural) The statistical
evidence suggests there was no structural break in the household saving behavior implying
that the rise in the saving rate during 2008-2012 was caused by the negative shocks to
income employment and wealth This result explains why the saving rate resumed its decline
in 2013 as real disposable income employment and net worth recovered Assuming that the
real growth in these determinants remains strong the estimated model predicts continued
negative pressures on the current account deficit and further external imbalances attributable
to the US household sector
Keywords United States Western Hemisphere consumption behavior personal saving rate
vector error-correction model structural break Consumer Economics Empirical Analysis
Personal Finance Forecasting and Simulation
JEL Classification D12 D14 E21 E27
Currency Unions Trade and Heterogeneity CESifo Working Paper Series No 7123
49 Pages Posted 24 Aug 2018
Natalie Chen University of Warwick - Department of Economics Centre for Economic Policy Research (CEPR)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
There are 2 versions of this paper
Date Written June 28 2018
Abstract
How do trade costs affect international trade This paper offers a new approach We rely on a
flexible gravity equation that predicts variable trade cost elasticities both across and within
country pairs We apply this framework to the effect of currency unions on international
trade While we estimate that currency unions are associated with a trade increase of around
38 percent on average we find substantial underlying heterogeneity Consistent with the
predictions of our framework we find effects around three times as strong for country pairs
associated with small import shares and a zero effect for large import shares Our results
imply that conventional homogeneous currency union estimates do not provide helpful
guidance for countries considering to join a currency union Instead countries need to take
into account the distribution of their trade shares to assess the impact of trade costs
Keywords currency unions euro gravity heterogeneity trade costs trade elasticity translog
JEL Classification F140 F150 F330
How Do Migration and Remittances Affect Inequality
A Case Study of Mexico IMF Working Paper No 18136
22 Pages Posted 1 Aug 2018
Zsoka Koczan International Monetary Fund (IMF)
Franz Loyola International Monetary Fund (IMF)
Date Written June 2018
Abstract
The poverty-reducing effects of remittances have been well-documented however their
effects on inequality are less clear This paper examines the impact of remittances on
inequality in Mexico using household-level information on the receiving side It hopes to
speak to their insurance role by examining how remittances are affected by domestic and
external crises the 1994 Mexican Peso crisis and the Global Financial Crisis We find that
remittances lower inequality and that they become more pro-poor over time as migration
opportunities become more widespread This also strengthens their insurance effects
mitigating some of the negative impact of shocks on the poorest
Keywords Migration Remittances Financial crises Income inequality Income distribution
Poverty reduction inequality Firm Behavior International Lending and Debt Problems
JEL Classification D21 F32 F34 J61 D31 F22 F24
Exchange Rate Forecasting on a Napkin
ECB Working Paper No 2151
Contact MICHELE CAZORZI
European Central Bank (ECB)
Email michelecazorziecbint
Auth-Page httpsssrncomauthor=343031
Co-Author MICHAŁ RUBASZEK
National Bank of Poland Warsaw
School of Economics (SGH)
Email michalrubaszeknbppl
Auth-Page httpsssrncomauthor=850188
Full Text httpsssrncomabstract=3183690
ABSTRACT This paper shows that there are two regularities in
foreign exchange markets in advanced countries with flexible
regimes First real exchange rates are mean-reverting as
implied by the Purchasing Power Parity model Second the
adjustment takes place via nominal exchange rates These features
of the data can be exploited even on the back of a napkin to
generate nominal exchange rate forecasts that outperform the
random walk The secret is to avoid estimating the pace of mean
reversion and assume that relative prices are unchanged Direct
forecasting or panel data techniques are better than the random
walk but fail to beat this simple calibrated model
______________________________
Home Sweet Home The Effect of Sugar Protectionism
on Emigration in Italy 1876-1913 CEIS Working Paper No 437
49 Pages Posted 29 Jun 2018
Carlo Ciccarelli University of Rome Tor Vergata - Faculty of Economics
Alberto Dalmazzo University of Siena - Department of Economics
Daniela Vuri University of Rome Tor Vergata IZA Institute of Labor Economics CESifo (Center for Economic Studies and
Ifo Institute for Economic Research)
Date Written June 8 2018
Abstract
Protectionist policies are often considered or even implemented as a reaction to increasing
globalization This is not new in history This paper uses the introduction of import duties on
sugar in the late nineteenth century Italy to measure the impact of protectionism on migration
out flows at the time of the fi
rst globalization Both for climate reasons and the nature of the soil the cultivation and
processing of sugar beets was geographically concentrated in a small area leading de facto to
a regional protectionist policy Our theoretical model illustrates how a tariff that favours local
producers may affect residents incentives to migrate abroad The predictions of the model
are tested with the synthetic control method which uses the variation in sugar cultivation
across areas to estimate the effect of interest Our results show that protectionism effectively
reduced the relative incentive to migrate away from sugar-producing areas
Keywords protectionism regional economics migrations 19th century Italy
JEL Classification N93 J4 C23
Integrating Services in the Economic Fitness
Approach World Bank Policy Research Working Paper No 8485
35 Pages Posted 28 Aug 2018
Andrea Zaccaria Sapienza University of Rome
Saurabh Mishra International Monetary Fund (IMF)
Masud Z Cader World Bank - International Finance Corporation (IFC)
Luciano Pietronero Sapienza University of Rome
Date Written June 21 2018
Abstract
Economic Complexity is a set of network-based and algorithmic methods for the study of
economic development and competitiveness In this framework Economic Fitness is an
innovative approach that improves the mathematical and conceptual scheme For
convenience these methods were originally conceived on trade in goods This paper extends
the Economic Fitness methodology to include a trade in services element to yield a universal
matrix of world trade and thus provide a more complete picture of a countrys development
and global competitiveness The paper applies two algorithms to the universal trade in goods
and services matrix to contrast country competitiveness and change in complexity and
diversification when services are added to the traditional goods-only matrix The results show
that (i) the competitiveness of many countries was previously over- or underestimated that
is many countries gain or lose positions in the ranking of economic fitness when services
trade is considered alongside goods and (ii) complex services tend to cluster with complex
manufacturing suggesting a common capabilities structure These findings show how
developing complex services aids diversification strategies for developing countries
Keywords International Trade and Trade Rules Common Carriers Industry Food amp
Beverage Industry Business Cycles and Stabilization Policies Plastics amp Rubber Industry
Construction Industry General Manufacturing Textiles Apparel amp Leather Industry Pulp amp
Paper Industry Trade and Services Macroeconomic Management ICT Applications
Deep Trade Agreements and Global Value Chains World Bank Policy Research Working Paper No 8491
39 Pages Posted 28 Aug 2018
Edith Laget World Bank
Alberto Osnago World Bank
Nadia Rocha World Trade Organization
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Date Written June 25 2018
Abstract
Preferential trade agreements have become deeper over time often encompassing policy
areas that go beyond traditional trade policy such as investment competition and intellectual
property rights protection In the literature a prominent argument why countries sign deep
agreements is to promote and facilitate the operation of global value chains This paper
exploits a new data set on the content of trade agreements and data on trade in value added
and in parts and components to quantify the impact of the depth of trade agreements on
bilateral cross-border production linkages The results show that adding a policy area to a
trade agreement increases the domestic value added of intermediates (forward global value
chain linkages) and the foreign value added of intermediates (backward global value chain
linkages) by 048 and 038 percent respectively At the sectoral level the positive impact of
deep trade agreements is higher for higher value-added industries suggesting that deep
agreements help countries to integrate in industries with higher levels of value added For a
larger sample of countries and years the results confirm that an additional provision in a
trade agreement increases bilateral trade in parts and components by 03 percent The
content of trade agreements also matters for global value chain integration but the impact
varies by income group Provisions outside the current mandate of the World Trade
Organization (investment and competition policy) drive the effect of trade agreements on
North-South trade in parts and components Provisions under the current World Trade
Organization mandate (tariff reduction and customs facilitation) drive the effect of trade
agreements on South-South trade in parts and components
Keywords International Trade and Trade Rules Industrial and Consumer Services and
Products Transport and Trade Logistics Competition Policy Competitiveness and
Competition Policy Trade Finance and Investment
The Effect of Immigration on Natives School
Achievement Does Length of Stay in the Host
Country Matter World Bank Policy Research Working Paper No 8492
62 Pages Posted 28 Aug 2018
Laurent Bossavie The World Bank
Date Written June 25 2018
Abstract
Using a rich data set of primary school students this paper estimates the effects of immigrant
concentration in the classroom on the academic achievement of natives In contrast with
previous contributions it exploits rare information on age-at-migration to estimate separate
spillover effects by duration of stay of immigrant classmates To identify treatment effects it
uses cohort-by-cohort deviations in immigrant concentration within schools combined with
attractive features of the Dutch school system Overall the paper finds no effect of the
concentration of immigrant students on natives test scores However although immigrant
students who have been in the country for some time have virtually no effect on natives the
analysis finds a small negative effect of recent immigrants in the classroom on natives test
scores The effect is significant only for language test scores but insignificant for mathematics
test scores When significant effect sizes are quite small compared to other educational
interventions and classroom peer effects estimated in other contexts
Keywords Indigenous Peoples Law Indigenous Peoples Indigenous Communities
Educational Sciences International Migration Migration and Development Human Migrations
amp Resettlements Effective Schools and Teachers Educational Institutions amp Facilities
Trade and Immigration 1870-2010
by David S Jacks John P Tang - 25010 (DAE)
Abstract
In this chapter we describe long-run trends in global
merchandise trade and immigration from 1870 to 2010 We revisit
the reasons why these two forces moved largely in parallel in the
decades leading up to World War I collapsed during the interwar
period and then rebounded (but with much more pronounced growth
in trade than in immigration) More substantively we also
document a large redistribution in the regional sources of goods
and people with a shift from the former industrialized core
countries--especially Europe--to those in the former
periphery--especially Asia--as well as a very striking change in
the composition of merchandise trade towards manufactured goods
precisely dating from 1950 Finally using a triple differences
framework in combination with a dramatic change in US immigration
policy we find evidence that immigration and trade potentially
acted as substitutes at least for the United States in the
interwar period
httppapersnberorgpapersW25010utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Attitudes Towards Euro Area Reforms Evidence from
a Randomized Survey Experiment CESifo Working Paper Series No 7141
35 Pages Posted 28 Aug 2018
Mathias Dolls CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute IZA Institute of Labor Economics
Nils Wehrhoumlfer University of Mannheim Graduate School of Economic and Social Sciences Students
Date Written July 09 2018
Abstract
We present the first evidence on public attitudes towards two prominent euro area reform
proposals (European Unemployment Benefit Scheme and Sovereign Insolvency Procedure)
and assess potential impediments to their implementation by means of a randomized survey
experiment in Germany We find that there is a low willingness among German voters to
accept fiscal risk-sharing through common unemployment insurance while a sovereign
insolvency procedure aimed at strengthening market discipline is supported by a majority of
the electorate Our randomized treatments confronting survey participants with potential
adverse effects of the reforms lead to significant downward shifts in approval rates Altruism
cosmopolitanism political preferences and income are important predictors of support for
the reform proposals We also show that there is a striking contrast between the low level of
support for transfers to other euro area member states and a broad acceptance of inner
German transfers
Keywords public attitudes euro area reforms European unemployment insurance
sovereign insolvency procedure
JEL Classification H550 H240 J260 D140
The Economic Effects of Refugee Return and Policy
Implications World Bank Policy Research Working Paper No 8497
65 Pages Posted 28 Aug 2018
Uri Dadush World Bank
Date Written June 27 2018
Abstract
The recent surge in the number of forcibly displaced who cross international borders in
search of protection has prompted interest in evaluating policies that achieve the possible
end points of the phenomenon As envisaged by United Nations High Commissioner for
Refugees (UNHCR) these are the integration in the country of destination relocation in a
third country and return to the country of origin The focus of this paper is on the third
aspect namely the appropriate conduct of return policy viewed from the perspective of the
host country More specifically the main question is whether it is in the economic self-interest
of host countries to return forcibly displaced persons In addressing the question four
ancillary issues are to be addressed (i) the macroeconomic impact of refugees and of their
return (ii) the labor market impact of refugees and of their return (iii) the fiscal impact of
refugees and of their return and (iv) how return policy should be formulated and executed
The available evidence and analyses allow this papers main conclusion namely that the costs
of hosting asylum seekers and refugees are front-loaded while the benefits accruing from
their integration into the labor market and the host economy typically take years to
materialize It follows that from the economic perspective their return after a short stay may
represent a costlier option than continuing to invest in their successful integration Countries
with a flexible labor market strong investment climate and a welcoming attitude to
immigrants tend to see the economic benefits of refugee inflows materialize faster
The Effect of Remittances on the Current Account in
Developing and Emerging Economies World Bank Policy Research Working Paper No 8498
26 Pages Posted 28 Aug 2018
Emmanuel Kwasi Koranteng Lartey World Bank
Date Written June 27 2018
Abstract
This paper presents an analysis of the effect of remittances on the current account in
developing and emerging economies incorporating an assessment of the extent to which
exchange rate regimes impact the relationship The main findings suggest there is a positive
effect of remittances on the current account contemporaneously but that the lagged effect is
negative which could be indicative of the existence of some underlying mechanisms
characteristic of the Dutch disease phenomenon In addition the results show that a more
flexible exchange regime dampens the contemporaneous positive effect that remittances have
on the current account The paper therefore asserts that policy makers face trade-offs
pertaining to the use of exchange rate policy in managing the effects of remittances on the
current account which should be given due consideration when such policy choices are made
Learning About Fiscal Multipliers During the
European Sovereign Debt Crisis Evidence from a
Quasi-Natural Experiment ECB Working Paper No 2154
30 Pages Posted 18 Jun 2018
Gόrnicka Lucyna IMF
Christophe Kamps European Central Bank (ECB)
Gerrit B Koester European Central Bank (ECB)
Nadine Leiner-Killinger European Central Bank (ECB)
Date Written May 30 2018
Abstract
Identifying fiscal multipliers is usually constrained by the absence of a counterfactual
scenario Our new data set allows overcoming this problem by making use of the fact that
recommendations under the EUrsquos excessive deficit procedure (EDP) provide both a baseline
no-policy-change scenario and a fiscal-adjustment EDP scenario that entails a forecast of the
macroeconomic impact of fiscal consolidation over the EDP horizon For a sample of 24 EU
countries to which 48 EDP recommendations were applied between 2009 and 2015 we
derive country-specific fiscal multipliers as actually applied by forecasters during the crisis
Our results confirm Blanchard and Leighrsquos (2013 2014) presumption that forecasters learned
during the crisis According to our findings fiscal multipliers as applied by the European
Commission increased over time ndash from about 14 in the early years of the crisis to about 23
in the later years However different from Blanchard and Leigh (2013 2014) we do not find
evidence for the hypothesis that ex-post fiscal multipliers have been substantially above 1
during the crisis
Keywords fiscal consolidation fiscal multipliers business cycle
JEL Classification E32 E62 H20 H5
Trade in Developing East Asia How it Has Changed
and Why it Matters World Bank Policy Research Working Paper No 8533
58 Pages Posted 28 Aug 2018
Ileana Cristina Constantinescu World Bank
Aaditya Mattoo World Bank - Development Research Group (DECRG)
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Date Written July 13 2018
Abstract
East Asia for long the epitome of successful engagement in trade faces serious challenges
technological change that may threaten the very model of labor intensive industrialization
and a backlash against globalization that may reduce access to important markets A detailed
analysis of the evolution of East Asias trade and trade policy in goods and services leads to
the conclusion that how East Asia copes with these global challenges will depend on how it
addresses three more proximate national and regional challenges The first is the emergence
of one East Asian country China as a global trade giantaccounting for nearly one-seventh of
global exports and one-tenth of global imports -- which is fundamentally altering the trading
patterns and opportunities of its neighbors The second is the asymmetric implementation of
national reform -- remarkable openness to goods trade and investment coexists with relative
restrictiveness of services policies -- which is affecting the evolution of comparative
advantage and productivity in each country The third is the divergence between the
relatively shallow and fragmented agreements that regulate the regions trade and
investment and the growing importance of regional and global value chains as crucial drivers
of productivity growth
Keywords International Trade and Trade Rules Common Carriers Industry Food amp
Beverage Industry Plastics amp Rubber Industry Business Cycles and Stabilization Policies
Construction Industry General Manufacturing Pulp amp Paper Industry Textiles Apparel amp
Leather Industry Export Competitiveness Industrial and Consumer Services and Products
Transport and Trade Logistics
Who are Americas Star Firms World Bank Policy Research Working Paper No 8534
70 Pages Posted 28 Aug 2018
Meghana Ayyagari George Washington University - School of Business
Asli Demirguc-Kunt World Bank
Vojislav Maksimovic University of Maryland - Robert H Smith School of Business
There are 2 versions of this paper
Date Written July 13 2018
Abstract
There is wide spread concern about a growing gap between top-performing publicly listed
firms and the rest of the economy and the implications of this for rising inequality in the US
Using conventional return calculations there is indeed a widening gap between star firms
(defined as those in top 10 percent of return on invested capital in any year) and the rest of
the economy over time especially in industries that rely on a skilled labor force However
once measurement error in intangible capital is accounted for this gap shrinks dramatically
and has not been widening over time While pricing power as measured by markups predicts
star firm status a large fraction of star firms have low markups and there is no evidence that
star firms are cutting output or investment more than other firms for the same markup The
effect of star status is persistent Five years later star firms have higher growth profits and
Tobins Q A small subset of exceptional firms may pose more pressing policy concerns with
much higher returns and the potential to exercise market power in the future
Keywords Plastics amp Rubber Industry Business Cycles and Stabilization Policies Textiles
Apparel amp Leather Industry Pulp amp Paper Industry Food amp Beverage Industry Common
Carriers Industry Construction Industry General Manufacturing Labor Markets Employment
and Unemployment
Bought Sold and Bought Again The Impact of
Complex Value Chains on Export Elasticities World Bank Policy Research Working Paper No 8535
45 Pages Posted 28 Aug 2018
Francois Michel Marie Raphael De Soyres World Bank
Erik Frohm World Bank
Vanessa Gunnella European Central Bank (ECB)
Elena Pavlova European Central Bank (ECB)
Date Written July 13 2018
Abstract
Global value chain participation affects the exchange rate pass-through to export prices and
export volumes The paper develops a partial equilibrium model of international trade with
cross-border production and shows that higher participation in global value chains reduces
the elasticities Specifically a higher share of foreign value added in exports reduces the
exchange rate pass-through to export prices and export volumes A greater share of exports
that return as imports also reduces the responsiveness of export volumes to changes in
bilateral exchange rates Finally exports of inputs that are further re-exported increase the
responsiveness to the trading partners effective exchange rate Using a novel sector-level
panel dataset with 40 countries the analysis tests and finds strong empirical support for the
theoretical predictions The paper further shows that some sectors in some countries can
even experience a decline in gross exports when their currency depreciates
Keywords International Trade and Trade Rules Industrial and Consumer Services and
Products Transport and Trade Logistics Trade and Services Macroeconomic Management
Did Austerity Cause Brexit CESifo Working Paper Series No 7159
101 Pages Posted 25 Sep 2018
Thiemo Fetzer University of Warwick
Date Written July 25 2018
Abstract
Did austerity cause Brexit This paper shows that the rise of popular support for the UK
Independence Party (UKIP) as the single most important correlate of the subsequent Leave
vote in the 2016 European Union (EU) referendum along with broader measures of political
dissatisfaction are strongly and causally associated with an individualrsquos or an arearsquos exposure
to austerity since 2010 In addition to exploiting data from the population of all electoral
contests in the UK since 2000 I leverage detailed individual level panel data allowing me to
exploit within-individual variation in exposure to specific welfare reforms as well as broader
measures of political preferences The results suggest that the EU referendum could have
resulted in a Remain victory had it not been for a range of austerity-induced welfare reforms
Further auxiliary results suggest that the welfare reforms activated existing underlying
economic grievances that have broader origins than what the current literature on Brexit
suggests Up until 2010 the UKrsquos welfare state evened out growing income differences across
the skill divide through transfer payments This pattern markedly stops from 2010 onwards
as austerity started to bite
Keywords political economy austerity globalization voting EU
JEL Classification H200 H300 H500 P160 D720
Resolving Sovereign Debt Crises The Role of Political
Risk CESifo Working Paper Series No 7161
42 Pages Posted 26 Sep 2018
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Date Written August 02 2018
Abstract
Sovereign defaults are bad news for investors and debtor countries in particular if a default
becomes messy and protracted Why are some debt crises resolved quickly in a matter of
months while others take many years to settle This paper studies the duration of sovereign
debt crises based on a new dataset and case study archive on debt renegotiations between
governments and foreign banks and bondholders Using Cox proportional hazard models I
find that domestic political instability (lsquopolitical riskrsquo) is a significant predictor of negotiation
delays after controlling for macroeconomic conditions Government crises resignations and
street protests are particularly disruptive for a quick settlement process Overall the evidence
suggests that debtor countries often lack the political ability to resolve a debt crisis
Governments in turmoil are unlikely to exit a default quickly
Keywords sovereign default crisis resolution political economy
JEL Classification F340 F510 H630
Market Potential and Global Growth over the Long
Twentieth Century CESifo Working Paper Series No 7164
53 Pages Posted 27 Sep 2018
David S Jacks Simon Fraser University (SFU) - Department of Economics National Bureau of Economic Research (NBER)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
There are 3 versions of this paper
Date Written August 02 2018
Abstract
We examine the evolution of market potential and its role in driving economic growth over
the long twentieth century Theoretically we exploit a structural gravity model to derive a
closed-form solution for a widely-used measure of market potential We are thus able to
express market potential as a function of directly observable and easily estimated variables
Empirically we collect a large dataset on aggregate and bilateral trade flows as well as output
for 51 countries We find that market potential exhibits an upward trend across all regions of
the world from the early 1930s and that this trend significantly deviates from the evolution of
world GDP Finally using exogenous variation in trade-related distances to world markets we
demonstrate a significant causal role of market potential in driving global income growth over
this period
Keywords economic geography market potential structural gravity trade costs
JEL Classification F100 N700
Growth Inequality and Poverty A Robust
Relationship World Bank Policy Research Working Paper No 8578
42 Pages Posted 17 Sep 2018
Gustavo A Merrero University of La Laguna
Luis Serveacuten World Bank - Development Research Group (DECRG)
Date Written September 6 2018
Abstract
An extensive literature on poverty traps suggests that high levels of poverty deter growth
However a seemingly basic implication of the underlying theoretical models namely that
countries suffering from higher levels of poverty should grow less rapidly has remained
untested A parallel literature has suggested a variety of mechanisms through which
inequality may affect growth in opposing directions Because inequality and poverty are
different aspects of the income distribution inequality can also affect growth through poverty
an indirect channel that has not been explicitly analyzed This paper contributes to fill both
gaps Using a large cross-country panel data set it estimates a reduced-form growth equation
adding both inequality and poverty to an otherwise standard set of growth determinants
Given inequality the correlation of growth with poverty is consistently negative In contrast
given poverty the correlation of growth with inequality can be positive or negative
depending on the empirical specification and econometric approach used Yet the indirect
effect of inequality on growth through its correlation with poverty is robustly negative Closer
inspection shows that these results are driven by the sample observations featuring high (but
not extremely high) poverty rates These empirical findings are consistent with the
predictions from an analytical framework with learning-by-doing and knowledge spillovers
in which consumers cannot save and invest if their initial endowment is below a minimum
consumption level
Keywords Inequality Inflation Small Area Estimation Poverty Mapping Poverty
Assessment Poverty Lines Poverty Monitoring amp Analysis Poverty Diagnostics Poverty
Impact Evaluation Educational Sciences
Comparison of Welfare Gains in the Armington
Krugman and Melitz Models Insights from a
Structural Gravity Approach World Bank Policy Research Working Paper No 8570
63 Pages Posted 17 Sep 2018
Edward Jay Balistreri Iowa State University
David G Tarr International Trade Analysis
Date Written August 28 2018
Abstract
How large are the estimated gains from trade from a reduction in trade costs in the
heterogeneous firms Melitz (M) model compared with the Armington (A) and Krugman (K)
models Surprisingly little is known beyond the one-sector model This paper analyzes this
question using a global trade model that contains ten regions and various numbers of sectors
(1-10) Following Arkolakis et al (2012) the analysis holds the local trade response constant
across the model comparisons based on a structural gravity estimate Various model features
and scenarios are introduced that are important to real economies almost none of which has
been examined across the three market structures with a constant trade response In
response to global reductions in iceberg trade costs in all the multi-sector models the
ranking of global welfare gains is MelitzgtKrugmangtArmington and the Krugman model
captures between 75 and 95 percent on the additional gains above the Armington model that
are estimated by the Melitz model However for individual regions there are numerous cases
of reversed welfare rankings ie MelitzltkrugmanKrugmangtArmington For individual
regions however the welfare ranking of the Armington Krugman and Melitz market
structures is model data parameter and scenario dependent The results highlight the need
for data and structural considerations in policy analysisltkrugman
Keywords International Trade and Trade Rules Trade and Services Labor Markets Trade
and Multilateral Issues
The Economic Effects of Brexit - Evidence from the
Stock Market CEPR Discussion Paper No DP13147
35 Pages Posted 17 Sep 2018
Holger Breinlich University of Nottingham - School of Economics Centre for Economic Policy Research (CEPR) London
School of Economics amp Political Science (LSE) - Centre for Economic Performance (CEP)
Elsa Leromain London School of Economics amp Political Science (LSE) - London School of Economics
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
Thomas Sampson London School of Economics amp Political Science (LSE)
Ahmed Usman University of Nottingham
Date Written August 2018
Abstract
We study stock market reactions to the Brexit referendum on 23 June 2016 in order to assess
investors expectations about the effects of leaving the European Union on the UK economy
Our results suggest that initial stock price movements were driven by fears of a cyclical
downturn and by the sterling depreciation following the referendum We also find tentative
evidence that market reactions to two subsequent speeches by Theresa May (her
Conservative Party conference and Lancaster House speeches) were more closely correlated
with potential changes to tariffs and non-tariff barriers on UK-EU trade indicating that
investors may have updated their expectations in light of the possibility of a hard Brexit We
do not find a correlation between the share of EU migrants in different industries and stock
market returns
Keywords Brexit depreciation event study Recession Stock market tariffs
JEL Classification F15 F23 G14
Understanding Euro Area Inflation Dynamics Why so
Low for so Long
IMF Working Paper No 18188
26 Pages Posted 1 Oct 2018
Yasser Abdih International Monetary Fund (IMF)
Li Lin International Monetary Fund (IMF)
Anne-Charlotte Paret Banque de France
Date Written August 2018
Abstract
Despite closing output gaps and tightening labor markets inflation has remained low inthe
euro area Based on an augmented Phillips Curve framework we find that thisphenomenon-
sometimes attributed to low global inflation-has been primarily causedby a remarkable
persistence of inflation keeping it low despite the reduction in slack Thisfeature is shown to
be specific to the euro area (in comparison with the United States)Monetary policy needs to
stay accommodative to help guide inflation back to target
Keywords Inflation Inflation expectations Inflation persistence Monetary policy
Econometric models Euro Area Phillips curve inflation persistence and expectations
General Forecasting and Simulation Monetary Policy (Targets Instruments and Effects)
JEL Classification E10 E31 E32 E37 E52 C22 C50
Financial Development Exchange Rate Regimes and
Growth Dynamics World Bank Policy Research Working Paper No 8562
34 Pages Posted 28 Aug 2018
Woubet Kassa The World Bank
Emmanuel Kwasi Koranteng Lartey World Bank
Date Written August 20 2018
Abstract
This paper utilizes data for African countries to analyze the extent to which financial
development affects the dynamics of the relationship between exchange rate flexibility and
economic growth The findings indicate that financial development exerts a positive influence
on the relationship between exchange rate flexibility and GDP growth as well as total factor
productivity growth The paper also documents a positive impact of trade openness on the
relationship between exchange rate flexibility and growth Moreover the results show a
strong and positive association between exchange rate flexibility and financial development
The findings therefore suggest that discussions and decisions on exchange rate policy should
be undertaken with consideration for structural policies that address the development of the
financial sector In addition the paper asserts that policy makers should adopt a stance that
facilitates some flexibility in exchange rates to foster development of the financial
infrastructure in these economies
Keywords International Trade and Trade Rules Industrial Economics Economic Theory amp
Research Economic Growth Currencies and Exchange Rates Educational Sciences
Macroeconomic Management
Unequal Gains Prolonged Pain A Model of
Protectionist Overshooting and Escalation CEPR Discussion Paper No DP13160
53 Pages Posted 17 Sep 2018
Emily J Blanchard Dartmouth College - Tuck School of Business
Gerald Willmann Bielefeld University IfW Kiel KU Leuven CESifo (Center for Economic Studies and Ifo Institute)
Date Written September 2018
Abstract
We develop a model of democratic political responses to macroeconomic shocks in the short
and long run We show that when economic adjustment is slower than potential political
change exogenous changes in the global marketplace can trigger populist surges in favor of
distortionary economic policies Applied to trade policy our model demonstrates that an
exogenous terms-of-trade improvement or skill-biased technological change will lead to a
spike in protectionism that blunts the younger generations incentive to acquire education In
the long run the initial surge in protectionism will gradually diminish if and only if education
enables less-skilled workers to catch up with the overall economy The more unequal the
initial distribution of human capital the greater and longer-lasting the protectionist backlash
will be unequal gains prolonged pain Evidence on key data markers suggested by the model
exhibits patterns consistent with recent populist support for Brexit and Trump
Keywords Dynamic Political Economy education Endogenous Tari Human Capital
Overlapping Generations Overshooting populism protectionism
JEL Classification D7 E6 F5
Threat or Help The Effects of Unskilled Immigrant
Workers on National Productivity Growth World Bank Policy Research Working Paper No 113185
4 Pages Posted 17 Sep 2018
Sharmila Devadas Central Bank of Malaysia
Date Written March 1 2017
Abstract
While unskilled immigrant workers have relatively low formal human capital theory suggests
that they can still contribute to productivity improvements by helping to increase efficiency
and upgrading the skills of the native labor force Empirical studies indicate that positive
productivity effects do occur This body of evidence does not provide a compelling argument
for the closing of national borders to unskilled foreigners on economic grounds
Keywords Indigenous Peoples Indigenous Peoples Law Human Migrations amp Resettlements
Construction Industry Common Carriers Industry Food amp Beverage Industry General
Manufacturing Pulp amp Paper Industry Plastics amp Rubber Industry Labor Markets Business
Cycles and Stabilization Policies International Migration Indigenous Communities Migration
and Development
Global Trade Slowdown Factors and Policies World Bank Policy Research Working Paper No 123899
4 Pages Posted 17 Sep 2018
Dorina Peteva Georgieva World Bank
Norman Loayza World Bank - Research Department
Fabian Mendez Ramos Development Research Group The World Bank
Date Written February 1 2018
Abstract
Growth in global trade has been slow since 2012 While global trade downturns are not
unprecedented the observed change in the relationship of trade to GDP poses the question
whether the trade slowdown is a transitory deviation or a more long-lasting phenomenon
brought about by structural changes This new dynamic coupled with the rise of protectionist
policies and rhetoric in many countries positions trade at the forefront of policy discussions
This brief reviews recent patterns in global trade examines the factors affecting trade--
distinguishing between transitory and structural components of the slowdown--and discusses
policies shaping the path of future trade
Keywords Trade and Multilateral Issues Trade and Services Trade Policy Trade Facilitation
International Trade and Trade Rules International Economics and Trade Transport and
Trade Logistics Trade and Regional Integration Private Sector Development Industrial and
Consumer Services and Products Competitiveness and Competition Policy Marketing Labor
Markets Private Sector Development Law Private Sector Economics Industry Law and
Development Social Policy Legal Reform Social Development Treaties Economics and
Institutions Public Sector Management and Reform Macroeconomics and Economic Growth
Public Sector Development Regulatory Regimes International Law Non Governmental
Organiz
The Productivity J-Curve How Intangibles Complement General Purpose Technologies
by Erik Brynjolfsson Daniel Rock Chad Syverson - 25148 (EFG IO PR)
Abstract
General purpose technologies (GPTs) such as AI enable and require
significant complementary investments including business process
redesign co-invention of new products and business models and
investments in human capital These complementary investments
are often intangible and poorly measured in the national
accounts even if they create valuable assets for the firm We
develop a model that shows how this leads to an underestimation
of output and productivity in the early years of a new GPT and
how later when the benefits of intangible investments are
harvested productivity will be overestimated Our model
generates a Productivity J-Curve that can explain the
productivity slowdowns often accompanying the advent of GPTs as
well as the follow-on increase in productivity later We use our
model to assess how AI-related intangible capital is currently
affecting measured total factor productivity (TFP) and output
We also conduct a historical analysis of the roles of intangibles
tied to RampD software and computer hardware finding substantial
and ongoing effects of software in particular and hardware to a
lesser extent
httppapersnberorgpapersW25148utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
New Technologies Global Value Chains and Developing Economies
by Dani Rodrik - 25164 (DEV EFG ITI)
Abstract
Many of the exports of developing countries are channeled through
global value chains (GVCs) which also act as conduits for new
technologies However new capabilities and productive
employment remain limited so far to a tiny sliver of globally
integrated firms GVCs and new technologies exhibit features
that limit the upside and may even undermine developing
countries economic performance In particular new technologies
present a double whammy to low-income countries First they are
generally biased towards skills and other capabilities This
bias reduces the comparative advantage of developing countries in
traditionally labor-intensive manufacturing (and other)
activities and decreases their gains from trade Second GVCs
make it harder for low-income countries to use their labor cost
advantage to offset their technological disadvantage by reducing
their ability to substitute unskilled labor for other production
inputs These are two independent shocks that compound each
other The evidence to date on the employment and trade fronts
is that the disadvantages may have more than offset the
advantages
httppapersnberorgpapersW25164utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Bank Runs and Moral Hazard A Review of Deposit
Insurance World Bank Policy Research Working Paper No 8589
31 Pages Posted 20 Sep 2018 Last revised 21 Sep 2018
Deniz Anginer World Bank Research
Asli Demirguc-Kunt World Bank
Date Written September 19 2018
Abstract
Deposit insurance is a widely adopted policy to promote financial stability in the banking
sector Deposit insurance helps ensure depositors confidence in the financial system and
prevents contagious bank runs but it also comes with an unintended consequence of
encouraging banks to take on excessive risk This paper reviews the economic costs and
benefits of deposit insurance and highlights the importance of institutions and specific design
features for how well deposit insurance schemes work in practice
Keywords Deposit Insurance Financial Structures Banks amp Banking Reform Judicial System
Reform Economic Growth
The Future of Work Race With-Not Against-The
Machine World Bank Research amp Policy Briefs Paper No 129680
4 Pages Posted 17 Sep 2018
Lay Lian Chuah World Bank - Development Research Group (DECRG)
Norman Loayza World Bank - Research Department
Achim Schmillen Osteuropa-Institut (OEI) Government of the Federal Republic of Germany - Institute for Employment
Research (IAB) University of Regensburg - Department of Economics and Econometrics
Date Written August 1 2018
Abstract
Will the revolution in digital and information technologies make us obsolete Will jobs be lost
and never replaced Will wages drop to intolerable levels History and economic theory and
evidence suggest that in the long term such fears are misplaced However in the short and
medium term dislocation can be severe for certain types of work places and populations In
the transition period policies are needed to facilitate labor market flexibility and mobility
introduce and strengthen safety nets and social protection and improve education and
training
Keywords Labor Markets Rural Labor Markets Armed Conflict Food Security
An Economists Guide to Climate Change Science
by Solomon Hsiang Robert E Kopp - 25189 (DEV EEE EFG HE ITI LS PE POL PR)
Abstract
Climate change management is a global challenge that requires
social science as much as it requires natural science We
provide a brief introduction to the physical science of climate
change written to provide essential background for economists
and other social scientists We also highlight some key areas in
which economists--including those studying macroeconomics
political economy and development--are in a unique position to
help climate science advance
httppapersnberorgpapersW25189utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
The Intensive Margin in Trade
by Ana M Fernandes Peter J Klenow Sergii Meleshchuk Denisse Pierola Andres Rodriguez-
Clare - 25195 (ITI)
Abstract
The Melitz model highlights the importance of the extensive
margin (the number of firms exporting) for trade flows Using
the World Banks Exporter Dynamics Database (EDD) featuring
firm-level exports from 50 countries we find that around 50 of
variation in exports is along the extensive margin --- a
quantitative victory for the Melitz framework The remaining 50
on the intensive margin (exports per exporting firm) contradicts
a special case of Melitz with Pareto-distributed firm
productivity which has become a tractable benchmark This
benchmark model predicts that conditional on the fixed costs of
exporting all variation in exports across trading partners
should occur on the extensive margin We find that moving from a
Pareto to a lognormal distribution allows the Melitz model to
match the role of the intensive margin in the EDD We use
likelihood methods and the EDD to estimate a generalized Melitz
model with a joint lognormal distribution for firm-level
productivity fixed costs and demand shifters and use exact hat
algebra to quantify the effects of a decline in trade costs on
trade flows and welfare in the estimated model The welfare
effects turn out to be quite close to those in the standard
Melitz-Pareto model when we choose the Pareto shape parameter to
fit the average trade elasticity implied by our estimated
Melitz-lognormal model although there are significant
differences regarding the effects on trade flows
httppapersnberorgpapersW25195utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Are Banks Engines of Export Financial Structures
and Export Dynamics World Bank Policy Research Working Paper No 8621
41 Pages Posted 26 Oct 2018 Last revised 30 Oct 2018
Raoul Minetti Michigan State University - Department of Economics
Alen Mulabdic World Bank
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Susan Chun Zhu Michigan State University - Department of Economics
Date Written October 25 2018
Abstract
This paper studies the impact of financial structures on the dynamics of the export sector
using rich data from over 60 countries The results reveal that bank-oriented financial
systems boost the size of the export sector more than market-oriented financial systems
However especially in middle- and low-income countries this effect mostly stems from banks
slowing down exporters exit rather than promoting firms entry into export The reduced exit
from the export sector appears to reflect domestic banks tendency to evergreen loans to
exporters (soft budget constraint) more than banks buffering role in difficult times Foreign
banks mitigate this effect and enhance the dynamism of the export sector
Contractual Frictions and the Margins of Trade World Bank Policy Research Working Paper No 8631
31 Pages Posted 31 Oct 2018 Last revised 1 Nov 2018
Theophile T Azomahou United Nations University (UNU-MERIT) Maastricht University
Hibret Belete Maemir World Bank
Hassen Abda Wako UNU-MERIT
Date Written October 30 2018
Abstract
A growing body of work has shown that the quality of national institutions that enforce
written contracts plays an important role in shaping a countrys comparative advantage
Using highly disaggregated bilateral and unique harmonized firm-level trade data across a
large number of countries this paper contributes to this literature by providing a
comprehensive analysis of the mechanisms through which institutional frictions affect the
pattern of aggregate trade flow distinguishing the effects on the intensive and extensive
margins The analysis finds that contractual friction distorts countries trade pattern beyond
its effect on domestic production structure by deterring the probability of exporting (the
extensive margin) and export sales after entry (the intensive margin) particularly in
industries that rely more heavily on relationship-specific inputs (more vulnerable to holdup
problems) The analysis also finds that contractual frictions matter more for the intensive
margin than the extensive margin of exporting In addition better contracting institutions
increase the probability of survival of new export products in more contract-intensive
industries These results have important policy implications for developing countries that
seek to boost export growth but many of which suffer from poor contracting institutions
Nominal Exchange Rate Dynamics and Monetary
Policy Uncovered Interest Rate Parity and Purchasing
Power Parity Revisited CEPR Discussion Paper No DP13235
33 Pages Posted 15 Oct 2018 Last revised 22 Oct 2018
Yossi Saadon Bank of Israel - Research Department
Nathan Sussman Hebrew University of Jerusalem
Date Written October 2018
Abstract
The increasing globalization of trade in goods and services and the deepening of financial
markets have reduced frictions that may impede the operation of the PPP and UIP
relationships in the short run In this paper we estimate the short term relative PPP and UIP
relationships Using data from Israel which has a deep market for inflation expectations for
12 months we show that relative PPP and UIP cannot be rejected Deviations from
equilibrium last less than a year Data from Israels capital account of the balance of payments
shows that the deviations are not destabilizing Our findings suggest that greater globalization
and financial deepening contribute to the effectiveness of monetary policy
Keywords Balance sheet effects Exchange Rates Inflation expectations monetary policy
purchasing power parity uncovered interest rate parity
Macroeconomic Effects of Chinas Financial Policies
by Kaiji Chen Tao Zha - 25222 (DEV EFG ME)
Abstract
The Chinese economy has undergone three major phases the
1978-1997 period marked as the SOE-led economy the 1998-2015
phase as the investment-driven economy and the new normal
economy since 2016 All three economies have been shaped by the
governments financial policies defined as a set of credit
policy monetary policy and regulatory policy We analyze the
macroeconomic effects of these financial policies throughout the
three phases and provide the stylized facts to substantiate our
analysis The stylized facts differ qualitatively across
different phases or economies We argue that the impacts of
Chinas financial policies work through transmission channels
different from those in developed economies and that a regime
switch from one economy to another was driven mainly by regime
changes in financial policies
httppapersnberorgpapersW25222utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Factor Incomes in Global Value Chains The Role of Intangibles
by Wen Chen Bart Los Marcel P Timmer - 25242 (EFG)
Abstract
Recent studies document a decline in the share of labour and a
simultaneous increase in the share of residual (factorless)
income in national GDP We argue the need for study of factor
incomes in cross-border production to complement country studies
We define a GVC production function that tracks the value added
in each stage of production in any country-industry We define a
new residual as the difference between the value of the final
good and the payments to all tangibles (capital and labour) in
any stage We focus on GVCs of manufactured goods and find the
residual to be large We interpret it as income for intangibles
that are (mostly) not covered in current national accounts
statistics We document decreasing labour and increasing capital
income shares over the period 2000-14 This is mainly due to
increasing income for intangible assets in particular in GVCs of
durable goods We provide evidence that suggests that the 2000s
should be seen as an exceptional period in the global economy
during which multinational firms benefitted from reduced labour
costs through offshoring while capitalising on existing
firm-specific intangibles such as brand names at little
marginal cost
httppapersnberorgpapersW25242utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Accounting for Firm Heterogeneity within US Industries Extended Supply-Use Tables and Trade
in Value Added using Enterprise and Establishment Level Data
by James J Fetzer Tina Highfill Kassu W Hossiso Thomas F Howells III Erich H Strassner
Jeffrey A Young - 25249 (ITI)
Abstract
This paper presents experimental tables created by the US
Bureau of Economic Analysis comparing industry-specific shares of
the components of total output of globally engaged firms located
in the United States that are part of a multinational enterprise
with those of firms that are part of an enterprise entirely
located in the United States Recent research has shown both the
importance of accounting for trade in value added when estimating
bilateral trade flows and that multinational enterprises located
in the United States account for the lions share of US trade
in goods and services However trade in value added is
typically accounted for using input-output tables that are
aggregated across all types of firms The experimental tables
are consistent with other research showing that value added as a
share of output is lower for foreign-owned firms compared with
domestic-owned firms and that exports and imports as a share of
output is larger for foreign-owned firms We also find
heterogeneity in the composition of output among different types
of domestic-owned firms Future work will analyze this
heterogeneity in more detail using establishment-level data on
production and trade
httppapersnberorgpapersW25249utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
The Falling Elasticity of Global Trade to Economic
Activity Testing the Demand Channel CESifo Working Paper No 7228
42 Pages Posted 31 Oct 2018
Marc Auboin World Trade Organization (WTO)
floriana borino World Trade Organization (WTO)
Date Written 2018
Abstract
Since the recovery from the great financial crisis in 2010 global real trade flows grew much
slower than pre-crisis in both absolute terms (growth rates) and relative terms (relative to
GDP from 21 in the great 1990rsquos to 11 since 2012) A debate has arisen as to whether this
global trade slowdown and related falling trade-to-income elasticity was structural or
cyclical Some papers emphasized the slowing pace of international vertical specialization
Other works emphasized the prominent role of aggregate demand notably when weighted by
its trade component Our paper goes in this latter direction We estimated the standard
import equation for 38 advanced and developing countries over the period 1995-2015 using
an import intensity-adjusted measure of aggregate demand (IAD) calculated from input-
output tables at country level and compared results with regressions using GDP The
integration of IAD allows us to predict 76 to 86 of the changes in global imports a better
performance than if using GDP The use of IAD also enabled us to measure the relative
importance of each component of demand according to their trade intensity The model is
able to account for over 90 of the recent trade slowdown (2012-2015) with IAD alone
explaining 80 of it The slowdown in global value chains explains more than half of the
remaining share of the global trade slowdown not explained by demand factors
Protectionism does not come up as statistically significant
Keywords investment global outlook trade policy trade forecasting business cycles
JEL Classification E220 F010 F130 F170 F440
Will Brexit Age Well Cohorts Seasoning and the Age-
Leave Gradient Past Present and Future CEPR Discussion Paper No DP13288
38 Pages Posted 5 Nov 2018
Barry Eichengreen University of California Berkeley National Bureau of Economic Research (NBER) Centre for Economic
Policy Research (CEPR)
Rebecca Mari Bocconi University
Gregory Thwaites London School of Economics amp Political Science (LSE) - London School of Economics
There are 3 versions of this paper
Date Written October 2018
Abstract
In the UKs 2016 referendum on EU membership young voters were more likely than their
elders to vote Remain Applying new methods to a half century of data we show that this
pattern reflects both ageing and cohort effects Although voters become more Eurosceptical as
they age recent cohorts are also more pro-European than their predecessors Much of the
pro-Europeanism of these recent cohorts is accounted for by their greater years of education
Going forward the ageing of the electorate will thus be offset at least in part by the
replacement of older cohorts with younger better-educated and more pro-European ones
But we also document large nationwide swings in sentiment that have little to do with either
seasoning or cohort effects Hence these demographic trends are unlikely to be the decisive
determinants of future changes in European sentiment Rather nationwide changes in
sentiment reflecting macroeconomic or other conditions and the age-turnout gradient will be
key
JEL Classification F0
Buying Votes and International Organizations The
Dirty Work-Hypothesis CEPR Discussion Paper No DP13290
62 Pages Posted 5 Nov 2018
Axel Dreher Heidelberg University
Valentin Lang University of Zurich
B Peter Rosendorff New York University (NYU) - Wilf Family Department of Politics
James Raymond Vreeland Georgetown University - School of Foreign Service and Department of Government
Date Written October 2018
Abstract
We show how major shareholders can exploit their power over international organizations to
hide their foreign-policy interventions from domestic audiences We argue that major powers
exert influence bilaterally when domestic audiences view the intervention favorably When
domestic audiences are more skeptical of a target country favors are granted via
international organizations We test this theory empirically by examining how the United
States uses bilateral aid and IMF loans to buy other countries votes in the United Nations
Security Council (UNSC) Introducing new data on voting behavior in the UNSC over the 1960-
2015 period our results show that states allied with the US receive more bilateral aid when
voting in line with the United States in the UNSC while concurring votes of states less allied
with the US are rewarded with loans from the IMF Temporary UNSC members that vote
against the United States do not receive such perks
Keywords Aid IMF United Nations Security Council voting World Bank
JEL Classification F35 O11 O19
Asset Prices and Macroeconomic Outcomes A Survey
BIS Working Paper No 676
106 Pages Posted 11 Dec 2017
Stijn Claessens
Ayhan Kose
Abstract
This paper surveys the literature on the linkages between asset prices and macroeconomic outcomes It
focuses on three major questions First what are the basic theoretical linkages between asset prices and
macroeconomic outcomes Second what is the empirical evidence supporting these linkages And third
what are the main challenges to the theoretical and empirical findings The survey addresses these
questions in the context of four major asset price categories equity prices house prices exchange rates
and interest rates with a particular focus on their international dimensions It also puts into perspective
the evolution of the literature on the determinants of asset prices and their linkages with macroeconomic
outcomes and discusses possible future research directions
Keywords equity prices exchange rates house prices interest rates credit output consumption
investment real-financial linkages macrofinancial linkages imperfections frictions
Economic Convergence in the Euro Area Coming Together or Drifting Apart
IMF Working Paper No 1810
48 Pages Posted 8 Feb 2018
Jeffrey R Franks
International Monetary Fund affiliation not provided to SSRN
Bergljot Barkbu
International Monetary Fund (IMF)
Rodolphe Blavy
International Monetary Fund (IMF) - African Department
William Oman
International Monetary Fund (IMF)
Hanni Schoelermann
International Monetary Fund (IMF)
Date Written January 2018
Abstract
We examine economic convergence among euro area countries on multiple dimensions While there was
nominal convergence of inflation and interest rates real convergence of per capita income levels has not
occurred among the original euro area members since the advent of the common currency Income
convergence stagnated in the early years of the common currency and has reversed in the wake of the
global economic crisis New euro area members in contrast have seen real income convergence Business
cycles became more synchronized but the amplitude of those cycles diverged Financial cycles showed a
similar pattern sychronizing more over time but with divergent amplitudes Income convergence requires
reforms boosting productivity growth in lagging countries while cyclical and financial convergence can be
enhanced by measures to improve national and euro area fiscal policies together with steps to deepen the
single market
Keywords Business cycles Economic integration Euro Area Financial cycles Convergence
synchronization Economic and Monetary Union Optimum Currency Area Financial Aspects of Economic
Integration
JEL Classification E32 F15 F36 O47
Structural Reforms Growth and Inequality An Overview of Theory Measurement and Evidence
CESifo Working Paper Series No 6812
52 Pages Posted 21 Feb 2018
Nauro F Campos
Brunel University London - Economics and Finance Centre for Economic Policy Research (CEPR) University
of Michigan at Ann Arbor - The William Davidson Institute IZA Institute of Labor Economics
Paul De Grauwe
London School of Economics amp Political Science (LSE) CESifo (Center for Economic Studies and Ifo Institute
for Economic Research) Centre for Economic Policy Research (CEPR)
Yuemei Ji
University College London - School of Slavonic and East European Studies
Multiple version iconThere are 2 versions of this paper
Date Written January 15 2018
Abstract
This paper provides a critical overview of the state of the art in the economics literature on structural
reforms It takes stock of theoretical developments measurement efforts and of the econometric evidence
We start with a simple theoretical framework for the relationship between structural reforms economic
growth and income inequality We argue that whether structural reforms have a positive or negative
impact depends on various factors The type of reform timing sequence and political constraints play
crucial roles in determining the effectiveness of reforms on economic growth and income inequality We
conclude by proposing a 7-point agenda for future research
Keywords structural reforms growth inequality
JEL Classification D600
Immigration assimilation and the future of public education
RyuichiTanaka LidiaFarre FrancescOrtega a
University of Tokyo Japan b
University of Barcelona Spain c
Queens College CUNY USA d
IAE-CSIC Spain
European Journal of Political Economy
Volume 52 March 2018 Pages 141-165
Abstract
This paper analyzes the effects of immigration on the size and quality of public education using a
quantitative political economy model that allows for a heterogeneous immigrant population Our analysis
distinguishes between short and long-run effects and accounts for the consequences of naturalization and
assimilation We use the model to analyze Spains large 2000ndash2008 immigration wave We find that
immigration led to a 15 increase in public enrollment in the short run together with a 3 reduction in
public education spending and almost a 1 percentage-point increase in the share of native households
using private schools Depending on the eventual degree of assimilation these trends will be greatly
intensified or mitigated once immigrants naturalize and gain the right to vote Our analysis suggests that
assimilation in terms of family size and the value assigned to childrens education are the most relevant
dimensions quantitatively We also show that immigration policies that favor one group over another can
significantly alter the overall effects of immigration on the schooling system
Global Financial Cycles and the Exchange Rate
Regime A Perspective from Emerging Markets CEPR Discussion Paper No DP12696
18 Pages Posted 14 Feb 2018
Maurice Obstfeld International Monetary Fund (IMF)
Jonathan D Ostry International Monetary Fund (IMF)
Mahvash Saeed Qureshi International Monetary Fund (IMF) - Research Department
Date Written February 2018
Abstract
This paper examines the relevance of exchange rate regimes in the transmission of global
financial shocks to domestic financial and macroeconomic conditions Our findings suggest
that even in todays highly financially integrated world the nominal exchange rate regime
does matter-at least for emerging market economies The transmission of global financial
shocks to domestic variables is magnified under fixed exchange rate regimes relative to more
flexible regimes For advanced economies however the jury is still out as the recent paucity
of truly fixed regimes among these economies poses a challenge for estimating the effect of
exchange rate flexibility
Keywords emerging market economies global financial cycle trilemma
JEL Classification F31 F36 F41
Firms Left Behind Emigration and Firm Productivity CESifo Working Paper Series No 6815
47 Pages Posted 21 Feb 2018
Yvonne Giesing
CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Nadzeya Laurentsyeva Centre for European Policy Studies (CEPS)
Date Written January 15 2018
Abstract
This paper establishes a causal link between the emigration of skilled workers and firm
performance in source countries Using firm-level panel data from ten Eastern European
countries we show that the emigration of skilled workers lowers firm total factor
productivity We exploit time country and industry differences in the opening of EU labor
markets from 2004 to 2014 as a source of exogenous variation in the emigration rates from
new EU member states We argue that a potential channel behind this effect relates to the
reduction in firm-specific human capital due to a higher worker turnover
Keywords migration firm productivity human capital EU enlargement
JEL Classification O150 D240 F220 J240
Reserve Currency Blocs A Changing International
Monetary System IMF Working Paper No 1820
43 Pages Posted 20 Feb 2018
Camilo E Tovar International Monetary Fund
Tania Mohd Nor International Monetary Fund (IMF)
Date Written January 2018
Abstract
What is the extent of currency diversification in the international monetary system How
hasit evolved over time In this paper we quantify the degree of currency diversification
usingregression methods of currency co-movements to determine the extent to which
nationalcurrencies across the world belong to a reserve currency bloc We then use these
estimates tocalculate the economic size of each currency bloc A key contribution of our paper
is that wequantify the size of the Chinese renminbi bloc Our analysis suggests that the
internationalmonetary system has transitioned from a bi-polar system - consisting of the US
dollar andthe euro - to a tri-polar one that includes the renminbi The dollar bloc is estimated
tocontinue to dominate having the largest share in global GDP (40 percent) followed by
therenminbi (30 percent) and the euro blocs (20 percent) The geographical area of influence
forthe RMB bloc appears to be most evident among the BRICS currencies The British
poundand the Japanese yen blocs appear to play minor roles
Keywords Economic integration Foreign exchange International monetary system
Currency Bloc Internatinal Monetary System International Monetary Arrangements and
Institutions Financial Aspects of Economic Integration Open Economy Macroeconomics
JEL Classification F15 F31 F33 F36 F41 O24
17 The US Gains from Trade Valuation Using the Demand for Foreign Factor Services
by Arnaud Costinot Andres Rodriguez-Clare - 24407 (ITI)
Abstract
About 8 cents out of every dollar spent in the United States is
spent on imports What if because of a wall or some other
extreme policy intervention imports were to remain on the other
side of the US border How much would US consumers be willing to
pay to prevent this hypothetical policy change from taking place
The answer to this question represents the welfare cost from
autarky or equivalently the welfare gains from trade In this
article we discuss how to evaluate these gains using the demand
for foreign factor services The estimates of gains from trade
for the US economy that we review range from 2 to 8 percent of
GDP
httppapersnberorgpapersW24407utm_campaign=ntwamputm_medium=emailamputm_source=ntw
A Dialogue between a Populist and an Economist CEPR Discussion Paper No DP12763
11 Pages Posted 6 Mar 2018
Tito Boeri Bocconi University - Department of Economics Centre for Economic Policy Research (CEPR) IZA Institute
of Labor Economics
Prachi Mishra Government of India - Reserve Bank of India
Chris Papageorgiou International Monetary Fund (IMF) - Research Department
Antonio Spilimbergo
International Monetary Fund (IMF) - Research Department Centre for Economic Policy Research (CEPR)
University of Michigan at Ann Arbor - The William Davidson Institute
Date Written February 2018
Abstract
In this imaginary dialogue a populist and an economist discuss the role of economic shocks to
explain populism A simple correlation between economic shocks and populism is weak
However economic shocks can explain well the phenomenon of populism in countries with
low pre-existent level of trust This is confirmed both at the macro cross-country level and
also by micro evidence obtained from surveys Finally this finding is consistent with the
ideational approach in political science which emphasizes how the populist narrative
opposes the corrupt elite to the virtuous people
Keywords Europe Political parties populism
JEL Classification A10 A12
International Capital Flow Pressures IMF Working Paper No 1830
59 Pages Posted 14 Mar 2018
Linda S Goldberg Federal Reserve Bank of New York National Bureau of Economic Research (NBER)
Signe Krogstrup IMF
There are 3 versions of this paper
Date Written February 2018
Abstract
This paper presents a new measure of capital flow pressures in the form of a recast
ExchangeMarket Pressure index The measure captures pressures that materialize in actual
internationalcapital flows as well as pressures that result in exchange rate adjustments The
formulation istheory-based relying on balance of payments equilibrium conditions and
international assetportfolio considerations Based on the modified exchange market pressure
index the paperalso proposes the Global Risk Response Index which reflects the country-
specific sensitivityof capital flow pressures to measures of global risk aversion For a large
sample of countriesover time we demonstrate time variation in the effects of global risk on
exchange marketpressures the evolving importance of the global factor across types of
countries and thechanging risk-on or risk-off status of currencies
Keywords Exchange Market Pressure Risk aversion Safe haven Capital flows Exchange
Rate Foreign Exchange Reserves Exchange Market Pressure Risk aversion Safe haven
Capital flows Exchange Rate Foreign Exchange Reserves Portfolio Choice General
JEL Classification F23 G11 G20 F32
Sovereign Defaults in Court CEPR Discussion Paper No DP12777
76 Pages Posted 13 Mar 2018
Julian Schumacher European Central Bank (ECB)
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Enderlein Henrik Hertie School of Governance
Date Written March 2018
Abstract
For centuries defaulting governments were immune from legal action by foreign creditors
This paper shows that this is no longer the case Building a dataset covering four decades we
find that creditor lawsuits have become an increasingly common feature of sovereign debt
markets The legal developments have strengthened the hands of creditors and raised the cost
of default for debtors We show that legal disputes in the US and the UK disrupt government
access to international capital markets as foreign courts can impose a financial embargo on
sovereigns The findings are consistent with theoretical models with creditor sanctions and
suggest that sovereign debt is becoming more enforceable We discuss how the threat of
litigation affects debt management government willingness to pay and the resolution of debt
crises
Keywords debt restructuring enforcement government financing sovereign default
JEL Classification F34 G15 H63 K22
Globalization and Income Inequality Revisited CESifo Working Paper Series No 6859
48 Pages Posted 20 Mar 2018
Florian Dorn
CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Clemens Fuest ifo Institute ndash Leibniz Institute for Economic Research at the University of Munich Ludwig-Maximilians-
University Munich Center for Economic Studies (CES)
Niklas Potrafke CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Date Written February 05 2018
Abstract
This paper re-examines the link between globalization and income inequality We use data for
140 countries over the period 1970-2014 and employ an IV approach to deal with the
endogeneity of globalization measures We find that the link between globalization and
income inequality differs across different groups of countries There is a robust positive
relationship between globalization and inequality in the transition countries including China
and most countries of Middle and Eastern Europe In the sample of the most advanced
economies neither OLS nor 2SLS results show any significant positive relationship between
globalization and inequality We conclude that institutions providing income insurance and
education which characterize most advanced economies but are less developed in transition
economies may have moderated effects of globalization on income inequality
Keywords globalization income inequality redistribution instrumental variable estimation
panel econometrics development levels transition economies China
JEL Classification D310 D630 F020 F600 C260 H110 H200
The US Gains from Trade Valuation Using the
Demand for Foreign Factor Services CEPR Discussion Paper No DP12788
34 Pages Posted 20 Mar 2018
Arnaud Costinot University of California San Diego (UCSD) - Department of Economics Massachusetts Institute of
Technology (MIT) - Department of Economics
Andres Rodriguez-Clare Inter-American Development Bank (IDB)
There are 2 versions of this paper
Date Written March 2018
Abstract
About 8 cents out of every dollar spent in the United States is spent on imports What if
because of a wall or some other extreme policy intervention imports were to remain on the
other side of the US border How much would US consumers be willing to pay to prevent this
hypothetical policy change from taking place The answer to this question represents the
welfare cost from autarky or equivalently the welfare gains from trade In this article we
discuss how to evaluate these gains using the demand for foreign factor services The
estimates of gains from trade for the US economy that we review range from 2 to 8 percent of
GDP
A Multidimensional Approach to Trade Policy
Indicators IMF Working Paper No 1832
38 Pages Posted 12 Mar 2018
Diego Cerdeiro International Monetary Fund (IMF)
Rachel Nam International Monetary Fund (IMF)
Date Written February 2018
Abstract
We present and discuss a set of indicators to help assess countries trade policies The
indicators relate to three policy areas - trade in goods trade in services and FDI Given
concerns about the direction of global trade policy we also consider a set of more granular
measures that reflect the evolution of countries policies since the 2008 financial crisis We
propose a simple approach to present the multidimensional aspects of trade policy that by
shedding light on relative openness across areas can facilitate policy discussions In the cross-
section of countries we find a diversity in the type of measures adopted both between and
(since the 2008 financial crisis) within policy areas lending support to the approach based on
multiple indicators The indicators time series suggest that advanced and especially
emerging economies are moving toward more open regimes over time although recently
progress has with some exceptions slowed across the board Lastly our findings also call for
stronger efforts to objectively quantify the different aspects of countries trade regimes More
data both across countries and in terms of policy areas that significantly affect trade are
needed for better-informed policy discussions
Keywords Foreign direct investment Trade policy indicators trade in goods services trade
trade barriers General Country and Industry Studies of Trade
JEL Classification F10 F14
Corporate Indebtedness and Low Productivity
Growth of Italian Firms IMF Working Paper No 1833
47 Pages Posted 12 Mar 2018
Gareth Anderson Bank of England
Mehdi Raissi International Monetary Fund (IMF) - Asia and Pacific Department
Date Written February 2018
Abstract
Productivity growth in Italy has been persistently anemic and has lagged that of the euro area
over the period 1999-2015 while the indebtedness of its corporate sector has increased
Using the ORBIS firm-level database this paper studies the long-term impact of persistent
corporate-debt accumulation on the productivity growth of Italian firms and investigates
whether total factor productivity growthvaries with the level of corporate indebtedness We
employ a novel estimation technique proposed by Chudik Mohaddes Pesaran and Raissi
(2017) to account for dynamics bi-directional feedback effects cross-firm heterogeneity and
cross-sectional dependence arising from unobserved common factors (for example oil price
shocks labor and product market frictions and stance of global financial cycle) Filtering out
the effects of unobserved common factors and controlling for firm specific characteristics we
find significant negative effects of persistent corporate debt build-up on total factor
productivity growth and weak evidence of a threshold level of corporate debt beyond which
productivity growth drops off significantly Our results have strong policy implications for
example the design of the tax system should discourage persistent corporate debt
accumulation and effective and timely frameworks to reduce corporate debt overhangs are
essential
Keywords Productivity Europe Italy Corporate debt dynamic heterogeneous panel
threshold models cross-sectional dependence Models with Panel Data Firm Behavior
Empirical Analysis General
JEL Classification C23 D22 D24 G30
Regulatory Cycles Revisiting the Political Economy of
Financial Crises IMF Working Paper No 188
90 Pages Posted 21 Mar 2018
Jihad C Dagher International Monetary Fund (IMF) - Research Department
There are 2 versions of this paper
Date Written January 2018
Abstract
Financial crises are traditionally analyzed as purely economic phenomena The political
economy of financial booms and busts remains both under-emphasized and limited to isolated
episodes This paper examines the political economy of financial policy during ten of the most
infamous financial booms and busts since the 18th century and presents consistent evidence
of pro-cyclical regulatory policies by governments Financial boomsand risk-taking during
these episodes were often amplified by political regulatory stimuli credit subsidies and an
increasing light-touch approach to financial supervision The regulatory backlash that ensues
from financial crises can only be understood in the context of the deep political ramifications
of these crises Post-crisis regulations do not always survive the following boom The
interplay between politics and financial policy over these cycles deserves further attention
History suggests that politics can be the undoing of macro-prudential regulations
Keywords Political economy Political economy Financial crises Financial Regulation Boom-
Bust Cycles Economic Models of Political Processes Rent-Seeking Elections Legislatures and
Voting Behavior Positive Analysis of Policy-Making and Implementation General
Government Policy and Regulation General
JEL Classification D72 D78 G10 G18 N00 P16
Rationality in Economics Theory and Evidence CESifo Working Paper Series No 6872
26 Pages Posted 21 Mar 2018
Sanjit Dhami University of Leicester - Department of Economics
Ali al-Nowaihi University of Leicester - Department of Economics
Date Written February 12 2018
Abstract
We examine the various senses in which economist use the term ldquorationalityrdquo and then outline
some of the commonly drawn implications and auxiliary assumptions Finally we confront the
implications with the empirical evidence drawing on the insights from the exciting new field
of behavioral economics
Keywords rationality self-regarding preferences efficient markets heuristics optimization
JEL Classification B400
Nudging and Environmental Corporate
Responsibility A Natural Experiment CEIS Working Paper No 426
22 Pages Posted 3 Apr 2018
Leonardo Becchetti University of Rome Tor Vergata - Faculty of Economics
Francesco Salustri University of Rome Tor Vergata - Department of Economics and Finance University of Turin - Department
of Economics and Statistics
Pasquale Scaramozzino University of Rome II - Faculty of Economics University of London - School of Oriental and African Studies
(SOAS) University of London - Centre for Financial and Management Studies (CeFIMS)
Date Written April 3 2018
Abstract
We devise a lsquonudgingrsquo natural experiment to test the impact of a simple form of advertising on
environmentally responsible products withwithout the increase of the responsible product
price We find that the simple use of a small shelf-poster explaining the importance of buying
a green product (withwithout a concurring price increase) generates significant changes in
market shares for some of the product classes for both food and non-food products Part of
the effect is generated by the reduced price elasticity of consumers to the poster-plus-price-
increase treatment
Keywords nudging environmental sustainability randomised field experiment
JEL Classification C93 D12 M14 Q56
11 The Role of Financial Policy
by Roger Farmer - 24498 (EFG ME)
Abstract
I review the contribution and influence of Milton Friedmans 1968
presidential address to the American Economic Association I
argue that Friedmans influence on the practice of central
banking was profound and that his argument in favour of monetary
rules was responsible for thirty years of low and stable
inflation in the period from 1979 through 2009 I present a
critique of Friedmans position that market-economies are
self-stabilizing and I describe an alternative reconciliation of
Keynesian economics with Walrasian general equilibrium theory
from that which is widely accepted today by most neo-classical
economists
httppapersnberorgpapersW24498utm_campaign=ntwamputm_medium=emailamputm_source=ntw
5 Immigrant Entrepreneurship in America Evidence from the Survey of Business Owners 2007 amp 2012
by Sari Pekkala Kerr William R Kerr - 24494 (LS PR)
Abstract
We study immigrant entrepreneurship and firm ownership in 2007
and 2012 using the Survey of Business Owners (SBO) The survival
and growth of immigrant-owned businesses over time relative to
native-founded companies is evaluated by linking the 2007 SBO to
the Longitudinal Business Database (LBD) We quantify the
dependency of the United States as a whole as well as individual
states on the contributions of immigrant entrepreneurs in terms
of firm formation and job creation We describe differences in
the types of businesses started by immigrants and the quality of
jobs created by their firms First-generation immigrants create
about 25 of new firms in the United States but this share
exceeds 40 in some states In addition Asian and Hispanic
second-generation immigrants start about 6 of new firms
Immigrant-owned firms on average create fewer jobs than
native-owned firms but much of this is explained by the industry
and geographic location of the firms Immigrant-owned firms pay
comparable wages conditional on firm traits to native-owned
firms but are less likely to offer benefits
httppapersnberorgpapersW24494utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Effects of Foreign Aid on Refugee Flows CESifo Working Paper Series No 6885
49 Pages Posted 9 Apr 2018
Axel Dreher University of Heidelberg
Andreas Fuchs University of Heidelberg - Alfred Weber Institute for Economics
Sarah Langlotz University of Heidelberg
There are 2 versions of this paper
Date Written February 15 2018
Abstract
This article analyzes whether foreign aid affects the net flows of refugees from recipient
countries Combining refugee data on 141 origin countries over the 1976-2013 period with
bilateral Official Development Assistance data we estimate the causal effects of a countryrsquos
aid receipts on both total refugee flows to the world and flows to donor countries The
interaction of donor-government fractionalization and a recipient countryrsquos probability of
receiving aid provides a powerful and excludable instrumental variable when we control for
country- and time-fixed effects that capture the levels of the interacted variables Although
our results suggest that aid induces recipient governments to encourage the return of their
citizens we find no evidence that aid reduces worldwide refugee outflows or flows to donor
countries in the short term However we observe long-run effects after four three-year
periods which appear to be driven by lagged positive effects of aid on growth
Keywords foreign aid Official Development Assistance migration refugees displaced
people humanitarian crises repatriation policies
JEL Classification F220 F350 F590 H840 O150 O190
The Political Economy of Ideas On Ideas Versus
Interests in Policymaking CEPR Discussion Paper No DP12820
44 Pages Posted 5 Apr 2018
Sharun Mukand University of Warwick - Department of Economics
Dani Rodrik Harvard University - Harvard Kennedy School (HKS) Centre for Economic Policy Research (CEPR)
National Bureau of Economic Research (NBER)
There are 2 versions of this paper
Date Written March 2018
Abstract
We develop a conceptual framework to highlight the role of ideas as a catalyst for policy and
institutional change We make an explicit distinction between ideas and vested interests and
show how they feed into each other In doing so the paper integrates the Keynes-Hayek
perspective on the importance of ideas with the currently more fashionable Stigler-Becker
(in-terests only) approach to political economy We distinguish between two kinds of
ideational politics acircldquo the battle among different worldviews on the efficacy of policy
(worldview politics) versus the politics of victimhood pride and identity (identity politics)
Political entrepreneurs discover identity and policy memes (narratives cues framing) that
shifts beliefs about how the world works or a persons belief of who he is (ie identity) Our
framework identifies a complementarity between worldview politics and identity politics and
illustrates how they may reinforce each other In particular an increase in identity
polarization may be associated with a shift in views about how the world works Furthermore
an increase in income inequality is likely to result in a greater incidence of ideational politics
Finally we show how ideas may not just constrain but also bite the interests that helped
propagate them in the first instance
Should Unemployment Insurance Be Centralized in a
State Union CESifo Working Paper Series No 6898
27 Pages Posted 19 Apr 2018
Robert Fenge University of Rostock - Department of Economics
Max Friese University of Rostock
Date Written February 21 2018
Abstract
This paper compares the decentral organization of unemployment insurance in member
states of a state union with the central organization at the upper unionrsquo level In a model of
two countries the labor force and the firm owners can migrate between the states Labor
markets exhibit unemployment due to trade unionrsquos bargaining about the wage rate In a
decentral scenario the states organize independently unemployment insurance and decide
about the rate on wages contributed to the insurance budget Due to open borders they have
to take account of migration effects However with perfect mobility between the states each
government chooses a socially optimal contribution rate such that workers are fully insured
against unemployment In the central scenario the governments overestimate the costs of
insurance when bargaining about the contribution rate and observing the common insurance
budget of both countries This leads to a less than socially optimal contribution rate
Keywords unemployment insurance policy state union centralization migration
externalities
JEL Classification F660 H770 J650
Paris Climate Agreement and the Global Economy
Winners and Losers World Bank Policy Research Working Paper No 8392
Posted 3 Apr 2018
Muthukumara Mani World Bank
Zekarias Hussein Purdue University
G Badri Narayanan Purdue University - Center for Global Trade Analysis
Deepika Wadhwa India Habitat Centre - Indian Council for Research on International Economic Relations (ICRIER)
Date Written April 2 2018
Abstract
The 2015 Paris Climate Agreement was the first instance of countries adhering to take a
collective action against global warming More than 190 countries came forward and
submitted their contributions in the form of Intended Nationally Determined Contributions
reflective of their ability and capacity to reduce greenhouse gas emissions as each country set
its own targets and actions For some countries it meant a significant decline in their
emissions by 2030 while others like China the United States and India decided on a more
gradual phasing out extending beyond 2030 This paper estimates the economic impacts of
implementation of the Paris Climate Agreement in terms of its implications for welfare gross
domestic product investments and trade for major countries and regions It uses a
computable general equilibrium framework to model global regional and country impacts
The analysis suggests that the economic impacts will be mostly felt in the European Union if
the Paris Agreement is fully implemented The European Union is likely to suffer a welfare
loss of 10 to 15 percent by 2030 Among non-European countries Australia New Zealand
and Mexico will also be affected with an expected welfare loss of about 15 percent Some of
the major emitters such as China and India will experience minimal impacts to their welfare
and the United States will experience a welfare loss of only about 07 by 2030 The sectoral
analysis of production and trade suggests a significant loss to fossil fuelbased sectors while
clean energy sectors can experience significant gains
Keywords International Trade and Trade Rules Energy and Mining Energy and
Environment Energy Demand Global Environment Energy Policies amp Economics Science of
Climate Change Climate Change and Environment Climate Change and Health
Immigrants Residential Choices and Their
Consequences CEPR Discussion Paper No DP12842
59 Pages Posted 12 Apr 2018
Christoph Albert Universitat Pompeu Fabra Students
Joan Monras Sciences Po - Department of Economics Centre for Monetary and Financial Studies (CEMFI)
There are 2 versions of this paper
Date Written April 2018
Abstract
This paper investigates the causes and effects of the spatial distribution of immigrants across
US cities We document that a) immigrants concentrate in large high-wage expensive cities
b) the earnings gap between immigrants and natives is higher in larger more expensive cities
and c) immigrants consume less locally than natives In order to explain these findings we
develop a quantitative spatial equilibrium model in which immigrants consume a fraction of
their income in their countries of origin Thus immigrants care not only about local prices but
also about price levels in their home countries This gives them a comparative advantage
relative to natives for living in high-wage high-price high-productivity cities where they also
accept lower wages than natives These incentives are stronger for immigrants coming from
lower-price index countries of origin We rely on immigrant heterogeneity to estimate the
model With the estimated model we show that current levels of immigration have reduced
economic activity in smaller less productive cities by around 5 percent while they have
expanded it in large productive cities by around 6 percent This has increased total aggregate
output per worker by around 03 percent We also discuss the welfare implications of these
results
Keywords Immigration location choices spatial equilibrium
JEL Classification F22 J31 J61 R11
The Cost of Non-Europe Revisited CEPR Discussion Paper No DP12844
48 Pages Posted 12 Apr 2018
Thierry Mayer Sciences Po
Vincent Vicard Banque de France
Soledad Zignago Banque de France
There are 2 versions of this paper
Date Written April 2018
Abstract
In this paper we quantify the Cost of Non-Europe ie the trade-related welfare gains each
country member has reaped from the European Union Thirty years after the terminology of
Non-Europe was used to give estimates of the gains from further integration we use modern
versions of the gravity model to estimate the trade creation implied by the EU and apply
those to counterfactual exercises where for instance the EU returns to a normal shallow-
type regional agreement or reverts to WTO rules Those scenarios are envisioned with or
without the exit of the United Kingdom from the EU (Brexit) happening which points to
interesting cross-country differences and potential cascade effects in doing and undoing of
trade agreements
Keywords European Union Gravity trade integration
JEL Classification F1
The Political Impact of Immigration Evidence from
the United States CEPR Discussion Paper No DP12848
57 Pages Posted 12 Apr 2018
Anna Maria Mayda
Georgetown University - Department of Economics IZA Institute of Labor Economics
Giovanni Peri University of California Davis - Department of Economics
Walter Steingress Government of Canada - Bank of Canada
Date Written April 2018
Abstract
In this paper we study the impact of immigration to the United States on the vote for the
Republican Party by analyzing county-level data on election outcomes between 1990 and
2010 Our main contribution is to separate the effect of high-skilled and low-skilled
immigrants by exploiting the different geography and timing of the inflows of these two
groups of immigrants We find that an increase in the first type of immigrants decreases the
share of the Republican vote while an inflow of the second type increases it These effects are
mainly due to the local impact of immigrants on votes of US citizens and they seem
independent of the country of origin of immigrants We also find that the pro-Republican
impact of low-skilled immigrants is stronger in low-skilled and non-urban counties This is
consistent with citizens political preferences shifting towards the Republican Party in places
where low-skilled immigrants are more likely to be perceived as competition in the labor
market and for public resources
Keywords Economic and Fiscal Channels Electoral Effects Immigration Republican Party
JEL Classification F22 J61
15 Escaping Import Competition and Downstream Tariffs
by Ana Cecilia Fieler Ann Harrison - 24527 (EEE ITI)
Abstract
We propose and provide evidence for a new source of gains from
trade Firms invest in product differentiation to escape import
competition In the data and in the model these investments are
associated with increases in measured productivity introduction
of new goods and shifts to skill-intensive sectors Investment
in differentiation downstream leads upstream firms to also
invest in differentiation For China these downstream tariff
reductions lead to big increases in measured productivity for
upstream suppliers The effect on measured productivity is
larger for upstream than for downstream firms and we explain
this difference theoretically through heterogeneous changes in
markups
httppapersnberorgpapersW24527utm_campaign=ntwamputm_medium=emailamputm_source=ntw
20 The Production of Cognitive and Non-cognitive Human Capital in the Global Economy
by Chong Xiang Stephen Yeaple - 24524 (ITI)
Abstract
A countrys welfare depends on its ability to accumulate
cognitive and noncognitive human capital However we do not
fully understand what makes some countries successful at
producing human capital and even struggle with measurement eg
international test scores are informative about the cognitive
dimension but neglect the non-cognitive dimension In this
paper we develop a multi-country open-economy
general-equilibrium framework in which countries ability to turn
resources into human capital along the cognitive and
non-cognitive dimensions is revealed by the endogenous
educational and occupational choices of its citizens and their
subsequent performance on international exams Our model allows
us to estimate countries underlying productivities of cognitive
and non-cognitive human capital We find that high test scores
do not necessarily imply high cognitive productivities (eg
Switzerland Hong Kong) and that many countries with low test
scores have high non-cognitive productivities (eg the US and
UK)
We then aggregate over these two dimensions to construct a single
educational quality index and illustrate its intuition using an
iso-education-quality curve We use our model to decompose
variation in output per capita across countries into a component
involving the educational quality index and another involving
output TFP This exact decomposition shows that the differences
in cognitive and noncognitive productivities across countries
have large implications for differences in output per worker
These results help quantify the potential payoffs of education
policies and clarify their objective eg excessive attention
to test scores may decrease aggregate output
International trade plays an important role in our model because
the gains from trade help to compensate a country for uneven
productivity across human capital types In counterfactual
exercises we show that if barriers to trade are completely
eliminated we would obtain a very different
iso-education-quality curve This implies large improvements of
overall education quality and large gains from trade for the
countries with strong comparative advantages in producing
cognitive (eg S Korea would gain 301 to 441 of its
output) or non-cognitive human capital (eg the Netherlands
would gain 188 to 556)
httppapersnberorgpapersW24524utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Il Contributo Della Demografia Alla Crescita
Economica Duecento Anni Di ldquoStoriardquo Italiana (The
Contribution of Demography to Italys Economic
Growth A Two-Hundred-Year-Long Story) Bank of Italy Occasional Paper No 431
37 Pages Posted 20 Apr 2018
Federico Barbiellini Amidei Bank of Italy
Matteo Gomellini Bank of Italy
Paolo Piselli Bank of Italy
Date Written March 28 2018
Abstract
Italian Abstract Questo lavoro esamina il contributo della demografia alla crescita
economica confrontando lrsquoItalia del passato quella di oggi e quella che vivremo in futuro
Attraverso una scomposizione contabile della crescita del PIL e del PIL pro capite si mostra
come le modifiche nella struttura per etagrave della popolazione abbiano prodotto nel passato piugrave
lontano un demographic dividend positivo Al contrario negli ultimi venticinque anni e con
ogni probabilitagrave nel futuro la demografia ha dato e daragrave un contributo diretto sensibilmente
negativo alla crescita economica I flussi migratori previsti limiteranno lrsquoampiezza di tale
contributo negativo ma non saranno in grado di invertirne il segno Nel lavoro si valutano tre
sviluppi potenzialmente indotti dagli stessi fattori demografici o da azioni di policy ndash
lrsquoestensione della vita lavorativa lrsquoaumento della partecipazione femminile al mercato del
lavoro e lrsquoincremento nei livelli di istruzione ndash che potranno contrastare i puri effetti contabili
legati allrsquoevoluzione nella struttura per etagrave
English Abstract This paper examines the contribution of demography to economic growth
in Italy by comparing the countryrsquos past present and future We use an accounting framework
to decompose GDP and per capita GDP growth and we show how changes in the age structure
of the population produced a positive demographic dividend in the past By contrast in the
last twenty-five years and arguably in the future demography has made and will continue to
make a direct negative contribution to economic growth Expected migration flows will
noticeably limit the extent of this negative contribution but they will not be able to reverse its
sign We analyze three possible developments potentially driven by demography itself or
fostered by policy actions ndash longer working lives an increase in female labour market
participation and higher education levels ndash which could counteract the pure negative
accounting effects produced by the evolution of the age structure
Note Downloadable document is in Italian
Keywords economic history demography demographic dividend forecasts
JEL Classification J11 N30
The Effects of Cash Transfers on Adult Labor Market
Outcomes World Bank Policy Research Working Paper No 8404
29 Pages Posted 16 Apr 2018
Sarah Baird George Washington University - School of Public Health and Health Services (SPHHS)
David J McKenzie World Bank - Development Research Group (DECRG) IZA Institute of Labor Economics
Berk Ozler World Bank - Development Economics Research Group (DECRG)
Date Written April 12 2018
Abstract
The basic economic model of labor supply has a very clear prediction of what should be
expected when an adult receives an unexpected cash windfall they should work less and earn
less This intuition underlies concerns that many types of cash transfers ranging from
government benefits to migrant remittances will undermine work ethics and make recipients
lazy This paper discusses a range of additional channels to this simple labor-leisure trade-off
that can make this intuition misleading in low- and middle-income countries including
missing markets price effects from conditions attached to transfers and dynamic and general
equilibrium effects The paper uses this as a lens through which to examine the evidence on
the adult labor market impacts of a wide range of cash transfer programs government
transfers charitable giving and humanitarian transfers remittances cash assistance for job
search cash transfers for business start-up and bundled interventions Overall cash transfers
that are made without an explicit employment focus (such as conditional and unconditional
cash transfers and remittances) tend to result in little to no change in adult labor The main
exceptions are transfers to the elderly and some refugees who reduce work In contrast
transfers made for job search assistance or business start-up tend to increase adult labor
supply and earnings with the likely main channels being the alleviation of liquidity and risk
constraints
Keywords Economic Assistance Disability Services amp Transfers to Poor Access of Poor to
Social Services Employment and Unemployment Labor Markets Rural Labor Markets Health
Care Services Industry
Globalisation and Urban Polarisation CEPR Discussion Paper No DP12877
24 Pages Posted 23 Apr 2018
Anthony J Venables University of Oxford Centre for Economic Policy Research (CEPR)
Date Written April 2018
Abstract
External trade affects the internal spatial structure of an economy promoting growth in some
cities or regions and decline in others Internal adjustment to these changes has often proved
to be extremely slow and painful This paper combines elements of urban and international
economics to draw out the implications of trade shocks for city performance Localisation
economies in production of internationally tradable goods mean that cities divide into two
types those producing tradables and those specialising in sectors producing just for the
national market (non-tradables) Negative trade shocks (and possibly also some positive
ones) reduce the number of cities engaged in tradable production increasing the number
producing just non-tradables This has a negative effect across all non-tradable cities which
lose population and land value Remaining tradable cities boom gaining population and land
value Depending on the initial position city size dispersion may increase this raising the
share of urban land-rents in national income and reducing the share of labour
Keywords de-industrialisation globalisation Polarisation urban
JEL Classification F12 R11 R12
Place-Based Policies for Development World Bank Policy Research Working Paper No 8410
75 Pages Posted 24 Apr 2018
Gilles Duranton University of Pennsylvania - Real Estate Department
Anthony J Venables University of Oxford Centre for Economic Policy Research (CEPR)
There are 3 versions of this paper
Date Written April 17 2018
Abstract
Many development policies such as placement of infrastructure or local economic
development schemes are place-based Such policies are generally intended to stimulate
private sector investment and economic growth in the treated place and as such they are
difficult to appraise and evaluate This paper sets out a framework for analyzing the effects of
such policies and assessing their social value It then reviews the literature on place-based
policies in the contexts of transport improvements economic corridors special economic
zones lagging regions and urban policies
Keywords Transport Services Labor Markets Urban Governance and Management Urban
Housing and Land Settlements Municipal Management and Reform Urban Housing
Macroeconomic Management Economic Forecasting Governance Diagnostic Capacity
Building Textiles Apparel amp Leather Industry Common Carriers Industry Food amp Beverage
Industry Business Cycles and Stabilization Policies Plastics amp Rubber Industry General
Manufacturing Construction Industry Pulp amp Paper Industry
Evidence on Finance and Economic Growth ECB Working Paper No 2115 ISBN 978-92-899-3031-4
79 Pages Posted 8 Dec 2017
Alexander A Popov European Central Bank (ECB)
Date Written December 6 2017
Abstract
This paper reviews and appraises the body of empirical research on the association between
financial markets and economic growth that has accumulated over the past quarter-century
The bulk of the historical evidence suggests that financial development affects economic
growth in a positive monotonic way yet recent research endeavors have provided useful and
important qualifications of this conventional wisdom Moreover the proliferation of micro-
level datasets has enabled researchers to study more precise links between theory and
measurement The paper highlights the mechanisms through which financial markets benefit
society as well as the channels through which finance can slow down long-term growth
Keywords financial markets growth
JEL Classification O4 G1
Why Has Economic Growth Slowed When Innovation Appears to be Accelerating
by Robert J Gordon - 24554 (DAE EFG PR)
Abstract
Measured between quarters with identical unemployment rates U
S economic growth slowed by more than half from 32 percent per
year during 1970-2006 to only 14 percent during 2006-16 and
only half of this GDP growth slowdown is accounted for diminished
productivity growth The paper starts from the proposition that
GDP growth matters not just productivity growth because slower
GDP growth provides fewer resources to address the nations
problems including faltering education aging infrastructure
and the looming shortfall in funding for Social Security and
Medicare and it also implies lower net investment and a reduced
rate at which new capital can embody the latest technology
The paper documents the contribution to slower GDP growth of the
separate components of demography -- fertility mortality life
expectancy and immigration Particular emphasis is placed on
the interaction between rising inequality and the slower secular
rise of life expectancy in the US compared to other developed
countries both in the form of a large gap in life expectancy
between rich and poor and the stagnation of life expectancy for
the lowest income quintile Further contributions to slowing
growth are made by a decline in the population share of both
legal and illegal immigration and a turnaround from rising to
declining labor force participation Rising inequality creates a
gap between the growth of average real per-capita income relative
to that of median real income and alternative measures of the
evolution of this gap are compared and assessed
Causes of declining productivity growth begin with the slowdown
in the rate of increase of educational attainment resulting from
the interplay of demand and supply factors including the
flattening of the college wage premium and the rising relative
price of college education Why did productivity growth decline
after 2006 despite an increase in the rate at which new US
patents were issued in 2006-16 compared to earlier decades Part
of the slowdown is attributed to the maturity of the IT
revolution which also helps to explain the trajectory of the
college wage premium Aspects of the productivity growth
slowdown include the declining productivity of research workers
diminishing returns to drug innovation and the evolutionary
rather than revolutionary impact of robots and artificial
intelligence which are replacing workers slowly and only in a
minority of industrial sectors throughout the economy Also
considered are alternative explanations of slower productivity
growth including low investment and mismeasurement
httppapersnberorgpapersW24554utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Childbearing Postponement its Option Value and the
Biological Clock CEPR Discussion Paper No DP12884
48 Pages Posted 23 Apr 2018
David de la Croix Catholic University of Louvain (UCL) - Institut de Recherches Economiques et Sociales (IRES) Catholic
University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)
Aude Pommeret Universiteacute de Savoie
Date Written April 2018
Abstract
Having children is like investing in a risky project Postponing birth is like delaying an
irreversible investment It has an option value which depends on its costs and benefits and in
particular on the additional risks motherhood brings We develop a parsimonious theory of
childbearing postponement along these lines We derive its implications for asset
accumulation income optimal age at first birth and childlessness The structural parameters
are estimated by matching the predictions of the model to data from the National Longitudinal
Survey of Youth NLSY79 The uncertainty surrounding income growth is shown to increase
with childbearing and this increase is stronger for more educated people This effect alone
can explain why the age at first birth and the childlessness rate both increase with education
We use the model to simulate two hypothetical policies Providing free medically assisted
reproduction technology does not affect the age at first birth much but lowers the
childlessness rate Insuring mothers against income risk is powerful in lowering the age at
first birth
Keywords Assisted reproduction technology Career uncertainty Late parenthood Real
option
JEL Classification D91 J13
Economic Upgrading Through Global Value Chain
Participation Which Policies Increase the Value
Added Gains World Bank Policy Research Working Paper No 8007
45 Pages Posted 1 May 2018
Victor Kummritz World Trade Organization (WTO) Graduate Institute of International and Development Studies (IHEID)
Daria Taglioni European Central Bank (ECB) - Directorate General Economics
Deborah E Winkler World Bank
Date Written March 16 2017
Abstract
The emergence of global value chains has opened up new ways to achieve development and
industrialization However new evidence shows that not all countries have gained from
participating in global value chains and that country-specific characteristics matter for
economic upgrading in global value chains This paper uses two panel data sets of developing
and industrialized countries at the sectoral level to relate global value chain participation as a
buyer and seller to domestic value added These are combined with a wide range of policy
measures at the country level that can play a role in economic upgrading through global value
chains by targeting global value chain integration or the quality and conditions of input and
output factors First the study finds that global value chain integration increases domestic
value added especially on the selling side which holds across all income levels Second the
results highlight the importance of policy for economic upgrading through global value chain
integration Although the study cannot claim causal evidence all the assessed policy areas are
consistently shown to mediate the effects of global value chains and magnify the gains for
domestic value added Third a detailed analysis shows that several policy areas mediate the
gains from global value chains more through integration as a seller Finally the study
observes that many of the results are driven by high- and upper-middle-income countries
Keywords International Trade and Trade Rules Labor Markets Rural Labor Markets Food amp
Beverage Industry Construction Industry Business Cycles and Stabilization Policies General
Manufacturing Common Carriers Industry Textiles Apparel amp Leather Industry Pulp amp Paper
Industry Plastics amp Rubber Industry Global Environment
Job Vacancies and Immigration Evidence from Pre- and Post-Mariel Miami
by Jason Anastasopoulos George J Borjas Gavin G Cook Michael Lachanski - 24580 (LS)
Abstract
How does immigration affect labor market opportunities in a
receiving country This paper contributes to the voluminous
literature by reporting findings from a new (but very old) data
set Beginning in 1951 the Conference Board constructed a
monthly job vacancy index by counting the number of help-wanted
ads published in local newspapers in 51 metropolitan areas We
use the Help-Wanted Index (HWI) to document how immigration
changes the number of job vacancies in the affected labor
markets Our analysis begins by revisiting the Mariel episode
The data reveal a marked decrease in Miamis HWI relative to many
alternative control groups in the first 4 or 5 years after
Mariel followed by recovery afterwards We find a similar
initial decline in the number of job vacancies after two other
supply shocks that hit Miami over the past few decades the
initial wave of Cuban refugees in the early 1960s as well as the
1995 refugees who were initially detoured to Guantanamo Bay We
also look beyond Miami and estimate the generic spatial
correlations that dominate the literature correlating changes in
the HWI with immigration across metropolitan areas These
correlations consistently indicate that more immigration is
associated with fewer job vacancies The trends in the HWI seem
to most strongly reflect changing labor market conditions for
low-skill workers (in terms of both wages and employment) and a
companion textual analysis of help-wanted ads in Miami before and
after the Mariel supply shock suggests a slight decline in the
relative number of low-skill job vacancies
httppapersnberorgpapersW24580utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Somatic Distance Cultural Affinities Trust and Trade CEPR Discussion Paper No DP12895
21 Pages Posted 1 May 2018
Jacques Melitz National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and
Statistics (CREST) Centre for Economic Policy Research (CEPR)
Farid Toubal Ecole Normale Superieure de Cachan (ENS) - Departement of Economics ans Management National
Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics
(CREST) Centre dEtudes Prospectives et dInfo Internationales (CEPII)
Date Written April 2018
Abstract
Somatic distance or differences in physical appearance proves to be extremely important in
the gravity model of bilateral trade in conformity with results in other areas of economics and
outside of it in the social sciences This is also true quite independently of survey evidence
about bilateral trust These findings are obtained in a sample of the 15 members of the
European Economic Association in 1996 Robustness tests also show that somatic distance
has a more reliable influence on bilateral trade than the other cultural variables The article
finally discusses the interpretation and the breadth of application of these results
Keywords Bilateral Trade Cultural interactions Language Somatic distance Trust
The Paradox of Global Thrift CEPR Discussion Paper No DP12894
59 Pages Posted 1 May 2018
Luca Fornaro Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) Barcelona Graduate
School of Economics (Barcelona GSE)
Federica Romei LUISS Guido Carli University
Date Written April 2018
Abstract
This paper describes a paradox of global thrift Consider a world in which interest rates are
low and monetary policy cannot stabilize the economy because it is frequently constrained by
the zero lower bound Now imagine that governments complement monetary policy with
prudential financial and fiscal policies because they perceive that limiting private and public
borrowing during booms will help stabilize the economy by reducing the risk of financial
crises and by creating space for fiscal interventions during busts We show that these policies
while effective from the perspective of individual countries might backfire if applied on a
global scale In a financially integrated world in fact prudential policies generate a rise in the
global supply of savings or equivalently a drop in global aggregate demand In turn weaker
global aggregate demand depresses output in countries whose monetary policy is constrained
by the zero lower bound Due to this effect the world might paradoxically experience a fall in
output and welfare following the implementation of well-intended prudential policies
Keywords aggregate demand externalities Capital Flows current account policies fiscal
policies international cooperation Liquidity traps macroprudential policies zero lower
bound
JEL Classification E32 E44 E52 F41 F42
Multihorizon Currency Returns and Purchasing
Power Parity CEPR Discussion Paper No DP12893
59 Pages Posted 1 May 2018
Mikhail Chernov UCLA Anderson
Drew Creal University of Chicago - Booth School of Business - Econometrics and Statistics
There are 2 versions of this paper
Date Written April 2018
Abstract
Exposures of expected future depreciation rates to the current interest rate differential
violate the UIP hypothesis in a distinctive pattern that is a non-monotonic function of horizon
Conversely forward risk-adjusted expected depreciation rates are monotonic We explain the
two patterns by incorporating the weak form of PPP into a no-arbitrage joint model of the
depreciation rate inflation differential domestic and foreign yield curves Short-term
departures from PPP generate the first pattern The risk premiums for these departures
generate the second pattern
Keywords affine term structure model cointegration multiple horizons purchasing power
parity uncovered interest parity
Networks and Trade CEPR Discussion Paper No DP12891
33 Pages Posted 1 May 2018
Andrew B Bernard Tuck School of Business at Dartmouth National Bureau of Economic Research (NBER) Centre for
Economic Policy Research (CEPR)
Andreas Moxnes University of Oslo - Department of Economics Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
There are 2 versions of this paper
Date Written April 2018
Abstract
Trade occurs between firms both across borders and within countries and the vast majority
of trade transactions includes at least one large firm with many trading partners This paper
reviews the literature on firm-to-firm connections in trade A growing body of evidence
coming from domestic and international transaction data has established empirical
regularities which have inspired the development of new theories emphasizing firm
heterogeneity among both buyers and suppliers in production networks Theoretical work
has considered both static and dynamic matching environments in a framework of many-to-
many matching The literature on trade and production networks is at an early stage and
there are a large number of unanswered empirical and theoretical questions
Keywords International Trade offshoring production networks productivity
JEL Classification F10 F12 F14 L11 L21
One More Time What are Institutions and How Do
They Change World Bank Policy Research Working Paper No 8422
39 Pages Posted 1 May 2018 Last revised 3 May 2018
Roumeen Islam World Bank
Date Written April 30 2018
Abstract
This paper defines institutions presents their basic characteristics and discusses forces for
institutional change It draws on a wealth of research and study by scholars in different fields
and follows from the flagship 2002 World Development Report on this topic including
relevant new research since then that illuminates key issues The definition of institutions
includes rules and organizations (specifically rules guiding peoples actions) The paper
emphasizes the diversity of institutions that can effectively perform similar functions the
arguments for and against standardization of institutions across specific transactions or
groups and the implications of these choices It highlights the relationship between informal
and formal institutions It discusses forces for institutional change influencing all economies
ranging from external shocks (whether they be economic or weather-related shocks or driven
by wars) to internal dynamics such as those following population growth or compositional
changes and those following technological innovations Many of these forces have a two-way
relationship with institutions they are affected by them and in turn influence whether and
when they change A special section is devoted to institutional transplants and their
effectiveness The paper concludes with a discussion of whether and under what conditions
institutional change can be externally directed and the lessons for aid donors
Keywords International Trade and Trade Rules Social Policy Common Property Resource
Development Legal Products Regulatory Regimes Legislation Legal Reform Judicial System
Reform Public Sector Economics Taxation amp Subsidies Public Finance Decentralization and
Poverty Reduction Economic Adjustment and Lending Macro-Fiscal Policy Educational
Sciences Competitiveness and Competition Policy
Globalization Government Popularity and the Great
Skill Divide
CEPR Discussion Paper No DP12897
56 Pages Posted 1 May 2018
Cevat Giray Aksoy European Bank for Reconstruction and Development IZA Institute of Labor Economics
Sergei M Guriev Sciences Po Centre for Economic Policy Research (CEPR) European Bank for Reconstruction and
Development (EBRD)
Daniel Treisman University of California Los Angeles (UCLA) - Department of Political Science
There are 2 versions of this paper
Date Written April 2018
Abstract
How does international trade affect the popularity of governments and leaders We provide
the first large-scale systematic evidence that the divide between skilled and unskilled
workers worldwide is producing corresponding differences in the response of political
preferences to trade shocks Using a unique data set including 118 countries and nearly
450000 individuals we find that growth in high skill intensive exports (of goods and
services) increases approval of the leader and incumbent government among skilled
individuals Growth in high skill intensive imports has the opposite effect There is no effect
on political approval among the unskilled To identify exogenous variation in international
trade we exploit the time-varying effects of air and sea distances in bilateral trade flows Our
findings suggest that the political effects of international trade differ with skill intensity and
that skilled individuals respond differently from their unskilled counterparts to trade shocks
Keywords International trade political approval political polarization skill intensity of
trade
Migratory Pressures in the Long Run International
Migration Projections to 2050 Banco de Espana Article 3817
9 Pages Posted 3 Jan 2018
Rodolfo G Campos Banco de Espantildea
Date Written December 5 2017
Abstract
This article presents bilateral international migration projections to 2050 based on a new
methodology that takes into account the population growth both in countries of origin and
countries of destination To do this the methodology used by Hanson and McIntosh (2016) to
project the future migratory flows to a sample of OECD countries is generalised to all
countries worldwide The United Nations population growth forecasts are used as a basis for
projecting future migratory flows The main findings of the exercise indicate that the number
of migrants is projected to increase from 28 of the world population in 2010 to around
35 in 2050 as a result of the strong increase in migrants from India and sub-Saharan Africa
Against this background and despite the slowdown in demographic growth in Latin America
the United States is expected to continue to receive high net immigration flows and to remain
the country with the highest stock of immigrants globally while continental Europe will post
larger net immigration flows
Immigration and Electoral Support for the Far-Left
and the Far-Right CESifo Working Paper Series No 6918
53 Pages Posted 7 May 2018
Anthony Edo Paris School of Economics (PSE)
Yvonne Giesing CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Jonathan Oumlztunc Barcelona Graduate School of Economics (Barcelona GSE)
Panu Poutvaara Ludwig Maximilian University of Munich - Faculty of Economics CESifo (Center for Economic Studies and
Ifo Institute) - Ifo Institute CESifo (Center for Economic Studies and Ifo Institute) CReAM IZA Institute of
Labor Economics
Date Written March 05 2018
Abstract
Immigration has become one of the most divisive political issues in the United States the
United Kingdom France and several other Western countries We estimate the impact of
immigration on voting for far-left and far-right candidates in France using panel data on
presidential elections from 1988 to 2017 To derive causal estimates we instrument more
recent immigration flows by past settlement patterns in 1968 We find that immigration
increases support for far-right candidates and has no robust effect on far-left voting The
increased support for far-right candidates is driven by low educated immigrants from non-
Western countries
Keywords voting immigration political economy
JEL Classification D720 F220 J150 P160
Institutions Trade and Development A Quantitative
Analysis CESifo Working Paper Series No 6920
64 Pages Posted 7 May 2018
Cosimo Beverelli World Trade Organization (WTO)
Alexander Keck World Trade Organization (WTO)
Mario Larch University of Bayreuth - Faculty of Law Business and Economics University of Bayreuth CESifo Ifo
Institute for Economic Research GEP at the University of Nottingham
Yoto Yotov Drexel University - Department of Economics amp International Business
Date Written March 05 2018
Abstract
We propose and apply methods to quantify the impact of national institutions on international
trade and development We are able to identify the direct impact of country-specific
institutions on international trade within the structural gravity framework Our approach
naturally addresses the prominent issue of endogenous institutions The empirical analysis
offers robust evidence that stronger institutions promote trade A counterfactual analysis
reveals that the changes in institutional quality in the poor countries in our sample between
1996 and 2006 have had via their impact on imports from rich countries significant and
heterogeneous real GDP effects varying between -5 and 5 percent Our methods are readily
applicable to identifying the impact of a wide range of country-specific variables on
international trade
Keywords institutional quality international trade development structural gravity
JEL Classification F130 F140 F160
5 Inference in Structural Vector Autoregressions When the Identifying Assumptions are Not Fully Believed Re-
evaluating the Role of Monetary Policy in Economic Fluctuations
by Christiane Baumeister James D Hamilton - 24597 (EFG ME)
Abstract
Reporting point estimates and error bands for structural vector
autoregressions that are only set identified is a very common
practice However unless the researcher is persuaded on the
basis of prior information that some parameter values are more
plausible than others this common practice has no formal
justification When the role and reliability of prior
information is defended Bayesian posterior probabilities can be
used to form an inference that incorporates doubts about the
identifying assumptions We illustrate how prior information can
be used about both structural coefficients and the impacts of
shocks and propose a new distribution which we call the
asymmetric t distribution for incorporating prior beliefs about
the signs of equilibrium impacts in a nondogmatic way We apply
these methods to a three-variable macroeconomic model and
conclude that monetary policy shocks were not the major driver of
output inflation or interest rates during the Great Moderation
httppapersnberorgpapersW24597utm_campaign=ntwamputm_medium=emailamputm_source=ntw
11 The Political Impact of Immigration Evidence from the United States
by Anna Maria Mayda Giovanni Peri Walter Steingress - 24510 (ITI POL)
Abstract
In this paper we study the impact of immigration to the United
States on the vote for the Republican Party by analyzing
county-level data on election outcomes between 1990 and 2010
Our main contribution is to separate the effect of high-skilled
and low-skilled immigrants by exploiting the different geography
and timing of the inflows of these two groups of immigrants We
find that an increase in the first type of immigrants decreases
the share of the Republican vote while an inflow of the second
type increases it These effects are mainly due to the local
impact of immigrants on votes of US citizens and they seem
independent of the country of origin of immigrants We also find
that the pro-Republican impact of low-skilled immigrants is
stronger in low-skilled and non-urban counties This is
consistent with citizens political preferences shifting towards
the Republican Party in places where low-skilled immigrants are
more likely to be perceived as competition in the labor market
and for public resources
httppapersnberorgpapersW24510utm_campaign=ntwamputm_medium=emailamputm_source=ntw
23 The Impact of Exports on Innovation Theory and Evidence
by Philippe Aghion Antonin Bergeaud Matthieu Lequien Marc J Melitz - 24600 (EFG ITI)
Abstract
This paper investigates the effect of export shocks on
innovation On the one hand a positive shock increases market
size and therefore innovation incentives for all firms On the
other hand it increases competition as more firms enter the
export market This in turn reduces profits and therefore
innovation incentives particularly for firms with low
productivity Overall the positive impact of the export shock on
innovation is magnified for high productivity firms whereas it
may negatively affect innovation in low productivity firms We
test this prediction with patent customs and production data
covering all French manufacturing firms To address potential
endogeneity issues we construct firm-level export proxies which
respond to aggregate conditions in a firms export destinations
but are exogenous to firm-level decisions We show that
patenting robustly increases more with export demand for
initially more productive firms This effect is reversed for the
least productive firms as the negative competition effect
dominates
httppapersnberorgpapersW24600utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Sovereign Defaults in Court CESifo Working Paper Series No 6931
75 Pages Posted 8 May 2018
Julian Schumacher European Central Bank (ECB)
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Enderlein Henrik Hertie School of Governance
There are 3 versions of this paper
Date Written March 08 2018
Abstract
For centuries defaulting governments were immune from legal action by foreign creditors
This paper shows that this is no longer the case Building a dataset covering four decades we
find that creditor lawsuits have become an increasingly common feature of sovereign debt
markets The legal developments have strengthened the hands of creditors and raised the cost
of default for debtors We show that legal disputes in the US and the UK disrupt government
access to international capital markets as foreign courts can impose a financial embargo on
sovereigns The findings are consistent with theoretical models with creditor sanctions and
suggest that sovereign debt is becoming more enforceable We discuss how the threat of
litigation affects debt management government willingness to pay and the resolution of debt
crises
Keywords sovereign default enforcement government financing debt restructuring
JEL Classification F340 G150 H630 K220
ECB Monetary Policy and the Euro Exchange Rate Bank of Italy Temi di Discussione (Working Paper) No 1172
54 Pages Posted 14 May 2018
Martina Cecioni Bank of Italy
Date Written May 3 2018
Abstract
The paper provides empirical evidence on the effects of ECB conventional and unconventional
monetary policy on the euro exchange rate focusing on the period from January 2013 to
September 2017 Innovations to conventional and unconventional monetary policies are
identified through changes in respectively short- and long-term interest rates immediately
after Governing Council meetings Both types of measures contributed to the depreciation of
the euro from mid-2014 surprises associated with conventional measures had a stronger and
more persistent effect than those associated with unconventional ones Time-varying
estimates of the effects of conventional surprises since 1999 show that the responsiveness of
exchange rates to monetary news increased markedly from 2013 State-dependence analysis
finds that the exchange rate became more sensitive to monetary policy when the ECB adopted
a policy of negative interest rates and when conventional and unconventional monetary
surprises moved in the same direction
Keywords unconventional monetary policy exchange rates European Central Bank
JEL Classification E52 E58 F31
The ECBs Fiscal Policy
by Hans-Werner Sinn - 24613 (ME)
Abstract
While the ECB helped mitigate the euro crisis in the aftermath of
Lehman it has stretched its monetary mandate and moved into
fiscal territory This text describes and summarizes the crucial
role played by the ECB in the intervention spiral resulting from
its bid to manage the crisis It also outlines ongoing
competitiveness problems in southern Europe discusses the
so-called austerity policy of the Troika comments on QE and
presents two alternative paths for the future development of
Europe
httppapersnberorgpapersW24613utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Real Convergence in the Euro Area A Long-Term
Perspective ECB Occasional Paper No 203 ISBN 978-92-899-2865-6
102 Pages Posted 5 Dec 2017
Juan Luis Diaz del Hoyo European Central Bank (ECB)
Ettore Dorrucci European Central Bank (ECB)
Frigyes Ferdinand Heinz European Central Bank (ECB)
Sona Muzikarova European Central Bank (ECB)
Date Written December 1 2017
Abstract
In the euro area there is mixed evidence that the GDP per capita of lower-income economies
has been catching up with that of higher-income economies since the start of monetary union
The significant real convergence performance of some of the most recent members contrasts
with that of the economies of southern Europe which have not met expectations However
attributing all the blame for this outcome to the introduction of the single currency simply
misses the point By taking a ldquolong viewrdquo and reviewing the evidence since the 1960s this
paper shows that certain member countries began to face a ldquonon-convergence traprdquo long
before the euro years We also provide stylised facts on (i) the central role of total factor
productivity in driving real convergence in the euro area over time alongside other factors
and (ii) the crucial interaction of real convergence with ldquoMaastricht convergencerdquo and
institutional quality the other two key components of sustainable economic convergence We
conclude that it is critical that the euro area countries facing convergence challenges enhance
the resilience of their economic structures by improving the relevant institutions and
governance
Keywords sustainable economic convergence real convergence nominal convergence GDP
per capita Maastricht convergence criteria institutional quality labour productivity total
factor productivity Five Presidentsrsquo Report Reflection Paper on the Deepening of EMU
JEL Classification E01 F15 J11 O11 O43 O47 O52 O57
Monetary Policy Transmission in the Eastern
Caribbean Currency Union IMF Working Paper No 1870
31 Pages Posted 22 May 2018
Alla Myrvoda International Monetary Fund (IMF)
Julien P M Reynaud International Monetary Fund (IMF) Universiteacute Paris I Pantheacuteon-Sorbonne
Date Written March 2018
Abstract
This paper empirically investigates international and domestic monetary policy transmission
mechanisms in the Eastern Caribbean Currency Union (ECCU) We assess interest rate pass-
through of both the US policy rate and the ECCU minimum saving deposit rate (MSR) into
domestic interest rates through the interest rate channel While economic theory suggests
that the international pass-through should be high in small open economies with fixed
exchange rates and open capital accounts our findings based on regression analysis point to
a low long-run pass-through coefficient of the US interest rate The domestic transmission
channel however is found to operate through changes in the MSR The results hold for
different interest rates (deposit and lending) and are supported by survey-based findings
Keywords Asia and Pacific Antigua and Barbuda Dominica Saint Kitts and Nevis Saint
Lucia Saint Vincent and the Grenadines Grenada Western Hemisphere monetary policy
transmission interest rate pass-through ECCU monetary policy transmission interest rate
pass-through ECCU General Monetary Policy (Targets Instruments and Effects)
JEL Classification E43 E50 E52 F31 F33 F36 O54
On the Impact of Structural Reforms on Output and
Employment Evidence from a Cross-Country Firm-
Level Analysis IMF Working Paper No 1873
36 Pages Posted 22 May 2018
Luiza Antoun de Almeida International Monetary Fund (IMF)
Vybhavi Balasundharam University of Michigan at Ann Arbor
Date Written April 2018
Abstract
This paper analyzes the effects of selected structural reforms on output and employment in
the short and medium term It uses a comprehensive cross-country firm-level dataset
covering both advanced and emerging market economies over the period 2003-2014 In line
with previous studies it finds that structural reforms have in general a positive impact on
output and employment in the medium term Furthermore the paper also assesses whether
the impact of structural reforms varies with firm-specific characteristics such as size
leverage profitability and sector We find evidence that firm characteristics do influence the
effectiveness of structural reforms These findings have relevant policy implications as they
help policymakers tailor the design of structural reforms to maximize their payoffs taking
into account their heterogeneous impact on firms
Keywords Fiscal reforms Cross-country analysis Potential output Employment Developed
countries Emerging markets structural reforms firm-level data Orbis dataset potential
growth
JEL Classification L51 D04 D22
Production Integration in the European Union CESifo Working Paper Series No 6944
34 Pages Posted 17 May 2018
Hakan Nordstrom Swedish Board of Trade
Harry Flam Stockholm University - Institute for International Economic Studies (IIES) CESifo (Center for Economic
Studies and Ifo Institute)
Date Written March 21 2018
Abstract
Measured by trade in intermediate inputs economic integration has increased between 2000
and 2014 between members of the European Union and even more with non-members
Integration is negatively related to economic size and positively to the number of years as a
member Germany is the largest hub in the production network and the centre of gravity has
moved eastward Older member states are increasingly exporting service inputs and new
member states primary and manufacturing inputs Wages are increasing faster in countries
with low initial wages indicating wage convergence as a result of production integration
Keywords global value chains economic integration input-output models wage
convergence
JEL Classification E100 F100 F600 J310
Democratic Tipping Points CESifo Working Paper Series No 6945
36 Pages Posted 17 May 2018
Antonio Ciccone Universitat Pompeu Fabra - Faculty of Economic and Business Sciences Centre for Economic Policy
Research (CEPR) Institute for the Study of Labor (IZA)
There are 2 versions of this paper
Date Written March 21 2018
Abstract
I examine whether transitory events can tip the scales against authoritarian regimes and lead
to persistent democratization I think of situations where this is a possibility as democratic
tipping points The transitory events I focus on are rainfall shocks in the most agricultural
countries in the world I show that while these shocks only affect agricultural output
contemporaneously they have persistent effects on political institutions Authoritarian
regimes experiencing negative rainfall shocks are more likely to be democratic three five and
ten years later
Keywords transitory shocks persistent democratization
Globalization and the New Normal IMF Working Paper No 1875
41 Pages Posted 22 May 2018
Bertrand Candelon University of Maastricht - Department of Economics
Alina Carare International Monetary Fund (IMF)
Jean-Baptiste Hasse
Aix-Marseille University
Date Written April 2018
Abstract
This study expands the empirical specification of Cerra and Saxena (2008) and allows short-
termoutput growth regimes to be determined by globalization Relying on a non-linear
dynamic panelrepresentation it reconciles the earlier results in the literature regarding the
two oppositenarratives of the effects of globalization on output growth Countries experience
higher growth onaverage the more open and integrated they are into the world However
once they reach a certainglobalization threshold (endogenously estimated) countries may
also experience a new normalpersistently lower short-term output growth following a
financial crisis The benefits as well asvulnerabilities accrue earlier in the globalization
process for low- and middle-income countriesTo solely reap the globalization benefits on
growth sound policies should be in place to mitigatethe negative effects stemming from
increased vulnerabilities brought by globalization
Keywords Globalization Financial crisis Banking crisis Output growth New Normal
Globalization Financial crises Banking crises Output growth
JEL Classification F30 F43 F62 F65
Public Policy in an AI Economy
by Austan Goolsbee - 24653 (PE PR)
Abstract
This paper considers the role of policy in an AI-intensive
economy (interpreting AI broadly) It emphasizes the speed of
adoption of the technology for the impact on the job market and
the implications for inequality across people and across places
It also discusses the challenges of enacting a Universal Basic
Income as a response to widespread AI adoption discuss pricing
privacy and competition policy the question of whether AI could
improve policy making itself
httppapersnberorgpapersW24653utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Aggregate and Distributional Effects of Financial
Globalization Evidence from Macro and Sectoral Data IMF Working Paper No 1883
62 Pages Posted 22 May 2018
Davide Furceri International Monetary Fund (IMF)
Prakash Loungani International Monetary Fund (IMF)
Jonathan D Ostry International Monetary Fund (IMF)
Date Written April 2018
Abstract
We take a fresh look at the aggregate and distributional effects of policies to
liberalizeinternational capital flows-financial globalization Both country- and industry-level
resultssuggest that such policies have led on average to limited output gains while
contributing tosignificant increases in inequality-that is they pose an equity-efficiency trade-
off Behindthis average lies considerable heterogeneity in effects depending on country
characteristicsLiberalization increases output in countries with high financial depth and
those that avoidfinancial crises while distributional effects are more pronounced in countries
with lowfinancial depth and inclusion and where liberalization is followed by a crisis
Difference-indifferenceestimates using sectoral data suggest that liberalization episodes
reduce the shareof labor income particularly for industries with higher external financial
dependence thosewith a higher natural propensity to use layoffs to adjust to idiosyncratic
shocks and thosewith a higher elasticity of substitution between capital and labor The
sectoral resultsunderpin a causal interpretation of the findings using macro data
Keywords Globalization Inequality Capital Account Openness Crises Institutions
JEL Classification F13 G32 O11
The Dynamics of Sovereign Debt Crises and Bailouts CEPR Discussion Paper No DP12921
44 Pages Posted 15 May 2018
Francisco Roch International Monetary Fund (IMF)
Harald Uhlig University of Chicago - Department of Economics
There are 2 versions of this paper
Date Written May 2018
Abstract
Motivated by the recent European debt crisis this paper investigates the scope for a bailout
guarantee in a sovereign debt crisis Defaults may arise from negative income shocks
government impatience or a sunspot-coordinated buyers strike We introduce a bailout
agency and characterize the strategy with the minimal actuarially fair intervention which
guarantees the no-buyers-strike fundamental equilibrium relying on the market for residual
financing The intervention makes it cheaper for governments to borrow inducing them
borrow more leaving default probabilities possibly rather unchanged The maximal backstop
will be pulled precisely when fundamentals worsen
Keywords Bailouts default Endogenous Borrowing Constraints Eurozone Debt Crisis long-
term debt OMT Self-fulfilling Crises
JEL Classification F34 F41
Cumulative Impacts of Conditional Cash Transfer Programs Experimental Evidence from Indonesia
by Nur Cahyadi Rema Hanna Benjamin A Olken Rizal Adi Prima Elan Satriawan Ekki
Syamsulhakim - 24670 (CH DEV PE)
Abstract
Conditional cash transfer (CCT) programs have spread worldwide
and are designed to promote comprehensive human capital
investments in children starting from encouraging pre-natal and
maternal care and early childhood health interventions and
continuing through incentivizing school attendance Yet
evaluating these claims over more than a few years is hard as
most CCT experiments extend the program to the control group
after a short experimental period This paper experimentally
estimates the impacts of Indonesias cash transfer program (PKH)
six years after the program launched using data from about
14000 households in 360 sub-districts across Indonesia taking
advantage of the fact that treatment and control locations
remained largely intact throughout the period We find that PKH
continues to have large static incentive effects on many of the
targeted indicators increasing usage of trained health
professionals for childbirth dramatically and halving the share
of children age 7-15 who are not enrolled in school Wage labor
for 13-15 year olds was reduced by at least one-third We also
begin to observe impacts on outcomes that may require cumulative
investments for example six years later we observe large
reductions in stunting and some evidence of increased high school
completion rates The results suggest that CCT investments can
have substantial effects on the accumulation of human capital
and that these effects can persist even when programs are
operating at large-scale without researcher intervention
httppapersnberorgpapersW24670utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Services Development and Comparative Advantage in
Manufacturing World Bank Policy Research Working Paper No 8450
47 Pages Posted 23 May 2018
Xuepeng Liu Kennesaw State University - Department of Economics and Finance
Aaditya Mattoo World Bank - Development Research Group (DECRG)
Zhi Wang George Mason University - Schar School of Policy and Government
Shang-Jin Wei Columbia Business School - Finance and Economics National Bureau of Economic Research (NBER) Centre
for Economic Policy Research (CEPR) International Monetary Fund (IMF) Tsinghua University - School of
Economics amp Management
Date Written May 22 2018
Abstract
Most manufacturing activities use inputs from the financial and business services sectors But
these services sectors also compete for resources with manufacturing activities provoking
concerns about de-industrialization -- financial services in industrial countries like the United
States and the United Kingdom and business services in developing countries like India and
the Philippines This paper examines the implications of services development for the export
performance of manufacturing sectors It develops a methodology to quantify the indirect role
of services in international trade in goods and constructs new measures of revealed
comparative advantage based on domestic value added in gross exports The paper shows
that the development of financial and business services enhances the revealed comparative
advantage of manufacturing sectors that use these services intensively but not that of other
manufacturing sectors It also finds that a country can partially overcome the handicap of an
underdeveloped domestic services sector by relying more on imported services inputs Thus
lower services trade barriers in developing countries can help to promote their
manufacturing exports
Keywords Textiles Apparel amp Leather Industry Pulp amp Paper Industry General
Manufacturing Food amp Beverage Industry Common Carriers Industry Construction Industry
Plastics amp Rubber Industry Business Cycles and Stabilization Policies International Trade and
Trade Rules Trade and Services Financial Economics Finance and Development Economic
Growth Economic Theory amp Research Industrial Economics
Thou Shalt Not Breach The Impact on Sovereign
Spreads of Noncomplying with the EU Fiscal Rules IMF Working Paper No 1887
37 Pages Posted 22 May 2018
Federico Kalan International Monetary Fund (IMF)
Adina Popescu International Monetary Fund (IMF)
Julien P M Reynaud International Monetary Fund (IMF) Universiteacute Paris I Pantheacuteon-Sorbonne
Date Written April 2018
Abstract
There is evidence that fiscal rules in particular well-designed rules are associated with lower
sovereign spreads However the impact of noncompliance with fiscal rules on spreads has not
been examined in the literature This paper estimates the effect of the Excessive Deficit
Procedure (EDP) on sovereign spreads of European Union member states Based on a sample
including the 28 European Union countries over the period 1999 to 2016 sovereign spreads
of countries placed under an EDP are found to be on average higher compared to countries
that are not under an EDP The interpretation of this result is not straight-forward as different
channels may be at play in particular those related with the credibility and the design of the
EU fiscal framework The specification accounts for typical macroeconomic fiscal and
financial determinants of sovereign spreads the System Generalized Method of Moments
estimator is used to control for endogeneity and results are robust to a range of checks on
variables and estimators
Keywords Fiscal rules Fiscal policy noncompliance sovereign spreads General Models
with Panel Data
JEL Classification E62 H60 C23
ldquoUnconventionalrdquo Monetary Policy as Conventional
Monetary Policy A Perspective from the US In the
1920s
FEDS Working Paper No 2018-019
45 Pages Posted 6 Jun 2018
Mark A Carlson Board of Governors of the Federal Reserve System
Burcu Duygan-Bump Federal Reserve Board
Date Written 2018-03-09
Abstract
To implement monetary policy in the 1920s the Federal Reserve utilized administered
interest rates and conducted open market operations in both government securities and
private money market securities sometimes in fairly considerable amounts We show how the
Fed was able to effectively use these tools to influence conditions in money markets even
those in which it was not an active participant Moreover our results suggest that the
transmission of monetary policy to money markets occurred not just through changing the
supply of reserves but importantly through financial market arbitrage and the rebalancing of
investor portfolios The tools used in the 1920s by the Federal Reserve resemble the
extraordinary monetary policy tools used by central banks recently and provide further
evidence on their effectiveness even in ordinary times
Keywords Monetary policy Unconventional monetary policy Central banking Administered
rates Money markets Quantitative easing
JEL Classification E52 E58 N22
New Perspectives on the Decline of US
Manufacturing Employment FEDS Working Paper No 2018-023
37 Pages Posted 7 Jun 2018
Teresa Fort Dartmouth College - Tuck School of Business
Justin R Pierce Federal Reserve Board
Peter Schott Yale School of Management National Bureau of Economic Research (NBER)
Date Written 2018-04-13
Abstract
We use relatively unexplored dimensions of US microdata to examine how US manufacturing
employment has evolved across industries firms establishments and regions from 1977 to
2012 We show that these data provide support for both trade- and technology-based
explanations of the overall decline of employment over this period while also highlighting the
difficulties of estimating an overall contribution for each mechanism Toward that end we
discuss how further analysis of these trends might yield sharper insights
Keywords Employment Manufacturing Output Technology Trade
AI and the Economy
by Jason Furman Robert Seamans - 24689 (PR)
Abstract
We review the evidence that artificial intelligence (AI) is
having a large effect on the economy Across a variety of
statistics--including robotics shipments AI startups and patent
counts--there is evidence of a large increase in AI-related
activity We also review recent research in this area which
suggests that AI and robotics have the potential to increase
productivity growth but may have mixed effects on labor
particularly in the short run In particular some occupations
and industries may do well while others experience labor market
upheaval We then consider current and potential policies around
AI that may help to boost productivity growth while also
mitigating any labor market downsides including evaluating the
pros and cons of an AI specific regulator expanded antitrust
enforcement and alternative strategies for dealing with the
labor-market impacts of AI including universal basic income and
guaranteed employment
httppapersnberorgpapersW24689utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Economic Policy for Artificial Intelligence
by Ajay K Agrawal Joshua S Gans Avi Goldfarb - 24690 (PR)
Abstract
Recent progress in artificial intelligence (AI) - a general
purpose technology affecting many industries - has been focused
on advances in machine learning which we recast as a
quality-adjusted drop in the price of prediction How will this
sharp drop in price impact society Policy will influence the
impact on two key dimensions diffusion and consequences
First in addition to subsidies and IP policy that will influence
the diffusion of AI in ways similar to their effect on other
technologies three policy categories - privacy trade and
liability - may be uniquely salient in their influence on the
diffusion patterns of AI Second labor and antitrust policies
will influence the consequences of AI in terms of employment
inequality and competition
httppapersnberorgpapersW24690utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Missing Profits of Nations
by Thomas R Torslov Ludvig S Wier Gabriel Zucman - 24701 (CF IFM ITI PE)
Abstract
By combining new macroeconomic statistics on the activities of
multinational companies with the national accounts of tax havens
and the worlds other countries we estimate that close to 40 of
multinational profits are shifted to low-tax countries each year
Profit shifting is highest among US multinationals the tax
revenue losses are highest for the European Union and developing
countries We show theoretically and empirically that in the
current international tax system tax authorities of high-tax
countries do not have incentives to combat profit shifting to tax
havens They instead focus their enforcement effort on
relocating profits booked in other high-tax countries--in effect
stealing revenue from each other This policy failure can
explain the persistence of profit shifting to low-tax countries
despite the high costs involved for high-tax countries We
provide a new cross-country database of GDP corporate profits
trade balances and factor shares corrected for profit shifting
showing that the global rise of the corporate capital share is
significantly under-estimated
httppapersnberorgpapersW24701utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Global Financial Cycles and Risk Premiums
by Oscar Jorda Moritz Schularick Alan M Taylor Felix Ward - 24677 (AP DAE IFM ME)
Abstract
This paper studies the synchronization of financial cycles across
17 advanced economies over the past 150 years The comovement in
credit house prices and equity prices has reached historical
highs in the past three decades The sharp increase in the
comovement of global equity markets is particularly notable We
demonstrate that fluctuations in risk premiums and not risk-free
rates and dividends account for a large part of the observed
equity price synchronization after 1990 We also show that US
monetary policy has come to play an important role as a source of
fluctuations in risk appetite across global equity markets
These fluctuations are transmitted across both fixed and floating
exchange rate regimes but the effects are more muted in floating
rate regimes
httppapersnberorgpapersW24677utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Geography of Linguistic Diversity and the Provision of Public Goods
by Klaus Desmet Joseph Gomes Ignacio Ortunyo-Ortin - 24694 (PE POL)
Abstract
This paper analyzes the importance of local interaction between
individuals of different linguistic groups for the provision of
public goods at the national level The micro-founded conceptual
framework we develop predicts that a countrys public goods (i)
decrease in its overall linguistic fractionalization and (ii)
either increase or decrease in its local learning multiplier a
measure of how local interaction affects antagonism towards other
groups in the society at large After constructing a 5 km by 5
km dataset on language use for 223 countries we empirically
explore these theoretical predictions While overall
fractionalization worsens public goods outcomes we find a
positive causal effect of local learning Conditional on a
countrys overall diversity public goods outcomes are maximized
when there are a few large-sized groups and the diversity of each
location mirrors that of the country as a whole Our large-scale
study spanning the entire globe confirms experimental
micro-evidence in favor of contact theory
httppapersnberorgpapersW24694utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Misfits in the Car Industry Offshore Assembly
Decisions at the Variety Level CEPR Discussion Paper No DP12940
39 Pages Posted 21 May 2018
Keith Head University of British Columbia (UBC) - Division of Strategy and Business Economics
Thierry Mayer Sciences Po
Date Written May 2018
Abstract
This paper estimates the role of countryvariety comparative advantage in the decision to
offshore assembly of more than 2000 models of 197 car brands headquartered in 23
countries While offshoring in the car industry has risen from 2000 to 2016 the top five
offshoring brands account for half the car assembly relocated to low-wage countries We show
that the decision to offshore a particular car model depends on two types of cost
(dis)advantage of the home country relative to foreign locations The first type the assembly
costs common to all models is estimated via a structural triadic gravity equation The second
effect model-level comparative advantage is an interaction between proxies for the models
skill and capital intensity and headquarter countrys abundance in these factors
Keywords cars Gravity offshoring
JEL Classification F1
Global Crises and Populism The Role of Eurozone
Institutions CEPR Discussion Paper No DP12944
46 Pages Posted 21 May 2018
Luigi Guiso Einaudi Institute for Economics and Finance (EIEF)
Helios Herrera University of Warwick
Massimo Morelli Bocconi University
Tommaso Sonno Catholic University of Louvain (UCL) London School of Economics amp Political Science (LSE) - Centre for
Economic Performance (CEP)
Date Written May 2018
Abstract
Populist parties are likely to gain consensus when mainstream parties and status quo
institutions fail to manage the shocks faced by their economies Institutional constraints
which limit the possible actions in the face of shocks result in poorer performance and
frustration among voters who turn to populist movements We rely on this logic to explain the
different support of populist parties among European countries in response to the
globalization shock and to the 2008-2011 - financial and sovereign debt crisis We predict a
greater success of populist parties in response to these shocks in Euro zone countries and our
empirical analysis confirms this prediction This is consistent with voters frustration for the
greater inability of the Euro zone governments to react to di cult-to-manage globalization
shocks and financial crises Our evidence has implications for the speed of construction of
political unions A slow staged process of political unification can expose the EU to a risk of
political backlash if hard to manage shocks hit the economies during the integration process
Keywords Financial Dependence Frustration Globalization populism Relocation
JEL Classification D72 D78 F14 F16
Currency Unions Trade and Heterogeneity CEPR Discussion Paper No DP12954
50 Pages Posted 31 May 2018
Natalie Chen University of Warwick - Department of Economics Centre for Economic Policy Research (CEPR)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
Date Written May 2018
Abstract
How do trade costs affect international trade This paper offers a new approach We rely on a
flexible gravity equation that predicts variable trade cost elasticities both across and within
country pairs We apply this framework to the effect of currency unions on international
trade While we estimate that currency unions are associated with a trade increase of around
38 percent on average we find substantial underlying heterogeneity Consistent with the
predictions of our framework we find effects around three times as strong for country pairs
associated with small import shares and a zero effect for large import shares Our results
imply that conventional homogeneous currency union estimates do not provide helpful
guidance for countries considering to join a currency union Instead countries need to take
into account the distribution of their trade shares to assess the impact of trade costs
Keywords Currency Unions euro Gravity Heterogeneity Trade Costs Trade Elasticity
Translog
JEL Classification F14 F15 F33
Fiscal Multipliers and Foreign Holdings of Public Debt CEPR Discussion Paper No DP12960
76 Pages Posted 5 Jun 2018
Fernando Broner CREI Barcelona GSE Universitat Pompeu Fabra CEPR
Daragh Clancy European Stability Mechanism
Aitor Erce European Stability Mechanism Banco de Espantildea - Associate Directorate General International Affairs
Alberto Martin Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) Centre for Economic
Policy Research (CEPR)
There are 2 versions of this paper
Date Written May 2018
Abstract
This paper explores a natural connection between fiscal multipliers and foreign holdings of
public debt Although fiscal expansions can raise domestic economic activity through various
channels they can also have crowding-out effects if the resources used to acquire public debt
reduce domestic consumption and investment Thus these crowding-out effects are likely to
be weaker when public debt is purchased by foreigners We test this hypothesis on (i) post-
war US data and (ii) data for a panel of 17 advanced economies from the 1980s to the
present To do so we assemble a novel database of public debt holdings by domestic and
foreign creditors for a large set of advanced economies We combine this data with standard
measures of fiscal policy shocks and show that indeed the size of fiscal multipliers is
increasing in the share of public debt held by foreigners In particular the fiscal multiplier is
smaller than one when the foreign share is low such as in the US in the 1950s and 1960s
and Japan today and larger than one when the foreign share is high such as in the US and
Ireland today
Keywords Fiscal Multiplier Foreign Holdings of Public Debt Sovereign debt
JEL Classification E62 F32 F34 F36 F41 F62 F65 G15 H63
Refugee Resettlement Redistribution and Growth CESifo Working Paper Series No 6961
26 Pages Posted 30 May 2018
Leonid V Azarnert Ariel University Center
Date Written April 09 2018
Abstract
This paper studies the effect of refugee resettlement on human capital accumulation The
analysis is performed in a growth model with endogenous fertility I show how refugee
resettlement from a more advanced and wealthier economy to a less advanced and less
wealthy economy combined with income transfers is Pareto-improving for indigenous
populations in both countries I also derive conditions for the proposed resettlement policy to
stimulate human capital accumulation and hence economic growth in both economies
Keywords refugee resettlement fertility human capital growth
JEL Classification D300 F220 J100 O100
The Impact of Trade Liberalization on Firm Productivity and Innovation
by Pian Shu Claudia Steinwender - 24715 (ITI PR)
Abstract
This chapter reviews the empirical economics literature on the
impact of trade liberalization on firms innovation-related
outcomes We define and examine four types of shocks to trade
flows import competition export opportunities access to
imported intermediates and foreign input competition Our
review reveals interesting heterogeneities at the country and
firm levels In emerging countries trade liberalization appears
to spur productivity and innovation In developed countries
export opportunities and access to imported intermediates tend to
encourage innovation but the evidence on import competition is
mixed especially for firms in the United States At the firm
level the positive effects of trade on innovation are more
pronounced at the initially more productive firms while the
negative effects are more pronounced at the initially less
productive firms
httppapersnberorgpapersW24715utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The IT Revolution and the Globalization of RampD
by Lee G Branstetter Britta M Glennon J Bradford Jensen - 24707 (ITI PR)
Abstract
Since the 1990s RampD has become less geographically concentrated
and has seen especially fast growth in emerging markets One of
the distinguishing features of the RampD globalization phenomenon
is its concentration within the softwareIT domain the increase
in foreign RampD has been largely concentrated within software and
IT-intensive multinationals and new RampD destinations are also
more software and IT-intensive multinationals than traditional
RampD destinations In this paper we document three important
phenomena (1) the globalization of RampD (2) the growing
importance of software and IT to firm innovation and (3) the
rise of new RampD hubs We argue that the shortage in
softwareIT-related human capital resulting from the large IT-
and software-biased shift in innovation drove US MNCs abroad and
particularly drove them abroad to new hubs with large
quantities of STEM workers who possessed IT and software skills
Our findings support the view that the globalization of US
multinational RampD has reinforced the technological leadership of
US-based firms in the information technology domain and that
multinationals ability to access a global talent base could
support a high rate of innovation even in the presence of the
rising (human) resource cost of frontier RampD
httppapersnberorgpapersW24707utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Global Financial Cycles and Risk Premiums CEPR Discussion Paper No DP12969
60 Pages Posted 5 Jun 2018
Ogravescar Jordagrave Federal Reserve Banks - Federal Reserve Bank of San Francisco
Moritz Schularick University of Bonn - Department of Economics Centre for Economic Policy Research (CEPR)
Alan M Taylor University of California Davis - Department of Economics University of Virginia - Department of
Economics National Bureau of Economic Research (NBER) Centre for Economic Policy Research (CEPR)
Felix Ward Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics
There are 2 versions of this paper
Date Written June 2018
Abstract
This paper studies the synchronization of financial cycles across 17 advanced economies over
the past 150 years The comovement in credit house prices and equity prices has reached
historical highs in the past three decades The sharp increase in the comovement of global
equity markets is particularly notable We demonstrate that fluctuations in risk premiums
and not risk-free rates and dividends account for a large part of the observed equity price
synchronization after 1990 We also show that US monetary policy has come to play an
important role as a source of fluctuations in risk appetite across global equity markets These
fluctuations are transmitted across both fixed and floating exchange rate regimes but the
effects are more muted in floating rate regimes
Keywords asset prices equity return premium financial centers financial cycles policy
spillovers
JEL Classification E50 F33 F42 F44 G12 N10 N20
Automation and Unemployment Help is on the Way CEPR Discussion Paper No DP12974
32 Pages Posted 11 Jun 2018
Hideki Nakamura Osaka City University
Joseph Zeira Hebrew University of Jerusalem - Department of Economics Centre for Economic Policy Research (CEPR)
LUISS Guido Carli DPTEA
Date Written June 2018
Abstract
This paper presents a model of technical change that combines two lines of research together
It is a task based model in which automation turns labor tasks to mechanized ones and there
is also a continuous addition of new labor tasks as in the expanding variety literature We
impose three simple restrictions on the model The first is that all new tasks are adopted The
second is that all new automation innovations are adopted and the third is that the share of
labor does not converge to zero in the long run We show that these restrictions imply that
unemployment due to automation is expected to converge to zero over time
Keywords automation growth Labor Income Share technical change unemployment
JEL Classification J64 O14 O30 O40
Sovereign Default in a Monetary Union CEPR Discussion Paper No DP12976
56 Pages Posted 11 Jun 2018
Sergio de Ferra Stockholm University
Federica Romei LUISS Guido Carli University
Date Written June 2018
Abstract
In the aftermath of the global fi nancial crisis sovereign default risk and the zero lower bound
have limited the ability of policy-makers in the European monetary union to achieve their
stabilization objective This paper investigates the interaction between sovereign default risk
and the conduct of monetary policy when borrowers can act strategically and they share with
their lenders a single currency in a monetary union We address this question in an
endogenous sovereign default model of heterogeneous countries in a monetary union where
the monetary authority may be constrained by the zero lower bound We uncover three main
results First in normal times debtors have a stronger incentive to default to induce more
expansionary monetary policy Second the zero lower bound or constraints on monetary
policy may act as a disciplining device to enforce repayment of sovereign debt Third
sovereign default risk induces countries with a preference for tight monetary policy to accept
a laxer policy stance These results help to shed light on the recent European experience of
high default risk expansionary monetary policy and low nominal interest rates
Keywords Heterogeneous Countries monetary union sovereign default zero lower bound
JEL Classification F34 F42 F45 H63
Evolution of Modern Business Cycle Models Accounting for the Great Recession
by Patrick J Kehoe Virgiliu Midrigan Elena Pastorino - 24741 (EFG IFM LS ME)
Abstract
Modern business cycle theory focuses on the study of dynamic
stochastic general equilibrium models that generate aggregate
fluctuations similar to those experienced by actual economies
We discuss how this theory has evolved from its roots in the
early real business cycle models of the late 1970s through the
turmoil of the Great Recession four decades later We document
the strikingly different pattern of comovements of macro
aggregates during the Great Recession compared to other postwar
recessions especially the 1982 recession We then show how two
versions of the latest generation of real business cycle models
can account respectively for the aggregate and the
cross-regional fluctuations observed in the Great Recession in
the United States
httppapersnberorgpapersW24741utm_campaign=ntwamputm_medium=emailamputm_source=ntw
What Happened Financial Factors in the Great Recession
by Mark Gertler Simon Gilchrist - 24746 (EFG ME)
Abstract
Since the onset of the Great Recession an explosion of both
theoretical and empirical research has investigated how the
financial crisis emerged and how it was transmitted to the real
sector The goal of this paper is to describe what we have
learned from this new research and how it can be used to
understand what happened during the Great Recession In the
process we also present some new evidence on the role of the
household balance sheet channel versus the disruption of banking
We examine a panel of quarterly state level data on house
prices mortgage debt and employment along with a measure of
banking distress Then exploiting both panel data and time
series methods we analyze the contribution of the house price
decline versus the banking distress indicator to the overall
decline in employment during the Great Recession We confirm a
common finding in the literature that the household balance sheet
channel is important for regional variation in employment
However we also find that the disruption in banking was central
to the overall employment contraction
httppapersnberorgpapersW24746utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Changing Structure of Immigration to the OECD
What Welfare Effects on Member Countries CESifo Working Paper Series No 6992
40 Pages Posted 27 Jun 2018
Michał Burzyński Universite du Luxembourg
Freacutedeacuteric Docquier Universiteacute catholique de Louvain CREAM Centre for Research on Environmental Appraisal amp Management
UK IZA Institute of Labor Economics
Hillel Rapoport Paris School of Economics (PSE)
Date Written April 24 2018
Abstract
We investigate the welfare implications of two pre-crisis immigration waves (1991ndash2000 and
2001ndash2010) and of the post-crisis wave (2011ndash2015) for OECD native citizens To do so we
develop a general equilibrium model that accounts for the main channels of transmission of
immigration shocks ndash the employment and wage effects the fiscal effect and the market size
effect ndash and for the interactions between them We parameterize our model for 20 selected
OECD member states We find that the three waves induce positive effects on the real income
of natives however the size of these gains varies considerably across countries and across
skill groups In relative terms the post-crisis wave induces smaller welfare gains compared to
the previous ones This is due to the changing origin mix of immigrants which translates into
lower levels of human capital and smaller fiscal gains However differences across cohorts
explain a tiny fraction of the highly persistent cross-country heterogeneity in the economic
benefits from immigration
Keywords immigration welfare crisis inequality general equilibrium
JEL Classification C680 F220 J240
Anatomy and Impact of Export Promotion Agencies World Bank Policy Research Working Paper No 8470
19 Pages Posted 11 Jun 2018
Marcio Cruz World Bank Federal University of Parana (UFPR) - Departamento de Economia
Daniel Lederman World Bank - Latin America and Caribbean Region
Laura Zoratto World Bank
Date Written June 7 2018
Abstract
Recent literature has shown evidence of positive contributions of export promotion agencies
around the world in raising exports through the intensive and extensive margins of trade The
number of export promotion agencies has increased substantially over the past two decades
and most of them focus on assisting exporters in understanding and finding markets for their
products This paper describes the characteristics of export promotion agencies around the
world using a novel database from the World Bank in collaboration with the International
Trade Center in Geneva covering 2005-10 In addition it presents a short summary of the
literature on the impacts of export promotion agencies
Keywords Export Competitiveness International Trade and Trade Rules Rules of Origin
Trade Policy Trade and Multilateral Issues Trade and Services
Optimal Inflation and the Identification of the Phillips
Curve CEPR Discussion Paper No DP12981
29 Pages Posted 11 Jun 2018
Michael McLeay Bank of England - Monetary Assessment and Strategy Division
Silvana Tenreyro London School of Economics (LSE)
Date Written June 2018
Abstract
This paper explains why inflation follows a seemingly exogenous statistical process unrelated
to the output gap In other words it explains why it is difficult to empirically identify a Phillips
curve We show why this result need not imply that the Phillips curve does not hold -- on the
contrary our conceptual framework is built under the assumption that the Phillips curve
always holds The reason is simple if monetary policy is set with the goal of minimising
welfare losses (measured as the sum of deviations of inflation from its target and output from
its potential) subject to a Phillips curve a central bank will seek to increase inflation when
output is below potential This targeting rule will impart a negative correlation between
inflation and the output gap blurring the identification of the (positively sloped) Phillips
curve
Keywords identification Inflation targeting Phillips curve
GVCs and the Endogenous Geography of RTAs CESifo Working Paper Series No 6980
43 Pages Posted 11 Jun 2018
Lionel Fontagne University of Paris 1 Pantheacuteon Sorbonne Paris School of Economics CEPII
Gianluca Santoni Centre dEtudes Prospectives et dInfo Internationales (CEPII)
Date Written April 19 2018
Abstract
Geography economic size or common history help predicting signed regional trade
agreements (RTAs) However not all signed RTAs are ldquonaturalrdquo according to economic
determinants En-dogeneity and general equilibrium effects of RTAS are the two mechanisms
addressed in this paper We estimate the time-varying probability for a country pair to sign a
trade agreement and build upon structural gravity in general equilibrium to determine how
the patterns of Global Value Chains shape the evolving geography of optimal RTAS Our results
confirm that the endogenous geography of RTAs is shaped by the development of GVCs
Keywords preferential trade agreements global value chains structural gravity
JEL Classification F130 F140 F150
Diversity and Growth CEPR Discussion Paper No DP13011
37 Pages Posted 26 Jun 2018
Mark Gradstein Ben-Gurion University of the Negev - Department of Economics CESifo (Center for Economic Studies and
Ifo Institute) Centre for Economic Policy Research (CEPR) World Bank - Development Research Group
(DECRG)
There are 2 versions of this paper
Date Written June 2018
Abstract
The diversity of social interaction within economic communities affects productivity and
growth and is itself shaped by economic conditions These reciprocal effects raise the
possibility of multiple equilibria of setting a socially polarized economy stagnating in poverty
on a new path of social integration and economic growth through external intervention or an
internal political initiative This paper describes a simple analytical model that captures these
reciprocal effects and sheds light on the role of government capacity community leadership
federation and external credit or aid in achieving economic growth through social integration
The Economics of Language CEPR Discussion Paper No DP13002
85 Pages Posted 26 Jun 2018
Victor Ginsburgh Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics
(ECARES)
Shlomo Weber Southern Methodist University (SMU) - Department of Economics New Economic School
Date Written June 2018
Abstract
The paper brings together methodological theoretical and empirical analysis into the single
framework of linguistic diversity It reflects both historical and contemporary research by
economists and other social scientists on the impact of language on economic outcomes and
public policies We examine whether and how language influences human thinking (including
emotions) and behavior analyze the effects of linguistic distances on trade migrations
financial markets language learning and its returns The quantitative foundations of linguistic
diversity which rely on group identification linguistic distances as well as fractionalization
polarization and disenfranchisement indices are discussed in terms of their empirical
challenges and uses We conclude with an analysis of linguistic policies and shifts of languages
and examine their welfare effects and the trade-offs between the development of labor
markets and the social costs that they generate in various countries
Financial and Fiscal Interaction in the Euro Area
Crisis This Time Was Different CEPR Discussion Paper No DP13016
39 Pages Posted 3 Jul 2018
Alberto Caruso Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics
(ECARES)
Lucrezia Reichlin London Business School Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in
Economics and Statistics (ECARES) Centre for Economic Policy Research (CEPR) European Central Bank
(ECB)
Giovanni Ricco University of Warwick - Department of Economics SciencesPo - OFCE
Date Written June 2018
Abstract
This paper highlights the anomalous characteristics of the Euro Area `twin crises by
contrasting the aggregate macroeconomic dynamics in the period 2009-2013 with the
business cycle fluctuations of the previous decades We report three stylised facts First the
contraction in output was marked by an anomalous downfall in investment while
consumption savings and unemployment followed their historical relation with GDP Second
households and financial corporations debts and house prices deviated from their pre-crisis
trends Third the jump in the public deficit-GDP ratio in 2008-2009 was unprecedented and
so was the fiscal consolidation that followed Our analysis points to the financial nature of the
crisis as a likely explanation for these facts Importantly the `anomaly in public deficit is in
large part explained by extraordinary measures in support of the financial sector which show
up in the stock-flow adjustments and reveal a key interaction between the fiscal and the
financial sectors
Keywords Euro Area Government Debt Recessions
JEL Classification C11 C32 C54 E52 E62 F45
The Shocks Matter Improving Our Estimates of
Exchange Rate Pass-Through CEPR Discussion Paper No DP13037
43 Pages Posted 9 Jul 2018
Kristin J Forbes Massachusetts Institute of Technology (MIT) - Sloan School of Management National Bureau of Economic
Research (NBER)
Ida Hjortsoe
Bank of England
Tsvetelina Nenova Bank of England
There are 4 versions of this paper
Date Written July 2018
Abstract
A major challenge for monetary policy is predicting how exchange rate movements will
impact inflation We propose a new focus directly incorporating the underlying shocks that
cause exchange rate fluctuations when evaluating how these fluctuations pass through to
import and consumer prices A standard open-economy model shows that the relationship
between exchange rates and prices depends on the shocks which cause the exchange rate to
move We build on this to develop a structural Vector Autoregression (SVAR) framework for a
small open economy and apply it to the UK We show that prices respond differently to
exchange rate movements based on what caused the movements For example exchange rate
pass-through is low in response to domestic demand shocks and relatively high in response to
domestic monetary policy shocks This framework can improve our ability to estimate how
pass-through can change over short periods of time For example it can explain why sterlings
post-crisis depreciation caused a sharper increase in prices than expected while the effect of
sterlings 2013-15 appreciation was more muted We also apply this framework to forecast
the extent of pass-through from sterlings sharp depreciation corresponding to the UKs vote
to leave the European Union
Keywords consumer prices exchange rate pass-through import prices inflation vector
autoregressions
JEL Classification E31 F3 F41
Why Has Economic Growth Slowed When Innovation
Appears to Be Accelerating CEPR Discussion Paper No DP13039
29 Pages Posted 9 Jul 2018
Robert J Gordon Northwestern University - Department of Economics National Bureau of Economic Research (NBER)
Centre for Economic Policy Research (CEPR)
There are 2 versions of this paper
Date Written July 2018
Abstract
U S economic growth slowed by more than half from 32 percent per year during 1970-2006
to only 14 percent during 2006-16 and this decline was divided equally between slower
growth in hours of work and slower growth in output per hour In explaining slower growth
in hours particular emphasis is placed on the slower secular rise of life expectancy in the US
compared to other developed countries Further contributions to slowing growth are made by
a decline in the population share of both legal and illegal immigration and a turnaround from
rising to declining labor force participation Causes of declining productivity growth begin
with the slowdown in the rate of increase of educational attainment Why did productivity
growth decline after 2006 despite an increase in the rate at which new US patents were
issued in 2006-16 compared to earlier decades Part of the slowdown is attributed to the
maturity of the IT revolution which also helps to explain the trajectory of the college wage
premium Aspects of the productivity growth slowdown include the declining productivity of
research workers diminishing returns to drug innovation and the evolutionary rather than
revolutionary impact of robots and artificial intelligence
Keywords Economic Growth Immigration Innovation labor force participation Mortality
productivity
JEL Classification D24 E24
On DSGE Models
by Lawrence J Christiano Martin S Eichenbaum Mathias Trabandt - 24811 (EFG ME)
Abstract
The outcome of any important macroeconomic policy change is the
net effect of forces operating on different parts of the economy
A central challenge facing policy makers is how to assess the
relative strength of those forces Dynamic Stochastic General
Equilibrium (DSGE) models are the leading framework that
macroeconomists have for dealing with this challenge in an open
and transparent manner This paper reviews the state of DSGE
models before the financial crisis and how DSGE modelers
responded to the crisis and its aftermath In addition we
discuss the role of DSGE models in the policy process
httppapersnberorgpapersW24811utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Currency Wars Unconventional Monetary Policy Does Not Stimulate Exports
by Andrew K Rose - 24817 (IFM ITI)
Abstract
I investigate whether countries that use unconventional monetary
policy (UMP) experience export booms I use a popular gravity
model of trade which requires neither the exogeneity of UMP nor
instrumental variables for UMP In practice countries that
engage in UMP experience a drop in exports vis-a-vis countries
that are not engaged in such policies holding other things
constant Quantitative easing is associated with exports that
are about 10 lower to countries not engaged in UMP this amount
is significantly different from zero and similar to the effect of
negative nominal interest rates Thus there is no evidence that
countries have gained export markets through unconventional
monetary policy currency wars that have been launched have also
been lost UMP is also associated with a comparable drop in
imports and exchange rates suggesting that countries engage in
UMP when they are experiencing adverse macroeconomic shocks
concurrent with those that eviscerate international trade
httppapersnberorgpapersW24817utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Granular Comparative Advantage
by Cecile Gaubert Oleg Itskhoki - 24807 (EFG IFM IO ITI)
Abstract
Large firms play a pivotal role in international trade shaping
the export patterns of countries We propose and quantify a
granular multi-sector model of trade which combines fundamental
comparative advantage across sectors with granular comparative
advantage embodied in outstanding individual firms We develop
an SMM-based estimation procedure which takes full account of
the general equilibrium of the model to jointly estimate these
fundamental and granular forces using French micro-data with
information on firm domestic and export sales across
manufacturing industries We find that granularity accounts for
about 20 of the variation in realized export intensity across
sectors and is more pronounced in the most export-intensive
sectors In turn idiosyncratic firm dynamics accounts for a
large share of the evolution of a countrys comparative advantage
over time Governments face strong incentives to target trade
policy at large individual foreign exporters and to use lenient
antitrust regulation at home to substitute for
beggar-thy-neighbor trade policy
httppapersnberorgpapersW24807utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The State of New Keynesian Economics A Partial Assessment
by Jordi Gali - 24845 (EFG ME)
Abstract
I provide an overview of recent developments in monetary
economics with an emphasis on extensions of the New Keynesian
framework that assume a zero lower bound on the short term
nominal rate as well as models with household heterogeneity
httppapersnberorgpapersW24845utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Artificial Intelligence Economics and Industrial Organization
by Hal Varian - 24839 (IO PR)
Abstract
Machine learning (ML) and artificial intelligence (AI) have been
around for many years However in the last 5 years remarkable
progress has been made using multilayered neural networks in
diverse areas such as image recognition speech recognition and
machine translation AI is a general purpose technology that is
likely to impact many industries In this chapter I consider how
machine learning availability might affect the industrial
organization of both firms that provide AI services and
industries that adopt AI technology My intent is not to
provide an extensive overview of this rapidly-evolving area but
instead to provide a short summary of some of the forces at work
and to describe some possible areas for future research
httppapersnberorgpapersW24839utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Twenty Five Years of Global Imbalances CEPR Discussion Paper No DP13066
20 Pages Posted 24 Jul 2018
Maurice Obstfeld International Monetary Fund (IMF)
Date Written July 2018
Abstract
As international capital markets expanded in breadth and depth after the middle 1990s
global current account imbalances also expanded markedly Some have linked the origin of
the subsequent Global Financial Crisis (GFC) to these global imbalances This essay proposes
answers to four questions about the recent history of global imbalances Why did global
imbalances expand after the mid-1990s What circumstances and concomitant factors
provide clues about the origins of the GFC If one accepts that a mono-causal story about the
GFC based on global imbalances is inaccurate how should one view the potential threats from
excessive global imbalances today And finally what policy implications follow
Keywords current account global financial crisis (GFC) global imbalances IMF External
Sector Report
Is Automation Labor-Displacing Productivity Growth Employment and the Labor Share
by David Autor Anna Salomons - 24871 (EFG LS)
Abstract
Many technological innovations replace workers with machines but
this capital-labor substitution need not reduce aggregate labor
demand because it simultaneously induces four countervailing
responses own-industry output effects cross-industry
input-output effects between-industry shifts and final demand
effects We quantify these channels using four decades of
harmonized cross-country and industry data where we measure
automation as industry-level movements in total factor
productivity (TFP) that are common across countries We find
that automation displaces employment and reduces labors share of
value-added in the industries in which it originates (a direct
effect) In the case of employment these own-industry losses
are reversed by indirect gains in customer industries and induced
increases in aggregate demand By contrast own-industry labor
share losses are not recouped elsewhere Our framework can
account for a substantial fraction of the reallocation of
employment across industries and the aggregate fall in the labor
share over the last three decades It does not however explain
why the labor share fell more rapidly during the 2000s
httppapersnberorgpapersW24871utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Dynamic Effects of Co-Ethnic Networks on
Immigrants Economic Success CESifo Working Paper Series No 7084
43 Pages Posted 21 Jul 2018
Michele Battisti University of Palermo LUISS Guido Carli University
Giovanni Peri University of California Davis - Department of Economics
Agnese Romiti Government of the Federal Republic of Germany - Institute for Employment Research (IAB)
Date Written June 06 2018
Abstract
This paper investigates how the size of co-ethnic networks at the time of arrival affect the
economic success of immigrants in Germany Applying panel analysis with a large set of fixed
effects and controls we isolate the association between initial network size and long-run
immigrant outcomes We also look at those who were assigned to an initial location
independently of their choice allows a causal interpretation of our estimates We find that
immigrants initially located in places with larger co-ethnic networks are more likely to be
employed at first but have a lower probability of investing in human capital
Keywords networks immigration human capital employment
JEL Classification J240 J610 R230
Immigrant Artists Enrichment or Displacement CEPR Discussion Paper No DP13070
36 Pages Posted 31 Jul 2018
Karol Borowiecki University of Southern Denmark
Kathryn Graddy Brandeis University - Department of Economics
Date Written July 2018
Abstract
In order to investigate the role of immigrant artists on the development of artistic clusters in
US cities we use the US Census and American Community Survey collected every 10 years
since 1850 We identify artists and art teachers authors musicians and music teachers actors
and actresses architects and journalists their geographical location and their status as a
native or an immigrant We look at the relative growth rate of the immigrant population in
these occupations over a ten year period and how it affects the relative growth rate of native-
born individuals in these artistic occupations We find that cities that experienced immigrant
artist inflows also see a greater inflow of native artists
Keywords artistic occupations artists Immigration
JEL Classification J4 J6 N3 N9 Z1
Global Value Chains and Inequality with Endogenous Labor Supply
by Eunhee Lee Kei-Mu Yi - 24884 (ITI)
Abstract
We assess the role of global value chains in transmitting global
integration shocks to aggregate trade as well as distributional
outcomes We develop a multi-country general equilibrium trade
model that features multi-stage production with different stages
having different productivities and using factors (occupations)
with different intensities The model also features a Roy
mechanism in which heterogeneous workers endogenously choose
their sector and occupation Country- and worker-level
comparative advantages interact A reduction in trade costs
leads to countries specializing in their comparative advantage
sectors and production stages This specialization changes labor
demand and also leads to more workers shifting to their
comparative advantage sectors and occupations We calibrate our
model to the US China and the rest of the world in 2000 and
we simulate a decline in Chinas trade costs with the US
designed to mimic Chinas entry into the WTO Our simulation
results imply an increase in the skill premium in both the US
and China and the GVC ie specialization across stages is
critical to this outcome
httppapersnberorgpapersW24884utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Friedman and Phelps on the Phillips Curve Viewed from a Half Centurys Perspective
by Robert J Gordon - 24891 (EFG)
Abstract
In the late 1960s the stable negatively sloped Phillips Curve
(PC) was overturned by the Friedman-Phelps natural rate model
Their PC was vertical in the long run at the natural unemployment
rate and their short-run curve shifted up whenever unemployment
was pushed below the natural rate This paper criticizes the
underlying assumption of the Friedman-Phelps approach that the
labor market continuously clears and that changes in unemployment
down or up occur only in response to fooling of workers firms
or both A preferable and resolutely Keynesian approach
explains quantity rationing by inertia in price and wage setting
The positive correlation of inflation and unemployment in the
1970s and again in the 1990s is explained by joining the
negatively sloped Phillips Curve with a positively sloped dynamic
demand curve For any given growth of nominal GDP higher
inflation caused by adverse supply shocks implies slower real GDP
growth and higher unemployment This triangle model based on
inflation inertia demand and supply worked well to explain why
inflation and unemployment were both positively and negatively
correlated between the 1960s and 1990s but in the past decade
the slope of the short-run Phillips Curve has flattened as
inflation exhibited a muted response to high unemployment in
2009-13 and low unemployment in 2016-2018 It remains to be
seen whether a continuation of low unemployment will cause a
modest and fixed extra amount of inflation thus reviving the
stable Phillips curve of the early 1960s or whether inflation
will continuously accelerate as Friedman and Phelps would have
predicted
httppapersnberorgpapersW24891utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Tax Policy Measures in Advanced and Emerging
Economies A Novel Database IMF Working Paper No 18110
61 Pages Posted 1 Aug 2018
David Amaglobeli International Monetary Fund (IMF)
Valerio Crispolti International Monetary Fund (IMF)
Era Dabla-Norris International Monetary Fund (IMF)
Pooja Karnane International Monetary Fund (IMF)
Florian Misch International Monetary Fund (IMF)
Date Written May 2018
Abstract
This paper describes a new comprehensive database of tax policy measures in 23 advanced
and emerging market economies over the last four decades We extract this information from
more than 900 OECD Economic Surveys and 37000 tax-related news from the International
Bureau of Fiscal Documentation using text-mining techniques The innovation of this dataset
lies in its granularity changes in the rates and bases of personal and corporate income taxes
value added and sale taxes social security contributions excise and property taxes are
systematically documented In addition the database provides information on the
announcement and implementation dates whether the measures represent major changes
are part of a broader tax package and phased in over several years The paper also presents a
range of stylized facts suggesting that information from this database is useful to deepen the
analysis of tax policy changes for research and policy purposes
Keywords Tax policy Tax reforms Personal income taxes Corporate income taxes Value
added taxes Sales taxes Excise taxes Property taxes Developed countries Emerging markets
Tax Reforms Text Mining Tax Policy Implementation Lags Tax Reforms Text Mining Tax
Policy Implementation Lags Methodology for Collecting Estimating and Organizing
Macroeconomic Data General
JEL Classification C82 E61 H20 P16
Inequality Aversion Populism and the Backlash
Against Globalization CEPR Discussion Paper No DP13107
69 Pages Posted 21 Aug 2018
Lubos Pastor University of Chicago - Booth School of Business Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
Pietro Veronesi
University of Chicago - Booth School of Business Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
There are 3 versions of this paper
Date Written August 2018
Abstract
Motivated by the recent rise of populism in western democracies we develop a model in
which a populist backlash emerges endogenously in a growing economy In the model voters
dislike inequality especially the high consumption of the ``elites Economic growth
exacerbates inequality due to heterogeneity in risk aversion In response to rising inequality
rich-country voters optimally elect a populist promising to end globalization Redistribution is
of limited value in containing the backlash against globalization Countries with more
inequality higher financial development and current account deficits are more vulnerable to
populism both in the model and in the data Evidence on who voted for Brexit and Trump in
2016 also largely supports the model
Keywords Brexit Globalization inequality populism risk aversion Trump
JEL Classification D72 F65 G11 G12 G18 P16
Underemployment in the US and Europe
by David NF Bell David G Blanchflower - 24927 (IFM LS ME)
Abstract
Large numbers of part-time workers around the world both those
who choose to be part-time and those who are there involuntarily
and would prefer a full-time job report they want more hours
Full-timers who say they want to change their hours mostly say
they want to reduce them When recession hit in most countries
the number of hours of those who said they wanted more hours
rose sharply and there was a fall in the number of hours that
full-timers wanted their hours reduced by Even though the
unemployment rate has returned to its pre-recession levels in
many advanced countries underemployment in most has not
We produce estimates for a new and better underemployment rate
for twenty-five European countries In most underemployment
remains elevated We provide evidence for the UK and the US as
well as some international evidence that underemployment rather
than unemployment lowers pay in the years after the Great
Recession We also find evidence for the US that falls in the
home ownership rate have helped to keep wage pressure in check
Underemployment replaces unemployment as the main influence on
wages in the years since the Great Recession
httppapersnberorgpapersW24927utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Does Machine Translation Affect International Trade Evidence from a Large Digital Platform
by Erik Brynjolfsson Xiang Hui Meng Liu - 24917 (IO ITI PR)
Abstract
Artificial intelligence (AI) is surpassing human performance in a
growing number of domains However there is limited evidence of
its economic effects Using data from a digital platform we
study a key application of AI machine translation We find
that the introduction of a machine translation system has
significantly increased international trade on this platform
increasing exports by 175 Furthermore heterogeneous
treatment effects are all consistent with a substantial reduction
in translation-related search costs Our results provide causal
evidence that language barriers significantly hinder trade and
that AI has already begun to improve economic efficiency in at
least one domain
httppapersnberorgpapersW24917utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The US Personal Saving Rate IMF Working Paper No 18128
35 Pages Posted 1 Aug 2018
Sam Ouliaris International Monetary Fund (IMF)
Celine Rochon University of Oxford IMF
Date Written June 2018
Abstract
This paper develops a time series model for aggregate consumption to predict the US
personal saving rate It then uses the model to test whether there has been a structural break
in consumption behavior because of the 2008 financial crisis Before the crisis the personal
saving rate was trending downwards However in 2008 there was a significant rise in the
saving rate that continued until the end of 2012 suggesting a permanent change in household
behavior To assess this issue formally the unknown parameters of the model are estimated
using data for 1961Q1-2007Q4 a period which precedes the crisis The model is then used to
predict the saving rate from 2008Q1 onwards and to assess whether the rise in the saving rate
after 2008 was due to sizable but transitory incomewealth shocks or to changes in the
underlying elasticities between saving and its determinants (hence structural) The statistical
evidence suggests there was no structural break in the household saving behavior implying
that the rise in the saving rate during 2008-2012 was caused by the negative shocks to
income employment and wealth This result explains why the saving rate resumed its decline
in 2013 as real disposable income employment and net worth recovered Assuming that the
real growth in these determinants remains strong the estimated model predicts continued
negative pressures on the current account deficit and further external imbalances attributable
to the US household sector
Keywords United States Western Hemisphere consumption behavior personal saving rate
vector error-correction model structural break Consumer Economics Empirical Analysis
Personal Finance Forecasting and Simulation
JEL Classification D12 D14 E21 E27
Currency Unions Trade and Heterogeneity CESifo Working Paper Series No 7123
49 Pages Posted 24 Aug 2018
Natalie Chen University of Warwick - Department of Economics Centre for Economic Policy Research (CEPR)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
There are 2 versions of this paper
Date Written June 28 2018
Abstract
How do trade costs affect international trade This paper offers a new approach We rely on a
flexible gravity equation that predicts variable trade cost elasticities both across and within
country pairs We apply this framework to the effect of currency unions on international
trade While we estimate that currency unions are associated with a trade increase of around
38 percent on average we find substantial underlying heterogeneity Consistent with the
predictions of our framework we find effects around three times as strong for country pairs
associated with small import shares and a zero effect for large import shares Our results
imply that conventional homogeneous currency union estimates do not provide helpful
guidance for countries considering to join a currency union Instead countries need to take
into account the distribution of their trade shares to assess the impact of trade costs
Keywords currency unions euro gravity heterogeneity trade costs trade elasticity translog
JEL Classification F140 F150 F330
How Do Migration and Remittances Affect Inequality
A Case Study of Mexico IMF Working Paper No 18136
22 Pages Posted 1 Aug 2018
Zsoka Koczan International Monetary Fund (IMF)
Franz Loyola International Monetary Fund (IMF)
Date Written June 2018
Abstract
The poverty-reducing effects of remittances have been well-documented however their
effects on inequality are less clear This paper examines the impact of remittances on
inequality in Mexico using household-level information on the receiving side It hopes to
speak to their insurance role by examining how remittances are affected by domestic and
external crises the 1994 Mexican Peso crisis and the Global Financial Crisis We find that
remittances lower inequality and that they become more pro-poor over time as migration
opportunities become more widespread This also strengthens their insurance effects
mitigating some of the negative impact of shocks on the poorest
Keywords Migration Remittances Financial crises Income inequality Income distribution
Poverty reduction inequality Firm Behavior International Lending and Debt Problems
JEL Classification D21 F32 F34 J61 D31 F22 F24
Exchange Rate Forecasting on a Napkin
ECB Working Paper No 2151
Contact MICHELE CAZORZI
European Central Bank (ECB)
Email michelecazorziecbint
Auth-Page httpsssrncomauthor=343031
Co-Author MICHAŁ RUBASZEK
National Bank of Poland Warsaw
School of Economics (SGH)
Email michalrubaszeknbppl
Auth-Page httpsssrncomauthor=850188
Full Text httpsssrncomabstract=3183690
ABSTRACT This paper shows that there are two regularities in
foreign exchange markets in advanced countries with flexible
regimes First real exchange rates are mean-reverting as
implied by the Purchasing Power Parity model Second the
adjustment takes place via nominal exchange rates These features
of the data can be exploited even on the back of a napkin to
generate nominal exchange rate forecasts that outperform the
random walk The secret is to avoid estimating the pace of mean
reversion and assume that relative prices are unchanged Direct
forecasting or panel data techniques are better than the random
walk but fail to beat this simple calibrated model
______________________________
Home Sweet Home The Effect of Sugar Protectionism
on Emigration in Italy 1876-1913 CEIS Working Paper No 437
49 Pages Posted 29 Jun 2018
Carlo Ciccarelli University of Rome Tor Vergata - Faculty of Economics
Alberto Dalmazzo University of Siena - Department of Economics
Daniela Vuri University of Rome Tor Vergata IZA Institute of Labor Economics CESifo (Center for Economic Studies and
Ifo Institute for Economic Research)
Date Written June 8 2018
Abstract
Protectionist policies are often considered or even implemented as a reaction to increasing
globalization This is not new in history This paper uses the introduction of import duties on
sugar in the late nineteenth century Italy to measure the impact of protectionism on migration
out flows at the time of the fi
rst globalization Both for climate reasons and the nature of the soil the cultivation and
processing of sugar beets was geographically concentrated in a small area leading de facto to
a regional protectionist policy Our theoretical model illustrates how a tariff that favours local
producers may affect residents incentives to migrate abroad The predictions of the model
are tested with the synthetic control method which uses the variation in sugar cultivation
across areas to estimate the effect of interest Our results show that protectionism effectively
reduced the relative incentive to migrate away from sugar-producing areas
Keywords protectionism regional economics migrations 19th century Italy
JEL Classification N93 J4 C23
Integrating Services in the Economic Fitness
Approach World Bank Policy Research Working Paper No 8485
35 Pages Posted 28 Aug 2018
Andrea Zaccaria Sapienza University of Rome
Saurabh Mishra International Monetary Fund (IMF)
Masud Z Cader World Bank - International Finance Corporation (IFC)
Luciano Pietronero Sapienza University of Rome
Date Written June 21 2018
Abstract
Economic Complexity is a set of network-based and algorithmic methods for the study of
economic development and competitiveness In this framework Economic Fitness is an
innovative approach that improves the mathematical and conceptual scheme For
convenience these methods were originally conceived on trade in goods This paper extends
the Economic Fitness methodology to include a trade in services element to yield a universal
matrix of world trade and thus provide a more complete picture of a countrys development
and global competitiveness The paper applies two algorithms to the universal trade in goods
and services matrix to contrast country competitiveness and change in complexity and
diversification when services are added to the traditional goods-only matrix The results show
that (i) the competitiveness of many countries was previously over- or underestimated that
is many countries gain or lose positions in the ranking of economic fitness when services
trade is considered alongside goods and (ii) complex services tend to cluster with complex
manufacturing suggesting a common capabilities structure These findings show how
developing complex services aids diversification strategies for developing countries
Keywords International Trade and Trade Rules Common Carriers Industry Food amp
Beverage Industry Business Cycles and Stabilization Policies Plastics amp Rubber Industry
Construction Industry General Manufacturing Textiles Apparel amp Leather Industry Pulp amp
Paper Industry Trade and Services Macroeconomic Management ICT Applications
Deep Trade Agreements and Global Value Chains World Bank Policy Research Working Paper No 8491
39 Pages Posted 28 Aug 2018
Edith Laget World Bank
Alberto Osnago World Bank
Nadia Rocha World Trade Organization
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Date Written June 25 2018
Abstract
Preferential trade agreements have become deeper over time often encompassing policy
areas that go beyond traditional trade policy such as investment competition and intellectual
property rights protection In the literature a prominent argument why countries sign deep
agreements is to promote and facilitate the operation of global value chains This paper
exploits a new data set on the content of trade agreements and data on trade in value added
and in parts and components to quantify the impact of the depth of trade agreements on
bilateral cross-border production linkages The results show that adding a policy area to a
trade agreement increases the domestic value added of intermediates (forward global value
chain linkages) and the foreign value added of intermediates (backward global value chain
linkages) by 048 and 038 percent respectively At the sectoral level the positive impact of
deep trade agreements is higher for higher value-added industries suggesting that deep
agreements help countries to integrate in industries with higher levels of value added For a
larger sample of countries and years the results confirm that an additional provision in a
trade agreement increases bilateral trade in parts and components by 03 percent The
content of trade agreements also matters for global value chain integration but the impact
varies by income group Provisions outside the current mandate of the World Trade
Organization (investment and competition policy) drive the effect of trade agreements on
North-South trade in parts and components Provisions under the current World Trade
Organization mandate (tariff reduction and customs facilitation) drive the effect of trade
agreements on South-South trade in parts and components
Keywords International Trade and Trade Rules Industrial and Consumer Services and
Products Transport and Trade Logistics Competition Policy Competitiveness and
Competition Policy Trade Finance and Investment
The Effect of Immigration on Natives School
Achievement Does Length of Stay in the Host
Country Matter World Bank Policy Research Working Paper No 8492
62 Pages Posted 28 Aug 2018
Laurent Bossavie The World Bank
Date Written June 25 2018
Abstract
Using a rich data set of primary school students this paper estimates the effects of immigrant
concentration in the classroom on the academic achievement of natives In contrast with
previous contributions it exploits rare information on age-at-migration to estimate separate
spillover effects by duration of stay of immigrant classmates To identify treatment effects it
uses cohort-by-cohort deviations in immigrant concentration within schools combined with
attractive features of the Dutch school system Overall the paper finds no effect of the
concentration of immigrant students on natives test scores However although immigrant
students who have been in the country for some time have virtually no effect on natives the
analysis finds a small negative effect of recent immigrants in the classroom on natives test
scores The effect is significant only for language test scores but insignificant for mathematics
test scores When significant effect sizes are quite small compared to other educational
interventions and classroom peer effects estimated in other contexts
Keywords Indigenous Peoples Law Indigenous Peoples Indigenous Communities
Educational Sciences International Migration Migration and Development Human Migrations
amp Resettlements Effective Schools and Teachers Educational Institutions amp Facilities
Trade and Immigration 1870-2010
by David S Jacks John P Tang - 25010 (DAE)
Abstract
In this chapter we describe long-run trends in global
merchandise trade and immigration from 1870 to 2010 We revisit
the reasons why these two forces moved largely in parallel in the
decades leading up to World War I collapsed during the interwar
period and then rebounded (but with much more pronounced growth
in trade than in immigration) More substantively we also
document a large redistribution in the regional sources of goods
and people with a shift from the former industrialized core
countries--especially Europe--to those in the former
periphery--especially Asia--as well as a very striking change in
the composition of merchandise trade towards manufactured goods
precisely dating from 1950 Finally using a triple differences
framework in combination with a dramatic change in US immigration
policy we find evidence that immigration and trade potentially
acted as substitutes at least for the United States in the
interwar period
httppapersnberorgpapersW25010utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Attitudes Towards Euro Area Reforms Evidence from
a Randomized Survey Experiment CESifo Working Paper Series No 7141
35 Pages Posted 28 Aug 2018
Mathias Dolls CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute IZA Institute of Labor Economics
Nils Wehrhoumlfer University of Mannheim Graduate School of Economic and Social Sciences Students
Date Written July 09 2018
Abstract
We present the first evidence on public attitudes towards two prominent euro area reform
proposals (European Unemployment Benefit Scheme and Sovereign Insolvency Procedure)
and assess potential impediments to their implementation by means of a randomized survey
experiment in Germany We find that there is a low willingness among German voters to
accept fiscal risk-sharing through common unemployment insurance while a sovereign
insolvency procedure aimed at strengthening market discipline is supported by a majority of
the electorate Our randomized treatments confronting survey participants with potential
adverse effects of the reforms lead to significant downward shifts in approval rates Altruism
cosmopolitanism political preferences and income are important predictors of support for
the reform proposals We also show that there is a striking contrast between the low level of
support for transfers to other euro area member states and a broad acceptance of inner
German transfers
Keywords public attitudes euro area reforms European unemployment insurance
sovereign insolvency procedure
JEL Classification H550 H240 J260 D140
The Economic Effects of Refugee Return and Policy
Implications World Bank Policy Research Working Paper No 8497
65 Pages Posted 28 Aug 2018
Uri Dadush World Bank
Date Written June 27 2018
Abstract
The recent surge in the number of forcibly displaced who cross international borders in
search of protection has prompted interest in evaluating policies that achieve the possible
end points of the phenomenon As envisaged by United Nations High Commissioner for
Refugees (UNHCR) these are the integration in the country of destination relocation in a
third country and return to the country of origin The focus of this paper is on the third
aspect namely the appropriate conduct of return policy viewed from the perspective of the
host country More specifically the main question is whether it is in the economic self-interest
of host countries to return forcibly displaced persons In addressing the question four
ancillary issues are to be addressed (i) the macroeconomic impact of refugees and of their
return (ii) the labor market impact of refugees and of their return (iii) the fiscal impact of
refugees and of their return and (iv) how return policy should be formulated and executed
The available evidence and analyses allow this papers main conclusion namely that the costs
of hosting asylum seekers and refugees are front-loaded while the benefits accruing from
their integration into the labor market and the host economy typically take years to
materialize It follows that from the economic perspective their return after a short stay may
represent a costlier option than continuing to invest in their successful integration Countries
with a flexible labor market strong investment climate and a welcoming attitude to
immigrants tend to see the economic benefits of refugee inflows materialize faster
The Effect of Remittances on the Current Account in
Developing and Emerging Economies World Bank Policy Research Working Paper No 8498
26 Pages Posted 28 Aug 2018
Emmanuel Kwasi Koranteng Lartey World Bank
Date Written June 27 2018
Abstract
This paper presents an analysis of the effect of remittances on the current account in
developing and emerging economies incorporating an assessment of the extent to which
exchange rate regimes impact the relationship The main findings suggest there is a positive
effect of remittances on the current account contemporaneously but that the lagged effect is
negative which could be indicative of the existence of some underlying mechanisms
characteristic of the Dutch disease phenomenon In addition the results show that a more
flexible exchange regime dampens the contemporaneous positive effect that remittances have
on the current account The paper therefore asserts that policy makers face trade-offs
pertaining to the use of exchange rate policy in managing the effects of remittances on the
current account which should be given due consideration when such policy choices are made
Learning About Fiscal Multipliers During the
European Sovereign Debt Crisis Evidence from a
Quasi-Natural Experiment ECB Working Paper No 2154
30 Pages Posted 18 Jun 2018
Gόrnicka Lucyna IMF
Christophe Kamps European Central Bank (ECB)
Gerrit B Koester European Central Bank (ECB)
Nadine Leiner-Killinger European Central Bank (ECB)
Date Written May 30 2018
Abstract
Identifying fiscal multipliers is usually constrained by the absence of a counterfactual
scenario Our new data set allows overcoming this problem by making use of the fact that
recommendations under the EUrsquos excessive deficit procedure (EDP) provide both a baseline
no-policy-change scenario and a fiscal-adjustment EDP scenario that entails a forecast of the
macroeconomic impact of fiscal consolidation over the EDP horizon For a sample of 24 EU
countries to which 48 EDP recommendations were applied between 2009 and 2015 we
derive country-specific fiscal multipliers as actually applied by forecasters during the crisis
Our results confirm Blanchard and Leighrsquos (2013 2014) presumption that forecasters learned
during the crisis According to our findings fiscal multipliers as applied by the European
Commission increased over time ndash from about 14 in the early years of the crisis to about 23
in the later years However different from Blanchard and Leigh (2013 2014) we do not find
evidence for the hypothesis that ex-post fiscal multipliers have been substantially above 1
during the crisis
Keywords fiscal consolidation fiscal multipliers business cycle
JEL Classification E32 E62 H20 H5
Trade in Developing East Asia How it Has Changed
and Why it Matters World Bank Policy Research Working Paper No 8533
58 Pages Posted 28 Aug 2018
Ileana Cristina Constantinescu World Bank
Aaditya Mattoo World Bank - Development Research Group (DECRG)
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Date Written July 13 2018
Abstract
East Asia for long the epitome of successful engagement in trade faces serious challenges
technological change that may threaten the very model of labor intensive industrialization
and a backlash against globalization that may reduce access to important markets A detailed
analysis of the evolution of East Asias trade and trade policy in goods and services leads to
the conclusion that how East Asia copes with these global challenges will depend on how it
addresses three more proximate national and regional challenges The first is the emergence
of one East Asian country China as a global trade giantaccounting for nearly one-seventh of
global exports and one-tenth of global imports -- which is fundamentally altering the trading
patterns and opportunities of its neighbors The second is the asymmetric implementation of
national reform -- remarkable openness to goods trade and investment coexists with relative
restrictiveness of services policies -- which is affecting the evolution of comparative
advantage and productivity in each country The third is the divergence between the
relatively shallow and fragmented agreements that regulate the regions trade and
investment and the growing importance of regional and global value chains as crucial drivers
of productivity growth
Keywords International Trade and Trade Rules Common Carriers Industry Food amp
Beverage Industry Plastics amp Rubber Industry Business Cycles and Stabilization Policies
Construction Industry General Manufacturing Pulp amp Paper Industry Textiles Apparel amp
Leather Industry Export Competitiveness Industrial and Consumer Services and Products
Transport and Trade Logistics
Who are Americas Star Firms World Bank Policy Research Working Paper No 8534
70 Pages Posted 28 Aug 2018
Meghana Ayyagari George Washington University - School of Business
Asli Demirguc-Kunt World Bank
Vojislav Maksimovic University of Maryland - Robert H Smith School of Business
There are 2 versions of this paper
Date Written July 13 2018
Abstract
There is wide spread concern about a growing gap between top-performing publicly listed
firms and the rest of the economy and the implications of this for rising inequality in the US
Using conventional return calculations there is indeed a widening gap between star firms
(defined as those in top 10 percent of return on invested capital in any year) and the rest of
the economy over time especially in industries that rely on a skilled labor force However
once measurement error in intangible capital is accounted for this gap shrinks dramatically
and has not been widening over time While pricing power as measured by markups predicts
star firm status a large fraction of star firms have low markups and there is no evidence that
star firms are cutting output or investment more than other firms for the same markup The
effect of star status is persistent Five years later star firms have higher growth profits and
Tobins Q A small subset of exceptional firms may pose more pressing policy concerns with
much higher returns and the potential to exercise market power in the future
Keywords Plastics amp Rubber Industry Business Cycles and Stabilization Policies Textiles
Apparel amp Leather Industry Pulp amp Paper Industry Food amp Beverage Industry Common
Carriers Industry Construction Industry General Manufacturing Labor Markets Employment
and Unemployment
Bought Sold and Bought Again The Impact of
Complex Value Chains on Export Elasticities World Bank Policy Research Working Paper No 8535
45 Pages Posted 28 Aug 2018
Francois Michel Marie Raphael De Soyres World Bank
Erik Frohm World Bank
Vanessa Gunnella European Central Bank (ECB)
Elena Pavlova European Central Bank (ECB)
Date Written July 13 2018
Abstract
Global value chain participation affects the exchange rate pass-through to export prices and
export volumes The paper develops a partial equilibrium model of international trade with
cross-border production and shows that higher participation in global value chains reduces
the elasticities Specifically a higher share of foreign value added in exports reduces the
exchange rate pass-through to export prices and export volumes A greater share of exports
that return as imports also reduces the responsiveness of export volumes to changes in
bilateral exchange rates Finally exports of inputs that are further re-exported increase the
responsiveness to the trading partners effective exchange rate Using a novel sector-level
panel dataset with 40 countries the analysis tests and finds strong empirical support for the
theoretical predictions The paper further shows that some sectors in some countries can
even experience a decline in gross exports when their currency depreciates
Keywords International Trade and Trade Rules Industrial and Consumer Services and
Products Transport and Trade Logistics Trade and Services Macroeconomic Management
Did Austerity Cause Brexit CESifo Working Paper Series No 7159
101 Pages Posted 25 Sep 2018
Thiemo Fetzer University of Warwick
Date Written July 25 2018
Abstract
Did austerity cause Brexit This paper shows that the rise of popular support for the UK
Independence Party (UKIP) as the single most important correlate of the subsequent Leave
vote in the 2016 European Union (EU) referendum along with broader measures of political
dissatisfaction are strongly and causally associated with an individualrsquos or an arearsquos exposure
to austerity since 2010 In addition to exploiting data from the population of all electoral
contests in the UK since 2000 I leverage detailed individual level panel data allowing me to
exploit within-individual variation in exposure to specific welfare reforms as well as broader
measures of political preferences The results suggest that the EU referendum could have
resulted in a Remain victory had it not been for a range of austerity-induced welfare reforms
Further auxiliary results suggest that the welfare reforms activated existing underlying
economic grievances that have broader origins than what the current literature on Brexit
suggests Up until 2010 the UKrsquos welfare state evened out growing income differences across
the skill divide through transfer payments This pattern markedly stops from 2010 onwards
as austerity started to bite
Keywords political economy austerity globalization voting EU
JEL Classification H200 H300 H500 P160 D720
Resolving Sovereign Debt Crises The Role of Political
Risk CESifo Working Paper Series No 7161
42 Pages Posted 26 Sep 2018
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Date Written August 02 2018
Abstract
Sovereign defaults are bad news for investors and debtor countries in particular if a default
becomes messy and protracted Why are some debt crises resolved quickly in a matter of
months while others take many years to settle This paper studies the duration of sovereign
debt crises based on a new dataset and case study archive on debt renegotiations between
governments and foreign banks and bondholders Using Cox proportional hazard models I
find that domestic political instability (lsquopolitical riskrsquo) is a significant predictor of negotiation
delays after controlling for macroeconomic conditions Government crises resignations and
street protests are particularly disruptive for a quick settlement process Overall the evidence
suggests that debtor countries often lack the political ability to resolve a debt crisis
Governments in turmoil are unlikely to exit a default quickly
Keywords sovereign default crisis resolution political economy
JEL Classification F340 F510 H630
Market Potential and Global Growth over the Long
Twentieth Century CESifo Working Paper Series No 7164
53 Pages Posted 27 Sep 2018
David S Jacks Simon Fraser University (SFU) - Department of Economics National Bureau of Economic Research (NBER)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
There are 3 versions of this paper
Date Written August 02 2018
Abstract
We examine the evolution of market potential and its role in driving economic growth over
the long twentieth century Theoretically we exploit a structural gravity model to derive a
closed-form solution for a widely-used measure of market potential We are thus able to
express market potential as a function of directly observable and easily estimated variables
Empirically we collect a large dataset on aggregate and bilateral trade flows as well as output
for 51 countries We find that market potential exhibits an upward trend across all regions of
the world from the early 1930s and that this trend significantly deviates from the evolution of
world GDP Finally using exogenous variation in trade-related distances to world markets we
demonstrate a significant causal role of market potential in driving global income growth over
this period
Keywords economic geography market potential structural gravity trade costs
JEL Classification F100 N700
Growth Inequality and Poverty A Robust
Relationship World Bank Policy Research Working Paper No 8578
42 Pages Posted 17 Sep 2018
Gustavo A Merrero University of La Laguna
Luis Serveacuten World Bank - Development Research Group (DECRG)
Date Written September 6 2018
Abstract
An extensive literature on poverty traps suggests that high levels of poverty deter growth
However a seemingly basic implication of the underlying theoretical models namely that
countries suffering from higher levels of poverty should grow less rapidly has remained
untested A parallel literature has suggested a variety of mechanisms through which
inequality may affect growth in opposing directions Because inequality and poverty are
different aspects of the income distribution inequality can also affect growth through poverty
an indirect channel that has not been explicitly analyzed This paper contributes to fill both
gaps Using a large cross-country panel data set it estimates a reduced-form growth equation
adding both inequality and poverty to an otherwise standard set of growth determinants
Given inequality the correlation of growth with poverty is consistently negative In contrast
given poverty the correlation of growth with inequality can be positive or negative
depending on the empirical specification and econometric approach used Yet the indirect
effect of inequality on growth through its correlation with poverty is robustly negative Closer
inspection shows that these results are driven by the sample observations featuring high (but
not extremely high) poverty rates These empirical findings are consistent with the
predictions from an analytical framework with learning-by-doing and knowledge spillovers
in which consumers cannot save and invest if their initial endowment is below a minimum
consumption level
Keywords Inequality Inflation Small Area Estimation Poverty Mapping Poverty
Assessment Poverty Lines Poverty Monitoring amp Analysis Poverty Diagnostics Poverty
Impact Evaluation Educational Sciences
Comparison of Welfare Gains in the Armington
Krugman and Melitz Models Insights from a
Structural Gravity Approach World Bank Policy Research Working Paper No 8570
63 Pages Posted 17 Sep 2018
Edward Jay Balistreri Iowa State University
David G Tarr International Trade Analysis
Date Written August 28 2018
Abstract
How large are the estimated gains from trade from a reduction in trade costs in the
heterogeneous firms Melitz (M) model compared with the Armington (A) and Krugman (K)
models Surprisingly little is known beyond the one-sector model This paper analyzes this
question using a global trade model that contains ten regions and various numbers of sectors
(1-10) Following Arkolakis et al (2012) the analysis holds the local trade response constant
across the model comparisons based on a structural gravity estimate Various model features
and scenarios are introduced that are important to real economies almost none of which has
been examined across the three market structures with a constant trade response In
response to global reductions in iceberg trade costs in all the multi-sector models the
ranking of global welfare gains is MelitzgtKrugmangtArmington and the Krugman model
captures between 75 and 95 percent on the additional gains above the Armington model that
are estimated by the Melitz model However for individual regions there are numerous cases
of reversed welfare rankings ie MelitzltkrugmanKrugmangtArmington For individual
regions however the welfare ranking of the Armington Krugman and Melitz market
structures is model data parameter and scenario dependent The results highlight the need
for data and structural considerations in policy analysisltkrugman
Keywords International Trade and Trade Rules Trade and Services Labor Markets Trade
and Multilateral Issues
The Economic Effects of Brexit - Evidence from the
Stock Market CEPR Discussion Paper No DP13147
35 Pages Posted 17 Sep 2018
Holger Breinlich University of Nottingham - School of Economics Centre for Economic Policy Research (CEPR) London
School of Economics amp Political Science (LSE) - Centre for Economic Performance (CEP)
Elsa Leromain London School of Economics amp Political Science (LSE) - London School of Economics
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
Thomas Sampson London School of Economics amp Political Science (LSE)
Ahmed Usman University of Nottingham
Date Written August 2018
Abstract
We study stock market reactions to the Brexit referendum on 23 June 2016 in order to assess
investors expectations about the effects of leaving the European Union on the UK economy
Our results suggest that initial stock price movements were driven by fears of a cyclical
downturn and by the sterling depreciation following the referendum We also find tentative
evidence that market reactions to two subsequent speeches by Theresa May (her
Conservative Party conference and Lancaster House speeches) were more closely correlated
with potential changes to tariffs and non-tariff barriers on UK-EU trade indicating that
investors may have updated their expectations in light of the possibility of a hard Brexit We
do not find a correlation between the share of EU migrants in different industries and stock
market returns
Keywords Brexit depreciation event study Recession Stock market tariffs
JEL Classification F15 F23 G14
Understanding Euro Area Inflation Dynamics Why so
Low for so Long
IMF Working Paper No 18188
26 Pages Posted 1 Oct 2018
Yasser Abdih International Monetary Fund (IMF)
Li Lin International Monetary Fund (IMF)
Anne-Charlotte Paret Banque de France
Date Written August 2018
Abstract
Despite closing output gaps and tightening labor markets inflation has remained low inthe
euro area Based on an augmented Phillips Curve framework we find that thisphenomenon-
sometimes attributed to low global inflation-has been primarily causedby a remarkable
persistence of inflation keeping it low despite the reduction in slack Thisfeature is shown to
be specific to the euro area (in comparison with the United States)Monetary policy needs to
stay accommodative to help guide inflation back to target
Keywords Inflation Inflation expectations Inflation persistence Monetary policy
Econometric models Euro Area Phillips curve inflation persistence and expectations
General Forecasting and Simulation Monetary Policy (Targets Instruments and Effects)
JEL Classification E10 E31 E32 E37 E52 C22 C50
Financial Development Exchange Rate Regimes and
Growth Dynamics World Bank Policy Research Working Paper No 8562
34 Pages Posted 28 Aug 2018
Woubet Kassa The World Bank
Emmanuel Kwasi Koranteng Lartey World Bank
Date Written August 20 2018
Abstract
This paper utilizes data for African countries to analyze the extent to which financial
development affects the dynamics of the relationship between exchange rate flexibility and
economic growth The findings indicate that financial development exerts a positive influence
on the relationship between exchange rate flexibility and GDP growth as well as total factor
productivity growth The paper also documents a positive impact of trade openness on the
relationship between exchange rate flexibility and growth Moreover the results show a
strong and positive association between exchange rate flexibility and financial development
The findings therefore suggest that discussions and decisions on exchange rate policy should
be undertaken with consideration for structural policies that address the development of the
financial sector In addition the paper asserts that policy makers should adopt a stance that
facilitates some flexibility in exchange rates to foster development of the financial
infrastructure in these economies
Keywords International Trade and Trade Rules Industrial Economics Economic Theory amp
Research Economic Growth Currencies and Exchange Rates Educational Sciences
Macroeconomic Management
Unequal Gains Prolonged Pain A Model of
Protectionist Overshooting and Escalation CEPR Discussion Paper No DP13160
53 Pages Posted 17 Sep 2018
Emily J Blanchard Dartmouth College - Tuck School of Business
Gerald Willmann Bielefeld University IfW Kiel KU Leuven CESifo (Center for Economic Studies and Ifo Institute)
Date Written September 2018
Abstract
We develop a model of democratic political responses to macroeconomic shocks in the short
and long run We show that when economic adjustment is slower than potential political
change exogenous changes in the global marketplace can trigger populist surges in favor of
distortionary economic policies Applied to trade policy our model demonstrates that an
exogenous terms-of-trade improvement or skill-biased technological change will lead to a
spike in protectionism that blunts the younger generations incentive to acquire education In
the long run the initial surge in protectionism will gradually diminish if and only if education
enables less-skilled workers to catch up with the overall economy The more unequal the
initial distribution of human capital the greater and longer-lasting the protectionist backlash
will be unequal gains prolonged pain Evidence on key data markers suggested by the model
exhibits patterns consistent with recent populist support for Brexit and Trump
Keywords Dynamic Political Economy education Endogenous Tari Human Capital
Overlapping Generations Overshooting populism protectionism
JEL Classification D7 E6 F5
Threat or Help The Effects of Unskilled Immigrant
Workers on National Productivity Growth World Bank Policy Research Working Paper No 113185
4 Pages Posted 17 Sep 2018
Sharmila Devadas Central Bank of Malaysia
Date Written March 1 2017
Abstract
While unskilled immigrant workers have relatively low formal human capital theory suggests
that they can still contribute to productivity improvements by helping to increase efficiency
and upgrading the skills of the native labor force Empirical studies indicate that positive
productivity effects do occur This body of evidence does not provide a compelling argument
for the closing of national borders to unskilled foreigners on economic grounds
Keywords Indigenous Peoples Indigenous Peoples Law Human Migrations amp Resettlements
Construction Industry Common Carriers Industry Food amp Beverage Industry General
Manufacturing Pulp amp Paper Industry Plastics amp Rubber Industry Labor Markets Business
Cycles and Stabilization Policies International Migration Indigenous Communities Migration
and Development
Global Trade Slowdown Factors and Policies World Bank Policy Research Working Paper No 123899
4 Pages Posted 17 Sep 2018
Dorina Peteva Georgieva World Bank
Norman Loayza World Bank - Research Department
Fabian Mendez Ramos Development Research Group The World Bank
Date Written February 1 2018
Abstract
Growth in global trade has been slow since 2012 While global trade downturns are not
unprecedented the observed change in the relationship of trade to GDP poses the question
whether the trade slowdown is a transitory deviation or a more long-lasting phenomenon
brought about by structural changes This new dynamic coupled with the rise of protectionist
policies and rhetoric in many countries positions trade at the forefront of policy discussions
This brief reviews recent patterns in global trade examines the factors affecting trade--
distinguishing between transitory and structural components of the slowdown--and discusses
policies shaping the path of future trade
Keywords Trade and Multilateral Issues Trade and Services Trade Policy Trade Facilitation
International Trade and Trade Rules International Economics and Trade Transport and
Trade Logistics Trade and Regional Integration Private Sector Development Industrial and
Consumer Services and Products Competitiveness and Competition Policy Marketing Labor
Markets Private Sector Development Law Private Sector Economics Industry Law and
Development Social Policy Legal Reform Social Development Treaties Economics and
Institutions Public Sector Management and Reform Macroeconomics and Economic Growth
Public Sector Development Regulatory Regimes International Law Non Governmental
Organiz
The Productivity J-Curve How Intangibles Complement General Purpose Technologies
by Erik Brynjolfsson Daniel Rock Chad Syverson - 25148 (EFG IO PR)
Abstract
General purpose technologies (GPTs) such as AI enable and require
significant complementary investments including business process
redesign co-invention of new products and business models and
investments in human capital These complementary investments
are often intangible and poorly measured in the national
accounts even if they create valuable assets for the firm We
develop a model that shows how this leads to an underestimation
of output and productivity in the early years of a new GPT and
how later when the benefits of intangible investments are
harvested productivity will be overestimated Our model
generates a Productivity J-Curve that can explain the
productivity slowdowns often accompanying the advent of GPTs as
well as the follow-on increase in productivity later We use our
model to assess how AI-related intangible capital is currently
affecting measured total factor productivity (TFP) and output
We also conduct a historical analysis of the roles of intangibles
tied to RampD software and computer hardware finding substantial
and ongoing effects of software in particular and hardware to a
lesser extent
httppapersnberorgpapersW25148utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
New Technologies Global Value Chains and Developing Economies
by Dani Rodrik - 25164 (DEV EFG ITI)
Abstract
Many of the exports of developing countries are channeled through
global value chains (GVCs) which also act as conduits for new
technologies However new capabilities and productive
employment remain limited so far to a tiny sliver of globally
integrated firms GVCs and new technologies exhibit features
that limit the upside and may even undermine developing
countries economic performance In particular new technologies
present a double whammy to low-income countries First they are
generally biased towards skills and other capabilities This
bias reduces the comparative advantage of developing countries in
traditionally labor-intensive manufacturing (and other)
activities and decreases their gains from trade Second GVCs
make it harder for low-income countries to use their labor cost
advantage to offset their technological disadvantage by reducing
their ability to substitute unskilled labor for other production
inputs These are two independent shocks that compound each
other The evidence to date on the employment and trade fronts
is that the disadvantages may have more than offset the
advantages
httppapersnberorgpapersW25164utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Bank Runs and Moral Hazard A Review of Deposit
Insurance World Bank Policy Research Working Paper No 8589
31 Pages Posted 20 Sep 2018 Last revised 21 Sep 2018
Deniz Anginer World Bank Research
Asli Demirguc-Kunt World Bank
Date Written September 19 2018
Abstract
Deposit insurance is a widely adopted policy to promote financial stability in the banking
sector Deposit insurance helps ensure depositors confidence in the financial system and
prevents contagious bank runs but it also comes with an unintended consequence of
encouraging banks to take on excessive risk This paper reviews the economic costs and
benefits of deposit insurance and highlights the importance of institutions and specific design
features for how well deposit insurance schemes work in practice
Keywords Deposit Insurance Financial Structures Banks amp Banking Reform Judicial System
Reform Economic Growth
The Future of Work Race With-Not Against-The
Machine World Bank Research amp Policy Briefs Paper No 129680
4 Pages Posted 17 Sep 2018
Lay Lian Chuah World Bank - Development Research Group (DECRG)
Norman Loayza World Bank - Research Department
Achim Schmillen Osteuropa-Institut (OEI) Government of the Federal Republic of Germany - Institute for Employment
Research (IAB) University of Regensburg - Department of Economics and Econometrics
Date Written August 1 2018
Abstract
Will the revolution in digital and information technologies make us obsolete Will jobs be lost
and never replaced Will wages drop to intolerable levels History and economic theory and
evidence suggest that in the long term such fears are misplaced However in the short and
medium term dislocation can be severe for certain types of work places and populations In
the transition period policies are needed to facilitate labor market flexibility and mobility
introduce and strengthen safety nets and social protection and improve education and
training
Keywords Labor Markets Rural Labor Markets Armed Conflict Food Security
An Economists Guide to Climate Change Science
by Solomon Hsiang Robert E Kopp - 25189 (DEV EEE EFG HE ITI LS PE POL PR)
Abstract
Climate change management is a global challenge that requires
social science as much as it requires natural science We
provide a brief introduction to the physical science of climate
change written to provide essential background for economists
and other social scientists We also highlight some key areas in
which economists--including those studying macroeconomics
political economy and development--are in a unique position to
help climate science advance
httppapersnberorgpapersW25189utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
The Intensive Margin in Trade
by Ana M Fernandes Peter J Klenow Sergii Meleshchuk Denisse Pierola Andres Rodriguez-
Clare - 25195 (ITI)
Abstract
The Melitz model highlights the importance of the extensive
margin (the number of firms exporting) for trade flows Using
the World Banks Exporter Dynamics Database (EDD) featuring
firm-level exports from 50 countries we find that around 50 of
variation in exports is along the extensive margin --- a
quantitative victory for the Melitz framework The remaining 50
on the intensive margin (exports per exporting firm) contradicts
a special case of Melitz with Pareto-distributed firm
productivity which has become a tractable benchmark This
benchmark model predicts that conditional on the fixed costs of
exporting all variation in exports across trading partners
should occur on the extensive margin We find that moving from a
Pareto to a lognormal distribution allows the Melitz model to
match the role of the intensive margin in the EDD We use
likelihood methods and the EDD to estimate a generalized Melitz
model with a joint lognormal distribution for firm-level
productivity fixed costs and demand shifters and use exact hat
algebra to quantify the effects of a decline in trade costs on
trade flows and welfare in the estimated model The welfare
effects turn out to be quite close to those in the standard
Melitz-Pareto model when we choose the Pareto shape parameter to
fit the average trade elasticity implied by our estimated
Melitz-lognormal model although there are significant
differences regarding the effects on trade flows
httppapersnberorgpapersW25195utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Are Banks Engines of Export Financial Structures
and Export Dynamics World Bank Policy Research Working Paper No 8621
41 Pages Posted 26 Oct 2018 Last revised 30 Oct 2018
Raoul Minetti Michigan State University - Department of Economics
Alen Mulabdic World Bank
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Susan Chun Zhu Michigan State University - Department of Economics
Date Written October 25 2018
Abstract
This paper studies the impact of financial structures on the dynamics of the export sector
using rich data from over 60 countries The results reveal that bank-oriented financial
systems boost the size of the export sector more than market-oriented financial systems
However especially in middle- and low-income countries this effect mostly stems from banks
slowing down exporters exit rather than promoting firms entry into export The reduced exit
from the export sector appears to reflect domestic banks tendency to evergreen loans to
exporters (soft budget constraint) more than banks buffering role in difficult times Foreign
banks mitigate this effect and enhance the dynamism of the export sector
Contractual Frictions and the Margins of Trade World Bank Policy Research Working Paper No 8631
31 Pages Posted 31 Oct 2018 Last revised 1 Nov 2018
Theophile T Azomahou United Nations University (UNU-MERIT) Maastricht University
Hibret Belete Maemir World Bank
Hassen Abda Wako UNU-MERIT
Date Written October 30 2018
Abstract
A growing body of work has shown that the quality of national institutions that enforce
written contracts plays an important role in shaping a countrys comparative advantage
Using highly disaggregated bilateral and unique harmonized firm-level trade data across a
large number of countries this paper contributes to this literature by providing a
comprehensive analysis of the mechanisms through which institutional frictions affect the
pattern of aggregate trade flow distinguishing the effects on the intensive and extensive
margins The analysis finds that contractual friction distorts countries trade pattern beyond
its effect on domestic production structure by deterring the probability of exporting (the
extensive margin) and export sales after entry (the intensive margin) particularly in
industries that rely more heavily on relationship-specific inputs (more vulnerable to holdup
problems) The analysis also finds that contractual frictions matter more for the intensive
margin than the extensive margin of exporting In addition better contracting institutions
increase the probability of survival of new export products in more contract-intensive
industries These results have important policy implications for developing countries that
seek to boost export growth but many of which suffer from poor contracting institutions
Nominal Exchange Rate Dynamics and Monetary
Policy Uncovered Interest Rate Parity and Purchasing
Power Parity Revisited CEPR Discussion Paper No DP13235
33 Pages Posted 15 Oct 2018 Last revised 22 Oct 2018
Yossi Saadon Bank of Israel - Research Department
Nathan Sussman Hebrew University of Jerusalem
Date Written October 2018
Abstract
The increasing globalization of trade in goods and services and the deepening of financial
markets have reduced frictions that may impede the operation of the PPP and UIP
relationships in the short run In this paper we estimate the short term relative PPP and UIP
relationships Using data from Israel which has a deep market for inflation expectations for
12 months we show that relative PPP and UIP cannot be rejected Deviations from
equilibrium last less than a year Data from Israels capital account of the balance of payments
shows that the deviations are not destabilizing Our findings suggest that greater globalization
and financial deepening contribute to the effectiveness of monetary policy
Keywords Balance sheet effects Exchange Rates Inflation expectations monetary policy
purchasing power parity uncovered interest rate parity
Macroeconomic Effects of Chinas Financial Policies
by Kaiji Chen Tao Zha - 25222 (DEV EFG ME)
Abstract
The Chinese economy has undergone three major phases the
1978-1997 period marked as the SOE-led economy the 1998-2015
phase as the investment-driven economy and the new normal
economy since 2016 All three economies have been shaped by the
governments financial policies defined as a set of credit
policy monetary policy and regulatory policy We analyze the
macroeconomic effects of these financial policies throughout the
three phases and provide the stylized facts to substantiate our
analysis The stylized facts differ qualitatively across
different phases or economies We argue that the impacts of
Chinas financial policies work through transmission channels
different from those in developed economies and that a regime
switch from one economy to another was driven mainly by regime
changes in financial policies
httppapersnberorgpapersW25222utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Factor Incomes in Global Value Chains The Role of Intangibles
by Wen Chen Bart Los Marcel P Timmer - 25242 (EFG)
Abstract
Recent studies document a decline in the share of labour and a
simultaneous increase in the share of residual (factorless)
income in national GDP We argue the need for study of factor
incomes in cross-border production to complement country studies
We define a GVC production function that tracks the value added
in each stage of production in any country-industry We define a
new residual as the difference between the value of the final
good and the payments to all tangibles (capital and labour) in
any stage We focus on GVCs of manufactured goods and find the
residual to be large We interpret it as income for intangibles
that are (mostly) not covered in current national accounts
statistics We document decreasing labour and increasing capital
income shares over the period 2000-14 This is mainly due to
increasing income for intangible assets in particular in GVCs of
durable goods We provide evidence that suggests that the 2000s
should be seen as an exceptional period in the global economy
during which multinational firms benefitted from reduced labour
costs through offshoring while capitalising on existing
firm-specific intangibles such as brand names at little
marginal cost
httppapersnberorgpapersW25242utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Accounting for Firm Heterogeneity within US Industries Extended Supply-Use Tables and Trade
in Value Added using Enterprise and Establishment Level Data
by James J Fetzer Tina Highfill Kassu W Hossiso Thomas F Howells III Erich H Strassner
Jeffrey A Young - 25249 (ITI)
Abstract
This paper presents experimental tables created by the US
Bureau of Economic Analysis comparing industry-specific shares of
the components of total output of globally engaged firms located
in the United States that are part of a multinational enterprise
with those of firms that are part of an enterprise entirely
located in the United States Recent research has shown both the
importance of accounting for trade in value added when estimating
bilateral trade flows and that multinational enterprises located
in the United States account for the lions share of US trade
in goods and services However trade in value added is
typically accounted for using input-output tables that are
aggregated across all types of firms The experimental tables
are consistent with other research showing that value added as a
share of output is lower for foreign-owned firms compared with
domestic-owned firms and that exports and imports as a share of
output is larger for foreign-owned firms We also find
heterogeneity in the composition of output among different types
of domestic-owned firms Future work will analyze this
heterogeneity in more detail using establishment-level data on
production and trade
httppapersnberorgpapersW25249utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
The Falling Elasticity of Global Trade to Economic
Activity Testing the Demand Channel CESifo Working Paper No 7228
42 Pages Posted 31 Oct 2018
Marc Auboin World Trade Organization (WTO)
floriana borino World Trade Organization (WTO)
Date Written 2018
Abstract
Since the recovery from the great financial crisis in 2010 global real trade flows grew much
slower than pre-crisis in both absolute terms (growth rates) and relative terms (relative to
GDP from 21 in the great 1990rsquos to 11 since 2012) A debate has arisen as to whether this
global trade slowdown and related falling trade-to-income elasticity was structural or
cyclical Some papers emphasized the slowing pace of international vertical specialization
Other works emphasized the prominent role of aggregate demand notably when weighted by
its trade component Our paper goes in this latter direction We estimated the standard
import equation for 38 advanced and developing countries over the period 1995-2015 using
an import intensity-adjusted measure of aggregate demand (IAD) calculated from input-
output tables at country level and compared results with regressions using GDP The
integration of IAD allows us to predict 76 to 86 of the changes in global imports a better
performance than if using GDP The use of IAD also enabled us to measure the relative
importance of each component of demand according to their trade intensity The model is
able to account for over 90 of the recent trade slowdown (2012-2015) with IAD alone
explaining 80 of it The slowdown in global value chains explains more than half of the
remaining share of the global trade slowdown not explained by demand factors
Protectionism does not come up as statistically significant
Keywords investment global outlook trade policy trade forecasting business cycles
JEL Classification E220 F010 F130 F170 F440
Will Brexit Age Well Cohorts Seasoning and the Age-
Leave Gradient Past Present and Future CEPR Discussion Paper No DP13288
38 Pages Posted 5 Nov 2018
Barry Eichengreen University of California Berkeley National Bureau of Economic Research (NBER) Centre for Economic
Policy Research (CEPR)
Rebecca Mari Bocconi University
Gregory Thwaites London School of Economics amp Political Science (LSE) - London School of Economics
There are 3 versions of this paper
Date Written October 2018
Abstract
In the UKs 2016 referendum on EU membership young voters were more likely than their
elders to vote Remain Applying new methods to a half century of data we show that this
pattern reflects both ageing and cohort effects Although voters become more Eurosceptical as
they age recent cohorts are also more pro-European than their predecessors Much of the
pro-Europeanism of these recent cohorts is accounted for by their greater years of education
Going forward the ageing of the electorate will thus be offset at least in part by the
replacement of older cohorts with younger better-educated and more pro-European ones
But we also document large nationwide swings in sentiment that have little to do with either
seasoning or cohort effects Hence these demographic trends are unlikely to be the decisive
determinants of future changes in European sentiment Rather nationwide changes in
sentiment reflecting macroeconomic or other conditions and the age-turnout gradient will be
key
JEL Classification F0
Buying Votes and International Organizations The
Dirty Work-Hypothesis CEPR Discussion Paper No DP13290
62 Pages Posted 5 Nov 2018
Axel Dreher Heidelberg University
Valentin Lang University of Zurich
B Peter Rosendorff New York University (NYU) - Wilf Family Department of Politics
James Raymond Vreeland Georgetown University - School of Foreign Service and Department of Government
Date Written October 2018
Abstract
We show how major shareholders can exploit their power over international organizations to
hide their foreign-policy interventions from domestic audiences We argue that major powers
exert influence bilaterally when domestic audiences view the intervention favorably When
domestic audiences are more skeptical of a target country favors are granted via
international organizations We test this theory empirically by examining how the United
States uses bilateral aid and IMF loans to buy other countries votes in the United Nations
Security Council (UNSC) Introducing new data on voting behavior in the UNSC over the 1960-
2015 period our results show that states allied with the US receive more bilateral aid when
voting in line with the United States in the UNSC while concurring votes of states less allied
with the US are rewarded with loans from the IMF Temporary UNSC members that vote
against the United States do not receive such perks
Keywords Aid IMF United Nations Security Council voting World Bank
JEL Classification F35 O11 O19
Hanni Schoelermann
International Monetary Fund (IMF)
Date Written January 2018
Abstract
We examine economic convergence among euro area countries on multiple dimensions While there was
nominal convergence of inflation and interest rates real convergence of per capita income levels has not
occurred among the original euro area members since the advent of the common currency Income
convergence stagnated in the early years of the common currency and has reversed in the wake of the
global economic crisis New euro area members in contrast have seen real income convergence Business
cycles became more synchronized but the amplitude of those cycles diverged Financial cycles showed a
similar pattern sychronizing more over time but with divergent amplitudes Income convergence requires
reforms boosting productivity growth in lagging countries while cyclical and financial convergence can be
enhanced by measures to improve national and euro area fiscal policies together with steps to deepen the
single market
Keywords Business cycles Economic integration Euro Area Financial cycles Convergence
synchronization Economic and Monetary Union Optimum Currency Area Financial Aspects of Economic
Integration
JEL Classification E32 F15 F36 O47
Structural Reforms Growth and Inequality An Overview of Theory Measurement and Evidence
CESifo Working Paper Series No 6812
52 Pages Posted 21 Feb 2018
Nauro F Campos
Brunel University London - Economics and Finance Centre for Economic Policy Research (CEPR) University
of Michigan at Ann Arbor - The William Davidson Institute IZA Institute of Labor Economics
Paul De Grauwe
London School of Economics amp Political Science (LSE) CESifo (Center for Economic Studies and Ifo Institute
for Economic Research) Centre for Economic Policy Research (CEPR)
Yuemei Ji
University College London - School of Slavonic and East European Studies
Multiple version iconThere are 2 versions of this paper
Date Written January 15 2018
Abstract
This paper provides a critical overview of the state of the art in the economics literature on structural
reforms It takes stock of theoretical developments measurement efforts and of the econometric evidence
We start with a simple theoretical framework for the relationship between structural reforms economic
growth and income inequality We argue that whether structural reforms have a positive or negative
impact depends on various factors The type of reform timing sequence and political constraints play
crucial roles in determining the effectiveness of reforms on economic growth and income inequality We
conclude by proposing a 7-point agenda for future research
Keywords structural reforms growth inequality
JEL Classification D600
Immigration assimilation and the future of public education
RyuichiTanaka LidiaFarre FrancescOrtega a
University of Tokyo Japan b
University of Barcelona Spain c
Queens College CUNY USA d
IAE-CSIC Spain
European Journal of Political Economy
Volume 52 March 2018 Pages 141-165
Abstract
This paper analyzes the effects of immigration on the size and quality of public education using a
quantitative political economy model that allows for a heterogeneous immigrant population Our analysis
distinguishes between short and long-run effects and accounts for the consequences of naturalization and
assimilation We use the model to analyze Spains large 2000ndash2008 immigration wave We find that
immigration led to a 15 increase in public enrollment in the short run together with a 3 reduction in
public education spending and almost a 1 percentage-point increase in the share of native households
using private schools Depending on the eventual degree of assimilation these trends will be greatly
intensified or mitigated once immigrants naturalize and gain the right to vote Our analysis suggests that
assimilation in terms of family size and the value assigned to childrens education are the most relevant
dimensions quantitatively We also show that immigration policies that favor one group over another can
significantly alter the overall effects of immigration on the schooling system
Global Financial Cycles and the Exchange Rate
Regime A Perspective from Emerging Markets CEPR Discussion Paper No DP12696
18 Pages Posted 14 Feb 2018
Maurice Obstfeld International Monetary Fund (IMF)
Jonathan D Ostry International Monetary Fund (IMF)
Mahvash Saeed Qureshi International Monetary Fund (IMF) - Research Department
Date Written February 2018
Abstract
This paper examines the relevance of exchange rate regimes in the transmission of global
financial shocks to domestic financial and macroeconomic conditions Our findings suggest
that even in todays highly financially integrated world the nominal exchange rate regime
does matter-at least for emerging market economies The transmission of global financial
shocks to domestic variables is magnified under fixed exchange rate regimes relative to more
flexible regimes For advanced economies however the jury is still out as the recent paucity
of truly fixed regimes among these economies poses a challenge for estimating the effect of
exchange rate flexibility
Keywords emerging market economies global financial cycle trilemma
JEL Classification F31 F36 F41
Firms Left Behind Emigration and Firm Productivity CESifo Working Paper Series No 6815
47 Pages Posted 21 Feb 2018
Yvonne Giesing
CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Nadzeya Laurentsyeva Centre for European Policy Studies (CEPS)
Date Written January 15 2018
Abstract
This paper establishes a causal link between the emigration of skilled workers and firm
performance in source countries Using firm-level panel data from ten Eastern European
countries we show that the emigration of skilled workers lowers firm total factor
productivity We exploit time country and industry differences in the opening of EU labor
markets from 2004 to 2014 as a source of exogenous variation in the emigration rates from
new EU member states We argue that a potential channel behind this effect relates to the
reduction in firm-specific human capital due to a higher worker turnover
Keywords migration firm productivity human capital EU enlargement
JEL Classification O150 D240 F220 J240
Reserve Currency Blocs A Changing International
Monetary System IMF Working Paper No 1820
43 Pages Posted 20 Feb 2018
Camilo E Tovar International Monetary Fund
Tania Mohd Nor International Monetary Fund (IMF)
Date Written January 2018
Abstract
What is the extent of currency diversification in the international monetary system How
hasit evolved over time In this paper we quantify the degree of currency diversification
usingregression methods of currency co-movements to determine the extent to which
nationalcurrencies across the world belong to a reserve currency bloc We then use these
estimates tocalculate the economic size of each currency bloc A key contribution of our paper
is that wequantify the size of the Chinese renminbi bloc Our analysis suggests that the
internationalmonetary system has transitioned from a bi-polar system - consisting of the US
dollar andthe euro - to a tri-polar one that includes the renminbi The dollar bloc is estimated
tocontinue to dominate having the largest share in global GDP (40 percent) followed by
therenminbi (30 percent) and the euro blocs (20 percent) The geographical area of influence
forthe RMB bloc appears to be most evident among the BRICS currencies The British
poundand the Japanese yen blocs appear to play minor roles
Keywords Economic integration Foreign exchange International monetary system
Currency Bloc Internatinal Monetary System International Monetary Arrangements and
Institutions Financial Aspects of Economic Integration Open Economy Macroeconomics
JEL Classification F15 F31 F33 F36 F41 O24
17 The US Gains from Trade Valuation Using the Demand for Foreign Factor Services
by Arnaud Costinot Andres Rodriguez-Clare - 24407 (ITI)
Abstract
About 8 cents out of every dollar spent in the United States is
spent on imports What if because of a wall or some other
extreme policy intervention imports were to remain on the other
side of the US border How much would US consumers be willing to
pay to prevent this hypothetical policy change from taking place
The answer to this question represents the welfare cost from
autarky or equivalently the welfare gains from trade In this
article we discuss how to evaluate these gains using the demand
for foreign factor services The estimates of gains from trade
for the US economy that we review range from 2 to 8 percent of
GDP
httppapersnberorgpapersW24407utm_campaign=ntwamputm_medium=emailamputm_source=ntw
A Dialogue between a Populist and an Economist CEPR Discussion Paper No DP12763
11 Pages Posted 6 Mar 2018
Tito Boeri Bocconi University - Department of Economics Centre for Economic Policy Research (CEPR) IZA Institute
of Labor Economics
Prachi Mishra Government of India - Reserve Bank of India
Chris Papageorgiou International Monetary Fund (IMF) - Research Department
Antonio Spilimbergo
International Monetary Fund (IMF) - Research Department Centre for Economic Policy Research (CEPR)
University of Michigan at Ann Arbor - The William Davidson Institute
Date Written February 2018
Abstract
In this imaginary dialogue a populist and an economist discuss the role of economic shocks to
explain populism A simple correlation between economic shocks and populism is weak
However economic shocks can explain well the phenomenon of populism in countries with
low pre-existent level of trust This is confirmed both at the macro cross-country level and
also by micro evidence obtained from surveys Finally this finding is consistent with the
ideational approach in political science which emphasizes how the populist narrative
opposes the corrupt elite to the virtuous people
Keywords Europe Political parties populism
JEL Classification A10 A12
International Capital Flow Pressures IMF Working Paper No 1830
59 Pages Posted 14 Mar 2018
Linda S Goldberg Federal Reserve Bank of New York National Bureau of Economic Research (NBER)
Signe Krogstrup IMF
There are 3 versions of this paper
Date Written February 2018
Abstract
This paper presents a new measure of capital flow pressures in the form of a recast
ExchangeMarket Pressure index The measure captures pressures that materialize in actual
internationalcapital flows as well as pressures that result in exchange rate adjustments The
formulation istheory-based relying on balance of payments equilibrium conditions and
international assetportfolio considerations Based on the modified exchange market pressure
index the paperalso proposes the Global Risk Response Index which reflects the country-
specific sensitivityof capital flow pressures to measures of global risk aversion For a large
sample of countriesover time we demonstrate time variation in the effects of global risk on
exchange marketpressures the evolving importance of the global factor across types of
countries and thechanging risk-on or risk-off status of currencies
Keywords Exchange Market Pressure Risk aversion Safe haven Capital flows Exchange
Rate Foreign Exchange Reserves Exchange Market Pressure Risk aversion Safe haven
Capital flows Exchange Rate Foreign Exchange Reserves Portfolio Choice General
JEL Classification F23 G11 G20 F32
Sovereign Defaults in Court CEPR Discussion Paper No DP12777
76 Pages Posted 13 Mar 2018
Julian Schumacher European Central Bank (ECB)
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Enderlein Henrik Hertie School of Governance
Date Written March 2018
Abstract
For centuries defaulting governments were immune from legal action by foreign creditors
This paper shows that this is no longer the case Building a dataset covering four decades we
find that creditor lawsuits have become an increasingly common feature of sovereign debt
markets The legal developments have strengthened the hands of creditors and raised the cost
of default for debtors We show that legal disputes in the US and the UK disrupt government
access to international capital markets as foreign courts can impose a financial embargo on
sovereigns The findings are consistent with theoretical models with creditor sanctions and
suggest that sovereign debt is becoming more enforceable We discuss how the threat of
litigation affects debt management government willingness to pay and the resolution of debt
crises
Keywords debt restructuring enforcement government financing sovereign default
JEL Classification F34 G15 H63 K22
Globalization and Income Inequality Revisited CESifo Working Paper Series No 6859
48 Pages Posted 20 Mar 2018
Florian Dorn
CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Clemens Fuest ifo Institute ndash Leibniz Institute for Economic Research at the University of Munich Ludwig-Maximilians-
University Munich Center for Economic Studies (CES)
Niklas Potrafke CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Date Written February 05 2018
Abstract
This paper re-examines the link between globalization and income inequality We use data for
140 countries over the period 1970-2014 and employ an IV approach to deal with the
endogeneity of globalization measures We find that the link between globalization and
income inequality differs across different groups of countries There is a robust positive
relationship between globalization and inequality in the transition countries including China
and most countries of Middle and Eastern Europe In the sample of the most advanced
economies neither OLS nor 2SLS results show any significant positive relationship between
globalization and inequality We conclude that institutions providing income insurance and
education which characterize most advanced economies but are less developed in transition
economies may have moderated effects of globalization on income inequality
Keywords globalization income inequality redistribution instrumental variable estimation
panel econometrics development levels transition economies China
JEL Classification D310 D630 F020 F600 C260 H110 H200
The US Gains from Trade Valuation Using the
Demand for Foreign Factor Services CEPR Discussion Paper No DP12788
34 Pages Posted 20 Mar 2018
Arnaud Costinot University of California San Diego (UCSD) - Department of Economics Massachusetts Institute of
Technology (MIT) - Department of Economics
Andres Rodriguez-Clare Inter-American Development Bank (IDB)
There are 2 versions of this paper
Date Written March 2018
Abstract
About 8 cents out of every dollar spent in the United States is spent on imports What if
because of a wall or some other extreme policy intervention imports were to remain on the
other side of the US border How much would US consumers be willing to pay to prevent this
hypothetical policy change from taking place The answer to this question represents the
welfare cost from autarky or equivalently the welfare gains from trade In this article we
discuss how to evaluate these gains using the demand for foreign factor services The
estimates of gains from trade for the US economy that we review range from 2 to 8 percent of
GDP
A Multidimensional Approach to Trade Policy
Indicators IMF Working Paper No 1832
38 Pages Posted 12 Mar 2018
Diego Cerdeiro International Monetary Fund (IMF)
Rachel Nam International Monetary Fund (IMF)
Date Written February 2018
Abstract
We present and discuss a set of indicators to help assess countries trade policies The
indicators relate to three policy areas - trade in goods trade in services and FDI Given
concerns about the direction of global trade policy we also consider a set of more granular
measures that reflect the evolution of countries policies since the 2008 financial crisis We
propose a simple approach to present the multidimensional aspects of trade policy that by
shedding light on relative openness across areas can facilitate policy discussions In the cross-
section of countries we find a diversity in the type of measures adopted both between and
(since the 2008 financial crisis) within policy areas lending support to the approach based on
multiple indicators The indicators time series suggest that advanced and especially
emerging economies are moving toward more open regimes over time although recently
progress has with some exceptions slowed across the board Lastly our findings also call for
stronger efforts to objectively quantify the different aspects of countries trade regimes More
data both across countries and in terms of policy areas that significantly affect trade are
needed for better-informed policy discussions
Keywords Foreign direct investment Trade policy indicators trade in goods services trade
trade barriers General Country and Industry Studies of Trade
JEL Classification F10 F14
Corporate Indebtedness and Low Productivity
Growth of Italian Firms IMF Working Paper No 1833
47 Pages Posted 12 Mar 2018
Gareth Anderson Bank of England
Mehdi Raissi International Monetary Fund (IMF) - Asia and Pacific Department
Date Written February 2018
Abstract
Productivity growth in Italy has been persistently anemic and has lagged that of the euro area
over the period 1999-2015 while the indebtedness of its corporate sector has increased
Using the ORBIS firm-level database this paper studies the long-term impact of persistent
corporate-debt accumulation on the productivity growth of Italian firms and investigates
whether total factor productivity growthvaries with the level of corporate indebtedness We
employ a novel estimation technique proposed by Chudik Mohaddes Pesaran and Raissi
(2017) to account for dynamics bi-directional feedback effects cross-firm heterogeneity and
cross-sectional dependence arising from unobserved common factors (for example oil price
shocks labor and product market frictions and stance of global financial cycle) Filtering out
the effects of unobserved common factors and controlling for firm specific characteristics we
find significant negative effects of persistent corporate debt build-up on total factor
productivity growth and weak evidence of a threshold level of corporate debt beyond which
productivity growth drops off significantly Our results have strong policy implications for
example the design of the tax system should discourage persistent corporate debt
accumulation and effective and timely frameworks to reduce corporate debt overhangs are
essential
Keywords Productivity Europe Italy Corporate debt dynamic heterogeneous panel
threshold models cross-sectional dependence Models with Panel Data Firm Behavior
Empirical Analysis General
JEL Classification C23 D22 D24 G30
Regulatory Cycles Revisiting the Political Economy of
Financial Crises IMF Working Paper No 188
90 Pages Posted 21 Mar 2018
Jihad C Dagher International Monetary Fund (IMF) - Research Department
There are 2 versions of this paper
Date Written January 2018
Abstract
Financial crises are traditionally analyzed as purely economic phenomena The political
economy of financial booms and busts remains both under-emphasized and limited to isolated
episodes This paper examines the political economy of financial policy during ten of the most
infamous financial booms and busts since the 18th century and presents consistent evidence
of pro-cyclical regulatory policies by governments Financial boomsand risk-taking during
these episodes were often amplified by political regulatory stimuli credit subsidies and an
increasing light-touch approach to financial supervision The regulatory backlash that ensues
from financial crises can only be understood in the context of the deep political ramifications
of these crises Post-crisis regulations do not always survive the following boom The
interplay between politics and financial policy over these cycles deserves further attention
History suggests that politics can be the undoing of macro-prudential regulations
Keywords Political economy Political economy Financial crises Financial Regulation Boom-
Bust Cycles Economic Models of Political Processes Rent-Seeking Elections Legislatures and
Voting Behavior Positive Analysis of Policy-Making and Implementation General
Government Policy and Regulation General
JEL Classification D72 D78 G10 G18 N00 P16
Rationality in Economics Theory and Evidence CESifo Working Paper Series No 6872
26 Pages Posted 21 Mar 2018
Sanjit Dhami University of Leicester - Department of Economics
Ali al-Nowaihi University of Leicester - Department of Economics
Date Written February 12 2018
Abstract
We examine the various senses in which economist use the term ldquorationalityrdquo and then outline
some of the commonly drawn implications and auxiliary assumptions Finally we confront the
implications with the empirical evidence drawing on the insights from the exciting new field
of behavioral economics
Keywords rationality self-regarding preferences efficient markets heuristics optimization
JEL Classification B400
Nudging and Environmental Corporate
Responsibility A Natural Experiment CEIS Working Paper No 426
22 Pages Posted 3 Apr 2018
Leonardo Becchetti University of Rome Tor Vergata - Faculty of Economics
Francesco Salustri University of Rome Tor Vergata - Department of Economics and Finance University of Turin - Department
of Economics and Statistics
Pasquale Scaramozzino University of Rome II - Faculty of Economics University of London - School of Oriental and African Studies
(SOAS) University of London - Centre for Financial and Management Studies (CeFIMS)
Date Written April 3 2018
Abstract
We devise a lsquonudgingrsquo natural experiment to test the impact of a simple form of advertising on
environmentally responsible products withwithout the increase of the responsible product
price We find that the simple use of a small shelf-poster explaining the importance of buying
a green product (withwithout a concurring price increase) generates significant changes in
market shares for some of the product classes for both food and non-food products Part of
the effect is generated by the reduced price elasticity of consumers to the poster-plus-price-
increase treatment
Keywords nudging environmental sustainability randomised field experiment
JEL Classification C93 D12 M14 Q56
11 The Role of Financial Policy
by Roger Farmer - 24498 (EFG ME)
Abstract
I review the contribution and influence of Milton Friedmans 1968
presidential address to the American Economic Association I
argue that Friedmans influence on the practice of central
banking was profound and that his argument in favour of monetary
rules was responsible for thirty years of low and stable
inflation in the period from 1979 through 2009 I present a
critique of Friedmans position that market-economies are
self-stabilizing and I describe an alternative reconciliation of
Keynesian economics with Walrasian general equilibrium theory
from that which is widely accepted today by most neo-classical
economists
httppapersnberorgpapersW24498utm_campaign=ntwamputm_medium=emailamputm_source=ntw
5 Immigrant Entrepreneurship in America Evidence from the Survey of Business Owners 2007 amp 2012
by Sari Pekkala Kerr William R Kerr - 24494 (LS PR)
Abstract
We study immigrant entrepreneurship and firm ownership in 2007
and 2012 using the Survey of Business Owners (SBO) The survival
and growth of immigrant-owned businesses over time relative to
native-founded companies is evaluated by linking the 2007 SBO to
the Longitudinal Business Database (LBD) We quantify the
dependency of the United States as a whole as well as individual
states on the contributions of immigrant entrepreneurs in terms
of firm formation and job creation We describe differences in
the types of businesses started by immigrants and the quality of
jobs created by their firms First-generation immigrants create
about 25 of new firms in the United States but this share
exceeds 40 in some states In addition Asian and Hispanic
second-generation immigrants start about 6 of new firms
Immigrant-owned firms on average create fewer jobs than
native-owned firms but much of this is explained by the industry
and geographic location of the firms Immigrant-owned firms pay
comparable wages conditional on firm traits to native-owned
firms but are less likely to offer benefits
httppapersnberorgpapersW24494utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Effects of Foreign Aid on Refugee Flows CESifo Working Paper Series No 6885
49 Pages Posted 9 Apr 2018
Axel Dreher University of Heidelberg
Andreas Fuchs University of Heidelberg - Alfred Weber Institute for Economics
Sarah Langlotz University of Heidelberg
There are 2 versions of this paper
Date Written February 15 2018
Abstract
This article analyzes whether foreign aid affects the net flows of refugees from recipient
countries Combining refugee data on 141 origin countries over the 1976-2013 period with
bilateral Official Development Assistance data we estimate the causal effects of a countryrsquos
aid receipts on both total refugee flows to the world and flows to donor countries The
interaction of donor-government fractionalization and a recipient countryrsquos probability of
receiving aid provides a powerful and excludable instrumental variable when we control for
country- and time-fixed effects that capture the levels of the interacted variables Although
our results suggest that aid induces recipient governments to encourage the return of their
citizens we find no evidence that aid reduces worldwide refugee outflows or flows to donor
countries in the short term However we observe long-run effects after four three-year
periods which appear to be driven by lagged positive effects of aid on growth
Keywords foreign aid Official Development Assistance migration refugees displaced
people humanitarian crises repatriation policies
JEL Classification F220 F350 F590 H840 O150 O190
The Political Economy of Ideas On Ideas Versus
Interests in Policymaking CEPR Discussion Paper No DP12820
44 Pages Posted 5 Apr 2018
Sharun Mukand University of Warwick - Department of Economics
Dani Rodrik Harvard University - Harvard Kennedy School (HKS) Centre for Economic Policy Research (CEPR)
National Bureau of Economic Research (NBER)
There are 2 versions of this paper
Date Written March 2018
Abstract
We develop a conceptual framework to highlight the role of ideas as a catalyst for policy and
institutional change We make an explicit distinction between ideas and vested interests and
show how they feed into each other In doing so the paper integrates the Keynes-Hayek
perspective on the importance of ideas with the currently more fashionable Stigler-Becker
(in-terests only) approach to political economy We distinguish between two kinds of
ideational politics acircldquo the battle among different worldviews on the efficacy of policy
(worldview politics) versus the politics of victimhood pride and identity (identity politics)
Political entrepreneurs discover identity and policy memes (narratives cues framing) that
shifts beliefs about how the world works or a persons belief of who he is (ie identity) Our
framework identifies a complementarity between worldview politics and identity politics and
illustrates how they may reinforce each other In particular an increase in identity
polarization may be associated with a shift in views about how the world works Furthermore
an increase in income inequality is likely to result in a greater incidence of ideational politics
Finally we show how ideas may not just constrain but also bite the interests that helped
propagate them in the first instance
Should Unemployment Insurance Be Centralized in a
State Union CESifo Working Paper Series No 6898
27 Pages Posted 19 Apr 2018
Robert Fenge University of Rostock - Department of Economics
Max Friese University of Rostock
Date Written February 21 2018
Abstract
This paper compares the decentral organization of unemployment insurance in member
states of a state union with the central organization at the upper unionrsquo level In a model of
two countries the labor force and the firm owners can migrate between the states Labor
markets exhibit unemployment due to trade unionrsquos bargaining about the wage rate In a
decentral scenario the states organize independently unemployment insurance and decide
about the rate on wages contributed to the insurance budget Due to open borders they have
to take account of migration effects However with perfect mobility between the states each
government chooses a socially optimal contribution rate such that workers are fully insured
against unemployment In the central scenario the governments overestimate the costs of
insurance when bargaining about the contribution rate and observing the common insurance
budget of both countries This leads to a less than socially optimal contribution rate
Keywords unemployment insurance policy state union centralization migration
externalities
JEL Classification F660 H770 J650
Paris Climate Agreement and the Global Economy
Winners and Losers World Bank Policy Research Working Paper No 8392
Posted 3 Apr 2018
Muthukumara Mani World Bank
Zekarias Hussein Purdue University
G Badri Narayanan Purdue University - Center for Global Trade Analysis
Deepika Wadhwa India Habitat Centre - Indian Council for Research on International Economic Relations (ICRIER)
Date Written April 2 2018
Abstract
The 2015 Paris Climate Agreement was the first instance of countries adhering to take a
collective action against global warming More than 190 countries came forward and
submitted their contributions in the form of Intended Nationally Determined Contributions
reflective of their ability and capacity to reduce greenhouse gas emissions as each country set
its own targets and actions For some countries it meant a significant decline in their
emissions by 2030 while others like China the United States and India decided on a more
gradual phasing out extending beyond 2030 This paper estimates the economic impacts of
implementation of the Paris Climate Agreement in terms of its implications for welfare gross
domestic product investments and trade for major countries and regions It uses a
computable general equilibrium framework to model global regional and country impacts
The analysis suggests that the economic impacts will be mostly felt in the European Union if
the Paris Agreement is fully implemented The European Union is likely to suffer a welfare
loss of 10 to 15 percent by 2030 Among non-European countries Australia New Zealand
and Mexico will also be affected with an expected welfare loss of about 15 percent Some of
the major emitters such as China and India will experience minimal impacts to their welfare
and the United States will experience a welfare loss of only about 07 by 2030 The sectoral
analysis of production and trade suggests a significant loss to fossil fuelbased sectors while
clean energy sectors can experience significant gains
Keywords International Trade and Trade Rules Energy and Mining Energy and
Environment Energy Demand Global Environment Energy Policies amp Economics Science of
Climate Change Climate Change and Environment Climate Change and Health
Immigrants Residential Choices and Their
Consequences CEPR Discussion Paper No DP12842
59 Pages Posted 12 Apr 2018
Christoph Albert Universitat Pompeu Fabra Students
Joan Monras Sciences Po - Department of Economics Centre for Monetary and Financial Studies (CEMFI)
There are 2 versions of this paper
Date Written April 2018
Abstract
This paper investigates the causes and effects of the spatial distribution of immigrants across
US cities We document that a) immigrants concentrate in large high-wage expensive cities
b) the earnings gap between immigrants and natives is higher in larger more expensive cities
and c) immigrants consume less locally than natives In order to explain these findings we
develop a quantitative spatial equilibrium model in which immigrants consume a fraction of
their income in their countries of origin Thus immigrants care not only about local prices but
also about price levels in their home countries This gives them a comparative advantage
relative to natives for living in high-wage high-price high-productivity cities where they also
accept lower wages than natives These incentives are stronger for immigrants coming from
lower-price index countries of origin We rely on immigrant heterogeneity to estimate the
model With the estimated model we show that current levels of immigration have reduced
economic activity in smaller less productive cities by around 5 percent while they have
expanded it in large productive cities by around 6 percent This has increased total aggregate
output per worker by around 03 percent We also discuss the welfare implications of these
results
Keywords Immigration location choices spatial equilibrium
JEL Classification F22 J31 J61 R11
The Cost of Non-Europe Revisited CEPR Discussion Paper No DP12844
48 Pages Posted 12 Apr 2018
Thierry Mayer Sciences Po
Vincent Vicard Banque de France
Soledad Zignago Banque de France
There are 2 versions of this paper
Date Written April 2018
Abstract
In this paper we quantify the Cost of Non-Europe ie the trade-related welfare gains each
country member has reaped from the European Union Thirty years after the terminology of
Non-Europe was used to give estimates of the gains from further integration we use modern
versions of the gravity model to estimate the trade creation implied by the EU and apply
those to counterfactual exercises where for instance the EU returns to a normal shallow-
type regional agreement or reverts to WTO rules Those scenarios are envisioned with or
without the exit of the United Kingdom from the EU (Brexit) happening which points to
interesting cross-country differences and potential cascade effects in doing and undoing of
trade agreements
Keywords European Union Gravity trade integration
JEL Classification F1
The Political Impact of Immigration Evidence from
the United States CEPR Discussion Paper No DP12848
57 Pages Posted 12 Apr 2018
Anna Maria Mayda
Georgetown University - Department of Economics IZA Institute of Labor Economics
Giovanni Peri University of California Davis - Department of Economics
Walter Steingress Government of Canada - Bank of Canada
Date Written April 2018
Abstract
In this paper we study the impact of immigration to the United States on the vote for the
Republican Party by analyzing county-level data on election outcomes between 1990 and
2010 Our main contribution is to separate the effect of high-skilled and low-skilled
immigrants by exploiting the different geography and timing of the inflows of these two
groups of immigrants We find that an increase in the first type of immigrants decreases the
share of the Republican vote while an inflow of the second type increases it These effects are
mainly due to the local impact of immigrants on votes of US citizens and they seem
independent of the country of origin of immigrants We also find that the pro-Republican
impact of low-skilled immigrants is stronger in low-skilled and non-urban counties This is
consistent with citizens political preferences shifting towards the Republican Party in places
where low-skilled immigrants are more likely to be perceived as competition in the labor
market and for public resources
Keywords Economic and Fiscal Channels Electoral Effects Immigration Republican Party
JEL Classification F22 J61
15 Escaping Import Competition and Downstream Tariffs
by Ana Cecilia Fieler Ann Harrison - 24527 (EEE ITI)
Abstract
We propose and provide evidence for a new source of gains from
trade Firms invest in product differentiation to escape import
competition In the data and in the model these investments are
associated with increases in measured productivity introduction
of new goods and shifts to skill-intensive sectors Investment
in differentiation downstream leads upstream firms to also
invest in differentiation For China these downstream tariff
reductions lead to big increases in measured productivity for
upstream suppliers The effect on measured productivity is
larger for upstream than for downstream firms and we explain
this difference theoretically through heterogeneous changes in
markups
httppapersnberorgpapersW24527utm_campaign=ntwamputm_medium=emailamputm_source=ntw
20 The Production of Cognitive and Non-cognitive Human Capital in the Global Economy
by Chong Xiang Stephen Yeaple - 24524 (ITI)
Abstract
A countrys welfare depends on its ability to accumulate
cognitive and noncognitive human capital However we do not
fully understand what makes some countries successful at
producing human capital and even struggle with measurement eg
international test scores are informative about the cognitive
dimension but neglect the non-cognitive dimension In this
paper we develop a multi-country open-economy
general-equilibrium framework in which countries ability to turn
resources into human capital along the cognitive and
non-cognitive dimensions is revealed by the endogenous
educational and occupational choices of its citizens and their
subsequent performance on international exams Our model allows
us to estimate countries underlying productivities of cognitive
and non-cognitive human capital We find that high test scores
do not necessarily imply high cognitive productivities (eg
Switzerland Hong Kong) and that many countries with low test
scores have high non-cognitive productivities (eg the US and
UK)
We then aggregate over these two dimensions to construct a single
educational quality index and illustrate its intuition using an
iso-education-quality curve We use our model to decompose
variation in output per capita across countries into a component
involving the educational quality index and another involving
output TFP This exact decomposition shows that the differences
in cognitive and noncognitive productivities across countries
have large implications for differences in output per worker
These results help quantify the potential payoffs of education
policies and clarify their objective eg excessive attention
to test scores may decrease aggregate output
International trade plays an important role in our model because
the gains from trade help to compensate a country for uneven
productivity across human capital types In counterfactual
exercises we show that if barriers to trade are completely
eliminated we would obtain a very different
iso-education-quality curve This implies large improvements of
overall education quality and large gains from trade for the
countries with strong comparative advantages in producing
cognitive (eg S Korea would gain 301 to 441 of its
output) or non-cognitive human capital (eg the Netherlands
would gain 188 to 556)
httppapersnberorgpapersW24524utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Il Contributo Della Demografia Alla Crescita
Economica Duecento Anni Di ldquoStoriardquo Italiana (The
Contribution of Demography to Italys Economic
Growth A Two-Hundred-Year-Long Story) Bank of Italy Occasional Paper No 431
37 Pages Posted 20 Apr 2018
Federico Barbiellini Amidei Bank of Italy
Matteo Gomellini Bank of Italy
Paolo Piselli Bank of Italy
Date Written March 28 2018
Abstract
Italian Abstract Questo lavoro esamina il contributo della demografia alla crescita
economica confrontando lrsquoItalia del passato quella di oggi e quella che vivremo in futuro
Attraverso una scomposizione contabile della crescita del PIL e del PIL pro capite si mostra
come le modifiche nella struttura per etagrave della popolazione abbiano prodotto nel passato piugrave
lontano un demographic dividend positivo Al contrario negli ultimi venticinque anni e con
ogni probabilitagrave nel futuro la demografia ha dato e daragrave un contributo diretto sensibilmente
negativo alla crescita economica I flussi migratori previsti limiteranno lrsquoampiezza di tale
contributo negativo ma non saranno in grado di invertirne il segno Nel lavoro si valutano tre
sviluppi potenzialmente indotti dagli stessi fattori demografici o da azioni di policy ndash
lrsquoestensione della vita lavorativa lrsquoaumento della partecipazione femminile al mercato del
lavoro e lrsquoincremento nei livelli di istruzione ndash che potranno contrastare i puri effetti contabili
legati allrsquoevoluzione nella struttura per etagrave
English Abstract This paper examines the contribution of demography to economic growth
in Italy by comparing the countryrsquos past present and future We use an accounting framework
to decompose GDP and per capita GDP growth and we show how changes in the age structure
of the population produced a positive demographic dividend in the past By contrast in the
last twenty-five years and arguably in the future demography has made and will continue to
make a direct negative contribution to economic growth Expected migration flows will
noticeably limit the extent of this negative contribution but they will not be able to reverse its
sign We analyze three possible developments potentially driven by demography itself or
fostered by policy actions ndash longer working lives an increase in female labour market
participation and higher education levels ndash which could counteract the pure negative
accounting effects produced by the evolution of the age structure
Note Downloadable document is in Italian
Keywords economic history demography demographic dividend forecasts
JEL Classification J11 N30
The Effects of Cash Transfers on Adult Labor Market
Outcomes World Bank Policy Research Working Paper No 8404
29 Pages Posted 16 Apr 2018
Sarah Baird George Washington University - School of Public Health and Health Services (SPHHS)
David J McKenzie World Bank - Development Research Group (DECRG) IZA Institute of Labor Economics
Berk Ozler World Bank - Development Economics Research Group (DECRG)
Date Written April 12 2018
Abstract
The basic economic model of labor supply has a very clear prediction of what should be
expected when an adult receives an unexpected cash windfall they should work less and earn
less This intuition underlies concerns that many types of cash transfers ranging from
government benefits to migrant remittances will undermine work ethics and make recipients
lazy This paper discusses a range of additional channels to this simple labor-leisure trade-off
that can make this intuition misleading in low- and middle-income countries including
missing markets price effects from conditions attached to transfers and dynamic and general
equilibrium effects The paper uses this as a lens through which to examine the evidence on
the adult labor market impacts of a wide range of cash transfer programs government
transfers charitable giving and humanitarian transfers remittances cash assistance for job
search cash transfers for business start-up and bundled interventions Overall cash transfers
that are made without an explicit employment focus (such as conditional and unconditional
cash transfers and remittances) tend to result in little to no change in adult labor The main
exceptions are transfers to the elderly and some refugees who reduce work In contrast
transfers made for job search assistance or business start-up tend to increase adult labor
supply and earnings with the likely main channels being the alleviation of liquidity and risk
constraints
Keywords Economic Assistance Disability Services amp Transfers to Poor Access of Poor to
Social Services Employment and Unemployment Labor Markets Rural Labor Markets Health
Care Services Industry
Globalisation and Urban Polarisation CEPR Discussion Paper No DP12877
24 Pages Posted 23 Apr 2018
Anthony J Venables University of Oxford Centre for Economic Policy Research (CEPR)
Date Written April 2018
Abstract
External trade affects the internal spatial structure of an economy promoting growth in some
cities or regions and decline in others Internal adjustment to these changes has often proved
to be extremely slow and painful This paper combines elements of urban and international
economics to draw out the implications of trade shocks for city performance Localisation
economies in production of internationally tradable goods mean that cities divide into two
types those producing tradables and those specialising in sectors producing just for the
national market (non-tradables) Negative trade shocks (and possibly also some positive
ones) reduce the number of cities engaged in tradable production increasing the number
producing just non-tradables This has a negative effect across all non-tradable cities which
lose population and land value Remaining tradable cities boom gaining population and land
value Depending on the initial position city size dispersion may increase this raising the
share of urban land-rents in national income and reducing the share of labour
Keywords de-industrialisation globalisation Polarisation urban
JEL Classification F12 R11 R12
Place-Based Policies for Development World Bank Policy Research Working Paper No 8410
75 Pages Posted 24 Apr 2018
Gilles Duranton University of Pennsylvania - Real Estate Department
Anthony J Venables University of Oxford Centre for Economic Policy Research (CEPR)
There are 3 versions of this paper
Date Written April 17 2018
Abstract
Many development policies such as placement of infrastructure or local economic
development schemes are place-based Such policies are generally intended to stimulate
private sector investment and economic growth in the treated place and as such they are
difficult to appraise and evaluate This paper sets out a framework for analyzing the effects of
such policies and assessing their social value It then reviews the literature on place-based
policies in the contexts of transport improvements economic corridors special economic
zones lagging regions and urban policies
Keywords Transport Services Labor Markets Urban Governance and Management Urban
Housing and Land Settlements Municipal Management and Reform Urban Housing
Macroeconomic Management Economic Forecasting Governance Diagnostic Capacity
Building Textiles Apparel amp Leather Industry Common Carriers Industry Food amp Beverage
Industry Business Cycles and Stabilization Policies Plastics amp Rubber Industry General
Manufacturing Construction Industry Pulp amp Paper Industry
Evidence on Finance and Economic Growth ECB Working Paper No 2115 ISBN 978-92-899-3031-4
79 Pages Posted 8 Dec 2017
Alexander A Popov European Central Bank (ECB)
Date Written December 6 2017
Abstract
This paper reviews and appraises the body of empirical research on the association between
financial markets and economic growth that has accumulated over the past quarter-century
The bulk of the historical evidence suggests that financial development affects economic
growth in a positive monotonic way yet recent research endeavors have provided useful and
important qualifications of this conventional wisdom Moreover the proliferation of micro-
level datasets has enabled researchers to study more precise links between theory and
measurement The paper highlights the mechanisms through which financial markets benefit
society as well as the channels through which finance can slow down long-term growth
Keywords financial markets growth
JEL Classification O4 G1
Why Has Economic Growth Slowed When Innovation Appears to be Accelerating
by Robert J Gordon - 24554 (DAE EFG PR)
Abstract
Measured between quarters with identical unemployment rates U
S economic growth slowed by more than half from 32 percent per
year during 1970-2006 to only 14 percent during 2006-16 and
only half of this GDP growth slowdown is accounted for diminished
productivity growth The paper starts from the proposition that
GDP growth matters not just productivity growth because slower
GDP growth provides fewer resources to address the nations
problems including faltering education aging infrastructure
and the looming shortfall in funding for Social Security and
Medicare and it also implies lower net investment and a reduced
rate at which new capital can embody the latest technology
The paper documents the contribution to slower GDP growth of the
separate components of demography -- fertility mortality life
expectancy and immigration Particular emphasis is placed on
the interaction between rising inequality and the slower secular
rise of life expectancy in the US compared to other developed
countries both in the form of a large gap in life expectancy
between rich and poor and the stagnation of life expectancy for
the lowest income quintile Further contributions to slowing
growth are made by a decline in the population share of both
legal and illegal immigration and a turnaround from rising to
declining labor force participation Rising inequality creates a
gap between the growth of average real per-capita income relative
to that of median real income and alternative measures of the
evolution of this gap are compared and assessed
Causes of declining productivity growth begin with the slowdown
in the rate of increase of educational attainment resulting from
the interplay of demand and supply factors including the
flattening of the college wage premium and the rising relative
price of college education Why did productivity growth decline
after 2006 despite an increase in the rate at which new US
patents were issued in 2006-16 compared to earlier decades Part
of the slowdown is attributed to the maturity of the IT
revolution which also helps to explain the trajectory of the
college wage premium Aspects of the productivity growth
slowdown include the declining productivity of research workers
diminishing returns to drug innovation and the evolutionary
rather than revolutionary impact of robots and artificial
intelligence which are replacing workers slowly and only in a
minority of industrial sectors throughout the economy Also
considered are alternative explanations of slower productivity
growth including low investment and mismeasurement
httppapersnberorgpapersW24554utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Childbearing Postponement its Option Value and the
Biological Clock CEPR Discussion Paper No DP12884
48 Pages Posted 23 Apr 2018
David de la Croix Catholic University of Louvain (UCL) - Institut de Recherches Economiques et Sociales (IRES) Catholic
University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)
Aude Pommeret Universiteacute de Savoie
Date Written April 2018
Abstract
Having children is like investing in a risky project Postponing birth is like delaying an
irreversible investment It has an option value which depends on its costs and benefits and in
particular on the additional risks motherhood brings We develop a parsimonious theory of
childbearing postponement along these lines We derive its implications for asset
accumulation income optimal age at first birth and childlessness The structural parameters
are estimated by matching the predictions of the model to data from the National Longitudinal
Survey of Youth NLSY79 The uncertainty surrounding income growth is shown to increase
with childbearing and this increase is stronger for more educated people This effect alone
can explain why the age at first birth and the childlessness rate both increase with education
We use the model to simulate two hypothetical policies Providing free medically assisted
reproduction technology does not affect the age at first birth much but lowers the
childlessness rate Insuring mothers against income risk is powerful in lowering the age at
first birth
Keywords Assisted reproduction technology Career uncertainty Late parenthood Real
option
JEL Classification D91 J13
Economic Upgrading Through Global Value Chain
Participation Which Policies Increase the Value
Added Gains World Bank Policy Research Working Paper No 8007
45 Pages Posted 1 May 2018
Victor Kummritz World Trade Organization (WTO) Graduate Institute of International and Development Studies (IHEID)
Daria Taglioni European Central Bank (ECB) - Directorate General Economics
Deborah E Winkler World Bank
Date Written March 16 2017
Abstract
The emergence of global value chains has opened up new ways to achieve development and
industrialization However new evidence shows that not all countries have gained from
participating in global value chains and that country-specific characteristics matter for
economic upgrading in global value chains This paper uses two panel data sets of developing
and industrialized countries at the sectoral level to relate global value chain participation as a
buyer and seller to domestic value added These are combined with a wide range of policy
measures at the country level that can play a role in economic upgrading through global value
chains by targeting global value chain integration or the quality and conditions of input and
output factors First the study finds that global value chain integration increases domestic
value added especially on the selling side which holds across all income levels Second the
results highlight the importance of policy for economic upgrading through global value chain
integration Although the study cannot claim causal evidence all the assessed policy areas are
consistently shown to mediate the effects of global value chains and magnify the gains for
domestic value added Third a detailed analysis shows that several policy areas mediate the
gains from global value chains more through integration as a seller Finally the study
observes that many of the results are driven by high- and upper-middle-income countries
Keywords International Trade and Trade Rules Labor Markets Rural Labor Markets Food amp
Beverage Industry Construction Industry Business Cycles and Stabilization Policies General
Manufacturing Common Carriers Industry Textiles Apparel amp Leather Industry Pulp amp Paper
Industry Plastics amp Rubber Industry Global Environment
Job Vacancies and Immigration Evidence from Pre- and Post-Mariel Miami
by Jason Anastasopoulos George J Borjas Gavin G Cook Michael Lachanski - 24580 (LS)
Abstract
How does immigration affect labor market opportunities in a
receiving country This paper contributes to the voluminous
literature by reporting findings from a new (but very old) data
set Beginning in 1951 the Conference Board constructed a
monthly job vacancy index by counting the number of help-wanted
ads published in local newspapers in 51 metropolitan areas We
use the Help-Wanted Index (HWI) to document how immigration
changes the number of job vacancies in the affected labor
markets Our analysis begins by revisiting the Mariel episode
The data reveal a marked decrease in Miamis HWI relative to many
alternative control groups in the first 4 or 5 years after
Mariel followed by recovery afterwards We find a similar
initial decline in the number of job vacancies after two other
supply shocks that hit Miami over the past few decades the
initial wave of Cuban refugees in the early 1960s as well as the
1995 refugees who were initially detoured to Guantanamo Bay We
also look beyond Miami and estimate the generic spatial
correlations that dominate the literature correlating changes in
the HWI with immigration across metropolitan areas These
correlations consistently indicate that more immigration is
associated with fewer job vacancies The trends in the HWI seem
to most strongly reflect changing labor market conditions for
low-skill workers (in terms of both wages and employment) and a
companion textual analysis of help-wanted ads in Miami before and
after the Mariel supply shock suggests a slight decline in the
relative number of low-skill job vacancies
httppapersnberorgpapersW24580utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Somatic Distance Cultural Affinities Trust and Trade CEPR Discussion Paper No DP12895
21 Pages Posted 1 May 2018
Jacques Melitz National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and
Statistics (CREST) Centre for Economic Policy Research (CEPR)
Farid Toubal Ecole Normale Superieure de Cachan (ENS) - Departement of Economics ans Management National
Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics
(CREST) Centre dEtudes Prospectives et dInfo Internationales (CEPII)
Date Written April 2018
Abstract
Somatic distance or differences in physical appearance proves to be extremely important in
the gravity model of bilateral trade in conformity with results in other areas of economics and
outside of it in the social sciences This is also true quite independently of survey evidence
about bilateral trust These findings are obtained in a sample of the 15 members of the
European Economic Association in 1996 Robustness tests also show that somatic distance
has a more reliable influence on bilateral trade than the other cultural variables The article
finally discusses the interpretation and the breadth of application of these results
Keywords Bilateral Trade Cultural interactions Language Somatic distance Trust
The Paradox of Global Thrift CEPR Discussion Paper No DP12894
59 Pages Posted 1 May 2018
Luca Fornaro Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) Barcelona Graduate
School of Economics (Barcelona GSE)
Federica Romei LUISS Guido Carli University
Date Written April 2018
Abstract
This paper describes a paradox of global thrift Consider a world in which interest rates are
low and monetary policy cannot stabilize the economy because it is frequently constrained by
the zero lower bound Now imagine that governments complement monetary policy with
prudential financial and fiscal policies because they perceive that limiting private and public
borrowing during booms will help stabilize the economy by reducing the risk of financial
crises and by creating space for fiscal interventions during busts We show that these policies
while effective from the perspective of individual countries might backfire if applied on a
global scale In a financially integrated world in fact prudential policies generate a rise in the
global supply of savings or equivalently a drop in global aggregate demand In turn weaker
global aggregate demand depresses output in countries whose monetary policy is constrained
by the zero lower bound Due to this effect the world might paradoxically experience a fall in
output and welfare following the implementation of well-intended prudential policies
Keywords aggregate demand externalities Capital Flows current account policies fiscal
policies international cooperation Liquidity traps macroprudential policies zero lower
bound
JEL Classification E32 E44 E52 F41 F42
Multihorizon Currency Returns and Purchasing
Power Parity CEPR Discussion Paper No DP12893
59 Pages Posted 1 May 2018
Mikhail Chernov UCLA Anderson
Drew Creal University of Chicago - Booth School of Business - Econometrics and Statistics
There are 2 versions of this paper
Date Written April 2018
Abstract
Exposures of expected future depreciation rates to the current interest rate differential
violate the UIP hypothesis in a distinctive pattern that is a non-monotonic function of horizon
Conversely forward risk-adjusted expected depreciation rates are monotonic We explain the
two patterns by incorporating the weak form of PPP into a no-arbitrage joint model of the
depreciation rate inflation differential domestic and foreign yield curves Short-term
departures from PPP generate the first pattern The risk premiums for these departures
generate the second pattern
Keywords affine term structure model cointegration multiple horizons purchasing power
parity uncovered interest parity
Networks and Trade CEPR Discussion Paper No DP12891
33 Pages Posted 1 May 2018
Andrew B Bernard Tuck School of Business at Dartmouth National Bureau of Economic Research (NBER) Centre for
Economic Policy Research (CEPR)
Andreas Moxnes University of Oslo - Department of Economics Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
There are 2 versions of this paper
Date Written April 2018
Abstract
Trade occurs between firms both across borders and within countries and the vast majority
of trade transactions includes at least one large firm with many trading partners This paper
reviews the literature on firm-to-firm connections in trade A growing body of evidence
coming from domestic and international transaction data has established empirical
regularities which have inspired the development of new theories emphasizing firm
heterogeneity among both buyers and suppliers in production networks Theoretical work
has considered both static and dynamic matching environments in a framework of many-to-
many matching The literature on trade and production networks is at an early stage and
there are a large number of unanswered empirical and theoretical questions
Keywords International Trade offshoring production networks productivity
JEL Classification F10 F12 F14 L11 L21
One More Time What are Institutions and How Do
They Change World Bank Policy Research Working Paper No 8422
39 Pages Posted 1 May 2018 Last revised 3 May 2018
Roumeen Islam World Bank
Date Written April 30 2018
Abstract
This paper defines institutions presents their basic characteristics and discusses forces for
institutional change It draws on a wealth of research and study by scholars in different fields
and follows from the flagship 2002 World Development Report on this topic including
relevant new research since then that illuminates key issues The definition of institutions
includes rules and organizations (specifically rules guiding peoples actions) The paper
emphasizes the diversity of institutions that can effectively perform similar functions the
arguments for and against standardization of institutions across specific transactions or
groups and the implications of these choices It highlights the relationship between informal
and formal institutions It discusses forces for institutional change influencing all economies
ranging from external shocks (whether they be economic or weather-related shocks or driven
by wars) to internal dynamics such as those following population growth or compositional
changes and those following technological innovations Many of these forces have a two-way
relationship with institutions they are affected by them and in turn influence whether and
when they change A special section is devoted to institutional transplants and their
effectiveness The paper concludes with a discussion of whether and under what conditions
institutional change can be externally directed and the lessons for aid donors
Keywords International Trade and Trade Rules Social Policy Common Property Resource
Development Legal Products Regulatory Regimes Legislation Legal Reform Judicial System
Reform Public Sector Economics Taxation amp Subsidies Public Finance Decentralization and
Poverty Reduction Economic Adjustment and Lending Macro-Fiscal Policy Educational
Sciences Competitiveness and Competition Policy
Globalization Government Popularity and the Great
Skill Divide
CEPR Discussion Paper No DP12897
56 Pages Posted 1 May 2018
Cevat Giray Aksoy European Bank for Reconstruction and Development IZA Institute of Labor Economics
Sergei M Guriev Sciences Po Centre for Economic Policy Research (CEPR) European Bank for Reconstruction and
Development (EBRD)
Daniel Treisman University of California Los Angeles (UCLA) - Department of Political Science
There are 2 versions of this paper
Date Written April 2018
Abstract
How does international trade affect the popularity of governments and leaders We provide
the first large-scale systematic evidence that the divide between skilled and unskilled
workers worldwide is producing corresponding differences in the response of political
preferences to trade shocks Using a unique data set including 118 countries and nearly
450000 individuals we find that growth in high skill intensive exports (of goods and
services) increases approval of the leader and incumbent government among skilled
individuals Growth in high skill intensive imports has the opposite effect There is no effect
on political approval among the unskilled To identify exogenous variation in international
trade we exploit the time-varying effects of air and sea distances in bilateral trade flows Our
findings suggest that the political effects of international trade differ with skill intensity and
that skilled individuals respond differently from their unskilled counterparts to trade shocks
Keywords International trade political approval political polarization skill intensity of
trade
Migratory Pressures in the Long Run International
Migration Projections to 2050 Banco de Espana Article 3817
9 Pages Posted 3 Jan 2018
Rodolfo G Campos Banco de Espantildea
Date Written December 5 2017
Abstract
This article presents bilateral international migration projections to 2050 based on a new
methodology that takes into account the population growth both in countries of origin and
countries of destination To do this the methodology used by Hanson and McIntosh (2016) to
project the future migratory flows to a sample of OECD countries is generalised to all
countries worldwide The United Nations population growth forecasts are used as a basis for
projecting future migratory flows The main findings of the exercise indicate that the number
of migrants is projected to increase from 28 of the world population in 2010 to around
35 in 2050 as a result of the strong increase in migrants from India and sub-Saharan Africa
Against this background and despite the slowdown in demographic growth in Latin America
the United States is expected to continue to receive high net immigration flows and to remain
the country with the highest stock of immigrants globally while continental Europe will post
larger net immigration flows
Immigration and Electoral Support for the Far-Left
and the Far-Right CESifo Working Paper Series No 6918
53 Pages Posted 7 May 2018
Anthony Edo Paris School of Economics (PSE)
Yvonne Giesing CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Jonathan Oumlztunc Barcelona Graduate School of Economics (Barcelona GSE)
Panu Poutvaara Ludwig Maximilian University of Munich - Faculty of Economics CESifo (Center for Economic Studies and
Ifo Institute) - Ifo Institute CESifo (Center for Economic Studies and Ifo Institute) CReAM IZA Institute of
Labor Economics
Date Written March 05 2018
Abstract
Immigration has become one of the most divisive political issues in the United States the
United Kingdom France and several other Western countries We estimate the impact of
immigration on voting for far-left and far-right candidates in France using panel data on
presidential elections from 1988 to 2017 To derive causal estimates we instrument more
recent immigration flows by past settlement patterns in 1968 We find that immigration
increases support for far-right candidates and has no robust effect on far-left voting The
increased support for far-right candidates is driven by low educated immigrants from non-
Western countries
Keywords voting immigration political economy
JEL Classification D720 F220 J150 P160
Institutions Trade and Development A Quantitative
Analysis CESifo Working Paper Series No 6920
64 Pages Posted 7 May 2018
Cosimo Beverelli World Trade Organization (WTO)
Alexander Keck World Trade Organization (WTO)
Mario Larch University of Bayreuth - Faculty of Law Business and Economics University of Bayreuth CESifo Ifo
Institute for Economic Research GEP at the University of Nottingham
Yoto Yotov Drexel University - Department of Economics amp International Business
Date Written March 05 2018
Abstract
We propose and apply methods to quantify the impact of national institutions on international
trade and development We are able to identify the direct impact of country-specific
institutions on international trade within the structural gravity framework Our approach
naturally addresses the prominent issue of endogenous institutions The empirical analysis
offers robust evidence that stronger institutions promote trade A counterfactual analysis
reveals that the changes in institutional quality in the poor countries in our sample between
1996 and 2006 have had via their impact on imports from rich countries significant and
heterogeneous real GDP effects varying between -5 and 5 percent Our methods are readily
applicable to identifying the impact of a wide range of country-specific variables on
international trade
Keywords institutional quality international trade development structural gravity
JEL Classification F130 F140 F160
5 Inference in Structural Vector Autoregressions When the Identifying Assumptions are Not Fully Believed Re-
evaluating the Role of Monetary Policy in Economic Fluctuations
by Christiane Baumeister James D Hamilton - 24597 (EFG ME)
Abstract
Reporting point estimates and error bands for structural vector
autoregressions that are only set identified is a very common
practice However unless the researcher is persuaded on the
basis of prior information that some parameter values are more
plausible than others this common practice has no formal
justification When the role and reliability of prior
information is defended Bayesian posterior probabilities can be
used to form an inference that incorporates doubts about the
identifying assumptions We illustrate how prior information can
be used about both structural coefficients and the impacts of
shocks and propose a new distribution which we call the
asymmetric t distribution for incorporating prior beliefs about
the signs of equilibrium impacts in a nondogmatic way We apply
these methods to a three-variable macroeconomic model and
conclude that monetary policy shocks were not the major driver of
output inflation or interest rates during the Great Moderation
httppapersnberorgpapersW24597utm_campaign=ntwamputm_medium=emailamputm_source=ntw
11 The Political Impact of Immigration Evidence from the United States
by Anna Maria Mayda Giovanni Peri Walter Steingress - 24510 (ITI POL)
Abstract
In this paper we study the impact of immigration to the United
States on the vote for the Republican Party by analyzing
county-level data on election outcomes between 1990 and 2010
Our main contribution is to separate the effect of high-skilled
and low-skilled immigrants by exploiting the different geography
and timing of the inflows of these two groups of immigrants We
find that an increase in the first type of immigrants decreases
the share of the Republican vote while an inflow of the second
type increases it These effects are mainly due to the local
impact of immigrants on votes of US citizens and they seem
independent of the country of origin of immigrants We also find
that the pro-Republican impact of low-skilled immigrants is
stronger in low-skilled and non-urban counties This is
consistent with citizens political preferences shifting towards
the Republican Party in places where low-skilled immigrants are
more likely to be perceived as competition in the labor market
and for public resources
httppapersnberorgpapersW24510utm_campaign=ntwamputm_medium=emailamputm_source=ntw
23 The Impact of Exports on Innovation Theory and Evidence
by Philippe Aghion Antonin Bergeaud Matthieu Lequien Marc J Melitz - 24600 (EFG ITI)
Abstract
This paper investigates the effect of export shocks on
innovation On the one hand a positive shock increases market
size and therefore innovation incentives for all firms On the
other hand it increases competition as more firms enter the
export market This in turn reduces profits and therefore
innovation incentives particularly for firms with low
productivity Overall the positive impact of the export shock on
innovation is magnified for high productivity firms whereas it
may negatively affect innovation in low productivity firms We
test this prediction with patent customs and production data
covering all French manufacturing firms To address potential
endogeneity issues we construct firm-level export proxies which
respond to aggregate conditions in a firms export destinations
but are exogenous to firm-level decisions We show that
patenting robustly increases more with export demand for
initially more productive firms This effect is reversed for the
least productive firms as the negative competition effect
dominates
httppapersnberorgpapersW24600utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Sovereign Defaults in Court CESifo Working Paper Series No 6931
75 Pages Posted 8 May 2018
Julian Schumacher European Central Bank (ECB)
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Enderlein Henrik Hertie School of Governance
There are 3 versions of this paper
Date Written March 08 2018
Abstract
For centuries defaulting governments were immune from legal action by foreign creditors
This paper shows that this is no longer the case Building a dataset covering four decades we
find that creditor lawsuits have become an increasingly common feature of sovereign debt
markets The legal developments have strengthened the hands of creditors and raised the cost
of default for debtors We show that legal disputes in the US and the UK disrupt government
access to international capital markets as foreign courts can impose a financial embargo on
sovereigns The findings are consistent with theoretical models with creditor sanctions and
suggest that sovereign debt is becoming more enforceable We discuss how the threat of
litigation affects debt management government willingness to pay and the resolution of debt
crises
Keywords sovereign default enforcement government financing debt restructuring
JEL Classification F340 G150 H630 K220
ECB Monetary Policy and the Euro Exchange Rate Bank of Italy Temi di Discussione (Working Paper) No 1172
54 Pages Posted 14 May 2018
Martina Cecioni Bank of Italy
Date Written May 3 2018
Abstract
The paper provides empirical evidence on the effects of ECB conventional and unconventional
monetary policy on the euro exchange rate focusing on the period from January 2013 to
September 2017 Innovations to conventional and unconventional monetary policies are
identified through changes in respectively short- and long-term interest rates immediately
after Governing Council meetings Both types of measures contributed to the depreciation of
the euro from mid-2014 surprises associated with conventional measures had a stronger and
more persistent effect than those associated with unconventional ones Time-varying
estimates of the effects of conventional surprises since 1999 show that the responsiveness of
exchange rates to monetary news increased markedly from 2013 State-dependence analysis
finds that the exchange rate became more sensitive to monetary policy when the ECB adopted
a policy of negative interest rates and when conventional and unconventional monetary
surprises moved in the same direction
Keywords unconventional monetary policy exchange rates European Central Bank
JEL Classification E52 E58 F31
The ECBs Fiscal Policy
by Hans-Werner Sinn - 24613 (ME)
Abstract
While the ECB helped mitigate the euro crisis in the aftermath of
Lehman it has stretched its monetary mandate and moved into
fiscal territory This text describes and summarizes the crucial
role played by the ECB in the intervention spiral resulting from
its bid to manage the crisis It also outlines ongoing
competitiveness problems in southern Europe discusses the
so-called austerity policy of the Troika comments on QE and
presents two alternative paths for the future development of
Europe
httppapersnberorgpapersW24613utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Real Convergence in the Euro Area A Long-Term
Perspective ECB Occasional Paper No 203 ISBN 978-92-899-2865-6
102 Pages Posted 5 Dec 2017
Juan Luis Diaz del Hoyo European Central Bank (ECB)
Ettore Dorrucci European Central Bank (ECB)
Frigyes Ferdinand Heinz European Central Bank (ECB)
Sona Muzikarova European Central Bank (ECB)
Date Written December 1 2017
Abstract
In the euro area there is mixed evidence that the GDP per capita of lower-income economies
has been catching up with that of higher-income economies since the start of monetary union
The significant real convergence performance of some of the most recent members contrasts
with that of the economies of southern Europe which have not met expectations However
attributing all the blame for this outcome to the introduction of the single currency simply
misses the point By taking a ldquolong viewrdquo and reviewing the evidence since the 1960s this
paper shows that certain member countries began to face a ldquonon-convergence traprdquo long
before the euro years We also provide stylised facts on (i) the central role of total factor
productivity in driving real convergence in the euro area over time alongside other factors
and (ii) the crucial interaction of real convergence with ldquoMaastricht convergencerdquo and
institutional quality the other two key components of sustainable economic convergence We
conclude that it is critical that the euro area countries facing convergence challenges enhance
the resilience of their economic structures by improving the relevant institutions and
governance
Keywords sustainable economic convergence real convergence nominal convergence GDP
per capita Maastricht convergence criteria institutional quality labour productivity total
factor productivity Five Presidentsrsquo Report Reflection Paper on the Deepening of EMU
JEL Classification E01 F15 J11 O11 O43 O47 O52 O57
Monetary Policy Transmission in the Eastern
Caribbean Currency Union IMF Working Paper No 1870
31 Pages Posted 22 May 2018
Alla Myrvoda International Monetary Fund (IMF)
Julien P M Reynaud International Monetary Fund (IMF) Universiteacute Paris I Pantheacuteon-Sorbonne
Date Written March 2018
Abstract
This paper empirically investigates international and domestic monetary policy transmission
mechanisms in the Eastern Caribbean Currency Union (ECCU) We assess interest rate pass-
through of both the US policy rate and the ECCU minimum saving deposit rate (MSR) into
domestic interest rates through the interest rate channel While economic theory suggests
that the international pass-through should be high in small open economies with fixed
exchange rates and open capital accounts our findings based on regression analysis point to
a low long-run pass-through coefficient of the US interest rate The domestic transmission
channel however is found to operate through changes in the MSR The results hold for
different interest rates (deposit and lending) and are supported by survey-based findings
Keywords Asia and Pacific Antigua and Barbuda Dominica Saint Kitts and Nevis Saint
Lucia Saint Vincent and the Grenadines Grenada Western Hemisphere monetary policy
transmission interest rate pass-through ECCU monetary policy transmission interest rate
pass-through ECCU General Monetary Policy (Targets Instruments and Effects)
JEL Classification E43 E50 E52 F31 F33 F36 O54
On the Impact of Structural Reforms on Output and
Employment Evidence from a Cross-Country Firm-
Level Analysis IMF Working Paper No 1873
36 Pages Posted 22 May 2018
Luiza Antoun de Almeida International Monetary Fund (IMF)
Vybhavi Balasundharam University of Michigan at Ann Arbor
Date Written April 2018
Abstract
This paper analyzes the effects of selected structural reforms on output and employment in
the short and medium term It uses a comprehensive cross-country firm-level dataset
covering both advanced and emerging market economies over the period 2003-2014 In line
with previous studies it finds that structural reforms have in general a positive impact on
output and employment in the medium term Furthermore the paper also assesses whether
the impact of structural reforms varies with firm-specific characteristics such as size
leverage profitability and sector We find evidence that firm characteristics do influence the
effectiveness of structural reforms These findings have relevant policy implications as they
help policymakers tailor the design of structural reforms to maximize their payoffs taking
into account their heterogeneous impact on firms
Keywords Fiscal reforms Cross-country analysis Potential output Employment Developed
countries Emerging markets structural reforms firm-level data Orbis dataset potential
growth
JEL Classification L51 D04 D22
Production Integration in the European Union CESifo Working Paper Series No 6944
34 Pages Posted 17 May 2018
Hakan Nordstrom Swedish Board of Trade
Harry Flam Stockholm University - Institute for International Economic Studies (IIES) CESifo (Center for Economic
Studies and Ifo Institute)
Date Written March 21 2018
Abstract
Measured by trade in intermediate inputs economic integration has increased between 2000
and 2014 between members of the European Union and even more with non-members
Integration is negatively related to economic size and positively to the number of years as a
member Germany is the largest hub in the production network and the centre of gravity has
moved eastward Older member states are increasingly exporting service inputs and new
member states primary and manufacturing inputs Wages are increasing faster in countries
with low initial wages indicating wage convergence as a result of production integration
Keywords global value chains economic integration input-output models wage
convergence
JEL Classification E100 F100 F600 J310
Democratic Tipping Points CESifo Working Paper Series No 6945
36 Pages Posted 17 May 2018
Antonio Ciccone Universitat Pompeu Fabra - Faculty of Economic and Business Sciences Centre for Economic Policy
Research (CEPR) Institute for the Study of Labor (IZA)
There are 2 versions of this paper
Date Written March 21 2018
Abstract
I examine whether transitory events can tip the scales against authoritarian regimes and lead
to persistent democratization I think of situations where this is a possibility as democratic
tipping points The transitory events I focus on are rainfall shocks in the most agricultural
countries in the world I show that while these shocks only affect agricultural output
contemporaneously they have persistent effects on political institutions Authoritarian
regimes experiencing negative rainfall shocks are more likely to be democratic three five and
ten years later
Keywords transitory shocks persistent democratization
Globalization and the New Normal IMF Working Paper No 1875
41 Pages Posted 22 May 2018
Bertrand Candelon University of Maastricht - Department of Economics
Alina Carare International Monetary Fund (IMF)
Jean-Baptiste Hasse
Aix-Marseille University
Date Written April 2018
Abstract
This study expands the empirical specification of Cerra and Saxena (2008) and allows short-
termoutput growth regimes to be determined by globalization Relying on a non-linear
dynamic panelrepresentation it reconciles the earlier results in the literature regarding the
two oppositenarratives of the effects of globalization on output growth Countries experience
higher growth onaverage the more open and integrated they are into the world However
once they reach a certainglobalization threshold (endogenously estimated) countries may
also experience a new normalpersistently lower short-term output growth following a
financial crisis The benefits as well asvulnerabilities accrue earlier in the globalization
process for low- and middle-income countriesTo solely reap the globalization benefits on
growth sound policies should be in place to mitigatethe negative effects stemming from
increased vulnerabilities brought by globalization
Keywords Globalization Financial crisis Banking crisis Output growth New Normal
Globalization Financial crises Banking crises Output growth
JEL Classification F30 F43 F62 F65
Public Policy in an AI Economy
by Austan Goolsbee - 24653 (PE PR)
Abstract
This paper considers the role of policy in an AI-intensive
economy (interpreting AI broadly) It emphasizes the speed of
adoption of the technology for the impact on the job market and
the implications for inequality across people and across places
It also discusses the challenges of enacting a Universal Basic
Income as a response to widespread AI adoption discuss pricing
privacy and competition policy the question of whether AI could
improve policy making itself
httppapersnberorgpapersW24653utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Aggregate and Distributional Effects of Financial
Globalization Evidence from Macro and Sectoral Data IMF Working Paper No 1883
62 Pages Posted 22 May 2018
Davide Furceri International Monetary Fund (IMF)
Prakash Loungani International Monetary Fund (IMF)
Jonathan D Ostry International Monetary Fund (IMF)
Date Written April 2018
Abstract
We take a fresh look at the aggregate and distributional effects of policies to
liberalizeinternational capital flows-financial globalization Both country- and industry-level
resultssuggest that such policies have led on average to limited output gains while
contributing tosignificant increases in inequality-that is they pose an equity-efficiency trade-
off Behindthis average lies considerable heterogeneity in effects depending on country
characteristicsLiberalization increases output in countries with high financial depth and
those that avoidfinancial crises while distributional effects are more pronounced in countries
with lowfinancial depth and inclusion and where liberalization is followed by a crisis
Difference-indifferenceestimates using sectoral data suggest that liberalization episodes
reduce the shareof labor income particularly for industries with higher external financial
dependence thosewith a higher natural propensity to use layoffs to adjust to idiosyncratic
shocks and thosewith a higher elasticity of substitution between capital and labor The
sectoral resultsunderpin a causal interpretation of the findings using macro data
Keywords Globalization Inequality Capital Account Openness Crises Institutions
JEL Classification F13 G32 O11
The Dynamics of Sovereign Debt Crises and Bailouts CEPR Discussion Paper No DP12921
44 Pages Posted 15 May 2018
Francisco Roch International Monetary Fund (IMF)
Harald Uhlig University of Chicago - Department of Economics
There are 2 versions of this paper
Date Written May 2018
Abstract
Motivated by the recent European debt crisis this paper investigates the scope for a bailout
guarantee in a sovereign debt crisis Defaults may arise from negative income shocks
government impatience or a sunspot-coordinated buyers strike We introduce a bailout
agency and characterize the strategy with the minimal actuarially fair intervention which
guarantees the no-buyers-strike fundamental equilibrium relying on the market for residual
financing The intervention makes it cheaper for governments to borrow inducing them
borrow more leaving default probabilities possibly rather unchanged The maximal backstop
will be pulled precisely when fundamentals worsen
Keywords Bailouts default Endogenous Borrowing Constraints Eurozone Debt Crisis long-
term debt OMT Self-fulfilling Crises
JEL Classification F34 F41
Cumulative Impacts of Conditional Cash Transfer Programs Experimental Evidence from Indonesia
by Nur Cahyadi Rema Hanna Benjamin A Olken Rizal Adi Prima Elan Satriawan Ekki
Syamsulhakim - 24670 (CH DEV PE)
Abstract
Conditional cash transfer (CCT) programs have spread worldwide
and are designed to promote comprehensive human capital
investments in children starting from encouraging pre-natal and
maternal care and early childhood health interventions and
continuing through incentivizing school attendance Yet
evaluating these claims over more than a few years is hard as
most CCT experiments extend the program to the control group
after a short experimental period This paper experimentally
estimates the impacts of Indonesias cash transfer program (PKH)
six years after the program launched using data from about
14000 households in 360 sub-districts across Indonesia taking
advantage of the fact that treatment and control locations
remained largely intact throughout the period We find that PKH
continues to have large static incentive effects on many of the
targeted indicators increasing usage of trained health
professionals for childbirth dramatically and halving the share
of children age 7-15 who are not enrolled in school Wage labor
for 13-15 year olds was reduced by at least one-third We also
begin to observe impacts on outcomes that may require cumulative
investments for example six years later we observe large
reductions in stunting and some evidence of increased high school
completion rates The results suggest that CCT investments can
have substantial effects on the accumulation of human capital
and that these effects can persist even when programs are
operating at large-scale without researcher intervention
httppapersnberorgpapersW24670utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Services Development and Comparative Advantage in
Manufacturing World Bank Policy Research Working Paper No 8450
47 Pages Posted 23 May 2018
Xuepeng Liu Kennesaw State University - Department of Economics and Finance
Aaditya Mattoo World Bank - Development Research Group (DECRG)
Zhi Wang George Mason University - Schar School of Policy and Government
Shang-Jin Wei Columbia Business School - Finance and Economics National Bureau of Economic Research (NBER) Centre
for Economic Policy Research (CEPR) International Monetary Fund (IMF) Tsinghua University - School of
Economics amp Management
Date Written May 22 2018
Abstract
Most manufacturing activities use inputs from the financial and business services sectors But
these services sectors also compete for resources with manufacturing activities provoking
concerns about de-industrialization -- financial services in industrial countries like the United
States and the United Kingdom and business services in developing countries like India and
the Philippines This paper examines the implications of services development for the export
performance of manufacturing sectors It develops a methodology to quantify the indirect role
of services in international trade in goods and constructs new measures of revealed
comparative advantage based on domestic value added in gross exports The paper shows
that the development of financial and business services enhances the revealed comparative
advantage of manufacturing sectors that use these services intensively but not that of other
manufacturing sectors It also finds that a country can partially overcome the handicap of an
underdeveloped domestic services sector by relying more on imported services inputs Thus
lower services trade barriers in developing countries can help to promote their
manufacturing exports
Keywords Textiles Apparel amp Leather Industry Pulp amp Paper Industry General
Manufacturing Food amp Beverage Industry Common Carriers Industry Construction Industry
Plastics amp Rubber Industry Business Cycles and Stabilization Policies International Trade and
Trade Rules Trade and Services Financial Economics Finance and Development Economic
Growth Economic Theory amp Research Industrial Economics
Thou Shalt Not Breach The Impact on Sovereign
Spreads of Noncomplying with the EU Fiscal Rules IMF Working Paper No 1887
37 Pages Posted 22 May 2018
Federico Kalan International Monetary Fund (IMF)
Adina Popescu International Monetary Fund (IMF)
Julien P M Reynaud International Monetary Fund (IMF) Universiteacute Paris I Pantheacuteon-Sorbonne
Date Written April 2018
Abstract
There is evidence that fiscal rules in particular well-designed rules are associated with lower
sovereign spreads However the impact of noncompliance with fiscal rules on spreads has not
been examined in the literature This paper estimates the effect of the Excessive Deficit
Procedure (EDP) on sovereign spreads of European Union member states Based on a sample
including the 28 European Union countries over the period 1999 to 2016 sovereign spreads
of countries placed under an EDP are found to be on average higher compared to countries
that are not under an EDP The interpretation of this result is not straight-forward as different
channels may be at play in particular those related with the credibility and the design of the
EU fiscal framework The specification accounts for typical macroeconomic fiscal and
financial determinants of sovereign spreads the System Generalized Method of Moments
estimator is used to control for endogeneity and results are robust to a range of checks on
variables and estimators
Keywords Fiscal rules Fiscal policy noncompliance sovereign spreads General Models
with Panel Data
JEL Classification E62 H60 C23
ldquoUnconventionalrdquo Monetary Policy as Conventional
Monetary Policy A Perspective from the US In the
1920s
FEDS Working Paper No 2018-019
45 Pages Posted 6 Jun 2018
Mark A Carlson Board of Governors of the Federal Reserve System
Burcu Duygan-Bump Federal Reserve Board
Date Written 2018-03-09
Abstract
To implement monetary policy in the 1920s the Federal Reserve utilized administered
interest rates and conducted open market operations in both government securities and
private money market securities sometimes in fairly considerable amounts We show how the
Fed was able to effectively use these tools to influence conditions in money markets even
those in which it was not an active participant Moreover our results suggest that the
transmission of monetary policy to money markets occurred not just through changing the
supply of reserves but importantly through financial market arbitrage and the rebalancing of
investor portfolios The tools used in the 1920s by the Federal Reserve resemble the
extraordinary monetary policy tools used by central banks recently and provide further
evidence on their effectiveness even in ordinary times
Keywords Monetary policy Unconventional monetary policy Central banking Administered
rates Money markets Quantitative easing
JEL Classification E52 E58 N22
New Perspectives on the Decline of US
Manufacturing Employment FEDS Working Paper No 2018-023
37 Pages Posted 7 Jun 2018
Teresa Fort Dartmouth College - Tuck School of Business
Justin R Pierce Federal Reserve Board
Peter Schott Yale School of Management National Bureau of Economic Research (NBER)
Date Written 2018-04-13
Abstract
We use relatively unexplored dimensions of US microdata to examine how US manufacturing
employment has evolved across industries firms establishments and regions from 1977 to
2012 We show that these data provide support for both trade- and technology-based
explanations of the overall decline of employment over this period while also highlighting the
difficulties of estimating an overall contribution for each mechanism Toward that end we
discuss how further analysis of these trends might yield sharper insights
Keywords Employment Manufacturing Output Technology Trade
AI and the Economy
by Jason Furman Robert Seamans - 24689 (PR)
Abstract
We review the evidence that artificial intelligence (AI) is
having a large effect on the economy Across a variety of
statistics--including robotics shipments AI startups and patent
counts--there is evidence of a large increase in AI-related
activity We also review recent research in this area which
suggests that AI and robotics have the potential to increase
productivity growth but may have mixed effects on labor
particularly in the short run In particular some occupations
and industries may do well while others experience labor market
upheaval We then consider current and potential policies around
AI that may help to boost productivity growth while also
mitigating any labor market downsides including evaluating the
pros and cons of an AI specific regulator expanded antitrust
enforcement and alternative strategies for dealing with the
labor-market impacts of AI including universal basic income and
guaranteed employment
httppapersnberorgpapersW24689utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Economic Policy for Artificial Intelligence
by Ajay K Agrawal Joshua S Gans Avi Goldfarb - 24690 (PR)
Abstract
Recent progress in artificial intelligence (AI) - a general
purpose technology affecting many industries - has been focused
on advances in machine learning which we recast as a
quality-adjusted drop in the price of prediction How will this
sharp drop in price impact society Policy will influence the
impact on two key dimensions diffusion and consequences
First in addition to subsidies and IP policy that will influence
the diffusion of AI in ways similar to their effect on other
technologies three policy categories - privacy trade and
liability - may be uniquely salient in their influence on the
diffusion patterns of AI Second labor and antitrust policies
will influence the consequences of AI in terms of employment
inequality and competition
httppapersnberorgpapersW24690utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Missing Profits of Nations
by Thomas R Torslov Ludvig S Wier Gabriel Zucman - 24701 (CF IFM ITI PE)
Abstract
By combining new macroeconomic statistics on the activities of
multinational companies with the national accounts of tax havens
and the worlds other countries we estimate that close to 40 of
multinational profits are shifted to low-tax countries each year
Profit shifting is highest among US multinationals the tax
revenue losses are highest for the European Union and developing
countries We show theoretically and empirically that in the
current international tax system tax authorities of high-tax
countries do not have incentives to combat profit shifting to tax
havens They instead focus their enforcement effort on
relocating profits booked in other high-tax countries--in effect
stealing revenue from each other This policy failure can
explain the persistence of profit shifting to low-tax countries
despite the high costs involved for high-tax countries We
provide a new cross-country database of GDP corporate profits
trade balances and factor shares corrected for profit shifting
showing that the global rise of the corporate capital share is
significantly under-estimated
httppapersnberorgpapersW24701utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Global Financial Cycles and Risk Premiums
by Oscar Jorda Moritz Schularick Alan M Taylor Felix Ward - 24677 (AP DAE IFM ME)
Abstract
This paper studies the synchronization of financial cycles across
17 advanced economies over the past 150 years The comovement in
credit house prices and equity prices has reached historical
highs in the past three decades The sharp increase in the
comovement of global equity markets is particularly notable We
demonstrate that fluctuations in risk premiums and not risk-free
rates and dividends account for a large part of the observed
equity price synchronization after 1990 We also show that US
monetary policy has come to play an important role as a source of
fluctuations in risk appetite across global equity markets
These fluctuations are transmitted across both fixed and floating
exchange rate regimes but the effects are more muted in floating
rate regimes
httppapersnberorgpapersW24677utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Geography of Linguistic Diversity and the Provision of Public Goods
by Klaus Desmet Joseph Gomes Ignacio Ortunyo-Ortin - 24694 (PE POL)
Abstract
This paper analyzes the importance of local interaction between
individuals of different linguistic groups for the provision of
public goods at the national level The micro-founded conceptual
framework we develop predicts that a countrys public goods (i)
decrease in its overall linguistic fractionalization and (ii)
either increase or decrease in its local learning multiplier a
measure of how local interaction affects antagonism towards other
groups in the society at large After constructing a 5 km by 5
km dataset on language use for 223 countries we empirically
explore these theoretical predictions While overall
fractionalization worsens public goods outcomes we find a
positive causal effect of local learning Conditional on a
countrys overall diversity public goods outcomes are maximized
when there are a few large-sized groups and the diversity of each
location mirrors that of the country as a whole Our large-scale
study spanning the entire globe confirms experimental
micro-evidence in favor of contact theory
httppapersnberorgpapersW24694utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Misfits in the Car Industry Offshore Assembly
Decisions at the Variety Level CEPR Discussion Paper No DP12940
39 Pages Posted 21 May 2018
Keith Head University of British Columbia (UBC) - Division of Strategy and Business Economics
Thierry Mayer Sciences Po
Date Written May 2018
Abstract
This paper estimates the role of countryvariety comparative advantage in the decision to
offshore assembly of more than 2000 models of 197 car brands headquartered in 23
countries While offshoring in the car industry has risen from 2000 to 2016 the top five
offshoring brands account for half the car assembly relocated to low-wage countries We show
that the decision to offshore a particular car model depends on two types of cost
(dis)advantage of the home country relative to foreign locations The first type the assembly
costs common to all models is estimated via a structural triadic gravity equation The second
effect model-level comparative advantage is an interaction between proxies for the models
skill and capital intensity and headquarter countrys abundance in these factors
Keywords cars Gravity offshoring
JEL Classification F1
Global Crises and Populism The Role of Eurozone
Institutions CEPR Discussion Paper No DP12944
46 Pages Posted 21 May 2018
Luigi Guiso Einaudi Institute for Economics and Finance (EIEF)
Helios Herrera University of Warwick
Massimo Morelli Bocconi University
Tommaso Sonno Catholic University of Louvain (UCL) London School of Economics amp Political Science (LSE) - Centre for
Economic Performance (CEP)
Date Written May 2018
Abstract
Populist parties are likely to gain consensus when mainstream parties and status quo
institutions fail to manage the shocks faced by their economies Institutional constraints
which limit the possible actions in the face of shocks result in poorer performance and
frustration among voters who turn to populist movements We rely on this logic to explain the
different support of populist parties among European countries in response to the
globalization shock and to the 2008-2011 - financial and sovereign debt crisis We predict a
greater success of populist parties in response to these shocks in Euro zone countries and our
empirical analysis confirms this prediction This is consistent with voters frustration for the
greater inability of the Euro zone governments to react to di cult-to-manage globalization
shocks and financial crises Our evidence has implications for the speed of construction of
political unions A slow staged process of political unification can expose the EU to a risk of
political backlash if hard to manage shocks hit the economies during the integration process
Keywords Financial Dependence Frustration Globalization populism Relocation
JEL Classification D72 D78 F14 F16
Currency Unions Trade and Heterogeneity CEPR Discussion Paper No DP12954
50 Pages Posted 31 May 2018
Natalie Chen University of Warwick - Department of Economics Centre for Economic Policy Research (CEPR)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
Date Written May 2018
Abstract
How do trade costs affect international trade This paper offers a new approach We rely on a
flexible gravity equation that predicts variable trade cost elasticities both across and within
country pairs We apply this framework to the effect of currency unions on international
trade While we estimate that currency unions are associated with a trade increase of around
38 percent on average we find substantial underlying heterogeneity Consistent with the
predictions of our framework we find effects around three times as strong for country pairs
associated with small import shares and a zero effect for large import shares Our results
imply that conventional homogeneous currency union estimates do not provide helpful
guidance for countries considering to join a currency union Instead countries need to take
into account the distribution of their trade shares to assess the impact of trade costs
Keywords Currency Unions euro Gravity Heterogeneity Trade Costs Trade Elasticity
Translog
JEL Classification F14 F15 F33
Fiscal Multipliers and Foreign Holdings of Public Debt CEPR Discussion Paper No DP12960
76 Pages Posted 5 Jun 2018
Fernando Broner CREI Barcelona GSE Universitat Pompeu Fabra CEPR
Daragh Clancy European Stability Mechanism
Aitor Erce European Stability Mechanism Banco de Espantildea - Associate Directorate General International Affairs
Alberto Martin Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) Centre for Economic
Policy Research (CEPR)
There are 2 versions of this paper
Date Written May 2018
Abstract
This paper explores a natural connection between fiscal multipliers and foreign holdings of
public debt Although fiscal expansions can raise domestic economic activity through various
channels they can also have crowding-out effects if the resources used to acquire public debt
reduce domestic consumption and investment Thus these crowding-out effects are likely to
be weaker when public debt is purchased by foreigners We test this hypothesis on (i) post-
war US data and (ii) data for a panel of 17 advanced economies from the 1980s to the
present To do so we assemble a novel database of public debt holdings by domestic and
foreign creditors for a large set of advanced economies We combine this data with standard
measures of fiscal policy shocks and show that indeed the size of fiscal multipliers is
increasing in the share of public debt held by foreigners In particular the fiscal multiplier is
smaller than one when the foreign share is low such as in the US in the 1950s and 1960s
and Japan today and larger than one when the foreign share is high such as in the US and
Ireland today
Keywords Fiscal Multiplier Foreign Holdings of Public Debt Sovereign debt
JEL Classification E62 F32 F34 F36 F41 F62 F65 G15 H63
Refugee Resettlement Redistribution and Growth CESifo Working Paper Series No 6961
26 Pages Posted 30 May 2018
Leonid V Azarnert Ariel University Center
Date Written April 09 2018
Abstract
This paper studies the effect of refugee resettlement on human capital accumulation The
analysis is performed in a growth model with endogenous fertility I show how refugee
resettlement from a more advanced and wealthier economy to a less advanced and less
wealthy economy combined with income transfers is Pareto-improving for indigenous
populations in both countries I also derive conditions for the proposed resettlement policy to
stimulate human capital accumulation and hence economic growth in both economies
Keywords refugee resettlement fertility human capital growth
JEL Classification D300 F220 J100 O100
The Impact of Trade Liberalization on Firm Productivity and Innovation
by Pian Shu Claudia Steinwender - 24715 (ITI PR)
Abstract
This chapter reviews the empirical economics literature on the
impact of trade liberalization on firms innovation-related
outcomes We define and examine four types of shocks to trade
flows import competition export opportunities access to
imported intermediates and foreign input competition Our
review reveals interesting heterogeneities at the country and
firm levels In emerging countries trade liberalization appears
to spur productivity and innovation In developed countries
export opportunities and access to imported intermediates tend to
encourage innovation but the evidence on import competition is
mixed especially for firms in the United States At the firm
level the positive effects of trade on innovation are more
pronounced at the initially more productive firms while the
negative effects are more pronounced at the initially less
productive firms
httppapersnberorgpapersW24715utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The IT Revolution and the Globalization of RampD
by Lee G Branstetter Britta M Glennon J Bradford Jensen - 24707 (ITI PR)
Abstract
Since the 1990s RampD has become less geographically concentrated
and has seen especially fast growth in emerging markets One of
the distinguishing features of the RampD globalization phenomenon
is its concentration within the softwareIT domain the increase
in foreign RampD has been largely concentrated within software and
IT-intensive multinationals and new RampD destinations are also
more software and IT-intensive multinationals than traditional
RampD destinations In this paper we document three important
phenomena (1) the globalization of RampD (2) the growing
importance of software and IT to firm innovation and (3) the
rise of new RampD hubs We argue that the shortage in
softwareIT-related human capital resulting from the large IT-
and software-biased shift in innovation drove US MNCs abroad and
particularly drove them abroad to new hubs with large
quantities of STEM workers who possessed IT and software skills
Our findings support the view that the globalization of US
multinational RampD has reinforced the technological leadership of
US-based firms in the information technology domain and that
multinationals ability to access a global talent base could
support a high rate of innovation even in the presence of the
rising (human) resource cost of frontier RampD
httppapersnberorgpapersW24707utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Global Financial Cycles and Risk Premiums CEPR Discussion Paper No DP12969
60 Pages Posted 5 Jun 2018
Ogravescar Jordagrave Federal Reserve Banks - Federal Reserve Bank of San Francisco
Moritz Schularick University of Bonn - Department of Economics Centre for Economic Policy Research (CEPR)
Alan M Taylor University of California Davis - Department of Economics University of Virginia - Department of
Economics National Bureau of Economic Research (NBER) Centre for Economic Policy Research (CEPR)
Felix Ward Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics
There are 2 versions of this paper
Date Written June 2018
Abstract
This paper studies the synchronization of financial cycles across 17 advanced economies over
the past 150 years The comovement in credit house prices and equity prices has reached
historical highs in the past three decades The sharp increase in the comovement of global
equity markets is particularly notable We demonstrate that fluctuations in risk premiums
and not risk-free rates and dividends account for a large part of the observed equity price
synchronization after 1990 We also show that US monetary policy has come to play an
important role as a source of fluctuations in risk appetite across global equity markets These
fluctuations are transmitted across both fixed and floating exchange rate regimes but the
effects are more muted in floating rate regimes
Keywords asset prices equity return premium financial centers financial cycles policy
spillovers
JEL Classification E50 F33 F42 F44 G12 N10 N20
Automation and Unemployment Help is on the Way CEPR Discussion Paper No DP12974
32 Pages Posted 11 Jun 2018
Hideki Nakamura Osaka City University
Joseph Zeira Hebrew University of Jerusalem - Department of Economics Centre for Economic Policy Research (CEPR)
LUISS Guido Carli DPTEA
Date Written June 2018
Abstract
This paper presents a model of technical change that combines two lines of research together
It is a task based model in which automation turns labor tasks to mechanized ones and there
is also a continuous addition of new labor tasks as in the expanding variety literature We
impose three simple restrictions on the model The first is that all new tasks are adopted The
second is that all new automation innovations are adopted and the third is that the share of
labor does not converge to zero in the long run We show that these restrictions imply that
unemployment due to automation is expected to converge to zero over time
Keywords automation growth Labor Income Share technical change unemployment
JEL Classification J64 O14 O30 O40
Sovereign Default in a Monetary Union CEPR Discussion Paper No DP12976
56 Pages Posted 11 Jun 2018
Sergio de Ferra Stockholm University
Federica Romei LUISS Guido Carli University
Date Written June 2018
Abstract
In the aftermath of the global fi nancial crisis sovereign default risk and the zero lower bound
have limited the ability of policy-makers in the European monetary union to achieve their
stabilization objective This paper investigates the interaction between sovereign default risk
and the conduct of monetary policy when borrowers can act strategically and they share with
their lenders a single currency in a monetary union We address this question in an
endogenous sovereign default model of heterogeneous countries in a monetary union where
the monetary authority may be constrained by the zero lower bound We uncover three main
results First in normal times debtors have a stronger incentive to default to induce more
expansionary monetary policy Second the zero lower bound or constraints on monetary
policy may act as a disciplining device to enforce repayment of sovereign debt Third
sovereign default risk induces countries with a preference for tight monetary policy to accept
a laxer policy stance These results help to shed light on the recent European experience of
high default risk expansionary monetary policy and low nominal interest rates
Keywords Heterogeneous Countries monetary union sovereign default zero lower bound
JEL Classification F34 F42 F45 H63
Evolution of Modern Business Cycle Models Accounting for the Great Recession
by Patrick J Kehoe Virgiliu Midrigan Elena Pastorino - 24741 (EFG IFM LS ME)
Abstract
Modern business cycle theory focuses on the study of dynamic
stochastic general equilibrium models that generate aggregate
fluctuations similar to those experienced by actual economies
We discuss how this theory has evolved from its roots in the
early real business cycle models of the late 1970s through the
turmoil of the Great Recession four decades later We document
the strikingly different pattern of comovements of macro
aggregates during the Great Recession compared to other postwar
recessions especially the 1982 recession We then show how two
versions of the latest generation of real business cycle models
can account respectively for the aggregate and the
cross-regional fluctuations observed in the Great Recession in
the United States
httppapersnberorgpapersW24741utm_campaign=ntwamputm_medium=emailamputm_source=ntw
What Happened Financial Factors in the Great Recession
by Mark Gertler Simon Gilchrist - 24746 (EFG ME)
Abstract
Since the onset of the Great Recession an explosion of both
theoretical and empirical research has investigated how the
financial crisis emerged and how it was transmitted to the real
sector The goal of this paper is to describe what we have
learned from this new research and how it can be used to
understand what happened during the Great Recession In the
process we also present some new evidence on the role of the
household balance sheet channel versus the disruption of banking
We examine a panel of quarterly state level data on house
prices mortgage debt and employment along with a measure of
banking distress Then exploiting both panel data and time
series methods we analyze the contribution of the house price
decline versus the banking distress indicator to the overall
decline in employment during the Great Recession We confirm a
common finding in the literature that the household balance sheet
channel is important for regional variation in employment
However we also find that the disruption in banking was central
to the overall employment contraction
httppapersnberorgpapersW24746utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Changing Structure of Immigration to the OECD
What Welfare Effects on Member Countries CESifo Working Paper Series No 6992
40 Pages Posted 27 Jun 2018
Michał Burzyński Universite du Luxembourg
Freacutedeacuteric Docquier Universiteacute catholique de Louvain CREAM Centre for Research on Environmental Appraisal amp Management
UK IZA Institute of Labor Economics
Hillel Rapoport Paris School of Economics (PSE)
Date Written April 24 2018
Abstract
We investigate the welfare implications of two pre-crisis immigration waves (1991ndash2000 and
2001ndash2010) and of the post-crisis wave (2011ndash2015) for OECD native citizens To do so we
develop a general equilibrium model that accounts for the main channels of transmission of
immigration shocks ndash the employment and wage effects the fiscal effect and the market size
effect ndash and for the interactions between them We parameterize our model for 20 selected
OECD member states We find that the three waves induce positive effects on the real income
of natives however the size of these gains varies considerably across countries and across
skill groups In relative terms the post-crisis wave induces smaller welfare gains compared to
the previous ones This is due to the changing origin mix of immigrants which translates into
lower levels of human capital and smaller fiscal gains However differences across cohorts
explain a tiny fraction of the highly persistent cross-country heterogeneity in the economic
benefits from immigration
Keywords immigration welfare crisis inequality general equilibrium
JEL Classification C680 F220 J240
Anatomy and Impact of Export Promotion Agencies World Bank Policy Research Working Paper No 8470
19 Pages Posted 11 Jun 2018
Marcio Cruz World Bank Federal University of Parana (UFPR) - Departamento de Economia
Daniel Lederman World Bank - Latin America and Caribbean Region
Laura Zoratto World Bank
Date Written June 7 2018
Abstract
Recent literature has shown evidence of positive contributions of export promotion agencies
around the world in raising exports through the intensive and extensive margins of trade The
number of export promotion agencies has increased substantially over the past two decades
and most of them focus on assisting exporters in understanding and finding markets for their
products This paper describes the characteristics of export promotion agencies around the
world using a novel database from the World Bank in collaboration with the International
Trade Center in Geneva covering 2005-10 In addition it presents a short summary of the
literature on the impacts of export promotion agencies
Keywords Export Competitiveness International Trade and Trade Rules Rules of Origin
Trade Policy Trade and Multilateral Issues Trade and Services
Optimal Inflation and the Identification of the Phillips
Curve CEPR Discussion Paper No DP12981
29 Pages Posted 11 Jun 2018
Michael McLeay Bank of England - Monetary Assessment and Strategy Division
Silvana Tenreyro London School of Economics (LSE)
Date Written June 2018
Abstract
This paper explains why inflation follows a seemingly exogenous statistical process unrelated
to the output gap In other words it explains why it is difficult to empirically identify a Phillips
curve We show why this result need not imply that the Phillips curve does not hold -- on the
contrary our conceptual framework is built under the assumption that the Phillips curve
always holds The reason is simple if monetary policy is set with the goal of minimising
welfare losses (measured as the sum of deviations of inflation from its target and output from
its potential) subject to a Phillips curve a central bank will seek to increase inflation when
output is below potential This targeting rule will impart a negative correlation between
inflation and the output gap blurring the identification of the (positively sloped) Phillips
curve
Keywords identification Inflation targeting Phillips curve
GVCs and the Endogenous Geography of RTAs CESifo Working Paper Series No 6980
43 Pages Posted 11 Jun 2018
Lionel Fontagne University of Paris 1 Pantheacuteon Sorbonne Paris School of Economics CEPII
Gianluca Santoni Centre dEtudes Prospectives et dInfo Internationales (CEPII)
Date Written April 19 2018
Abstract
Geography economic size or common history help predicting signed regional trade
agreements (RTAs) However not all signed RTAs are ldquonaturalrdquo according to economic
determinants En-dogeneity and general equilibrium effects of RTAS are the two mechanisms
addressed in this paper We estimate the time-varying probability for a country pair to sign a
trade agreement and build upon structural gravity in general equilibrium to determine how
the patterns of Global Value Chains shape the evolving geography of optimal RTAS Our results
confirm that the endogenous geography of RTAs is shaped by the development of GVCs
Keywords preferential trade agreements global value chains structural gravity
JEL Classification F130 F140 F150
Diversity and Growth CEPR Discussion Paper No DP13011
37 Pages Posted 26 Jun 2018
Mark Gradstein Ben-Gurion University of the Negev - Department of Economics CESifo (Center for Economic Studies and
Ifo Institute) Centre for Economic Policy Research (CEPR) World Bank - Development Research Group
(DECRG)
There are 2 versions of this paper
Date Written June 2018
Abstract
The diversity of social interaction within economic communities affects productivity and
growth and is itself shaped by economic conditions These reciprocal effects raise the
possibility of multiple equilibria of setting a socially polarized economy stagnating in poverty
on a new path of social integration and economic growth through external intervention or an
internal political initiative This paper describes a simple analytical model that captures these
reciprocal effects and sheds light on the role of government capacity community leadership
federation and external credit or aid in achieving economic growth through social integration
The Economics of Language CEPR Discussion Paper No DP13002
85 Pages Posted 26 Jun 2018
Victor Ginsburgh Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics
(ECARES)
Shlomo Weber Southern Methodist University (SMU) - Department of Economics New Economic School
Date Written June 2018
Abstract
The paper brings together methodological theoretical and empirical analysis into the single
framework of linguistic diversity It reflects both historical and contemporary research by
economists and other social scientists on the impact of language on economic outcomes and
public policies We examine whether and how language influences human thinking (including
emotions) and behavior analyze the effects of linguistic distances on trade migrations
financial markets language learning and its returns The quantitative foundations of linguistic
diversity which rely on group identification linguistic distances as well as fractionalization
polarization and disenfranchisement indices are discussed in terms of their empirical
challenges and uses We conclude with an analysis of linguistic policies and shifts of languages
and examine their welfare effects and the trade-offs between the development of labor
markets and the social costs that they generate in various countries
Financial and Fiscal Interaction in the Euro Area
Crisis This Time Was Different CEPR Discussion Paper No DP13016
39 Pages Posted 3 Jul 2018
Alberto Caruso Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics
(ECARES)
Lucrezia Reichlin London Business School Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in
Economics and Statistics (ECARES) Centre for Economic Policy Research (CEPR) European Central Bank
(ECB)
Giovanni Ricco University of Warwick - Department of Economics SciencesPo - OFCE
Date Written June 2018
Abstract
This paper highlights the anomalous characteristics of the Euro Area `twin crises by
contrasting the aggregate macroeconomic dynamics in the period 2009-2013 with the
business cycle fluctuations of the previous decades We report three stylised facts First the
contraction in output was marked by an anomalous downfall in investment while
consumption savings and unemployment followed their historical relation with GDP Second
households and financial corporations debts and house prices deviated from their pre-crisis
trends Third the jump in the public deficit-GDP ratio in 2008-2009 was unprecedented and
so was the fiscal consolidation that followed Our analysis points to the financial nature of the
crisis as a likely explanation for these facts Importantly the `anomaly in public deficit is in
large part explained by extraordinary measures in support of the financial sector which show
up in the stock-flow adjustments and reveal a key interaction between the fiscal and the
financial sectors
Keywords Euro Area Government Debt Recessions
JEL Classification C11 C32 C54 E52 E62 F45
The Shocks Matter Improving Our Estimates of
Exchange Rate Pass-Through CEPR Discussion Paper No DP13037
43 Pages Posted 9 Jul 2018
Kristin J Forbes Massachusetts Institute of Technology (MIT) - Sloan School of Management National Bureau of Economic
Research (NBER)
Ida Hjortsoe
Bank of England
Tsvetelina Nenova Bank of England
There are 4 versions of this paper
Date Written July 2018
Abstract
A major challenge for monetary policy is predicting how exchange rate movements will
impact inflation We propose a new focus directly incorporating the underlying shocks that
cause exchange rate fluctuations when evaluating how these fluctuations pass through to
import and consumer prices A standard open-economy model shows that the relationship
between exchange rates and prices depends on the shocks which cause the exchange rate to
move We build on this to develop a structural Vector Autoregression (SVAR) framework for a
small open economy and apply it to the UK We show that prices respond differently to
exchange rate movements based on what caused the movements For example exchange rate
pass-through is low in response to domestic demand shocks and relatively high in response to
domestic monetary policy shocks This framework can improve our ability to estimate how
pass-through can change over short periods of time For example it can explain why sterlings
post-crisis depreciation caused a sharper increase in prices than expected while the effect of
sterlings 2013-15 appreciation was more muted We also apply this framework to forecast
the extent of pass-through from sterlings sharp depreciation corresponding to the UKs vote
to leave the European Union
Keywords consumer prices exchange rate pass-through import prices inflation vector
autoregressions
JEL Classification E31 F3 F41
Why Has Economic Growth Slowed When Innovation
Appears to Be Accelerating CEPR Discussion Paper No DP13039
29 Pages Posted 9 Jul 2018
Robert J Gordon Northwestern University - Department of Economics National Bureau of Economic Research (NBER)
Centre for Economic Policy Research (CEPR)
There are 2 versions of this paper
Date Written July 2018
Abstract
U S economic growth slowed by more than half from 32 percent per year during 1970-2006
to only 14 percent during 2006-16 and this decline was divided equally between slower
growth in hours of work and slower growth in output per hour In explaining slower growth
in hours particular emphasis is placed on the slower secular rise of life expectancy in the US
compared to other developed countries Further contributions to slowing growth are made by
a decline in the population share of both legal and illegal immigration and a turnaround from
rising to declining labor force participation Causes of declining productivity growth begin
with the slowdown in the rate of increase of educational attainment Why did productivity
growth decline after 2006 despite an increase in the rate at which new US patents were
issued in 2006-16 compared to earlier decades Part of the slowdown is attributed to the
maturity of the IT revolution which also helps to explain the trajectory of the college wage
premium Aspects of the productivity growth slowdown include the declining productivity of
research workers diminishing returns to drug innovation and the evolutionary rather than
revolutionary impact of robots and artificial intelligence
Keywords Economic Growth Immigration Innovation labor force participation Mortality
productivity
JEL Classification D24 E24
On DSGE Models
by Lawrence J Christiano Martin S Eichenbaum Mathias Trabandt - 24811 (EFG ME)
Abstract
The outcome of any important macroeconomic policy change is the
net effect of forces operating on different parts of the economy
A central challenge facing policy makers is how to assess the
relative strength of those forces Dynamic Stochastic General
Equilibrium (DSGE) models are the leading framework that
macroeconomists have for dealing with this challenge in an open
and transparent manner This paper reviews the state of DSGE
models before the financial crisis and how DSGE modelers
responded to the crisis and its aftermath In addition we
discuss the role of DSGE models in the policy process
httppapersnberorgpapersW24811utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Currency Wars Unconventional Monetary Policy Does Not Stimulate Exports
by Andrew K Rose - 24817 (IFM ITI)
Abstract
I investigate whether countries that use unconventional monetary
policy (UMP) experience export booms I use a popular gravity
model of trade which requires neither the exogeneity of UMP nor
instrumental variables for UMP In practice countries that
engage in UMP experience a drop in exports vis-a-vis countries
that are not engaged in such policies holding other things
constant Quantitative easing is associated with exports that
are about 10 lower to countries not engaged in UMP this amount
is significantly different from zero and similar to the effect of
negative nominal interest rates Thus there is no evidence that
countries have gained export markets through unconventional
monetary policy currency wars that have been launched have also
been lost UMP is also associated with a comparable drop in
imports and exchange rates suggesting that countries engage in
UMP when they are experiencing adverse macroeconomic shocks
concurrent with those that eviscerate international trade
httppapersnberorgpapersW24817utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Granular Comparative Advantage
by Cecile Gaubert Oleg Itskhoki - 24807 (EFG IFM IO ITI)
Abstract
Large firms play a pivotal role in international trade shaping
the export patterns of countries We propose and quantify a
granular multi-sector model of trade which combines fundamental
comparative advantage across sectors with granular comparative
advantage embodied in outstanding individual firms We develop
an SMM-based estimation procedure which takes full account of
the general equilibrium of the model to jointly estimate these
fundamental and granular forces using French micro-data with
information on firm domestic and export sales across
manufacturing industries We find that granularity accounts for
about 20 of the variation in realized export intensity across
sectors and is more pronounced in the most export-intensive
sectors In turn idiosyncratic firm dynamics accounts for a
large share of the evolution of a countrys comparative advantage
over time Governments face strong incentives to target trade
policy at large individual foreign exporters and to use lenient
antitrust regulation at home to substitute for
beggar-thy-neighbor trade policy
httppapersnberorgpapersW24807utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The State of New Keynesian Economics A Partial Assessment
by Jordi Gali - 24845 (EFG ME)
Abstract
I provide an overview of recent developments in monetary
economics with an emphasis on extensions of the New Keynesian
framework that assume a zero lower bound on the short term
nominal rate as well as models with household heterogeneity
httppapersnberorgpapersW24845utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Artificial Intelligence Economics and Industrial Organization
by Hal Varian - 24839 (IO PR)
Abstract
Machine learning (ML) and artificial intelligence (AI) have been
around for many years However in the last 5 years remarkable
progress has been made using multilayered neural networks in
diverse areas such as image recognition speech recognition and
machine translation AI is a general purpose technology that is
likely to impact many industries In this chapter I consider how
machine learning availability might affect the industrial
organization of both firms that provide AI services and
industries that adopt AI technology My intent is not to
provide an extensive overview of this rapidly-evolving area but
instead to provide a short summary of some of the forces at work
and to describe some possible areas for future research
httppapersnberorgpapersW24839utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Twenty Five Years of Global Imbalances CEPR Discussion Paper No DP13066
20 Pages Posted 24 Jul 2018
Maurice Obstfeld International Monetary Fund (IMF)
Date Written July 2018
Abstract
As international capital markets expanded in breadth and depth after the middle 1990s
global current account imbalances also expanded markedly Some have linked the origin of
the subsequent Global Financial Crisis (GFC) to these global imbalances This essay proposes
answers to four questions about the recent history of global imbalances Why did global
imbalances expand after the mid-1990s What circumstances and concomitant factors
provide clues about the origins of the GFC If one accepts that a mono-causal story about the
GFC based on global imbalances is inaccurate how should one view the potential threats from
excessive global imbalances today And finally what policy implications follow
Keywords current account global financial crisis (GFC) global imbalances IMF External
Sector Report
Is Automation Labor-Displacing Productivity Growth Employment and the Labor Share
by David Autor Anna Salomons - 24871 (EFG LS)
Abstract
Many technological innovations replace workers with machines but
this capital-labor substitution need not reduce aggregate labor
demand because it simultaneously induces four countervailing
responses own-industry output effects cross-industry
input-output effects between-industry shifts and final demand
effects We quantify these channels using four decades of
harmonized cross-country and industry data where we measure
automation as industry-level movements in total factor
productivity (TFP) that are common across countries We find
that automation displaces employment and reduces labors share of
value-added in the industries in which it originates (a direct
effect) In the case of employment these own-industry losses
are reversed by indirect gains in customer industries and induced
increases in aggregate demand By contrast own-industry labor
share losses are not recouped elsewhere Our framework can
account for a substantial fraction of the reallocation of
employment across industries and the aggregate fall in the labor
share over the last three decades It does not however explain
why the labor share fell more rapidly during the 2000s
httppapersnberorgpapersW24871utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Dynamic Effects of Co-Ethnic Networks on
Immigrants Economic Success CESifo Working Paper Series No 7084
43 Pages Posted 21 Jul 2018
Michele Battisti University of Palermo LUISS Guido Carli University
Giovanni Peri University of California Davis - Department of Economics
Agnese Romiti Government of the Federal Republic of Germany - Institute for Employment Research (IAB)
Date Written June 06 2018
Abstract
This paper investigates how the size of co-ethnic networks at the time of arrival affect the
economic success of immigrants in Germany Applying panel analysis with a large set of fixed
effects and controls we isolate the association between initial network size and long-run
immigrant outcomes We also look at those who were assigned to an initial location
independently of their choice allows a causal interpretation of our estimates We find that
immigrants initially located in places with larger co-ethnic networks are more likely to be
employed at first but have a lower probability of investing in human capital
Keywords networks immigration human capital employment
JEL Classification J240 J610 R230
Immigrant Artists Enrichment or Displacement CEPR Discussion Paper No DP13070
36 Pages Posted 31 Jul 2018
Karol Borowiecki University of Southern Denmark
Kathryn Graddy Brandeis University - Department of Economics
Date Written July 2018
Abstract
In order to investigate the role of immigrant artists on the development of artistic clusters in
US cities we use the US Census and American Community Survey collected every 10 years
since 1850 We identify artists and art teachers authors musicians and music teachers actors
and actresses architects and journalists their geographical location and their status as a
native or an immigrant We look at the relative growth rate of the immigrant population in
these occupations over a ten year period and how it affects the relative growth rate of native-
born individuals in these artistic occupations We find that cities that experienced immigrant
artist inflows also see a greater inflow of native artists
Keywords artistic occupations artists Immigration
JEL Classification J4 J6 N3 N9 Z1
Global Value Chains and Inequality with Endogenous Labor Supply
by Eunhee Lee Kei-Mu Yi - 24884 (ITI)
Abstract
We assess the role of global value chains in transmitting global
integration shocks to aggregate trade as well as distributional
outcomes We develop a multi-country general equilibrium trade
model that features multi-stage production with different stages
having different productivities and using factors (occupations)
with different intensities The model also features a Roy
mechanism in which heterogeneous workers endogenously choose
their sector and occupation Country- and worker-level
comparative advantages interact A reduction in trade costs
leads to countries specializing in their comparative advantage
sectors and production stages This specialization changes labor
demand and also leads to more workers shifting to their
comparative advantage sectors and occupations We calibrate our
model to the US China and the rest of the world in 2000 and
we simulate a decline in Chinas trade costs with the US
designed to mimic Chinas entry into the WTO Our simulation
results imply an increase in the skill premium in both the US
and China and the GVC ie specialization across stages is
critical to this outcome
httppapersnberorgpapersW24884utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Friedman and Phelps on the Phillips Curve Viewed from a Half Centurys Perspective
by Robert J Gordon - 24891 (EFG)
Abstract
In the late 1960s the stable negatively sloped Phillips Curve
(PC) was overturned by the Friedman-Phelps natural rate model
Their PC was vertical in the long run at the natural unemployment
rate and their short-run curve shifted up whenever unemployment
was pushed below the natural rate This paper criticizes the
underlying assumption of the Friedman-Phelps approach that the
labor market continuously clears and that changes in unemployment
down or up occur only in response to fooling of workers firms
or both A preferable and resolutely Keynesian approach
explains quantity rationing by inertia in price and wage setting
The positive correlation of inflation and unemployment in the
1970s and again in the 1990s is explained by joining the
negatively sloped Phillips Curve with a positively sloped dynamic
demand curve For any given growth of nominal GDP higher
inflation caused by adverse supply shocks implies slower real GDP
growth and higher unemployment This triangle model based on
inflation inertia demand and supply worked well to explain why
inflation and unemployment were both positively and negatively
correlated between the 1960s and 1990s but in the past decade
the slope of the short-run Phillips Curve has flattened as
inflation exhibited a muted response to high unemployment in
2009-13 and low unemployment in 2016-2018 It remains to be
seen whether a continuation of low unemployment will cause a
modest and fixed extra amount of inflation thus reviving the
stable Phillips curve of the early 1960s or whether inflation
will continuously accelerate as Friedman and Phelps would have
predicted
httppapersnberorgpapersW24891utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Tax Policy Measures in Advanced and Emerging
Economies A Novel Database IMF Working Paper No 18110
61 Pages Posted 1 Aug 2018
David Amaglobeli International Monetary Fund (IMF)
Valerio Crispolti International Monetary Fund (IMF)
Era Dabla-Norris International Monetary Fund (IMF)
Pooja Karnane International Monetary Fund (IMF)
Florian Misch International Monetary Fund (IMF)
Date Written May 2018
Abstract
This paper describes a new comprehensive database of tax policy measures in 23 advanced
and emerging market economies over the last four decades We extract this information from
more than 900 OECD Economic Surveys and 37000 tax-related news from the International
Bureau of Fiscal Documentation using text-mining techniques The innovation of this dataset
lies in its granularity changes in the rates and bases of personal and corporate income taxes
value added and sale taxes social security contributions excise and property taxes are
systematically documented In addition the database provides information on the
announcement and implementation dates whether the measures represent major changes
are part of a broader tax package and phased in over several years The paper also presents a
range of stylized facts suggesting that information from this database is useful to deepen the
analysis of tax policy changes for research and policy purposes
Keywords Tax policy Tax reforms Personal income taxes Corporate income taxes Value
added taxes Sales taxes Excise taxes Property taxes Developed countries Emerging markets
Tax Reforms Text Mining Tax Policy Implementation Lags Tax Reforms Text Mining Tax
Policy Implementation Lags Methodology for Collecting Estimating and Organizing
Macroeconomic Data General
JEL Classification C82 E61 H20 P16
Inequality Aversion Populism and the Backlash
Against Globalization CEPR Discussion Paper No DP13107
69 Pages Posted 21 Aug 2018
Lubos Pastor University of Chicago - Booth School of Business Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
Pietro Veronesi
University of Chicago - Booth School of Business Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
There are 3 versions of this paper
Date Written August 2018
Abstract
Motivated by the recent rise of populism in western democracies we develop a model in
which a populist backlash emerges endogenously in a growing economy In the model voters
dislike inequality especially the high consumption of the ``elites Economic growth
exacerbates inequality due to heterogeneity in risk aversion In response to rising inequality
rich-country voters optimally elect a populist promising to end globalization Redistribution is
of limited value in containing the backlash against globalization Countries with more
inequality higher financial development and current account deficits are more vulnerable to
populism both in the model and in the data Evidence on who voted for Brexit and Trump in
2016 also largely supports the model
Keywords Brexit Globalization inequality populism risk aversion Trump
JEL Classification D72 F65 G11 G12 G18 P16
Underemployment in the US and Europe
by David NF Bell David G Blanchflower - 24927 (IFM LS ME)
Abstract
Large numbers of part-time workers around the world both those
who choose to be part-time and those who are there involuntarily
and would prefer a full-time job report they want more hours
Full-timers who say they want to change their hours mostly say
they want to reduce them When recession hit in most countries
the number of hours of those who said they wanted more hours
rose sharply and there was a fall in the number of hours that
full-timers wanted their hours reduced by Even though the
unemployment rate has returned to its pre-recession levels in
many advanced countries underemployment in most has not
We produce estimates for a new and better underemployment rate
for twenty-five European countries In most underemployment
remains elevated We provide evidence for the UK and the US as
well as some international evidence that underemployment rather
than unemployment lowers pay in the years after the Great
Recession We also find evidence for the US that falls in the
home ownership rate have helped to keep wage pressure in check
Underemployment replaces unemployment as the main influence on
wages in the years since the Great Recession
httppapersnberorgpapersW24927utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Does Machine Translation Affect International Trade Evidence from a Large Digital Platform
by Erik Brynjolfsson Xiang Hui Meng Liu - 24917 (IO ITI PR)
Abstract
Artificial intelligence (AI) is surpassing human performance in a
growing number of domains However there is limited evidence of
its economic effects Using data from a digital platform we
study a key application of AI machine translation We find
that the introduction of a machine translation system has
significantly increased international trade on this platform
increasing exports by 175 Furthermore heterogeneous
treatment effects are all consistent with a substantial reduction
in translation-related search costs Our results provide causal
evidence that language barriers significantly hinder trade and
that AI has already begun to improve economic efficiency in at
least one domain
httppapersnberorgpapersW24917utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The US Personal Saving Rate IMF Working Paper No 18128
35 Pages Posted 1 Aug 2018
Sam Ouliaris International Monetary Fund (IMF)
Celine Rochon University of Oxford IMF
Date Written June 2018
Abstract
This paper develops a time series model for aggregate consumption to predict the US
personal saving rate It then uses the model to test whether there has been a structural break
in consumption behavior because of the 2008 financial crisis Before the crisis the personal
saving rate was trending downwards However in 2008 there was a significant rise in the
saving rate that continued until the end of 2012 suggesting a permanent change in household
behavior To assess this issue formally the unknown parameters of the model are estimated
using data for 1961Q1-2007Q4 a period which precedes the crisis The model is then used to
predict the saving rate from 2008Q1 onwards and to assess whether the rise in the saving rate
after 2008 was due to sizable but transitory incomewealth shocks or to changes in the
underlying elasticities between saving and its determinants (hence structural) The statistical
evidence suggests there was no structural break in the household saving behavior implying
that the rise in the saving rate during 2008-2012 was caused by the negative shocks to
income employment and wealth This result explains why the saving rate resumed its decline
in 2013 as real disposable income employment and net worth recovered Assuming that the
real growth in these determinants remains strong the estimated model predicts continued
negative pressures on the current account deficit and further external imbalances attributable
to the US household sector
Keywords United States Western Hemisphere consumption behavior personal saving rate
vector error-correction model structural break Consumer Economics Empirical Analysis
Personal Finance Forecasting and Simulation
JEL Classification D12 D14 E21 E27
Currency Unions Trade and Heterogeneity CESifo Working Paper Series No 7123
49 Pages Posted 24 Aug 2018
Natalie Chen University of Warwick - Department of Economics Centre for Economic Policy Research (CEPR)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
There are 2 versions of this paper
Date Written June 28 2018
Abstract
How do trade costs affect international trade This paper offers a new approach We rely on a
flexible gravity equation that predicts variable trade cost elasticities both across and within
country pairs We apply this framework to the effect of currency unions on international
trade While we estimate that currency unions are associated with a trade increase of around
38 percent on average we find substantial underlying heterogeneity Consistent with the
predictions of our framework we find effects around three times as strong for country pairs
associated with small import shares and a zero effect for large import shares Our results
imply that conventional homogeneous currency union estimates do not provide helpful
guidance for countries considering to join a currency union Instead countries need to take
into account the distribution of their trade shares to assess the impact of trade costs
Keywords currency unions euro gravity heterogeneity trade costs trade elasticity translog
JEL Classification F140 F150 F330
How Do Migration and Remittances Affect Inequality
A Case Study of Mexico IMF Working Paper No 18136
22 Pages Posted 1 Aug 2018
Zsoka Koczan International Monetary Fund (IMF)
Franz Loyola International Monetary Fund (IMF)
Date Written June 2018
Abstract
The poverty-reducing effects of remittances have been well-documented however their
effects on inequality are less clear This paper examines the impact of remittances on
inequality in Mexico using household-level information on the receiving side It hopes to
speak to their insurance role by examining how remittances are affected by domestic and
external crises the 1994 Mexican Peso crisis and the Global Financial Crisis We find that
remittances lower inequality and that they become more pro-poor over time as migration
opportunities become more widespread This also strengthens their insurance effects
mitigating some of the negative impact of shocks on the poorest
Keywords Migration Remittances Financial crises Income inequality Income distribution
Poverty reduction inequality Firm Behavior International Lending and Debt Problems
JEL Classification D21 F32 F34 J61 D31 F22 F24
Exchange Rate Forecasting on a Napkin
ECB Working Paper No 2151
Contact MICHELE CAZORZI
European Central Bank (ECB)
Email michelecazorziecbint
Auth-Page httpsssrncomauthor=343031
Co-Author MICHAŁ RUBASZEK
National Bank of Poland Warsaw
School of Economics (SGH)
Email michalrubaszeknbppl
Auth-Page httpsssrncomauthor=850188
Full Text httpsssrncomabstract=3183690
ABSTRACT This paper shows that there are two regularities in
foreign exchange markets in advanced countries with flexible
regimes First real exchange rates are mean-reverting as
implied by the Purchasing Power Parity model Second the
adjustment takes place via nominal exchange rates These features
of the data can be exploited even on the back of a napkin to
generate nominal exchange rate forecasts that outperform the
random walk The secret is to avoid estimating the pace of mean
reversion and assume that relative prices are unchanged Direct
forecasting or panel data techniques are better than the random
walk but fail to beat this simple calibrated model
______________________________
Home Sweet Home The Effect of Sugar Protectionism
on Emigration in Italy 1876-1913 CEIS Working Paper No 437
49 Pages Posted 29 Jun 2018
Carlo Ciccarelli University of Rome Tor Vergata - Faculty of Economics
Alberto Dalmazzo University of Siena - Department of Economics
Daniela Vuri University of Rome Tor Vergata IZA Institute of Labor Economics CESifo (Center for Economic Studies and
Ifo Institute for Economic Research)
Date Written June 8 2018
Abstract
Protectionist policies are often considered or even implemented as a reaction to increasing
globalization This is not new in history This paper uses the introduction of import duties on
sugar in the late nineteenth century Italy to measure the impact of protectionism on migration
out flows at the time of the fi
rst globalization Both for climate reasons and the nature of the soil the cultivation and
processing of sugar beets was geographically concentrated in a small area leading de facto to
a regional protectionist policy Our theoretical model illustrates how a tariff that favours local
producers may affect residents incentives to migrate abroad The predictions of the model
are tested with the synthetic control method which uses the variation in sugar cultivation
across areas to estimate the effect of interest Our results show that protectionism effectively
reduced the relative incentive to migrate away from sugar-producing areas
Keywords protectionism regional economics migrations 19th century Italy
JEL Classification N93 J4 C23
Integrating Services in the Economic Fitness
Approach World Bank Policy Research Working Paper No 8485
35 Pages Posted 28 Aug 2018
Andrea Zaccaria Sapienza University of Rome
Saurabh Mishra International Monetary Fund (IMF)
Masud Z Cader World Bank - International Finance Corporation (IFC)
Luciano Pietronero Sapienza University of Rome
Date Written June 21 2018
Abstract
Economic Complexity is a set of network-based and algorithmic methods for the study of
economic development and competitiveness In this framework Economic Fitness is an
innovative approach that improves the mathematical and conceptual scheme For
convenience these methods were originally conceived on trade in goods This paper extends
the Economic Fitness methodology to include a trade in services element to yield a universal
matrix of world trade and thus provide a more complete picture of a countrys development
and global competitiveness The paper applies two algorithms to the universal trade in goods
and services matrix to contrast country competitiveness and change in complexity and
diversification when services are added to the traditional goods-only matrix The results show
that (i) the competitiveness of many countries was previously over- or underestimated that
is many countries gain or lose positions in the ranking of economic fitness when services
trade is considered alongside goods and (ii) complex services tend to cluster with complex
manufacturing suggesting a common capabilities structure These findings show how
developing complex services aids diversification strategies for developing countries
Keywords International Trade and Trade Rules Common Carriers Industry Food amp
Beverage Industry Business Cycles and Stabilization Policies Plastics amp Rubber Industry
Construction Industry General Manufacturing Textiles Apparel amp Leather Industry Pulp amp
Paper Industry Trade and Services Macroeconomic Management ICT Applications
Deep Trade Agreements and Global Value Chains World Bank Policy Research Working Paper No 8491
39 Pages Posted 28 Aug 2018
Edith Laget World Bank
Alberto Osnago World Bank
Nadia Rocha World Trade Organization
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Date Written June 25 2018
Abstract
Preferential trade agreements have become deeper over time often encompassing policy
areas that go beyond traditional trade policy such as investment competition and intellectual
property rights protection In the literature a prominent argument why countries sign deep
agreements is to promote and facilitate the operation of global value chains This paper
exploits a new data set on the content of trade agreements and data on trade in value added
and in parts and components to quantify the impact of the depth of trade agreements on
bilateral cross-border production linkages The results show that adding a policy area to a
trade agreement increases the domestic value added of intermediates (forward global value
chain linkages) and the foreign value added of intermediates (backward global value chain
linkages) by 048 and 038 percent respectively At the sectoral level the positive impact of
deep trade agreements is higher for higher value-added industries suggesting that deep
agreements help countries to integrate in industries with higher levels of value added For a
larger sample of countries and years the results confirm that an additional provision in a
trade agreement increases bilateral trade in parts and components by 03 percent The
content of trade agreements also matters for global value chain integration but the impact
varies by income group Provisions outside the current mandate of the World Trade
Organization (investment and competition policy) drive the effect of trade agreements on
North-South trade in parts and components Provisions under the current World Trade
Organization mandate (tariff reduction and customs facilitation) drive the effect of trade
agreements on South-South trade in parts and components
Keywords International Trade and Trade Rules Industrial and Consumer Services and
Products Transport and Trade Logistics Competition Policy Competitiveness and
Competition Policy Trade Finance and Investment
The Effect of Immigration on Natives School
Achievement Does Length of Stay in the Host
Country Matter World Bank Policy Research Working Paper No 8492
62 Pages Posted 28 Aug 2018
Laurent Bossavie The World Bank
Date Written June 25 2018
Abstract
Using a rich data set of primary school students this paper estimates the effects of immigrant
concentration in the classroom on the academic achievement of natives In contrast with
previous contributions it exploits rare information on age-at-migration to estimate separate
spillover effects by duration of stay of immigrant classmates To identify treatment effects it
uses cohort-by-cohort deviations in immigrant concentration within schools combined with
attractive features of the Dutch school system Overall the paper finds no effect of the
concentration of immigrant students on natives test scores However although immigrant
students who have been in the country for some time have virtually no effect on natives the
analysis finds a small negative effect of recent immigrants in the classroom on natives test
scores The effect is significant only for language test scores but insignificant for mathematics
test scores When significant effect sizes are quite small compared to other educational
interventions and classroom peer effects estimated in other contexts
Keywords Indigenous Peoples Law Indigenous Peoples Indigenous Communities
Educational Sciences International Migration Migration and Development Human Migrations
amp Resettlements Effective Schools and Teachers Educational Institutions amp Facilities
Trade and Immigration 1870-2010
by David S Jacks John P Tang - 25010 (DAE)
Abstract
In this chapter we describe long-run trends in global
merchandise trade and immigration from 1870 to 2010 We revisit
the reasons why these two forces moved largely in parallel in the
decades leading up to World War I collapsed during the interwar
period and then rebounded (but with much more pronounced growth
in trade than in immigration) More substantively we also
document a large redistribution in the regional sources of goods
and people with a shift from the former industrialized core
countries--especially Europe--to those in the former
periphery--especially Asia--as well as a very striking change in
the composition of merchandise trade towards manufactured goods
precisely dating from 1950 Finally using a triple differences
framework in combination with a dramatic change in US immigration
policy we find evidence that immigration and trade potentially
acted as substitutes at least for the United States in the
interwar period
httppapersnberorgpapersW25010utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Attitudes Towards Euro Area Reforms Evidence from
a Randomized Survey Experiment CESifo Working Paper Series No 7141
35 Pages Posted 28 Aug 2018
Mathias Dolls CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute IZA Institute of Labor Economics
Nils Wehrhoumlfer University of Mannheim Graduate School of Economic and Social Sciences Students
Date Written July 09 2018
Abstract
We present the first evidence on public attitudes towards two prominent euro area reform
proposals (European Unemployment Benefit Scheme and Sovereign Insolvency Procedure)
and assess potential impediments to their implementation by means of a randomized survey
experiment in Germany We find that there is a low willingness among German voters to
accept fiscal risk-sharing through common unemployment insurance while a sovereign
insolvency procedure aimed at strengthening market discipline is supported by a majority of
the electorate Our randomized treatments confronting survey participants with potential
adverse effects of the reforms lead to significant downward shifts in approval rates Altruism
cosmopolitanism political preferences and income are important predictors of support for
the reform proposals We also show that there is a striking contrast between the low level of
support for transfers to other euro area member states and a broad acceptance of inner
German transfers
Keywords public attitudes euro area reforms European unemployment insurance
sovereign insolvency procedure
JEL Classification H550 H240 J260 D140
The Economic Effects of Refugee Return and Policy
Implications World Bank Policy Research Working Paper No 8497
65 Pages Posted 28 Aug 2018
Uri Dadush World Bank
Date Written June 27 2018
Abstract
The recent surge in the number of forcibly displaced who cross international borders in
search of protection has prompted interest in evaluating policies that achieve the possible
end points of the phenomenon As envisaged by United Nations High Commissioner for
Refugees (UNHCR) these are the integration in the country of destination relocation in a
third country and return to the country of origin The focus of this paper is on the third
aspect namely the appropriate conduct of return policy viewed from the perspective of the
host country More specifically the main question is whether it is in the economic self-interest
of host countries to return forcibly displaced persons In addressing the question four
ancillary issues are to be addressed (i) the macroeconomic impact of refugees and of their
return (ii) the labor market impact of refugees and of their return (iii) the fiscal impact of
refugees and of their return and (iv) how return policy should be formulated and executed
The available evidence and analyses allow this papers main conclusion namely that the costs
of hosting asylum seekers and refugees are front-loaded while the benefits accruing from
their integration into the labor market and the host economy typically take years to
materialize It follows that from the economic perspective their return after a short stay may
represent a costlier option than continuing to invest in their successful integration Countries
with a flexible labor market strong investment climate and a welcoming attitude to
immigrants tend to see the economic benefits of refugee inflows materialize faster
The Effect of Remittances on the Current Account in
Developing and Emerging Economies World Bank Policy Research Working Paper No 8498
26 Pages Posted 28 Aug 2018
Emmanuel Kwasi Koranteng Lartey World Bank
Date Written June 27 2018
Abstract
This paper presents an analysis of the effect of remittances on the current account in
developing and emerging economies incorporating an assessment of the extent to which
exchange rate regimes impact the relationship The main findings suggest there is a positive
effect of remittances on the current account contemporaneously but that the lagged effect is
negative which could be indicative of the existence of some underlying mechanisms
characteristic of the Dutch disease phenomenon In addition the results show that a more
flexible exchange regime dampens the contemporaneous positive effect that remittances have
on the current account The paper therefore asserts that policy makers face trade-offs
pertaining to the use of exchange rate policy in managing the effects of remittances on the
current account which should be given due consideration when such policy choices are made
Learning About Fiscal Multipliers During the
European Sovereign Debt Crisis Evidence from a
Quasi-Natural Experiment ECB Working Paper No 2154
30 Pages Posted 18 Jun 2018
Gόrnicka Lucyna IMF
Christophe Kamps European Central Bank (ECB)
Gerrit B Koester European Central Bank (ECB)
Nadine Leiner-Killinger European Central Bank (ECB)
Date Written May 30 2018
Abstract
Identifying fiscal multipliers is usually constrained by the absence of a counterfactual
scenario Our new data set allows overcoming this problem by making use of the fact that
recommendations under the EUrsquos excessive deficit procedure (EDP) provide both a baseline
no-policy-change scenario and a fiscal-adjustment EDP scenario that entails a forecast of the
macroeconomic impact of fiscal consolidation over the EDP horizon For a sample of 24 EU
countries to which 48 EDP recommendations were applied between 2009 and 2015 we
derive country-specific fiscal multipliers as actually applied by forecasters during the crisis
Our results confirm Blanchard and Leighrsquos (2013 2014) presumption that forecasters learned
during the crisis According to our findings fiscal multipliers as applied by the European
Commission increased over time ndash from about 14 in the early years of the crisis to about 23
in the later years However different from Blanchard and Leigh (2013 2014) we do not find
evidence for the hypothesis that ex-post fiscal multipliers have been substantially above 1
during the crisis
Keywords fiscal consolidation fiscal multipliers business cycle
JEL Classification E32 E62 H20 H5
Trade in Developing East Asia How it Has Changed
and Why it Matters World Bank Policy Research Working Paper No 8533
58 Pages Posted 28 Aug 2018
Ileana Cristina Constantinescu World Bank
Aaditya Mattoo World Bank - Development Research Group (DECRG)
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Date Written July 13 2018
Abstract
East Asia for long the epitome of successful engagement in trade faces serious challenges
technological change that may threaten the very model of labor intensive industrialization
and a backlash against globalization that may reduce access to important markets A detailed
analysis of the evolution of East Asias trade and trade policy in goods and services leads to
the conclusion that how East Asia copes with these global challenges will depend on how it
addresses three more proximate national and regional challenges The first is the emergence
of one East Asian country China as a global trade giantaccounting for nearly one-seventh of
global exports and one-tenth of global imports -- which is fundamentally altering the trading
patterns and opportunities of its neighbors The second is the asymmetric implementation of
national reform -- remarkable openness to goods trade and investment coexists with relative
restrictiveness of services policies -- which is affecting the evolution of comparative
advantage and productivity in each country The third is the divergence between the
relatively shallow and fragmented agreements that regulate the regions trade and
investment and the growing importance of regional and global value chains as crucial drivers
of productivity growth
Keywords International Trade and Trade Rules Common Carriers Industry Food amp
Beverage Industry Plastics amp Rubber Industry Business Cycles and Stabilization Policies
Construction Industry General Manufacturing Pulp amp Paper Industry Textiles Apparel amp
Leather Industry Export Competitiveness Industrial and Consumer Services and Products
Transport and Trade Logistics
Who are Americas Star Firms World Bank Policy Research Working Paper No 8534
70 Pages Posted 28 Aug 2018
Meghana Ayyagari George Washington University - School of Business
Asli Demirguc-Kunt World Bank
Vojislav Maksimovic University of Maryland - Robert H Smith School of Business
There are 2 versions of this paper
Date Written July 13 2018
Abstract
There is wide spread concern about a growing gap between top-performing publicly listed
firms and the rest of the economy and the implications of this for rising inequality in the US
Using conventional return calculations there is indeed a widening gap between star firms
(defined as those in top 10 percent of return on invested capital in any year) and the rest of
the economy over time especially in industries that rely on a skilled labor force However
once measurement error in intangible capital is accounted for this gap shrinks dramatically
and has not been widening over time While pricing power as measured by markups predicts
star firm status a large fraction of star firms have low markups and there is no evidence that
star firms are cutting output or investment more than other firms for the same markup The
effect of star status is persistent Five years later star firms have higher growth profits and
Tobins Q A small subset of exceptional firms may pose more pressing policy concerns with
much higher returns and the potential to exercise market power in the future
Keywords Plastics amp Rubber Industry Business Cycles and Stabilization Policies Textiles
Apparel amp Leather Industry Pulp amp Paper Industry Food amp Beverage Industry Common
Carriers Industry Construction Industry General Manufacturing Labor Markets Employment
and Unemployment
Bought Sold and Bought Again The Impact of
Complex Value Chains on Export Elasticities World Bank Policy Research Working Paper No 8535
45 Pages Posted 28 Aug 2018
Francois Michel Marie Raphael De Soyres World Bank
Erik Frohm World Bank
Vanessa Gunnella European Central Bank (ECB)
Elena Pavlova European Central Bank (ECB)
Date Written July 13 2018
Abstract
Global value chain participation affects the exchange rate pass-through to export prices and
export volumes The paper develops a partial equilibrium model of international trade with
cross-border production and shows that higher participation in global value chains reduces
the elasticities Specifically a higher share of foreign value added in exports reduces the
exchange rate pass-through to export prices and export volumes A greater share of exports
that return as imports also reduces the responsiveness of export volumes to changes in
bilateral exchange rates Finally exports of inputs that are further re-exported increase the
responsiveness to the trading partners effective exchange rate Using a novel sector-level
panel dataset with 40 countries the analysis tests and finds strong empirical support for the
theoretical predictions The paper further shows that some sectors in some countries can
even experience a decline in gross exports when their currency depreciates
Keywords International Trade and Trade Rules Industrial and Consumer Services and
Products Transport and Trade Logistics Trade and Services Macroeconomic Management
Did Austerity Cause Brexit CESifo Working Paper Series No 7159
101 Pages Posted 25 Sep 2018
Thiemo Fetzer University of Warwick
Date Written July 25 2018
Abstract
Did austerity cause Brexit This paper shows that the rise of popular support for the UK
Independence Party (UKIP) as the single most important correlate of the subsequent Leave
vote in the 2016 European Union (EU) referendum along with broader measures of political
dissatisfaction are strongly and causally associated with an individualrsquos or an arearsquos exposure
to austerity since 2010 In addition to exploiting data from the population of all electoral
contests in the UK since 2000 I leverage detailed individual level panel data allowing me to
exploit within-individual variation in exposure to specific welfare reforms as well as broader
measures of political preferences The results suggest that the EU referendum could have
resulted in a Remain victory had it not been for a range of austerity-induced welfare reforms
Further auxiliary results suggest that the welfare reforms activated existing underlying
economic grievances that have broader origins than what the current literature on Brexit
suggests Up until 2010 the UKrsquos welfare state evened out growing income differences across
the skill divide through transfer payments This pattern markedly stops from 2010 onwards
as austerity started to bite
Keywords political economy austerity globalization voting EU
JEL Classification H200 H300 H500 P160 D720
Resolving Sovereign Debt Crises The Role of Political
Risk CESifo Working Paper Series No 7161
42 Pages Posted 26 Sep 2018
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Date Written August 02 2018
Abstract
Sovereign defaults are bad news for investors and debtor countries in particular if a default
becomes messy and protracted Why are some debt crises resolved quickly in a matter of
months while others take many years to settle This paper studies the duration of sovereign
debt crises based on a new dataset and case study archive on debt renegotiations between
governments and foreign banks and bondholders Using Cox proportional hazard models I
find that domestic political instability (lsquopolitical riskrsquo) is a significant predictor of negotiation
delays after controlling for macroeconomic conditions Government crises resignations and
street protests are particularly disruptive for a quick settlement process Overall the evidence
suggests that debtor countries often lack the political ability to resolve a debt crisis
Governments in turmoil are unlikely to exit a default quickly
Keywords sovereign default crisis resolution political economy
JEL Classification F340 F510 H630
Market Potential and Global Growth over the Long
Twentieth Century CESifo Working Paper Series No 7164
53 Pages Posted 27 Sep 2018
David S Jacks Simon Fraser University (SFU) - Department of Economics National Bureau of Economic Research (NBER)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
There are 3 versions of this paper
Date Written August 02 2018
Abstract
We examine the evolution of market potential and its role in driving economic growth over
the long twentieth century Theoretically we exploit a structural gravity model to derive a
closed-form solution for a widely-used measure of market potential We are thus able to
express market potential as a function of directly observable and easily estimated variables
Empirically we collect a large dataset on aggregate and bilateral trade flows as well as output
for 51 countries We find that market potential exhibits an upward trend across all regions of
the world from the early 1930s and that this trend significantly deviates from the evolution of
world GDP Finally using exogenous variation in trade-related distances to world markets we
demonstrate a significant causal role of market potential in driving global income growth over
this period
Keywords economic geography market potential structural gravity trade costs
JEL Classification F100 N700
Growth Inequality and Poverty A Robust
Relationship World Bank Policy Research Working Paper No 8578
42 Pages Posted 17 Sep 2018
Gustavo A Merrero University of La Laguna
Luis Serveacuten World Bank - Development Research Group (DECRG)
Date Written September 6 2018
Abstract
An extensive literature on poverty traps suggests that high levels of poverty deter growth
However a seemingly basic implication of the underlying theoretical models namely that
countries suffering from higher levels of poverty should grow less rapidly has remained
untested A parallel literature has suggested a variety of mechanisms through which
inequality may affect growth in opposing directions Because inequality and poverty are
different aspects of the income distribution inequality can also affect growth through poverty
an indirect channel that has not been explicitly analyzed This paper contributes to fill both
gaps Using a large cross-country panel data set it estimates a reduced-form growth equation
adding both inequality and poverty to an otherwise standard set of growth determinants
Given inequality the correlation of growth with poverty is consistently negative In contrast
given poverty the correlation of growth with inequality can be positive or negative
depending on the empirical specification and econometric approach used Yet the indirect
effect of inequality on growth through its correlation with poverty is robustly negative Closer
inspection shows that these results are driven by the sample observations featuring high (but
not extremely high) poverty rates These empirical findings are consistent with the
predictions from an analytical framework with learning-by-doing and knowledge spillovers
in which consumers cannot save and invest if their initial endowment is below a minimum
consumption level
Keywords Inequality Inflation Small Area Estimation Poverty Mapping Poverty
Assessment Poverty Lines Poverty Monitoring amp Analysis Poverty Diagnostics Poverty
Impact Evaluation Educational Sciences
Comparison of Welfare Gains in the Armington
Krugman and Melitz Models Insights from a
Structural Gravity Approach World Bank Policy Research Working Paper No 8570
63 Pages Posted 17 Sep 2018
Edward Jay Balistreri Iowa State University
David G Tarr International Trade Analysis
Date Written August 28 2018
Abstract
How large are the estimated gains from trade from a reduction in trade costs in the
heterogeneous firms Melitz (M) model compared with the Armington (A) and Krugman (K)
models Surprisingly little is known beyond the one-sector model This paper analyzes this
question using a global trade model that contains ten regions and various numbers of sectors
(1-10) Following Arkolakis et al (2012) the analysis holds the local trade response constant
across the model comparisons based on a structural gravity estimate Various model features
and scenarios are introduced that are important to real economies almost none of which has
been examined across the three market structures with a constant trade response In
response to global reductions in iceberg trade costs in all the multi-sector models the
ranking of global welfare gains is MelitzgtKrugmangtArmington and the Krugman model
captures between 75 and 95 percent on the additional gains above the Armington model that
are estimated by the Melitz model However for individual regions there are numerous cases
of reversed welfare rankings ie MelitzltkrugmanKrugmangtArmington For individual
regions however the welfare ranking of the Armington Krugman and Melitz market
structures is model data parameter and scenario dependent The results highlight the need
for data and structural considerations in policy analysisltkrugman
Keywords International Trade and Trade Rules Trade and Services Labor Markets Trade
and Multilateral Issues
The Economic Effects of Brexit - Evidence from the
Stock Market CEPR Discussion Paper No DP13147
35 Pages Posted 17 Sep 2018
Holger Breinlich University of Nottingham - School of Economics Centre for Economic Policy Research (CEPR) London
School of Economics amp Political Science (LSE) - Centre for Economic Performance (CEP)
Elsa Leromain London School of Economics amp Political Science (LSE) - London School of Economics
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
Thomas Sampson London School of Economics amp Political Science (LSE)
Ahmed Usman University of Nottingham
Date Written August 2018
Abstract
We study stock market reactions to the Brexit referendum on 23 June 2016 in order to assess
investors expectations about the effects of leaving the European Union on the UK economy
Our results suggest that initial stock price movements were driven by fears of a cyclical
downturn and by the sterling depreciation following the referendum We also find tentative
evidence that market reactions to two subsequent speeches by Theresa May (her
Conservative Party conference and Lancaster House speeches) were more closely correlated
with potential changes to tariffs and non-tariff barriers on UK-EU trade indicating that
investors may have updated their expectations in light of the possibility of a hard Brexit We
do not find a correlation between the share of EU migrants in different industries and stock
market returns
Keywords Brexit depreciation event study Recession Stock market tariffs
JEL Classification F15 F23 G14
Understanding Euro Area Inflation Dynamics Why so
Low for so Long
IMF Working Paper No 18188
26 Pages Posted 1 Oct 2018
Yasser Abdih International Monetary Fund (IMF)
Li Lin International Monetary Fund (IMF)
Anne-Charlotte Paret Banque de France
Date Written August 2018
Abstract
Despite closing output gaps and tightening labor markets inflation has remained low inthe
euro area Based on an augmented Phillips Curve framework we find that thisphenomenon-
sometimes attributed to low global inflation-has been primarily causedby a remarkable
persistence of inflation keeping it low despite the reduction in slack Thisfeature is shown to
be specific to the euro area (in comparison with the United States)Monetary policy needs to
stay accommodative to help guide inflation back to target
Keywords Inflation Inflation expectations Inflation persistence Monetary policy
Econometric models Euro Area Phillips curve inflation persistence and expectations
General Forecasting and Simulation Monetary Policy (Targets Instruments and Effects)
JEL Classification E10 E31 E32 E37 E52 C22 C50
Financial Development Exchange Rate Regimes and
Growth Dynamics World Bank Policy Research Working Paper No 8562
34 Pages Posted 28 Aug 2018
Woubet Kassa The World Bank
Emmanuel Kwasi Koranteng Lartey World Bank
Date Written August 20 2018
Abstract
This paper utilizes data for African countries to analyze the extent to which financial
development affects the dynamics of the relationship between exchange rate flexibility and
economic growth The findings indicate that financial development exerts a positive influence
on the relationship between exchange rate flexibility and GDP growth as well as total factor
productivity growth The paper also documents a positive impact of trade openness on the
relationship between exchange rate flexibility and growth Moreover the results show a
strong and positive association between exchange rate flexibility and financial development
The findings therefore suggest that discussions and decisions on exchange rate policy should
be undertaken with consideration for structural policies that address the development of the
financial sector In addition the paper asserts that policy makers should adopt a stance that
facilitates some flexibility in exchange rates to foster development of the financial
infrastructure in these economies
Keywords International Trade and Trade Rules Industrial Economics Economic Theory amp
Research Economic Growth Currencies and Exchange Rates Educational Sciences
Macroeconomic Management
Unequal Gains Prolonged Pain A Model of
Protectionist Overshooting and Escalation CEPR Discussion Paper No DP13160
53 Pages Posted 17 Sep 2018
Emily J Blanchard Dartmouth College - Tuck School of Business
Gerald Willmann Bielefeld University IfW Kiel KU Leuven CESifo (Center for Economic Studies and Ifo Institute)
Date Written September 2018
Abstract
We develop a model of democratic political responses to macroeconomic shocks in the short
and long run We show that when economic adjustment is slower than potential political
change exogenous changes in the global marketplace can trigger populist surges in favor of
distortionary economic policies Applied to trade policy our model demonstrates that an
exogenous terms-of-trade improvement or skill-biased technological change will lead to a
spike in protectionism that blunts the younger generations incentive to acquire education In
the long run the initial surge in protectionism will gradually diminish if and only if education
enables less-skilled workers to catch up with the overall economy The more unequal the
initial distribution of human capital the greater and longer-lasting the protectionist backlash
will be unequal gains prolonged pain Evidence on key data markers suggested by the model
exhibits patterns consistent with recent populist support for Brexit and Trump
Keywords Dynamic Political Economy education Endogenous Tari Human Capital
Overlapping Generations Overshooting populism protectionism
JEL Classification D7 E6 F5
Threat or Help The Effects of Unskilled Immigrant
Workers on National Productivity Growth World Bank Policy Research Working Paper No 113185
4 Pages Posted 17 Sep 2018
Sharmila Devadas Central Bank of Malaysia
Date Written March 1 2017
Abstract
While unskilled immigrant workers have relatively low formal human capital theory suggests
that they can still contribute to productivity improvements by helping to increase efficiency
and upgrading the skills of the native labor force Empirical studies indicate that positive
productivity effects do occur This body of evidence does not provide a compelling argument
for the closing of national borders to unskilled foreigners on economic grounds
Keywords Indigenous Peoples Indigenous Peoples Law Human Migrations amp Resettlements
Construction Industry Common Carriers Industry Food amp Beverage Industry General
Manufacturing Pulp amp Paper Industry Plastics amp Rubber Industry Labor Markets Business
Cycles and Stabilization Policies International Migration Indigenous Communities Migration
and Development
Global Trade Slowdown Factors and Policies World Bank Policy Research Working Paper No 123899
4 Pages Posted 17 Sep 2018
Dorina Peteva Georgieva World Bank
Norman Loayza World Bank - Research Department
Fabian Mendez Ramos Development Research Group The World Bank
Date Written February 1 2018
Abstract
Growth in global trade has been slow since 2012 While global trade downturns are not
unprecedented the observed change in the relationship of trade to GDP poses the question
whether the trade slowdown is a transitory deviation or a more long-lasting phenomenon
brought about by structural changes This new dynamic coupled with the rise of protectionist
policies and rhetoric in many countries positions trade at the forefront of policy discussions
This brief reviews recent patterns in global trade examines the factors affecting trade--
distinguishing between transitory and structural components of the slowdown--and discusses
policies shaping the path of future trade
Keywords Trade and Multilateral Issues Trade and Services Trade Policy Trade Facilitation
International Trade and Trade Rules International Economics and Trade Transport and
Trade Logistics Trade and Regional Integration Private Sector Development Industrial and
Consumer Services and Products Competitiveness and Competition Policy Marketing Labor
Markets Private Sector Development Law Private Sector Economics Industry Law and
Development Social Policy Legal Reform Social Development Treaties Economics and
Institutions Public Sector Management and Reform Macroeconomics and Economic Growth
Public Sector Development Regulatory Regimes International Law Non Governmental
Organiz
The Productivity J-Curve How Intangibles Complement General Purpose Technologies
by Erik Brynjolfsson Daniel Rock Chad Syverson - 25148 (EFG IO PR)
Abstract
General purpose technologies (GPTs) such as AI enable and require
significant complementary investments including business process
redesign co-invention of new products and business models and
investments in human capital These complementary investments
are often intangible and poorly measured in the national
accounts even if they create valuable assets for the firm We
develop a model that shows how this leads to an underestimation
of output and productivity in the early years of a new GPT and
how later when the benefits of intangible investments are
harvested productivity will be overestimated Our model
generates a Productivity J-Curve that can explain the
productivity slowdowns often accompanying the advent of GPTs as
well as the follow-on increase in productivity later We use our
model to assess how AI-related intangible capital is currently
affecting measured total factor productivity (TFP) and output
We also conduct a historical analysis of the roles of intangibles
tied to RampD software and computer hardware finding substantial
and ongoing effects of software in particular and hardware to a
lesser extent
httppapersnberorgpapersW25148utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
New Technologies Global Value Chains and Developing Economies
by Dani Rodrik - 25164 (DEV EFG ITI)
Abstract
Many of the exports of developing countries are channeled through
global value chains (GVCs) which also act as conduits for new
technologies However new capabilities and productive
employment remain limited so far to a tiny sliver of globally
integrated firms GVCs and new technologies exhibit features
that limit the upside and may even undermine developing
countries economic performance In particular new technologies
present a double whammy to low-income countries First they are
generally biased towards skills and other capabilities This
bias reduces the comparative advantage of developing countries in
traditionally labor-intensive manufacturing (and other)
activities and decreases their gains from trade Second GVCs
make it harder for low-income countries to use their labor cost
advantage to offset their technological disadvantage by reducing
their ability to substitute unskilled labor for other production
inputs These are two independent shocks that compound each
other The evidence to date on the employment and trade fronts
is that the disadvantages may have more than offset the
advantages
httppapersnberorgpapersW25164utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Bank Runs and Moral Hazard A Review of Deposit
Insurance World Bank Policy Research Working Paper No 8589
31 Pages Posted 20 Sep 2018 Last revised 21 Sep 2018
Deniz Anginer World Bank Research
Asli Demirguc-Kunt World Bank
Date Written September 19 2018
Abstract
Deposit insurance is a widely adopted policy to promote financial stability in the banking
sector Deposit insurance helps ensure depositors confidence in the financial system and
prevents contagious bank runs but it also comes with an unintended consequence of
encouraging banks to take on excessive risk This paper reviews the economic costs and
benefits of deposit insurance and highlights the importance of institutions and specific design
features for how well deposit insurance schemes work in practice
Keywords Deposit Insurance Financial Structures Banks amp Banking Reform Judicial System
Reform Economic Growth
The Future of Work Race With-Not Against-The
Machine World Bank Research amp Policy Briefs Paper No 129680
4 Pages Posted 17 Sep 2018
Lay Lian Chuah World Bank - Development Research Group (DECRG)
Norman Loayza World Bank - Research Department
Achim Schmillen Osteuropa-Institut (OEI) Government of the Federal Republic of Germany - Institute for Employment
Research (IAB) University of Regensburg - Department of Economics and Econometrics
Date Written August 1 2018
Abstract
Will the revolution in digital and information technologies make us obsolete Will jobs be lost
and never replaced Will wages drop to intolerable levels History and economic theory and
evidence suggest that in the long term such fears are misplaced However in the short and
medium term dislocation can be severe for certain types of work places and populations In
the transition period policies are needed to facilitate labor market flexibility and mobility
introduce and strengthen safety nets and social protection and improve education and
training
Keywords Labor Markets Rural Labor Markets Armed Conflict Food Security
An Economists Guide to Climate Change Science
by Solomon Hsiang Robert E Kopp - 25189 (DEV EEE EFG HE ITI LS PE POL PR)
Abstract
Climate change management is a global challenge that requires
social science as much as it requires natural science We
provide a brief introduction to the physical science of climate
change written to provide essential background for economists
and other social scientists We also highlight some key areas in
which economists--including those studying macroeconomics
political economy and development--are in a unique position to
help climate science advance
httppapersnberorgpapersW25189utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
The Intensive Margin in Trade
by Ana M Fernandes Peter J Klenow Sergii Meleshchuk Denisse Pierola Andres Rodriguez-
Clare - 25195 (ITI)
Abstract
The Melitz model highlights the importance of the extensive
margin (the number of firms exporting) for trade flows Using
the World Banks Exporter Dynamics Database (EDD) featuring
firm-level exports from 50 countries we find that around 50 of
variation in exports is along the extensive margin --- a
quantitative victory for the Melitz framework The remaining 50
on the intensive margin (exports per exporting firm) contradicts
a special case of Melitz with Pareto-distributed firm
productivity which has become a tractable benchmark This
benchmark model predicts that conditional on the fixed costs of
exporting all variation in exports across trading partners
should occur on the extensive margin We find that moving from a
Pareto to a lognormal distribution allows the Melitz model to
match the role of the intensive margin in the EDD We use
likelihood methods and the EDD to estimate a generalized Melitz
model with a joint lognormal distribution for firm-level
productivity fixed costs and demand shifters and use exact hat
algebra to quantify the effects of a decline in trade costs on
trade flows and welfare in the estimated model The welfare
effects turn out to be quite close to those in the standard
Melitz-Pareto model when we choose the Pareto shape parameter to
fit the average trade elasticity implied by our estimated
Melitz-lognormal model although there are significant
differences regarding the effects on trade flows
httppapersnberorgpapersW25195utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Are Banks Engines of Export Financial Structures
and Export Dynamics World Bank Policy Research Working Paper No 8621
41 Pages Posted 26 Oct 2018 Last revised 30 Oct 2018
Raoul Minetti Michigan State University - Department of Economics
Alen Mulabdic World Bank
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Susan Chun Zhu Michigan State University - Department of Economics
Date Written October 25 2018
Abstract
This paper studies the impact of financial structures on the dynamics of the export sector
using rich data from over 60 countries The results reveal that bank-oriented financial
systems boost the size of the export sector more than market-oriented financial systems
However especially in middle- and low-income countries this effect mostly stems from banks
slowing down exporters exit rather than promoting firms entry into export The reduced exit
from the export sector appears to reflect domestic banks tendency to evergreen loans to
exporters (soft budget constraint) more than banks buffering role in difficult times Foreign
banks mitigate this effect and enhance the dynamism of the export sector
Contractual Frictions and the Margins of Trade World Bank Policy Research Working Paper No 8631
31 Pages Posted 31 Oct 2018 Last revised 1 Nov 2018
Theophile T Azomahou United Nations University (UNU-MERIT) Maastricht University
Hibret Belete Maemir World Bank
Hassen Abda Wako UNU-MERIT
Date Written October 30 2018
Abstract
A growing body of work has shown that the quality of national institutions that enforce
written contracts plays an important role in shaping a countrys comparative advantage
Using highly disaggregated bilateral and unique harmonized firm-level trade data across a
large number of countries this paper contributes to this literature by providing a
comprehensive analysis of the mechanisms through which institutional frictions affect the
pattern of aggregate trade flow distinguishing the effects on the intensive and extensive
margins The analysis finds that contractual friction distorts countries trade pattern beyond
its effect on domestic production structure by deterring the probability of exporting (the
extensive margin) and export sales after entry (the intensive margin) particularly in
industries that rely more heavily on relationship-specific inputs (more vulnerable to holdup
problems) The analysis also finds that contractual frictions matter more for the intensive
margin than the extensive margin of exporting In addition better contracting institutions
increase the probability of survival of new export products in more contract-intensive
industries These results have important policy implications for developing countries that
seek to boost export growth but many of which suffer from poor contracting institutions
Nominal Exchange Rate Dynamics and Monetary
Policy Uncovered Interest Rate Parity and Purchasing
Power Parity Revisited CEPR Discussion Paper No DP13235
33 Pages Posted 15 Oct 2018 Last revised 22 Oct 2018
Yossi Saadon Bank of Israel - Research Department
Nathan Sussman Hebrew University of Jerusalem
Date Written October 2018
Abstract
The increasing globalization of trade in goods and services and the deepening of financial
markets have reduced frictions that may impede the operation of the PPP and UIP
relationships in the short run In this paper we estimate the short term relative PPP and UIP
relationships Using data from Israel which has a deep market for inflation expectations for
12 months we show that relative PPP and UIP cannot be rejected Deviations from
equilibrium last less than a year Data from Israels capital account of the balance of payments
shows that the deviations are not destabilizing Our findings suggest that greater globalization
and financial deepening contribute to the effectiveness of monetary policy
Keywords Balance sheet effects Exchange Rates Inflation expectations monetary policy
purchasing power parity uncovered interest rate parity
Macroeconomic Effects of Chinas Financial Policies
by Kaiji Chen Tao Zha - 25222 (DEV EFG ME)
Abstract
The Chinese economy has undergone three major phases the
1978-1997 period marked as the SOE-led economy the 1998-2015
phase as the investment-driven economy and the new normal
economy since 2016 All three economies have been shaped by the
governments financial policies defined as a set of credit
policy monetary policy and regulatory policy We analyze the
macroeconomic effects of these financial policies throughout the
three phases and provide the stylized facts to substantiate our
analysis The stylized facts differ qualitatively across
different phases or economies We argue that the impacts of
Chinas financial policies work through transmission channels
different from those in developed economies and that a regime
switch from one economy to another was driven mainly by regime
changes in financial policies
httppapersnberorgpapersW25222utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Factor Incomes in Global Value Chains The Role of Intangibles
by Wen Chen Bart Los Marcel P Timmer - 25242 (EFG)
Abstract
Recent studies document a decline in the share of labour and a
simultaneous increase in the share of residual (factorless)
income in national GDP We argue the need for study of factor
incomes in cross-border production to complement country studies
We define a GVC production function that tracks the value added
in each stage of production in any country-industry We define a
new residual as the difference between the value of the final
good and the payments to all tangibles (capital and labour) in
any stage We focus on GVCs of manufactured goods and find the
residual to be large We interpret it as income for intangibles
that are (mostly) not covered in current national accounts
statistics We document decreasing labour and increasing capital
income shares over the period 2000-14 This is mainly due to
increasing income for intangible assets in particular in GVCs of
durable goods We provide evidence that suggests that the 2000s
should be seen as an exceptional period in the global economy
during which multinational firms benefitted from reduced labour
costs through offshoring while capitalising on existing
firm-specific intangibles such as brand names at little
marginal cost
httppapersnberorgpapersW25242utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Accounting for Firm Heterogeneity within US Industries Extended Supply-Use Tables and Trade
in Value Added using Enterprise and Establishment Level Data
by James J Fetzer Tina Highfill Kassu W Hossiso Thomas F Howells III Erich H Strassner
Jeffrey A Young - 25249 (ITI)
Abstract
This paper presents experimental tables created by the US
Bureau of Economic Analysis comparing industry-specific shares of
the components of total output of globally engaged firms located
in the United States that are part of a multinational enterprise
with those of firms that are part of an enterprise entirely
located in the United States Recent research has shown both the
importance of accounting for trade in value added when estimating
bilateral trade flows and that multinational enterprises located
in the United States account for the lions share of US trade
in goods and services However trade in value added is
typically accounted for using input-output tables that are
aggregated across all types of firms The experimental tables
are consistent with other research showing that value added as a
share of output is lower for foreign-owned firms compared with
domestic-owned firms and that exports and imports as a share of
output is larger for foreign-owned firms We also find
heterogeneity in the composition of output among different types
of domestic-owned firms Future work will analyze this
heterogeneity in more detail using establishment-level data on
production and trade
httppapersnberorgpapersW25249utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
The Falling Elasticity of Global Trade to Economic
Activity Testing the Demand Channel CESifo Working Paper No 7228
42 Pages Posted 31 Oct 2018
Marc Auboin World Trade Organization (WTO)
floriana borino World Trade Organization (WTO)
Date Written 2018
Abstract
Since the recovery from the great financial crisis in 2010 global real trade flows grew much
slower than pre-crisis in both absolute terms (growth rates) and relative terms (relative to
GDP from 21 in the great 1990rsquos to 11 since 2012) A debate has arisen as to whether this
global trade slowdown and related falling trade-to-income elasticity was structural or
cyclical Some papers emphasized the slowing pace of international vertical specialization
Other works emphasized the prominent role of aggregate demand notably when weighted by
its trade component Our paper goes in this latter direction We estimated the standard
import equation for 38 advanced and developing countries over the period 1995-2015 using
an import intensity-adjusted measure of aggregate demand (IAD) calculated from input-
output tables at country level and compared results with regressions using GDP The
integration of IAD allows us to predict 76 to 86 of the changes in global imports a better
performance than if using GDP The use of IAD also enabled us to measure the relative
importance of each component of demand according to their trade intensity The model is
able to account for over 90 of the recent trade slowdown (2012-2015) with IAD alone
explaining 80 of it The slowdown in global value chains explains more than half of the
remaining share of the global trade slowdown not explained by demand factors
Protectionism does not come up as statistically significant
Keywords investment global outlook trade policy trade forecasting business cycles
JEL Classification E220 F010 F130 F170 F440
Will Brexit Age Well Cohorts Seasoning and the Age-
Leave Gradient Past Present and Future CEPR Discussion Paper No DP13288
38 Pages Posted 5 Nov 2018
Barry Eichengreen University of California Berkeley National Bureau of Economic Research (NBER) Centre for Economic
Policy Research (CEPR)
Rebecca Mari Bocconi University
Gregory Thwaites London School of Economics amp Political Science (LSE) - London School of Economics
There are 3 versions of this paper
Date Written October 2018
Abstract
In the UKs 2016 referendum on EU membership young voters were more likely than their
elders to vote Remain Applying new methods to a half century of data we show that this
pattern reflects both ageing and cohort effects Although voters become more Eurosceptical as
they age recent cohorts are also more pro-European than their predecessors Much of the
pro-Europeanism of these recent cohorts is accounted for by their greater years of education
Going forward the ageing of the electorate will thus be offset at least in part by the
replacement of older cohorts with younger better-educated and more pro-European ones
But we also document large nationwide swings in sentiment that have little to do with either
seasoning or cohort effects Hence these demographic trends are unlikely to be the decisive
determinants of future changes in European sentiment Rather nationwide changes in
sentiment reflecting macroeconomic or other conditions and the age-turnout gradient will be
key
JEL Classification F0
Buying Votes and International Organizations The
Dirty Work-Hypothesis CEPR Discussion Paper No DP13290
62 Pages Posted 5 Nov 2018
Axel Dreher Heidelberg University
Valentin Lang University of Zurich
B Peter Rosendorff New York University (NYU) - Wilf Family Department of Politics
James Raymond Vreeland Georgetown University - School of Foreign Service and Department of Government
Date Written October 2018
Abstract
We show how major shareholders can exploit their power over international organizations to
hide their foreign-policy interventions from domestic audiences We argue that major powers
exert influence bilaterally when domestic audiences view the intervention favorably When
domestic audiences are more skeptical of a target country favors are granted via
international organizations We test this theory empirically by examining how the United
States uses bilateral aid and IMF loans to buy other countries votes in the United Nations
Security Council (UNSC) Introducing new data on voting behavior in the UNSC over the 1960-
2015 period our results show that states allied with the US receive more bilateral aid when
voting in line with the United States in the UNSC while concurring votes of states less allied
with the US are rewarded with loans from the IMF Temporary UNSC members that vote
against the United States do not receive such perks
Keywords Aid IMF United Nations Security Council voting World Bank
JEL Classification F35 O11 O19
Yuemei Ji
University College London - School of Slavonic and East European Studies
Multiple version iconThere are 2 versions of this paper
Date Written January 15 2018
Abstract
This paper provides a critical overview of the state of the art in the economics literature on structural
reforms It takes stock of theoretical developments measurement efforts and of the econometric evidence
We start with a simple theoretical framework for the relationship between structural reforms economic
growth and income inequality We argue that whether structural reforms have a positive or negative
impact depends on various factors The type of reform timing sequence and political constraints play
crucial roles in determining the effectiveness of reforms on economic growth and income inequality We
conclude by proposing a 7-point agenda for future research
Keywords structural reforms growth inequality
JEL Classification D600
Immigration assimilation and the future of public education
RyuichiTanaka LidiaFarre FrancescOrtega a
University of Tokyo Japan b
University of Barcelona Spain c
Queens College CUNY USA d
IAE-CSIC Spain
European Journal of Political Economy
Volume 52 March 2018 Pages 141-165
Abstract
This paper analyzes the effects of immigration on the size and quality of public education using a
quantitative political economy model that allows for a heterogeneous immigrant population Our analysis
distinguishes between short and long-run effects and accounts for the consequences of naturalization and
assimilation We use the model to analyze Spains large 2000ndash2008 immigration wave We find that
immigration led to a 15 increase in public enrollment in the short run together with a 3 reduction in
public education spending and almost a 1 percentage-point increase in the share of native households
using private schools Depending on the eventual degree of assimilation these trends will be greatly
intensified or mitigated once immigrants naturalize and gain the right to vote Our analysis suggests that
assimilation in terms of family size and the value assigned to childrens education are the most relevant
dimensions quantitatively We also show that immigration policies that favor one group over another can
significantly alter the overall effects of immigration on the schooling system
Global Financial Cycles and the Exchange Rate
Regime A Perspective from Emerging Markets CEPR Discussion Paper No DP12696
18 Pages Posted 14 Feb 2018
Maurice Obstfeld International Monetary Fund (IMF)
Jonathan D Ostry International Monetary Fund (IMF)
Mahvash Saeed Qureshi International Monetary Fund (IMF) - Research Department
Date Written February 2018
Abstract
This paper examines the relevance of exchange rate regimes in the transmission of global
financial shocks to domestic financial and macroeconomic conditions Our findings suggest
that even in todays highly financially integrated world the nominal exchange rate regime
does matter-at least for emerging market economies The transmission of global financial
shocks to domestic variables is magnified under fixed exchange rate regimes relative to more
flexible regimes For advanced economies however the jury is still out as the recent paucity
of truly fixed regimes among these economies poses a challenge for estimating the effect of
exchange rate flexibility
Keywords emerging market economies global financial cycle trilemma
JEL Classification F31 F36 F41
Firms Left Behind Emigration and Firm Productivity CESifo Working Paper Series No 6815
47 Pages Posted 21 Feb 2018
Yvonne Giesing
CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Nadzeya Laurentsyeva Centre for European Policy Studies (CEPS)
Date Written January 15 2018
Abstract
This paper establishes a causal link between the emigration of skilled workers and firm
performance in source countries Using firm-level panel data from ten Eastern European
countries we show that the emigration of skilled workers lowers firm total factor
productivity We exploit time country and industry differences in the opening of EU labor
markets from 2004 to 2014 as a source of exogenous variation in the emigration rates from
new EU member states We argue that a potential channel behind this effect relates to the
reduction in firm-specific human capital due to a higher worker turnover
Keywords migration firm productivity human capital EU enlargement
JEL Classification O150 D240 F220 J240
Reserve Currency Blocs A Changing International
Monetary System IMF Working Paper No 1820
43 Pages Posted 20 Feb 2018
Camilo E Tovar International Monetary Fund
Tania Mohd Nor International Monetary Fund (IMF)
Date Written January 2018
Abstract
What is the extent of currency diversification in the international monetary system How
hasit evolved over time In this paper we quantify the degree of currency diversification
usingregression methods of currency co-movements to determine the extent to which
nationalcurrencies across the world belong to a reserve currency bloc We then use these
estimates tocalculate the economic size of each currency bloc A key contribution of our paper
is that wequantify the size of the Chinese renminbi bloc Our analysis suggests that the
internationalmonetary system has transitioned from a bi-polar system - consisting of the US
dollar andthe euro - to a tri-polar one that includes the renminbi The dollar bloc is estimated
tocontinue to dominate having the largest share in global GDP (40 percent) followed by
therenminbi (30 percent) and the euro blocs (20 percent) The geographical area of influence
forthe RMB bloc appears to be most evident among the BRICS currencies The British
poundand the Japanese yen blocs appear to play minor roles
Keywords Economic integration Foreign exchange International monetary system
Currency Bloc Internatinal Monetary System International Monetary Arrangements and
Institutions Financial Aspects of Economic Integration Open Economy Macroeconomics
JEL Classification F15 F31 F33 F36 F41 O24
17 The US Gains from Trade Valuation Using the Demand for Foreign Factor Services
by Arnaud Costinot Andres Rodriguez-Clare - 24407 (ITI)
Abstract
About 8 cents out of every dollar spent in the United States is
spent on imports What if because of a wall or some other
extreme policy intervention imports were to remain on the other
side of the US border How much would US consumers be willing to
pay to prevent this hypothetical policy change from taking place
The answer to this question represents the welfare cost from
autarky or equivalently the welfare gains from trade In this
article we discuss how to evaluate these gains using the demand
for foreign factor services The estimates of gains from trade
for the US economy that we review range from 2 to 8 percent of
GDP
httppapersnberorgpapersW24407utm_campaign=ntwamputm_medium=emailamputm_source=ntw
A Dialogue between a Populist and an Economist CEPR Discussion Paper No DP12763
11 Pages Posted 6 Mar 2018
Tito Boeri Bocconi University - Department of Economics Centre for Economic Policy Research (CEPR) IZA Institute
of Labor Economics
Prachi Mishra Government of India - Reserve Bank of India
Chris Papageorgiou International Monetary Fund (IMF) - Research Department
Antonio Spilimbergo
International Monetary Fund (IMF) - Research Department Centre for Economic Policy Research (CEPR)
University of Michigan at Ann Arbor - The William Davidson Institute
Date Written February 2018
Abstract
In this imaginary dialogue a populist and an economist discuss the role of economic shocks to
explain populism A simple correlation between economic shocks and populism is weak
However economic shocks can explain well the phenomenon of populism in countries with
low pre-existent level of trust This is confirmed both at the macro cross-country level and
also by micro evidence obtained from surveys Finally this finding is consistent with the
ideational approach in political science which emphasizes how the populist narrative
opposes the corrupt elite to the virtuous people
Keywords Europe Political parties populism
JEL Classification A10 A12
International Capital Flow Pressures IMF Working Paper No 1830
59 Pages Posted 14 Mar 2018
Linda S Goldberg Federal Reserve Bank of New York National Bureau of Economic Research (NBER)
Signe Krogstrup IMF
There are 3 versions of this paper
Date Written February 2018
Abstract
This paper presents a new measure of capital flow pressures in the form of a recast
ExchangeMarket Pressure index The measure captures pressures that materialize in actual
internationalcapital flows as well as pressures that result in exchange rate adjustments The
formulation istheory-based relying on balance of payments equilibrium conditions and
international assetportfolio considerations Based on the modified exchange market pressure
index the paperalso proposes the Global Risk Response Index which reflects the country-
specific sensitivityof capital flow pressures to measures of global risk aversion For a large
sample of countriesover time we demonstrate time variation in the effects of global risk on
exchange marketpressures the evolving importance of the global factor across types of
countries and thechanging risk-on or risk-off status of currencies
Keywords Exchange Market Pressure Risk aversion Safe haven Capital flows Exchange
Rate Foreign Exchange Reserves Exchange Market Pressure Risk aversion Safe haven
Capital flows Exchange Rate Foreign Exchange Reserves Portfolio Choice General
JEL Classification F23 G11 G20 F32
Sovereign Defaults in Court CEPR Discussion Paper No DP12777
76 Pages Posted 13 Mar 2018
Julian Schumacher European Central Bank (ECB)
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Enderlein Henrik Hertie School of Governance
Date Written March 2018
Abstract
For centuries defaulting governments were immune from legal action by foreign creditors
This paper shows that this is no longer the case Building a dataset covering four decades we
find that creditor lawsuits have become an increasingly common feature of sovereign debt
markets The legal developments have strengthened the hands of creditors and raised the cost
of default for debtors We show that legal disputes in the US and the UK disrupt government
access to international capital markets as foreign courts can impose a financial embargo on
sovereigns The findings are consistent with theoretical models with creditor sanctions and
suggest that sovereign debt is becoming more enforceable We discuss how the threat of
litigation affects debt management government willingness to pay and the resolution of debt
crises
Keywords debt restructuring enforcement government financing sovereign default
JEL Classification F34 G15 H63 K22
Globalization and Income Inequality Revisited CESifo Working Paper Series No 6859
48 Pages Posted 20 Mar 2018
Florian Dorn
CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Clemens Fuest ifo Institute ndash Leibniz Institute for Economic Research at the University of Munich Ludwig-Maximilians-
University Munich Center for Economic Studies (CES)
Niklas Potrafke CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Date Written February 05 2018
Abstract
This paper re-examines the link between globalization and income inequality We use data for
140 countries over the period 1970-2014 and employ an IV approach to deal with the
endogeneity of globalization measures We find that the link between globalization and
income inequality differs across different groups of countries There is a robust positive
relationship between globalization and inequality in the transition countries including China
and most countries of Middle and Eastern Europe In the sample of the most advanced
economies neither OLS nor 2SLS results show any significant positive relationship between
globalization and inequality We conclude that institutions providing income insurance and
education which characterize most advanced economies but are less developed in transition
economies may have moderated effects of globalization on income inequality
Keywords globalization income inequality redistribution instrumental variable estimation
panel econometrics development levels transition economies China
JEL Classification D310 D630 F020 F600 C260 H110 H200
The US Gains from Trade Valuation Using the
Demand for Foreign Factor Services CEPR Discussion Paper No DP12788
34 Pages Posted 20 Mar 2018
Arnaud Costinot University of California San Diego (UCSD) - Department of Economics Massachusetts Institute of
Technology (MIT) - Department of Economics
Andres Rodriguez-Clare Inter-American Development Bank (IDB)
There are 2 versions of this paper
Date Written March 2018
Abstract
About 8 cents out of every dollar spent in the United States is spent on imports What if
because of a wall or some other extreme policy intervention imports were to remain on the
other side of the US border How much would US consumers be willing to pay to prevent this
hypothetical policy change from taking place The answer to this question represents the
welfare cost from autarky or equivalently the welfare gains from trade In this article we
discuss how to evaluate these gains using the demand for foreign factor services The
estimates of gains from trade for the US economy that we review range from 2 to 8 percent of
GDP
A Multidimensional Approach to Trade Policy
Indicators IMF Working Paper No 1832
38 Pages Posted 12 Mar 2018
Diego Cerdeiro International Monetary Fund (IMF)
Rachel Nam International Monetary Fund (IMF)
Date Written February 2018
Abstract
We present and discuss a set of indicators to help assess countries trade policies The
indicators relate to three policy areas - trade in goods trade in services and FDI Given
concerns about the direction of global trade policy we also consider a set of more granular
measures that reflect the evolution of countries policies since the 2008 financial crisis We
propose a simple approach to present the multidimensional aspects of trade policy that by
shedding light on relative openness across areas can facilitate policy discussions In the cross-
section of countries we find a diversity in the type of measures adopted both between and
(since the 2008 financial crisis) within policy areas lending support to the approach based on
multiple indicators The indicators time series suggest that advanced and especially
emerging economies are moving toward more open regimes over time although recently
progress has with some exceptions slowed across the board Lastly our findings also call for
stronger efforts to objectively quantify the different aspects of countries trade regimes More
data both across countries and in terms of policy areas that significantly affect trade are
needed for better-informed policy discussions
Keywords Foreign direct investment Trade policy indicators trade in goods services trade
trade barriers General Country and Industry Studies of Trade
JEL Classification F10 F14
Corporate Indebtedness and Low Productivity
Growth of Italian Firms IMF Working Paper No 1833
47 Pages Posted 12 Mar 2018
Gareth Anderson Bank of England
Mehdi Raissi International Monetary Fund (IMF) - Asia and Pacific Department
Date Written February 2018
Abstract
Productivity growth in Italy has been persistently anemic and has lagged that of the euro area
over the period 1999-2015 while the indebtedness of its corporate sector has increased
Using the ORBIS firm-level database this paper studies the long-term impact of persistent
corporate-debt accumulation on the productivity growth of Italian firms and investigates
whether total factor productivity growthvaries with the level of corporate indebtedness We
employ a novel estimation technique proposed by Chudik Mohaddes Pesaran and Raissi
(2017) to account for dynamics bi-directional feedback effects cross-firm heterogeneity and
cross-sectional dependence arising from unobserved common factors (for example oil price
shocks labor and product market frictions and stance of global financial cycle) Filtering out
the effects of unobserved common factors and controlling for firm specific characteristics we
find significant negative effects of persistent corporate debt build-up on total factor
productivity growth and weak evidence of a threshold level of corporate debt beyond which
productivity growth drops off significantly Our results have strong policy implications for
example the design of the tax system should discourage persistent corporate debt
accumulation and effective and timely frameworks to reduce corporate debt overhangs are
essential
Keywords Productivity Europe Italy Corporate debt dynamic heterogeneous panel
threshold models cross-sectional dependence Models with Panel Data Firm Behavior
Empirical Analysis General
JEL Classification C23 D22 D24 G30
Regulatory Cycles Revisiting the Political Economy of
Financial Crises IMF Working Paper No 188
90 Pages Posted 21 Mar 2018
Jihad C Dagher International Monetary Fund (IMF) - Research Department
There are 2 versions of this paper
Date Written January 2018
Abstract
Financial crises are traditionally analyzed as purely economic phenomena The political
economy of financial booms and busts remains both under-emphasized and limited to isolated
episodes This paper examines the political economy of financial policy during ten of the most
infamous financial booms and busts since the 18th century and presents consistent evidence
of pro-cyclical regulatory policies by governments Financial boomsand risk-taking during
these episodes were often amplified by political regulatory stimuli credit subsidies and an
increasing light-touch approach to financial supervision The regulatory backlash that ensues
from financial crises can only be understood in the context of the deep political ramifications
of these crises Post-crisis regulations do not always survive the following boom The
interplay between politics and financial policy over these cycles deserves further attention
History suggests that politics can be the undoing of macro-prudential regulations
Keywords Political economy Political economy Financial crises Financial Regulation Boom-
Bust Cycles Economic Models of Political Processes Rent-Seeking Elections Legislatures and
Voting Behavior Positive Analysis of Policy-Making and Implementation General
Government Policy and Regulation General
JEL Classification D72 D78 G10 G18 N00 P16
Rationality in Economics Theory and Evidence CESifo Working Paper Series No 6872
26 Pages Posted 21 Mar 2018
Sanjit Dhami University of Leicester - Department of Economics
Ali al-Nowaihi University of Leicester - Department of Economics
Date Written February 12 2018
Abstract
We examine the various senses in which economist use the term ldquorationalityrdquo and then outline
some of the commonly drawn implications and auxiliary assumptions Finally we confront the
implications with the empirical evidence drawing on the insights from the exciting new field
of behavioral economics
Keywords rationality self-regarding preferences efficient markets heuristics optimization
JEL Classification B400
Nudging and Environmental Corporate
Responsibility A Natural Experiment CEIS Working Paper No 426
22 Pages Posted 3 Apr 2018
Leonardo Becchetti University of Rome Tor Vergata - Faculty of Economics
Francesco Salustri University of Rome Tor Vergata - Department of Economics and Finance University of Turin - Department
of Economics and Statistics
Pasquale Scaramozzino University of Rome II - Faculty of Economics University of London - School of Oriental and African Studies
(SOAS) University of London - Centre for Financial and Management Studies (CeFIMS)
Date Written April 3 2018
Abstract
We devise a lsquonudgingrsquo natural experiment to test the impact of a simple form of advertising on
environmentally responsible products withwithout the increase of the responsible product
price We find that the simple use of a small shelf-poster explaining the importance of buying
a green product (withwithout a concurring price increase) generates significant changes in
market shares for some of the product classes for both food and non-food products Part of
the effect is generated by the reduced price elasticity of consumers to the poster-plus-price-
increase treatment
Keywords nudging environmental sustainability randomised field experiment
JEL Classification C93 D12 M14 Q56
11 The Role of Financial Policy
by Roger Farmer - 24498 (EFG ME)
Abstract
I review the contribution and influence of Milton Friedmans 1968
presidential address to the American Economic Association I
argue that Friedmans influence on the practice of central
banking was profound and that his argument in favour of monetary
rules was responsible for thirty years of low and stable
inflation in the period from 1979 through 2009 I present a
critique of Friedmans position that market-economies are
self-stabilizing and I describe an alternative reconciliation of
Keynesian economics with Walrasian general equilibrium theory
from that which is widely accepted today by most neo-classical
economists
httppapersnberorgpapersW24498utm_campaign=ntwamputm_medium=emailamputm_source=ntw
5 Immigrant Entrepreneurship in America Evidence from the Survey of Business Owners 2007 amp 2012
by Sari Pekkala Kerr William R Kerr - 24494 (LS PR)
Abstract
We study immigrant entrepreneurship and firm ownership in 2007
and 2012 using the Survey of Business Owners (SBO) The survival
and growth of immigrant-owned businesses over time relative to
native-founded companies is evaluated by linking the 2007 SBO to
the Longitudinal Business Database (LBD) We quantify the
dependency of the United States as a whole as well as individual
states on the contributions of immigrant entrepreneurs in terms
of firm formation and job creation We describe differences in
the types of businesses started by immigrants and the quality of
jobs created by their firms First-generation immigrants create
about 25 of new firms in the United States but this share
exceeds 40 in some states In addition Asian and Hispanic
second-generation immigrants start about 6 of new firms
Immigrant-owned firms on average create fewer jobs than
native-owned firms but much of this is explained by the industry
and geographic location of the firms Immigrant-owned firms pay
comparable wages conditional on firm traits to native-owned
firms but are less likely to offer benefits
httppapersnberorgpapersW24494utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Effects of Foreign Aid on Refugee Flows CESifo Working Paper Series No 6885
49 Pages Posted 9 Apr 2018
Axel Dreher University of Heidelberg
Andreas Fuchs University of Heidelberg - Alfred Weber Institute for Economics
Sarah Langlotz University of Heidelberg
There are 2 versions of this paper
Date Written February 15 2018
Abstract
This article analyzes whether foreign aid affects the net flows of refugees from recipient
countries Combining refugee data on 141 origin countries over the 1976-2013 period with
bilateral Official Development Assistance data we estimate the causal effects of a countryrsquos
aid receipts on both total refugee flows to the world and flows to donor countries The
interaction of donor-government fractionalization and a recipient countryrsquos probability of
receiving aid provides a powerful and excludable instrumental variable when we control for
country- and time-fixed effects that capture the levels of the interacted variables Although
our results suggest that aid induces recipient governments to encourage the return of their
citizens we find no evidence that aid reduces worldwide refugee outflows or flows to donor
countries in the short term However we observe long-run effects after four three-year
periods which appear to be driven by lagged positive effects of aid on growth
Keywords foreign aid Official Development Assistance migration refugees displaced
people humanitarian crises repatriation policies
JEL Classification F220 F350 F590 H840 O150 O190
The Political Economy of Ideas On Ideas Versus
Interests in Policymaking CEPR Discussion Paper No DP12820
44 Pages Posted 5 Apr 2018
Sharun Mukand University of Warwick - Department of Economics
Dani Rodrik Harvard University - Harvard Kennedy School (HKS) Centre for Economic Policy Research (CEPR)
National Bureau of Economic Research (NBER)
There are 2 versions of this paper
Date Written March 2018
Abstract
We develop a conceptual framework to highlight the role of ideas as a catalyst for policy and
institutional change We make an explicit distinction between ideas and vested interests and
show how they feed into each other In doing so the paper integrates the Keynes-Hayek
perspective on the importance of ideas with the currently more fashionable Stigler-Becker
(in-terests only) approach to political economy We distinguish between two kinds of
ideational politics acircldquo the battle among different worldviews on the efficacy of policy
(worldview politics) versus the politics of victimhood pride and identity (identity politics)
Political entrepreneurs discover identity and policy memes (narratives cues framing) that
shifts beliefs about how the world works or a persons belief of who he is (ie identity) Our
framework identifies a complementarity between worldview politics and identity politics and
illustrates how they may reinforce each other In particular an increase in identity
polarization may be associated with a shift in views about how the world works Furthermore
an increase in income inequality is likely to result in a greater incidence of ideational politics
Finally we show how ideas may not just constrain but also bite the interests that helped
propagate them in the first instance
Should Unemployment Insurance Be Centralized in a
State Union CESifo Working Paper Series No 6898
27 Pages Posted 19 Apr 2018
Robert Fenge University of Rostock - Department of Economics
Max Friese University of Rostock
Date Written February 21 2018
Abstract
This paper compares the decentral organization of unemployment insurance in member
states of a state union with the central organization at the upper unionrsquo level In a model of
two countries the labor force and the firm owners can migrate between the states Labor
markets exhibit unemployment due to trade unionrsquos bargaining about the wage rate In a
decentral scenario the states organize independently unemployment insurance and decide
about the rate on wages contributed to the insurance budget Due to open borders they have
to take account of migration effects However with perfect mobility between the states each
government chooses a socially optimal contribution rate such that workers are fully insured
against unemployment In the central scenario the governments overestimate the costs of
insurance when bargaining about the contribution rate and observing the common insurance
budget of both countries This leads to a less than socially optimal contribution rate
Keywords unemployment insurance policy state union centralization migration
externalities
JEL Classification F660 H770 J650
Paris Climate Agreement and the Global Economy
Winners and Losers World Bank Policy Research Working Paper No 8392
Posted 3 Apr 2018
Muthukumara Mani World Bank
Zekarias Hussein Purdue University
G Badri Narayanan Purdue University - Center for Global Trade Analysis
Deepika Wadhwa India Habitat Centre - Indian Council for Research on International Economic Relations (ICRIER)
Date Written April 2 2018
Abstract
The 2015 Paris Climate Agreement was the first instance of countries adhering to take a
collective action against global warming More than 190 countries came forward and
submitted their contributions in the form of Intended Nationally Determined Contributions
reflective of their ability and capacity to reduce greenhouse gas emissions as each country set
its own targets and actions For some countries it meant a significant decline in their
emissions by 2030 while others like China the United States and India decided on a more
gradual phasing out extending beyond 2030 This paper estimates the economic impacts of
implementation of the Paris Climate Agreement in terms of its implications for welfare gross
domestic product investments and trade for major countries and regions It uses a
computable general equilibrium framework to model global regional and country impacts
The analysis suggests that the economic impacts will be mostly felt in the European Union if
the Paris Agreement is fully implemented The European Union is likely to suffer a welfare
loss of 10 to 15 percent by 2030 Among non-European countries Australia New Zealand
and Mexico will also be affected with an expected welfare loss of about 15 percent Some of
the major emitters such as China and India will experience minimal impacts to their welfare
and the United States will experience a welfare loss of only about 07 by 2030 The sectoral
analysis of production and trade suggests a significant loss to fossil fuelbased sectors while
clean energy sectors can experience significant gains
Keywords International Trade and Trade Rules Energy and Mining Energy and
Environment Energy Demand Global Environment Energy Policies amp Economics Science of
Climate Change Climate Change and Environment Climate Change and Health
Immigrants Residential Choices and Their
Consequences CEPR Discussion Paper No DP12842
59 Pages Posted 12 Apr 2018
Christoph Albert Universitat Pompeu Fabra Students
Joan Monras Sciences Po - Department of Economics Centre for Monetary and Financial Studies (CEMFI)
There are 2 versions of this paper
Date Written April 2018
Abstract
This paper investigates the causes and effects of the spatial distribution of immigrants across
US cities We document that a) immigrants concentrate in large high-wage expensive cities
b) the earnings gap between immigrants and natives is higher in larger more expensive cities
and c) immigrants consume less locally than natives In order to explain these findings we
develop a quantitative spatial equilibrium model in which immigrants consume a fraction of
their income in their countries of origin Thus immigrants care not only about local prices but
also about price levels in their home countries This gives them a comparative advantage
relative to natives for living in high-wage high-price high-productivity cities where they also
accept lower wages than natives These incentives are stronger for immigrants coming from
lower-price index countries of origin We rely on immigrant heterogeneity to estimate the
model With the estimated model we show that current levels of immigration have reduced
economic activity in smaller less productive cities by around 5 percent while they have
expanded it in large productive cities by around 6 percent This has increased total aggregate
output per worker by around 03 percent We also discuss the welfare implications of these
results
Keywords Immigration location choices spatial equilibrium
JEL Classification F22 J31 J61 R11
The Cost of Non-Europe Revisited CEPR Discussion Paper No DP12844
48 Pages Posted 12 Apr 2018
Thierry Mayer Sciences Po
Vincent Vicard Banque de France
Soledad Zignago Banque de France
There are 2 versions of this paper
Date Written April 2018
Abstract
In this paper we quantify the Cost of Non-Europe ie the trade-related welfare gains each
country member has reaped from the European Union Thirty years after the terminology of
Non-Europe was used to give estimates of the gains from further integration we use modern
versions of the gravity model to estimate the trade creation implied by the EU and apply
those to counterfactual exercises where for instance the EU returns to a normal shallow-
type regional agreement or reverts to WTO rules Those scenarios are envisioned with or
without the exit of the United Kingdom from the EU (Brexit) happening which points to
interesting cross-country differences and potential cascade effects in doing and undoing of
trade agreements
Keywords European Union Gravity trade integration
JEL Classification F1
The Political Impact of Immigration Evidence from
the United States CEPR Discussion Paper No DP12848
57 Pages Posted 12 Apr 2018
Anna Maria Mayda
Georgetown University - Department of Economics IZA Institute of Labor Economics
Giovanni Peri University of California Davis - Department of Economics
Walter Steingress Government of Canada - Bank of Canada
Date Written April 2018
Abstract
In this paper we study the impact of immigration to the United States on the vote for the
Republican Party by analyzing county-level data on election outcomes between 1990 and
2010 Our main contribution is to separate the effect of high-skilled and low-skilled
immigrants by exploiting the different geography and timing of the inflows of these two
groups of immigrants We find that an increase in the first type of immigrants decreases the
share of the Republican vote while an inflow of the second type increases it These effects are
mainly due to the local impact of immigrants on votes of US citizens and they seem
independent of the country of origin of immigrants We also find that the pro-Republican
impact of low-skilled immigrants is stronger in low-skilled and non-urban counties This is
consistent with citizens political preferences shifting towards the Republican Party in places
where low-skilled immigrants are more likely to be perceived as competition in the labor
market and for public resources
Keywords Economic and Fiscal Channels Electoral Effects Immigration Republican Party
JEL Classification F22 J61
15 Escaping Import Competition and Downstream Tariffs
by Ana Cecilia Fieler Ann Harrison - 24527 (EEE ITI)
Abstract
We propose and provide evidence for a new source of gains from
trade Firms invest in product differentiation to escape import
competition In the data and in the model these investments are
associated with increases in measured productivity introduction
of new goods and shifts to skill-intensive sectors Investment
in differentiation downstream leads upstream firms to also
invest in differentiation For China these downstream tariff
reductions lead to big increases in measured productivity for
upstream suppliers The effect on measured productivity is
larger for upstream than for downstream firms and we explain
this difference theoretically through heterogeneous changes in
markups
httppapersnberorgpapersW24527utm_campaign=ntwamputm_medium=emailamputm_source=ntw
20 The Production of Cognitive and Non-cognitive Human Capital in the Global Economy
by Chong Xiang Stephen Yeaple - 24524 (ITI)
Abstract
A countrys welfare depends on its ability to accumulate
cognitive and noncognitive human capital However we do not
fully understand what makes some countries successful at
producing human capital and even struggle with measurement eg
international test scores are informative about the cognitive
dimension but neglect the non-cognitive dimension In this
paper we develop a multi-country open-economy
general-equilibrium framework in which countries ability to turn
resources into human capital along the cognitive and
non-cognitive dimensions is revealed by the endogenous
educational and occupational choices of its citizens and their
subsequent performance on international exams Our model allows
us to estimate countries underlying productivities of cognitive
and non-cognitive human capital We find that high test scores
do not necessarily imply high cognitive productivities (eg
Switzerland Hong Kong) and that many countries with low test
scores have high non-cognitive productivities (eg the US and
UK)
We then aggregate over these two dimensions to construct a single
educational quality index and illustrate its intuition using an
iso-education-quality curve We use our model to decompose
variation in output per capita across countries into a component
involving the educational quality index and another involving
output TFP This exact decomposition shows that the differences
in cognitive and noncognitive productivities across countries
have large implications for differences in output per worker
These results help quantify the potential payoffs of education
policies and clarify their objective eg excessive attention
to test scores may decrease aggregate output
International trade plays an important role in our model because
the gains from trade help to compensate a country for uneven
productivity across human capital types In counterfactual
exercises we show that if barriers to trade are completely
eliminated we would obtain a very different
iso-education-quality curve This implies large improvements of
overall education quality and large gains from trade for the
countries with strong comparative advantages in producing
cognitive (eg S Korea would gain 301 to 441 of its
output) or non-cognitive human capital (eg the Netherlands
would gain 188 to 556)
httppapersnberorgpapersW24524utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Il Contributo Della Demografia Alla Crescita
Economica Duecento Anni Di ldquoStoriardquo Italiana (The
Contribution of Demography to Italys Economic
Growth A Two-Hundred-Year-Long Story) Bank of Italy Occasional Paper No 431
37 Pages Posted 20 Apr 2018
Federico Barbiellini Amidei Bank of Italy
Matteo Gomellini Bank of Italy
Paolo Piselli Bank of Italy
Date Written March 28 2018
Abstract
Italian Abstract Questo lavoro esamina il contributo della demografia alla crescita
economica confrontando lrsquoItalia del passato quella di oggi e quella che vivremo in futuro
Attraverso una scomposizione contabile della crescita del PIL e del PIL pro capite si mostra
come le modifiche nella struttura per etagrave della popolazione abbiano prodotto nel passato piugrave
lontano un demographic dividend positivo Al contrario negli ultimi venticinque anni e con
ogni probabilitagrave nel futuro la demografia ha dato e daragrave un contributo diretto sensibilmente
negativo alla crescita economica I flussi migratori previsti limiteranno lrsquoampiezza di tale
contributo negativo ma non saranno in grado di invertirne il segno Nel lavoro si valutano tre
sviluppi potenzialmente indotti dagli stessi fattori demografici o da azioni di policy ndash
lrsquoestensione della vita lavorativa lrsquoaumento della partecipazione femminile al mercato del
lavoro e lrsquoincremento nei livelli di istruzione ndash che potranno contrastare i puri effetti contabili
legati allrsquoevoluzione nella struttura per etagrave
English Abstract This paper examines the contribution of demography to economic growth
in Italy by comparing the countryrsquos past present and future We use an accounting framework
to decompose GDP and per capita GDP growth and we show how changes in the age structure
of the population produced a positive demographic dividend in the past By contrast in the
last twenty-five years and arguably in the future demography has made and will continue to
make a direct negative contribution to economic growth Expected migration flows will
noticeably limit the extent of this negative contribution but they will not be able to reverse its
sign We analyze three possible developments potentially driven by demography itself or
fostered by policy actions ndash longer working lives an increase in female labour market
participation and higher education levels ndash which could counteract the pure negative
accounting effects produced by the evolution of the age structure
Note Downloadable document is in Italian
Keywords economic history demography demographic dividend forecasts
JEL Classification J11 N30
The Effects of Cash Transfers on Adult Labor Market
Outcomes World Bank Policy Research Working Paper No 8404
29 Pages Posted 16 Apr 2018
Sarah Baird George Washington University - School of Public Health and Health Services (SPHHS)
David J McKenzie World Bank - Development Research Group (DECRG) IZA Institute of Labor Economics
Berk Ozler World Bank - Development Economics Research Group (DECRG)
Date Written April 12 2018
Abstract
The basic economic model of labor supply has a very clear prediction of what should be
expected when an adult receives an unexpected cash windfall they should work less and earn
less This intuition underlies concerns that many types of cash transfers ranging from
government benefits to migrant remittances will undermine work ethics and make recipients
lazy This paper discusses a range of additional channels to this simple labor-leisure trade-off
that can make this intuition misleading in low- and middle-income countries including
missing markets price effects from conditions attached to transfers and dynamic and general
equilibrium effects The paper uses this as a lens through which to examine the evidence on
the adult labor market impacts of a wide range of cash transfer programs government
transfers charitable giving and humanitarian transfers remittances cash assistance for job
search cash transfers for business start-up and bundled interventions Overall cash transfers
that are made without an explicit employment focus (such as conditional and unconditional
cash transfers and remittances) tend to result in little to no change in adult labor The main
exceptions are transfers to the elderly and some refugees who reduce work In contrast
transfers made for job search assistance or business start-up tend to increase adult labor
supply and earnings with the likely main channels being the alleviation of liquidity and risk
constraints
Keywords Economic Assistance Disability Services amp Transfers to Poor Access of Poor to
Social Services Employment and Unemployment Labor Markets Rural Labor Markets Health
Care Services Industry
Globalisation and Urban Polarisation CEPR Discussion Paper No DP12877
24 Pages Posted 23 Apr 2018
Anthony J Venables University of Oxford Centre for Economic Policy Research (CEPR)
Date Written April 2018
Abstract
External trade affects the internal spatial structure of an economy promoting growth in some
cities or regions and decline in others Internal adjustment to these changes has often proved
to be extremely slow and painful This paper combines elements of urban and international
economics to draw out the implications of trade shocks for city performance Localisation
economies in production of internationally tradable goods mean that cities divide into two
types those producing tradables and those specialising in sectors producing just for the
national market (non-tradables) Negative trade shocks (and possibly also some positive
ones) reduce the number of cities engaged in tradable production increasing the number
producing just non-tradables This has a negative effect across all non-tradable cities which
lose population and land value Remaining tradable cities boom gaining population and land
value Depending on the initial position city size dispersion may increase this raising the
share of urban land-rents in national income and reducing the share of labour
Keywords de-industrialisation globalisation Polarisation urban
JEL Classification F12 R11 R12
Place-Based Policies for Development World Bank Policy Research Working Paper No 8410
75 Pages Posted 24 Apr 2018
Gilles Duranton University of Pennsylvania - Real Estate Department
Anthony J Venables University of Oxford Centre for Economic Policy Research (CEPR)
There are 3 versions of this paper
Date Written April 17 2018
Abstract
Many development policies such as placement of infrastructure or local economic
development schemes are place-based Such policies are generally intended to stimulate
private sector investment and economic growth in the treated place and as such they are
difficult to appraise and evaluate This paper sets out a framework for analyzing the effects of
such policies and assessing their social value It then reviews the literature on place-based
policies in the contexts of transport improvements economic corridors special economic
zones lagging regions and urban policies
Keywords Transport Services Labor Markets Urban Governance and Management Urban
Housing and Land Settlements Municipal Management and Reform Urban Housing
Macroeconomic Management Economic Forecasting Governance Diagnostic Capacity
Building Textiles Apparel amp Leather Industry Common Carriers Industry Food amp Beverage
Industry Business Cycles and Stabilization Policies Plastics amp Rubber Industry General
Manufacturing Construction Industry Pulp amp Paper Industry
Evidence on Finance and Economic Growth ECB Working Paper No 2115 ISBN 978-92-899-3031-4
79 Pages Posted 8 Dec 2017
Alexander A Popov European Central Bank (ECB)
Date Written December 6 2017
Abstract
This paper reviews and appraises the body of empirical research on the association between
financial markets and economic growth that has accumulated over the past quarter-century
The bulk of the historical evidence suggests that financial development affects economic
growth in a positive monotonic way yet recent research endeavors have provided useful and
important qualifications of this conventional wisdom Moreover the proliferation of micro-
level datasets has enabled researchers to study more precise links between theory and
measurement The paper highlights the mechanisms through which financial markets benefit
society as well as the channels through which finance can slow down long-term growth
Keywords financial markets growth
JEL Classification O4 G1
Why Has Economic Growth Slowed When Innovation Appears to be Accelerating
by Robert J Gordon - 24554 (DAE EFG PR)
Abstract
Measured between quarters with identical unemployment rates U
S economic growth slowed by more than half from 32 percent per
year during 1970-2006 to only 14 percent during 2006-16 and
only half of this GDP growth slowdown is accounted for diminished
productivity growth The paper starts from the proposition that
GDP growth matters not just productivity growth because slower
GDP growth provides fewer resources to address the nations
problems including faltering education aging infrastructure
and the looming shortfall in funding for Social Security and
Medicare and it also implies lower net investment and a reduced
rate at which new capital can embody the latest technology
The paper documents the contribution to slower GDP growth of the
separate components of demography -- fertility mortality life
expectancy and immigration Particular emphasis is placed on
the interaction between rising inequality and the slower secular
rise of life expectancy in the US compared to other developed
countries both in the form of a large gap in life expectancy
between rich and poor and the stagnation of life expectancy for
the lowest income quintile Further contributions to slowing
growth are made by a decline in the population share of both
legal and illegal immigration and a turnaround from rising to
declining labor force participation Rising inequality creates a
gap between the growth of average real per-capita income relative
to that of median real income and alternative measures of the
evolution of this gap are compared and assessed
Causes of declining productivity growth begin with the slowdown
in the rate of increase of educational attainment resulting from
the interplay of demand and supply factors including the
flattening of the college wage premium and the rising relative
price of college education Why did productivity growth decline
after 2006 despite an increase in the rate at which new US
patents were issued in 2006-16 compared to earlier decades Part
of the slowdown is attributed to the maturity of the IT
revolution which also helps to explain the trajectory of the
college wage premium Aspects of the productivity growth
slowdown include the declining productivity of research workers
diminishing returns to drug innovation and the evolutionary
rather than revolutionary impact of robots and artificial
intelligence which are replacing workers slowly and only in a
minority of industrial sectors throughout the economy Also
considered are alternative explanations of slower productivity
growth including low investment and mismeasurement
httppapersnberorgpapersW24554utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Childbearing Postponement its Option Value and the
Biological Clock CEPR Discussion Paper No DP12884
48 Pages Posted 23 Apr 2018
David de la Croix Catholic University of Louvain (UCL) - Institut de Recherches Economiques et Sociales (IRES) Catholic
University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)
Aude Pommeret Universiteacute de Savoie
Date Written April 2018
Abstract
Having children is like investing in a risky project Postponing birth is like delaying an
irreversible investment It has an option value which depends on its costs and benefits and in
particular on the additional risks motherhood brings We develop a parsimonious theory of
childbearing postponement along these lines We derive its implications for asset
accumulation income optimal age at first birth and childlessness The structural parameters
are estimated by matching the predictions of the model to data from the National Longitudinal
Survey of Youth NLSY79 The uncertainty surrounding income growth is shown to increase
with childbearing and this increase is stronger for more educated people This effect alone
can explain why the age at first birth and the childlessness rate both increase with education
We use the model to simulate two hypothetical policies Providing free medically assisted
reproduction technology does not affect the age at first birth much but lowers the
childlessness rate Insuring mothers against income risk is powerful in lowering the age at
first birth
Keywords Assisted reproduction technology Career uncertainty Late parenthood Real
option
JEL Classification D91 J13
Economic Upgrading Through Global Value Chain
Participation Which Policies Increase the Value
Added Gains World Bank Policy Research Working Paper No 8007
45 Pages Posted 1 May 2018
Victor Kummritz World Trade Organization (WTO) Graduate Institute of International and Development Studies (IHEID)
Daria Taglioni European Central Bank (ECB) - Directorate General Economics
Deborah E Winkler World Bank
Date Written March 16 2017
Abstract
The emergence of global value chains has opened up new ways to achieve development and
industrialization However new evidence shows that not all countries have gained from
participating in global value chains and that country-specific characteristics matter for
economic upgrading in global value chains This paper uses two panel data sets of developing
and industrialized countries at the sectoral level to relate global value chain participation as a
buyer and seller to domestic value added These are combined with a wide range of policy
measures at the country level that can play a role in economic upgrading through global value
chains by targeting global value chain integration or the quality and conditions of input and
output factors First the study finds that global value chain integration increases domestic
value added especially on the selling side which holds across all income levels Second the
results highlight the importance of policy for economic upgrading through global value chain
integration Although the study cannot claim causal evidence all the assessed policy areas are
consistently shown to mediate the effects of global value chains and magnify the gains for
domestic value added Third a detailed analysis shows that several policy areas mediate the
gains from global value chains more through integration as a seller Finally the study
observes that many of the results are driven by high- and upper-middle-income countries
Keywords International Trade and Trade Rules Labor Markets Rural Labor Markets Food amp
Beverage Industry Construction Industry Business Cycles and Stabilization Policies General
Manufacturing Common Carriers Industry Textiles Apparel amp Leather Industry Pulp amp Paper
Industry Plastics amp Rubber Industry Global Environment
Job Vacancies and Immigration Evidence from Pre- and Post-Mariel Miami
by Jason Anastasopoulos George J Borjas Gavin G Cook Michael Lachanski - 24580 (LS)
Abstract
How does immigration affect labor market opportunities in a
receiving country This paper contributes to the voluminous
literature by reporting findings from a new (but very old) data
set Beginning in 1951 the Conference Board constructed a
monthly job vacancy index by counting the number of help-wanted
ads published in local newspapers in 51 metropolitan areas We
use the Help-Wanted Index (HWI) to document how immigration
changes the number of job vacancies in the affected labor
markets Our analysis begins by revisiting the Mariel episode
The data reveal a marked decrease in Miamis HWI relative to many
alternative control groups in the first 4 or 5 years after
Mariel followed by recovery afterwards We find a similar
initial decline in the number of job vacancies after two other
supply shocks that hit Miami over the past few decades the
initial wave of Cuban refugees in the early 1960s as well as the
1995 refugees who were initially detoured to Guantanamo Bay We
also look beyond Miami and estimate the generic spatial
correlations that dominate the literature correlating changes in
the HWI with immigration across metropolitan areas These
correlations consistently indicate that more immigration is
associated with fewer job vacancies The trends in the HWI seem
to most strongly reflect changing labor market conditions for
low-skill workers (in terms of both wages and employment) and a
companion textual analysis of help-wanted ads in Miami before and
after the Mariel supply shock suggests a slight decline in the
relative number of low-skill job vacancies
httppapersnberorgpapersW24580utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Somatic Distance Cultural Affinities Trust and Trade CEPR Discussion Paper No DP12895
21 Pages Posted 1 May 2018
Jacques Melitz National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and
Statistics (CREST) Centre for Economic Policy Research (CEPR)
Farid Toubal Ecole Normale Superieure de Cachan (ENS) - Departement of Economics ans Management National
Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics
(CREST) Centre dEtudes Prospectives et dInfo Internationales (CEPII)
Date Written April 2018
Abstract
Somatic distance or differences in physical appearance proves to be extremely important in
the gravity model of bilateral trade in conformity with results in other areas of economics and
outside of it in the social sciences This is also true quite independently of survey evidence
about bilateral trust These findings are obtained in a sample of the 15 members of the
European Economic Association in 1996 Robustness tests also show that somatic distance
has a more reliable influence on bilateral trade than the other cultural variables The article
finally discusses the interpretation and the breadth of application of these results
Keywords Bilateral Trade Cultural interactions Language Somatic distance Trust
The Paradox of Global Thrift CEPR Discussion Paper No DP12894
59 Pages Posted 1 May 2018
Luca Fornaro Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) Barcelona Graduate
School of Economics (Barcelona GSE)
Federica Romei LUISS Guido Carli University
Date Written April 2018
Abstract
This paper describes a paradox of global thrift Consider a world in which interest rates are
low and monetary policy cannot stabilize the economy because it is frequently constrained by
the zero lower bound Now imagine that governments complement monetary policy with
prudential financial and fiscal policies because they perceive that limiting private and public
borrowing during booms will help stabilize the economy by reducing the risk of financial
crises and by creating space for fiscal interventions during busts We show that these policies
while effective from the perspective of individual countries might backfire if applied on a
global scale In a financially integrated world in fact prudential policies generate a rise in the
global supply of savings or equivalently a drop in global aggregate demand In turn weaker
global aggregate demand depresses output in countries whose monetary policy is constrained
by the zero lower bound Due to this effect the world might paradoxically experience a fall in
output and welfare following the implementation of well-intended prudential policies
Keywords aggregate demand externalities Capital Flows current account policies fiscal
policies international cooperation Liquidity traps macroprudential policies zero lower
bound
JEL Classification E32 E44 E52 F41 F42
Multihorizon Currency Returns and Purchasing
Power Parity CEPR Discussion Paper No DP12893
59 Pages Posted 1 May 2018
Mikhail Chernov UCLA Anderson
Drew Creal University of Chicago - Booth School of Business - Econometrics and Statistics
There are 2 versions of this paper
Date Written April 2018
Abstract
Exposures of expected future depreciation rates to the current interest rate differential
violate the UIP hypothesis in a distinctive pattern that is a non-monotonic function of horizon
Conversely forward risk-adjusted expected depreciation rates are monotonic We explain the
two patterns by incorporating the weak form of PPP into a no-arbitrage joint model of the
depreciation rate inflation differential domestic and foreign yield curves Short-term
departures from PPP generate the first pattern The risk premiums for these departures
generate the second pattern
Keywords affine term structure model cointegration multiple horizons purchasing power
parity uncovered interest parity
Networks and Trade CEPR Discussion Paper No DP12891
33 Pages Posted 1 May 2018
Andrew B Bernard Tuck School of Business at Dartmouth National Bureau of Economic Research (NBER) Centre for
Economic Policy Research (CEPR)
Andreas Moxnes University of Oslo - Department of Economics Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
There are 2 versions of this paper
Date Written April 2018
Abstract
Trade occurs between firms both across borders and within countries and the vast majority
of trade transactions includes at least one large firm with many trading partners This paper
reviews the literature on firm-to-firm connections in trade A growing body of evidence
coming from domestic and international transaction data has established empirical
regularities which have inspired the development of new theories emphasizing firm
heterogeneity among both buyers and suppliers in production networks Theoretical work
has considered both static and dynamic matching environments in a framework of many-to-
many matching The literature on trade and production networks is at an early stage and
there are a large number of unanswered empirical and theoretical questions
Keywords International Trade offshoring production networks productivity
JEL Classification F10 F12 F14 L11 L21
One More Time What are Institutions and How Do
They Change World Bank Policy Research Working Paper No 8422
39 Pages Posted 1 May 2018 Last revised 3 May 2018
Roumeen Islam World Bank
Date Written April 30 2018
Abstract
This paper defines institutions presents their basic characteristics and discusses forces for
institutional change It draws on a wealth of research and study by scholars in different fields
and follows from the flagship 2002 World Development Report on this topic including
relevant new research since then that illuminates key issues The definition of institutions
includes rules and organizations (specifically rules guiding peoples actions) The paper
emphasizes the diversity of institutions that can effectively perform similar functions the
arguments for and against standardization of institutions across specific transactions or
groups and the implications of these choices It highlights the relationship between informal
and formal institutions It discusses forces for institutional change influencing all economies
ranging from external shocks (whether they be economic or weather-related shocks or driven
by wars) to internal dynamics such as those following population growth or compositional
changes and those following technological innovations Many of these forces have a two-way
relationship with institutions they are affected by them and in turn influence whether and
when they change A special section is devoted to institutional transplants and their
effectiveness The paper concludes with a discussion of whether and under what conditions
institutional change can be externally directed and the lessons for aid donors
Keywords International Trade and Trade Rules Social Policy Common Property Resource
Development Legal Products Regulatory Regimes Legislation Legal Reform Judicial System
Reform Public Sector Economics Taxation amp Subsidies Public Finance Decentralization and
Poverty Reduction Economic Adjustment and Lending Macro-Fiscal Policy Educational
Sciences Competitiveness and Competition Policy
Globalization Government Popularity and the Great
Skill Divide
CEPR Discussion Paper No DP12897
56 Pages Posted 1 May 2018
Cevat Giray Aksoy European Bank for Reconstruction and Development IZA Institute of Labor Economics
Sergei M Guriev Sciences Po Centre for Economic Policy Research (CEPR) European Bank for Reconstruction and
Development (EBRD)
Daniel Treisman University of California Los Angeles (UCLA) - Department of Political Science
There are 2 versions of this paper
Date Written April 2018
Abstract
How does international trade affect the popularity of governments and leaders We provide
the first large-scale systematic evidence that the divide between skilled and unskilled
workers worldwide is producing corresponding differences in the response of political
preferences to trade shocks Using a unique data set including 118 countries and nearly
450000 individuals we find that growth in high skill intensive exports (of goods and
services) increases approval of the leader and incumbent government among skilled
individuals Growth in high skill intensive imports has the opposite effect There is no effect
on political approval among the unskilled To identify exogenous variation in international
trade we exploit the time-varying effects of air and sea distances in bilateral trade flows Our
findings suggest that the political effects of international trade differ with skill intensity and
that skilled individuals respond differently from their unskilled counterparts to trade shocks
Keywords International trade political approval political polarization skill intensity of
trade
Migratory Pressures in the Long Run International
Migration Projections to 2050 Banco de Espana Article 3817
9 Pages Posted 3 Jan 2018
Rodolfo G Campos Banco de Espantildea
Date Written December 5 2017
Abstract
This article presents bilateral international migration projections to 2050 based on a new
methodology that takes into account the population growth both in countries of origin and
countries of destination To do this the methodology used by Hanson and McIntosh (2016) to
project the future migratory flows to a sample of OECD countries is generalised to all
countries worldwide The United Nations population growth forecasts are used as a basis for
projecting future migratory flows The main findings of the exercise indicate that the number
of migrants is projected to increase from 28 of the world population in 2010 to around
35 in 2050 as a result of the strong increase in migrants from India and sub-Saharan Africa
Against this background and despite the slowdown in demographic growth in Latin America
the United States is expected to continue to receive high net immigration flows and to remain
the country with the highest stock of immigrants globally while continental Europe will post
larger net immigration flows
Immigration and Electoral Support for the Far-Left
and the Far-Right CESifo Working Paper Series No 6918
53 Pages Posted 7 May 2018
Anthony Edo Paris School of Economics (PSE)
Yvonne Giesing CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Jonathan Oumlztunc Barcelona Graduate School of Economics (Barcelona GSE)
Panu Poutvaara Ludwig Maximilian University of Munich - Faculty of Economics CESifo (Center for Economic Studies and
Ifo Institute) - Ifo Institute CESifo (Center for Economic Studies and Ifo Institute) CReAM IZA Institute of
Labor Economics
Date Written March 05 2018
Abstract
Immigration has become one of the most divisive political issues in the United States the
United Kingdom France and several other Western countries We estimate the impact of
immigration on voting for far-left and far-right candidates in France using panel data on
presidential elections from 1988 to 2017 To derive causal estimates we instrument more
recent immigration flows by past settlement patterns in 1968 We find that immigration
increases support for far-right candidates and has no robust effect on far-left voting The
increased support for far-right candidates is driven by low educated immigrants from non-
Western countries
Keywords voting immigration political economy
JEL Classification D720 F220 J150 P160
Institutions Trade and Development A Quantitative
Analysis CESifo Working Paper Series No 6920
64 Pages Posted 7 May 2018
Cosimo Beverelli World Trade Organization (WTO)
Alexander Keck World Trade Organization (WTO)
Mario Larch University of Bayreuth - Faculty of Law Business and Economics University of Bayreuth CESifo Ifo
Institute for Economic Research GEP at the University of Nottingham
Yoto Yotov Drexel University - Department of Economics amp International Business
Date Written March 05 2018
Abstract
We propose and apply methods to quantify the impact of national institutions on international
trade and development We are able to identify the direct impact of country-specific
institutions on international trade within the structural gravity framework Our approach
naturally addresses the prominent issue of endogenous institutions The empirical analysis
offers robust evidence that stronger institutions promote trade A counterfactual analysis
reveals that the changes in institutional quality in the poor countries in our sample between
1996 and 2006 have had via their impact on imports from rich countries significant and
heterogeneous real GDP effects varying between -5 and 5 percent Our methods are readily
applicable to identifying the impact of a wide range of country-specific variables on
international trade
Keywords institutional quality international trade development structural gravity
JEL Classification F130 F140 F160
5 Inference in Structural Vector Autoregressions When the Identifying Assumptions are Not Fully Believed Re-
evaluating the Role of Monetary Policy in Economic Fluctuations
by Christiane Baumeister James D Hamilton - 24597 (EFG ME)
Abstract
Reporting point estimates and error bands for structural vector
autoregressions that are only set identified is a very common
practice However unless the researcher is persuaded on the
basis of prior information that some parameter values are more
plausible than others this common practice has no formal
justification When the role and reliability of prior
information is defended Bayesian posterior probabilities can be
used to form an inference that incorporates doubts about the
identifying assumptions We illustrate how prior information can
be used about both structural coefficients and the impacts of
shocks and propose a new distribution which we call the
asymmetric t distribution for incorporating prior beliefs about
the signs of equilibrium impacts in a nondogmatic way We apply
these methods to a three-variable macroeconomic model and
conclude that monetary policy shocks were not the major driver of
output inflation or interest rates during the Great Moderation
httppapersnberorgpapersW24597utm_campaign=ntwamputm_medium=emailamputm_source=ntw
11 The Political Impact of Immigration Evidence from the United States
by Anna Maria Mayda Giovanni Peri Walter Steingress - 24510 (ITI POL)
Abstract
In this paper we study the impact of immigration to the United
States on the vote for the Republican Party by analyzing
county-level data on election outcomes between 1990 and 2010
Our main contribution is to separate the effect of high-skilled
and low-skilled immigrants by exploiting the different geography
and timing of the inflows of these two groups of immigrants We
find that an increase in the first type of immigrants decreases
the share of the Republican vote while an inflow of the second
type increases it These effects are mainly due to the local
impact of immigrants on votes of US citizens and they seem
independent of the country of origin of immigrants We also find
that the pro-Republican impact of low-skilled immigrants is
stronger in low-skilled and non-urban counties This is
consistent with citizens political preferences shifting towards
the Republican Party in places where low-skilled immigrants are
more likely to be perceived as competition in the labor market
and for public resources
httppapersnberorgpapersW24510utm_campaign=ntwamputm_medium=emailamputm_source=ntw
23 The Impact of Exports on Innovation Theory and Evidence
by Philippe Aghion Antonin Bergeaud Matthieu Lequien Marc J Melitz - 24600 (EFG ITI)
Abstract
This paper investigates the effect of export shocks on
innovation On the one hand a positive shock increases market
size and therefore innovation incentives for all firms On the
other hand it increases competition as more firms enter the
export market This in turn reduces profits and therefore
innovation incentives particularly for firms with low
productivity Overall the positive impact of the export shock on
innovation is magnified for high productivity firms whereas it
may negatively affect innovation in low productivity firms We
test this prediction with patent customs and production data
covering all French manufacturing firms To address potential
endogeneity issues we construct firm-level export proxies which
respond to aggregate conditions in a firms export destinations
but are exogenous to firm-level decisions We show that
patenting robustly increases more with export demand for
initially more productive firms This effect is reversed for the
least productive firms as the negative competition effect
dominates
httppapersnberorgpapersW24600utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Sovereign Defaults in Court CESifo Working Paper Series No 6931
75 Pages Posted 8 May 2018
Julian Schumacher European Central Bank (ECB)
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Enderlein Henrik Hertie School of Governance
There are 3 versions of this paper
Date Written March 08 2018
Abstract
For centuries defaulting governments were immune from legal action by foreign creditors
This paper shows that this is no longer the case Building a dataset covering four decades we
find that creditor lawsuits have become an increasingly common feature of sovereign debt
markets The legal developments have strengthened the hands of creditors and raised the cost
of default for debtors We show that legal disputes in the US and the UK disrupt government
access to international capital markets as foreign courts can impose a financial embargo on
sovereigns The findings are consistent with theoretical models with creditor sanctions and
suggest that sovereign debt is becoming more enforceable We discuss how the threat of
litigation affects debt management government willingness to pay and the resolution of debt
crises
Keywords sovereign default enforcement government financing debt restructuring
JEL Classification F340 G150 H630 K220
ECB Monetary Policy and the Euro Exchange Rate Bank of Italy Temi di Discussione (Working Paper) No 1172
54 Pages Posted 14 May 2018
Martina Cecioni Bank of Italy
Date Written May 3 2018
Abstract
The paper provides empirical evidence on the effects of ECB conventional and unconventional
monetary policy on the euro exchange rate focusing on the period from January 2013 to
September 2017 Innovations to conventional and unconventional monetary policies are
identified through changes in respectively short- and long-term interest rates immediately
after Governing Council meetings Both types of measures contributed to the depreciation of
the euro from mid-2014 surprises associated with conventional measures had a stronger and
more persistent effect than those associated with unconventional ones Time-varying
estimates of the effects of conventional surprises since 1999 show that the responsiveness of
exchange rates to monetary news increased markedly from 2013 State-dependence analysis
finds that the exchange rate became more sensitive to monetary policy when the ECB adopted
a policy of negative interest rates and when conventional and unconventional monetary
surprises moved in the same direction
Keywords unconventional monetary policy exchange rates European Central Bank
JEL Classification E52 E58 F31
The ECBs Fiscal Policy
by Hans-Werner Sinn - 24613 (ME)
Abstract
While the ECB helped mitigate the euro crisis in the aftermath of
Lehman it has stretched its monetary mandate and moved into
fiscal territory This text describes and summarizes the crucial
role played by the ECB in the intervention spiral resulting from
its bid to manage the crisis It also outlines ongoing
competitiveness problems in southern Europe discusses the
so-called austerity policy of the Troika comments on QE and
presents two alternative paths for the future development of
Europe
httppapersnberorgpapersW24613utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Real Convergence in the Euro Area A Long-Term
Perspective ECB Occasional Paper No 203 ISBN 978-92-899-2865-6
102 Pages Posted 5 Dec 2017
Juan Luis Diaz del Hoyo European Central Bank (ECB)
Ettore Dorrucci European Central Bank (ECB)
Frigyes Ferdinand Heinz European Central Bank (ECB)
Sona Muzikarova European Central Bank (ECB)
Date Written December 1 2017
Abstract
In the euro area there is mixed evidence that the GDP per capita of lower-income economies
has been catching up with that of higher-income economies since the start of monetary union
The significant real convergence performance of some of the most recent members contrasts
with that of the economies of southern Europe which have not met expectations However
attributing all the blame for this outcome to the introduction of the single currency simply
misses the point By taking a ldquolong viewrdquo and reviewing the evidence since the 1960s this
paper shows that certain member countries began to face a ldquonon-convergence traprdquo long
before the euro years We also provide stylised facts on (i) the central role of total factor
productivity in driving real convergence in the euro area over time alongside other factors
and (ii) the crucial interaction of real convergence with ldquoMaastricht convergencerdquo and
institutional quality the other two key components of sustainable economic convergence We
conclude that it is critical that the euro area countries facing convergence challenges enhance
the resilience of their economic structures by improving the relevant institutions and
governance
Keywords sustainable economic convergence real convergence nominal convergence GDP
per capita Maastricht convergence criteria institutional quality labour productivity total
factor productivity Five Presidentsrsquo Report Reflection Paper on the Deepening of EMU
JEL Classification E01 F15 J11 O11 O43 O47 O52 O57
Monetary Policy Transmission in the Eastern
Caribbean Currency Union IMF Working Paper No 1870
31 Pages Posted 22 May 2018
Alla Myrvoda International Monetary Fund (IMF)
Julien P M Reynaud International Monetary Fund (IMF) Universiteacute Paris I Pantheacuteon-Sorbonne
Date Written March 2018
Abstract
This paper empirically investigates international and domestic monetary policy transmission
mechanisms in the Eastern Caribbean Currency Union (ECCU) We assess interest rate pass-
through of both the US policy rate and the ECCU minimum saving deposit rate (MSR) into
domestic interest rates through the interest rate channel While economic theory suggests
that the international pass-through should be high in small open economies with fixed
exchange rates and open capital accounts our findings based on regression analysis point to
a low long-run pass-through coefficient of the US interest rate The domestic transmission
channel however is found to operate through changes in the MSR The results hold for
different interest rates (deposit and lending) and are supported by survey-based findings
Keywords Asia and Pacific Antigua and Barbuda Dominica Saint Kitts and Nevis Saint
Lucia Saint Vincent and the Grenadines Grenada Western Hemisphere monetary policy
transmission interest rate pass-through ECCU monetary policy transmission interest rate
pass-through ECCU General Monetary Policy (Targets Instruments and Effects)
JEL Classification E43 E50 E52 F31 F33 F36 O54
On the Impact of Structural Reforms on Output and
Employment Evidence from a Cross-Country Firm-
Level Analysis IMF Working Paper No 1873
36 Pages Posted 22 May 2018
Luiza Antoun de Almeida International Monetary Fund (IMF)
Vybhavi Balasundharam University of Michigan at Ann Arbor
Date Written April 2018
Abstract
This paper analyzes the effects of selected structural reforms on output and employment in
the short and medium term It uses a comprehensive cross-country firm-level dataset
covering both advanced and emerging market economies over the period 2003-2014 In line
with previous studies it finds that structural reforms have in general a positive impact on
output and employment in the medium term Furthermore the paper also assesses whether
the impact of structural reforms varies with firm-specific characteristics such as size
leverage profitability and sector We find evidence that firm characteristics do influence the
effectiveness of structural reforms These findings have relevant policy implications as they
help policymakers tailor the design of structural reforms to maximize their payoffs taking
into account their heterogeneous impact on firms
Keywords Fiscal reforms Cross-country analysis Potential output Employment Developed
countries Emerging markets structural reforms firm-level data Orbis dataset potential
growth
JEL Classification L51 D04 D22
Production Integration in the European Union CESifo Working Paper Series No 6944
34 Pages Posted 17 May 2018
Hakan Nordstrom Swedish Board of Trade
Harry Flam Stockholm University - Institute for International Economic Studies (IIES) CESifo (Center for Economic
Studies and Ifo Institute)
Date Written March 21 2018
Abstract
Measured by trade in intermediate inputs economic integration has increased between 2000
and 2014 between members of the European Union and even more with non-members
Integration is negatively related to economic size and positively to the number of years as a
member Germany is the largest hub in the production network and the centre of gravity has
moved eastward Older member states are increasingly exporting service inputs and new
member states primary and manufacturing inputs Wages are increasing faster in countries
with low initial wages indicating wage convergence as a result of production integration
Keywords global value chains economic integration input-output models wage
convergence
JEL Classification E100 F100 F600 J310
Democratic Tipping Points CESifo Working Paper Series No 6945
36 Pages Posted 17 May 2018
Antonio Ciccone Universitat Pompeu Fabra - Faculty of Economic and Business Sciences Centre for Economic Policy
Research (CEPR) Institute for the Study of Labor (IZA)
There are 2 versions of this paper
Date Written March 21 2018
Abstract
I examine whether transitory events can tip the scales against authoritarian regimes and lead
to persistent democratization I think of situations where this is a possibility as democratic
tipping points The transitory events I focus on are rainfall shocks in the most agricultural
countries in the world I show that while these shocks only affect agricultural output
contemporaneously they have persistent effects on political institutions Authoritarian
regimes experiencing negative rainfall shocks are more likely to be democratic three five and
ten years later
Keywords transitory shocks persistent democratization
Globalization and the New Normal IMF Working Paper No 1875
41 Pages Posted 22 May 2018
Bertrand Candelon University of Maastricht - Department of Economics
Alina Carare International Monetary Fund (IMF)
Jean-Baptiste Hasse
Aix-Marseille University
Date Written April 2018
Abstract
This study expands the empirical specification of Cerra and Saxena (2008) and allows short-
termoutput growth regimes to be determined by globalization Relying on a non-linear
dynamic panelrepresentation it reconciles the earlier results in the literature regarding the
two oppositenarratives of the effects of globalization on output growth Countries experience
higher growth onaverage the more open and integrated they are into the world However
once they reach a certainglobalization threshold (endogenously estimated) countries may
also experience a new normalpersistently lower short-term output growth following a
financial crisis The benefits as well asvulnerabilities accrue earlier in the globalization
process for low- and middle-income countriesTo solely reap the globalization benefits on
growth sound policies should be in place to mitigatethe negative effects stemming from
increased vulnerabilities brought by globalization
Keywords Globalization Financial crisis Banking crisis Output growth New Normal
Globalization Financial crises Banking crises Output growth
JEL Classification F30 F43 F62 F65
Public Policy in an AI Economy
by Austan Goolsbee - 24653 (PE PR)
Abstract
This paper considers the role of policy in an AI-intensive
economy (interpreting AI broadly) It emphasizes the speed of
adoption of the technology for the impact on the job market and
the implications for inequality across people and across places
It also discusses the challenges of enacting a Universal Basic
Income as a response to widespread AI adoption discuss pricing
privacy and competition policy the question of whether AI could
improve policy making itself
httppapersnberorgpapersW24653utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Aggregate and Distributional Effects of Financial
Globalization Evidence from Macro and Sectoral Data IMF Working Paper No 1883
62 Pages Posted 22 May 2018
Davide Furceri International Monetary Fund (IMF)
Prakash Loungani International Monetary Fund (IMF)
Jonathan D Ostry International Monetary Fund (IMF)
Date Written April 2018
Abstract
We take a fresh look at the aggregate and distributional effects of policies to
liberalizeinternational capital flows-financial globalization Both country- and industry-level
resultssuggest that such policies have led on average to limited output gains while
contributing tosignificant increases in inequality-that is they pose an equity-efficiency trade-
off Behindthis average lies considerable heterogeneity in effects depending on country
characteristicsLiberalization increases output in countries with high financial depth and
those that avoidfinancial crises while distributional effects are more pronounced in countries
with lowfinancial depth and inclusion and where liberalization is followed by a crisis
Difference-indifferenceestimates using sectoral data suggest that liberalization episodes
reduce the shareof labor income particularly for industries with higher external financial
dependence thosewith a higher natural propensity to use layoffs to adjust to idiosyncratic
shocks and thosewith a higher elasticity of substitution between capital and labor The
sectoral resultsunderpin a causal interpretation of the findings using macro data
Keywords Globalization Inequality Capital Account Openness Crises Institutions
JEL Classification F13 G32 O11
The Dynamics of Sovereign Debt Crises and Bailouts CEPR Discussion Paper No DP12921
44 Pages Posted 15 May 2018
Francisco Roch International Monetary Fund (IMF)
Harald Uhlig University of Chicago - Department of Economics
There are 2 versions of this paper
Date Written May 2018
Abstract
Motivated by the recent European debt crisis this paper investigates the scope for a bailout
guarantee in a sovereign debt crisis Defaults may arise from negative income shocks
government impatience or a sunspot-coordinated buyers strike We introduce a bailout
agency and characterize the strategy with the minimal actuarially fair intervention which
guarantees the no-buyers-strike fundamental equilibrium relying on the market for residual
financing The intervention makes it cheaper for governments to borrow inducing them
borrow more leaving default probabilities possibly rather unchanged The maximal backstop
will be pulled precisely when fundamentals worsen
Keywords Bailouts default Endogenous Borrowing Constraints Eurozone Debt Crisis long-
term debt OMT Self-fulfilling Crises
JEL Classification F34 F41
Cumulative Impacts of Conditional Cash Transfer Programs Experimental Evidence from Indonesia
by Nur Cahyadi Rema Hanna Benjamin A Olken Rizal Adi Prima Elan Satriawan Ekki
Syamsulhakim - 24670 (CH DEV PE)
Abstract
Conditional cash transfer (CCT) programs have spread worldwide
and are designed to promote comprehensive human capital
investments in children starting from encouraging pre-natal and
maternal care and early childhood health interventions and
continuing through incentivizing school attendance Yet
evaluating these claims over more than a few years is hard as
most CCT experiments extend the program to the control group
after a short experimental period This paper experimentally
estimates the impacts of Indonesias cash transfer program (PKH)
six years after the program launched using data from about
14000 households in 360 sub-districts across Indonesia taking
advantage of the fact that treatment and control locations
remained largely intact throughout the period We find that PKH
continues to have large static incentive effects on many of the
targeted indicators increasing usage of trained health
professionals for childbirth dramatically and halving the share
of children age 7-15 who are not enrolled in school Wage labor
for 13-15 year olds was reduced by at least one-third We also
begin to observe impacts on outcomes that may require cumulative
investments for example six years later we observe large
reductions in stunting and some evidence of increased high school
completion rates The results suggest that CCT investments can
have substantial effects on the accumulation of human capital
and that these effects can persist even when programs are
operating at large-scale without researcher intervention
httppapersnberorgpapersW24670utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Services Development and Comparative Advantage in
Manufacturing World Bank Policy Research Working Paper No 8450
47 Pages Posted 23 May 2018
Xuepeng Liu Kennesaw State University - Department of Economics and Finance
Aaditya Mattoo World Bank - Development Research Group (DECRG)
Zhi Wang George Mason University - Schar School of Policy and Government
Shang-Jin Wei Columbia Business School - Finance and Economics National Bureau of Economic Research (NBER) Centre
for Economic Policy Research (CEPR) International Monetary Fund (IMF) Tsinghua University - School of
Economics amp Management
Date Written May 22 2018
Abstract
Most manufacturing activities use inputs from the financial and business services sectors But
these services sectors also compete for resources with manufacturing activities provoking
concerns about de-industrialization -- financial services in industrial countries like the United
States and the United Kingdom and business services in developing countries like India and
the Philippines This paper examines the implications of services development for the export
performance of manufacturing sectors It develops a methodology to quantify the indirect role
of services in international trade in goods and constructs new measures of revealed
comparative advantage based on domestic value added in gross exports The paper shows
that the development of financial and business services enhances the revealed comparative
advantage of manufacturing sectors that use these services intensively but not that of other
manufacturing sectors It also finds that a country can partially overcome the handicap of an
underdeveloped domestic services sector by relying more on imported services inputs Thus
lower services trade barriers in developing countries can help to promote their
manufacturing exports
Keywords Textiles Apparel amp Leather Industry Pulp amp Paper Industry General
Manufacturing Food amp Beverage Industry Common Carriers Industry Construction Industry
Plastics amp Rubber Industry Business Cycles and Stabilization Policies International Trade and
Trade Rules Trade and Services Financial Economics Finance and Development Economic
Growth Economic Theory amp Research Industrial Economics
Thou Shalt Not Breach The Impact on Sovereign
Spreads of Noncomplying with the EU Fiscal Rules IMF Working Paper No 1887
37 Pages Posted 22 May 2018
Federico Kalan International Monetary Fund (IMF)
Adina Popescu International Monetary Fund (IMF)
Julien P M Reynaud International Monetary Fund (IMF) Universiteacute Paris I Pantheacuteon-Sorbonne
Date Written April 2018
Abstract
There is evidence that fiscal rules in particular well-designed rules are associated with lower
sovereign spreads However the impact of noncompliance with fiscal rules on spreads has not
been examined in the literature This paper estimates the effect of the Excessive Deficit
Procedure (EDP) on sovereign spreads of European Union member states Based on a sample
including the 28 European Union countries over the period 1999 to 2016 sovereign spreads
of countries placed under an EDP are found to be on average higher compared to countries
that are not under an EDP The interpretation of this result is not straight-forward as different
channels may be at play in particular those related with the credibility and the design of the
EU fiscal framework The specification accounts for typical macroeconomic fiscal and
financial determinants of sovereign spreads the System Generalized Method of Moments
estimator is used to control for endogeneity and results are robust to a range of checks on
variables and estimators
Keywords Fiscal rules Fiscal policy noncompliance sovereign spreads General Models
with Panel Data
JEL Classification E62 H60 C23
ldquoUnconventionalrdquo Monetary Policy as Conventional
Monetary Policy A Perspective from the US In the
1920s
FEDS Working Paper No 2018-019
45 Pages Posted 6 Jun 2018
Mark A Carlson Board of Governors of the Federal Reserve System
Burcu Duygan-Bump Federal Reserve Board
Date Written 2018-03-09
Abstract
To implement monetary policy in the 1920s the Federal Reserve utilized administered
interest rates and conducted open market operations in both government securities and
private money market securities sometimes in fairly considerable amounts We show how the
Fed was able to effectively use these tools to influence conditions in money markets even
those in which it was not an active participant Moreover our results suggest that the
transmission of monetary policy to money markets occurred not just through changing the
supply of reserves but importantly through financial market arbitrage and the rebalancing of
investor portfolios The tools used in the 1920s by the Federal Reserve resemble the
extraordinary monetary policy tools used by central banks recently and provide further
evidence on their effectiveness even in ordinary times
Keywords Monetary policy Unconventional monetary policy Central banking Administered
rates Money markets Quantitative easing
JEL Classification E52 E58 N22
New Perspectives on the Decline of US
Manufacturing Employment FEDS Working Paper No 2018-023
37 Pages Posted 7 Jun 2018
Teresa Fort Dartmouth College - Tuck School of Business
Justin R Pierce Federal Reserve Board
Peter Schott Yale School of Management National Bureau of Economic Research (NBER)
Date Written 2018-04-13
Abstract
We use relatively unexplored dimensions of US microdata to examine how US manufacturing
employment has evolved across industries firms establishments and regions from 1977 to
2012 We show that these data provide support for both trade- and technology-based
explanations of the overall decline of employment over this period while also highlighting the
difficulties of estimating an overall contribution for each mechanism Toward that end we
discuss how further analysis of these trends might yield sharper insights
Keywords Employment Manufacturing Output Technology Trade
AI and the Economy
by Jason Furman Robert Seamans - 24689 (PR)
Abstract
We review the evidence that artificial intelligence (AI) is
having a large effect on the economy Across a variety of
statistics--including robotics shipments AI startups and patent
counts--there is evidence of a large increase in AI-related
activity We also review recent research in this area which
suggests that AI and robotics have the potential to increase
productivity growth but may have mixed effects on labor
particularly in the short run In particular some occupations
and industries may do well while others experience labor market
upheaval We then consider current and potential policies around
AI that may help to boost productivity growth while also
mitigating any labor market downsides including evaluating the
pros and cons of an AI specific regulator expanded antitrust
enforcement and alternative strategies for dealing with the
labor-market impacts of AI including universal basic income and
guaranteed employment
httppapersnberorgpapersW24689utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Economic Policy for Artificial Intelligence
by Ajay K Agrawal Joshua S Gans Avi Goldfarb - 24690 (PR)
Abstract
Recent progress in artificial intelligence (AI) - a general
purpose technology affecting many industries - has been focused
on advances in machine learning which we recast as a
quality-adjusted drop in the price of prediction How will this
sharp drop in price impact society Policy will influence the
impact on two key dimensions diffusion and consequences
First in addition to subsidies and IP policy that will influence
the diffusion of AI in ways similar to their effect on other
technologies three policy categories - privacy trade and
liability - may be uniquely salient in their influence on the
diffusion patterns of AI Second labor and antitrust policies
will influence the consequences of AI in terms of employment
inequality and competition
httppapersnberorgpapersW24690utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Missing Profits of Nations
by Thomas R Torslov Ludvig S Wier Gabriel Zucman - 24701 (CF IFM ITI PE)
Abstract
By combining new macroeconomic statistics on the activities of
multinational companies with the national accounts of tax havens
and the worlds other countries we estimate that close to 40 of
multinational profits are shifted to low-tax countries each year
Profit shifting is highest among US multinationals the tax
revenue losses are highest for the European Union and developing
countries We show theoretically and empirically that in the
current international tax system tax authorities of high-tax
countries do not have incentives to combat profit shifting to tax
havens They instead focus their enforcement effort on
relocating profits booked in other high-tax countries--in effect
stealing revenue from each other This policy failure can
explain the persistence of profit shifting to low-tax countries
despite the high costs involved for high-tax countries We
provide a new cross-country database of GDP corporate profits
trade balances and factor shares corrected for profit shifting
showing that the global rise of the corporate capital share is
significantly under-estimated
httppapersnberorgpapersW24701utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Global Financial Cycles and Risk Premiums
by Oscar Jorda Moritz Schularick Alan M Taylor Felix Ward - 24677 (AP DAE IFM ME)
Abstract
This paper studies the synchronization of financial cycles across
17 advanced economies over the past 150 years The comovement in
credit house prices and equity prices has reached historical
highs in the past three decades The sharp increase in the
comovement of global equity markets is particularly notable We
demonstrate that fluctuations in risk premiums and not risk-free
rates and dividends account for a large part of the observed
equity price synchronization after 1990 We also show that US
monetary policy has come to play an important role as a source of
fluctuations in risk appetite across global equity markets
These fluctuations are transmitted across both fixed and floating
exchange rate regimes but the effects are more muted in floating
rate regimes
httppapersnberorgpapersW24677utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Geography of Linguistic Diversity and the Provision of Public Goods
by Klaus Desmet Joseph Gomes Ignacio Ortunyo-Ortin - 24694 (PE POL)
Abstract
This paper analyzes the importance of local interaction between
individuals of different linguistic groups for the provision of
public goods at the national level The micro-founded conceptual
framework we develop predicts that a countrys public goods (i)
decrease in its overall linguistic fractionalization and (ii)
either increase or decrease in its local learning multiplier a
measure of how local interaction affects antagonism towards other
groups in the society at large After constructing a 5 km by 5
km dataset on language use for 223 countries we empirically
explore these theoretical predictions While overall
fractionalization worsens public goods outcomes we find a
positive causal effect of local learning Conditional on a
countrys overall diversity public goods outcomes are maximized
when there are a few large-sized groups and the diversity of each
location mirrors that of the country as a whole Our large-scale
study spanning the entire globe confirms experimental
micro-evidence in favor of contact theory
httppapersnberorgpapersW24694utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Misfits in the Car Industry Offshore Assembly
Decisions at the Variety Level CEPR Discussion Paper No DP12940
39 Pages Posted 21 May 2018
Keith Head University of British Columbia (UBC) - Division of Strategy and Business Economics
Thierry Mayer Sciences Po
Date Written May 2018
Abstract
This paper estimates the role of countryvariety comparative advantage in the decision to
offshore assembly of more than 2000 models of 197 car brands headquartered in 23
countries While offshoring in the car industry has risen from 2000 to 2016 the top five
offshoring brands account for half the car assembly relocated to low-wage countries We show
that the decision to offshore a particular car model depends on two types of cost
(dis)advantage of the home country relative to foreign locations The first type the assembly
costs common to all models is estimated via a structural triadic gravity equation The second
effect model-level comparative advantage is an interaction between proxies for the models
skill and capital intensity and headquarter countrys abundance in these factors
Keywords cars Gravity offshoring
JEL Classification F1
Global Crises and Populism The Role of Eurozone
Institutions CEPR Discussion Paper No DP12944
46 Pages Posted 21 May 2018
Luigi Guiso Einaudi Institute for Economics and Finance (EIEF)
Helios Herrera University of Warwick
Massimo Morelli Bocconi University
Tommaso Sonno Catholic University of Louvain (UCL) London School of Economics amp Political Science (LSE) - Centre for
Economic Performance (CEP)
Date Written May 2018
Abstract
Populist parties are likely to gain consensus when mainstream parties and status quo
institutions fail to manage the shocks faced by their economies Institutional constraints
which limit the possible actions in the face of shocks result in poorer performance and
frustration among voters who turn to populist movements We rely on this logic to explain the
different support of populist parties among European countries in response to the
globalization shock and to the 2008-2011 - financial and sovereign debt crisis We predict a
greater success of populist parties in response to these shocks in Euro zone countries and our
empirical analysis confirms this prediction This is consistent with voters frustration for the
greater inability of the Euro zone governments to react to di cult-to-manage globalization
shocks and financial crises Our evidence has implications for the speed of construction of
political unions A slow staged process of political unification can expose the EU to a risk of
political backlash if hard to manage shocks hit the economies during the integration process
Keywords Financial Dependence Frustration Globalization populism Relocation
JEL Classification D72 D78 F14 F16
Currency Unions Trade and Heterogeneity CEPR Discussion Paper No DP12954
50 Pages Posted 31 May 2018
Natalie Chen University of Warwick - Department of Economics Centre for Economic Policy Research (CEPR)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
Date Written May 2018
Abstract
How do trade costs affect international trade This paper offers a new approach We rely on a
flexible gravity equation that predicts variable trade cost elasticities both across and within
country pairs We apply this framework to the effect of currency unions on international
trade While we estimate that currency unions are associated with a trade increase of around
38 percent on average we find substantial underlying heterogeneity Consistent with the
predictions of our framework we find effects around three times as strong for country pairs
associated with small import shares and a zero effect for large import shares Our results
imply that conventional homogeneous currency union estimates do not provide helpful
guidance for countries considering to join a currency union Instead countries need to take
into account the distribution of their trade shares to assess the impact of trade costs
Keywords Currency Unions euro Gravity Heterogeneity Trade Costs Trade Elasticity
Translog
JEL Classification F14 F15 F33
Fiscal Multipliers and Foreign Holdings of Public Debt CEPR Discussion Paper No DP12960
76 Pages Posted 5 Jun 2018
Fernando Broner CREI Barcelona GSE Universitat Pompeu Fabra CEPR
Daragh Clancy European Stability Mechanism
Aitor Erce European Stability Mechanism Banco de Espantildea - Associate Directorate General International Affairs
Alberto Martin Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) Centre for Economic
Policy Research (CEPR)
There are 2 versions of this paper
Date Written May 2018
Abstract
This paper explores a natural connection between fiscal multipliers and foreign holdings of
public debt Although fiscal expansions can raise domestic economic activity through various
channels they can also have crowding-out effects if the resources used to acquire public debt
reduce domestic consumption and investment Thus these crowding-out effects are likely to
be weaker when public debt is purchased by foreigners We test this hypothesis on (i) post-
war US data and (ii) data for a panel of 17 advanced economies from the 1980s to the
present To do so we assemble a novel database of public debt holdings by domestic and
foreign creditors for a large set of advanced economies We combine this data with standard
measures of fiscal policy shocks and show that indeed the size of fiscal multipliers is
increasing in the share of public debt held by foreigners In particular the fiscal multiplier is
smaller than one when the foreign share is low such as in the US in the 1950s and 1960s
and Japan today and larger than one when the foreign share is high such as in the US and
Ireland today
Keywords Fiscal Multiplier Foreign Holdings of Public Debt Sovereign debt
JEL Classification E62 F32 F34 F36 F41 F62 F65 G15 H63
Refugee Resettlement Redistribution and Growth CESifo Working Paper Series No 6961
26 Pages Posted 30 May 2018
Leonid V Azarnert Ariel University Center
Date Written April 09 2018
Abstract
This paper studies the effect of refugee resettlement on human capital accumulation The
analysis is performed in a growth model with endogenous fertility I show how refugee
resettlement from a more advanced and wealthier economy to a less advanced and less
wealthy economy combined with income transfers is Pareto-improving for indigenous
populations in both countries I also derive conditions for the proposed resettlement policy to
stimulate human capital accumulation and hence economic growth in both economies
Keywords refugee resettlement fertility human capital growth
JEL Classification D300 F220 J100 O100
The Impact of Trade Liberalization on Firm Productivity and Innovation
by Pian Shu Claudia Steinwender - 24715 (ITI PR)
Abstract
This chapter reviews the empirical economics literature on the
impact of trade liberalization on firms innovation-related
outcomes We define and examine four types of shocks to trade
flows import competition export opportunities access to
imported intermediates and foreign input competition Our
review reveals interesting heterogeneities at the country and
firm levels In emerging countries trade liberalization appears
to spur productivity and innovation In developed countries
export opportunities and access to imported intermediates tend to
encourage innovation but the evidence on import competition is
mixed especially for firms in the United States At the firm
level the positive effects of trade on innovation are more
pronounced at the initially more productive firms while the
negative effects are more pronounced at the initially less
productive firms
httppapersnberorgpapersW24715utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The IT Revolution and the Globalization of RampD
by Lee G Branstetter Britta M Glennon J Bradford Jensen - 24707 (ITI PR)
Abstract
Since the 1990s RampD has become less geographically concentrated
and has seen especially fast growth in emerging markets One of
the distinguishing features of the RampD globalization phenomenon
is its concentration within the softwareIT domain the increase
in foreign RampD has been largely concentrated within software and
IT-intensive multinationals and new RampD destinations are also
more software and IT-intensive multinationals than traditional
RampD destinations In this paper we document three important
phenomena (1) the globalization of RampD (2) the growing
importance of software and IT to firm innovation and (3) the
rise of new RampD hubs We argue that the shortage in
softwareIT-related human capital resulting from the large IT-
and software-biased shift in innovation drove US MNCs abroad and
particularly drove them abroad to new hubs with large
quantities of STEM workers who possessed IT and software skills
Our findings support the view that the globalization of US
multinational RampD has reinforced the technological leadership of
US-based firms in the information technology domain and that
multinationals ability to access a global talent base could
support a high rate of innovation even in the presence of the
rising (human) resource cost of frontier RampD
httppapersnberorgpapersW24707utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Global Financial Cycles and Risk Premiums CEPR Discussion Paper No DP12969
60 Pages Posted 5 Jun 2018
Ogravescar Jordagrave Federal Reserve Banks - Federal Reserve Bank of San Francisco
Moritz Schularick University of Bonn - Department of Economics Centre for Economic Policy Research (CEPR)
Alan M Taylor University of California Davis - Department of Economics University of Virginia - Department of
Economics National Bureau of Economic Research (NBER) Centre for Economic Policy Research (CEPR)
Felix Ward Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics
There are 2 versions of this paper
Date Written June 2018
Abstract
This paper studies the synchronization of financial cycles across 17 advanced economies over
the past 150 years The comovement in credit house prices and equity prices has reached
historical highs in the past three decades The sharp increase in the comovement of global
equity markets is particularly notable We demonstrate that fluctuations in risk premiums
and not risk-free rates and dividends account for a large part of the observed equity price
synchronization after 1990 We also show that US monetary policy has come to play an
important role as a source of fluctuations in risk appetite across global equity markets These
fluctuations are transmitted across both fixed and floating exchange rate regimes but the
effects are more muted in floating rate regimes
Keywords asset prices equity return premium financial centers financial cycles policy
spillovers
JEL Classification E50 F33 F42 F44 G12 N10 N20
Automation and Unemployment Help is on the Way CEPR Discussion Paper No DP12974
32 Pages Posted 11 Jun 2018
Hideki Nakamura Osaka City University
Joseph Zeira Hebrew University of Jerusalem - Department of Economics Centre for Economic Policy Research (CEPR)
LUISS Guido Carli DPTEA
Date Written June 2018
Abstract
This paper presents a model of technical change that combines two lines of research together
It is a task based model in which automation turns labor tasks to mechanized ones and there
is also a continuous addition of new labor tasks as in the expanding variety literature We
impose three simple restrictions on the model The first is that all new tasks are adopted The
second is that all new automation innovations are adopted and the third is that the share of
labor does not converge to zero in the long run We show that these restrictions imply that
unemployment due to automation is expected to converge to zero over time
Keywords automation growth Labor Income Share technical change unemployment
JEL Classification J64 O14 O30 O40
Sovereign Default in a Monetary Union CEPR Discussion Paper No DP12976
56 Pages Posted 11 Jun 2018
Sergio de Ferra Stockholm University
Federica Romei LUISS Guido Carli University
Date Written June 2018
Abstract
In the aftermath of the global fi nancial crisis sovereign default risk and the zero lower bound
have limited the ability of policy-makers in the European monetary union to achieve their
stabilization objective This paper investigates the interaction between sovereign default risk
and the conduct of monetary policy when borrowers can act strategically and they share with
their lenders a single currency in a monetary union We address this question in an
endogenous sovereign default model of heterogeneous countries in a monetary union where
the monetary authority may be constrained by the zero lower bound We uncover three main
results First in normal times debtors have a stronger incentive to default to induce more
expansionary monetary policy Second the zero lower bound or constraints on monetary
policy may act as a disciplining device to enforce repayment of sovereign debt Third
sovereign default risk induces countries with a preference for tight monetary policy to accept
a laxer policy stance These results help to shed light on the recent European experience of
high default risk expansionary monetary policy and low nominal interest rates
Keywords Heterogeneous Countries monetary union sovereign default zero lower bound
JEL Classification F34 F42 F45 H63
Evolution of Modern Business Cycle Models Accounting for the Great Recession
by Patrick J Kehoe Virgiliu Midrigan Elena Pastorino - 24741 (EFG IFM LS ME)
Abstract
Modern business cycle theory focuses on the study of dynamic
stochastic general equilibrium models that generate aggregate
fluctuations similar to those experienced by actual economies
We discuss how this theory has evolved from its roots in the
early real business cycle models of the late 1970s through the
turmoil of the Great Recession four decades later We document
the strikingly different pattern of comovements of macro
aggregates during the Great Recession compared to other postwar
recessions especially the 1982 recession We then show how two
versions of the latest generation of real business cycle models
can account respectively for the aggregate and the
cross-regional fluctuations observed in the Great Recession in
the United States
httppapersnberorgpapersW24741utm_campaign=ntwamputm_medium=emailamputm_source=ntw
What Happened Financial Factors in the Great Recession
by Mark Gertler Simon Gilchrist - 24746 (EFG ME)
Abstract
Since the onset of the Great Recession an explosion of both
theoretical and empirical research has investigated how the
financial crisis emerged and how it was transmitted to the real
sector The goal of this paper is to describe what we have
learned from this new research and how it can be used to
understand what happened during the Great Recession In the
process we also present some new evidence on the role of the
household balance sheet channel versus the disruption of banking
We examine a panel of quarterly state level data on house
prices mortgage debt and employment along with a measure of
banking distress Then exploiting both panel data and time
series methods we analyze the contribution of the house price
decline versus the banking distress indicator to the overall
decline in employment during the Great Recession We confirm a
common finding in the literature that the household balance sheet
channel is important for regional variation in employment
However we also find that the disruption in banking was central
to the overall employment contraction
httppapersnberorgpapersW24746utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Changing Structure of Immigration to the OECD
What Welfare Effects on Member Countries CESifo Working Paper Series No 6992
40 Pages Posted 27 Jun 2018
Michał Burzyński Universite du Luxembourg
Freacutedeacuteric Docquier Universiteacute catholique de Louvain CREAM Centre for Research on Environmental Appraisal amp Management
UK IZA Institute of Labor Economics
Hillel Rapoport Paris School of Economics (PSE)
Date Written April 24 2018
Abstract
We investigate the welfare implications of two pre-crisis immigration waves (1991ndash2000 and
2001ndash2010) and of the post-crisis wave (2011ndash2015) for OECD native citizens To do so we
develop a general equilibrium model that accounts for the main channels of transmission of
immigration shocks ndash the employment and wage effects the fiscal effect and the market size
effect ndash and for the interactions between them We parameterize our model for 20 selected
OECD member states We find that the three waves induce positive effects on the real income
of natives however the size of these gains varies considerably across countries and across
skill groups In relative terms the post-crisis wave induces smaller welfare gains compared to
the previous ones This is due to the changing origin mix of immigrants which translates into
lower levels of human capital and smaller fiscal gains However differences across cohorts
explain a tiny fraction of the highly persistent cross-country heterogeneity in the economic
benefits from immigration
Keywords immigration welfare crisis inequality general equilibrium
JEL Classification C680 F220 J240
Anatomy and Impact of Export Promotion Agencies World Bank Policy Research Working Paper No 8470
19 Pages Posted 11 Jun 2018
Marcio Cruz World Bank Federal University of Parana (UFPR) - Departamento de Economia
Daniel Lederman World Bank - Latin America and Caribbean Region
Laura Zoratto World Bank
Date Written June 7 2018
Abstract
Recent literature has shown evidence of positive contributions of export promotion agencies
around the world in raising exports through the intensive and extensive margins of trade The
number of export promotion agencies has increased substantially over the past two decades
and most of them focus on assisting exporters in understanding and finding markets for their
products This paper describes the characteristics of export promotion agencies around the
world using a novel database from the World Bank in collaboration with the International
Trade Center in Geneva covering 2005-10 In addition it presents a short summary of the
literature on the impacts of export promotion agencies
Keywords Export Competitiveness International Trade and Trade Rules Rules of Origin
Trade Policy Trade and Multilateral Issues Trade and Services
Optimal Inflation and the Identification of the Phillips
Curve CEPR Discussion Paper No DP12981
29 Pages Posted 11 Jun 2018
Michael McLeay Bank of England - Monetary Assessment and Strategy Division
Silvana Tenreyro London School of Economics (LSE)
Date Written June 2018
Abstract
This paper explains why inflation follows a seemingly exogenous statistical process unrelated
to the output gap In other words it explains why it is difficult to empirically identify a Phillips
curve We show why this result need not imply that the Phillips curve does not hold -- on the
contrary our conceptual framework is built under the assumption that the Phillips curve
always holds The reason is simple if monetary policy is set with the goal of minimising
welfare losses (measured as the sum of deviations of inflation from its target and output from
its potential) subject to a Phillips curve a central bank will seek to increase inflation when
output is below potential This targeting rule will impart a negative correlation between
inflation and the output gap blurring the identification of the (positively sloped) Phillips
curve
Keywords identification Inflation targeting Phillips curve
GVCs and the Endogenous Geography of RTAs CESifo Working Paper Series No 6980
43 Pages Posted 11 Jun 2018
Lionel Fontagne University of Paris 1 Pantheacuteon Sorbonne Paris School of Economics CEPII
Gianluca Santoni Centre dEtudes Prospectives et dInfo Internationales (CEPII)
Date Written April 19 2018
Abstract
Geography economic size or common history help predicting signed regional trade
agreements (RTAs) However not all signed RTAs are ldquonaturalrdquo according to economic
determinants En-dogeneity and general equilibrium effects of RTAS are the two mechanisms
addressed in this paper We estimate the time-varying probability for a country pair to sign a
trade agreement and build upon structural gravity in general equilibrium to determine how
the patterns of Global Value Chains shape the evolving geography of optimal RTAS Our results
confirm that the endogenous geography of RTAs is shaped by the development of GVCs
Keywords preferential trade agreements global value chains structural gravity
JEL Classification F130 F140 F150
Diversity and Growth CEPR Discussion Paper No DP13011
37 Pages Posted 26 Jun 2018
Mark Gradstein Ben-Gurion University of the Negev - Department of Economics CESifo (Center for Economic Studies and
Ifo Institute) Centre for Economic Policy Research (CEPR) World Bank - Development Research Group
(DECRG)
There are 2 versions of this paper
Date Written June 2018
Abstract
The diversity of social interaction within economic communities affects productivity and
growth and is itself shaped by economic conditions These reciprocal effects raise the
possibility of multiple equilibria of setting a socially polarized economy stagnating in poverty
on a new path of social integration and economic growth through external intervention or an
internal political initiative This paper describes a simple analytical model that captures these
reciprocal effects and sheds light on the role of government capacity community leadership
federation and external credit or aid in achieving economic growth through social integration
The Economics of Language CEPR Discussion Paper No DP13002
85 Pages Posted 26 Jun 2018
Victor Ginsburgh Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics
(ECARES)
Shlomo Weber Southern Methodist University (SMU) - Department of Economics New Economic School
Date Written June 2018
Abstract
The paper brings together methodological theoretical and empirical analysis into the single
framework of linguistic diversity It reflects both historical and contemporary research by
economists and other social scientists on the impact of language on economic outcomes and
public policies We examine whether and how language influences human thinking (including
emotions) and behavior analyze the effects of linguistic distances on trade migrations
financial markets language learning and its returns The quantitative foundations of linguistic
diversity which rely on group identification linguistic distances as well as fractionalization
polarization and disenfranchisement indices are discussed in terms of their empirical
challenges and uses We conclude with an analysis of linguistic policies and shifts of languages
and examine their welfare effects and the trade-offs between the development of labor
markets and the social costs that they generate in various countries
Financial and Fiscal Interaction in the Euro Area
Crisis This Time Was Different CEPR Discussion Paper No DP13016
39 Pages Posted 3 Jul 2018
Alberto Caruso Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics
(ECARES)
Lucrezia Reichlin London Business School Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in
Economics and Statistics (ECARES) Centre for Economic Policy Research (CEPR) European Central Bank
(ECB)
Giovanni Ricco University of Warwick - Department of Economics SciencesPo - OFCE
Date Written June 2018
Abstract
This paper highlights the anomalous characteristics of the Euro Area `twin crises by
contrasting the aggregate macroeconomic dynamics in the period 2009-2013 with the
business cycle fluctuations of the previous decades We report three stylised facts First the
contraction in output was marked by an anomalous downfall in investment while
consumption savings and unemployment followed their historical relation with GDP Second
households and financial corporations debts and house prices deviated from their pre-crisis
trends Third the jump in the public deficit-GDP ratio in 2008-2009 was unprecedented and
so was the fiscal consolidation that followed Our analysis points to the financial nature of the
crisis as a likely explanation for these facts Importantly the `anomaly in public deficit is in
large part explained by extraordinary measures in support of the financial sector which show
up in the stock-flow adjustments and reveal a key interaction between the fiscal and the
financial sectors
Keywords Euro Area Government Debt Recessions
JEL Classification C11 C32 C54 E52 E62 F45
The Shocks Matter Improving Our Estimates of
Exchange Rate Pass-Through CEPR Discussion Paper No DP13037
43 Pages Posted 9 Jul 2018
Kristin J Forbes Massachusetts Institute of Technology (MIT) - Sloan School of Management National Bureau of Economic
Research (NBER)
Ida Hjortsoe
Bank of England
Tsvetelina Nenova Bank of England
There are 4 versions of this paper
Date Written July 2018
Abstract
A major challenge for monetary policy is predicting how exchange rate movements will
impact inflation We propose a new focus directly incorporating the underlying shocks that
cause exchange rate fluctuations when evaluating how these fluctuations pass through to
import and consumer prices A standard open-economy model shows that the relationship
between exchange rates and prices depends on the shocks which cause the exchange rate to
move We build on this to develop a structural Vector Autoregression (SVAR) framework for a
small open economy and apply it to the UK We show that prices respond differently to
exchange rate movements based on what caused the movements For example exchange rate
pass-through is low in response to domestic demand shocks and relatively high in response to
domestic monetary policy shocks This framework can improve our ability to estimate how
pass-through can change over short periods of time For example it can explain why sterlings
post-crisis depreciation caused a sharper increase in prices than expected while the effect of
sterlings 2013-15 appreciation was more muted We also apply this framework to forecast
the extent of pass-through from sterlings sharp depreciation corresponding to the UKs vote
to leave the European Union
Keywords consumer prices exchange rate pass-through import prices inflation vector
autoregressions
JEL Classification E31 F3 F41
Why Has Economic Growth Slowed When Innovation
Appears to Be Accelerating CEPR Discussion Paper No DP13039
29 Pages Posted 9 Jul 2018
Robert J Gordon Northwestern University - Department of Economics National Bureau of Economic Research (NBER)
Centre for Economic Policy Research (CEPR)
There are 2 versions of this paper
Date Written July 2018
Abstract
U S economic growth slowed by more than half from 32 percent per year during 1970-2006
to only 14 percent during 2006-16 and this decline was divided equally between slower
growth in hours of work and slower growth in output per hour In explaining slower growth
in hours particular emphasis is placed on the slower secular rise of life expectancy in the US
compared to other developed countries Further contributions to slowing growth are made by
a decline in the population share of both legal and illegal immigration and a turnaround from
rising to declining labor force participation Causes of declining productivity growth begin
with the slowdown in the rate of increase of educational attainment Why did productivity
growth decline after 2006 despite an increase in the rate at which new US patents were
issued in 2006-16 compared to earlier decades Part of the slowdown is attributed to the
maturity of the IT revolution which also helps to explain the trajectory of the college wage
premium Aspects of the productivity growth slowdown include the declining productivity of
research workers diminishing returns to drug innovation and the evolutionary rather than
revolutionary impact of robots and artificial intelligence
Keywords Economic Growth Immigration Innovation labor force participation Mortality
productivity
JEL Classification D24 E24
On DSGE Models
by Lawrence J Christiano Martin S Eichenbaum Mathias Trabandt - 24811 (EFG ME)
Abstract
The outcome of any important macroeconomic policy change is the
net effect of forces operating on different parts of the economy
A central challenge facing policy makers is how to assess the
relative strength of those forces Dynamic Stochastic General
Equilibrium (DSGE) models are the leading framework that
macroeconomists have for dealing with this challenge in an open
and transparent manner This paper reviews the state of DSGE
models before the financial crisis and how DSGE modelers
responded to the crisis and its aftermath In addition we
discuss the role of DSGE models in the policy process
httppapersnberorgpapersW24811utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Currency Wars Unconventional Monetary Policy Does Not Stimulate Exports
by Andrew K Rose - 24817 (IFM ITI)
Abstract
I investigate whether countries that use unconventional monetary
policy (UMP) experience export booms I use a popular gravity
model of trade which requires neither the exogeneity of UMP nor
instrumental variables for UMP In practice countries that
engage in UMP experience a drop in exports vis-a-vis countries
that are not engaged in such policies holding other things
constant Quantitative easing is associated with exports that
are about 10 lower to countries not engaged in UMP this amount
is significantly different from zero and similar to the effect of
negative nominal interest rates Thus there is no evidence that
countries have gained export markets through unconventional
monetary policy currency wars that have been launched have also
been lost UMP is also associated with a comparable drop in
imports and exchange rates suggesting that countries engage in
UMP when they are experiencing adverse macroeconomic shocks
concurrent with those that eviscerate international trade
httppapersnberorgpapersW24817utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Granular Comparative Advantage
by Cecile Gaubert Oleg Itskhoki - 24807 (EFG IFM IO ITI)
Abstract
Large firms play a pivotal role in international trade shaping
the export patterns of countries We propose and quantify a
granular multi-sector model of trade which combines fundamental
comparative advantage across sectors with granular comparative
advantage embodied in outstanding individual firms We develop
an SMM-based estimation procedure which takes full account of
the general equilibrium of the model to jointly estimate these
fundamental and granular forces using French micro-data with
information on firm domestic and export sales across
manufacturing industries We find that granularity accounts for
about 20 of the variation in realized export intensity across
sectors and is more pronounced in the most export-intensive
sectors In turn idiosyncratic firm dynamics accounts for a
large share of the evolution of a countrys comparative advantage
over time Governments face strong incentives to target trade
policy at large individual foreign exporters and to use lenient
antitrust regulation at home to substitute for
beggar-thy-neighbor trade policy
httppapersnberorgpapersW24807utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The State of New Keynesian Economics A Partial Assessment
by Jordi Gali - 24845 (EFG ME)
Abstract
I provide an overview of recent developments in monetary
economics with an emphasis on extensions of the New Keynesian
framework that assume a zero lower bound on the short term
nominal rate as well as models with household heterogeneity
httppapersnberorgpapersW24845utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Artificial Intelligence Economics and Industrial Organization
by Hal Varian - 24839 (IO PR)
Abstract
Machine learning (ML) and artificial intelligence (AI) have been
around for many years However in the last 5 years remarkable
progress has been made using multilayered neural networks in
diverse areas such as image recognition speech recognition and
machine translation AI is a general purpose technology that is
likely to impact many industries In this chapter I consider how
machine learning availability might affect the industrial
organization of both firms that provide AI services and
industries that adopt AI technology My intent is not to
provide an extensive overview of this rapidly-evolving area but
instead to provide a short summary of some of the forces at work
and to describe some possible areas for future research
httppapersnberorgpapersW24839utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Twenty Five Years of Global Imbalances CEPR Discussion Paper No DP13066
20 Pages Posted 24 Jul 2018
Maurice Obstfeld International Monetary Fund (IMF)
Date Written July 2018
Abstract
As international capital markets expanded in breadth and depth after the middle 1990s
global current account imbalances also expanded markedly Some have linked the origin of
the subsequent Global Financial Crisis (GFC) to these global imbalances This essay proposes
answers to four questions about the recent history of global imbalances Why did global
imbalances expand after the mid-1990s What circumstances and concomitant factors
provide clues about the origins of the GFC If one accepts that a mono-causal story about the
GFC based on global imbalances is inaccurate how should one view the potential threats from
excessive global imbalances today And finally what policy implications follow
Keywords current account global financial crisis (GFC) global imbalances IMF External
Sector Report
Is Automation Labor-Displacing Productivity Growth Employment and the Labor Share
by David Autor Anna Salomons - 24871 (EFG LS)
Abstract
Many technological innovations replace workers with machines but
this capital-labor substitution need not reduce aggregate labor
demand because it simultaneously induces four countervailing
responses own-industry output effects cross-industry
input-output effects between-industry shifts and final demand
effects We quantify these channels using four decades of
harmonized cross-country and industry data where we measure
automation as industry-level movements in total factor
productivity (TFP) that are common across countries We find
that automation displaces employment and reduces labors share of
value-added in the industries in which it originates (a direct
effect) In the case of employment these own-industry losses
are reversed by indirect gains in customer industries and induced
increases in aggregate demand By contrast own-industry labor
share losses are not recouped elsewhere Our framework can
account for a substantial fraction of the reallocation of
employment across industries and the aggregate fall in the labor
share over the last three decades It does not however explain
why the labor share fell more rapidly during the 2000s
httppapersnberorgpapersW24871utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Dynamic Effects of Co-Ethnic Networks on
Immigrants Economic Success CESifo Working Paper Series No 7084
43 Pages Posted 21 Jul 2018
Michele Battisti University of Palermo LUISS Guido Carli University
Giovanni Peri University of California Davis - Department of Economics
Agnese Romiti Government of the Federal Republic of Germany - Institute for Employment Research (IAB)
Date Written June 06 2018
Abstract
This paper investigates how the size of co-ethnic networks at the time of arrival affect the
economic success of immigrants in Germany Applying panel analysis with a large set of fixed
effects and controls we isolate the association between initial network size and long-run
immigrant outcomes We also look at those who were assigned to an initial location
independently of their choice allows a causal interpretation of our estimates We find that
immigrants initially located in places with larger co-ethnic networks are more likely to be
employed at first but have a lower probability of investing in human capital
Keywords networks immigration human capital employment
JEL Classification J240 J610 R230
Immigrant Artists Enrichment or Displacement CEPR Discussion Paper No DP13070
36 Pages Posted 31 Jul 2018
Karol Borowiecki University of Southern Denmark
Kathryn Graddy Brandeis University - Department of Economics
Date Written July 2018
Abstract
In order to investigate the role of immigrant artists on the development of artistic clusters in
US cities we use the US Census and American Community Survey collected every 10 years
since 1850 We identify artists and art teachers authors musicians and music teachers actors
and actresses architects and journalists their geographical location and their status as a
native or an immigrant We look at the relative growth rate of the immigrant population in
these occupations over a ten year period and how it affects the relative growth rate of native-
born individuals in these artistic occupations We find that cities that experienced immigrant
artist inflows also see a greater inflow of native artists
Keywords artistic occupations artists Immigration
JEL Classification J4 J6 N3 N9 Z1
Global Value Chains and Inequality with Endogenous Labor Supply
by Eunhee Lee Kei-Mu Yi - 24884 (ITI)
Abstract
We assess the role of global value chains in transmitting global
integration shocks to aggregate trade as well as distributional
outcomes We develop a multi-country general equilibrium trade
model that features multi-stage production with different stages
having different productivities and using factors (occupations)
with different intensities The model also features a Roy
mechanism in which heterogeneous workers endogenously choose
their sector and occupation Country- and worker-level
comparative advantages interact A reduction in trade costs
leads to countries specializing in their comparative advantage
sectors and production stages This specialization changes labor
demand and also leads to more workers shifting to their
comparative advantage sectors and occupations We calibrate our
model to the US China and the rest of the world in 2000 and
we simulate a decline in Chinas trade costs with the US
designed to mimic Chinas entry into the WTO Our simulation
results imply an increase in the skill premium in both the US
and China and the GVC ie specialization across stages is
critical to this outcome
httppapersnberorgpapersW24884utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Friedman and Phelps on the Phillips Curve Viewed from a Half Centurys Perspective
by Robert J Gordon - 24891 (EFG)
Abstract
In the late 1960s the stable negatively sloped Phillips Curve
(PC) was overturned by the Friedman-Phelps natural rate model
Their PC was vertical in the long run at the natural unemployment
rate and their short-run curve shifted up whenever unemployment
was pushed below the natural rate This paper criticizes the
underlying assumption of the Friedman-Phelps approach that the
labor market continuously clears and that changes in unemployment
down or up occur only in response to fooling of workers firms
or both A preferable and resolutely Keynesian approach
explains quantity rationing by inertia in price and wage setting
The positive correlation of inflation and unemployment in the
1970s and again in the 1990s is explained by joining the
negatively sloped Phillips Curve with a positively sloped dynamic
demand curve For any given growth of nominal GDP higher
inflation caused by adverse supply shocks implies slower real GDP
growth and higher unemployment This triangle model based on
inflation inertia demand and supply worked well to explain why
inflation and unemployment were both positively and negatively
correlated between the 1960s and 1990s but in the past decade
the slope of the short-run Phillips Curve has flattened as
inflation exhibited a muted response to high unemployment in
2009-13 and low unemployment in 2016-2018 It remains to be
seen whether a continuation of low unemployment will cause a
modest and fixed extra amount of inflation thus reviving the
stable Phillips curve of the early 1960s or whether inflation
will continuously accelerate as Friedman and Phelps would have
predicted
httppapersnberorgpapersW24891utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Tax Policy Measures in Advanced and Emerging
Economies A Novel Database IMF Working Paper No 18110
61 Pages Posted 1 Aug 2018
David Amaglobeli International Monetary Fund (IMF)
Valerio Crispolti International Monetary Fund (IMF)
Era Dabla-Norris International Monetary Fund (IMF)
Pooja Karnane International Monetary Fund (IMF)
Florian Misch International Monetary Fund (IMF)
Date Written May 2018
Abstract
This paper describes a new comprehensive database of tax policy measures in 23 advanced
and emerging market economies over the last four decades We extract this information from
more than 900 OECD Economic Surveys and 37000 tax-related news from the International
Bureau of Fiscal Documentation using text-mining techniques The innovation of this dataset
lies in its granularity changes in the rates and bases of personal and corporate income taxes
value added and sale taxes social security contributions excise and property taxes are
systematically documented In addition the database provides information on the
announcement and implementation dates whether the measures represent major changes
are part of a broader tax package and phased in over several years The paper also presents a
range of stylized facts suggesting that information from this database is useful to deepen the
analysis of tax policy changes for research and policy purposes
Keywords Tax policy Tax reforms Personal income taxes Corporate income taxes Value
added taxes Sales taxes Excise taxes Property taxes Developed countries Emerging markets
Tax Reforms Text Mining Tax Policy Implementation Lags Tax Reforms Text Mining Tax
Policy Implementation Lags Methodology for Collecting Estimating and Organizing
Macroeconomic Data General
JEL Classification C82 E61 H20 P16
Inequality Aversion Populism and the Backlash
Against Globalization CEPR Discussion Paper No DP13107
69 Pages Posted 21 Aug 2018
Lubos Pastor University of Chicago - Booth School of Business Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
Pietro Veronesi
University of Chicago - Booth School of Business Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
There are 3 versions of this paper
Date Written August 2018
Abstract
Motivated by the recent rise of populism in western democracies we develop a model in
which a populist backlash emerges endogenously in a growing economy In the model voters
dislike inequality especially the high consumption of the ``elites Economic growth
exacerbates inequality due to heterogeneity in risk aversion In response to rising inequality
rich-country voters optimally elect a populist promising to end globalization Redistribution is
of limited value in containing the backlash against globalization Countries with more
inequality higher financial development and current account deficits are more vulnerable to
populism both in the model and in the data Evidence on who voted for Brexit and Trump in
2016 also largely supports the model
Keywords Brexit Globalization inequality populism risk aversion Trump
JEL Classification D72 F65 G11 G12 G18 P16
Underemployment in the US and Europe
by David NF Bell David G Blanchflower - 24927 (IFM LS ME)
Abstract
Large numbers of part-time workers around the world both those
who choose to be part-time and those who are there involuntarily
and would prefer a full-time job report they want more hours
Full-timers who say they want to change their hours mostly say
they want to reduce them When recession hit in most countries
the number of hours of those who said they wanted more hours
rose sharply and there was a fall in the number of hours that
full-timers wanted their hours reduced by Even though the
unemployment rate has returned to its pre-recession levels in
many advanced countries underemployment in most has not
We produce estimates for a new and better underemployment rate
for twenty-five European countries In most underemployment
remains elevated We provide evidence for the UK and the US as
well as some international evidence that underemployment rather
than unemployment lowers pay in the years after the Great
Recession We also find evidence for the US that falls in the
home ownership rate have helped to keep wage pressure in check
Underemployment replaces unemployment as the main influence on
wages in the years since the Great Recession
httppapersnberorgpapersW24927utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Does Machine Translation Affect International Trade Evidence from a Large Digital Platform
by Erik Brynjolfsson Xiang Hui Meng Liu - 24917 (IO ITI PR)
Abstract
Artificial intelligence (AI) is surpassing human performance in a
growing number of domains However there is limited evidence of
its economic effects Using data from a digital platform we
study a key application of AI machine translation We find
that the introduction of a machine translation system has
significantly increased international trade on this platform
increasing exports by 175 Furthermore heterogeneous
treatment effects are all consistent with a substantial reduction
in translation-related search costs Our results provide causal
evidence that language barriers significantly hinder trade and
that AI has already begun to improve economic efficiency in at
least one domain
httppapersnberorgpapersW24917utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The US Personal Saving Rate IMF Working Paper No 18128
35 Pages Posted 1 Aug 2018
Sam Ouliaris International Monetary Fund (IMF)
Celine Rochon University of Oxford IMF
Date Written June 2018
Abstract
This paper develops a time series model for aggregate consumption to predict the US
personal saving rate It then uses the model to test whether there has been a structural break
in consumption behavior because of the 2008 financial crisis Before the crisis the personal
saving rate was trending downwards However in 2008 there was a significant rise in the
saving rate that continued until the end of 2012 suggesting a permanent change in household
behavior To assess this issue formally the unknown parameters of the model are estimated
using data for 1961Q1-2007Q4 a period which precedes the crisis The model is then used to
predict the saving rate from 2008Q1 onwards and to assess whether the rise in the saving rate
after 2008 was due to sizable but transitory incomewealth shocks or to changes in the
underlying elasticities between saving and its determinants (hence structural) The statistical
evidence suggests there was no structural break in the household saving behavior implying
that the rise in the saving rate during 2008-2012 was caused by the negative shocks to
income employment and wealth This result explains why the saving rate resumed its decline
in 2013 as real disposable income employment and net worth recovered Assuming that the
real growth in these determinants remains strong the estimated model predicts continued
negative pressures on the current account deficit and further external imbalances attributable
to the US household sector
Keywords United States Western Hemisphere consumption behavior personal saving rate
vector error-correction model structural break Consumer Economics Empirical Analysis
Personal Finance Forecasting and Simulation
JEL Classification D12 D14 E21 E27
Currency Unions Trade and Heterogeneity CESifo Working Paper Series No 7123
49 Pages Posted 24 Aug 2018
Natalie Chen University of Warwick - Department of Economics Centre for Economic Policy Research (CEPR)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
There are 2 versions of this paper
Date Written June 28 2018
Abstract
How do trade costs affect international trade This paper offers a new approach We rely on a
flexible gravity equation that predicts variable trade cost elasticities both across and within
country pairs We apply this framework to the effect of currency unions on international
trade While we estimate that currency unions are associated with a trade increase of around
38 percent on average we find substantial underlying heterogeneity Consistent with the
predictions of our framework we find effects around three times as strong for country pairs
associated with small import shares and a zero effect for large import shares Our results
imply that conventional homogeneous currency union estimates do not provide helpful
guidance for countries considering to join a currency union Instead countries need to take
into account the distribution of their trade shares to assess the impact of trade costs
Keywords currency unions euro gravity heterogeneity trade costs trade elasticity translog
JEL Classification F140 F150 F330
How Do Migration and Remittances Affect Inequality
A Case Study of Mexico IMF Working Paper No 18136
22 Pages Posted 1 Aug 2018
Zsoka Koczan International Monetary Fund (IMF)
Franz Loyola International Monetary Fund (IMF)
Date Written June 2018
Abstract
The poverty-reducing effects of remittances have been well-documented however their
effects on inequality are less clear This paper examines the impact of remittances on
inequality in Mexico using household-level information on the receiving side It hopes to
speak to their insurance role by examining how remittances are affected by domestic and
external crises the 1994 Mexican Peso crisis and the Global Financial Crisis We find that
remittances lower inequality and that they become more pro-poor over time as migration
opportunities become more widespread This also strengthens their insurance effects
mitigating some of the negative impact of shocks on the poorest
Keywords Migration Remittances Financial crises Income inequality Income distribution
Poverty reduction inequality Firm Behavior International Lending and Debt Problems
JEL Classification D21 F32 F34 J61 D31 F22 F24
Exchange Rate Forecasting on a Napkin
ECB Working Paper No 2151
Contact MICHELE CAZORZI
European Central Bank (ECB)
Email michelecazorziecbint
Auth-Page httpsssrncomauthor=343031
Co-Author MICHAŁ RUBASZEK
National Bank of Poland Warsaw
School of Economics (SGH)
Email michalrubaszeknbppl
Auth-Page httpsssrncomauthor=850188
Full Text httpsssrncomabstract=3183690
ABSTRACT This paper shows that there are two regularities in
foreign exchange markets in advanced countries with flexible
regimes First real exchange rates are mean-reverting as
implied by the Purchasing Power Parity model Second the
adjustment takes place via nominal exchange rates These features
of the data can be exploited even on the back of a napkin to
generate nominal exchange rate forecasts that outperform the
random walk The secret is to avoid estimating the pace of mean
reversion and assume that relative prices are unchanged Direct
forecasting or panel data techniques are better than the random
walk but fail to beat this simple calibrated model
______________________________
Home Sweet Home The Effect of Sugar Protectionism
on Emigration in Italy 1876-1913 CEIS Working Paper No 437
49 Pages Posted 29 Jun 2018
Carlo Ciccarelli University of Rome Tor Vergata - Faculty of Economics
Alberto Dalmazzo University of Siena - Department of Economics
Daniela Vuri University of Rome Tor Vergata IZA Institute of Labor Economics CESifo (Center for Economic Studies and
Ifo Institute for Economic Research)
Date Written June 8 2018
Abstract
Protectionist policies are often considered or even implemented as a reaction to increasing
globalization This is not new in history This paper uses the introduction of import duties on
sugar in the late nineteenth century Italy to measure the impact of protectionism on migration
out flows at the time of the fi
rst globalization Both for climate reasons and the nature of the soil the cultivation and
processing of sugar beets was geographically concentrated in a small area leading de facto to
a regional protectionist policy Our theoretical model illustrates how a tariff that favours local
producers may affect residents incentives to migrate abroad The predictions of the model
are tested with the synthetic control method which uses the variation in sugar cultivation
across areas to estimate the effect of interest Our results show that protectionism effectively
reduced the relative incentive to migrate away from sugar-producing areas
Keywords protectionism regional economics migrations 19th century Italy
JEL Classification N93 J4 C23
Integrating Services in the Economic Fitness
Approach World Bank Policy Research Working Paper No 8485
35 Pages Posted 28 Aug 2018
Andrea Zaccaria Sapienza University of Rome
Saurabh Mishra International Monetary Fund (IMF)
Masud Z Cader World Bank - International Finance Corporation (IFC)
Luciano Pietronero Sapienza University of Rome
Date Written June 21 2018
Abstract
Economic Complexity is a set of network-based and algorithmic methods for the study of
economic development and competitiveness In this framework Economic Fitness is an
innovative approach that improves the mathematical and conceptual scheme For
convenience these methods were originally conceived on trade in goods This paper extends
the Economic Fitness methodology to include a trade in services element to yield a universal
matrix of world trade and thus provide a more complete picture of a countrys development
and global competitiveness The paper applies two algorithms to the universal trade in goods
and services matrix to contrast country competitiveness and change in complexity and
diversification when services are added to the traditional goods-only matrix The results show
that (i) the competitiveness of many countries was previously over- or underestimated that
is many countries gain or lose positions in the ranking of economic fitness when services
trade is considered alongside goods and (ii) complex services tend to cluster with complex
manufacturing suggesting a common capabilities structure These findings show how
developing complex services aids diversification strategies for developing countries
Keywords International Trade and Trade Rules Common Carriers Industry Food amp
Beverage Industry Business Cycles and Stabilization Policies Plastics amp Rubber Industry
Construction Industry General Manufacturing Textiles Apparel amp Leather Industry Pulp amp
Paper Industry Trade and Services Macroeconomic Management ICT Applications
Deep Trade Agreements and Global Value Chains World Bank Policy Research Working Paper No 8491
39 Pages Posted 28 Aug 2018
Edith Laget World Bank
Alberto Osnago World Bank
Nadia Rocha World Trade Organization
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Date Written June 25 2018
Abstract
Preferential trade agreements have become deeper over time often encompassing policy
areas that go beyond traditional trade policy such as investment competition and intellectual
property rights protection In the literature a prominent argument why countries sign deep
agreements is to promote and facilitate the operation of global value chains This paper
exploits a new data set on the content of trade agreements and data on trade in value added
and in parts and components to quantify the impact of the depth of trade agreements on
bilateral cross-border production linkages The results show that adding a policy area to a
trade agreement increases the domestic value added of intermediates (forward global value
chain linkages) and the foreign value added of intermediates (backward global value chain
linkages) by 048 and 038 percent respectively At the sectoral level the positive impact of
deep trade agreements is higher for higher value-added industries suggesting that deep
agreements help countries to integrate in industries with higher levels of value added For a
larger sample of countries and years the results confirm that an additional provision in a
trade agreement increases bilateral trade in parts and components by 03 percent The
content of trade agreements also matters for global value chain integration but the impact
varies by income group Provisions outside the current mandate of the World Trade
Organization (investment and competition policy) drive the effect of trade agreements on
North-South trade in parts and components Provisions under the current World Trade
Organization mandate (tariff reduction and customs facilitation) drive the effect of trade
agreements on South-South trade in parts and components
Keywords International Trade and Trade Rules Industrial and Consumer Services and
Products Transport and Trade Logistics Competition Policy Competitiveness and
Competition Policy Trade Finance and Investment
The Effect of Immigration on Natives School
Achievement Does Length of Stay in the Host
Country Matter World Bank Policy Research Working Paper No 8492
62 Pages Posted 28 Aug 2018
Laurent Bossavie The World Bank
Date Written June 25 2018
Abstract
Using a rich data set of primary school students this paper estimates the effects of immigrant
concentration in the classroom on the academic achievement of natives In contrast with
previous contributions it exploits rare information on age-at-migration to estimate separate
spillover effects by duration of stay of immigrant classmates To identify treatment effects it
uses cohort-by-cohort deviations in immigrant concentration within schools combined with
attractive features of the Dutch school system Overall the paper finds no effect of the
concentration of immigrant students on natives test scores However although immigrant
students who have been in the country for some time have virtually no effect on natives the
analysis finds a small negative effect of recent immigrants in the classroom on natives test
scores The effect is significant only for language test scores but insignificant for mathematics
test scores When significant effect sizes are quite small compared to other educational
interventions and classroom peer effects estimated in other contexts
Keywords Indigenous Peoples Law Indigenous Peoples Indigenous Communities
Educational Sciences International Migration Migration and Development Human Migrations
amp Resettlements Effective Schools and Teachers Educational Institutions amp Facilities
Trade and Immigration 1870-2010
by David S Jacks John P Tang - 25010 (DAE)
Abstract
In this chapter we describe long-run trends in global
merchandise trade and immigration from 1870 to 2010 We revisit
the reasons why these two forces moved largely in parallel in the
decades leading up to World War I collapsed during the interwar
period and then rebounded (but with much more pronounced growth
in trade than in immigration) More substantively we also
document a large redistribution in the regional sources of goods
and people with a shift from the former industrialized core
countries--especially Europe--to those in the former
periphery--especially Asia--as well as a very striking change in
the composition of merchandise trade towards manufactured goods
precisely dating from 1950 Finally using a triple differences
framework in combination with a dramatic change in US immigration
policy we find evidence that immigration and trade potentially
acted as substitutes at least for the United States in the
interwar period
httppapersnberorgpapersW25010utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Attitudes Towards Euro Area Reforms Evidence from
a Randomized Survey Experiment CESifo Working Paper Series No 7141
35 Pages Posted 28 Aug 2018
Mathias Dolls CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute IZA Institute of Labor Economics
Nils Wehrhoumlfer University of Mannheim Graduate School of Economic and Social Sciences Students
Date Written July 09 2018
Abstract
We present the first evidence on public attitudes towards two prominent euro area reform
proposals (European Unemployment Benefit Scheme and Sovereign Insolvency Procedure)
and assess potential impediments to their implementation by means of a randomized survey
experiment in Germany We find that there is a low willingness among German voters to
accept fiscal risk-sharing through common unemployment insurance while a sovereign
insolvency procedure aimed at strengthening market discipline is supported by a majority of
the electorate Our randomized treatments confronting survey participants with potential
adverse effects of the reforms lead to significant downward shifts in approval rates Altruism
cosmopolitanism political preferences and income are important predictors of support for
the reform proposals We also show that there is a striking contrast between the low level of
support for transfers to other euro area member states and a broad acceptance of inner
German transfers
Keywords public attitudes euro area reforms European unemployment insurance
sovereign insolvency procedure
JEL Classification H550 H240 J260 D140
The Economic Effects of Refugee Return and Policy
Implications World Bank Policy Research Working Paper No 8497
65 Pages Posted 28 Aug 2018
Uri Dadush World Bank
Date Written June 27 2018
Abstract
The recent surge in the number of forcibly displaced who cross international borders in
search of protection has prompted interest in evaluating policies that achieve the possible
end points of the phenomenon As envisaged by United Nations High Commissioner for
Refugees (UNHCR) these are the integration in the country of destination relocation in a
third country and return to the country of origin The focus of this paper is on the third
aspect namely the appropriate conduct of return policy viewed from the perspective of the
host country More specifically the main question is whether it is in the economic self-interest
of host countries to return forcibly displaced persons In addressing the question four
ancillary issues are to be addressed (i) the macroeconomic impact of refugees and of their
return (ii) the labor market impact of refugees and of their return (iii) the fiscal impact of
refugees and of their return and (iv) how return policy should be formulated and executed
The available evidence and analyses allow this papers main conclusion namely that the costs
of hosting asylum seekers and refugees are front-loaded while the benefits accruing from
their integration into the labor market and the host economy typically take years to
materialize It follows that from the economic perspective their return after a short stay may
represent a costlier option than continuing to invest in their successful integration Countries
with a flexible labor market strong investment climate and a welcoming attitude to
immigrants tend to see the economic benefits of refugee inflows materialize faster
The Effect of Remittances on the Current Account in
Developing and Emerging Economies World Bank Policy Research Working Paper No 8498
26 Pages Posted 28 Aug 2018
Emmanuel Kwasi Koranteng Lartey World Bank
Date Written June 27 2018
Abstract
This paper presents an analysis of the effect of remittances on the current account in
developing and emerging economies incorporating an assessment of the extent to which
exchange rate regimes impact the relationship The main findings suggest there is a positive
effect of remittances on the current account contemporaneously but that the lagged effect is
negative which could be indicative of the existence of some underlying mechanisms
characteristic of the Dutch disease phenomenon In addition the results show that a more
flexible exchange regime dampens the contemporaneous positive effect that remittances have
on the current account The paper therefore asserts that policy makers face trade-offs
pertaining to the use of exchange rate policy in managing the effects of remittances on the
current account which should be given due consideration when such policy choices are made
Learning About Fiscal Multipliers During the
European Sovereign Debt Crisis Evidence from a
Quasi-Natural Experiment ECB Working Paper No 2154
30 Pages Posted 18 Jun 2018
Gόrnicka Lucyna IMF
Christophe Kamps European Central Bank (ECB)
Gerrit B Koester European Central Bank (ECB)
Nadine Leiner-Killinger European Central Bank (ECB)
Date Written May 30 2018
Abstract
Identifying fiscal multipliers is usually constrained by the absence of a counterfactual
scenario Our new data set allows overcoming this problem by making use of the fact that
recommendations under the EUrsquos excessive deficit procedure (EDP) provide both a baseline
no-policy-change scenario and a fiscal-adjustment EDP scenario that entails a forecast of the
macroeconomic impact of fiscal consolidation over the EDP horizon For a sample of 24 EU
countries to which 48 EDP recommendations were applied between 2009 and 2015 we
derive country-specific fiscal multipliers as actually applied by forecasters during the crisis
Our results confirm Blanchard and Leighrsquos (2013 2014) presumption that forecasters learned
during the crisis According to our findings fiscal multipliers as applied by the European
Commission increased over time ndash from about 14 in the early years of the crisis to about 23
in the later years However different from Blanchard and Leigh (2013 2014) we do not find
evidence for the hypothesis that ex-post fiscal multipliers have been substantially above 1
during the crisis
Keywords fiscal consolidation fiscal multipliers business cycle
JEL Classification E32 E62 H20 H5
Trade in Developing East Asia How it Has Changed
and Why it Matters World Bank Policy Research Working Paper No 8533
58 Pages Posted 28 Aug 2018
Ileana Cristina Constantinescu World Bank
Aaditya Mattoo World Bank - Development Research Group (DECRG)
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Date Written July 13 2018
Abstract
East Asia for long the epitome of successful engagement in trade faces serious challenges
technological change that may threaten the very model of labor intensive industrialization
and a backlash against globalization that may reduce access to important markets A detailed
analysis of the evolution of East Asias trade and trade policy in goods and services leads to
the conclusion that how East Asia copes with these global challenges will depend on how it
addresses three more proximate national and regional challenges The first is the emergence
of one East Asian country China as a global trade giantaccounting for nearly one-seventh of
global exports and one-tenth of global imports -- which is fundamentally altering the trading
patterns and opportunities of its neighbors The second is the asymmetric implementation of
national reform -- remarkable openness to goods trade and investment coexists with relative
restrictiveness of services policies -- which is affecting the evolution of comparative
advantage and productivity in each country The third is the divergence between the
relatively shallow and fragmented agreements that regulate the regions trade and
investment and the growing importance of regional and global value chains as crucial drivers
of productivity growth
Keywords International Trade and Trade Rules Common Carriers Industry Food amp
Beverage Industry Plastics amp Rubber Industry Business Cycles and Stabilization Policies
Construction Industry General Manufacturing Pulp amp Paper Industry Textiles Apparel amp
Leather Industry Export Competitiveness Industrial and Consumer Services and Products
Transport and Trade Logistics
Who are Americas Star Firms World Bank Policy Research Working Paper No 8534
70 Pages Posted 28 Aug 2018
Meghana Ayyagari George Washington University - School of Business
Asli Demirguc-Kunt World Bank
Vojislav Maksimovic University of Maryland - Robert H Smith School of Business
There are 2 versions of this paper
Date Written July 13 2018
Abstract
There is wide spread concern about a growing gap between top-performing publicly listed
firms and the rest of the economy and the implications of this for rising inequality in the US
Using conventional return calculations there is indeed a widening gap between star firms
(defined as those in top 10 percent of return on invested capital in any year) and the rest of
the economy over time especially in industries that rely on a skilled labor force However
once measurement error in intangible capital is accounted for this gap shrinks dramatically
and has not been widening over time While pricing power as measured by markups predicts
star firm status a large fraction of star firms have low markups and there is no evidence that
star firms are cutting output or investment more than other firms for the same markup The
effect of star status is persistent Five years later star firms have higher growth profits and
Tobins Q A small subset of exceptional firms may pose more pressing policy concerns with
much higher returns and the potential to exercise market power in the future
Keywords Plastics amp Rubber Industry Business Cycles and Stabilization Policies Textiles
Apparel amp Leather Industry Pulp amp Paper Industry Food amp Beverage Industry Common
Carriers Industry Construction Industry General Manufacturing Labor Markets Employment
and Unemployment
Bought Sold and Bought Again The Impact of
Complex Value Chains on Export Elasticities World Bank Policy Research Working Paper No 8535
45 Pages Posted 28 Aug 2018
Francois Michel Marie Raphael De Soyres World Bank
Erik Frohm World Bank
Vanessa Gunnella European Central Bank (ECB)
Elena Pavlova European Central Bank (ECB)
Date Written July 13 2018
Abstract
Global value chain participation affects the exchange rate pass-through to export prices and
export volumes The paper develops a partial equilibrium model of international trade with
cross-border production and shows that higher participation in global value chains reduces
the elasticities Specifically a higher share of foreign value added in exports reduces the
exchange rate pass-through to export prices and export volumes A greater share of exports
that return as imports also reduces the responsiveness of export volumes to changes in
bilateral exchange rates Finally exports of inputs that are further re-exported increase the
responsiveness to the trading partners effective exchange rate Using a novel sector-level
panel dataset with 40 countries the analysis tests and finds strong empirical support for the
theoretical predictions The paper further shows that some sectors in some countries can
even experience a decline in gross exports when their currency depreciates
Keywords International Trade and Trade Rules Industrial and Consumer Services and
Products Transport and Trade Logistics Trade and Services Macroeconomic Management
Did Austerity Cause Brexit CESifo Working Paper Series No 7159
101 Pages Posted 25 Sep 2018
Thiemo Fetzer University of Warwick
Date Written July 25 2018
Abstract
Did austerity cause Brexit This paper shows that the rise of popular support for the UK
Independence Party (UKIP) as the single most important correlate of the subsequent Leave
vote in the 2016 European Union (EU) referendum along with broader measures of political
dissatisfaction are strongly and causally associated with an individualrsquos or an arearsquos exposure
to austerity since 2010 In addition to exploiting data from the population of all electoral
contests in the UK since 2000 I leverage detailed individual level panel data allowing me to
exploit within-individual variation in exposure to specific welfare reforms as well as broader
measures of political preferences The results suggest that the EU referendum could have
resulted in a Remain victory had it not been for a range of austerity-induced welfare reforms
Further auxiliary results suggest that the welfare reforms activated existing underlying
economic grievances that have broader origins than what the current literature on Brexit
suggests Up until 2010 the UKrsquos welfare state evened out growing income differences across
the skill divide through transfer payments This pattern markedly stops from 2010 onwards
as austerity started to bite
Keywords political economy austerity globalization voting EU
JEL Classification H200 H300 H500 P160 D720
Resolving Sovereign Debt Crises The Role of Political
Risk CESifo Working Paper Series No 7161
42 Pages Posted 26 Sep 2018
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Date Written August 02 2018
Abstract
Sovereign defaults are bad news for investors and debtor countries in particular if a default
becomes messy and protracted Why are some debt crises resolved quickly in a matter of
months while others take many years to settle This paper studies the duration of sovereign
debt crises based on a new dataset and case study archive on debt renegotiations between
governments and foreign banks and bondholders Using Cox proportional hazard models I
find that domestic political instability (lsquopolitical riskrsquo) is a significant predictor of negotiation
delays after controlling for macroeconomic conditions Government crises resignations and
street protests are particularly disruptive for a quick settlement process Overall the evidence
suggests that debtor countries often lack the political ability to resolve a debt crisis
Governments in turmoil are unlikely to exit a default quickly
Keywords sovereign default crisis resolution political economy
JEL Classification F340 F510 H630
Market Potential and Global Growth over the Long
Twentieth Century CESifo Working Paper Series No 7164
53 Pages Posted 27 Sep 2018
David S Jacks Simon Fraser University (SFU) - Department of Economics National Bureau of Economic Research (NBER)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
There are 3 versions of this paper
Date Written August 02 2018
Abstract
We examine the evolution of market potential and its role in driving economic growth over
the long twentieth century Theoretically we exploit a structural gravity model to derive a
closed-form solution for a widely-used measure of market potential We are thus able to
express market potential as a function of directly observable and easily estimated variables
Empirically we collect a large dataset on aggregate and bilateral trade flows as well as output
for 51 countries We find that market potential exhibits an upward trend across all regions of
the world from the early 1930s and that this trend significantly deviates from the evolution of
world GDP Finally using exogenous variation in trade-related distances to world markets we
demonstrate a significant causal role of market potential in driving global income growth over
this period
Keywords economic geography market potential structural gravity trade costs
JEL Classification F100 N700
Growth Inequality and Poverty A Robust
Relationship World Bank Policy Research Working Paper No 8578
42 Pages Posted 17 Sep 2018
Gustavo A Merrero University of La Laguna
Luis Serveacuten World Bank - Development Research Group (DECRG)
Date Written September 6 2018
Abstract
An extensive literature on poverty traps suggests that high levels of poverty deter growth
However a seemingly basic implication of the underlying theoretical models namely that
countries suffering from higher levels of poverty should grow less rapidly has remained
untested A parallel literature has suggested a variety of mechanisms through which
inequality may affect growth in opposing directions Because inequality and poverty are
different aspects of the income distribution inequality can also affect growth through poverty
an indirect channel that has not been explicitly analyzed This paper contributes to fill both
gaps Using a large cross-country panel data set it estimates a reduced-form growth equation
adding both inequality and poverty to an otherwise standard set of growth determinants
Given inequality the correlation of growth with poverty is consistently negative In contrast
given poverty the correlation of growth with inequality can be positive or negative
depending on the empirical specification and econometric approach used Yet the indirect
effect of inequality on growth through its correlation with poverty is robustly negative Closer
inspection shows that these results are driven by the sample observations featuring high (but
not extremely high) poverty rates These empirical findings are consistent with the
predictions from an analytical framework with learning-by-doing and knowledge spillovers
in which consumers cannot save and invest if their initial endowment is below a minimum
consumption level
Keywords Inequality Inflation Small Area Estimation Poverty Mapping Poverty
Assessment Poverty Lines Poverty Monitoring amp Analysis Poverty Diagnostics Poverty
Impact Evaluation Educational Sciences
Comparison of Welfare Gains in the Armington
Krugman and Melitz Models Insights from a
Structural Gravity Approach World Bank Policy Research Working Paper No 8570
63 Pages Posted 17 Sep 2018
Edward Jay Balistreri Iowa State University
David G Tarr International Trade Analysis
Date Written August 28 2018
Abstract
How large are the estimated gains from trade from a reduction in trade costs in the
heterogeneous firms Melitz (M) model compared with the Armington (A) and Krugman (K)
models Surprisingly little is known beyond the one-sector model This paper analyzes this
question using a global trade model that contains ten regions and various numbers of sectors
(1-10) Following Arkolakis et al (2012) the analysis holds the local trade response constant
across the model comparisons based on a structural gravity estimate Various model features
and scenarios are introduced that are important to real economies almost none of which has
been examined across the three market structures with a constant trade response In
response to global reductions in iceberg trade costs in all the multi-sector models the
ranking of global welfare gains is MelitzgtKrugmangtArmington and the Krugman model
captures between 75 and 95 percent on the additional gains above the Armington model that
are estimated by the Melitz model However for individual regions there are numerous cases
of reversed welfare rankings ie MelitzltkrugmanKrugmangtArmington For individual
regions however the welfare ranking of the Armington Krugman and Melitz market
structures is model data parameter and scenario dependent The results highlight the need
for data and structural considerations in policy analysisltkrugman
Keywords International Trade and Trade Rules Trade and Services Labor Markets Trade
and Multilateral Issues
The Economic Effects of Brexit - Evidence from the
Stock Market CEPR Discussion Paper No DP13147
35 Pages Posted 17 Sep 2018
Holger Breinlich University of Nottingham - School of Economics Centre for Economic Policy Research (CEPR) London
School of Economics amp Political Science (LSE) - Centre for Economic Performance (CEP)
Elsa Leromain London School of Economics amp Political Science (LSE) - London School of Economics
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
Thomas Sampson London School of Economics amp Political Science (LSE)
Ahmed Usman University of Nottingham
Date Written August 2018
Abstract
We study stock market reactions to the Brexit referendum on 23 June 2016 in order to assess
investors expectations about the effects of leaving the European Union on the UK economy
Our results suggest that initial stock price movements were driven by fears of a cyclical
downturn and by the sterling depreciation following the referendum We also find tentative
evidence that market reactions to two subsequent speeches by Theresa May (her
Conservative Party conference and Lancaster House speeches) were more closely correlated
with potential changes to tariffs and non-tariff barriers on UK-EU trade indicating that
investors may have updated their expectations in light of the possibility of a hard Brexit We
do not find a correlation between the share of EU migrants in different industries and stock
market returns
Keywords Brexit depreciation event study Recession Stock market tariffs
JEL Classification F15 F23 G14
Understanding Euro Area Inflation Dynamics Why so
Low for so Long
IMF Working Paper No 18188
26 Pages Posted 1 Oct 2018
Yasser Abdih International Monetary Fund (IMF)
Li Lin International Monetary Fund (IMF)
Anne-Charlotte Paret Banque de France
Date Written August 2018
Abstract
Despite closing output gaps and tightening labor markets inflation has remained low inthe
euro area Based on an augmented Phillips Curve framework we find that thisphenomenon-
sometimes attributed to low global inflation-has been primarily causedby a remarkable
persistence of inflation keeping it low despite the reduction in slack Thisfeature is shown to
be specific to the euro area (in comparison with the United States)Monetary policy needs to
stay accommodative to help guide inflation back to target
Keywords Inflation Inflation expectations Inflation persistence Monetary policy
Econometric models Euro Area Phillips curve inflation persistence and expectations
General Forecasting and Simulation Monetary Policy (Targets Instruments and Effects)
JEL Classification E10 E31 E32 E37 E52 C22 C50
Financial Development Exchange Rate Regimes and
Growth Dynamics World Bank Policy Research Working Paper No 8562
34 Pages Posted 28 Aug 2018
Woubet Kassa The World Bank
Emmanuel Kwasi Koranteng Lartey World Bank
Date Written August 20 2018
Abstract
This paper utilizes data for African countries to analyze the extent to which financial
development affects the dynamics of the relationship between exchange rate flexibility and
economic growth The findings indicate that financial development exerts a positive influence
on the relationship between exchange rate flexibility and GDP growth as well as total factor
productivity growth The paper also documents a positive impact of trade openness on the
relationship between exchange rate flexibility and growth Moreover the results show a
strong and positive association between exchange rate flexibility and financial development
The findings therefore suggest that discussions and decisions on exchange rate policy should
be undertaken with consideration for structural policies that address the development of the
financial sector In addition the paper asserts that policy makers should adopt a stance that
facilitates some flexibility in exchange rates to foster development of the financial
infrastructure in these economies
Keywords International Trade and Trade Rules Industrial Economics Economic Theory amp
Research Economic Growth Currencies and Exchange Rates Educational Sciences
Macroeconomic Management
Unequal Gains Prolonged Pain A Model of
Protectionist Overshooting and Escalation CEPR Discussion Paper No DP13160
53 Pages Posted 17 Sep 2018
Emily J Blanchard Dartmouth College - Tuck School of Business
Gerald Willmann Bielefeld University IfW Kiel KU Leuven CESifo (Center for Economic Studies and Ifo Institute)
Date Written September 2018
Abstract
We develop a model of democratic political responses to macroeconomic shocks in the short
and long run We show that when economic adjustment is slower than potential political
change exogenous changes in the global marketplace can trigger populist surges in favor of
distortionary economic policies Applied to trade policy our model demonstrates that an
exogenous terms-of-trade improvement or skill-biased technological change will lead to a
spike in protectionism that blunts the younger generations incentive to acquire education In
the long run the initial surge in protectionism will gradually diminish if and only if education
enables less-skilled workers to catch up with the overall economy The more unequal the
initial distribution of human capital the greater and longer-lasting the protectionist backlash
will be unequal gains prolonged pain Evidence on key data markers suggested by the model
exhibits patterns consistent with recent populist support for Brexit and Trump
Keywords Dynamic Political Economy education Endogenous Tari Human Capital
Overlapping Generations Overshooting populism protectionism
JEL Classification D7 E6 F5
Threat or Help The Effects of Unskilled Immigrant
Workers on National Productivity Growth World Bank Policy Research Working Paper No 113185
4 Pages Posted 17 Sep 2018
Sharmila Devadas Central Bank of Malaysia
Date Written March 1 2017
Abstract
While unskilled immigrant workers have relatively low formal human capital theory suggests
that they can still contribute to productivity improvements by helping to increase efficiency
and upgrading the skills of the native labor force Empirical studies indicate that positive
productivity effects do occur This body of evidence does not provide a compelling argument
for the closing of national borders to unskilled foreigners on economic grounds
Keywords Indigenous Peoples Indigenous Peoples Law Human Migrations amp Resettlements
Construction Industry Common Carriers Industry Food amp Beverage Industry General
Manufacturing Pulp amp Paper Industry Plastics amp Rubber Industry Labor Markets Business
Cycles and Stabilization Policies International Migration Indigenous Communities Migration
and Development
Global Trade Slowdown Factors and Policies World Bank Policy Research Working Paper No 123899
4 Pages Posted 17 Sep 2018
Dorina Peteva Georgieva World Bank
Norman Loayza World Bank - Research Department
Fabian Mendez Ramos Development Research Group The World Bank
Date Written February 1 2018
Abstract
Growth in global trade has been slow since 2012 While global trade downturns are not
unprecedented the observed change in the relationship of trade to GDP poses the question
whether the trade slowdown is a transitory deviation or a more long-lasting phenomenon
brought about by structural changes This new dynamic coupled with the rise of protectionist
policies and rhetoric in many countries positions trade at the forefront of policy discussions
This brief reviews recent patterns in global trade examines the factors affecting trade--
distinguishing between transitory and structural components of the slowdown--and discusses
policies shaping the path of future trade
Keywords Trade and Multilateral Issues Trade and Services Trade Policy Trade Facilitation
International Trade and Trade Rules International Economics and Trade Transport and
Trade Logistics Trade and Regional Integration Private Sector Development Industrial and
Consumer Services and Products Competitiveness and Competition Policy Marketing Labor
Markets Private Sector Development Law Private Sector Economics Industry Law and
Development Social Policy Legal Reform Social Development Treaties Economics and
Institutions Public Sector Management and Reform Macroeconomics and Economic Growth
Public Sector Development Regulatory Regimes International Law Non Governmental
Organiz
The Productivity J-Curve How Intangibles Complement General Purpose Technologies
by Erik Brynjolfsson Daniel Rock Chad Syverson - 25148 (EFG IO PR)
Abstract
General purpose technologies (GPTs) such as AI enable and require
significant complementary investments including business process
redesign co-invention of new products and business models and
investments in human capital These complementary investments
are often intangible and poorly measured in the national
accounts even if they create valuable assets for the firm We
develop a model that shows how this leads to an underestimation
of output and productivity in the early years of a new GPT and
how later when the benefits of intangible investments are
harvested productivity will be overestimated Our model
generates a Productivity J-Curve that can explain the
productivity slowdowns often accompanying the advent of GPTs as
well as the follow-on increase in productivity later We use our
model to assess how AI-related intangible capital is currently
affecting measured total factor productivity (TFP) and output
We also conduct a historical analysis of the roles of intangibles
tied to RampD software and computer hardware finding substantial
and ongoing effects of software in particular and hardware to a
lesser extent
httppapersnberorgpapersW25148utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
New Technologies Global Value Chains and Developing Economies
by Dani Rodrik - 25164 (DEV EFG ITI)
Abstract
Many of the exports of developing countries are channeled through
global value chains (GVCs) which also act as conduits for new
technologies However new capabilities and productive
employment remain limited so far to a tiny sliver of globally
integrated firms GVCs and new technologies exhibit features
that limit the upside and may even undermine developing
countries economic performance In particular new technologies
present a double whammy to low-income countries First they are
generally biased towards skills and other capabilities This
bias reduces the comparative advantage of developing countries in
traditionally labor-intensive manufacturing (and other)
activities and decreases their gains from trade Second GVCs
make it harder for low-income countries to use their labor cost
advantage to offset their technological disadvantage by reducing
their ability to substitute unskilled labor for other production
inputs These are two independent shocks that compound each
other The evidence to date on the employment and trade fronts
is that the disadvantages may have more than offset the
advantages
httppapersnberorgpapersW25164utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Bank Runs and Moral Hazard A Review of Deposit
Insurance World Bank Policy Research Working Paper No 8589
31 Pages Posted 20 Sep 2018 Last revised 21 Sep 2018
Deniz Anginer World Bank Research
Asli Demirguc-Kunt World Bank
Date Written September 19 2018
Abstract
Deposit insurance is a widely adopted policy to promote financial stability in the banking
sector Deposit insurance helps ensure depositors confidence in the financial system and
prevents contagious bank runs but it also comes with an unintended consequence of
encouraging banks to take on excessive risk This paper reviews the economic costs and
benefits of deposit insurance and highlights the importance of institutions and specific design
features for how well deposit insurance schemes work in practice
Keywords Deposit Insurance Financial Structures Banks amp Banking Reform Judicial System
Reform Economic Growth
The Future of Work Race With-Not Against-The
Machine World Bank Research amp Policy Briefs Paper No 129680
4 Pages Posted 17 Sep 2018
Lay Lian Chuah World Bank - Development Research Group (DECRG)
Norman Loayza World Bank - Research Department
Achim Schmillen Osteuropa-Institut (OEI) Government of the Federal Republic of Germany - Institute for Employment
Research (IAB) University of Regensburg - Department of Economics and Econometrics
Date Written August 1 2018
Abstract
Will the revolution in digital and information technologies make us obsolete Will jobs be lost
and never replaced Will wages drop to intolerable levels History and economic theory and
evidence suggest that in the long term such fears are misplaced However in the short and
medium term dislocation can be severe for certain types of work places and populations In
the transition period policies are needed to facilitate labor market flexibility and mobility
introduce and strengthen safety nets and social protection and improve education and
training
Keywords Labor Markets Rural Labor Markets Armed Conflict Food Security
An Economists Guide to Climate Change Science
by Solomon Hsiang Robert E Kopp - 25189 (DEV EEE EFG HE ITI LS PE POL PR)
Abstract
Climate change management is a global challenge that requires
social science as much as it requires natural science We
provide a brief introduction to the physical science of climate
change written to provide essential background for economists
and other social scientists We also highlight some key areas in
which economists--including those studying macroeconomics
political economy and development--are in a unique position to
help climate science advance
httppapersnberorgpapersW25189utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
The Intensive Margin in Trade
by Ana M Fernandes Peter J Klenow Sergii Meleshchuk Denisse Pierola Andres Rodriguez-
Clare - 25195 (ITI)
Abstract
The Melitz model highlights the importance of the extensive
margin (the number of firms exporting) for trade flows Using
the World Banks Exporter Dynamics Database (EDD) featuring
firm-level exports from 50 countries we find that around 50 of
variation in exports is along the extensive margin --- a
quantitative victory for the Melitz framework The remaining 50
on the intensive margin (exports per exporting firm) contradicts
a special case of Melitz with Pareto-distributed firm
productivity which has become a tractable benchmark This
benchmark model predicts that conditional on the fixed costs of
exporting all variation in exports across trading partners
should occur on the extensive margin We find that moving from a
Pareto to a lognormal distribution allows the Melitz model to
match the role of the intensive margin in the EDD We use
likelihood methods and the EDD to estimate a generalized Melitz
model with a joint lognormal distribution for firm-level
productivity fixed costs and demand shifters and use exact hat
algebra to quantify the effects of a decline in trade costs on
trade flows and welfare in the estimated model The welfare
effects turn out to be quite close to those in the standard
Melitz-Pareto model when we choose the Pareto shape parameter to
fit the average trade elasticity implied by our estimated
Melitz-lognormal model although there are significant
differences regarding the effects on trade flows
httppapersnberorgpapersW25195utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Are Banks Engines of Export Financial Structures
and Export Dynamics World Bank Policy Research Working Paper No 8621
41 Pages Posted 26 Oct 2018 Last revised 30 Oct 2018
Raoul Minetti Michigan State University - Department of Economics
Alen Mulabdic World Bank
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Susan Chun Zhu Michigan State University - Department of Economics
Date Written October 25 2018
Abstract
This paper studies the impact of financial structures on the dynamics of the export sector
using rich data from over 60 countries The results reveal that bank-oriented financial
systems boost the size of the export sector more than market-oriented financial systems
However especially in middle- and low-income countries this effect mostly stems from banks
slowing down exporters exit rather than promoting firms entry into export The reduced exit
from the export sector appears to reflect domestic banks tendency to evergreen loans to
exporters (soft budget constraint) more than banks buffering role in difficult times Foreign
banks mitigate this effect and enhance the dynamism of the export sector
Contractual Frictions and the Margins of Trade World Bank Policy Research Working Paper No 8631
31 Pages Posted 31 Oct 2018 Last revised 1 Nov 2018
Theophile T Azomahou United Nations University (UNU-MERIT) Maastricht University
Hibret Belete Maemir World Bank
Hassen Abda Wako UNU-MERIT
Date Written October 30 2018
Abstract
A growing body of work has shown that the quality of national institutions that enforce
written contracts plays an important role in shaping a countrys comparative advantage
Using highly disaggregated bilateral and unique harmonized firm-level trade data across a
large number of countries this paper contributes to this literature by providing a
comprehensive analysis of the mechanisms through which institutional frictions affect the
pattern of aggregate trade flow distinguishing the effects on the intensive and extensive
margins The analysis finds that contractual friction distorts countries trade pattern beyond
its effect on domestic production structure by deterring the probability of exporting (the
extensive margin) and export sales after entry (the intensive margin) particularly in
industries that rely more heavily on relationship-specific inputs (more vulnerable to holdup
problems) The analysis also finds that contractual frictions matter more for the intensive
margin than the extensive margin of exporting In addition better contracting institutions
increase the probability of survival of new export products in more contract-intensive
industries These results have important policy implications for developing countries that
seek to boost export growth but many of which suffer from poor contracting institutions
Nominal Exchange Rate Dynamics and Monetary
Policy Uncovered Interest Rate Parity and Purchasing
Power Parity Revisited CEPR Discussion Paper No DP13235
33 Pages Posted 15 Oct 2018 Last revised 22 Oct 2018
Yossi Saadon Bank of Israel - Research Department
Nathan Sussman Hebrew University of Jerusalem
Date Written October 2018
Abstract
The increasing globalization of trade in goods and services and the deepening of financial
markets have reduced frictions that may impede the operation of the PPP and UIP
relationships in the short run In this paper we estimate the short term relative PPP and UIP
relationships Using data from Israel which has a deep market for inflation expectations for
12 months we show that relative PPP and UIP cannot be rejected Deviations from
equilibrium last less than a year Data from Israels capital account of the balance of payments
shows that the deviations are not destabilizing Our findings suggest that greater globalization
and financial deepening contribute to the effectiveness of monetary policy
Keywords Balance sheet effects Exchange Rates Inflation expectations monetary policy
purchasing power parity uncovered interest rate parity
Macroeconomic Effects of Chinas Financial Policies
by Kaiji Chen Tao Zha - 25222 (DEV EFG ME)
Abstract
The Chinese economy has undergone three major phases the
1978-1997 period marked as the SOE-led economy the 1998-2015
phase as the investment-driven economy and the new normal
economy since 2016 All three economies have been shaped by the
governments financial policies defined as a set of credit
policy monetary policy and regulatory policy We analyze the
macroeconomic effects of these financial policies throughout the
three phases and provide the stylized facts to substantiate our
analysis The stylized facts differ qualitatively across
different phases or economies We argue that the impacts of
Chinas financial policies work through transmission channels
different from those in developed economies and that a regime
switch from one economy to another was driven mainly by regime
changes in financial policies
httppapersnberorgpapersW25222utm_campaign=ntwamputm_medium=emailamputm_source=ntw
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Factor Incomes in Global Value Chains The Role of Intangibles
by Wen Chen Bart Los Marcel P Timmer - 25242 (EFG)
Abstract
Recent studies document a decline in the share of labour and a
simultaneous increase in the share of residual (factorless)
income in national GDP We argue the need for study of factor
incomes in cross-border production to complement country studies
We define a GVC production function that tracks the value added
in each stage of production in any country-industry We define a
new residual as the difference between the value of the final
good and the payments to all tangibles (capital and labour) in
any stage We focus on GVCs of manufactured goods and find the
residual to be large We interpret it as income for intangibles
that are (mostly) not covered in current national accounts
statistics We document decreasing labour and increasing capital
income shares over the period 2000-14 This is mainly due to
increasing income for intangible assets in particular in GVCs of
durable goods We provide evidence that suggests that the 2000s
should be seen as an exceptional period in the global economy
during which multinational firms benefitted from reduced labour
costs through offshoring while capitalising on existing
firm-specific intangibles such as brand names at little
marginal cost
httppapersnberorgpapersW25242utm_campaign=ntwamputm_medium=emailamputm_source=ntw
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Accounting for Firm Heterogeneity within US Industries Extended Supply-Use Tables and Trade
in Value Added using Enterprise and Establishment Level Data
by James J Fetzer Tina Highfill Kassu W Hossiso Thomas F Howells III Erich H Strassner
Jeffrey A Young - 25249 (ITI)
Abstract
This paper presents experimental tables created by the US
Bureau of Economic Analysis comparing industry-specific shares of
the components of total output of globally engaged firms located
in the United States that are part of a multinational enterprise
with those of firms that are part of an enterprise entirely
located in the United States Recent research has shown both the
importance of accounting for trade in value added when estimating
bilateral trade flows and that multinational enterprises located
in the United States account for the lions share of US trade
in goods and services However trade in value added is
typically accounted for using input-output tables that are
aggregated across all types of firms The experimental tables
are consistent with other research showing that value added as a
share of output is lower for foreign-owned firms compared with
domestic-owned firms and that exports and imports as a share of
output is larger for foreign-owned firms We also find
heterogeneity in the composition of output among different types
of domestic-owned firms Future work will analyze this
heterogeneity in more detail using establishment-level data on
production and trade
httppapersnberorgpapersW25249utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
The Falling Elasticity of Global Trade to Economic
Activity Testing the Demand Channel CESifo Working Paper No 7228
42 Pages Posted 31 Oct 2018
Marc Auboin World Trade Organization (WTO)
floriana borino World Trade Organization (WTO)
Date Written 2018
Abstract
Since the recovery from the great financial crisis in 2010 global real trade flows grew much
slower than pre-crisis in both absolute terms (growth rates) and relative terms (relative to
GDP from 21 in the great 1990rsquos to 11 since 2012) A debate has arisen as to whether this
global trade slowdown and related falling trade-to-income elasticity was structural or
cyclical Some papers emphasized the slowing pace of international vertical specialization
Other works emphasized the prominent role of aggregate demand notably when weighted by
its trade component Our paper goes in this latter direction We estimated the standard
import equation for 38 advanced and developing countries over the period 1995-2015 using
an import intensity-adjusted measure of aggregate demand (IAD) calculated from input-
output tables at country level and compared results with regressions using GDP The
integration of IAD allows us to predict 76 to 86 of the changes in global imports a better
performance than if using GDP The use of IAD also enabled us to measure the relative
importance of each component of demand according to their trade intensity The model is
able to account for over 90 of the recent trade slowdown (2012-2015) with IAD alone
explaining 80 of it The slowdown in global value chains explains more than half of the
remaining share of the global trade slowdown not explained by demand factors
Protectionism does not come up as statistically significant
Keywords investment global outlook trade policy trade forecasting business cycles
JEL Classification E220 F010 F130 F170 F440
Will Brexit Age Well Cohorts Seasoning and the Age-
Leave Gradient Past Present and Future CEPR Discussion Paper No DP13288
38 Pages Posted 5 Nov 2018
Barry Eichengreen University of California Berkeley National Bureau of Economic Research (NBER) Centre for Economic
Policy Research (CEPR)
Rebecca Mari Bocconi University
Gregory Thwaites London School of Economics amp Political Science (LSE) - London School of Economics
There are 3 versions of this paper
Date Written October 2018
Abstract
In the UKs 2016 referendum on EU membership young voters were more likely than their
elders to vote Remain Applying new methods to a half century of data we show that this
pattern reflects both ageing and cohort effects Although voters become more Eurosceptical as
they age recent cohorts are also more pro-European than their predecessors Much of the
pro-Europeanism of these recent cohorts is accounted for by their greater years of education
Going forward the ageing of the electorate will thus be offset at least in part by the
replacement of older cohorts with younger better-educated and more pro-European ones
But we also document large nationwide swings in sentiment that have little to do with either
seasoning or cohort effects Hence these demographic trends are unlikely to be the decisive
determinants of future changes in European sentiment Rather nationwide changes in
sentiment reflecting macroeconomic or other conditions and the age-turnout gradient will be
key
JEL Classification F0
Buying Votes and International Organizations The
Dirty Work-Hypothesis CEPR Discussion Paper No DP13290
62 Pages Posted 5 Nov 2018
Axel Dreher Heidelberg University
Valentin Lang University of Zurich
B Peter Rosendorff New York University (NYU) - Wilf Family Department of Politics
James Raymond Vreeland Georgetown University - School of Foreign Service and Department of Government
Date Written October 2018
Abstract
We show how major shareholders can exploit their power over international organizations to
hide their foreign-policy interventions from domestic audiences We argue that major powers
exert influence bilaterally when domestic audiences view the intervention favorably When
domestic audiences are more skeptical of a target country favors are granted via
international organizations We test this theory empirically by examining how the United
States uses bilateral aid and IMF loans to buy other countries votes in the United Nations
Security Council (UNSC) Introducing new data on voting behavior in the UNSC over the 1960-
2015 period our results show that states allied with the US receive more bilateral aid when
voting in line with the United States in the UNSC while concurring votes of states less allied
with the US are rewarded with loans from the IMF Temporary UNSC members that vote
against the United States do not receive such perks
Keywords Aid IMF United Nations Security Council voting World Bank
JEL Classification F35 O11 O19
using private schools Depending on the eventual degree of assimilation these trends will be greatly
intensified or mitigated once immigrants naturalize and gain the right to vote Our analysis suggests that
assimilation in terms of family size and the value assigned to childrens education are the most relevant
dimensions quantitatively We also show that immigration policies that favor one group over another can
significantly alter the overall effects of immigration on the schooling system
Global Financial Cycles and the Exchange Rate
Regime A Perspective from Emerging Markets CEPR Discussion Paper No DP12696
18 Pages Posted 14 Feb 2018
Maurice Obstfeld International Monetary Fund (IMF)
Jonathan D Ostry International Monetary Fund (IMF)
Mahvash Saeed Qureshi International Monetary Fund (IMF) - Research Department
Date Written February 2018
Abstract
This paper examines the relevance of exchange rate regimes in the transmission of global
financial shocks to domestic financial and macroeconomic conditions Our findings suggest
that even in todays highly financially integrated world the nominal exchange rate regime
does matter-at least for emerging market economies The transmission of global financial
shocks to domestic variables is magnified under fixed exchange rate regimes relative to more
flexible regimes For advanced economies however the jury is still out as the recent paucity
of truly fixed regimes among these economies poses a challenge for estimating the effect of
exchange rate flexibility
Keywords emerging market economies global financial cycle trilemma
JEL Classification F31 F36 F41
Firms Left Behind Emigration and Firm Productivity CESifo Working Paper Series No 6815
47 Pages Posted 21 Feb 2018
Yvonne Giesing
CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Nadzeya Laurentsyeva Centre for European Policy Studies (CEPS)
Date Written January 15 2018
Abstract
This paper establishes a causal link between the emigration of skilled workers and firm
performance in source countries Using firm-level panel data from ten Eastern European
countries we show that the emigration of skilled workers lowers firm total factor
productivity We exploit time country and industry differences in the opening of EU labor
markets from 2004 to 2014 as a source of exogenous variation in the emigration rates from
new EU member states We argue that a potential channel behind this effect relates to the
reduction in firm-specific human capital due to a higher worker turnover
Keywords migration firm productivity human capital EU enlargement
JEL Classification O150 D240 F220 J240
Reserve Currency Blocs A Changing International
Monetary System IMF Working Paper No 1820
43 Pages Posted 20 Feb 2018
Camilo E Tovar International Monetary Fund
Tania Mohd Nor International Monetary Fund (IMF)
Date Written January 2018
Abstract
What is the extent of currency diversification in the international monetary system How
hasit evolved over time In this paper we quantify the degree of currency diversification
usingregression methods of currency co-movements to determine the extent to which
nationalcurrencies across the world belong to a reserve currency bloc We then use these
estimates tocalculate the economic size of each currency bloc A key contribution of our paper
is that wequantify the size of the Chinese renminbi bloc Our analysis suggests that the
internationalmonetary system has transitioned from a bi-polar system - consisting of the US
dollar andthe euro - to a tri-polar one that includes the renminbi The dollar bloc is estimated
tocontinue to dominate having the largest share in global GDP (40 percent) followed by
therenminbi (30 percent) and the euro blocs (20 percent) The geographical area of influence
forthe RMB bloc appears to be most evident among the BRICS currencies The British
poundand the Japanese yen blocs appear to play minor roles
Keywords Economic integration Foreign exchange International monetary system
Currency Bloc Internatinal Monetary System International Monetary Arrangements and
Institutions Financial Aspects of Economic Integration Open Economy Macroeconomics
JEL Classification F15 F31 F33 F36 F41 O24
17 The US Gains from Trade Valuation Using the Demand for Foreign Factor Services
by Arnaud Costinot Andres Rodriguez-Clare - 24407 (ITI)
Abstract
About 8 cents out of every dollar spent in the United States is
spent on imports What if because of a wall or some other
extreme policy intervention imports were to remain on the other
side of the US border How much would US consumers be willing to
pay to prevent this hypothetical policy change from taking place
The answer to this question represents the welfare cost from
autarky or equivalently the welfare gains from trade In this
article we discuss how to evaluate these gains using the demand
for foreign factor services The estimates of gains from trade
for the US economy that we review range from 2 to 8 percent of
GDP
httppapersnberorgpapersW24407utm_campaign=ntwamputm_medium=emailamputm_source=ntw
A Dialogue between a Populist and an Economist CEPR Discussion Paper No DP12763
11 Pages Posted 6 Mar 2018
Tito Boeri Bocconi University - Department of Economics Centre for Economic Policy Research (CEPR) IZA Institute
of Labor Economics
Prachi Mishra Government of India - Reserve Bank of India
Chris Papageorgiou International Monetary Fund (IMF) - Research Department
Antonio Spilimbergo
International Monetary Fund (IMF) - Research Department Centre for Economic Policy Research (CEPR)
University of Michigan at Ann Arbor - The William Davidson Institute
Date Written February 2018
Abstract
In this imaginary dialogue a populist and an economist discuss the role of economic shocks to
explain populism A simple correlation between economic shocks and populism is weak
However economic shocks can explain well the phenomenon of populism in countries with
low pre-existent level of trust This is confirmed both at the macro cross-country level and
also by micro evidence obtained from surveys Finally this finding is consistent with the
ideational approach in political science which emphasizes how the populist narrative
opposes the corrupt elite to the virtuous people
Keywords Europe Political parties populism
JEL Classification A10 A12
International Capital Flow Pressures IMF Working Paper No 1830
59 Pages Posted 14 Mar 2018
Linda S Goldberg Federal Reserve Bank of New York National Bureau of Economic Research (NBER)
Signe Krogstrup IMF
There are 3 versions of this paper
Date Written February 2018
Abstract
This paper presents a new measure of capital flow pressures in the form of a recast
ExchangeMarket Pressure index The measure captures pressures that materialize in actual
internationalcapital flows as well as pressures that result in exchange rate adjustments The
formulation istheory-based relying on balance of payments equilibrium conditions and
international assetportfolio considerations Based on the modified exchange market pressure
index the paperalso proposes the Global Risk Response Index which reflects the country-
specific sensitivityof capital flow pressures to measures of global risk aversion For a large
sample of countriesover time we demonstrate time variation in the effects of global risk on
exchange marketpressures the evolving importance of the global factor across types of
countries and thechanging risk-on or risk-off status of currencies
Keywords Exchange Market Pressure Risk aversion Safe haven Capital flows Exchange
Rate Foreign Exchange Reserves Exchange Market Pressure Risk aversion Safe haven
Capital flows Exchange Rate Foreign Exchange Reserves Portfolio Choice General
JEL Classification F23 G11 G20 F32
Sovereign Defaults in Court CEPR Discussion Paper No DP12777
76 Pages Posted 13 Mar 2018
Julian Schumacher European Central Bank (ECB)
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Enderlein Henrik Hertie School of Governance
Date Written March 2018
Abstract
For centuries defaulting governments were immune from legal action by foreign creditors
This paper shows that this is no longer the case Building a dataset covering four decades we
find that creditor lawsuits have become an increasingly common feature of sovereign debt
markets The legal developments have strengthened the hands of creditors and raised the cost
of default for debtors We show that legal disputes in the US and the UK disrupt government
access to international capital markets as foreign courts can impose a financial embargo on
sovereigns The findings are consistent with theoretical models with creditor sanctions and
suggest that sovereign debt is becoming more enforceable We discuss how the threat of
litigation affects debt management government willingness to pay and the resolution of debt
crises
Keywords debt restructuring enforcement government financing sovereign default
JEL Classification F34 G15 H63 K22
Globalization and Income Inequality Revisited CESifo Working Paper Series No 6859
48 Pages Posted 20 Mar 2018
Florian Dorn
CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Clemens Fuest ifo Institute ndash Leibniz Institute for Economic Research at the University of Munich Ludwig-Maximilians-
University Munich Center for Economic Studies (CES)
Niklas Potrafke CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Date Written February 05 2018
Abstract
This paper re-examines the link between globalization and income inequality We use data for
140 countries over the period 1970-2014 and employ an IV approach to deal with the
endogeneity of globalization measures We find that the link between globalization and
income inequality differs across different groups of countries There is a robust positive
relationship between globalization and inequality in the transition countries including China
and most countries of Middle and Eastern Europe In the sample of the most advanced
economies neither OLS nor 2SLS results show any significant positive relationship between
globalization and inequality We conclude that institutions providing income insurance and
education which characterize most advanced economies but are less developed in transition
economies may have moderated effects of globalization on income inequality
Keywords globalization income inequality redistribution instrumental variable estimation
panel econometrics development levels transition economies China
JEL Classification D310 D630 F020 F600 C260 H110 H200
The US Gains from Trade Valuation Using the
Demand for Foreign Factor Services CEPR Discussion Paper No DP12788
34 Pages Posted 20 Mar 2018
Arnaud Costinot University of California San Diego (UCSD) - Department of Economics Massachusetts Institute of
Technology (MIT) - Department of Economics
Andres Rodriguez-Clare Inter-American Development Bank (IDB)
There are 2 versions of this paper
Date Written March 2018
Abstract
About 8 cents out of every dollar spent in the United States is spent on imports What if
because of a wall or some other extreme policy intervention imports were to remain on the
other side of the US border How much would US consumers be willing to pay to prevent this
hypothetical policy change from taking place The answer to this question represents the
welfare cost from autarky or equivalently the welfare gains from trade In this article we
discuss how to evaluate these gains using the demand for foreign factor services The
estimates of gains from trade for the US economy that we review range from 2 to 8 percent of
GDP
A Multidimensional Approach to Trade Policy
Indicators IMF Working Paper No 1832
38 Pages Posted 12 Mar 2018
Diego Cerdeiro International Monetary Fund (IMF)
Rachel Nam International Monetary Fund (IMF)
Date Written February 2018
Abstract
We present and discuss a set of indicators to help assess countries trade policies The
indicators relate to three policy areas - trade in goods trade in services and FDI Given
concerns about the direction of global trade policy we also consider a set of more granular
measures that reflect the evolution of countries policies since the 2008 financial crisis We
propose a simple approach to present the multidimensional aspects of trade policy that by
shedding light on relative openness across areas can facilitate policy discussions In the cross-
section of countries we find a diversity in the type of measures adopted both between and
(since the 2008 financial crisis) within policy areas lending support to the approach based on
multiple indicators The indicators time series suggest that advanced and especially
emerging economies are moving toward more open regimes over time although recently
progress has with some exceptions slowed across the board Lastly our findings also call for
stronger efforts to objectively quantify the different aspects of countries trade regimes More
data both across countries and in terms of policy areas that significantly affect trade are
needed for better-informed policy discussions
Keywords Foreign direct investment Trade policy indicators trade in goods services trade
trade barriers General Country and Industry Studies of Trade
JEL Classification F10 F14
Corporate Indebtedness and Low Productivity
Growth of Italian Firms IMF Working Paper No 1833
47 Pages Posted 12 Mar 2018
Gareth Anderson Bank of England
Mehdi Raissi International Monetary Fund (IMF) - Asia and Pacific Department
Date Written February 2018
Abstract
Productivity growth in Italy has been persistently anemic and has lagged that of the euro area
over the period 1999-2015 while the indebtedness of its corporate sector has increased
Using the ORBIS firm-level database this paper studies the long-term impact of persistent
corporate-debt accumulation on the productivity growth of Italian firms and investigates
whether total factor productivity growthvaries with the level of corporate indebtedness We
employ a novel estimation technique proposed by Chudik Mohaddes Pesaran and Raissi
(2017) to account for dynamics bi-directional feedback effects cross-firm heterogeneity and
cross-sectional dependence arising from unobserved common factors (for example oil price
shocks labor and product market frictions and stance of global financial cycle) Filtering out
the effects of unobserved common factors and controlling for firm specific characteristics we
find significant negative effects of persistent corporate debt build-up on total factor
productivity growth and weak evidence of a threshold level of corporate debt beyond which
productivity growth drops off significantly Our results have strong policy implications for
example the design of the tax system should discourage persistent corporate debt
accumulation and effective and timely frameworks to reduce corporate debt overhangs are
essential
Keywords Productivity Europe Italy Corporate debt dynamic heterogeneous panel
threshold models cross-sectional dependence Models with Panel Data Firm Behavior
Empirical Analysis General
JEL Classification C23 D22 D24 G30
Regulatory Cycles Revisiting the Political Economy of
Financial Crises IMF Working Paper No 188
90 Pages Posted 21 Mar 2018
Jihad C Dagher International Monetary Fund (IMF) - Research Department
There are 2 versions of this paper
Date Written January 2018
Abstract
Financial crises are traditionally analyzed as purely economic phenomena The political
economy of financial booms and busts remains both under-emphasized and limited to isolated
episodes This paper examines the political economy of financial policy during ten of the most
infamous financial booms and busts since the 18th century and presents consistent evidence
of pro-cyclical regulatory policies by governments Financial boomsand risk-taking during
these episodes were often amplified by political regulatory stimuli credit subsidies and an
increasing light-touch approach to financial supervision The regulatory backlash that ensues
from financial crises can only be understood in the context of the deep political ramifications
of these crises Post-crisis regulations do not always survive the following boom The
interplay between politics and financial policy over these cycles deserves further attention
History suggests that politics can be the undoing of macro-prudential regulations
Keywords Political economy Political economy Financial crises Financial Regulation Boom-
Bust Cycles Economic Models of Political Processes Rent-Seeking Elections Legislatures and
Voting Behavior Positive Analysis of Policy-Making and Implementation General
Government Policy and Regulation General
JEL Classification D72 D78 G10 G18 N00 P16
Rationality in Economics Theory and Evidence CESifo Working Paper Series No 6872
26 Pages Posted 21 Mar 2018
Sanjit Dhami University of Leicester - Department of Economics
Ali al-Nowaihi University of Leicester - Department of Economics
Date Written February 12 2018
Abstract
We examine the various senses in which economist use the term ldquorationalityrdquo and then outline
some of the commonly drawn implications and auxiliary assumptions Finally we confront the
implications with the empirical evidence drawing on the insights from the exciting new field
of behavioral economics
Keywords rationality self-regarding preferences efficient markets heuristics optimization
JEL Classification B400
Nudging and Environmental Corporate
Responsibility A Natural Experiment CEIS Working Paper No 426
22 Pages Posted 3 Apr 2018
Leonardo Becchetti University of Rome Tor Vergata - Faculty of Economics
Francesco Salustri University of Rome Tor Vergata - Department of Economics and Finance University of Turin - Department
of Economics and Statistics
Pasquale Scaramozzino University of Rome II - Faculty of Economics University of London - School of Oriental and African Studies
(SOAS) University of London - Centre for Financial and Management Studies (CeFIMS)
Date Written April 3 2018
Abstract
We devise a lsquonudgingrsquo natural experiment to test the impact of a simple form of advertising on
environmentally responsible products withwithout the increase of the responsible product
price We find that the simple use of a small shelf-poster explaining the importance of buying
a green product (withwithout a concurring price increase) generates significant changes in
market shares for some of the product classes for both food and non-food products Part of
the effect is generated by the reduced price elasticity of consumers to the poster-plus-price-
increase treatment
Keywords nudging environmental sustainability randomised field experiment
JEL Classification C93 D12 M14 Q56
11 The Role of Financial Policy
by Roger Farmer - 24498 (EFG ME)
Abstract
I review the contribution and influence of Milton Friedmans 1968
presidential address to the American Economic Association I
argue that Friedmans influence on the practice of central
banking was profound and that his argument in favour of monetary
rules was responsible for thirty years of low and stable
inflation in the period from 1979 through 2009 I present a
critique of Friedmans position that market-economies are
self-stabilizing and I describe an alternative reconciliation of
Keynesian economics with Walrasian general equilibrium theory
from that which is widely accepted today by most neo-classical
economists
httppapersnberorgpapersW24498utm_campaign=ntwamputm_medium=emailamputm_source=ntw
5 Immigrant Entrepreneurship in America Evidence from the Survey of Business Owners 2007 amp 2012
by Sari Pekkala Kerr William R Kerr - 24494 (LS PR)
Abstract
We study immigrant entrepreneurship and firm ownership in 2007
and 2012 using the Survey of Business Owners (SBO) The survival
and growth of immigrant-owned businesses over time relative to
native-founded companies is evaluated by linking the 2007 SBO to
the Longitudinal Business Database (LBD) We quantify the
dependency of the United States as a whole as well as individual
states on the contributions of immigrant entrepreneurs in terms
of firm formation and job creation We describe differences in
the types of businesses started by immigrants and the quality of
jobs created by their firms First-generation immigrants create
about 25 of new firms in the United States but this share
exceeds 40 in some states In addition Asian and Hispanic
second-generation immigrants start about 6 of new firms
Immigrant-owned firms on average create fewer jobs than
native-owned firms but much of this is explained by the industry
and geographic location of the firms Immigrant-owned firms pay
comparable wages conditional on firm traits to native-owned
firms but are less likely to offer benefits
httppapersnberorgpapersW24494utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Effects of Foreign Aid on Refugee Flows CESifo Working Paper Series No 6885
49 Pages Posted 9 Apr 2018
Axel Dreher University of Heidelberg
Andreas Fuchs University of Heidelberg - Alfred Weber Institute for Economics
Sarah Langlotz University of Heidelberg
There are 2 versions of this paper
Date Written February 15 2018
Abstract
This article analyzes whether foreign aid affects the net flows of refugees from recipient
countries Combining refugee data on 141 origin countries over the 1976-2013 period with
bilateral Official Development Assistance data we estimate the causal effects of a countryrsquos
aid receipts on both total refugee flows to the world and flows to donor countries The
interaction of donor-government fractionalization and a recipient countryrsquos probability of
receiving aid provides a powerful and excludable instrumental variable when we control for
country- and time-fixed effects that capture the levels of the interacted variables Although
our results suggest that aid induces recipient governments to encourage the return of their
citizens we find no evidence that aid reduces worldwide refugee outflows or flows to donor
countries in the short term However we observe long-run effects after four three-year
periods which appear to be driven by lagged positive effects of aid on growth
Keywords foreign aid Official Development Assistance migration refugees displaced
people humanitarian crises repatriation policies
JEL Classification F220 F350 F590 H840 O150 O190
The Political Economy of Ideas On Ideas Versus
Interests in Policymaking CEPR Discussion Paper No DP12820
44 Pages Posted 5 Apr 2018
Sharun Mukand University of Warwick - Department of Economics
Dani Rodrik Harvard University - Harvard Kennedy School (HKS) Centre for Economic Policy Research (CEPR)
National Bureau of Economic Research (NBER)
There are 2 versions of this paper
Date Written March 2018
Abstract
We develop a conceptual framework to highlight the role of ideas as a catalyst for policy and
institutional change We make an explicit distinction between ideas and vested interests and
show how they feed into each other In doing so the paper integrates the Keynes-Hayek
perspective on the importance of ideas with the currently more fashionable Stigler-Becker
(in-terests only) approach to political economy We distinguish between two kinds of
ideational politics acircldquo the battle among different worldviews on the efficacy of policy
(worldview politics) versus the politics of victimhood pride and identity (identity politics)
Political entrepreneurs discover identity and policy memes (narratives cues framing) that
shifts beliefs about how the world works or a persons belief of who he is (ie identity) Our
framework identifies a complementarity between worldview politics and identity politics and
illustrates how they may reinforce each other In particular an increase in identity
polarization may be associated with a shift in views about how the world works Furthermore
an increase in income inequality is likely to result in a greater incidence of ideational politics
Finally we show how ideas may not just constrain but also bite the interests that helped
propagate them in the first instance
Should Unemployment Insurance Be Centralized in a
State Union CESifo Working Paper Series No 6898
27 Pages Posted 19 Apr 2018
Robert Fenge University of Rostock - Department of Economics
Max Friese University of Rostock
Date Written February 21 2018
Abstract
This paper compares the decentral organization of unemployment insurance in member
states of a state union with the central organization at the upper unionrsquo level In a model of
two countries the labor force and the firm owners can migrate between the states Labor
markets exhibit unemployment due to trade unionrsquos bargaining about the wage rate In a
decentral scenario the states organize independently unemployment insurance and decide
about the rate on wages contributed to the insurance budget Due to open borders they have
to take account of migration effects However with perfect mobility between the states each
government chooses a socially optimal contribution rate such that workers are fully insured
against unemployment In the central scenario the governments overestimate the costs of
insurance when bargaining about the contribution rate and observing the common insurance
budget of both countries This leads to a less than socially optimal contribution rate
Keywords unemployment insurance policy state union centralization migration
externalities
JEL Classification F660 H770 J650
Paris Climate Agreement and the Global Economy
Winners and Losers World Bank Policy Research Working Paper No 8392
Posted 3 Apr 2018
Muthukumara Mani World Bank
Zekarias Hussein Purdue University
G Badri Narayanan Purdue University - Center for Global Trade Analysis
Deepika Wadhwa India Habitat Centre - Indian Council for Research on International Economic Relations (ICRIER)
Date Written April 2 2018
Abstract
The 2015 Paris Climate Agreement was the first instance of countries adhering to take a
collective action against global warming More than 190 countries came forward and
submitted their contributions in the form of Intended Nationally Determined Contributions
reflective of their ability and capacity to reduce greenhouse gas emissions as each country set
its own targets and actions For some countries it meant a significant decline in their
emissions by 2030 while others like China the United States and India decided on a more
gradual phasing out extending beyond 2030 This paper estimates the economic impacts of
implementation of the Paris Climate Agreement in terms of its implications for welfare gross
domestic product investments and trade for major countries and regions It uses a
computable general equilibrium framework to model global regional and country impacts
The analysis suggests that the economic impacts will be mostly felt in the European Union if
the Paris Agreement is fully implemented The European Union is likely to suffer a welfare
loss of 10 to 15 percent by 2030 Among non-European countries Australia New Zealand
and Mexico will also be affected with an expected welfare loss of about 15 percent Some of
the major emitters such as China and India will experience minimal impacts to their welfare
and the United States will experience a welfare loss of only about 07 by 2030 The sectoral
analysis of production and trade suggests a significant loss to fossil fuelbased sectors while
clean energy sectors can experience significant gains
Keywords International Trade and Trade Rules Energy and Mining Energy and
Environment Energy Demand Global Environment Energy Policies amp Economics Science of
Climate Change Climate Change and Environment Climate Change and Health
Immigrants Residential Choices and Their
Consequences CEPR Discussion Paper No DP12842
59 Pages Posted 12 Apr 2018
Christoph Albert Universitat Pompeu Fabra Students
Joan Monras Sciences Po - Department of Economics Centre for Monetary and Financial Studies (CEMFI)
There are 2 versions of this paper
Date Written April 2018
Abstract
This paper investigates the causes and effects of the spatial distribution of immigrants across
US cities We document that a) immigrants concentrate in large high-wage expensive cities
b) the earnings gap between immigrants and natives is higher in larger more expensive cities
and c) immigrants consume less locally than natives In order to explain these findings we
develop a quantitative spatial equilibrium model in which immigrants consume a fraction of
their income in their countries of origin Thus immigrants care not only about local prices but
also about price levels in their home countries This gives them a comparative advantage
relative to natives for living in high-wage high-price high-productivity cities where they also
accept lower wages than natives These incentives are stronger for immigrants coming from
lower-price index countries of origin We rely on immigrant heterogeneity to estimate the
model With the estimated model we show that current levels of immigration have reduced
economic activity in smaller less productive cities by around 5 percent while they have
expanded it in large productive cities by around 6 percent This has increased total aggregate
output per worker by around 03 percent We also discuss the welfare implications of these
results
Keywords Immigration location choices spatial equilibrium
JEL Classification F22 J31 J61 R11
The Cost of Non-Europe Revisited CEPR Discussion Paper No DP12844
48 Pages Posted 12 Apr 2018
Thierry Mayer Sciences Po
Vincent Vicard Banque de France
Soledad Zignago Banque de France
There are 2 versions of this paper
Date Written April 2018
Abstract
In this paper we quantify the Cost of Non-Europe ie the trade-related welfare gains each
country member has reaped from the European Union Thirty years after the terminology of
Non-Europe was used to give estimates of the gains from further integration we use modern
versions of the gravity model to estimate the trade creation implied by the EU and apply
those to counterfactual exercises where for instance the EU returns to a normal shallow-
type regional agreement or reverts to WTO rules Those scenarios are envisioned with or
without the exit of the United Kingdom from the EU (Brexit) happening which points to
interesting cross-country differences and potential cascade effects in doing and undoing of
trade agreements
Keywords European Union Gravity trade integration
JEL Classification F1
The Political Impact of Immigration Evidence from
the United States CEPR Discussion Paper No DP12848
57 Pages Posted 12 Apr 2018
Anna Maria Mayda
Georgetown University - Department of Economics IZA Institute of Labor Economics
Giovanni Peri University of California Davis - Department of Economics
Walter Steingress Government of Canada - Bank of Canada
Date Written April 2018
Abstract
In this paper we study the impact of immigration to the United States on the vote for the
Republican Party by analyzing county-level data on election outcomes between 1990 and
2010 Our main contribution is to separate the effect of high-skilled and low-skilled
immigrants by exploiting the different geography and timing of the inflows of these two
groups of immigrants We find that an increase in the first type of immigrants decreases the
share of the Republican vote while an inflow of the second type increases it These effects are
mainly due to the local impact of immigrants on votes of US citizens and they seem
independent of the country of origin of immigrants We also find that the pro-Republican
impact of low-skilled immigrants is stronger in low-skilled and non-urban counties This is
consistent with citizens political preferences shifting towards the Republican Party in places
where low-skilled immigrants are more likely to be perceived as competition in the labor
market and for public resources
Keywords Economic and Fiscal Channels Electoral Effects Immigration Republican Party
JEL Classification F22 J61
15 Escaping Import Competition and Downstream Tariffs
by Ana Cecilia Fieler Ann Harrison - 24527 (EEE ITI)
Abstract
We propose and provide evidence for a new source of gains from
trade Firms invest in product differentiation to escape import
competition In the data and in the model these investments are
associated with increases in measured productivity introduction
of new goods and shifts to skill-intensive sectors Investment
in differentiation downstream leads upstream firms to also
invest in differentiation For China these downstream tariff
reductions lead to big increases in measured productivity for
upstream suppliers The effect on measured productivity is
larger for upstream than for downstream firms and we explain
this difference theoretically through heterogeneous changes in
markups
httppapersnberorgpapersW24527utm_campaign=ntwamputm_medium=emailamputm_source=ntw
20 The Production of Cognitive and Non-cognitive Human Capital in the Global Economy
by Chong Xiang Stephen Yeaple - 24524 (ITI)
Abstract
A countrys welfare depends on its ability to accumulate
cognitive and noncognitive human capital However we do not
fully understand what makes some countries successful at
producing human capital and even struggle with measurement eg
international test scores are informative about the cognitive
dimension but neglect the non-cognitive dimension In this
paper we develop a multi-country open-economy
general-equilibrium framework in which countries ability to turn
resources into human capital along the cognitive and
non-cognitive dimensions is revealed by the endogenous
educational and occupational choices of its citizens and their
subsequent performance on international exams Our model allows
us to estimate countries underlying productivities of cognitive
and non-cognitive human capital We find that high test scores
do not necessarily imply high cognitive productivities (eg
Switzerland Hong Kong) and that many countries with low test
scores have high non-cognitive productivities (eg the US and
UK)
We then aggregate over these two dimensions to construct a single
educational quality index and illustrate its intuition using an
iso-education-quality curve We use our model to decompose
variation in output per capita across countries into a component
involving the educational quality index and another involving
output TFP This exact decomposition shows that the differences
in cognitive and noncognitive productivities across countries
have large implications for differences in output per worker
These results help quantify the potential payoffs of education
policies and clarify their objective eg excessive attention
to test scores may decrease aggregate output
International trade plays an important role in our model because
the gains from trade help to compensate a country for uneven
productivity across human capital types In counterfactual
exercises we show that if barriers to trade are completely
eliminated we would obtain a very different
iso-education-quality curve This implies large improvements of
overall education quality and large gains from trade for the
countries with strong comparative advantages in producing
cognitive (eg S Korea would gain 301 to 441 of its
output) or non-cognitive human capital (eg the Netherlands
would gain 188 to 556)
httppapersnberorgpapersW24524utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Il Contributo Della Demografia Alla Crescita
Economica Duecento Anni Di ldquoStoriardquo Italiana (The
Contribution of Demography to Italys Economic
Growth A Two-Hundred-Year-Long Story) Bank of Italy Occasional Paper No 431
37 Pages Posted 20 Apr 2018
Federico Barbiellini Amidei Bank of Italy
Matteo Gomellini Bank of Italy
Paolo Piselli Bank of Italy
Date Written March 28 2018
Abstract
Italian Abstract Questo lavoro esamina il contributo della demografia alla crescita
economica confrontando lrsquoItalia del passato quella di oggi e quella che vivremo in futuro
Attraverso una scomposizione contabile della crescita del PIL e del PIL pro capite si mostra
come le modifiche nella struttura per etagrave della popolazione abbiano prodotto nel passato piugrave
lontano un demographic dividend positivo Al contrario negli ultimi venticinque anni e con
ogni probabilitagrave nel futuro la demografia ha dato e daragrave un contributo diretto sensibilmente
negativo alla crescita economica I flussi migratori previsti limiteranno lrsquoampiezza di tale
contributo negativo ma non saranno in grado di invertirne il segno Nel lavoro si valutano tre
sviluppi potenzialmente indotti dagli stessi fattori demografici o da azioni di policy ndash
lrsquoestensione della vita lavorativa lrsquoaumento della partecipazione femminile al mercato del
lavoro e lrsquoincremento nei livelli di istruzione ndash che potranno contrastare i puri effetti contabili
legati allrsquoevoluzione nella struttura per etagrave
English Abstract This paper examines the contribution of demography to economic growth
in Italy by comparing the countryrsquos past present and future We use an accounting framework
to decompose GDP and per capita GDP growth and we show how changes in the age structure
of the population produced a positive demographic dividend in the past By contrast in the
last twenty-five years and arguably in the future demography has made and will continue to
make a direct negative contribution to economic growth Expected migration flows will
noticeably limit the extent of this negative contribution but they will not be able to reverse its
sign We analyze three possible developments potentially driven by demography itself or
fostered by policy actions ndash longer working lives an increase in female labour market
participation and higher education levels ndash which could counteract the pure negative
accounting effects produced by the evolution of the age structure
Note Downloadable document is in Italian
Keywords economic history demography demographic dividend forecasts
JEL Classification J11 N30
The Effects of Cash Transfers on Adult Labor Market
Outcomes World Bank Policy Research Working Paper No 8404
29 Pages Posted 16 Apr 2018
Sarah Baird George Washington University - School of Public Health and Health Services (SPHHS)
David J McKenzie World Bank - Development Research Group (DECRG) IZA Institute of Labor Economics
Berk Ozler World Bank - Development Economics Research Group (DECRG)
Date Written April 12 2018
Abstract
The basic economic model of labor supply has a very clear prediction of what should be
expected when an adult receives an unexpected cash windfall they should work less and earn
less This intuition underlies concerns that many types of cash transfers ranging from
government benefits to migrant remittances will undermine work ethics and make recipients
lazy This paper discusses a range of additional channels to this simple labor-leisure trade-off
that can make this intuition misleading in low- and middle-income countries including
missing markets price effects from conditions attached to transfers and dynamic and general
equilibrium effects The paper uses this as a lens through which to examine the evidence on
the adult labor market impacts of a wide range of cash transfer programs government
transfers charitable giving and humanitarian transfers remittances cash assistance for job
search cash transfers for business start-up and bundled interventions Overall cash transfers
that are made without an explicit employment focus (such as conditional and unconditional
cash transfers and remittances) tend to result in little to no change in adult labor The main
exceptions are transfers to the elderly and some refugees who reduce work In contrast
transfers made for job search assistance or business start-up tend to increase adult labor
supply and earnings with the likely main channels being the alleviation of liquidity and risk
constraints
Keywords Economic Assistance Disability Services amp Transfers to Poor Access of Poor to
Social Services Employment and Unemployment Labor Markets Rural Labor Markets Health
Care Services Industry
Globalisation and Urban Polarisation CEPR Discussion Paper No DP12877
24 Pages Posted 23 Apr 2018
Anthony J Venables University of Oxford Centre for Economic Policy Research (CEPR)
Date Written April 2018
Abstract
External trade affects the internal spatial structure of an economy promoting growth in some
cities or regions and decline in others Internal adjustment to these changes has often proved
to be extremely slow and painful This paper combines elements of urban and international
economics to draw out the implications of trade shocks for city performance Localisation
economies in production of internationally tradable goods mean that cities divide into two
types those producing tradables and those specialising in sectors producing just for the
national market (non-tradables) Negative trade shocks (and possibly also some positive
ones) reduce the number of cities engaged in tradable production increasing the number
producing just non-tradables This has a negative effect across all non-tradable cities which
lose population and land value Remaining tradable cities boom gaining population and land
value Depending on the initial position city size dispersion may increase this raising the
share of urban land-rents in national income and reducing the share of labour
Keywords de-industrialisation globalisation Polarisation urban
JEL Classification F12 R11 R12
Place-Based Policies for Development World Bank Policy Research Working Paper No 8410
75 Pages Posted 24 Apr 2018
Gilles Duranton University of Pennsylvania - Real Estate Department
Anthony J Venables University of Oxford Centre for Economic Policy Research (CEPR)
There are 3 versions of this paper
Date Written April 17 2018
Abstract
Many development policies such as placement of infrastructure or local economic
development schemes are place-based Such policies are generally intended to stimulate
private sector investment and economic growth in the treated place and as such they are
difficult to appraise and evaluate This paper sets out a framework for analyzing the effects of
such policies and assessing their social value It then reviews the literature on place-based
policies in the contexts of transport improvements economic corridors special economic
zones lagging regions and urban policies
Keywords Transport Services Labor Markets Urban Governance and Management Urban
Housing and Land Settlements Municipal Management and Reform Urban Housing
Macroeconomic Management Economic Forecasting Governance Diagnostic Capacity
Building Textiles Apparel amp Leather Industry Common Carriers Industry Food amp Beverage
Industry Business Cycles and Stabilization Policies Plastics amp Rubber Industry General
Manufacturing Construction Industry Pulp amp Paper Industry
Evidence on Finance and Economic Growth ECB Working Paper No 2115 ISBN 978-92-899-3031-4
79 Pages Posted 8 Dec 2017
Alexander A Popov European Central Bank (ECB)
Date Written December 6 2017
Abstract
This paper reviews and appraises the body of empirical research on the association between
financial markets and economic growth that has accumulated over the past quarter-century
The bulk of the historical evidence suggests that financial development affects economic
growth in a positive monotonic way yet recent research endeavors have provided useful and
important qualifications of this conventional wisdom Moreover the proliferation of micro-
level datasets has enabled researchers to study more precise links between theory and
measurement The paper highlights the mechanisms through which financial markets benefit
society as well as the channels through which finance can slow down long-term growth
Keywords financial markets growth
JEL Classification O4 G1
Why Has Economic Growth Slowed When Innovation Appears to be Accelerating
by Robert J Gordon - 24554 (DAE EFG PR)
Abstract
Measured between quarters with identical unemployment rates U
S economic growth slowed by more than half from 32 percent per
year during 1970-2006 to only 14 percent during 2006-16 and
only half of this GDP growth slowdown is accounted for diminished
productivity growth The paper starts from the proposition that
GDP growth matters not just productivity growth because slower
GDP growth provides fewer resources to address the nations
problems including faltering education aging infrastructure
and the looming shortfall in funding for Social Security and
Medicare and it also implies lower net investment and a reduced
rate at which new capital can embody the latest technology
The paper documents the contribution to slower GDP growth of the
separate components of demography -- fertility mortality life
expectancy and immigration Particular emphasis is placed on
the interaction between rising inequality and the slower secular
rise of life expectancy in the US compared to other developed
countries both in the form of a large gap in life expectancy
between rich and poor and the stagnation of life expectancy for
the lowest income quintile Further contributions to slowing
growth are made by a decline in the population share of both
legal and illegal immigration and a turnaround from rising to
declining labor force participation Rising inequality creates a
gap between the growth of average real per-capita income relative
to that of median real income and alternative measures of the
evolution of this gap are compared and assessed
Causes of declining productivity growth begin with the slowdown
in the rate of increase of educational attainment resulting from
the interplay of demand and supply factors including the
flattening of the college wage premium and the rising relative
price of college education Why did productivity growth decline
after 2006 despite an increase in the rate at which new US
patents were issued in 2006-16 compared to earlier decades Part
of the slowdown is attributed to the maturity of the IT
revolution which also helps to explain the trajectory of the
college wage premium Aspects of the productivity growth
slowdown include the declining productivity of research workers
diminishing returns to drug innovation and the evolutionary
rather than revolutionary impact of robots and artificial
intelligence which are replacing workers slowly and only in a
minority of industrial sectors throughout the economy Also
considered are alternative explanations of slower productivity
growth including low investment and mismeasurement
httppapersnberorgpapersW24554utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Childbearing Postponement its Option Value and the
Biological Clock CEPR Discussion Paper No DP12884
48 Pages Posted 23 Apr 2018
David de la Croix Catholic University of Louvain (UCL) - Institut de Recherches Economiques et Sociales (IRES) Catholic
University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)
Aude Pommeret Universiteacute de Savoie
Date Written April 2018
Abstract
Having children is like investing in a risky project Postponing birth is like delaying an
irreversible investment It has an option value which depends on its costs and benefits and in
particular on the additional risks motherhood brings We develop a parsimonious theory of
childbearing postponement along these lines We derive its implications for asset
accumulation income optimal age at first birth and childlessness The structural parameters
are estimated by matching the predictions of the model to data from the National Longitudinal
Survey of Youth NLSY79 The uncertainty surrounding income growth is shown to increase
with childbearing and this increase is stronger for more educated people This effect alone
can explain why the age at first birth and the childlessness rate both increase with education
We use the model to simulate two hypothetical policies Providing free medically assisted
reproduction technology does not affect the age at first birth much but lowers the
childlessness rate Insuring mothers against income risk is powerful in lowering the age at
first birth
Keywords Assisted reproduction technology Career uncertainty Late parenthood Real
option
JEL Classification D91 J13
Economic Upgrading Through Global Value Chain
Participation Which Policies Increase the Value
Added Gains World Bank Policy Research Working Paper No 8007
45 Pages Posted 1 May 2018
Victor Kummritz World Trade Organization (WTO) Graduate Institute of International and Development Studies (IHEID)
Daria Taglioni European Central Bank (ECB) - Directorate General Economics
Deborah E Winkler World Bank
Date Written March 16 2017
Abstract
The emergence of global value chains has opened up new ways to achieve development and
industrialization However new evidence shows that not all countries have gained from
participating in global value chains and that country-specific characteristics matter for
economic upgrading in global value chains This paper uses two panel data sets of developing
and industrialized countries at the sectoral level to relate global value chain participation as a
buyer and seller to domestic value added These are combined with a wide range of policy
measures at the country level that can play a role in economic upgrading through global value
chains by targeting global value chain integration or the quality and conditions of input and
output factors First the study finds that global value chain integration increases domestic
value added especially on the selling side which holds across all income levels Second the
results highlight the importance of policy for economic upgrading through global value chain
integration Although the study cannot claim causal evidence all the assessed policy areas are
consistently shown to mediate the effects of global value chains and magnify the gains for
domestic value added Third a detailed analysis shows that several policy areas mediate the
gains from global value chains more through integration as a seller Finally the study
observes that many of the results are driven by high- and upper-middle-income countries
Keywords International Trade and Trade Rules Labor Markets Rural Labor Markets Food amp
Beverage Industry Construction Industry Business Cycles and Stabilization Policies General
Manufacturing Common Carriers Industry Textiles Apparel amp Leather Industry Pulp amp Paper
Industry Plastics amp Rubber Industry Global Environment
Job Vacancies and Immigration Evidence from Pre- and Post-Mariel Miami
by Jason Anastasopoulos George J Borjas Gavin G Cook Michael Lachanski - 24580 (LS)
Abstract
How does immigration affect labor market opportunities in a
receiving country This paper contributes to the voluminous
literature by reporting findings from a new (but very old) data
set Beginning in 1951 the Conference Board constructed a
monthly job vacancy index by counting the number of help-wanted
ads published in local newspapers in 51 metropolitan areas We
use the Help-Wanted Index (HWI) to document how immigration
changes the number of job vacancies in the affected labor
markets Our analysis begins by revisiting the Mariel episode
The data reveal a marked decrease in Miamis HWI relative to many
alternative control groups in the first 4 or 5 years after
Mariel followed by recovery afterwards We find a similar
initial decline in the number of job vacancies after two other
supply shocks that hit Miami over the past few decades the
initial wave of Cuban refugees in the early 1960s as well as the
1995 refugees who were initially detoured to Guantanamo Bay We
also look beyond Miami and estimate the generic spatial
correlations that dominate the literature correlating changes in
the HWI with immigration across metropolitan areas These
correlations consistently indicate that more immigration is
associated with fewer job vacancies The trends in the HWI seem
to most strongly reflect changing labor market conditions for
low-skill workers (in terms of both wages and employment) and a
companion textual analysis of help-wanted ads in Miami before and
after the Mariel supply shock suggests a slight decline in the
relative number of low-skill job vacancies
httppapersnberorgpapersW24580utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Somatic Distance Cultural Affinities Trust and Trade CEPR Discussion Paper No DP12895
21 Pages Posted 1 May 2018
Jacques Melitz National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and
Statistics (CREST) Centre for Economic Policy Research (CEPR)
Farid Toubal Ecole Normale Superieure de Cachan (ENS) - Departement of Economics ans Management National
Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics
(CREST) Centre dEtudes Prospectives et dInfo Internationales (CEPII)
Date Written April 2018
Abstract
Somatic distance or differences in physical appearance proves to be extremely important in
the gravity model of bilateral trade in conformity with results in other areas of economics and
outside of it in the social sciences This is also true quite independently of survey evidence
about bilateral trust These findings are obtained in a sample of the 15 members of the
European Economic Association in 1996 Robustness tests also show that somatic distance
has a more reliable influence on bilateral trade than the other cultural variables The article
finally discusses the interpretation and the breadth of application of these results
Keywords Bilateral Trade Cultural interactions Language Somatic distance Trust
The Paradox of Global Thrift CEPR Discussion Paper No DP12894
59 Pages Posted 1 May 2018
Luca Fornaro Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) Barcelona Graduate
School of Economics (Barcelona GSE)
Federica Romei LUISS Guido Carli University
Date Written April 2018
Abstract
This paper describes a paradox of global thrift Consider a world in which interest rates are
low and monetary policy cannot stabilize the economy because it is frequently constrained by
the zero lower bound Now imagine that governments complement monetary policy with
prudential financial and fiscal policies because they perceive that limiting private and public
borrowing during booms will help stabilize the economy by reducing the risk of financial
crises and by creating space for fiscal interventions during busts We show that these policies
while effective from the perspective of individual countries might backfire if applied on a
global scale In a financially integrated world in fact prudential policies generate a rise in the
global supply of savings or equivalently a drop in global aggregate demand In turn weaker
global aggregate demand depresses output in countries whose monetary policy is constrained
by the zero lower bound Due to this effect the world might paradoxically experience a fall in
output and welfare following the implementation of well-intended prudential policies
Keywords aggregate demand externalities Capital Flows current account policies fiscal
policies international cooperation Liquidity traps macroprudential policies zero lower
bound
JEL Classification E32 E44 E52 F41 F42
Multihorizon Currency Returns and Purchasing
Power Parity CEPR Discussion Paper No DP12893
59 Pages Posted 1 May 2018
Mikhail Chernov UCLA Anderson
Drew Creal University of Chicago - Booth School of Business - Econometrics and Statistics
There are 2 versions of this paper
Date Written April 2018
Abstract
Exposures of expected future depreciation rates to the current interest rate differential
violate the UIP hypothesis in a distinctive pattern that is a non-monotonic function of horizon
Conversely forward risk-adjusted expected depreciation rates are monotonic We explain the
two patterns by incorporating the weak form of PPP into a no-arbitrage joint model of the
depreciation rate inflation differential domestic and foreign yield curves Short-term
departures from PPP generate the first pattern The risk premiums for these departures
generate the second pattern
Keywords affine term structure model cointegration multiple horizons purchasing power
parity uncovered interest parity
Networks and Trade CEPR Discussion Paper No DP12891
33 Pages Posted 1 May 2018
Andrew B Bernard Tuck School of Business at Dartmouth National Bureau of Economic Research (NBER) Centre for
Economic Policy Research (CEPR)
Andreas Moxnes University of Oslo - Department of Economics Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
There are 2 versions of this paper
Date Written April 2018
Abstract
Trade occurs between firms both across borders and within countries and the vast majority
of trade transactions includes at least one large firm with many trading partners This paper
reviews the literature on firm-to-firm connections in trade A growing body of evidence
coming from domestic and international transaction data has established empirical
regularities which have inspired the development of new theories emphasizing firm
heterogeneity among both buyers and suppliers in production networks Theoretical work
has considered both static and dynamic matching environments in a framework of many-to-
many matching The literature on trade and production networks is at an early stage and
there are a large number of unanswered empirical and theoretical questions
Keywords International Trade offshoring production networks productivity
JEL Classification F10 F12 F14 L11 L21
One More Time What are Institutions and How Do
They Change World Bank Policy Research Working Paper No 8422
39 Pages Posted 1 May 2018 Last revised 3 May 2018
Roumeen Islam World Bank
Date Written April 30 2018
Abstract
This paper defines institutions presents their basic characteristics and discusses forces for
institutional change It draws on a wealth of research and study by scholars in different fields
and follows from the flagship 2002 World Development Report on this topic including
relevant new research since then that illuminates key issues The definition of institutions
includes rules and organizations (specifically rules guiding peoples actions) The paper
emphasizes the diversity of institutions that can effectively perform similar functions the
arguments for and against standardization of institutions across specific transactions or
groups and the implications of these choices It highlights the relationship between informal
and formal institutions It discusses forces for institutional change influencing all economies
ranging from external shocks (whether they be economic or weather-related shocks or driven
by wars) to internal dynamics such as those following population growth or compositional
changes and those following technological innovations Many of these forces have a two-way
relationship with institutions they are affected by them and in turn influence whether and
when they change A special section is devoted to institutional transplants and their
effectiveness The paper concludes with a discussion of whether and under what conditions
institutional change can be externally directed and the lessons for aid donors
Keywords International Trade and Trade Rules Social Policy Common Property Resource
Development Legal Products Regulatory Regimes Legislation Legal Reform Judicial System
Reform Public Sector Economics Taxation amp Subsidies Public Finance Decentralization and
Poverty Reduction Economic Adjustment and Lending Macro-Fiscal Policy Educational
Sciences Competitiveness and Competition Policy
Globalization Government Popularity and the Great
Skill Divide
CEPR Discussion Paper No DP12897
56 Pages Posted 1 May 2018
Cevat Giray Aksoy European Bank for Reconstruction and Development IZA Institute of Labor Economics
Sergei M Guriev Sciences Po Centre for Economic Policy Research (CEPR) European Bank for Reconstruction and
Development (EBRD)
Daniel Treisman University of California Los Angeles (UCLA) - Department of Political Science
There are 2 versions of this paper
Date Written April 2018
Abstract
How does international trade affect the popularity of governments and leaders We provide
the first large-scale systematic evidence that the divide between skilled and unskilled
workers worldwide is producing corresponding differences in the response of political
preferences to trade shocks Using a unique data set including 118 countries and nearly
450000 individuals we find that growth in high skill intensive exports (of goods and
services) increases approval of the leader and incumbent government among skilled
individuals Growth in high skill intensive imports has the opposite effect There is no effect
on political approval among the unskilled To identify exogenous variation in international
trade we exploit the time-varying effects of air and sea distances in bilateral trade flows Our
findings suggest that the political effects of international trade differ with skill intensity and
that skilled individuals respond differently from their unskilled counterparts to trade shocks
Keywords International trade political approval political polarization skill intensity of
trade
Migratory Pressures in the Long Run International
Migration Projections to 2050 Banco de Espana Article 3817
9 Pages Posted 3 Jan 2018
Rodolfo G Campos Banco de Espantildea
Date Written December 5 2017
Abstract
This article presents bilateral international migration projections to 2050 based on a new
methodology that takes into account the population growth both in countries of origin and
countries of destination To do this the methodology used by Hanson and McIntosh (2016) to
project the future migratory flows to a sample of OECD countries is generalised to all
countries worldwide The United Nations population growth forecasts are used as a basis for
projecting future migratory flows The main findings of the exercise indicate that the number
of migrants is projected to increase from 28 of the world population in 2010 to around
35 in 2050 as a result of the strong increase in migrants from India and sub-Saharan Africa
Against this background and despite the slowdown in demographic growth in Latin America
the United States is expected to continue to receive high net immigration flows and to remain
the country with the highest stock of immigrants globally while continental Europe will post
larger net immigration flows
Immigration and Electoral Support for the Far-Left
and the Far-Right CESifo Working Paper Series No 6918
53 Pages Posted 7 May 2018
Anthony Edo Paris School of Economics (PSE)
Yvonne Giesing CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Jonathan Oumlztunc Barcelona Graduate School of Economics (Barcelona GSE)
Panu Poutvaara Ludwig Maximilian University of Munich - Faculty of Economics CESifo (Center for Economic Studies and
Ifo Institute) - Ifo Institute CESifo (Center for Economic Studies and Ifo Institute) CReAM IZA Institute of
Labor Economics
Date Written March 05 2018
Abstract
Immigration has become one of the most divisive political issues in the United States the
United Kingdom France and several other Western countries We estimate the impact of
immigration on voting for far-left and far-right candidates in France using panel data on
presidential elections from 1988 to 2017 To derive causal estimates we instrument more
recent immigration flows by past settlement patterns in 1968 We find that immigration
increases support for far-right candidates and has no robust effect on far-left voting The
increased support for far-right candidates is driven by low educated immigrants from non-
Western countries
Keywords voting immigration political economy
JEL Classification D720 F220 J150 P160
Institutions Trade and Development A Quantitative
Analysis CESifo Working Paper Series No 6920
64 Pages Posted 7 May 2018
Cosimo Beverelli World Trade Organization (WTO)
Alexander Keck World Trade Organization (WTO)
Mario Larch University of Bayreuth - Faculty of Law Business and Economics University of Bayreuth CESifo Ifo
Institute for Economic Research GEP at the University of Nottingham
Yoto Yotov Drexel University - Department of Economics amp International Business
Date Written March 05 2018
Abstract
We propose and apply methods to quantify the impact of national institutions on international
trade and development We are able to identify the direct impact of country-specific
institutions on international trade within the structural gravity framework Our approach
naturally addresses the prominent issue of endogenous institutions The empirical analysis
offers robust evidence that stronger institutions promote trade A counterfactual analysis
reveals that the changes in institutional quality in the poor countries in our sample between
1996 and 2006 have had via their impact on imports from rich countries significant and
heterogeneous real GDP effects varying between -5 and 5 percent Our methods are readily
applicable to identifying the impact of a wide range of country-specific variables on
international trade
Keywords institutional quality international trade development structural gravity
JEL Classification F130 F140 F160
5 Inference in Structural Vector Autoregressions When the Identifying Assumptions are Not Fully Believed Re-
evaluating the Role of Monetary Policy in Economic Fluctuations
by Christiane Baumeister James D Hamilton - 24597 (EFG ME)
Abstract
Reporting point estimates and error bands for structural vector
autoregressions that are only set identified is a very common
practice However unless the researcher is persuaded on the
basis of prior information that some parameter values are more
plausible than others this common practice has no formal
justification When the role and reliability of prior
information is defended Bayesian posterior probabilities can be
used to form an inference that incorporates doubts about the
identifying assumptions We illustrate how prior information can
be used about both structural coefficients and the impacts of
shocks and propose a new distribution which we call the
asymmetric t distribution for incorporating prior beliefs about
the signs of equilibrium impacts in a nondogmatic way We apply
these methods to a three-variable macroeconomic model and
conclude that monetary policy shocks were not the major driver of
output inflation or interest rates during the Great Moderation
httppapersnberorgpapersW24597utm_campaign=ntwamputm_medium=emailamputm_source=ntw
11 The Political Impact of Immigration Evidence from the United States
by Anna Maria Mayda Giovanni Peri Walter Steingress - 24510 (ITI POL)
Abstract
In this paper we study the impact of immigration to the United
States on the vote for the Republican Party by analyzing
county-level data on election outcomes between 1990 and 2010
Our main contribution is to separate the effect of high-skilled
and low-skilled immigrants by exploiting the different geography
and timing of the inflows of these two groups of immigrants We
find that an increase in the first type of immigrants decreases
the share of the Republican vote while an inflow of the second
type increases it These effects are mainly due to the local
impact of immigrants on votes of US citizens and they seem
independent of the country of origin of immigrants We also find
that the pro-Republican impact of low-skilled immigrants is
stronger in low-skilled and non-urban counties This is
consistent with citizens political preferences shifting towards
the Republican Party in places where low-skilled immigrants are
more likely to be perceived as competition in the labor market
and for public resources
httppapersnberorgpapersW24510utm_campaign=ntwamputm_medium=emailamputm_source=ntw
23 The Impact of Exports on Innovation Theory and Evidence
by Philippe Aghion Antonin Bergeaud Matthieu Lequien Marc J Melitz - 24600 (EFG ITI)
Abstract
This paper investigates the effect of export shocks on
innovation On the one hand a positive shock increases market
size and therefore innovation incentives for all firms On the
other hand it increases competition as more firms enter the
export market This in turn reduces profits and therefore
innovation incentives particularly for firms with low
productivity Overall the positive impact of the export shock on
innovation is magnified for high productivity firms whereas it
may negatively affect innovation in low productivity firms We
test this prediction with patent customs and production data
covering all French manufacturing firms To address potential
endogeneity issues we construct firm-level export proxies which
respond to aggregate conditions in a firms export destinations
but are exogenous to firm-level decisions We show that
patenting robustly increases more with export demand for
initially more productive firms This effect is reversed for the
least productive firms as the negative competition effect
dominates
httppapersnberorgpapersW24600utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Sovereign Defaults in Court CESifo Working Paper Series No 6931
75 Pages Posted 8 May 2018
Julian Schumacher European Central Bank (ECB)
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Enderlein Henrik Hertie School of Governance
There are 3 versions of this paper
Date Written March 08 2018
Abstract
For centuries defaulting governments were immune from legal action by foreign creditors
This paper shows that this is no longer the case Building a dataset covering four decades we
find that creditor lawsuits have become an increasingly common feature of sovereign debt
markets The legal developments have strengthened the hands of creditors and raised the cost
of default for debtors We show that legal disputes in the US and the UK disrupt government
access to international capital markets as foreign courts can impose a financial embargo on
sovereigns The findings are consistent with theoretical models with creditor sanctions and
suggest that sovereign debt is becoming more enforceable We discuss how the threat of
litigation affects debt management government willingness to pay and the resolution of debt
crises
Keywords sovereign default enforcement government financing debt restructuring
JEL Classification F340 G150 H630 K220
ECB Monetary Policy and the Euro Exchange Rate Bank of Italy Temi di Discussione (Working Paper) No 1172
54 Pages Posted 14 May 2018
Martina Cecioni Bank of Italy
Date Written May 3 2018
Abstract
The paper provides empirical evidence on the effects of ECB conventional and unconventional
monetary policy on the euro exchange rate focusing on the period from January 2013 to
September 2017 Innovations to conventional and unconventional monetary policies are
identified through changes in respectively short- and long-term interest rates immediately
after Governing Council meetings Both types of measures contributed to the depreciation of
the euro from mid-2014 surprises associated with conventional measures had a stronger and
more persistent effect than those associated with unconventional ones Time-varying
estimates of the effects of conventional surprises since 1999 show that the responsiveness of
exchange rates to monetary news increased markedly from 2013 State-dependence analysis
finds that the exchange rate became more sensitive to monetary policy when the ECB adopted
a policy of negative interest rates and when conventional and unconventional monetary
surprises moved in the same direction
Keywords unconventional monetary policy exchange rates European Central Bank
JEL Classification E52 E58 F31
The ECBs Fiscal Policy
by Hans-Werner Sinn - 24613 (ME)
Abstract
While the ECB helped mitigate the euro crisis in the aftermath of
Lehman it has stretched its monetary mandate and moved into
fiscal territory This text describes and summarizes the crucial
role played by the ECB in the intervention spiral resulting from
its bid to manage the crisis It also outlines ongoing
competitiveness problems in southern Europe discusses the
so-called austerity policy of the Troika comments on QE and
presents two alternative paths for the future development of
Europe
httppapersnberorgpapersW24613utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Real Convergence in the Euro Area A Long-Term
Perspective ECB Occasional Paper No 203 ISBN 978-92-899-2865-6
102 Pages Posted 5 Dec 2017
Juan Luis Diaz del Hoyo European Central Bank (ECB)
Ettore Dorrucci European Central Bank (ECB)
Frigyes Ferdinand Heinz European Central Bank (ECB)
Sona Muzikarova European Central Bank (ECB)
Date Written December 1 2017
Abstract
In the euro area there is mixed evidence that the GDP per capita of lower-income economies
has been catching up with that of higher-income economies since the start of monetary union
The significant real convergence performance of some of the most recent members contrasts
with that of the economies of southern Europe which have not met expectations However
attributing all the blame for this outcome to the introduction of the single currency simply
misses the point By taking a ldquolong viewrdquo and reviewing the evidence since the 1960s this
paper shows that certain member countries began to face a ldquonon-convergence traprdquo long
before the euro years We also provide stylised facts on (i) the central role of total factor
productivity in driving real convergence in the euro area over time alongside other factors
and (ii) the crucial interaction of real convergence with ldquoMaastricht convergencerdquo and
institutional quality the other two key components of sustainable economic convergence We
conclude that it is critical that the euro area countries facing convergence challenges enhance
the resilience of their economic structures by improving the relevant institutions and
governance
Keywords sustainable economic convergence real convergence nominal convergence GDP
per capita Maastricht convergence criteria institutional quality labour productivity total
factor productivity Five Presidentsrsquo Report Reflection Paper on the Deepening of EMU
JEL Classification E01 F15 J11 O11 O43 O47 O52 O57
Monetary Policy Transmission in the Eastern
Caribbean Currency Union IMF Working Paper No 1870
31 Pages Posted 22 May 2018
Alla Myrvoda International Monetary Fund (IMF)
Julien P M Reynaud International Monetary Fund (IMF) Universiteacute Paris I Pantheacuteon-Sorbonne
Date Written March 2018
Abstract
This paper empirically investigates international and domestic monetary policy transmission
mechanisms in the Eastern Caribbean Currency Union (ECCU) We assess interest rate pass-
through of both the US policy rate and the ECCU minimum saving deposit rate (MSR) into
domestic interest rates through the interest rate channel While economic theory suggests
that the international pass-through should be high in small open economies with fixed
exchange rates and open capital accounts our findings based on regression analysis point to
a low long-run pass-through coefficient of the US interest rate The domestic transmission
channel however is found to operate through changes in the MSR The results hold for
different interest rates (deposit and lending) and are supported by survey-based findings
Keywords Asia and Pacific Antigua and Barbuda Dominica Saint Kitts and Nevis Saint
Lucia Saint Vincent and the Grenadines Grenada Western Hemisphere monetary policy
transmission interest rate pass-through ECCU monetary policy transmission interest rate
pass-through ECCU General Monetary Policy (Targets Instruments and Effects)
JEL Classification E43 E50 E52 F31 F33 F36 O54
On the Impact of Structural Reforms on Output and
Employment Evidence from a Cross-Country Firm-
Level Analysis IMF Working Paper No 1873
36 Pages Posted 22 May 2018
Luiza Antoun de Almeida International Monetary Fund (IMF)
Vybhavi Balasundharam University of Michigan at Ann Arbor
Date Written April 2018
Abstract
This paper analyzes the effects of selected structural reforms on output and employment in
the short and medium term It uses a comprehensive cross-country firm-level dataset
covering both advanced and emerging market economies over the period 2003-2014 In line
with previous studies it finds that structural reforms have in general a positive impact on
output and employment in the medium term Furthermore the paper also assesses whether
the impact of structural reforms varies with firm-specific characteristics such as size
leverage profitability and sector We find evidence that firm characteristics do influence the
effectiveness of structural reforms These findings have relevant policy implications as they
help policymakers tailor the design of structural reforms to maximize their payoffs taking
into account their heterogeneous impact on firms
Keywords Fiscal reforms Cross-country analysis Potential output Employment Developed
countries Emerging markets structural reforms firm-level data Orbis dataset potential
growth
JEL Classification L51 D04 D22
Production Integration in the European Union CESifo Working Paper Series No 6944
34 Pages Posted 17 May 2018
Hakan Nordstrom Swedish Board of Trade
Harry Flam Stockholm University - Institute for International Economic Studies (IIES) CESifo (Center for Economic
Studies and Ifo Institute)
Date Written March 21 2018
Abstract
Measured by trade in intermediate inputs economic integration has increased between 2000
and 2014 between members of the European Union and even more with non-members
Integration is negatively related to economic size and positively to the number of years as a
member Germany is the largest hub in the production network and the centre of gravity has
moved eastward Older member states are increasingly exporting service inputs and new
member states primary and manufacturing inputs Wages are increasing faster in countries
with low initial wages indicating wage convergence as a result of production integration
Keywords global value chains economic integration input-output models wage
convergence
JEL Classification E100 F100 F600 J310
Democratic Tipping Points CESifo Working Paper Series No 6945
36 Pages Posted 17 May 2018
Antonio Ciccone Universitat Pompeu Fabra - Faculty of Economic and Business Sciences Centre for Economic Policy
Research (CEPR) Institute for the Study of Labor (IZA)
There are 2 versions of this paper
Date Written March 21 2018
Abstract
I examine whether transitory events can tip the scales against authoritarian regimes and lead
to persistent democratization I think of situations where this is a possibility as democratic
tipping points The transitory events I focus on are rainfall shocks in the most agricultural
countries in the world I show that while these shocks only affect agricultural output
contemporaneously they have persistent effects on political institutions Authoritarian
regimes experiencing negative rainfall shocks are more likely to be democratic three five and
ten years later
Keywords transitory shocks persistent democratization
Globalization and the New Normal IMF Working Paper No 1875
41 Pages Posted 22 May 2018
Bertrand Candelon University of Maastricht - Department of Economics
Alina Carare International Monetary Fund (IMF)
Jean-Baptiste Hasse
Aix-Marseille University
Date Written April 2018
Abstract
This study expands the empirical specification of Cerra and Saxena (2008) and allows short-
termoutput growth regimes to be determined by globalization Relying on a non-linear
dynamic panelrepresentation it reconciles the earlier results in the literature regarding the
two oppositenarratives of the effects of globalization on output growth Countries experience
higher growth onaverage the more open and integrated they are into the world However
once they reach a certainglobalization threshold (endogenously estimated) countries may
also experience a new normalpersistently lower short-term output growth following a
financial crisis The benefits as well asvulnerabilities accrue earlier in the globalization
process for low- and middle-income countriesTo solely reap the globalization benefits on
growth sound policies should be in place to mitigatethe negative effects stemming from
increased vulnerabilities brought by globalization
Keywords Globalization Financial crisis Banking crisis Output growth New Normal
Globalization Financial crises Banking crises Output growth
JEL Classification F30 F43 F62 F65
Public Policy in an AI Economy
by Austan Goolsbee - 24653 (PE PR)
Abstract
This paper considers the role of policy in an AI-intensive
economy (interpreting AI broadly) It emphasizes the speed of
adoption of the technology for the impact on the job market and
the implications for inequality across people and across places
It also discusses the challenges of enacting a Universal Basic
Income as a response to widespread AI adoption discuss pricing
privacy and competition policy the question of whether AI could
improve policy making itself
httppapersnberorgpapersW24653utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Aggregate and Distributional Effects of Financial
Globalization Evidence from Macro and Sectoral Data IMF Working Paper No 1883
62 Pages Posted 22 May 2018
Davide Furceri International Monetary Fund (IMF)
Prakash Loungani International Monetary Fund (IMF)
Jonathan D Ostry International Monetary Fund (IMF)
Date Written April 2018
Abstract
We take a fresh look at the aggregate and distributional effects of policies to
liberalizeinternational capital flows-financial globalization Both country- and industry-level
resultssuggest that such policies have led on average to limited output gains while
contributing tosignificant increases in inequality-that is they pose an equity-efficiency trade-
off Behindthis average lies considerable heterogeneity in effects depending on country
characteristicsLiberalization increases output in countries with high financial depth and
those that avoidfinancial crises while distributional effects are more pronounced in countries
with lowfinancial depth and inclusion and where liberalization is followed by a crisis
Difference-indifferenceestimates using sectoral data suggest that liberalization episodes
reduce the shareof labor income particularly for industries with higher external financial
dependence thosewith a higher natural propensity to use layoffs to adjust to idiosyncratic
shocks and thosewith a higher elasticity of substitution between capital and labor The
sectoral resultsunderpin a causal interpretation of the findings using macro data
Keywords Globalization Inequality Capital Account Openness Crises Institutions
JEL Classification F13 G32 O11
The Dynamics of Sovereign Debt Crises and Bailouts CEPR Discussion Paper No DP12921
44 Pages Posted 15 May 2018
Francisco Roch International Monetary Fund (IMF)
Harald Uhlig University of Chicago - Department of Economics
There are 2 versions of this paper
Date Written May 2018
Abstract
Motivated by the recent European debt crisis this paper investigates the scope for a bailout
guarantee in a sovereign debt crisis Defaults may arise from negative income shocks
government impatience or a sunspot-coordinated buyers strike We introduce a bailout
agency and characterize the strategy with the minimal actuarially fair intervention which
guarantees the no-buyers-strike fundamental equilibrium relying on the market for residual
financing The intervention makes it cheaper for governments to borrow inducing them
borrow more leaving default probabilities possibly rather unchanged The maximal backstop
will be pulled precisely when fundamentals worsen
Keywords Bailouts default Endogenous Borrowing Constraints Eurozone Debt Crisis long-
term debt OMT Self-fulfilling Crises
JEL Classification F34 F41
Cumulative Impacts of Conditional Cash Transfer Programs Experimental Evidence from Indonesia
by Nur Cahyadi Rema Hanna Benjamin A Olken Rizal Adi Prima Elan Satriawan Ekki
Syamsulhakim - 24670 (CH DEV PE)
Abstract
Conditional cash transfer (CCT) programs have spread worldwide
and are designed to promote comprehensive human capital
investments in children starting from encouraging pre-natal and
maternal care and early childhood health interventions and
continuing through incentivizing school attendance Yet
evaluating these claims over more than a few years is hard as
most CCT experiments extend the program to the control group
after a short experimental period This paper experimentally
estimates the impacts of Indonesias cash transfer program (PKH)
six years after the program launched using data from about
14000 households in 360 sub-districts across Indonesia taking
advantage of the fact that treatment and control locations
remained largely intact throughout the period We find that PKH
continues to have large static incentive effects on many of the
targeted indicators increasing usage of trained health
professionals for childbirth dramatically and halving the share
of children age 7-15 who are not enrolled in school Wage labor
for 13-15 year olds was reduced by at least one-third We also
begin to observe impacts on outcomes that may require cumulative
investments for example six years later we observe large
reductions in stunting and some evidence of increased high school
completion rates The results suggest that CCT investments can
have substantial effects on the accumulation of human capital
and that these effects can persist even when programs are
operating at large-scale without researcher intervention
httppapersnberorgpapersW24670utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Services Development and Comparative Advantage in
Manufacturing World Bank Policy Research Working Paper No 8450
47 Pages Posted 23 May 2018
Xuepeng Liu Kennesaw State University - Department of Economics and Finance
Aaditya Mattoo World Bank - Development Research Group (DECRG)
Zhi Wang George Mason University - Schar School of Policy and Government
Shang-Jin Wei Columbia Business School - Finance and Economics National Bureau of Economic Research (NBER) Centre
for Economic Policy Research (CEPR) International Monetary Fund (IMF) Tsinghua University - School of
Economics amp Management
Date Written May 22 2018
Abstract
Most manufacturing activities use inputs from the financial and business services sectors But
these services sectors also compete for resources with manufacturing activities provoking
concerns about de-industrialization -- financial services in industrial countries like the United
States and the United Kingdom and business services in developing countries like India and
the Philippines This paper examines the implications of services development for the export
performance of manufacturing sectors It develops a methodology to quantify the indirect role
of services in international trade in goods and constructs new measures of revealed
comparative advantage based on domestic value added in gross exports The paper shows
that the development of financial and business services enhances the revealed comparative
advantage of manufacturing sectors that use these services intensively but not that of other
manufacturing sectors It also finds that a country can partially overcome the handicap of an
underdeveloped domestic services sector by relying more on imported services inputs Thus
lower services trade barriers in developing countries can help to promote their
manufacturing exports
Keywords Textiles Apparel amp Leather Industry Pulp amp Paper Industry General
Manufacturing Food amp Beverage Industry Common Carriers Industry Construction Industry
Plastics amp Rubber Industry Business Cycles and Stabilization Policies International Trade and
Trade Rules Trade and Services Financial Economics Finance and Development Economic
Growth Economic Theory amp Research Industrial Economics
Thou Shalt Not Breach The Impact on Sovereign
Spreads of Noncomplying with the EU Fiscal Rules IMF Working Paper No 1887
37 Pages Posted 22 May 2018
Federico Kalan International Monetary Fund (IMF)
Adina Popescu International Monetary Fund (IMF)
Julien P M Reynaud International Monetary Fund (IMF) Universiteacute Paris I Pantheacuteon-Sorbonne
Date Written April 2018
Abstract
There is evidence that fiscal rules in particular well-designed rules are associated with lower
sovereign spreads However the impact of noncompliance with fiscal rules on spreads has not
been examined in the literature This paper estimates the effect of the Excessive Deficit
Procedure (EDP) on sovereign spreads of European Union member states Based on a sample
including the 28 European Union countries over the period 1999 to 2016 sovereign spreads
of countries placed under an EDP are found to be on average higher compared to countries
that are not under an EDP The interpretation of this result is not straight-forward as different
channels may be at play in particular those related with the credibility and the design of the
EU fiscal framework The specification accounts for typical macroeconomic fiscal and
financial determinants of sovereign spreads the System Generalized Method of Moments
estimator is used to control for endogeneity and results are robust to a range of checks on
variables and estimators
Keywords Fiscal rules Fiscal policy noncompliance sovereign spreads General Models
with Panel Data
JEL Classification E62 H60 C23
ldquoUnconventionalrdquo Monetary Policy as Conventional
Monetary Policy A Perspective from the US In the
1920s
FEDS Working Paper No 2018-019
45 Pages Posted 6 Jun 2018
Mark A Carlson Board of Governors of the Federal Reserve System
Burcu Duygan-Bump Federal Reserve Board
Date Written 2018-03-09
Abstract
To implement monetary policy in the 1920s the Federal Reserve utilized administered
interest rates and conducted open market operations in both government securities and
private money market securities sometimes in fairly considerable amounts We show how the
Fed was able to effectively use these tools to influence conditions in money markets even
those in which it was not an active participant Moreover our results suggest that the
transmission of monetary policy to money markets occurred not just through changing the
supply of reserves but importantly through financial market arbitrage and the rebalancing of
investor portfolios The tools used in the 1920s by the Federal Reserve resemble the
extraordinary monetary policy tools used by central banks recently and provide further
evidence on their effectiveness even in ordinary times
Keywords Monetary policy Unconventional monetary policy Central banking Administered
rates Money markets Quantitative easing
JEL Classification E52 E58 N22
New Perspectives on the Decline of US
Manufacturing Employment FEDS Working Paper No 2018-023
37 Pages Posted 7 Jun 2018
Teresa Fort Dartmouth College - Tuck School of Business
Justin R Pierce Federal Reserve Board
Peter Schott Yale School of Management National Bureau of Economic Research (NBER)
Date Written 2018-04-13
Abstract
We use relatively unexplored dimensions of US microdata to examine how US manufacturing
employment has evolved across industries firms establishments and regions from 1977 to
2012 We show that these data provide support for both trade- and technology-based
explanations of the overall decline of employment over this period while also highlighting the
difficulties of estimating an overall contribution for each mechanism Toward that end we
discuss how further analysis of these trends might yield sharper insights
Keywords Employment Manufacturing Output Technology Trade
AI and the Economy
by Jason Furman Robert Seamans - 24689 (PR)
Abstract
We review the evidence that artificial intelligence (AI) is
having a large effect on the economy Across a variety of
statistics--including robotics shipments AI startups and patent
counts--there is evidence of a large increase in AI-related
activity We also review recent research in this area which
suggests that AI and robotics have the potential to increase
productivity growth but may have mixed effects on labor
particularly in the short run In particular some occupations
and industries may do well while others experience labor market
upheaval We then consider current and potential policies around
AI that may help to boost productivity growth while also
mitigating any labor market downsides including evaluating the
pros and cons of an AI specific regulator expanded antitrust
enforcement and alternative strategies for dealing with the
labor-market impacts of AI including universal basic income and
guaranteed employment
httppapersnberorgpapersW24689utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Economic Policy for Artificial Intelligence
by Ajay K Agrawal Joshua S Gans Avi Goldfarb - 24690 (PR)
Abstract
Recent progress in artificial intelligence (AI) - a general
purpose technology affecting many industries - has been focused
on advances in machine learning which we recast as a
quality-adjusted drop in the price of prediction How will this
sharp drop in price impact society Policy will influence the
impact on two key dimensions diffusion and consequences
First in addition to subsidies and IP policy that will influence
the diffusion of AI in ways similar to their effect on other
technologies three policy categories - privacy trade and
liability - may be uniquely salient in their influence on the
diffusion patterns of AI Second labor and antitrust policies
will influence the consequences of AI in terms of employment
inequality and competition
httppapersnberorgpapersW24690utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Missing Profits of Nations
by Thomas R Torslov Ludvig S Wier Gabriel Zucman - 24701 (CF IFM ITI PE)
Abstract
By combining new macroeconomic statistics on the activities of
multinational companies with the national accounts of tax havens
and the worlds other countries we estimate that close to 40 of
multinational profits are shifted to low-tax countries each year
Profit shifting is highest among US multinationals the tax
revenue losses are highest for the European Union and developing
countries We show theoretically and empirically that in the
current international tax system tax authorities of high-tax
countries do not have incentives to combat profit shifting to tax
havens They instead focus their enforcement effort on
relocating profits booked in other high-tax countries--in effect
stealing revenue from each other This policy failure can
explain the persistence of profit shifting to low-tax countries
despite the high costs involved for high-tax countries We
provide a new cross-country database of GDP corporate profits
trade balances and factor shares corrected for profit shifting
showing that the global rise of the corporate capital share is
significantly under-estimated
httppapersnberorgpapersW24701utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Global Financial Cycles and Risk Premiums
by Oscar Jorda Moritz Schularick Alan M Taylor Felix Ward - 24677 (AP DAE IFM ME)
Abstract
This paper studies the synchronization of financial cycles across
17 advanced economies over the past 150 years The comovement in
credit house prices and equity prices has reached historical
highs in the past three decades The sharp increase in the
comovement of global equity markets is particularly notable We
demonstrate that fluctuations in risk premiums and not risk-free
rates and dividends account for a large part of the observed
equity price synchronization after 1990 We also show that US
monetary policy has come to play an important role as a source of
fluctuations in risk appetite across global equity markets
These fluctuations are transmitted across both fixed and floating
exchange rate regimes but the effects are more muted in floating
rate regimes
httppapersnberorgpapersW24677utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Geography of Linguistic Diversity and the Provision of Public Goods
by Klaus Desmet Joseph Gomes Ignacio Ortunyo-Ortin - 24694 (PE POL)
Abstract
This paper analyzes the importance of local interaction between
individuals of different linguistic groups for the provision of
public goods at the national level The micro-founded conceptual
framework we develop predicts that a countrys public goods (i)
decrease in its overall linguistic fractionalization and (ii)
either increase or decrease in its local learning multiplier a
measure of how local interaction affects antagonism towards other
groups in the society at large After constructing a 5 km by 5
km dataset on language use for 223 countries we empirically
explore these theoretical predictions While overall
fractionalization worsens public goods outcomes we find a
positive causal effect of local learning Conditional on a
countrys overall diversity public goods outcomes are maximized
when there are a few large-sized groups and the diversity of each
location mirrors that of the country as a whole Our large-scale
study spanning the entire globe confirms experimental
micro-evidence in favor of contact theory
httppapersnberorgpapersW24694utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Misfits in the Car Industry Offshore Assembly
Decisions at the Variety Level CEPR Discussion Paper No DP12940
39 Pages Posted 21 May 2018
Keith Head University of British Columbia (UBC) - Division of Strategy and Business Economics
Thierry Mayer Sciences Po
Date Written May 2018
Abstract
This paper estimates the role of countryvariety comparative advantage in the decision to
offshore assembly of more than 2000 models of 197 car brands headquartered in 23
countries While offshoring in the car industry has risen from 2000 to 2016 the top five
offshoring brands account for half the car assembly relocated to low-wage countries We show
that the decision to offshore a particular car model depends on two types of cost
(dis)advantage of the home country relative to foreign locations The first type the assembly
costs common to all models is estimated via a structural triadic gravity equation The second
effect model-level comparative advantage is an interaction between proxies for the models
skill and capital intensity and headquarter countrys abundance in these factors
Keywords cars Gravity offshoring
JEL Classification F1
Global Crises and Populism The Role of Eurozone
Institutions CEPR Discussion Paper No DP12944
46 Pages Posted 21 May 2018
Luigi Guiso Einaudi Institute for Economics and Finance (EIEF)
Helios Herrera University of Warwick
Massimo Morelli Bocconi University
Tommaso Sonno Catholic University of Louvain (UCL) London School of Economics amp Political Science (LSE) - Centre for
Economic Performance (CEP)
Date Written May 2018
Abstract
Populist parties are likely to gain consensus when mainstream parties and status quo
institutions fail to manage the shocks faced by their economies Institutional constraints
which limit the possible actions in the face of shocks result in poorer performance and
frustration among voters who turn to populist movements We rely on this logic to explain the
different support of populist parties among European countries in response to the
globalization shock and to the 2008-2011 - financial and sovereign debt crisis We predict a
greater success of populist parties in response to these shocks in Euro zone countries and our
empirical analysis confirms this prediction This is consistent with voters frustration for the
greater inability of the Euro zone governments to react to di cult-to-manage globalization
shocks and financial crises Our evidence has implications for the speed of construction of
political unions A slow staged process of political unification can expose the EU to a risk of
political backlash if hard to manage shocks hit the economies during the integration process
Keywords Financial Dependence Frustration Globalization populism Relocation
JEL Classification D72 D78 F14 F16
Currency Unions Trade and Heterogeneity CEPR Discussion Paper No DP12954
50 Pages Posted 31 May 2018
Natalie Chen University of Warwick - Department of Economics Centre for Economic Policy Research (CEPR)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
Date Written May 2018
Abstract
How do trade costs affect international trade This paper offers a new approach We rely on a
flexible gravity equation that predicts variable trade cost elasticities both across and within
country pairs We apply this framework to the effect of currency unions on international
trade While we estimate that currency unions are associated with a trade increase of around
38 percent on average we find substantial underlying heterogeneity Consistent with the
predictions of our framework we find effects around three times as strong for country pairs
associated with small import shares and a zero effect for large import shares Our results
imply that conventional homogeneous currency union estimates do not provide helpful
guidance for countries considering to join a currency union Instead countries need to take
into account the distribution of their trade shares to assess the impact of trade costs
Keywords Currency Unions euro Gravity Heterogeneity Trade Costs Trade Elasticity
Translog
JEL Classification F14 F15 F33
Fiscal Multipliers and Foreign Holdings of Public Debt CEPR Discussion Paper No DP12960
76 Pages Posted 5 Jun 2018
Fernando Broner CREI Barcelona GSE Universitat Pompeu Fabra CEPR
Daragh Clancy European Stability Mechanism
Aitor Erce European Stability Mechanism Banco de Espantildea - Associate Directorate General International Affairs
Alberto Martin Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) Centre for Economic
Policy Research (CEPR)
There are 2 versions of this paper
Date Written May 2018
Abstract
This paper explores a natural connection between fiscal multipliers and foreign holdings of
public debt Although fiscal expansions can raise domestic economic activity through various
channels they can also have crowding-out effects if the resources used to acquire public debt
reduce domestic consumption and investment Thus these crowding-out effects are likely to
be weaker when public debt is purchased by foreigners We test this hypothesis on (i) post-
war US data and (ii) data for a panel of 17 advanced economies from the 1980s to the
present To do so we assemble a novel database of public debt holdings by domestic and
foreign creditors for a large set of advanced economies We combine this data with standard
measures of fiscal policy shocks and show that indeed the size of fiscal multipliers is
increasing in the share of public debt held by foreigners In particular the fiscal multiplier is
smaller than one when the foreign share is low such as in the US in the 1950s and 1960s
and Japan today and larger than one when the foreign share is high such as in the US and
Ireland today
Keywords Fiscal Multiplier Foreign Holdings of Public Debt Sovereign debt
JEL Classification E62 F32 F34 F36 F41 F62 F65 G15 H63
Refugee Resettlement Redistribution and Growth CESifo Working Paper Series No 6961
26 Pages Posted 30 May 2018
Leonid V Azarnert Ariel University Center
Date Written April 09 2018
Abstract
This paper studies the effect of refugee resettlement on human capital accumulation The
analysis is performed in a growth model with endogenous fertility I show how refugee
resettlement from a more advanced and wealthier economy to a less advanced and less
wealthy economy combined with income transfers is Pareto-improving for indigenous
populations in both countries I also derive conditions for the proposed resettlement policy to
stimulate human capital accumulation and hence economic growth in both economies
Keywords refugee resettlement fertility human capital growth
JEL Classification D300 F220 J100 O100
The Impact of Trade Liberalization on Firm Productivity and Innovation
by Pian Shu Claudia Steinwender - 24715 (ITI PR)
Abstract
This chapter reviews the empirical economics literature on the
impact of trade liberalization on firms innovation-related
outcomes We define and examine four types of shocks to trade
flows import competition export opportunities access to
imported intermediates and foreign input competition Our
review reveals interesting heterogeneities at the country and
firm levels In emerging countries trade liberalization appears
to spur productivity and innovation In developed countries
export opportunities and access to imported intermediates tend to
encourage innovation but the evidence on import competition is
mixed especially for firms in the United States At the firm
level the positive effects of trade on innovation are more
pronounced at the initially more productive firms while the
negative effects are more pronounced at the initially less
productive firms
httppapersnberorgpapersW24715utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The IT Revolution and the Globalization of RampD
by Lee G Branstetter Britta M Glennon J Bradford Jensen - 24707 (ITI PR)
Abstract
Since the 1990s RampD has become less geographically concentrated
and has seen especially fast growth in emerging markets One of
the distinguishing features of the RampD globalization phenomenon
is its concentration within the softwareIT domain the increase
in foreign RampD has been largely concentrated within software and
IT-intensive multinationals and new RampD destinations are also
more software and IT-intensive multinationals than traditional
RampD destinations In this paper we document three important
phenomena (1) the globalization of RampD (2) the growing
importance of software and IT to firm innovation and (3) the
rise of new RampD hubs We argue that the shortage in
softwareIT-related human capital resulting from the large IT-
and software-biased shift in innovation drove US MNCs abroad and
particularly drove them abroad to new hubs with large
quantities of STEM workers who possessed IT and software skills
Our findings support the view that the globalization of US
multinational RampD has reinforced the technological leadership of
US-based firms in the information technology domain and that
multinationals ability to access a global talent base could
support a high rate of innovation even in the presence of the
rising (human) resource cost of frontier RampD
httppapersnberorgpapersW24707utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Global Financial Cycles and Risk Premiums CEPR Discussion Paper No DP12969
60 Pages Posted 5 Jun 2018
Ogravescar Jordagrave Federal Reserve Banks - Federal Reserve Bank of San Francisco
Moritz Schularick University of Bonn - Department of Economics Centre for Economic Policy Research (CEPR)
Alan M Taylor University of California Davis - Department of Economics University of Virginia - Department of
Economics National Bureau of Economic Research (NBER) Centre for Economic Policy Research (CEPR)
Felix Ward Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics
There are 2 versions of this paper
Date Written June 2018
Abstract
This paper studies the synchronization of financial cycles across 17 advanced economies over
the past 150 years The comovement in credit house prices and equity prices has reached
historical highs in the past three decades The sharp increase in the comovement of global
equity markets is particularly notable We demonstrate that fluctuations in risk premiums
and not risk-free rates and dividends account for a large part of the observed equity price
synchronization after 1990 We also show that US monetary policy has come to play an
important role as a source of fluctuations in risk appetite across global equity markets These
fluctuations are transmitted across both fixed and floating exchange rate regimes but the
effects are more muted in floating rate regimes
Keywords asset prices equity return premium financial centers financial cycles policy
spillovers
JEL Classification E50 F33 F42 F44 G12 N10 N20
Automation and Unemployment Help is on the Way CEPR Discussion Paper No DP12974
32 Pages Posted 11 Jun 2018
Hideki Nakamura Osaka City University
Joseph Zeira Hebrew University of Jerusalem - Department of Economics Centre for Economic Policy Research (CEPR)
LUISS Guido Carli DPTEA
Date Written June 2018
Abstract
This paper presents a model of technical change that combines two lines of research together
It is a task based model in which automation turns labor tasks to mechanized ones and there
is also a continuous addition of new labor tasks as in the expanding variety literature We
impose three simple restrictions on the model The first is that all new tasks are adopted The
second is that all new automation innovations are adopted and the third is that the share of
labor does not converge to zero in the long run We show that these restrictions imply that
unemployment due to automation is expected to converge to zero over time
Keywords automation growth Labor Income Share technical change unemployment
JEL Classification J64 O14 O30 O40
Sovereign Default in a Monetary Union CEPR Discussion Paper No DP12976
56 Pages Posted 11 Jun 2018
Sergio de Ferra Stockholm University
Federica Romei LUISS Guido Carli University
Date Written June 2018
Abstract
In the aftermath of the global fi nancial crisis sovereign default risk and the zero lower bound
have limited the ability of policy-makers in the European monetary union to achieve their
stabilization objective This paper investigates the interaction between sovereign default risk
and the conduct of monetary policy when borrowers can act strategically and they share with
their lenders a single currency in a monetary union We address this question in an
endogenous sovereign default model of heterogeneous countries in a monetary union where
the monetary authority may be constrained by the zero lower bound We uncover three main
results First in normal times debtors have a stronger incentive to default to induce more
expansionary monetary policy Second the zero lower bound or constraints on monetary
policy may act as a disciplining device to enforce repayment of sovereign debt Third
sovereign default risk induces countries with a preference for tight monetary policy to accept
a laxer policy stance These results help to shed light on the recent European experience of
high default risk expansionary monetary policy and low nominal interest rates
Keywords Heterogeneous Countries monetary union sovereign default zero lower bound
JEL Classification F34 F42 F45 H63
Evolution of Modern Business Cycle Models Accounting for the Great Recession
by Patrick J Kehoe Virgiliu Midrigan Elena Pastorino - 24741 (EFG IFM LS ME)
Abstract
Modern business cycle theory focuses on the study of dynamic
stochastic general equilibrium models that generate aggregate
fluctuations similar to those experienced by actual economies
We discuss how this theory has evolved from its roots in the
early real business cycle models of the late 1970s through the
turmoil of the Great Recession four decades later We document
the strikingly different pattern of comovements of macro
aggregates during the Great Recession compared to other postwar
recessions especially the 1982 recession We then show how two
versions of the latest generation of real business cycle models
can account respectively for the aggregate and the
cross-regional fluctuations observed in the Great Recession in
the United States
httppapersnberorgpapersW24741utm_campaign=ntwamputm_medium=emailamputm_source=ntw
What Happened Financial Factors in the Great Recession
by Mark Gertler Simon Gilchrist - 24746 (EFG ME)
Abstract
Since the onset of the Great Recession an explosion of both
theoretical and empirical research has investigated how the
financial crisis emerged and how it was transmitted to the real
sector The goal of this paper is to describe what we have
learned from this new research and how it can be used to
understand what happened during the Great Recession In the
process we also present some new evidence on the role of the
household balance sheet channel versus the disruption of banking
We examine a panel of quarterly state level data on house
prices mortgage debt and employment along with a measure of
banking distress Then exploiting both panel data and time
series methods we analyze the contribution of the house price
decline versus the banking distress indicator to the overall
decline in employment during the Great Recession We confirm a
common finding in the literature that the household balance sheet
channel is important for regional variation in employment
However we also find that the disruption in banking was central
to the overall employment contraction
httppapersnberorgpapersW24746utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Changing Structure of Immigration to the OECD
What Welfare Effects on Member Countries CESifo Working Paper Series No 6992
40 Pages Posted 27 Jun 2018
Michał Burzyński Universite du Luxembourg
Freacutedeacuteric Docquier Universiteacute catholique de Louvain CREAM Centre for Research on Environmental Appraisal amp Management
UK IZA Institute of Labor Economics
Hillel Rapoport Paris School of Economics (PSE)
Date Written April 24 2018
Abstract
We investigate the welfare implications of two pre-crisis immigration waves (1991ndash2000 and
2001ndash2010) and of the post-crisis wave (2011ndash2015) for OECD native citizens To do so we
develop a general equilibrium model that accounts for the main channels of transmission of
immigration shocks ndash the employment and wage effects the fiscal effect and the market size
effect ndash and for the interactions between them We parameterize our model for 20 selected
OECD member states We find that the three waves induce positive effects on the real income
of natives however the size of these gains varies considerably across countries and across
skill groups In relative terms the post-crisis wave induces smaller welfare gains compared to
the previous ones This is due to the changing origin mix of immigrants which translates into
lower levels of human capital and smaller fiscal gains However differences across cohorts
explain a tiny fraction of the highly persistent cross-country heterogeneity in the economic
benefits from immigration
Keywords immigration welfare crisis inequality general equilibrium
JEL Classification C680 F220 J240
Anatomy and Impact of Export Promotion Agencies World Bank Policy Research Working Paper No 8470
19 Pages Posted 11 Jun 2018
Marcio Cruz World Bank Federal University of Parana (UFPR) - Departamento de Economia
Daniel Lederman World Bank - Latin America and Caribbean Region
Laura Zoratto World Bank
Date Written June 7 2018
Abstract
Recent literature has shown evidence of positive contributions of export promotion agencies
around the world in raising exports through the intensive and extensive margins of trade The
number of export promotion agencies has increased substantially over the past two decades
and most of them focus on assisting exporters in understanding and finding markets for their
products This paper describes the characteristics of export promotion agencies around the
world using a novel database from the World Bank in collaboration with the International
Trade Center in Geneva covering 2005-10 In addition it presents a short summary of the
literature on the impacts of export promotion agencies
Keywords Export Competitiveness International Trade and Trade Rules Rules of Origin
Trade Policy Trade and Multilateral Issues Trade and Services
Optimal Inflation and the Identification of the Phillips
Curve CEPR Discussion Paper No DP12981
29 Pages Posted 11 Jun 2018
Michael McLeay Bank of England - Monetary Assessment and Strategy Division
Silvana Tenreyro London School of Economics (LSE)
Date Written June 2018
Abstract
This paper explains why inflation follows a seemingly exogenous statistical process unrelated
to the output gap In other words it explains why it is difficult to empirically identify a Phillips
curve We show why this result need not imply that the Phillips curve does not hold -- on the
contrary our conceptual framework is built under the assumption that the Phillips curve
always holds The reason is simple if monetary policy is set with the goal of minimising
welfare losses (measured as the sum of deviations of inflation from its target and output from
its potential) subject to a Phillips curve a central bank will seek to increase inflation when
output is below potential This targeting rule will impart a negative correlation between
inflation and the output gap blurring the identification of the (positively sloped) Phillips
curve
Keywords identification Inflation targeting Phillips curve
GVCs and the Endogenous Geography of RTAs CESifo Working Paper Series No 6980
43 Pages Posted 11 Jun 2018
Lionel Fontagne University of Paris 1 Pantheacuteon Sorbonne Paris School of Economics CEPII
Gianluca Santoni Centre dEtudes Prospectives et dInfo Internationales (CEPII)
Date Written April 19 2018
Abstract
Geography economic size or common history help predicting signed regional trade
agreements (RTAs) However not all signed RTAs are ldquonaturalrdquo according to economic
determinants En-dogeneity and general equilibrium effects of RTAS are the two mechanisms
addressed in this paper We estimate the time-varying probability for a country pair to sign a
trade agreement and build upon structural gravity in general equilibrium to determine how
the patterns of Global Value Chains shape the evolving geography of optimal RTAS Our results
confirm that the endogenous geography of RTAs is shaped by the development of GVCs
Keywords preferential trade agreements global value chains structural gravity
JEL Classification F130 F140 F150
Diversity and Growth CEPR Discussion Paper No DP13011
37 Pages Posted 26 Jun 2018
Mark Gradstein Ben-Gurion University of the Negev - Department of Economics CESifo (Center for Economic Studies and
Ifo Institute) Centre for Economic Policy Research (CEPR) World Bank - Development Research Group
(DECRG)
There are 2 versions of this paper
Date Written June 2018
Abstract
The diversity of social interaction within economic communities affects productivity and
growth and is itself shaped by economic conditions These reciprocal effects raise the
possibility of multiple equilibria of setting a socially polarized economy stagnating in poverty
on a new path of social integration and economic growth through external intervention or an
internal political initiative This paper describes a simple analytical model that captures these
reciprocal effects and sheds light on the role of government capacity community leadership
federation and external credit or aid in achieving economic growth through social integration
The Economics of Language CEPR Discussion Paper No DP13002
85 Pages Posted 26 Jun 2018
Victor Ginsburgh Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics
(ECARES)
Shlomo Weber Southern Methodist University (SMU) - Department of Economics New Economic School
Date Written June 2018
Abstract
The paper brings together methodological theoretical and empirical analysis into the single
framework of linguistic diversity It reflects both historical and contemporary research by
economists and other social scientists on the impact of language on economic outcomes and
public policies We examine whether and how language influences human thinking (including
emotions) and behavior analyze the effects of linguistic distances on trade migrations
financial markets language learning and its returns The quantitative foundations of linguistic
diversity which rely on group identification linguistic distances as well as fractionalization
polarization and disenfranchisement indices are discussed in terms of their empirical
challenges and uses We conclude with an analysis of linguistic policies and shifts of languages
and examine their welfare effects and the trade-offs between the development of labor
markets and the social costs that they generate in various countries
Financial and Fiscal Interaction in the Euro Area
Crisis This Time Was Different CEPR Discussion Paper No DP13016
39 Pages Posted 3 Jul 2018
Alberto Caruso Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics
(ECARES)
Lucrezia Reichlin London Business School Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in
Economics and Statistics (ECARES) Centre for Economic Policy Research (CEPR) European Central Bank
(ECB)
Giovanni Ricco University of Warwick - Department of Economics SciencesPo - OFCE
Date Written June 2018
Abstract
This paper highlights the anomalous characteristics of the Euro Area `twin crises by
contrasting the aggregate macroeconomic dynamics in the period 2009-2013 with the
business cycle fluctuations of the previous decades We report three stylised facts First the
contraction in output was marked by an anomalous downfall in investment while
consumption savings and unemployment followed their historical relation with GDP Second
households and financial corporations debts and house prices deviated from their pre-crisis
trends Third the jump in the public deficit-GDP ratio in 2008-2009 was unprecedented and
so was the fiscal consolidation that followed Our analysis points to the financial nature of the
crisis as a likely explanation for these facts Importantly the `anomaly in public deficit is in
large part explained by extraordinary measures in support of the financial sector which show
up in the stock-flow adjustments and reveal a key interaction between the fiscal and the
financial sectors
Keywords Euro Area Government Debt Recessions
JEL Classification C11 C32 C54 E52 E62 F45
The Shocks Matter Improving Our Estimates of
Exchange Rate Pass-Through CEPR Discussion Paper No DP13037
43 Pages Posted 9 Jul 2018
Kristin J Forbes Massachusetts Institute of Technology (MIT) - Sloan School of Management National Bureau of Economic
Research (NBER)
Ida Hjortsoe
Bank of England
Tsvetelina Nenova Bank of England
There are 4 versions of this paper
Date Written July 2018
Abstract
A major challenge for monetary policy is predicting how exchange rate movements will
impact inflation We propose a new focus directly incorporating the underlying shocks that
cause exchange rate fluctuations when evaluating how these fluctuations pass through to
import and consumer prices A standard open-economy model shows that the relationship
between exchange rates and prices depends on the shocks which cause the exchange rate to
move We build on this to develop a structural Vector Autoregression (SVAR) framework for a
small open economy and apply it to the UK We show that prices respond differently to
exchange rate movements based on what caused the movements For example exchange rate
pass-through is low in response to domestic demand shocks and relatively high in response to
domestic monetary policy shocks This framework can improve our ability to estimate how
pass-through can change over short periods of time For example it can explain why sterlings
post-crisis depreciation caused a sharper increase in prices than expected while the effect of
sterlings 2013-15 appreciation was more muted We also apply this framework to forecast
the extent of pass-through from sterlings sharp depreciation corresponding to the UKs vote
to leave the European Union
Keywords consumer prices exchange rate pass-through import prices inflation vector
autoregressions
JEL Classification E31 F3 F41
Why Has Economic Growth Slowed When Innovation
Appears to Be Accelerating CEPR Discussion Paper No DP13039
29 Pages Posted 9 Jul 2018
Robert J Gordon Northwestern University - Department of Economics National Bureau of Economic Research (NBER)
Centre for Economic Policy Research (CEPR)
There are 2 versions of this paper
Date Written July 2018
Abstract
U S economic growth slowed by more than half from 32 percent per year during 1970-2006
to only 14 percent during 2006-16 and this decline was divided equally between slower
growth in hours of work and slower growth in output per hour In explaining slower growth
in hours particular emphasis is placed on the slower secular rise of life expectancy in the US
compared to other developed countries Further contributions to slowing growth are made by
a decline in the population share of both legal and illegal immigration and a turnaround from
rising to declining labor force participation Causes of declining productivity growth begin
with the slowdown in the rate of increase of educational attainment Why did productivity
growth decline after 2006 despite an increase in the rate at which new US patents were
issued in 2006-16 compared to earlier decades Part of the slowdown is attributed to the
maturity of the IT revolution which also helps to explain the trajectory of the college wage
premium Aspects of the productivity growth slowdown include the declining productivity of
research workers diminishing returns to drug innovation and the evolutionary rather than
revolutionary impact of robots and artificial intelligence
Keywords Economic Growth Immigration Innovation labor force participation Mortality
productivity
JEL Classification D24 E24
On DSGE Models
by Lawrence J Christiano Martin S Eichenbaum Mathias Trabandt - 24811 (EFG ME)
Abstract
The outcome of any important macroeconomic policy change is the
net effect of forces operating on different parts of the economy
A central challenge facing policy makers is how to assess the
relative strength of those forces Dynamic Stochastic General
Equilibrium (DSGE) models are the leading framework that
macroeconomists have for dealing with this challenge in an open
and transparent manner This paper reviews the state of DSGE
models before the financial crisis and how DSGE modelers
responded to the crisis and its aftermath In addition we
discuss the role of DSGE models in the policy process
httppapersnberorgpapersW24811utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Currency Wars Unconventional Monetary Policy Does Not Stimulate Exports
by Andrew K Rose - 24817 (IFM ITI)
Abstract
I investigate whether countries that use unconventional monetary
policy (UMP) experience export booms I use a popular gravity
model of trade which requires neither the exogeneity of UMP nor
instrumental variables for UMP In practice countries that
engage in UMP experience a drop in exports vis-a-vis countries
that are not engaged in such policies holding other things
constant Quantitative easing is associated with exports that
are about 10 lower to countries not engaged in UMP this amount
is significantly different from zero and similar to the effect of
negative nominal interest rates Thus there is no evidence that
countries have gained export markets through unconventional
monetary policy currency wars that have been launched have also
been lost UMP is also associated with a comparable drop in
imports and exchange rates suggesting that countries engage in
UMP when they are experiencing adverse macroeconomic shocks
concurrent with those that eviscerate international trade
httppapersnberorgpapersW24817utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Granular Comparative Advantage
by Cecile Gaubert Oleg Itskhoki - 24807 (EFG IFM IO ITI)
Abstract
Large firms play a pivotal role in international trade shaping
the export patterns of countries We propose and quantify a
granular multi-sector model of trade which combines fundamental
comparative advantage across sectors with granular comparative
advantage embodied in outstanding individual firms We develop
an SMM-based estimation procedure which takes full account of
the general equilibrium of the model to jointly estimate these
fundamental and granular forces using French micro-data with
information on firm domestic and export sales across
manufacturing industries We find that granularity accounts for
about 20 of the variation in realized export intensity across
sectors and is more pronounced in the most export-intensive
sectors In turn idiosyncratic firm dynamics accounts for a
large share of the evolution of a countrys comparative advantage
over time Governments face strong incentives to target trade
policy at large individual foreign exporters and to use lenient
antitrust regulation at home to substitute for
beggar-thy-neighbor trade policy
httppapersnberorgpapersW24807utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The State of New Keynesian Economics A Partial Assessment
by Jordi Gali - 24845 (EFG ME)
Abstract
I provide an overview of recent developments in monetary
economics with an emphasis on extensions of the New Keynesian
framework that assume a zero lower bound on the short term
nominal rate as well as models with household heterogeneity
httppapersnberorgpapersW24845utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Artificial Intelligence Economics and Industrial Organization
by Hal Varian - 24839 (IO PR)
Abstract
Machine learning (ML) and artificial intelligence (AI) have been
around for many years However in the last 5 years remarkable
progress has been made using multilayered neural networks in
diverse areas such as image recognition speech recognition and
machine translation AI is a general purpose technology that is
likely to impact many industries In this chapter I consider how
machine learning availability might affect the industrial
organization of both firms that provide AI services and
industries that adopt AI technology My intent is not to
provide an extensive overview of this rapidly-evolving area but
instead to provide a short summary of some of the forces at work
and to describe some possible areas for future research
httppapersnberorgpapersW24839utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Twenty Five Years of Global Imbalances CEPR Discussion Paper No DP13066
20 Pages Posted 24 Jul 2018
Maurice Obstfeld International Monetary Fund (IMF)
Date Written July 2018
Abstract
As international capital markets expanded in breadth and depth after the middle 1990s
global current account imbalances also expanded markedly Some have linked the origin of
the subsequent Global Financial Crisis (GFC) to these global imbalances This essay proposes
answers to four questions about the recent history of global imbalances Why did global
imbalances expand after the mid-1990s What circumstances and concomitant factors
provide clues about the origins of the GFC If one accepts that a mono-causal story about the
GFC based on global imbalances is inaccurate how should one view the potential threats from
excessive global imbalances today And finally what policy implications follow
Keywords current account global financial crisis (GFC) global imbalances IMF External
Sector Report
Is Automation Labor-Displacing Productivity Growth Employment and the Labor Share
by David Autor Anna Salomons - 24871 (EFG LS)
Abstract
Many technological innovations replace workers with machines but
this capital-labor substitution need not reduce aggregate labor
demand because it simultaneously induces four countervailing
responses own-industry output effects cross-industry
input-output effects between-industry shifts and final demand
effects We quantify these channels using four decades of
harmonized cross-country and industry data where we measure
automation as industry-level movements in total factor
productivity (TFP) that are common across countries We find
that automation displaces employment and reduces labors share of
value-added in the industries in which it originates (a direct
effect) In the case of employment these own-industry losses
are reversed by indirect gains in customer industries and induced
increases in aggregate demand By contrast own-industry labor
share losses are not recouped elsewhere Our framework can
account for a substantial fraction of the reallocation of
employment across industries and the aggregate fall in the labor
share over the last three decades It does not however explain
why the labor share fell more rapidly during the 2000s
httppapersnberorgpapersW24871utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Dynamic Effects of Co-Ethnic Networks on
Immigrants Economic Success CESifo Working Paper Series No 7084
43 Pages Posted 21 Jul 2018
Michele Battisti University of Palermo LUISS Guido Carli University
Giovanni Peri University of California Davis - Department of Economics
Agnese Romiti Government of the Federal Republic of Germany - Institute for Employment Research (IAB)
Date Written June 06 2018
Abstract
This paper investigates how the size of co-ethnic networks at the time of arrival affect the
economic success of immigrants in Germany Applying panel analysis with a large set of fixed
effects and controls we isolate the association between initial network size and long-run
immigrant outcomes We also look at those who were assigned to an initial location
independently of their choice allows a causal interpretation of our estimates We find that
immigrants initially located in places with larger co-ethnic networks are more likely to be
employed at first but have a lower probability of investing in human capital
Keywords networks immigration human capital employment
JEL Classification J240 J610 R230
Immigrant Artists Enrichment or Displacement CEPR Discussion Paper No DP13070
36 Pages Posted 31 Jul 2018
Karol Borowiecki University of Southern Denmark
Kathryn Graddy Brandeis University - Department of Economics
Date Written July 2018
Abstract
In order to investigate the role of immigrant artists on the development of artistic clusters in
US cities we use the US Census and American Community Survey collected every 10 years
since 1850 We identify artists and art teachers authors musicians and music teachers actors
and actresses architects and journalists their geographical location and their status as a
native or an immigrant We look at the relative growth rate of the immigrant population in
these occupations over a ten year period and how it affects the relative growth rate of native-
born individuals in these artistic occupations We find that cities that experienced immigrant
artist inflows also see a greater inflow of native artists
Keywords artistic occupations artists Immigration
JEL Classification J4 J6 N3 N9 Z1
Global Value Chains and Inequality with Endogenous Labor Supply
by Eunhee Lee Kei-Mu Yi - 24884 (ITI)
Abstract
We assess the role of global value chains in transmitting global
integration shocks to aggregate trade as well as distributional
outcomes We develop a multi-country general equilibrium trade
model that features multi-stage production with different stages
having different productivities and using factors (occupations)
with different intensities The model also features a Roy
mechanism in which heterogeneous workers endogenously choose
their sector and occupation Country- and worker-level
comparative advantages interact A reduction in trade costs
leads to countries specializing in their comparative advantage
sectors and production stages This specialization changes labor
demand and also leads to more workers shifting to their
comparative advantage sectors and occupations We calibrate our
model to the US China and the rest of the world in 2000 and
we simulate a decline in Chinas trade costs with the US
designed to mimic Chinas entry into the WTO Our simulation
results imply an increase in the skill premium in both the US
and China and the GVC ie specialization across stages is
critical to this outcome
httppapersnberorgpapersW24884utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Friedman and Phelps on the Phillips Curve Viewed from a Half Centurys Perspective
by Robert J Gordon - 24891 (EFG)
Abstract
In the late 1960s the stable negatively sloped Phillips Curve
(PC) was overturned by the Friedman-Phelps natural rate model
Their PC was vertical in the long run at the natural unemployment
rate and their short-run curve shifted up whenever unemployment
was pushed below the natural rate This paper criticizes the
underlying assumption of the Friedman-Phelps approach that the
labor market continuously clears and that changes in unemployment
down or up occur only in response to fooling of workers firms
or both A preferable and resolutely Keynesian approach
explains quantity rationing by inertia in price and wage setting
The positive correlation of inflation and unemployment in the
1970s and again in the 1990s is explained by joining the
negatively sloped Phillips Curve with a positively sloped dynamic
demand curve For any given growth of nominal GDP higher
inflation caused by adverse supply shocks implies slower real GDP
growth and higher unemployment This triangle model based on
inflation inertia demand and supply worked well to explain why
inflation and unemployment were both positively and negatively
correlated between the 1960s and 1990s but in the past decade
the slope of the short-run Phillips Curve has flattened as
inflation exhibited a muted response to high unemployment in
2009-13 and low unemployment in 2016-2018 It remains to be
seen whether a continuation of low unemployment will cause a
modest and fixed extra amount of inflation thus reviving the
stable Phillips curve of the early 1960s or whether inflation
will continuously accelerate as Friedman and Phelps would have
predicted
httppapersnberorgpapersW24891utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Tax Policy Measures in Advanced and Emerging
Economies A Novel Database IMF Working Paper No 18110
61 Pages Posted 1 Aug 2018
David Amaglobeli International Monetary Fund (IMF)
Valerio Crispolti International Monetary Fund (IMF)
Era Dabla-Norris International Monetary Fund (IMF)
Pooja Karnane International Monetary Fund (IMF)
Florian Misch International Monetary Fund (IMF)
Date Written May 2018
Abstract
This paper describes a new comprehensive database of tax policy measures in 23 advanced
and emerging market economies over the last four decades We extract this information from
more than 900 OECD Economic Surveys and 37000 tax-related news from the International
Bureau of Fiscal Documentation using text-mining techniques The innovation of this dataset
lies in its granularity changes in the rates and bases of personal and corporate income taxes
value added and sale taxes social security contributions excise and property taxes are
systematically documented In addition the database provides information on the
announcement and implementation dates whether the measures represent major changes
are part of a broader tax package and phased in over several years The paper also presents a
range of stylized facts suggesting that information from this database is useful to deepen the
analysis of tax policy changes for research and policy purposes
Keywords Tax policy Tax reforms Personal income taxes Corporate income taxes Value
added taxes Sales taxes Excise taxes Property taxes Developed countries Emerging markets
Tax Reforms Text Mining Tax Policy Implementation Lags Tax Reforms Text Mining Tax
Policy Implementation Lags Methodology for Collecting Estimating and Organizing
Macroeconomic Data General
JEL Classification C82 E61 H20 P16
Inequality Aversion Populism and the Backlash
Against Globalization CEPR Discussion Paper No DP13107
69 Pages Posted 21 Aug 2018
Lubos Pastor University of Chicago - Booth School of Business Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
Pietro Veronesi
University of Chicago - Booth School of Business Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
There are 3 versions of this paper
Date Written August 2018
Abstract
Motivated by the recent rise of populism in western democracies we develop a model in
which a populist backlash emerges endogenously in a growing economy In the model voters
dislike inequality especially the high consumption of the ``elites Economic growth
exacerbates inequality due to heterogeneity in risk aversion In response to rising inequality
rich-country voters optimally elect a populist promising to end globalization Redistribution is
of limited value in containing the backlash against globalization Countries with more
inequality higher financial development and current account deficits are more vulnerable to
populism both in the model and in the data Evidence on who voted for Brexit and Trump in
2016 also largely supports the model
Keywords Brexit Globalization inequality populism risk aversion Trump
JEL Classification D72 F65 G11 G12 G18 P16
Underemployment in the US and Europe
by David NF Bell David G Blanchflower - 24927 (IFM LS ME)
Abstract
Large numbers of part-time workers around the world both those
who choose to be part-time and those who are there involuntarily
and would prefer a full-time job report they want more hours
Full-timers who say they want to change their hours mostly say
they want to reduce them When recession hit in most countries
the number of hours of those who said they wanted more hours
rose sharply and there was a fall in the number of hours that
full-timers wanted their hours reduced by Even though the
unemployment rate has returned to its pre-recession levels in
many advanced countries underemployment in most has not
We produce estimates for a new and better underemployment rate
for twenty-five European countries In most underemployment
remains elevated We provide evidence for the UK and the US as
well as some international evidence that underemployment rather
than unemployment lowers pay in the years after the Great
Recession We also find evidence for the US that falls in the
home ownership rate have helped to keep wage pressure in check
Underemployment replaces unemployment as the main influence on
wages in the years since the Great Recession
httppapersnberorgpapersW24927utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Does Machine Translation Affect International Trade Evidence from a Large Digital Platform
by Erik Brynjolfsson Xiang Hui Meng Liu - 24917 (IO ITI PR)
Abstract
Artificial intelligence (AI) is surpassing human performance in a
growing number of domains However there is limited evidence of
its economic effects Using data from a digital platform we
study a key application of AI machine translation We find
that the introduction of a machine translation system has
significantly increased international trade on this platform
increasing exports by 175 Furthermore heterogeneous
treatment effects are all consistent with a substantial reduction
in translation-related search costs Our results provide causal
evidence that language barriers significantly hinder trade and
that AI has already begun to improve economic efficiency in at
least one domain
httppapersnberorgpapersW24917utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The US Personal Saving Rate IMF Working Paper No 18128
35 Pages Posted 1 Aug 2018
Sam Ouliaris International Monetary Fund (IMF)
Celine Rochon University of Oxford IMF
Date Written June 2018
Abstract
This paper develops a time series model for aggregate consumption to predict the US
personal saving rate It then uses the model to test whether there has been a structural break
in consumption behavior because of the 2008 financial crisis Before the crisis the personal
saving rate was trending downwards However in 2008 there was a significant rise in the
saving rate that continued until the end of 2012 suggesting a permanent change in household
behavior To assess this issue formally the unknown parameters of the model are estimated
using data for 1961Q1-2007Q4 a period which precedes the crisis The model is then used to
predict the saving rate from 2008Q1 onwards and to assess whether the rise in the saving rate
after 2008 was due to sizable but transitory incomewealth shocks or to changes in the
underlying elasticities between saving and its determinants (hence structural) The statistical
evidence suggests there was no structural break in the household saving behavior implying
that the rise in the saving rate during 2008-2012 was caused by the negative shocks to
income employment and wealth This result explains why the saving rate resumed its decline
in 2013 as real disposable income employment and net worth recovered Assuming that the
real growth in these determinants remains strong the estimated model predicts continued
negative pressures on the current account deficit and further external imbalances attributable
to the US household sector
Keywords United States Western Hemisphere consumption behavior personal saving rate
vector error-correction model structural break Consumer Economics Empirical Analysis
Personal Finance Forecasting and Simulation
JEL Classification D12 D14 E21 E27
Currency Unions Trade and Heterogeneity CESifo Working Paper Series No 7123
49 Pages Posted 24 Aug 2018
Natalie Chen University of Warwick - Department of Economics Centre for Economic Policy Research (CEPR)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
There are 2 versions of this paper
Date Written June 28 2018
Abstract
How do trade costs affect international trade This paper offers a new approach We rely on a
flexible gravity equation that predicts variable trade cost elasticities both across and within
country pairs We apply this framework to the effect of currency unions on international
trade While we estimate that currency unions are associated with a trade increase of around
38 percent on average we find substantial underlying heterogeneity Consistent with the
predictions of our framework we find effects around three times as strong for country pairs
associated with small import shares and a zero effect for large import shares Our results
imply that conventional homogeneous currency union estimates do not provide helpful
guidance for countries considering to join a currency union Instead countries need to take
into account the distribution of their trade shares to assess the impact of trade costs
Keywords currency unions euro gravity heterogeneity trade costs trade elasticity translog
JEL Classification F140 F150 F330
How Do Migration and Remittances Affect Inequality
A Case Study of Mexico IMF Working Paper No 18136
22 Pages Posted 1 Aug 2018
Zsoka Koczan International Monetary Fund (IMF)
Franz Loyola International Monetary Fund (IMF)
Date Written June 2018
Abstract
The poverty-reducing effects of remittances have been well-documented however their
effects on inequality are less clear This paper examines the impact of remittances on
inequality in Mexico using household-level information on the receiving side It hopes to
speak to their insurance role by examining how remittances are affected by domestic and
external crises the 1994 Mexican Peso crisis and the Global Financial Crisis We find that
remittances lower inequality and that they become more pro-poor over time as migration
opportunities become more widespread This also strengthens their insurance effects
mitigating some of the negative impact of shocks on the poorest
Keywords Migration Remittances Financial crises Income inequality Income distribution
Poverty reduction inequality Firm Behavior International Lending and Debt Problems
JEL Classification D21 F32 F34 J61 D31 F22 F24
Exchange Rate Forecasting on a Napkin
ECB Working Paper No 2151
Contact MICHELE CAZORZI
European Central Bank (ECB)
Email michelecazorziecbint
Auth-Page httpsssrncomauthor=343031
Co-Author MICHAŁ RUBASZEK
National Bank of Poland Warsaw
School of Economics (SGH)
Email michalrubaszeknbppl
Auth-Page httpsssrncomauthor=850188
Full Text httpsssrncomabstract=3183690
ABSTRACT This paper shows that there are two regularities in
foreign exchange markets in advanced countries with flexible
regimes First real exchange rates are mean-reverting as
implied by the Purchasing Power Parity model Second the
adjustment takes place via nominal exchange rates These features
of the data can be exploited even on the back of a napkin to
generate nominal exchange rate forecasts that outperform the
random walk The secret is to avoid estimating the pace of mean
reversion and assume that relative prices are unchanged Direct
forecasting or panel data techniques are better than the random
walk but fail to beat this simple calibrated model
______________________________
Home Sweet Home The Effect of Sugar Protectionism
on Emigration in Italy 1876-1913 CEIS Working Paper No 437
49 Pages Posted 29 Jun 2018
Carlo Ciccarelli University of Rome Tor Vergata - Faculty of Economics
Alberto Dalmazzo University of Siena - Department of Economics
Daniela Vuri University of Rome Tor Vergata IZA Institute of Labor Economics CESifo (Center for Economic Studies and
Ifo Institute for Economic Research)
Date Written June 8 2018
Abstract
Protectionist policies are often considered or even implemented as a reaction to increasing
globalization This is not new in history This paper uses the introduction of import duties on
sugar in the late nineteenth century Italy to measure the impact of protectionism on migration
out flows at the time of the fi
rst globalization Both for climate reasons and the nature of the soil the cultivation and
processing of sugar beets was geographically concentrated in a small area leading de facto to
a regional protectionist policy Our theoretical model illustrates how a tariff that favours local
producers may affect residents incentives to migrate abroad The predictions of the model
are tested with the synthetic control method which uses the variation in sugar cultivation
across areas to estimate the effect of interest Our results show that protectionism effectively
reduced the relative incentive to migrate away from sugar-producing areas
Keywords protectionism regional economics migrations 19th century Italy
JEL Classification N93 J4 C23
Integrating Services in the Economic Fitness
Approach World Bank Policy Research Working Paper No 8485
35 Pages Posted 28 Aug 2018
Andrea Zaccaria Sapienza University of Rome
Saurabh Mishra International Monetary Fund (IMF)
Masud Z Cader World Bank - International Finance Corporation (IFC)
Luciano Pietronero Sapienza University of Rome
Date Written June 21 2018
Abstract
Economic Complexity is a set of network-based and algorithmic methods for the study of
economic development and competitiveness In this framework Economic Fitness is an
innovative approach that improves the mathematical and conceptual scheme For
convenience these methods were originally conceived on trade in goods This paper extends
the Economic Fitness methodology to include a trade in services element to yield a universal
matrix of world trade and thus provide a more complete picture of a countrys development
and global competitiveness The paper applies two algorithms to the universal trade in goods
and services matrix to contrast country competitiveness and change in complexity and
diversification when services are added to the traditional goods-only matrix The results show
that (i) the competitiveness of many countries was previously over- or underestimated that
is many countries gain or lose positions in the ranking of economic fitness when services
trade is considered alongside goods and (ii) complex services tend to cluster with complex
manufacturing suggesting a common capabilities structure These findings show how
developing complex services aids diversification strategies for developing countries
Keywords International Trade and Trade Rules Common Carriers Industry Food amp
Beverage Industry Business Cycles and Stabilization Policies Plastics amp Rubber Industry
Construction Industry General Manufacturing Textiles Apparel amp Leather Industry Pulp amp
Paper Industry Trade and Services Macroeconomic Management ICT Applications
Deep Trade Agreements and Global Value Chains World Bank Policy Research Working Paper No 8491
39 Pages Posted 28 Aug 2018
Edith Laget World Bank
Alberto Osnago World Bank
Nadia Rocha World Trade Organization
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Date Written June 25 2018
Abstract
Preferential trade agreements have become deeper over time often encompassing policy
areas that go beyond traditional trade policy such as investment competition and intellectual
property rights protection In the literature a prominent argument why countries sign deep
agreements is to promote and facilitate the operation of global value chains This paper
exploits a new data set on the content of trade agreements and data on trade in value added
and in parts and components to quantify the impact of the depth of trade agreements on
bilateral cross-border production linkages The results show that adding a policy area to a
trade agreement increases the domestic value added of intermediates (forward global value
chain linkages) and the foreign value added of intermediates (backward global value chain
linkages) by 048 and 038 percent respectively At the sectoral level the positive impact of
deep trade agreements is higher for higher value-added industries suggesting that deep
agreements help countries to integrate in industries with higher levels of value added For a
larger sample of countries and years the results confirm that an additional provision in a
trade agreement increases bilateral trade in parts and components by 03 percent The
content of trade agreements also matters for global value chain integration but the impact
varies by income group Provisions outside the current mandate of the World Trade
Organization (investment and competition policy) drive the effect of trade agreements on
North-South trade in parts and components Provisions under the current World Trade
Organization mandate (tariff reduction and customs facilitation) drive the effect of trade
agreements on South-South trade in parts and components
Keywords International Trade and Trade Rules Industrial and Consumer Services and
Products Transport and Trade Logistics Competition Policy Competitiveness and
Competition Policy Trade Finance and Investment
The Effect of Immigration on Natives School
Achievement Does Length of Stay in the Host
Country Matter World Bank Policy Research Working Paper No 8492
62 Pages Posted 28 Aug 2018
Laurent Bossavie The World Bank
Date Written June 25 2018
Abstract
Using a rich data set of primary school students this paper estimates the effects of immigrant
concentration in the classroom on the academic achievement of natives In contrast with
previous contributions it exploits rare information on age-at-migration to estimate separate
spillover effects by duration of stay of immigrant classmates To identify treatment effects it
uses cohort-by-cohort deviations in immigrant concentration within schools combined with
attractive features of the Dutch school system Overall the paper finds no effect of the
concentration of immigrant students on natives test scores However although immigrant
students who have been in the country for some time have virtually no effect on natives the
analysis finds a small negative effect of recent immigrants in the classroom on natives test
scores The effect is significant only for language test scores but insignificant for mathematics
test scores When significant effect sizes are quite small compared to other educational
interventions and classroom peer effects estimated in other contexts
Keywords Indigenous Peoples Law Indigenous Peoples Indigenous Communities
Educational Sciences International Migration Migration and Development Human Migrations
amp Resettlements Effective Schools and Teachers Educational Institutions amp Facilities
Trade and Immigration 1870-2010
by David S Jacks John P Tang - 25010 (DAE)
Abstract
In this chapter we describe long-run trends in global
merchandise trade and immigration from 1870 to 2010 We revisit
the reasons why these two forces moved largely in parallel in the
decades leading up to World War I collapsed during the interwar
period and then rebounded (but with much more pronounced growth
in trade than in immigration) More substantively we also
document a large redistribution in the regional sources of goods
and people with a shift from the former industrialized core
countries--especially Europe--to those in the former
periphery--especially Asia--as well as a very striking change in
the composition of merchandise trade towards manufactured goods
precisely dating from 1950 Finally using a triple differences
framework in combination with a dramatic change in US immigration
policy we find evidence that immigration and trade potentially
acted as substitutes at least for the United States in the
interwar period
httppapersnberorgpapersW25010utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Attitudes Towards Euro Area Reforms Evidence from
a Randomized Survey Experiment CESifo Working Paper Series No 7141
35 Pages Posted 28 Aug 2018
Mathias Dolls CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute IZA Institute of Labor Economics
Nils Wehrhoumlfer University of Mannheim Graduate School of Economic and Social Sciences Students
Date Written July 09 2018
Abstract
We present the first evidence on public attitudes towards two prominent euro area reform
proposals (European Unemployment Benefit Scheme and Sovereign Insolvency Procedure)
and assess potential impediments to their implementation by means of a randomized survey
experiment in Germany We find that there is a low willingness among German voters to
accept fiscal risk-sharing through common unemployment insurance while a sovereign
insolvency procedure aimed at strengthening market discipline is supported by a majority of
the electorate Our randomized treatments confronting survey participants with potential
adverse effects of the reforms lead to significant downward shifts in approval rates Altruism
cosmopolitanism political preferences and income are important predictors of support for
the reform proposals We also show that there is a striking contrast between the low level of
support for transfers to other euro area member states and a broad acceptance of inner
German transfers
Keywords public attitudes euro area reforms European unemployment insurance
sovereign insolvency procedure
JEL Classification H550 H240 J260 D140
The Economic Effects of Refugee Return and Policy
Implications World Bank Policy Research Working Paper No 8497
65 Pages Posted 28 Aug 2018
Uri Dadush World Bank
Date Written June 27 2018
Abstract
The recent surge in the number of forcibly displaced who cross international borders in
search of protection has prompted interest in evaluating policies that achieve the possible
end points of the phenomenon As envisaged by United Nations High Commissioner for
Refugees (UNHCR) these are the integration in the country of destination relocation in a
third country and return to the country of origin The focus of this paper is on the third
aspect namely the appropriate conduct of return policy viewed from the perspective of the
host country More specifically the main question is whether it is in the economic self-interest
of host countries to return forcibly displaced persons In addressing the question four
ancillary issues are to be addressed (i) the macroeconomic impact of refugees and of their
return (ii) the labor market impact of refugees and of their return (iii) the fiscal impact of
refugees and of their return and (iv) how return policy should be formulated and executed
The available evidence and analyses allow this papers main conclusion namely that the costs
of hosting asylum seekers and refugees are front-loaded while the benefits accruing from
their integration into the labor market and the host economy typically take years to
materialize It follows that from the economic perspective their return after a short stay may
represent a costlier option than continuing to invest in their successful integration Countries
with a flexible labor market strong investment climate and a welcoming attitude to
immigrants tend to see the economic benefits of refugee inflows materialize faster
The Effect of Remittances on the Current Account in
Developing and Emerging Economies World Bank Policy Research Working Paper No 8498
26 Pages Posted 28 Aug 2018
Emmanuel Kwasi Koranteng Lartey World Bank
Date Written June 27 2018
Abstract
This paper presents an analysis of the effect of remittances on the current account in
developing and emerging economies incorporating an assessment of the extent to which
exchange rate regimes impact the relationship The main findings suggest there is a positive
effect of remittances on the current account contemporaneously but that the lagged effect is
negative which could be indicative of the existence of some underlying mechanisms
characteristic of the Dutch disease phenomenon In addition the results show that a more
flexible exchange regime dampens the contemporaneous positive effect that remittances have
on the current account The paper therefore asserts that policy makers face trade-offs
pertaining to the use of exchange rate policy in managing the effects of remittances on the
current account which should be given due consideration when such policy choices are made
Learning About Fiscal Multipliers During the
European Sovereign Debt Crisis Evidence from a
Quasi-Natural Experiment ECB Working Paper No 2154
30 Pages Posted 18 Jun 2018
Gόrnicka Lucyna IMF
Christophe Kamps European Central Bank (ECB)
Gerrit B Koester European Central Bank (ECB)
Nadine Leiner-Killinger European Central Bank (ECB)
Date Written May 30 2018
Abstract
Identifying fiscal multipliers is usually constrained by the absence of a counterfactual
scenario Our new data set allows overcoming this problem by making use of the fact that
recommendations under the EUrsquos excessive deficit procedure (EDP) provide both a baseline
no-policy-change scenario and a fiscal-adjustment EDP scenario that entails a forecast of the
macroeconomic impact of fiscal consolidation over the EDP horizon For a sample of 24 EU
countries to which 48 EDP recommendations were applied between 2009 and 2015 we
derive country-specific fiscal multipliers as actually applied by forecasters during the crisis
Our results confirm Blanchard and Leighrsquos (2013 2014) presumption that forecasters learned
during the crisis According to our findings fiscal multipliers as applied by the European
Commission increased over time ndash from about 14 in the early years of the crisis to about 23
in the later years However different from Blanchard and Leigh (2013 2014) we do not find
evidence for the hypothesis that ex-post fiscal multipliers have been substantially above 1
during the crisis
Keywords fiscal consolidation fiscal multipliers business cycle
JEL Classification E32 E62 H20 H5
Trade in Developing East Asia How it Has Changed
and Why it Matters World Bank Policy Research Working Paper No 8533
58 Pages Posted 28 Aug 2018
Ileana Cristina Constantinescu World Bank
Aaditya Mattoo World Bank - Development Research Group (DECRG)
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Date Written July 13 2018
Abstract
East Asia for long the epitome of successful engagement in trade faces serious challenges
technological change that may threaten the very model of labor intensive industrialization
and a backlash against globalization that may reduce access to important markets A detailed
analysis of the evolution of East Asias trade and trade policy in goods and services leads to
the conclusion that how East Asia copes with these global challenges will depend on how it
addresses three more proximate national and regional challenges The first is the emergence
of one East Asian country China as a global trade giantaccounting for nearly one-seventh of
global exports and one-tenth of global imports -- which is fundamentally altering the trading
patterns and opportunities of its neighbors The second is the asymmetric implementation of
national reform -- remarkable openness to goods trade and investment coexists with relative
restrictiveness of services policies -- which is affecting the evolution of comparative
advantage and productivity in each country The third is the divergence between the
relatively shallow and fragmented agreements that regulate the regions trade and
investment and the growing importance of regional and global value chains as crucial drivers
of productivity growth
Keywords International Trade and Trade Rules Common Carriers Industry Food amp
Beverage Industry Plastics amp Rubber Industry Business Cycles and Stabilization Policies
Construction Industry General Manufacturing Pulp amp Paper Industry Textiles Apparel amp
Leather Industry Export Competitiveness Industrial and Consumer Services and Products
Transport and Trade Logistics
Who are Americas Star Firms World Bank Policy Research Working Paper No 8534
70 Pages Posted 28 Aug 2018
Meghana Ayyagari George Washington University - School of Business
Asli Demirguc-Kunt World Bank
Vojislav Maksimovic University of Maryland - Robert H Smith School of Business
There are 2 versions of this paper
Date Written July 13 2018
Abstract
There is wide spread concern about a growing gap between top-performing publicly listed
firms and the rest of the economy and the implications of this for rising inequality in the US
Using conventional return calculations there is indeed a widening gap between star firms
(defined as those in top 10 percent of return on invested capital in any year) and the rest of
the economy over time especially in industries that rely on a skilled labor force However
once measurement error in intangible capital is accounted for this gap shrinks dramatically
and has not been widening over time While pricing power as measured by markups predicts
star firm status a large fraction of star firms have low markups and there is no evidence that
star firms are cutting output or investment more than other firms for the same markup The
effect of star status is persistent Five years later star firms have higher growth profits and
Tobins Q A small subset of exceptional firms may pose more pressing policy concerns with
much higher returns and the potential to exercise market power in the future
Keywords Plastics amp Rubber Industry Business Cycles and Stabilization Policies Textiles
Apparel amp Leather Industry Pulp amp Paper Industry Food amp Beverage Industry Common
Carriers Industry Construction Industry General Manufacturing Labor Markets Employment
and Unemployment
Bought Sold and Bought Again The Impact of
Complex Value Chains on Export Elasticities World Bank Policy Research Working Paper No 8535
45 Pages Posted 28 Aug 2018
Francois Michel Marie Raphael De Soyres World Bank
Erik Frohm World Bank
Vanessa Gunnella European Central Bank (ECB)
Elena Pavlova European Central Bank (ECB)
Date Written July 13 2018
Abstract
Global value chain participation affects the exchange rate pass-through to export prices and
export volumes The paper develops a partial equilibrium model of international trade with
cross-border production and shows that higher participation in global value chains reduces
the elasticities Specifically a higher share of foreign value added in exports reduces the
exchange rate pass-through to export prices and export volumes A greater share of exports
that return as imports also reduces the responsiveness of export volumes to changes in
bilateral exchange rates Finally exports of inputs that are further re-exported increase the
responsiveness to the trading partners effective exchange rate Using a novel sector-level
panel dataset with 40 countries the analysis tests and finds strong empirical support for the
theoretical predictions The paper further shows that some sectors in some countries can
even experience a decline in gross exports when their currency depreciates
Keywords International Trade and Trade Rules Industrial and Consumer Services and
Products Transport and Trade Logistics Trade and Services Macroeconomic Management
Did Austerity Cause Brexit CESifo Working Paper Series No 7159
101 Pages Posted 25 Sep 2018
Thiemo Fetzer University of Warwick
Date Written July 25 2018
Abstract
Did austerity cause Brexit This paper shows that the rise of popular support for the UK
Independence Party (UKIP) as the single most important correlate of the subsequent Leave
vote in the 2016 European Union (EU) referendum along with broader measures of political
dissatisfaction are strongly and causally associated with an individualrsquos or an arearsquos exposure
to austerity since 2010 In addition to exploiting data from the population of all electoral
contests in the UK since 2000 I leverage detailed individual level panel data allowing me to
exploit within-individual variation in exposure to specific welfare reforms as well as broader
measures of political preferences The results suggest that the EU referendum could have
resulted in a Remain victory had it not been for a range of austerity-induced welfare reforms
Further auxiliary results suggest that the welfare reforms activated existing underlying
economic grievances that have broader origins than what the current literature on Brexit
suggests Up until 2010 the UKrsquos welfare state evened out growing income differences across
the skill divide through transfer payments This pattern markedly stops from 2010 onwards
as austerity started to bite
Keywords political economy austerity globalization voting EU
JEL Classification H200 H300 H500 P160 D720
Resolving Sovereign Debt Crises The Role of Political
Risk CESifo Working Paper Series No 7161
42 Pages Posted 26 Sep 2018
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Date Written August 02 2018
Abstract
Sovereign defaults are bad news for investors and debtor countries in particular if a default
becomes messy and protracted Why are some debt crises resolved quickly in a matter of
months while others take many years to settle This paper studies the duration of sovereign
debt crises based on a new dataset and case study archive on debt renegotiations between
governments and foreign banks and bondholders Using Cox proportional hazard models I
find that domestic political instability (lsquopolitical riskrsquo) is a significant predictor of negotiation
delays after controlling for macroeconomic conditions Government crises resignations and
street protests are particularly disruptive for a quick settlement process Overall the evidence
suggests that debtor countries often lack the political ability to resolve a debt crisis
Governments in turmoil are unlikely to exit a default quickly
Keywords sovereign default crisis resolution political economy
JEL Classification F340 F510 H630
Market Potential and Global Growth over the Long
Twentieth Century CESifo Working Paper Series No 7164
53 Pages Posted 27 Sep 2018
David S Jacks Simon Fraser University (SFU) - Department of Economics National Bureau of Economic Research (NBER)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
There are 3 versions of this paper
Date Written August 02 2018
Abstract
We examine the evolution of market potential and its role in driving economic growth over
the long twentieth century Theoretically we exploit a structural gravity model to derive a
closed-form solution for a widely-used measure of market potential We are thus able to
express market potential as a function of directly observable and easily estimated variables
Empirically we collect a large dataset on aggregate and bilateral trade flows as well as output
for 51 countries We find that market potential exhibits an upward trend across all regions of
the world from the early 1930s and that this trend significantly deviates from the evolution of
world GDP Finally using exogenous variation in trade-related distances to world markets we
demonstrate a significant causal role of market potential in driving global income growth over
this period
Keywords economic geography market potential structural gravity trade costs
JEL Classification F100 N700
Growth Inequality and Poverty A Robust
Relationship World Bank Policy Research Working Paper No 8578
42 Pages Posted 17 Sep 2018
Gustavo A Merrero University of La Laguna
Luis Serveacuten World Bank - Development Research Group (DECRG)
Date Written September 6 2018
Abstract
An extensive literature on poverty traps suggests that high levels of poverty deter growth
However a seemingly basic implication of the underlying theoretical models namely that
countries suffering from higher levels of poverty should grow less rapidly has remained
untested A parallel literature has suggested a variety of mechanisms through which
inequality may affect growth in opposing directions Because inequality and poverty are
different aspects of the income distribution inequality can also affect growth through poverty
an indirect channel that has not been explicitly analyzed This paper contributes to fill both
gaps Using a large cross-country panel data set it estimates a reduced-form growth equation
adding both inequality and poverty to an otherwise standard set of growth determinants
Given inequality the correlation of growth with poverty is consistently negative In contrast
given poverty the correlation of growth with inequality can be positive or negative
depending on the empirical specification and econometric approach used Yet the indirect
effect of inequality on growth through its correlation with poverty is robustly negative Closer
inspection shows that these results are driven by the sample observations featuring high (but
not extremely high) poverty rates These empirical findings are consistent with the
predictions from an analytical framework with learning-by-doing and knowledge spillovers
in which consumers cannot save and invest if their initial endowment is below a minimum
consumption level
Keywords Inequality Inflation Small Area Estimation Poverty Mapping Poverty
Assessment Poverty Lines Poverty Monitoring amp Analysis Poverty Diagnostics Poverty
Impact Evaluation Educational Sciences
Comparison of Welfare Gains in the Armington
Krugman and Melitz Models Insights from a
Structural Gravity Approach World Bank Policy Research Working Paper No 8570
63 Pages Posted 17 Sep 2018
Edward Jay Balistreri Iowa State University
David G Tarr International Trade Analysis
Date Written August 28 2018
Abstract
How large are the estimated gains from trade from a reduction in trade costs in the
heterogeneous firms Melitz (M) model compared with the Armington (A) and Krugman (K)
models Surprisingly little is known beyond the one-sector model This paper analyzes this
question using a global trade model that contains ten regions and various numbers of sectors
(1-10) Following Arkolakis et al (2012) the analysis holds the local trade response constant
across the model comparisons based on a structural gravity estimate Various model features
and scenarios are introduced that are important to real economies almost none of which has
been examined across the three market structures with a constant trade response In
response to global reductions in iceberg trade costs in all the multi-sector models the
ranking of global welfare gains is MelitzgtKrugmangtArmington and the Krugman model
captures between 75 and 95 percent on the additional gains above the Armington model that
are estimated by the Melitz model However for individual regions there are numerous cases
of reversed welfare rankings ie MelitzltkrugmanKrugmangtArmington For individual
regions however the welfare ranking of the Armington Krugman and Melitz market
structures is model data parameter and scenario dependent The results highlight the need
for data and structural considerations in policy analysisltkrugman
Keywords International Trade and Trade Rules Trade and Services Labor Markets Trade
and Multilateral Issues
The Economic Effects of Brexit - Evidence from the
Stock Market CEPR Discussion Paper No DP13147
35 Pages Posted 17 Sep 2018
Holger Breinlich University of Nottingham - School of Economics Centre for Economic Policy Research (CEPR) London
School of Economics amp Political Science (LSE) - Centre for Economic Performance (CEP)
Elsa Leromain London School of Economics amp Political Science (LSE) - London School of Economics
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
Thomas Sampson London School of Economics amp Political Science (LSE)
Ahmed Usman University of Nottingham
Date Written August 2018
Abstract
We study stock market reactions to the Brexit referendum on 23 June 2016 in order to assess
investors expectations about the effects of leaving the European Union on the UK economy
Our results suggest that initial stock price movements were driven by fears of a cyclical
downturn and by the sterling depreciation following the referendum We also find tentative
evidence that market reactions to two subsequent speeches by Theresa May (her
Conservative Party conference and Lancaster House speeches) were more closely correlated
with potential changes to tariffs and non-tariff barriers on UK-EU trade indicating that
investors may have updated their expectations in light of the possibility of a hard Brexit We
do not find a correlation between the share of EU migrants in different industries and stock
market returns
Keywords Brexit depreciation event study Recession Stock market tariffs
JEL Classification F15 F23 G14
Understanding Euro Area Inflation Dynamics Why so
Low for so Long
IMF Working Paper No 18188
26 Pages Posted 1 Oct 2018
Yasser Abdih International Monetary Fund (IMF)
Li Lin International Monetary Fund (IMF)
Anne-Charlotte Paret Banque de France
Date Written August 2018
Abstract
Despite closing output gaps and tightening labor markets inflation has remained low inthe
euro area Based on an augmented Phillips Curve framework we find that thisphenomenon-
sometimes attributed to low global inflation-has been primarily causedby a remarkable
persistence of inflation keeping it low despite the reduction in slack Thisfeature is shown to
be specific to the euro area (in comparison with the United States)Monetary policy needs to
stay accommodative to help guide inflation back to target
Keywords Inflation Inflation expectations Inflation persistence Monetary policy
Econometric models Euro Area Phillips curve inflation persistence and expectations
General Forecasting and Simulation Monetary Policy (Targets Instruments and Effects)
JEL Classification E10 E31 E32 E37 E52 C22 C50
Financial Development Exchange Rate Regimes and
Growth Dynamics World Bank Policy Research Working Paper No 8562
34 Pages Posted 28 Aug 2018
Woubet Kassa The World Bank
Emmanuel Kwasi Koranteng Lartey World Bank
Date Written August 20 2018
Abstract
This paper utilizes data for African countries to analyze the extent to which financial
development affects the dynamics of the relationship between exchange rate flexibility and
economic growth The findings indicate that financial development exerts a positive influence
on the relationship between exchange rate flexibility and GDP growth as well as total factor
productivity growth The paper also documents a positive impact of trade openness on the
relationship between exchange rate flexibility and growth Moreover the results show a
strong and positive association between exchange rate flexibility and financial development
The findings therefore suggest that discussions and decisions on exchange rate policy should
be undertaken with consideration for structural policies that address the development of the
financial sector In addition the paper asserts that policy makers should adopt a stance that
facilitates some flexibility in exchange rates to foster development of the financial
infrastructure in these economies
Keywords International Trade and Trade Rules Industrial Economics Economic Theory amp
Research Economic Growth Currencies and Exchange Rates Educational Sciences
Macroeconomic Management
Unequal Gains Prolonged Pain A Model of
Protectionist Overshooting and Escalation CEPR Discussion Paper No DP13160
53 Pages Posted 17 Sep 2018
Emily J Blanchard Dartmouth College - Tuck School of Business
Gerald Willmann Bielefeld University IfW Kiel KU Leuven CESifo (Center for Economic Studies and Ifo Institute)
Date Written September 2018
Abstract
We develop a model of democratic political responses to macroeconomic shocks in the short
and long run We show that when economic adjustment is slower than potential political
change exogenous changes in the global marketplace can trigger populist surges in favor of
distortionary economic policies Applied to trade policy our model demonstrates that an
exogenous terms-of-trade improvement or skill-biased technological change will lead to a
spike in protectionism that blunts the younger generations incentive to acquire education In
the long run the initial surge in protectionism will gradually diminish if and only if education
enables less-skilled workers to catch up with the overall economy The more unequal the
initial distribution of human capital the greater and longer-lasting the protectionist backlash
will be unequal gains prolonged pain Evidence on key data markers suggested by the model
exhibits patterns consistent with recent populist support for Brexit and Trump
Keywords Dynamic Political Economy education Endogenous Tari Human Capital
Overlapping Generations Overshooting populism protectionism
JEL Classification D7 E6 F5
Threat or Help The Effects of Unskilled Immigrant
Workers on National Productivity Growth World Bank Policy Research Working Paper No 113185
4 Pages Posted 17 Sep 2018
Sharmila Devadas Central Bank of Malaysia
Date Written March 1 2017
Abstract
While unskilled immigrant workers have relatively low formal human capital theory suggests
that they can still contribute to productivity improvements by helping to increase efficiency
and upgrading the skills of the native labor force Empirical studies indicate that positive
productivity effects do occur This body of evidence does not provide a compelling argument
for the closing of national borders to unskilled foreigners on economic grounds
Keywords Indigenous Peoples Indigenous Peoples Law Human Migrations amp Resettlements
Construction Industry Common Carriers Industry Food amp Beverage Industry General
Manufacturing Pulp amp Paper Industry Plastics amp Rubber Industry Labor Markets Business
Cycles and Stabilization Policies International Migration Indigenous Communities Migration
and Development
Global Trade Slowdown Factors and Policies World Bank Policy Research Working Paper No 123899
4 Pages Posted 17 Sep 2018
Dorina Peteva Georgieva World Bank
Norman Loayza World Bank - Research Department
Fabian Mendez Ramos Development Research Group The World Bank
Date Written February 1 2018
Abstract
Growth in global trade has been slow since 2012 While global trade downturns are not
unprecedented the observed change in the relationship of trade to GDP poses the question
whether the trade slowdown is a transitory deviation or a more long-lasting phenomenon
brought about by structural changes This new dynamic coupled with the rise of protectionist
policies and rhetoric in many countries positions trade at the forefront of policy discussions
This brief reviews recent patterns in global trade examines the factors affecting trade--
distinguishing between transitory and structural components of the slowdown--and discusses
policies shaping the path of future trade
Keywords Trade and Multilateral Issues Trade and Services Trade Policy Trade Facilitation
International Trade and Trade Rules International Economics and Trade Transport and
Trade Logistics Trade and Regional Integration Private Sector Development Industrial and
Consumer Services and Products Competitiveness and Competition Policy Marketing Labor
Markets Private Sector Development Law Private Sector Economics Industry Law and
Development Social Policy Legal Reform Social Development Treaties Economics and
Institutions Public Sector Management and Reform Macroeconomics and Economic Growth
Public Sector Development Regulatory Regimes International Law Non Governmental
Organiz
The Productivity J-Curve How Intangibles Complement General Purpose Technologies
by Erik Brynjolfsson Daniel Rock Chad Syverson - 25148 (EFG IO PR)
Abstract
General purpose technologies (GPTs) such as AI enable and require
significant complementary investments including business process
redesign co-invention of new products and business models and
investments in human capital These complementary investments
are often intangible and poorly measured in the national
accounts even if they create valuable assets for the firm We
develop a model that shows how this leads to an underestimation
of output and productivity in the early years of a new GPT and
how later when the benefits of intangible investments are
harvested productivity will be overestimated Our model
generates a Productivity J-Curve that can explain the
productivity slowdowns often accompanying the advent of GPTs as
well as the follow-on increase in productivity later We use our
model to assess how AI-related intangible capital is currently
affecting measured total factor productivity (TFP) and output
We also conduct a historical analysis of the roles of intangibles
tied to RampD software and computer hardware finding substantial
and ongoing effects of software in particular and hardware to a
lesser extent
httppapersnberorgpapersW25148utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
New Technologies Global Value Chains and Developing Economies
by Dani Rodrik - 25164 (DEV EFG ITI)
Abstract
Many of the exports of developing countries are channeled through
global value chains (GVCs) which also act as conduits for new
technologies However new capabilities and productive
employment remain limited so far to a tiny sliver of globally
integrated firms GVCs and new technologies exhibit features
that limit the upside and may even undermine developing
countries economic performance In particular new technologies
present a double whammy to low-income countries First they are
generally biased towards skills and other capabilities This
bias reduces the comparative advantage of developing countries in
traditionally labor-intensive manufacturing (and other)
activities and decreases their gains from trade Second GVCs
make it harder for low-income countries to use their labor cost
advantage to offset their technological disadvantage by reducing
their ability to substitute unskilled labor for other production
inputs These are two independent shocks that compound each
other The evidence to date on the employment and trade fronts
is that the disadvantages may have more than offset the
advantages
httppapersnberorgpapersW25164utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Bank Runs and Moral Hazard A Review of Deposit
Insurance World Bank Policy Research Working Paper No 8589
31 Pages Posted 20 Sep 2018 Last revised 21 Sep 2018
Deniz Anginer World Bank Research
Asli Demirguc-Kunt World Bank
Date Written September 19 2018
Abstract
Deposit insurance is a widely adopted policy to promote financial stability in the banking
sector Deposit insurance helps ensure depositors confidence in the financial system and
prevents contagious bank runs but it also comes with an unintended consequence of
encouraging banks to take on excessive risk This paper reviews the economic costs and
benefits of deposit insurance and highlights the importance of institutions and specific design
features for how well deposit insurance schemes work in practice
Keywords Deposit Insurance Financial Structures Banks amp Banking Reform Judicial System
Reform Economic Growth
The Future of Work Race With-Not Against-The
Machine World Bank Research amp Policy Briefs Paper No 129680
4 Pages Posted 17 Sep 2018
Lay Lian Chuah World Bank - Development Research Group (DECRG)
Norman Loayza World Bank - Research Department
Achim Schmillen Osteuropa-Institut (OEI) Government of the Federal Republic of Germany - Institute for Employment
Research (IAB) University of Regensburg - Department of Economics and Econometrics
Date Written August 1 2018
Abstract
Will the revolution in digital and information technologies make us obsolete Will jobs be lost
and never replaced Will wages drop to intolerable levels History and economic theory and
evidence suggest that in the long term such fears are misplaced However in the short and
medium term dislocation can be severe for certain types of work places and populations In
the transition period policies are needed to facilitate labor market flexibility and mobility
introduce and strengthen safety nets and social protection and improve education and
training
Keywords Labor Markets Rural Labor Markets Armed Conflict Food Security
An Economists Guide to Climate Change Science
by Solomon Hsiang Robert E Kopp - 25189 (DEV EEE EFG HE ITI LS PE POL PR)
Abstract
Climate change management is a global challenge that requires
social science as much as it requires natural science We
provide a brief introduction to the physical science of climate
change written to provide essential background for economists
and other social scientists We also highlight some key areas in
which economists--including those studying macroeconomics
political economy and development--are in a unique position to
help climate science advance
httppapersnberorgpapersW25189utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
The Intensive Margin in Trade
by Ana M Fernandes Peter J Klenow Sergii Meleshchuk Denisse Pierola Andres Rodriguez-
Clare - 25195 (ITI)
Abstract
The Melitz model highlights the importance of the extensive
margin (the number of firms exporting) for trade flows Using
the World Banks Exporter Dynamics Database (EDD) featuring
firm-level exports from 50 countries we find that around 50 of
variation in exports is along the extensive margin --- a
quantitative victory for the Melitz framework The remaining 50
on the intensive margin (exports per exporting firm) contradicts
a special case of Melitz with Pareto-distributed firm
productivity which has become a tractable benchmark This
benchmark model predicts that conditional on the fixed costs of
exporting all variation in exports across trading partners
should occur on the extensive margin We find that moving from a
Pareto to a lognormal distribution allows the Melitz model to
match the role of the intensive margin in the EDD We use
likelihood methods and the EDD to estimate a generalized Melitz
model with a joint lognormal distribution for firm-level
productivity fixed costs and demand shifters and use exact hat
algebra to quantify the effects of a decline in trade costs on
trade flows and welfare in the estimated model The welfare
effects turn out to be quite close to those in the standard
Melitz-Pareto model when we choose the Pareto shape parameter to
fit the average trade elasticity implied by our estimated
Melitz-lognormal model although there are significant
differences regarding the effects on trade flows
httppapersnberorgpapersW25195utm_campaign=ntwamputm_medium=emailamputm_source=ntw
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Are Banks Engines of Export Financial Structures
and Export Dynamics World Bank Policy Research Working Paper No 8621
41 Pages Posted 26 Oct 2018 Last revised 30 Oct 2018
Raoul Minetti Michigan State University - Department of Economics
Alen Mulabdic World Bank
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Susan Chun Zhu Michigan State University - Department of Economics
Date Written October 25 2018
Abstract
This paper studies the impact of financial structures on the dynamics of the export sector
using rich data from over 60 countries The results reveal that bank-oriented financial
systems boost the size of the export sector more than market-oriented financial systems
However especially in middle- and low-income countries this effect mostly stems from banks
slowing down exporters exit rather than promoting firms entry into export The reduced exit
from the export sector appears to reflect domestic banks tendency to evergreen loans to
exporters (soft budget constraint) more than banks buffering role in difficult times Foreign
banks mitigate this effect and enhance the dynamism of the export sector
Contractual Frictions and the Margins of Trade World Bank Policy Research Working Paper No 8631
31 Pages Posted 31 Oct 2018 Last revised 1 Nov 2018
Theophile T Azomahou United Nations University (UNU-MERIT) Maastricht University
Hibret Belete Maemir World Bank
Hassen Abda Wako UNU-MERIT
Date Written October 30 2018
Abstract
A growing body of work has shown that the quality of national institutions that enforce
written contracts plays an important role in shaping a countrys comparative advantage
Using highly disaggregated bilateral and unique harmonized firm-level trade data across a
large number of countries this paper contributes to this literature by providing a
comprehensive analysis of the mechanisms through which institutional frictions affect the
pattern of aggregate trade flow distinguishing the effects on the intensive and extensive
margins The analysis finds that contractual friction distorts countries trade pattern beyond
its effect on domestic production structure by deterring the probability of exporting (the
extensive margin) and export sales after entry (the intensive margin) particularly in
industries that rely more heavily on relationship-specific inputs (more vulnerable to holdup
problems) The analysis also finds that contractual frictions matter more for the intensive
margin than the extensive margin of exporting In addition better contracting institutions
increase the probability of survival of new export products in more contract-intensive
industries These results have important policy implications for developing countries that
seek to boost export growth but many of which suffer from poor contracting institutions
Nominal Exchange Rate Dynamics and Monetary
Policy Uncovered Interest Rate Parity and Purchasing
Power Parity Revisited CEPR Discussion Paper No DP13235
33 Pages Posted 15 Oct 2018 Last revised 22 Oct 2018
Yossi Saadon Bank of Israel - Research Department
Nathan Sussman Hebrew University of Jerusalem
Date Written October 2018
Abstract
The increasing globalization of trade in goods and services and the deepening of financial
markets have reduced frictions that may impede the operation of the PPP and UIP
relationships in the short run In this paper we estimate the short term relative PPP and UIP
relationships Using data from Israel which has a deep market for inflation expectations for
12 months we show that relative PPP and UIP cannot be rejected Deviations from
equilibrium last less than a year Data from Israels capital account of the balance of payments
shows that the deviations are not destabilizing Our findings suggest that greater globalization
and financial deepening contribute to the effectiveness of monetary policy
Keywords Balance sheet effects Exchange Rates Inflation expectations monetary policy
purchasing power parity uncovered interest rate parity
Macroeconomic Effects of Chinas Financial Policies
by Kaiji Chen Tao Zha - 25222 (DEV EFG ME)
Abstract
The Chinese economy has undergone three major phases the
1978-1997 period marked as the SOE-led economy the 1998-2015
phase as the investment-driven economy and the new normal
economy since 2016 All three economies have been shaped by the
governments financial policies defined as a set of credit
policy monetary policy and regulatory policy We analyze the
macroeconomic effects of these financial policies throughout the
three phases and provide the stylized facts to substantiate our
analysis The stylized facts differ qualitatively across
different phases or economies We argue that the impacts of
Chinas financial policies work through transmission channels
different from those in developed economies and that a regime
switch from one economy to another was driven mainly by regime
changes in financial policies
httppapersnberorgpapersW25222utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Factor Incomes in Global Value Chains The Role of Intangibles
by Wen Chen Bart Los Marcel P Timmer - 25242 (EFG)
Abstract
Recent studies document a decline in the share of labour and a
simultaneous increase in the share of residual (factorless)
income in national GDP We argue the need for study of factor
incomes in cross-border production to complement country studies
We define a GVC production function that tracks the value added
in each stage of production in any country-industry We define a
new residual as the difference between the value of the final
good and the payments to all tangibles (capital and labour) in
any stage We focus on GVCs of manufactured goods and find the
residual to be large We interpret it as income for intangibles
that are (mostly) not covered in current national accounts
statistics We document decreasing labour and increasing capital
income shares over the period 2000-14 This is mainly due to
increasing income for intangible assets in particular in GVCs of
durable goods We provide evidence that suggests that the 2000s
should be seen as an exceptional period in the global economy
during which multinational firms benefitted from reduced labour
costs through offshoring while capitalising on existing
firm-specific intangibles such as brand names at little
marginal cost
httppapersnberorgpapersW25242utm_campaign=ntwamputm_medium=emailamputm_source=ntw
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Accounting for Firm Heterogeneity within US Industries Extended Supply-Use Tables and Trade
in Value Added using Enterprise and Establishment Level Data
by James J Fetzer Tina Highfill Kassu W Hossiso Thomas F Howells III Erich H Strassner
Jeffrey A Young - 25249 (ITI)
Abstract
This paper presents experimental tables created by the US
Bureau of Economic Analysis comparing industry-specific shares of
the components of total output of globally engaged firms located
in the United States that are part of a multinational enterprise
with those of firms that are part of an enterprise entirely
located in the United States Recent research has shown both the
importance of accounting for trade in value added when estimating
bilateral trade flows and that multinational enterprises located
in the United States account for the lions share of US trade
in goods and services However trade in value added is
typically accounted for using input-output tables that are
aggregated across all types of firms The experimental tables
are consistent with other research showing that value added as a
share of output is lower for foreign-owned firms compared with
domestic-owned firms and that exports and imports as a share of
output is larger for foreign-owned firms We also find
heterogeneity in the composition of output among different types
of domestic-owned firms Future work will analyze this
heterogeneity in more detail using establishment-level data on
production and trade
httppapersnberorgpapersW25249utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
The Falling Elasticity of Global Trade to Economic
Activity Testing the Demand Channel CESifo Working Paper No 7228
42 Pages Posted 31 Oct 2018
Marc Auboin World Trade Organization (WTO)
floriana borino World Trade Organization (WTO)
Date Written 2018
Abstract
Since the recovery from the great financial crisis in 2010 global real trade flows grew much
slower than pre-crisis in both absolute terms (growth rates) and relative terms (relative to
GDP from 21 in the great 1990rsquos to 11 since 2012) A debate has arisen as to whether this
global trade slowdown and related falling trade-to-income elasticity was structural or
cyclical Some papers emphasized the slowing pace of international vertical specialization
Other works emphasized the prominent role of aggregate demand notably when weighted by
its trade component Our paper goes in this latter direction We estimated the standard
import equation for 38 advanced and developing countries over the period 1995-2015 using
an import intensity-adjusted measure of aggregate demand (IAD) calculated from input-
output tables at country level and compared results with regressions using GDP The
integration of IAD allows us to predict 76 to 86 of the changes in global imports a better
performance than if using GDP The use of IAD also enabled us to measure the relative
importance of each component of demand according to their trade intensity The model is
able to account for over 90 of the recent trade slowdown (2012-2015) with IAD alone
explaining 80 of it The slowdown in global value chains explains more than half of the
remaining share of the global trade slowdown not explained by demand factors
Protectionism does not come up as statistically significant
Keywords investment global outlook trade policy trade forecasting business cycles
JEL Classification E220 F010 F130 F170 F440
Will Brexit Age Well Cohorts Seasoning and the Age-
Leave Gradient Past Present and Future CEPR Discussion Paper No DP13288
38 Pages Posted 5 Nov 2018
Barry Eichengreen University of California Berkeley National Bureau of Economic Research (NBER) Centre for Economic
Policy Research (CEPR)
Rebecca Mari Bocconi University
Gregory Thwaites London School of Economics amp Political Science (LSE) - London School of Economics
There are 3 versions of this paper
Date Written October 2018
Abstract
In the UKs 2016 referendum on EU membership young voters were more likely than their
elders to vote Remain Applying new methods to a half century of data we show that this
pattern reflects both ageing and cohort effects Although voters become more Eurosceptical as
they age recent cohorts are also more pro-European than their predecessors Much of the
pro-Europeanism of these recent cohorts is accounted for by their greater years of education
Going forward the ageing of the electorate will thus be offset at least in part by the
replacement of older cohorts with younger better-educated and more pro-European ones
But we also document large nationwide swings in sentiment that have little to do with either
seasoning or cohort effects Hence these demographic trends are unlikely to be the decisive
determinants of future changes in European sentiment Rather nationwide changes in
sentiment reflecting macroeconomic or other conditions and the age-turnout gradient will be
key
JEL Classification F0
Buying Votes and International Organizations The
Dirty Work-Hypothesis CEPR Discussion Paper No DP13290
62 Pages Posted 5 Nov 2018
Axel Dreher Heidelberg University
Valentin Lang University of Zurich
B Peter Rosendorff New York University (NYU) - Wilf Family Department of Politics
James Raymond Vreeland Georgetown University - School of Foreign Service and Department of Government
Date Written October 2018
Abstract
We show how major shareholders can exploit their power over international organizations to
hide their foreign-policy interventions from domestic audiences We argue that major powers
exert influence bilaterally when domestic audiences view the intervention favorably When
domestic audiences are more skeptical of a target country favors are granted via
international organizations We test this theory empirically by examining how the United
States uses bilateral aid and IMF loans to buy other countries votes in the United Nations
Security Council (UNSC) Introducing new data on voting behavior in the UNSC over the 1960-
2015 period our results show that states allied with the US receive more bilateral aid when
voting in line with the United States in the UNSC while concurring votes of states less allied
with the US are rewarded with loans from the IMF Temporary UNSC members that vote
against the United States do not receive such perks
Keywords Aid IMF United Nations Security Council voting World Bank
JEL Classification F35 O11 O19
CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Nadzeya Laurentsyeva Centre for European Policy Studies (CEPS)
Date Written January 15 2018
Abstract
This paper establishes a causal link between the emigration of skilled workers and firm
performance in source countries Using firm-level panel data from ten Eastern European
countries we show that the emigration of skilled workers lowers firm total factor
productivity We exploit time country and industry differences in the opening of EU labor
markets from 2004 to 2014 as a source of exogenous variation in the emigration rates from
new EU member states We argue that a potential channel behind this effect relates to the
reduction in firm-specific human capital due to a higher worker turnover
Keywords migration firm productivity human capital EU enlargement
JEL Classification O150 D240 F220 J240
Reserve Currency Blocs A Changing International
Monetary System IMF Working Paper No 1820
43 Pages Posted 20 Feb 2018
Camilo E Tovar International Monetary Fund
Tania Mohd Nor International Monetary Fund (IMF)
Date Written January 2018
Abstract
What is the extent of currency diversification in the international monetary system How
hasit evolved over time In this paper we quantify the degree of currency diversification
usingregression methods of currency co-movements to determine the extent to which
nationalcurrencies across the world belong to a reserve currency bloc We then use these
estimates tocalculate the economic size of each currency bloc A key contribution of our paper
is that wequantify the size of the Chinese renminbi bloc Our analysis suggests that the
internationalmonetary system has transitioned from a bi-polar system - consisting of the US
dollar andthe euro - to a tri-polar one that includes the renminbi The dollar bloc is estimated
tocontinue to dominate having the largest share in global GDP (40 percent) followed by
therenminbi (30 percent) and the euro blocs (20 percent) The geographical area of influence
forthe RMB bloc appears to be most evident among the BRICS currencies The British
poundand the Japanese yen blocs appear to play minor roles
Keywords Economic integration Foreign exchange International monetary system
Currency Bloc Internatinal Monetary System International Monetary Arrangements and
Institutions Financial Aspects of Economic Integration Open Economy Macroeconomics
JEL Classification F15 F31 F33 F36 F41 O24
17 The US Gains from Trade Valuation Using the Demand for Foreign Factor Services
by Arnaud Costinot Andres Rodriguez-Clare - 24407 (ITI)
Abstract
About 8 cents out of every dollar spent in the United States is
spent on imports What if because of a wall or some other
extreme policy intervention imports were to remain on the other
side of the US border How much would US consumers be willing to
pay to prevent this hypothetical policy change from taking place
The answer to this question represents the welfare cost from
autarky or equivalently the welfare gains from trade In this
article we discuss how to evaluate these gains using the demand
for foreign factor services The estimates of gains from trade
for the US economy that we review range from 2 to 8 percent of
GDP
httppapersnberorgpapersW24407utm_campaign=ntwamputm_medium=emailamputm_source=ntw
A Dialogue between a Populist and an Economist CEPR Discussion Paper No DP12763
11 Pages Posted 6 Mar 2018
Tito Boeri Bocconi University - Department of Economics Centre for Economic Policy Research (CEPR) IZA Institute
of Labor Economics
Prachi Mishra Government of India - Reserve Bank of India
Chris Papageorgiou International Monetary Fund (IMF) - Research Department
Antonio Spilimbergo
International Monetary Fund (IMF) - Research Department Centre for Economic Policy Research (CEPR)
University of Michigan at Ann Arbor - The William Davidson Institute
Date Written February 2018
Abstract
In this imaginary dialogue a populist and an economist discuss the role of economic shocks to
explain populism A simple correlation between economic shocks and populism is weak
However economic shocks can explain well the phenomenon of populism in countries with
low pre-existent level of trust This is confirmed both at the macro cross-country level and
also by micro evidence obtained from surveys Finally this finding is consistent with the
ideational approach in political science which emphasizes how the populist narrative
opposes the corrupt elite to the virtuous people
Keywords Europe Political parties populism
JEL Classification A10 A12
International Capital Flow Pressures IMF Working Paper No 1830
59 Pages Posted 14 Mar 2018
Linda S Goldberg Federal Reserve Bank of New York National Bureau of Economic Research (NBER)
Signe Krogstrup IMF
There are 3 versions of this paper
Date Written February 2018
Abstract
This paper presents a new measure of capital flow pressures in the form of a recast
ExchangeMarket Pressure index The measure captures pressures that materialize in actual
internationalcapital flows as well as pressures that result in exchange rate adjustments The
formulation istheory-based relying on balance of payments equilibrium conditions and
international assetportfolio considerations Based on the modified exchange market pressure
index the paperalso proposes the Global Risk Response Index which reflects the country-
specific sensitivityof capital flow pressures to measures of global risk aversion For a large
sample of countriesover time we demonstrate time variation in the effects of global risk on
exchange marketpressures the evolving importance of the global factor across types of
countries and thechanging risk-on or risk-off status of currencies
Keywords Exchange Market Pressure Risk aversion Safe haven Capital flows Exchange
Rate Foreign Exchange Reserves Exchange Market Pressure Risk aversion Safe haven
Capital flows Exchange Rate Foreign Exchange Reserves Portfolio Choice General
JEL Classification F23 G11 G20 F32
Sovereign Defaults in Court CEPR Discussion Paper No DP12777
76 Pages Posted 13 Mar 2018
Julian Schumacher European Central Bank (ECB)
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Enderlein Henrik Hertie School of Governance
Date Written March 2018
Abstract
For centuries defaulting governments were immune from legal action by foreign creditors
This paper shows that this is no longer the case Building a dataset covering four decades we
find that creditor lawsuits have become an increasingly common feature of sovereign debt
markets The legal developments have strengthened the hands of creditors and raised the cost
of default for debtors We show that legal disputes in the US and the UK disrupt government
access to international capital markets as foreign courts can impose a financial embargo on
sovereigns The findings are consistent with theoretical models with creditor sanctions and
suggest that sovereign debt is becoming more enforceable We discuss how the threat of
litigation affects debt management government willingness to pay and the resolution of debt
crises
Keywords debt restructuring enforcement government financing sovereign default
JEL Classification F34 G15 H63 K22
Globalization and Income Inequality Revisited CESifo Working Paper Series No 6859
48 Pages Posted 20 Mar 2018
Florian Dorn
CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Clemens Fuest ifo Institute ndash Leibniz Institute for Economic Research at the University of Munich Ludwig-Maximilians-
University Munich Center for Economic Studies (CES)
Niklas Potrafke CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Date Written February 05 2018
Abstract
This paper re-examines the link between globalization and income inequality We use data for
140 countries over the period 1970-2014 and employ an IV approach to deal with the
endogeneity of globalization measures We find that the link between globalization and
income inequality differs across different groups of countries There is a robust positive
relationship between globalization and inequality in the transition countries including China
and most countries of Middle and Eastern Europe In the sample of the most advanced
economies neither OLS nor 2SLS results show any significant positive relationship between
globalization and inequality We conclude that institutions providing income insurance and
education which characterize most advanced economies but are less developed in transition
economies may have moderated effects of globalization on income inequality
Keywords globalization income inequality redistribution instrumental variable estimation
panel econometrics development levels transition economies China
JEL Classification D310 D630 F020 F600 C260 H110 H200
The US Gains from Trade Valuation Using the
Demand for Foreign Factor Services CEPR Discussion Paper No DP12788
34 Pages Posted 20 Mar 2018
Arnaud Costinot University of California San Diego (UCSD) - Department of Economics Massachusetts Institute of
Technology (MIT) - Department of Economics
Andres Rodriguez-Clare Inter-American Development Bank (IDB)
There are 2 versions of this paper
Date Written March 2018
Abstract
About 8 cents out of every dollar spent in the United States is spent on imports What if
because of a wall or some other extreme policy intervention imports were to remain on the
other side of the US border How much would US consumers be willing to pay to prevent this
hypothetical policy change from taking place The answer to this question represents the
welfare cost from autarky or equivalently the welfare gains from trade In this article we
discuss how to evaluate these gains using the demand for foreign factor services The
estimates of gains from trade for the US economy that we review range from 2 to 8 percent of
GDP
A Multidimensional Approach to Trade Policy
Indicators IMF Working Paper No 1832
38 Pages Posted 12 Mar 2018
Diego Cerdeiro International Monetary Fund (IMF)
Rachel Nam International Monetary Fund (IMF)
Date Written February 2018
Abstract
We present and discuss a set of indicators to help assess countries trade policies The
indicators relate to three policy areas - trade in goods trade in services and FDI Given
concerns about the direction of global trade policy we also consider a set of more granular
measures that reflect the evolution of countries policies since the 2008 financial crisis We
propose a simple approach to present the multidimensional aspects of trade policy that by
shedding light on relative openness across areas can facilitate policy discussions In the cross-
section of countries we find a diversity in the type of measures adopted both between and
(since the 2008 financial crisis) within policy areas lending support to the approach based on
multiple indicators The indicators time series suggest that advanced and especially
emerging economies are moving toward more open regimes over time although recently
progress has with some exceptions slowed across the board Lastly our findings also call for
stronger efforts to objectively quantify the different aspects of countries trade regimes More
data both across countries and in terms of policy areas that significantly affect trade are
needed for better-informed policy discussions
Keywords Foreign direct investment Trade policy indicators trade in goods services trade
trade barriers General Country and Industry Studies of Trade
JEL Classification F10 F14
Corporate Indebtedness and Low Productivity
Growth of Italian Firms IMF Working Paper No 1833
47 Pages Posted 12 Mar 2018
Gareth Anderson Bank of England
Mehdi Raissi International Monetary Fund (IMF) - Asia and Pacific Department
Date Written February 2018
Abstract
Productivity growth in Italy has been persistently anemic and has lagged that of the euro area
over the period 1999-2015 while the indebtedness of its corporate sector has increased
Using the ORBIS firm-level database this paper studies the long-term impact of persistent
corporate-debt accumulation on the productivity growth of Italian firms and investigates
whether total factor productivity growthvaries with the level of corporate indebtedness We
employ a novel estimation technique proposed by Chudik Mohaddes Pesaran and Raissi
(2017) to account for dynamics bi-directional feedback effects cross-firm heterogeneity and
cross-sectional dependence arising from unobserved common factors (for example oil price
shocks labor and product market frictions and stance of global financial cycle) Filtering out
the effects of unobserved common factors and controlling for firm specific characteristics we
find significant negative effects of persistent corporate debt build-up on total factor
productivity growth and weak evidence of a threshold level of corporate debt beyond which
productivity growth drops off significantly Our results have strong policy implications for
example the design of the tax system should discourage persistent corporate debt
accumulation and effective and timely frameworks to reduce corporate debt overhangs are
essential
Keywords Productivity Europe Italy Corporate debt dynamic heterogeneous panel
threshold models cross-sectional dependence Models with Panel Data Firm Behavior
Empirical Analysis General
JEL Classification C23 D22 D24 G30
Regulatory Cycles Revisiting the Political Economy of
Financial Crises IMF Working Paper No 188
90 Pages Posted 21 Mar 2018
Jihad C Dagher International Monetary Fund (IMF) - Research Department
There are 2 versions of this paper
Date Written January 2018
Abstract
Financial crises are traditionally analyzed as purely economic phenomena The political
economy of financial booms and busts remains both under-emphasized and limited to isolated
episodes This paper examines the political economy of financial policy during ten of the most
infamous financial booms and busts since the 18th century and presents consistent evidence
of pro-cyclical regulatory policies by governments Financial boomsand risk-taking during
these episodes were often amplified by political regulatory stimuli credit subsidies and an
increasing light-touch approach to financial supervision The regulatory backlash that ensues
from financial crises can only be understood in the context of the deep political ramifications
of these crises Post-crisis regulations do not always survive the following boom The
interplay between politics and financial policy over these cycles deserves further attention
History suggests that politics can be the undoing of macro-prudential regulations
Keywords Political economy Political economy Financial crises Financial Regulation Boom-
Bust Cycles Economic Models of Political Processes Rent-Seeking Elections Legislatures and
Voting Behavior Positive Analysis of Policy-Making and Implementation General
Government Policy and Regulation General
JEL Classification D72 D78 G10 G18 N00 P16
Rationality in Economics Theory and Evidence CESifo Working Paper Series No 6872
26 Pages Posted 21 Mar 2018
Sanjit Dhami University of Leicester - Department of Economics
Ali al-Nowaihi University of Leicester - Department of Economics
Date Written February 12 2018
Abstract
We examine the various senses in which economist use the term ldquorationalityrdquo and then outline
some of the commonly drawn implications and auxiliary assumptions Finally we confront the
implications with the empirical evidence drawing on the insights from the exciting new field
of behavioral economics
Keywords rationality self-regarding preferences efficient markets heuristics optimization
JEL Classification B400
Nudging and Environmental Corporate
Responsibility A Natural Experiment CEIS Working Paper No 426
22 Pages Posted 3 Apr 2018
Leonardo Becchetti University of Rome Tor Vergata - Faculty of Economics
Francesco Salustri University of Rome Tor Vergata - Department of Economics and Finance University of Turin - Department
of Economics and Statistics
Pasquale Scaramozzino University of Rome II - Faculty of Economics University of London - School of Oriental and African Studies
(SOAS) University of London - Centre for Financial and Management Studies (CeFIMS)
Date Written April 3 2018
Abstract
We devise a lsquonudgingrsquo natural experiment to test the impact of a simple form of advertising on
environmentally responsible products withwithout the increase of the responsible product
price We find that the simple use of a small shelf-poster explaining the importance of buying
a green product (withwithout a concurring price increase) generates significant changes in
market shares for some of the product classes for both food and non-food products Part of
the effect is generated by the reduced price elasticity of consumers to the poster-plus-price-
increase treatment
Keywords nudging environmental sustainability randomised field experiment
JEL Classification C93 D12 M14 Q56
11 The Role of Financial Policy
by Roger Farmer - 24498 (EFG ME)
Abstract
I review the contribution and influence of Milton Friedmans 1968
presidential address to the American Economic Association I
argue that Friedmans influence on the practice of central
banking was profound and that his argument in favour of monetary
rules was responsible for thirty years of low and stable
inflation in the period from 1979 through 2009 I present a
critique of Friedmans position that market-economies are
self-stabilizing and I describe an alternative reconciliation of
Keynesian economics with Walrasian general equilibrium theory
from that which is widely accepted today by most neo-classical
economists
httppapersnberorgpapersW24498utm_campaign=ntwamputm_medium=emailamputm_source=ntw
5 Immigrant Entrepreneurship in America Evidence from the Survey of Business Owners 2007 amp 2012
by Sari Pekkala Kerr William R Kerr - 24494 (LS PR)
Abstract
We study immigrant entrepreneurship and firm ownership in 2007
and 2012 using the Survey of Business Owners (SBO) The survival
and growth of immigrant-owned businesses over time relative to
native-founded companies is evaluated by linking the 2007 SBO to
the Longitudinal Business Database (LBD) We quantify the
dependency of the United States as a whole as well as individual
states on the contributions of immigrant entrepreneurs in terms
of firm formation and job creation We describe differences in
the types of businesses started by immigrants and the quality of
jobs created by their firms First-generation immigrants create
about 25 of new firms in the United States but this share
exceeds 40 in some states In addition Asian and Hispanic
second-generation immigrants start about 6 of new firms
Immigrant-owned firms on average create fewer jobs than
native-owned firms but much of this is explained by the industry
and geographic location of the firms Immigrant-owned firms pay
comparable wages conditional on firm traits to native-owned
firms but are less likely to offer benefits
httppapersnberorgpapersW24494utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Effects of Foreign Aid on Refugee Flows CESifo Working Paper Series No 6885
49 Pages Posted 9 Apr 2018
Axel Dreher University of Heidelberg
Andreas Fuchs University of Heidelberg - Alfred Weber Institute for Economics
Sarah Langlotz University of Heidelberg
There are 2 versions of this paper
Date Written February 15 2018
Abstract
This article analyzes whether foreign aid affects the net flows of refugees from recipient
countries Combining refugee data on 141 origin countries over the 1976-2013 period with
bilateral Official Development Assistance data we estimate the causal effects of a countryrsquos
aid receipts on both total refugee flows to the world and flows to donor countries The
interaction of donor-government fractionalization and a recipient countryrsquos probability of
receiving aid provides a powerful and excludable instrumental variable when we control for
country- and time-fixed effects that capture the levels of the interacted variables Although
our results suggest that aid induces recipient governments to encourage the return of their
citizens we find no evidence that aid reduces worldwide refugee outflows or flows to donor
countries in the short term However we observe long-run effects after four three-year
periods which appear to be driven by lagged positive effects of aid on growth
Keywords foreign aid Official Development Assistance migration refugees displaced
people humanitarian crises repatriation policies
JEL Classification F220 F350 F590 H840 O150 O190
The Political Economy of Ideas On Ideas Versus
Interests in Policymaking CEPR Discussion Paper No DP12820
44 Pages Posted 5 Apr 2018
Sharun Mukand University of Warwick - Department of Economics
Dani Rodrik Harvard University - Harvard Kennedy School (HKS) Centre for Economic Policy Research (CEPR)
National Bureau of Economic Research (NBER)
There are 2 versions of this paper
Date Written March 2018
Abstract
We develop a conceptual framework to highlight the role of ideas as a catalyst for policy and
institutional change We make an explicit distinction between ideas and vested interests and
show how they feed into each other In doing so the paper integrates the Keynes-Hayek
perspective on the importance of ideas with the currently more fashionable Stigler-Becker
(in-terests only) approach to political economy We distinguish between two kinds of
ideational politics acircldquo the battle among different worldviews on the efficacy of policy
(worldview politics) versus the politics of victimhood pride and identity (identity politics)
Political entrepreneurs discover identity and policy memes (narratives cues framing) that
shifts beliefs about how the world works or a persons belief of who he is (ie identity) Our
framework identifies a complementarity between worldview politics and identity politics and
illustrates how they may reinforce each other In particular an increase in identity
polarization may be associated with a shift in views about how the world works Furthermore
an increase in income inequality is likely to result in a greater incidence of ideational politics
Finally we show how ideas may not just constrain but also bite the interests that helped
propagate them in the first instance
Should Unemployment Insurance Be Centralized in a
State Union CESifo Working Paper Series No 6898
27 Pages Posted 19 Apr 2018
Robert Fenge University of Rostock - Department of Economics
Max Friese University of Rostock
Date Written February 21 2018
Abstract
This paper compares the decentral organization of unemployment insurance in member
states of a state union with the central organization at the upper unionrsquo level In a model of
two countries the labor force and the firm owners can migrate between the states Labor
markets exhibit unemployment due to trade unionrsquos bargaining about the wage rate In a
decentral scenario the states organize independently unemployment insurance and decide
about the rate on wages contributed to the insurance budget Due to open borders they have
to take account of migration effects However with perfect mobility between the states each
government chooses a socially optimal contribution rate such that workers are fully insured
against unemployment In the central scenario the governments overestimate the costs of
insurance when bargaining about the contribution rate and observing the common insurance
budget of both countries This leads to a less than socially optimal contribution rate
Keywords unemployment insurance policy state union centralization migration
externalities
JEL Classification F660 H770 J650
Paris Climate Agreement and the Global Economy
Winners and Losers World Bank Policy Research Working Paper No 8392
Posted 3 Apr 2018
Muthukumara Mani World Bank
Zekarias Hussein Purdue University
G Badri Narayanan Purdue University - Center for Global Trade Analysis
Deepika Wadhwa India Habitat Centre - Indian Council for Research on International Economic Relations (ICRIER)
Date Written April 2 2018
Abstract
The 2015 Paris Climate Agreement was the first instance of countries adhering to take a
collective action against global warming More than 190 countries came forward and
submitted their contributions in the form of Intended Nationally Determined Contributions
reflective of their ability and capacity to reduce greenhouse gas emissions as each country set
its own targets and actions For some countries it meant a significant decline in their
emissions by 2030 while others like China the United States and India decided on a more
gradual phasing out extending beyond 2030 This paper estimates the economic impacts of
implementation of the Paris Climate Agreement in terms of its implications for welfare gross
domestic product investments and trade for major countries and regions It uses a
computable general equilibrium framework to model global regional and country impacts
The analysis suggests that the economic impacts will be mostly felt in the European Union if
the Paris Agreement is fully implemented The European Union is likely to suffer a welfare
loss of 10 to 15 percent by 2030 Among non-European countries Australia New Zealand
and Mexico will also be affected with an expected welfare loss of about 15 percent Some of
the major emitters such as China and India will experience minimal impacts to their welfare
and the United States will experience a welfare loss of only about 07 by 2030 The sectoral
analysis of production and trade suggests a significant loss to fossil fuelbased sectors while
clean energy sectors can experience significant gains
Keywords International Trade and Trade Rules Energy and Mining Energy and
Environment Energy Demand Global Environment Energy Policies amp Economics Science of
Climate Change Climate Change and Environment Climate Change and Health
Immigrants Residential Choices and Their
Consequences CEPR Discussion Paper No DP12842
59 Pages Posted 12 Apr 2018
Christoph Albert Universitat Pompeu Fabra Students
Joan Monras Sciences Po - Department of Economics Centre for Monetary and Financial Studies (CEMFI)
There are 2 versions of this paper
Date Written April 2018
Abstract
This paper investigates the causes and effects of the spatial distribution of immigrants across
US cities We document that a) immigrants concentrate in large high-wage expensive cities
b) the earnings gap between immigrants and natives is higher in larger more expensive cities
and c) immigrants consume less locally than natives In order to explain these findings we
develop a quantitative spatial equilibrium model in which immigrants consume a fraction of
their income in their countries of origin Thus immigrants care not only about local prices but
also about price levels in their home countries This gives them a comparative advantage
relative to natives for living in high-wage high-price high-productivity cities where they also
accept lower wages than natives These incentives are stronger for immigrants coming from
lower-price index countries of origin We rely on immigrant heterogeneity to estimate the
model With the estimated model we show that current levels of immigration have reduced
economic activity in smaller less productive cities by around 5 percent while they have
expanded it in large productive cities by around 6 percent This has increased total aggregate
output per worker by around 03 percent We also discuss the welfare implications of these
results
Keywords Immigration location choices spatial equilibrium
JEL Classification F22 J31 J61 R11
The Cost of Non-Europe Revisited CEPR Discussion Paper No DP12844
48 Pages Posted 12 Apr 2018
Thierry Mayer Sciences Po
Vincent Vicard Banque de France
Soledad Zignago Banque de France
There are 2 versions of this paper
Date Written April 2018
Abstract
In this paper we quantify the Cost of Non-Europe ie the trade-related welfare gains each
country member has reaped from the European Union Thirty years after the terminology of
Non-Europe was used to give estimates of the gains from further integration we use modern
versions of the gravity model to estimate the trade creation implied by the EU and apply
those to counterfactual exercises where for instance the EU returns to a normal shallow-
type regional agreement or reverts to WTO rules Those scenarios are envisioned with or
without the exit of the United Kingdom from the EU (Brexit) happening which points to
interesting cross-country differences and potential cascade effects in doing and undoing of
trade agreements
Keywords European Union Gravity trade integration
JEL Classification F1
The Political Impact of Immigration Evidence from
the United States CEPR Discussion Paper No DP12848
57 Pages Posted 12 Apr 2018
Anna Maria Mayda
Georgetown University - Department of Economics IZA Institute of Labor Economics
Giovanni Peri University of California Davis - Department of Economics
Walter Steingress Government of Canada - Bank of Canada
Date Written April 2018
Abstract
In this paper we study the impact of immigration to the United States on the vote for the
Republican Party by analyzing county-level data on election outcomes between 1990 and
2010 Our main contribution is to separate the effect of high-skilled and low-skilled
immigrants by exploiting the different geography and timing of the inflows of these two
groups of immigrants We find that an increase in the first type of immigrants decreases the
share of the Republican vote while an inflow of the second type increases it These effects are
mainly due to the local impact of immigrants on votes of US citizens and they seem
independent of the country of origin of immigrants We also find that the pro-Republican
impact of low-skilled immigrants is stronger in low-skilled and non-urban counties This is
consistent with citizens political preferences shifting towards the Republican Party in places
where low-skilled immigrants are more likely to be perceived as competition in the labor
market and for public resources
Keywords Economic and Fiscal Channels Electoral Effects Immigration Republican Party
JEL Classification F22 J61
15 Escaping Import Competition and Downstream Tariffs
by Ana Cecilia Fieler Ann Harrison - 24527 (EEE ITI)
Abstract
We propose and provide evidence for a new source of gains from
trade Firms invest in product differentiation to escape import
competition In the data and in the model these investments are
associated with increases in measured productivity introduction
of new goods and shifts to skill-intensive sectors Investment
in differentiation downstream leads upstream firms to also
invest in differentiation For China these downstream tariff
reductions lead to big increases in measured productivity for
upstream suppliers The effect on measured productivity is
larger for upstream than for downstream firms and we explain
this difference theoretically through heterogeneous changes in
markups
httppapersnberorgpapersW24527utm_campaign=ntwamputm_medium=emailamputm_source=ntw
20 The Production of Cognitive and Non-cognitive Human Capital in the Global Economy
by Chong Xiang Stephen Yeaple - 24524 (ITI)
Abstract
A countrys welfare depends on its ability to accumulate
cognitive and noncognitive human capital However we do not
fully understand what makes some countries successful at
producing human capital and even struggle with measurement eg
international test scores are informative about the cognitive
dimension but neglect the non-cognitive dimension In this
paper we develop a multi-country open-economy
general-equilibrium framework in which countries ability to turn
resources into human capital along the cognitive and
non-cognitive dimensions is revealed by the endogenous
educational and occupational choices of its citizens and their
subsequent performance on international exams Our model allows
us to estimate countries underlying productivities of cognitive
and non-cognitive human capital We find that high test scores
do not necessarily imply high cognitive productivities (eg
Switzerland Hong Kong) and that many countries with low test
scores have high non-cognitive productivities (eg the US and
UK)
We then aggregate over these two dimensions to construct a single
educational quality index and illustrate its intuition using an
iso-education-quality curve We use our model to decompose
variation in output per capita across countries into a component
involving the educational quality index and another involving
output TFP This exact decomposition shows that the differences
in cognitive and noncognitive productivities across countries
have large implications for differences in output per worker
These results help quantify the potential payoffs of education
policies and clarify their objective eg excessive attention
to test scores may decrease aggregate output
International trade plays an important role in our model because
the gains from trade help to compensate a country for uneven
productivity across human capital types In counterfactual
exercises we show that if barriers to trade are completely
eliminated we would obtain a very different
iso-education-quality curve This implies large improvements of
overall education quality and large gains from trade for the
countries with strong comparative advantages in producing
cognitive (eg S Korea would gain 301 to 441 of its
output) or non-cognitive human capital (eg the Netherlands
would gain 188 to 556)
httppapersnberorgpapersW24524utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Il Contributo Della Demografia Alla Crescita
Economica Duecento Anni Di ldquoStoriardquo Italiana (The
Contribution of Demography to Italys Economic
Growth A Two-Hundred-Year-Long Story) Bank of Italy Occasional Paper No 431
37 Pages Posted 20 Apr 2018
Federico Barbiellini Amidei Bank of Italy
Matteo Gomellini Bank of Italy
Paolo Piselli Bank of Italy
Date Written March 28 2018
Abstract
Italian Abstract Questo lavoro esamina il contributo della demografia alla crescita
economica confrontando lrsquoItalia del passato quella di oggi e quella che vivremo in futuro
Attraverso una scomposizione contabile della crescita del PIL e del PIL pro capite si mostra
come le modifiche nella struttura per etagrave della popolazione abbiano prodotto nel passato piugrave
lontano un demographic dividend positivo Al contrario negli ultimi venticinque anni e con
ogni probabilitagrave nel futuro la demografia ha dato e daragrave un contributo diretto sensibilmente
negativo alla crescita economica I flussi migratori previsti limiteranno lrsquoampiezza di tale
contributo negativo ma non saranno in grado di invertirne il segno Nel lavoro si valutano tre
sviluppi potenzialmente indotti dagli stessi fattori demografici o da azioni di policy ndash
lrsquoestensione della vita lavorativa lrsquoaumento della partecipazione femminile al mercato del
lavoro e lrsquoincremento nei livelli di istruzione ndash che potranno contrastare i puri effetti contabili
legati allrsquoevoluzione nella struttura per etagrave
English Abstract This paper examines the contribution of demography to economic growth
in Italy by comparing the countryrsquos past present and future We use an accounting framework
to decompose GDP and per capita GDP growth and we show how changes in the age structure
of the population produced a positive demographic dividend in the past By contrast in the
last twenty-five years and arguably in the future demography has made and will continue to
make a direct negative contribution to economic growth Expected migration flows will
noticeably limit the extent of this negative contribution but they will not be able to reverse its
sign We analyze three possible developments potentially driven by demography itself or
fostered by policy actions ndash longer working lives an increase in female labour market
participation and higher education levels ndash which could counteract the pure negative
accounting effects produced by the evolution of the age structure
Note Downloadable document is in Italian
Keywords economic history demography demographic dividend forecasts
JEL Classification J11 N30
The Effects of Cash Transfers on Adult Labor Market
Outcomes World Bank Policy Research Working Paper No 8404
29 Pages Posted 16 Apr 2018
Sarah Baird George Washington University - School of Public Health and Health Services (SPHHS)
David J McKenzie World Bank - Development Research Group (DECRG) IZA Institute of Labor Economics
Berk Ozler World Bank - Development Economics Research Group (DECRG)
Date Written April 12 2018
Abstract
The basic economic model of labor supply has a very clear prediction of what should be
expected when an adult receives an unexpected cash windfall they should work less and earn
less This intuition underlies concerns that many types of cash transfers ranging from
government benefits to migrant remittances will undermine work ethics and make recipients
lazy This paper discusses a range of additional channels to this simple labor-leisure trade-off
that can make this intuition misleading in low- and middle-income countries including
missing markets price effects from conditions attached to transfers and dynamic and general
equilibrium effects The paper uses this as a lens through which to examine the evidence on
the adult labor market impacts of a wide range of cash transfer programs government
transfers charitable giving and humanitarian transfers remittances cash assistance for job
search cash transfers for business start-up and bundled interventions Overall cash transfers
that are made without an explicit employment focus (such as conditional and unconditional
cash transfers and remittances) tend to result in little to no change in adult labor The main
exceptions are transfers to the elderly and some refugees who reduce work In contrast
transfers made for job search assistance or business start-up tend to increase adult labor
supply and earnings with the likely main channels being the alleviation of liquidity and risk
constraints
Keywords Economic Assistance Disability Services amp Transfers to Poor Access of Poor to
Social Services Employment and Unemployment Labor Markets Rural Labor Markets Health
Care Services Industry
Globalisation and Urban Polarisation CEPR Discussion Paper No DP12877
24 Pages Posted 23 Apr 2018
Anthony J Venables University of Oxford Centre for Economic Policy Research (CEPR)
Date Written April 2018
Abstract
External trade affects the internal spatial structure of an economy promoting growth in some
cities or regions and decline in others Internal adjustment to these changes has often proved
to be extremely slow and painful This paper combines elements of urban and international
economics to draw out the implications of trade shocks for city performance Localisation
economies in production of internationally tradable goods mean that cities divide into two
types those producing tradables and those specialising in sectors producing just for the
national market (non-tradables) Negative trade shocks (and possibly also some positive
ones) reduce the number of cities engaged in tradable production increasing the number
producing just non-tradables This has a negative effect across all non-tradable cities which
lose population and land value Remaining tradable cities boom gaining population and land
value Depending on the initial position city size dispersion may increase this raising the
share of urban land-rents in national income and reducing the share of labour
Keywords de-industrialisation globalisation Polarisation urban
JEL Classification F12 R11 R12
Place-Based Policies for Development World Bank Policy Research Working Paper No 8410
75 Pages Posted 24 Apr 2018
Gilles Duranton University of Pennsylvania - Real Estate Department
Anthony J Venables University of Oxford Centre for Economic Policy Research (CEPR)
There are 3 versions of this paper
Date Written April 17 2018
Abstract
Many development policies such as placement of infrastructure or local economic
development schemes are place-based Such policies are generally intended to stimulate
private sector investment and economic growth in the treated place and as such they are
difficult to appraise and evaluate This paper sets out a framework for analyzing the effects of
such policies and assessing their social value It then reviews the literature on place-based
policies in the contexts of transport improvements economic corridors special economic
zones lagging regions and urban policies
Keywords Transport Services Labor Markets Urban Governance and Management Urban
Housing and Land Settlements Municipal Management and Reform Urban Housing
Macroeconomic Management Economic Forecasting Governance Diagnostic Capacity
Building Textiles Apparel amp Leather Industry Common Carriers Industry Food amp Beverage
Industry Business Cycles and Stabilization Policies Plastics amp Rubber Industry General
Manufacturing Construction Industry Pulp amp Paper Industry
Evidence on Finance and Economic Growth ECB Working Paper No 2115 ISBN 978-92-899-3031-4
79 Pages Posted 8 Dec 2017
Alexander A Popov European Central Bank (ECB)
Date Written December 6 2017
Abstract
This paper reviews and appraises the body of empirical research on the association between
financial markets and economic growth that has accumulated over the past quarter-century
The bulk of the historical evidence suggests that financial development affects economic
growth in a positive monotonic way yet recent research endeavors have provided useful and
important qualifications of this conventional wisdom Moreover the proliferation of micro-
level datasets has enabled researchers to study more precise links between theory and
measurement The paper highlights the mechanisms through which financial markets benefit
society as well as the channels through which finance can slow down long-term growth
Keywords financial markets growth
JEL Classification O4 G1
Why Has Economic Growth Slowed When Innovation Appears to be Accelerating
by Robert J Gordon - 24554 (DAE EFG PR)
Abstract
Measured between quarters with identical unemployment rates U
S economic growth slowed by more than half from 32 percent per
year during 1970-2006 to only 14 percent during 2006-16 and
only half of this GDP growth slowdown is accounted for diminished
productivity growth The paper starts from the proposition that
GDP growth matters not just productivity growth because slower
GDP growth provides fewer resources to address the nations
problems including faltering education aging infrastructure
and the looming shortfall in funding for Social Security and
Medicare and it also implies lower net investment and a reduced
rate at which new capital can embody the latest technology
The paper documents the contribution to slower GDP growth of the
separate components of demography -- fertility mortality life
expectancy and immigration Particular emphasis is placed on
the interaction between rising inequality and the slower secular
rise of life expectancy in the US compared to other developed
countries both in the form of a large gap in life expectancy
between rich and poor and the stagnation of life expectancy for
the lowest income quintile Further contributions to slowing
growth are made by a decline in the population share of both
legal and illegal immigration and a turnaround from rising to
declining labor force participation Rising inequality creates a
gap between the growth of average real per-capita income relative
to that of median real income and alternative measures of the
evolution of this gap are compared and assessed
Causes of declining productivity growth begin with the slowdown
in the rate of increase of educational attainment resulting from
the interplay of demand and supply factors including the
flattening of the college wage premium and the rising relative
price of college education Why did productivity growth decline
after 2006 despite an increase in the rate at which new US
patents were issued in 2006-16 compared to earlier decades Part
of the slowdown is attributed to the maturity of the IT
revolution which also helps to explain the trajectory of the
college wage premium Aspects of the productivity growth
slowdown include the declining productivity of research workers
diminishing returns to drug innovation and the evolutionary
rather than revolutionary impact of robots and artificial
intelligence which are replacing workers slowly and only in a
minority of industrial sectors throughout the economy Also
considered are alternative explanations of slower productivity
growth including low investment and mismeasurement
httppapersnberorgpapersW24554utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Childbearing Postponement its Option Value and the
Biological Clock CEPR Discussion Paper No DP12884
48 Pages Posted 23 Apr 2018
David de la Croix Catholic University of Louvain (UCL) - Institut de Recherches Economiques et Sociales (IRES) Catholic
University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)
Aude Pommeret Universiteacute de Savoie
Date Written April 2018
Abstract
Having children is like investing in a risky project Postponing birth is like delaying an
irreversible investment It has an option value which depends on its costs and benefits and in
particular on the additional risks motherhood brings We develop a parsimonious theory of
childbearing postponement along these lines We derive its implications for asset
accumulation income optimal age at first birth and childlessness The structural parameters
are estimated by matching the predictions of the model to data from the National Longitudinal
Survey of Youth NLSY79 The uncertainty surrounding income growth is shown to increase
with childbearing and this increase is stronger for more educated people This effect alone
can explain why the age at first birth and the childlessness rate both increase with education
We use the model to simulate two hypothetical policies Providing free medically assisted
reproduction technology does not affect the age at first birth much but lowers the
childlessness rate Insuring mothers against income risk is powerful in lowering the age at
first birth
Keywords Assisted reproduction technology Career uncertainty Late parenthood Real
option
JEL Classification D91 J13
Economic Upgrading Through Global Value Chain
Participation Which Policies Increase the Value
Added Gains World Bank Policy Research Working Paper No 8007
45 Pages Posted 1 May 2018
Victor Kummritz World Trade Organization (WTO) Graduate Institute of International and Development Studies (IHEID)
Daria Taglioni European Central Bank (ECB) - Directorate General Economics
Deborah E Winkler World Bank
Date Written March 16 2017
Abstract
The emergence of global value chains has opened up new ways to achieve development and
industrialization However new evidence shows that not all countries have gained from
participating in global value chains and that country-specific characteristics matter for
economic upgrading in global value chains This paper uses two panel data sets of developing
and industrialized countries at the sectoral level to relate global value chain participation as a
buyer and seller to domestic value added These are combined with a wide range of policy
measures at the country level that can play a role in economic upgrading through global value
chains by targeting global value chain integration or the quality and conditions of input and
output factors First the study finds that global value chain integration increases domestic
value added especially on the selling side which holds across all income levels Second the
results highlight the importance of policy for economic upgrading through global value chain
integration Although the study cannot claim causal evidence all the assessed policy areas are
consistently shown to mediate the effects of global value chains and magnify the gains for
domestic value added Third a detailed analysis shows that several policy areas mediate the
gains from global value chains more through integration as a seller Finally the study
observes that many of the results are driven by high- and upper-middle-income countries
Keywords International Trade and Trade Rules Labor Markets Rural Labor Markets Food amp
Beverage Industry Construction Industry Business Cycles and Stabilization Policies General
Manufacturing Common Carriers Industry Textiles Apparel amp Leather Industry Pulp amp Paper
Industry Plastics amp Rubber Industry Global Environment
Job Vacancies and Immigration Evidence from Pre- and Post-Mariel Miami
by Jason Anastasopoulos George J Borjas Gavin G Cook Michael Lachanski - 24580 (LS)
Abstract
How does immigration affect labor market opportunities in a
receiving country This paper contributes to the voluminous
literature by reporting findings from a new (but very old) data
set Beginning in 1951 the Conference Board constructed a
monthly job vacancy index by counting the number of help-wanted
ads published in local newspapers in 51 metropolitan areas We
use the Help-Wanted Index (HWI) to document how immigration
changes the number of job vacancies in the affected labor
markets Our analysis begins by revisiting the Mariel episode
The data reveal a marked decrease in Miamis HWI relative to many
alternative control groups in the first 4 or 5 years after
Mariel followed by recovery afterwards We find a similar
initial decline in the number of job vacancies after two other
supply shocks that hit Miami over the past few decades the
initial wave of Cuban refugees in the early 1960s as well as the
1995 refugees who were initially detoured to Guantanamo Bay We
also look beyond Miami and estimate the generic spatial
correlations that dominate the literature correlating changes in
the HWI with immigration across metropolitan areas These
correlations consistently indicate that more immigration is
associated with fewer job vacancies The trends in the HWI seem
to most strongly reflect changing labor market conditions for
low-skill workers (in terms of both wages and employment) and a
companion textual analysis of help-wanted ads in Miami before and
after the Mariel supply shock suggests a slight decline in the
relative number of low-skill job vacancies
httppapersnberorgpapersW24580utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Somatic Distance Cultural Affinities Trust and Trade CEPR Discussion Paper No DP12895
21 Pages Posted 1 May 2018
Jacques Melitz National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and
Statistics (CREST) Centre for Economic Policy Research (CEPR)
Farid Toubal Ecole Normale Superieure de Cachan (ENS) - Departement of Economics ans Management National
Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics
(CREST) Centre dEtudes Prospectives et dInfo Internationales (CEPII)
Date Written April 2018
Abstract
Somatic distance or differences in physical appearance proves to be extremely important in
the gravity model of bilateral trade in conformity with results in other areas of economics and
outside of it in the social sciences This is also true quite independently of survey evidence
about bilateral trust These findings are obtained in a sample of the 15 members of the
European Economic Association in 1996 Robustness tests also show that somatic distance
has a more reliable influence on bilateral trade than the other cultural variables The article
finally discusses the interpretation and the breadth of application of these results
Keywords Bilateral Trade Cultural interactions Language Somatic distance Trust
The Paradox of Global Thrift CEPR Discussion Paper No DP12894
59 Pages Posted 1 May 2018
Luca Fornaro Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) Barcelona Graduate
School of Economics (Barcelona GSE)
Federica Romei LUISS Guido Carli University
Date Written April 2018
Abstract
This paper describes a paradox of global thrift Consider a world in which interest rates are
low and monetary policy cannot stabilize the economy because it is frequently constrained by
the zero lower bound Now imagine that governments complement monetary policy with
prudential financial and fiscal policies because they perceive that limiting private and public
borrowing during booms will help stabilize the economy by reducing the risk of financial
crises and by creating space for fiscal interventions during busts We show that these policies
while effective from the perspective of individual countries might backfire if applied on a
global scale In a financially integrated world in fact prudential policies generate a rise in the
global supply of savings or equivalently a drop in global aggregate demand In turn weaker
global aggregate demand depresses output in countries whose monetary policy is constrained
by the zero lower bound Due to this effect the world might paradoxically experience a fall in
output and welfare following the implementation of well-intended prudential policies
Keywords aggregate demand externalities Capital Flows current account policies fiscal
policies international cooperation Liquidity traps macroprudential policies zero lower
bound
JEL Classification E32 E44 E52 F41 F42
Multihorizon Currency Returns and Purchasing
Power Parity CEPR Discussion Paper No DP12893
59 Pages Posted 1 May 2018
Mikhail Chernov UCLA Anderson
Drew Creal University of Chicago - Booth School of Business - Econometrics and Statistics
There are 2 versions of this paper
Date Written April 2018
Abstract
Exposures of expected future depreciation rates to the current interest rate differential
violate the UIP hypothesis in a distinctive pattern that is a non-monotonic function of horizon
Conversely forward risk-adjusted expected depreciation rates are monotonic We explain the
two patterns by incorporating the weak form of PPP into a no-arbitrage joint model of the
depreciation rate inflation differential domestic and foreign yield curves Short-term
departures from PPP generate the first pattern The risk premiums for these departures
generate the second pattern
Keywords affine term structure model cointegration multiple horizons purchasing power
parity uncovered interest parity
Networks and Trade CEPR Discussion Paper No DP12891
33 Pages Posted 1 May 2018
Andrew B Bernard Tuck School of Business at Dartmouth National Bureau of Economic Research (NBER) Centre for
Economic Policy Research (CEPR)
Andreas Moxnes University of Oslo - Department of Economics Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
There are 2 versions of this paper
Date Written April 2018
Abstract
Trade occurs between firms both across borders and within countries and the vast majority
of trade transactions includes at least one large firm with many trading partners This paper
reviews the literature on firm-to-firm connections in trade A growing body of evidence
coming from domestic and international transaction data has established empirical
regularities which have inspired the development of new theories emphasizing firm
heterogeneity among both buyers and suppliers in production networks Theoretical work
has considered both static and dynamic matching environments in a framework of many-to-
many matching The literature on trade and production networks is at an early stage and
there are a large number of unanswered empirical and theoretical questions
Keywords International Trade offshoring production networks productivity
JEL Classification F10 F12 F14 L11 L21
One More Time What are Institutions and How Do
They Change World Bank Policy Research Working Paper No 8422
39 Pages Posted 1 May 2018 Last revised 3 May 2018
Roumeen Islam World Bank
Date Written April 30 2018
Abstract
This paper defines institutions presents their basic characteristics and discusses forces for
institutional change It draws on a wealth of research and study by scholars in different fields
and follows from the flagship 2002 World Development Report on this topic including
relevant new research since then that illuminates key issues The definition of institutions
includes rules and organizations (specifically rules guiding peoples actions) The paper
emphasizes the diversity of institutions that can effectively perform similar functions the
arguments for and against standardization of institutions across specific transactions or
groups and the implications of these choices It highlights the relationship between informal
and formal institutions It discusses forces for institutional change influencing all economies
ranging from external shocks (whether they be economic or weather-related shocks or driven
by wars) to internal dynamics such as those following population growth or compositional
changes and those following technological innovations Many of these forces have a two-way
relationship with institutions they are affected by them and in turn influence whether and
when they change A special section is devoted to institutional transplants and their
effectiveness The paper concludes with a discussion of whether and under what conditions
institutional change can be externally directed and the lessons for aid donors
Keywords International Trade and Trade Rules Social Policy Common Property Resource
Development Legal Products Regulatory Regimes Legislation Legal Reform Judicial System
Reform Public Sector Economics Taxation amp Subsidies Public Finance Decentralization and
Poverty Reduction Economic Adjustment and Lending Macro-Fiscal Policy Educational
Sciences Competitiveness and Competition Policy
Globalization Government Popularity and the Great
Skill Divide
CEPR Discussion Paper No DP12897
56 Pages Posted 1 May 2018
Cevat Giray Aksoy European Bank for Reconstruction and Development IZA Institute of Labor Economics
Sergei M Guriev Sciences Po Centre for Economic Policy Research (CEPR) European Bank for Reconstruction and
Development (EBRD)
Daniel Treisman University of California Los Angeles (UCLA) - Department of Political Science
There are 2 versions of this paper
Date Written April 2018
Abstract
How does international trade affect the popularity of governments and leaders We provide
the first large-scale systematic evidence that the divide between skilled and unskilled
workers worldwide is producing corresponding differences in the response of political
preferences to trade shocks Using a unique data set including 118 countries and nearly
450000 individuals we find that growth in high skill intensive exports (of goods and
services) increases approval of the leader and incumbent government among skilled
individuals Growth in high skill intensive imports has the opposite effect There is no effect
on political approval among the unskilled To identify exogenous variation in international
trade we exploit the time-varying effects of air and sea distances in bilateral trade flows Our
findings suggest that the political effects of international trade differ with skill intensity and
that skilled individuals respond differently from their unskilled counterparts to trade shocks
Keywords International trade political approval political polarization skill intensity of
trade
Migratory Pressures in the Long Run International
Migration Projections to 2050 Banco de Espana Article 3817
9 Pages Posted 3 Jan 2018
Rodolfo G Campos Banco de Espantildea
Date Written December 5 2017
Abstract
This article presents bilateral international migration projections to 2050 based on a new
methodology that takes into account the population growth both in countries of origin and
countries of destination To do this the methodology used by Hanson and McIntosh (2016) to
project the future migratory flows to a sample of OECD countries is generalised to all
countries worldwide The United Nations population growth forecasts are used as a basis for
projecting future migratory flows The main findings of the exercise indicate that the number
of migrants is projected to increase from 28 of the world population in 2010 to around
35 in 2050 as a result of the strong increase in migrants from India and sub-Saharan Africa
Against this background and despite the slowdown in demographic growth in Latin America
the United States is expected to continue to receive high net immigration flows and to remain
the country with the highest stock of immigrants globally while continental Europe will post
larger net immigration flows
Immigration and Electoral Support for the Far-Left
and the Far-Right CESifo Working Paper Series No 6918
53 Pages Posted 7 May 2018
Anthony Edo Paris School of Economics (PSE)
Yvonne Giesing CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Jonathan Oumlztunc Barcelona Graduate School of Economics (Barcelona GSE)
Panu Poutvaara Ludwig Maximilian University of Munich - Faculty of Economics CESifo (Center for Economic Studies and
Ifo Institute) - Ifo Institute CESifo (Center for Economic Studies and Ifo Institute) CReAM IZA Institute of
Labor Economics
Date Written March 05 2018
Abstract
Immigration has become one of the most divisive political issues in the United States the
United Kingdom France and several other Western countries We estimate the impact of
immigration on voting for far-left and far-right candidates in France using panel data on
presidential elections from 1988 to 2017 To derive causal estimates we instrument more
recent immigration flows by past settlement patterns in 1968 We find that immigration
increases support for far-right candidates and has no robust effect on far-left voting The
increased support for far-right candidates is driven by low educated immigrants from non-
Western countries
Keywords voting immigration political economy
JEL Classification D720 F220 J150 P160
Institutions Trade and Development A Quantitative
Analysis CESifo Working Paper Series No 6920
64 Pages Posted 7 May 2018
Cosimo Beverelli World Trade Organization (WTO)
Alexander Keck World Trade Organization (WTO)
Mario Larch University of Bayreuth - Faculty of Law Business and Economics University of Bayreuth CESifo Ifo
Institute for Economic Research GEP at the University of Nottingham
Yoto Yotov Drexel University - Department of Economics amp International Business
Date Written March 05 2018
Abstract
We propose and apply methods to quantify the impact of national institutions on international
trade and development We are able to identify the direct impact of country-specific
institutions on international trade within the structural gravity framework Our approach
naturally addresses the prominent issue of endogenous institutions The empirical analysis
offers robust evidence that stronger institutions promote trade A counterfactual analysis
reveals that the changes in institutional quality in the poor countries in our sample between
1996 and 2006 have had via their impact on imports from rich countries significant and
heterogeneous real GDP effects varying between -5 and 5 percent Our methods are readily
applicable to identifying the impact of a wide range of country-specific variables on
international trade
Keywords institutional quality international trade development structural gravity
JEL Classification F130 F140 F160
5 Inference in Structural Vector Autoregressions When the Identifying Assumptions are Not Fully Believed Re-
evaluating the Role of Monetary Policy in Economic Fluctuations
by Christiane Baumeister James D Hamilton - 24597 (EFG ME)
Abstract
Reporting point estimates and error bands for structural vector
autoregressions that are only set identified is a very common
practice However unless the researcher is persuaded on the
basis of prior information that some parameter values are more
plausible than others this common practice has no formal
justification When the role and reliability of prior
information is defended Bayesian posterior probabilities can be
used to form an inference that incorporates doubts about the
identifying assumptions We illustrate how prior information can
be used about both structural coefficients and the impacts of
shocks and propose a new distribution which we call the
asymmetric t distribution for incorporating prior beliefs about
the signs of equilibrium impacts in a nondogmatic way We apply
these methods to a three-variable macroeconomic model and
conclude that monetary policy shocks were not the major driver of
output inflation or interest rates during the Great Moderation
httppapersnberorgpapersW24597utm_campaign=ntwamputm_medium=emailamputm_source=ntw
11 The Political Impact of Immigration Evidence from the United States
by Anna Maria Mayda Giovanni Peri Walter Steingress - 24510 (ITI POL)
Abstract
In this paper we study the impact of immigration to the United
States on the vote for the Republican Party by analyzing
county-level data on election outcomes between 1990 and 2010
Our main contribution is to separate the effect of high-skilled
and low-skilled immigrants by exploiting the different geography
and timing of the inflows of these two groups of immigrants We
find that an increase in the first type of immigrants decreases
the share of the Republican vote while an inflow of the second
type increases it These effects are mainly due to the local
impact of immigrants on votes of US citizens and they seem
independent of the country of origin of immigrants We also find
that the pro-Republican impact of low-skilled immigrants is
stronger in low-skilled and non-urban counties This is
consistent with citizens political preferences shifting towards
the Republican Party in places where low-skilled immigrants are
more likely to be perceived as competition in the labor market
and for public resources
httppapersnberorgpapersW24510utm_campaign=ntwamputm_medium=emailamputm_source=ntw
23 The Impact of Exports on Innovation Theory and Evidence
by Philippe Aghion Antonin Bergeaud Matthieu Lequien Marc J Melitz - 24600 (EFG ITI)
Abstract
This paper investigates the effect of export shocks on
innovation On the one hand a positive shock increases market
size and therefore innovation incentives for all firms On the
other hand it increases competition as more firms enter the
export market This in turn reduces profits and therefore
innovation incentives particularly for firms with low
productivity Overall the positive impact of the export shock on
innovation is magnified for high productivity firms whereas it
may negatively affect innovation in low productivity firms We
test this prediction with patent customs and production data
covering all French manufacturing firms To address potential
endogeneity issues we construct firm-level export proxies which
respond to aggregate conditions in a firms export destinations
but are exogenous to firm-level decisions We show that
patenting robustly increases more with export demand for
initially more productive firms This effect is reversed for the
least productive firms as the negative competition effect
dominates
httppapersnberorgpapersW24600utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Sovereign Defaults in Court CESifo Working Paper Series No 6931
75 Pages Posted 8 May 2018
Julian Schumacher European Central Bank (ECB)
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Enderlein Henrik Hertie School of Governance
There are 3 versions of this paper
Date Written March 08 2018
Abstract
For centuries defaulting governments were immune from legal action by foreign creditors
This paper shows that this is no longer the case Building a dataset covering four decades we
find that creditor lawsuits have become an increasingly common feature of sovereign debt
markets The legal developments have strengthened the hands of creditors and raised the cost
of default for debtors We show that legal disputes in the US and the UK disrupt government
access to international capital markets as foreign courts can impose a financial embargo on
sovereigns The findings are consistent with theoretical models with creditor sanctions and
suggest that sovereign debt is becoming more enforceable We discuss how the threat of
litigation affects debt management government willingness to pay and the resolution of debt
crises
Keywords sovereign default enforcement government financing debt restructuring
JEL Classification F340 G150 H630 K220
ECB Monetary Policy and the Euro Exchange Rate Bank of Italy Temi di Discussione (Working Paper) No 1172
54 Pages Posted 14 May 2018
Martina Cecioni Bank of Italy
Date Written May 3 2018
Abstract
The paper provides empirical evidence on the effects of ECB conventional and unconventional
monetary policy on the euro exchange rate focusing on the period from January 2013 to
September 2017 Innovations to conventional and unconventional monetary policies are
identified through changes in respectively short- and long-term interest rates immediately
after Governing Council meetings Both types of measures contributed to the depreciation of
the euro from mid-2014 surprises associated with conventional measures had a stronger and
more persistent effect than those associated with unconventional ones Time-varying
estimates of the effects of conventional surprises since 1999 show that the responsiveness of
exchange rates to monetary news increased markedly from 2013 State-dependence analysis
finds that the exchange rate became more sensitive to monetary policy when the ECB adopted
a policy of negative interest rates and when conventional and unconventional monetary
surprises moved in the same direction
Keywords unconventional monetary policy exchange rates European Central Bank
JEL Classification E52 E58 F31
The ECBs Fiscal Policy
by Hans-Werner Sinn - 24613 (ME)
Abstract
While the ECB helped mitigate the euro crisis in the aftermath of
Lehman it has stretched its monetary mandate and moved into
fiscal territory This text describes and summarizes the crucial
role played by the ECB in the intervention spiral resulting from
its bid to manage the crisis It also outlines ongoing
competitiveness problems in southern Europe discusses the
so-called austerity policy of the Troika comments on QE and
presents two alternative paths for the future development of
Europe
httppapersnberorgpapersW24613utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Real Convergence in the Euro Area A Long-Term
Perspective ECB Occasional Paper No 203 ISBN 978-92-899-2865-6
102 Pages Posted 5 Dec 2017
Juan Luis Diaz del Hoyo European Central Bank (ECB)
Ettore Dorrucci European Central Bank (ECB)
Frigyes Ferdinand Heinz European Central Bank (ECB)
Sona Muzikarova European Central Bank (ECB)
Date Written December 1 2017
Abstract
In the euro area there is mixed evidence that the GDP per capita of lower-income economies
has been catching up with that of higher-income economies since the start of monetary union
The significant real convergence performance of some of the most recent members contrasts
with that of the economies of southern Europe which have not met expectations However
attributing all the blame for this outcome to the introduction of the single currency simply
misses the point By taking a ldquolong viewrdquo and reviewing the evidence since the 1960s this
paper shows that certain member countries began to face a ldquonon-convergence traprdquo long
before the euro years We also provide stylised facts on (i) the central role of total factor
productivity in driving real convergence in the euro area over time alongside other factors
and (ii) the crucial interaction of real convergence with ldquoMaastricht convergencerdquo and
institutional quality the other two key components of sustainable economic convergence We
conclude that it is critical that the euro area countries facing convergence challenges enhance
the resilience of their economic structures by improving the relevant institutions and
governance
Keywords sustainable economic convergence real convergence nominal convergence GDP
per capita Maastricht convergence criteria institutional quality labour productivity total
factor productivity Five Presidentsrsquo Report Reflection Paper on the Deepening of EMU
JEL Classification E01 F15 J11 O11 O43 O47 O52 O57
Monetary Policy Transmission in the Eastern
Caribbean Currency Union IMF Working Paper No 1870
31 Pages Posted 22 May 2018
Alla Myrvoda International Monetary Fund (IMF)
Julien P M Reynaud International Monetary Fund (IMF) Universiteacute Paris I Pantheacuteon-Sorbonne
Date Written March 2018
Abstract
This paper empirically investigates international and domestic monetary policy transmission
mechanisms in the Eastern Caribbean Currency Union (ECCU) We assess interest rate pass-
through of both the US policy rate and the ECCU minimum saving deposit rate (MSR) into
domestic interest rates through the interest rate channel While economic theory suggests
that the international pass-through should be high in small open economies with fixed
exchange rates and open capital accounts our findings based on regression analysis point to
a low long-run pass-through coefficient of the US interest rate The domestic transmission
channel however is found to operate through changes in the MSR The results hold for
different interest rates (deposit and lending) and are supported by survey-based findings
Keywords Asia and Pacific Antigua and Barbuda Dominica Saint Kitts and Nevis Saint
Lucia Saint Vincent and the Grenadines Grenada Western Hemisphere monetary policy
transmission interest rate pass-through ECCU monetary policy transmission interest rate
pass-through ECCU General Monetary Policy (Targets Instruments and Effects)
JEL Classification E43 E50 E52 F31 F33 F36 O54
On the Impact of Structural Reforms on Output and
Employment Evidence from a Cross-Country Firm-
Level Analysis IMF Working Paper No 1873
36 Pages Posted 22 May 2018
Luiza Antoun de Almeida International Monetary Fund (IMF)
Vybhavi Balasundharam University of Michigan at Ann Arbor
Date Written April 2018
Abstract
This paper analyzes the effects of selected structural reforms on output and employment in
the short and medium term It uses a comprehensive cross-country firm-level dataset
covering both advanced and emerging market economies over the period 2003-2014 In line
with previous studies it finds that structural reforms have in general a positive impact on
output and employment in the medium term Furthermore the paper also assesses whether
the impact of structural reforms varies with firm-specific characteristics such as size
leverage profitability and sector We find evidence that firm characteristics do influence the
effectiveness of structural reforms These findings have relevant policy implications as they
help policymakers tailor the design of structural reforms to maximize their payoffs taking
into account their heterogeneous impact on firms
Keywords Fiscal reforms Cross-country analysis Potential output Employment Developed
countries Emerging markets structural reforms firm-level data Orbis dataset potential
growth
JEL Classification L51 D04 D22
Production Integration in the European Union CESifo Working Paper Series No 6944
34 Pages Posted 17 May 2018
Hakan Nordstrom Swedish Board of Trade
Harry Flam Stockholm University - Institute for International Economic Studies (IIES) CESifo (Center for Economic
Studies and Ifo Institute)
Date Written March 21 2018
Abstract
Measured by trade in intermediate inputs economic integration has increased between 2000
and 2014 between members of the European Union and even more with non-members
Integration is negatively related to economic size and positively to the number of years as a
member Germany is the largest hub in the production network and the centre of gravity has
moved eastward Older member states are increasingly exporting service inputs and new
member states primary and manufacturing inputs Wages are increasing faster in countries
with low initial wages indicating wage convergence as a result of production integration
Keywords global value chains economic integration input-output models wage
convergence
JEL Classification E100 F100 F600 J310
Democratic Tipping Points CESifo Working Paper Series No 6945
36 Pages Posted 17 May 2018
Antonio Ciccone Universitat Pompeu Fabra - Faculty of Economic and Business Sciences Centre for Economic Policy
Research (CEPR) Institute for the Study of Labor (IZA)
There are 2 versions of this paper
Date Written March 21 2018
Abstract
I examine whether transitory events can tip the scales against authoritarian regimes and lead
to persistent democratization I think of situations where this is a possibility as democratic
tipping points The transitory events I focus on are rainfall shocks in the most agricultural
countries in the world I show that while these shocks only affect agricultural output
contemporaneously they have persistent effects on political institutions Authoritarian
regimes experiencing negative rainfall shocks are more likely to be democratic three five and
ten years later
Keywords transitory shocks persistent democratization
Globalization and the New Normal IMF Working Paper No 1875
41 Pages Posted 22 May 2018
Bertrand Candelon University of Maastricht - Department of Economics
Alina Carare International Monetary Fund (IMF)
Jean-Baptiste Hasse
Aix-Marseille University
Date Written April 2018
Abstract
This study expands the empirical specification of Cerra and Saxena (2008) and allows short-
termoutput growth regimes to be determined by globalization Relying on a non-linear
dynamic panelrepresentation it reconciles the earlier results in the literature regarding the
two oppositenarratives of the effects of globalization on output growth Countries experience
higher growth onaverage the more open and integrated they are into the world However
once they reach a certainglobalization threshold (endogenously estimated) countries may
also experience a new normalpersistently lower short-term output growth following a
financial crisis The benefits as well asvulnerabilities accrue earlier in the globalization
process for low- and middle-income countriesTo solely reap the globalization benefits on
growth sound policies should be in place to mitigatethe negative effects stemming from
increased vulnerabilities brought by globalization
Keywords Globalization Financial crisis Banking crisis Output growth New Normal
Globalization Financial crises Banking crises Output growth
JEL Classification F30 F43 F62 F65
Public Policy in an AI Economy
by Austan Goolsbee - 24653 (PE PR)
Abstract
This paper considers the role of policy in an AI-intensive
economy (interpreting AI broadly) It emphasizes the speed of
adoption of the technology for the impact on the job market and
the implications for inequality across people and across places
It also discusses the challenges of enacting a Universal Basic
Income as a response to widespread AI adoption discuss pricing
privacy and competition policy the question of whether AI could
improve policy making itself
httppapersnberorgpapersW24653utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Aggregate and Distributional Effects of Financial
Globalization Evidence from Macro and Sectoral Data IMF Working Paper No 1883
62 Pages Posted 22 May 2018
Davide Furceri International Monetary Fund (IMF)
Prakash Loungani International Monetary Fund (IMF)
Jonathan D Ostry International Monetary Fund (IMF)
Date Written April 2018
Abstract
We take a fresh look at the aggregate and distributional effects of policies to
liberalizeinternational capital flows-financial globalization Both country- and industry-level
resultssuggest that such policies have led on average to limited output gains while
contributing tosignificant increases in inequality-that is they pose an equity-efficiency trade-
off Behindthis average lies considerable heterogeneity in effects depending on country
characteristicsLiberalization increases output in countries with high financial depth and
those that avoidfinancial crises while distributional effects are more pronounced in countries
with lowfinancial depth and inclusion and where liberalization is followed by a crisis
Difference-indifferenceestimates using sectoral data suggest that liberalization episodes
reduce the shareof labor income particularly for industries with higher external financial
dependence thosewith a higher natural propensity to use layoffs to adjust to idiosyncratic
shocks and thosewith a higher elasticity of substitution between capital and labor The
sectoral resultsunderpin a causal interpretation of the findings using macro data
Keywords Globalization Inequality Capital Account Openness Crises Institutions
JEL Classification F13 G32 O11
The Dynamics of Sovereign Debt Crises and Bailouts CEPR Discussion Paper No DP12921
44 Pages Posted 15 May 2018
Francisco Roch International Monetary Fund (IMF)
Harald Uhlig University of Chicago - Department of Economics
There are 2 versions of this paper
Date Written May 2018
Abstract
Motivated by the recent European debt crisis this paper investigates the scope for a bailout
guarantee in a sovereign debt crisis Defaults may arise from negative income shocks
government impatience or a sunspot-coordinated buyers strike We introduce a bailout
agency and characterize the strategy with the minimal actuarially fair intervention which
guarantees the no-buyers-strike fundamental equilibrium relying on the market for residual
financing The intervention makes it cheaper for governments to borrow inducing them
borrow more leaving default probabilities possibly rather unchanged The maximal backstop
will be pulled precisely when fundamentals worsen
Keywords Bailouts default Endogenous Borrowing Constraints Eurozone Debt Crisis long-
term debt OMT Self-fulfilling Crises
JEL Classification F34 F41
Cumulative Impacts of Conditional Cash Transfer Programs Experimental Evidence from Indonesia
by Nur Cahyadi Rema Hanna Benjamin A Olken Rizal Adi Prima Elan Satriawan Ekki
Syamsulhakim - 24670 (CH DEV PE)
Abstract
Conditional cash transfer (CCT) programs have spread worldwide
and are designed to promote comprehensive human capital
investments in children starting from encouraging pre-natal and
maternal care and early childhood health interventions and
continuing through incentivizing school attendance Yet
evaluating these claims over more than a few years is hard as
most CCT experiments extend the program to the control group
after a short experimental period This paper experimentally
estimates the impacts of Indonesias cash transfer program (PKH)
six years after the program launched using data from about
14000 households in 360 sub-districts across Indonesia taking
advantage of the fact that treatment and control locations
remained largely intact throughout the period We find that PKH
continues to have large static incentive effects on many of the
targeted indicators increasing usage of trained health
professionals for childbirth dramatically and halving the share
of children age 7-15 who are not enrolled in school Wage labor
for 13-15 year olds was reduced by at least one-third We also
begin to observe impacts on outcomes that may require cumulative
investments for example six years later we observe large
reductions in stunting and some evidence of increased high school
completion rates The results suggest that CCT investments can
have substantial effects on the accumulation of human capital
and that these effects can persist even when programs are
operating at large-scale without researcher intervention
httppapersnberorgpapersW24670utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Services Development and Comparative Advantage in
Manufacturing World Bank Policy Research Working Paper No 8450
47 Pages Posted 23 May 2018
Xuepeng Liu Kennesaw State University - Department of Economics and Finance
Aaditya Mattoo World Bank - Development Research Group (DECRG)
Zhi Wang George Mason University - Schar School of Policy and Government
Shang-Jin Wei Columbia Business School - Finance and Economics National Bureau of Economic Research (NBER) Centre
for Economic Policy Research (CEPR) International Monetary Fund (IMF) Tsinghua University - School of
Economics amp Management
Date Written May 22 2018
Abstract
Most manufacturing activities use inputs from the financial and business services sectors But
these services sectors also compete for resources with manufacturing activities provoking
concerns about de-industrialization -- financial services in industrial countries like the United
States and the United Kingdom and business services in developing countries like India and
the Philippines This paper examines the implications of services development for the export
performance of manufacturing sectors It develops a methodology to quantify the indirect role
of services in international trade in goods and constructs new measures of revealed
comparative advantage based on domestic value added in gross exports The paper shows
that the development of financial and business services enhances the revealed comparative
advantage of manufacturing sectors that use these services intensively but not that of other
manufacturing sectors It also finds that a country can partially overcome the handicap of an
underdeveloped domestic services sector by relying more on imported services inputs Thus
lower services trade barriers in developing countries can help to promote their
manufacturing exports
Keywords Textiles Apparel amp Leather Industry Pulp amp Paper Industry General
Manufacturing Food amp Beverage Industry Common Carriers Industry Construction Industry
Plastics amp Rubber Industry Business Cycles and Stabilization Policies International Trade and
Trade Rules Trade and Services Financial Economics Finance and Development Economic
Growth Economic Theory amp Research Industrial Economics
Thou Shalt Not Breach The Impact on Sovereign
Spreads of Noncomplying with the EU Fiscal Rules IMF Working Paper No 1887
37 Pages Posted 22 May 2018
Federico Kalan International Monetary Fund (IMF)
Adina Popescu International Monetary Fund (IMF)
Julien P M Reynaud International Monetary Fund (IMF) Universiteacute Paris I Pantheacuteon-Sorbonne
Date Written April 2018
Abstract
There is evidence that fiscal rules in particular well-designed rules are associated with lower
sovereign spreads However the impact of noncompliance with fiscal rules on spreads has not
been examined in the literature This paper estimates the effect of the Excessive Deficit
Procedure (EDP) on sovereign spreads of European Union member states Based on a sample
including the 28 European Union countries over the period 1999 to 2016 sovereign spreads
of countries placed under an EDP are found to be on average higher compared to countries
that are not under an EDP The interpretation of this result is not straight-forward as different
channels may be at play in particular those related with the credibility and the design of the
EU fiscal framework The specification accounts for typical macroeconomic fiscal and
financial determinants of sovereign spreads the System Generalized Method of Moments
estimator is used to control for endogeneity and results are robust to a range of checks on
variables and estimators
Keywords Fiscal rules Fiscal policy noncompliance sovereign spreads General Models
with Panel Data
JEL Classification E62 H60 C23
ldquoUnconventionalrdquo Monetary Policy as Conventional
Monetary Policy A Perspective from the US In the
1920s
FEDS Working Paper No 2018-019
45 Pages Posted 6 Jun 2018
Mark A Carlson Board of Governors of the Federal Reserve System
Burcu Duygan-Bump Federal Reserve Board
Date Written 2018-03-09
Abstract
To implement monetary policy in the 1920s the Federal Reserve utilized administered
interest rates and conducted open market operations in both government securities and
private money market securities sometimes in fairly considerable amounts We show how the
Fed was able to effectively use these tools to influence conditions in money markets even
those in which it was not an active participant Moreover our results suggest that the
transmission of monetary policy to money markets occurred not just through changing the
supply of reserves but importantly through financial market arbitrage and the rebalancing of
investor portfolios The tools used in the 1920s by the Federal Reserve resemble the
extraordinary monetary policy tools used by central banks recently and provide further
evidence on their effectiveness even in ordinary times
Keywords Monetary policy Unconventional monetary policy Central banking Administered
rates Money markets Quantitative easing
JEL Classification E52 E58 N22
New Perspectives on the Decline of US
Manufacturing Employment FEDS Working Paper No 2018-023
37 Pages Posted 7 Jun 2018
Teresa Fort Dartmouth College - Tuck School of Business
Justin R Pierce Federal Reserve Board
Peter Schott Yale School of Management National Bureau of Economic Research (NBER)
Date Written 2018-04-13
Abstract
We use relatively unexplored dimensions of US microdata to examine how US manufacturing
employment has evolved across industries firms establishments and regions from 1977 to
2012 We show that these data provide support for both trade- and technology-based
explanations of the overall decline of employment over this period while also highlighting the
difficulties of estimating an overall contribution for each mechanism Toward that end we
discuss how further analysis of these trends might yield sharper insights
Keywords Employment Manufacturing Output Technology Trade
AI and the Economy
by Jason Furman Robert Seamans - 24689 (PR)
Abstract
We review the evidence that artificial intelligence (AI) is
having a large effect on the economy Across a variety of
statistics--including robotics shipments AI startups and patent
counts--there is evidence of a large increase in AI-related
activity We also review recent research in this area which
suggests that AI and robotics have the potential to increase
productivity growth but may have mixed effects on labor
particularly in the short run In particular some occupations
and industries may do well while others experience labor market
upheaval We then consider current and potential policies around
AI that may help to boost productivity growth while also
mitigating any labor market downsides including evaluating the
pros and cons of an AI specific regulator expanded antitrust
enforcement and alternative strategies for dealing with the
labor-market impacts of AI including universal basic income and
guaranteed employment
httppapersnberorgpapersW24689utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Economic Policy for Artificial Intelligence
by Ajay K Agrawal Joshua S Gans Avi Goldfarb - 24690 (PR)
Abstract
Recent progress in artificial intelligence (AI) - a general
purpose technology affecting many industries - has been focused
on advances in machine learning which we recast as a
quality-adjusted drop in the price of prediction How will this
sharp drop in price impact society Policy will influence the
impact on two key dimensions diffusion and consequences
First in addition to subsidies and IP policy that will influence
the diffusion of AI in ways similar to their effect on other
technologies three policy categories - privacy trade and
liability - may be uniquely salient in their influence on the
diffusion patterns of AI Second labor and antitrust policies
will influence the consequences of AI in terms of employment
inequality and competition
httppapersnberorgpapersW24690utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Missing Profits of Nations
by Thomas R Torslov Ludvig S Wier Gabriel Zucman - 24701 (CF IFM ITI PE)
Abstract
By combining new macroeconomic statistics on the activities of
multinational companies with the national accounts of tax havens
and the worlds other countries we estimate that close to 40 of
multinational profits are shifted to low-tax countries each year
Profit shifting is highest among US multinationals the tax
revenue losses are highest for the European Union and developing
countries We show theoretically and empirically that in the
current international tax system tax authorities of high-tax
countries do not have incentives to combat profit shifting to tax
havens They instead focus their enforcement effort on
relocating profits booked in other high-tax countries--in effect
stealing revenue from each other This policy failure can
explain the persistence of profit shifting to low-tax countries
despite the high costs involved for high-tax countries We
provide a new cross-country database of GDP corporate profits
trade balances and factor shares corrected for profit shifting
showing that the global rise of the corporate capital share is
significantly under-estimated
httppapersnberorgpapersW24701utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Global Financial Cycles and Risk Premiums
by Oscar Jorda Moritz Schularick Alan M Taylor Felix Ward - 24677 (AP DAE IFM ME)
Abstract
This paper studies the synchronization of financial cycles across
17 advanced economies over the past 150 years The comovement in
credit house prices and equity prices has reached historical
highs in the past three decades The sharp increase in the
comovement of global equity markets is particularly notable We
demonstrate that fluctuations in risk premiums and not risk-free
rates and dividends account for a large part of the observed
equity price synchronization after 1990 We also show that US
monetary policy has come to play an important role as a source of
fluctuations in risk appetite across global equity markets
These fluctuations are transmitted across both fixed and floating
exchange rate regimes but the effects are more muted in floating
rate regimes
httppapersnberorgpapersW24677utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Geography of Linguistic Diversity and the Provision of Public Goods
by Klaus Desmet Joseph Gomes Ignacio Ortunyo-Ortin - 24694 (PE POL)
Abstract
This paper analyzes the importance of local interaction between
individuals of different linguistic groups for the provision of
public goods at the national level The micro-founded conceptual
framework we develop predicts that a countrys public goods (i)
decrease in its overall linguistic fractionalization and (ii)
either increase or decrease in its local learning multiplier a
measure of how local interaction affects antagonism towards other
groups in the society at large After constructing a 5 km by 5
km dataset on language use for 223 countries we empirically
explore these theoretical predictions While overall
fractionalization worsens public goods outcomes we find a
positive causal effect of local learning Conditional on a
countrys overall diversity public goods outcomes are maximized
when there are a few large-sized groups and the diversity of each
location mirrors that of the country as a whole Our large-scale
study spanning the entire globe confirms experimental
micro-evidence in favor of contact theory
httppapersnberorgpapersW24694utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Misfits in the Car Industry Offshore Assembly
Decisions at the Variety Level CEPR Discussion Paper No DP12940
39 Pages Posted 21 May 2018
Keith Head University of British Columbia (UBC) - Division of Strategy and Business Economics
Thierry Mayer Sciences Po
Date Written May 2018
Abstract
This paper estimates the role of countryvariety comparative advantage in the decision to
offshore assembly of more than 2000 models of 197 car brands headquartered in 23
countries While offshoring in the car industry has risen from 2000 to 2016 the top five
offshoring brands account for half the car assembly relocated to low-wage countries We show
that the decision to offshore a particular car model depends on two types of cost
(dis)advantage of the home country relative to foreign locations The first type the assembly
costs common to all models is estimated via a structural triadic gravity equation The second
effect model-level comparative advantage is an interaction between proxies for the models
skill and capital intensity and headquarter countrys abundance in these factors
Keywords cars Gravity offshoring
JEL Classification F1
Global Crises and Populism The Role of Eurozone
Institutions CEPR Discussion Paper No DP12944
46 Pages Posted 21 May 2018
Luigi Guiso Einaudi Institute for Economics and Finance (EIEF)
Helios Herrera University of Warwick
Massimo Morelli Bocconi University
Tommaso Sonno Catholic University of Louvain (UCL) London School of Economics amp Political Science (LSE) - Centre for
Economic Performance (CEP)
Date Written May 2018
Abstract
Populist parties are likely to gain consensus when mainstream parties and status quo
institutions fail to manage the shocks faced by their economies Institutional constraints
which limit the possible actions in the face of shocks result in poorer performance and
frustration among voters who turn to populist movements We rely on this logic to explain the
different support of populist parties among European countries in response to the
globalization shock and to the 2008-2011 - financial and sovereign debt crisis We predict a
greater success of populist parties in response to these shocks in Euro zone countries and our
empirical analysis confirms this prediction This is consistent with voters frustration for the
greater inability of the Euro zone governments to react to di cult-to-manage globalization
shocks and financial crises Our evidence has implications for the speed of construction of
political unions A slow staged process of political unification can expose the EU to a risk of
political backlash if hard to manage shocks hit the economies during the integration process
Keywords Financial Dependence Frustration Globalization populism Relocation
JEL Classification D72 D78 F14 F16
Currency Unions Trade and Heterogeneity CEPR Discussion Paper No DP12954
50 Pages Posted 31 May 2018
Natalie Chen University of Warwick - Department of Economics Centre for Economic Policy Research (CEPR)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
Date Written May 2018
Abstract
How do trade costs affect international trade This paper offers a new approach We rely on a
flexible gravity equation that predicts variable trade cost elasticities both across and within
country pairs We apply this framework to the effect of currency unions on international
trade While we estimate that currency unions are associated with a trade increase of around
38 percent on average we find substantial underlying heterogeneity Consistent with the
predictions of our framework we find effects around three times as strong for country pairs
associated with small import shares and a zero effect for large import shares Our results
imply that conventional homogeneous currency union estimates do not provide helpful
guidance for countries considering to join a currency union Instead countries need to take
into account the distribution of their trade shares to assess the impact of trade costs
Keywords Currency Unions euro Gravity Heterogeneity Trade Costs Trade Elasticity
Translog
JEL Classification F14 F15 F33
Fiscal Multipliers and Foreign Holdings of Public Debt CEPR Discussion Paper No DP12960
76 Pages Posted 5 Jun 2018
Fernando Broner CREI Barcelona GSE Universitat Pompeu Fabra CEPR
Daragh Clancy European Stability Mechanism
Aitor Erce European Stability Mechanism Banco de Espantildea - Associate Directorate General International Affairs
Alberto Martin Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) Centre for Economic
Policy Research (CEPR)
There are 2 versions of this paper
Date Written May 2018
Abstract
This paper explores a natural connection between fiscal multipliers and foreign holdings of
public debt Although fiscal expansions can raise domestic economic activity through various
channels they can also have crowding-out effects if the resources used to acquire public debt
reduce domestic consumption and investment Thus these crowding-out effects are likely to
be weaker when public debt is purchased by foreigners We test this hypothesis on (i) post-
war US data and (ii) data for a panel of 17 advanced economies from the 1980s to the
present To do so we assemble a novel database of public debt holdings by domestic and
foreign creditors for a large set of advanced economies We combine this data with standard
measures of fiscal policy shocks and show that indeed the size of fiscal multipliers is
increasing in the share of public debt held by foreigners In particular the fiscal multiplier is
smaller than one when the foreign share is low such as in the US in the 1950s and 1960s
and Japan today and larger than one when the foreign share is high such as in the US and
Ireland today
Keywords Fiscal Multiplier Foreign Holdings of Public Debt Sovereign debt
JEL Classification E62 F32 F34 F36 F41 F62 F65 G15 H63
Refugee Resettlement Redistribution and Growth CESifo Working Paper Series No 6961
26 Pages Posted 30 May 2018
Leonid V Azarnert Ariel University Center
Date Written April 09 2018
Abstract
This paper studies the effect of refugee resettlement on human capital accumulation The
analysis is performed in a growth model with endogenous fertility I show how refugee
resettlement from a more advanced and wealthier economy to a less advanced and less
wealthy economy combined with income transfers is Pareto-improving for indigenous
populations in both countries I also derive conditions for the proposed resettlement policy to
stimulate human capital accumulation and hence economic growth in both economies
Keywords refugee resettlement fertility human capital growth
JEL Classification D300 F220 J100 O100
The Impact of Trade Liberalization on Firm Productivity and Innovation
by Pian Shu Claudia Steinwender - 24715 (ITI PR)
Abstract
This chapter reviews the empirical economics literature on the
impact of trade liberalization on firms innovation-related
outcomes We define and examine four types of shocks to trade
flows import competition export opportunities access to
imported intermediates and foreign input competition Our
review reveals interesting heterogeneities at the country and
firm levels In emerging countries trade liberalization appears
to spur productivity and innovation In developed countries
export opportunities and access to imported intermediates tend to
encourage innovation but the evidence on import competition is
mixed especially for firms in the United States At the firm
level the positive effects of trade on innovation are more
pronounced at the initially more productive firms while the
negative effects are more pronounced at the initially less
productive firms
httppapersnberorgpapersW24715utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The IT Revolution and the Globalization of RampD
by Lee G Branstetter Britta M Glennon J Bradford Jensen - 24707 (ITI PR)
Abstract
Since the 1990s RampD has become less geographically concentrated
and has seen especially fast growth in emerging markets One of
the distinguishing features of the RampD globalization phenomenon
is its concentration within the softwareIT domain the increase
in foreign RampD has been largely concentrated within software and
IT-intensive multinationals and new RampD destinations are also
more software and IT-intensive multinationals than traditional
RampD destinations In this paper we document three important
phenomena (1) the globalization of RampD (2) the growing
importance of software and IT to firm innovation and (3) the
rise of new RampD hubs We argue that the shortage in
softwareIT-related human capital resulting from the large IT-
and software-biased shift in innovation drove US MNCs abroad and
particularly drove them abroad to new hubs with large
quantities of STEM workers who possessed IT and software skills
Our findings support the view that the globalization of US
multinational RampD has reinforced the technological leadership of
US-based firms in the information technology domain and that
multinationals ability to access a global talent base could
support a high rate of innovation even in the presence of the
rising (human) resource cost of frontier RampD
httppapersnberorgpapersW24707utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Global Financial Cycles and Risk Premiums CEPR Discussion Paper No DP12969
60 Pages Posted 5 Jun 2018
Ogravescar Jordagrave Federal Reserve Banks - Federal Reserve Bank of San Francisco
Moritz Schularick University of Bonn - Department of Economics Centre for Economic Policy Research (CEPR)
Alan M Taylor University of California Davis - Department of Economics University of Virginia - Department of
Economics National Bureau of Economic Research (NBER) Centre for Economic Policy Research (CEPR)
Felix Ward Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics
There are 2 versions of this paper
Date Written June 2018
Abstract
This paper studies the synchronization of financial cycles across 17 advanced economies over
the past 150 years The comovement in credit house prices and equity prices has reached
historical highs in the past three decades The sharp increase in the comovement of global
equity markets is particularly notable We demonstrate that fluctuations in risk premiums
and not risk-free rates and dividends account for a large part of the observed equity price
synchronization after 1990 We also show that US monetary policy has come to play an
important role as a source of fluctuations in risk appetite across global equity markets These
fluctuations are transmitted across both fixed and floating exchange rate regimes but the
effects are more muted in floating rate regimes
Keywords asset prices equity return premium financial centers financial cycles policy
spillovers
JEL Classification E50 F33 F42 F44 G12 N10 N20
Automation and Unemployment Help is on the Way CEPR Discussion Paper No DP12974
32 Pages Posted 11 Jun 2018
Hideki Nakamura Osaka City University
Joseph Zeira Hebrew University of Jerusalem - Department of Economics Centre for Economic Policy Research (CEPR)
LUISS Guido Carli DPTEA
Date Written June 2018
Abstract
This paper presents a model of technical change that combines two lines of research together
It is a task based model in which automation turns labor tasks to mechanized ones and there
is also a continuous addition of new labor tasks as in the expanding variety literature We
impose three simple restrictions on the model The first is that all new tasks are adopted The
second is that all new automation innovations are adopted and the third is that the share of
labor does not converge to zero in the long run We show that these restrictions imply that
unemployment due to automation is expected to converge to zero over time
Keywords automation growth Labor Income Share technical change unemployment
JEL Classification J64 O14 O30 O40
Sovereign Default in a Monetary Union CEPR Discussion Paper No DP12976
56 Pages Posted 11 Jun 2018
Sergio de Ferra Stockholm University
Federica Romei LUISS Guido Carli University
Date Written June 2018
Abstract
In the aftermath of the global fi nancial crisis sovereign default risk and the zero lower bound
have limited the ability of policy-makers in the European monetary union to achieve their
stabilization objective This paper investigates the interaction between sovereign default risk
and the conduct of monetary policy when borrowers can act strategically and they share with
their lenders a single currency in a monetary union We address this question in an
endogenous sovereign default model of heterogeneous countries in a monetary union where
the monetary authority may be constrained by the zero lower bound We uncover three main
results First in normal times debtors have a stronger incentive to default to induce more
expansionary monetary policy Second the zero lower bound or constraints on monetary
policy may act as a disciplining device to enforce repayment of sovereign debt Third
sovereign default risk induces countries with a preference for tight monetary policy to accept
a laxer policy stance These results help to shed light on the recent European experience of
high default risk expansionary monetary policy and low nominal interest rates
Keywords Heterogeneous Countries monetary union sovereign default zero lower bound
JEL Classification F34 F42 F45 H63
Evolution of Modern Business Cycle Models Accounting for the Great Recession
by Patrick J Kehoe Virgiliu Midrigan Elena Pastorino - 24741 (EFG IFM LS ME)
Abstract
Modern business cycle theory focuses on the study of dynamic
stochastic general equilibrium models that generate aggregate
fluctuations similar to those experienced by actual economies
We discuss how this theory has evolved from its roots in the
early real business cycle models of the late 1970s through the
turmoil of the Great Recession four decades later We document
the strikingly different pattern of comovements of macro
aggregates during the Great Recession compared to other postwar
recessions especially the 1982 recession We then show how two
versions of the latest generation of real business cycle models
can account respectively for the aggregate and the
cross-regional fluctuations observed in the Great Recession in
the United States
httppapersnberorgpapersW24741utm_campaign=ntwamputm_medium=emailamputm_source=ntw
What Happened Financial Factors in the Great Recession
by Mark Gertler Simon Gilchrist - 24746 (EFG ME)
Abstract
Since the onset of the Great Recession an explosion of both
theoretical and empirical research has investigated how the
financial crisis emerged and how it was transmitted to the real
sector The goal of this paper is to describe what we have
learned from this new research and how it can be used to
understand what happened during the Great Recession In the
process we also present some new evidence on the role of the
household balance sheet channel versus the disruption of banking
We examine a panel of quarterly state level data on house
prices mortgage debt and employment along with a measure of
banking distress Then exploiting both panel data and time
series methods we analyze the contribution of the house price
decline versus the banking distress indicator to the overall
decline in employment during the Great Recession We confirm a
common finding in the literature that the household balance sheet
channel is important for regional variation in employment
However we also find that the disruption in banking was central
to the overall employment contraction
httppapersnberorgpapersW24746utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Changing Structure of Immigration to the OECD
What Welfare Effects on Member Countries CESifo Working Paper Series No 6992
40 Pages Posted 27 Jun 2018
Michał Burzyński Universite du Luxembourg
Freacutedeacuteric Docquier Universiteacute catholique de Louvain CREAM Centre for Research on Environmental Appraisal amp Management
UK IZA Institute of Labor Economics
Hillel Rapoport Paris School of Economics (PSE)
Date Written April 24 2018
Abstract
We investigate the welfare implications of two pre-crisis immigration waves (1991ndash2000 and
2001ndash2010) and of the post-crisis wave (2011ndash2015) for OECD native citizens To do so we
develop a general equilibrium model that accounts for the main channels of transmission of
immigration shocks ndash the employment and wage effects the fiscal effect and the market size
effect ndash and for the interactions between them We parameterize our model for 20 selected
OECD member states We find that the three waves induce positive effects on the real income
of natives however the size of these gains varies considerably across countries and across
skill groups In relative terms the post-crisis wave induces smaller welfare gains compared to
the previous ones This is due to the changing origin mix of immigrants which translates into
lower levels of human capital and smaller fiscal gains However differences across cohorts
explain a tiny fraction of the highly persistent cross-country heterogeneity in the economic
benefits from immigration
Keywords immigration welfare crisis inequality general equilibrium
JEL Classification C680 F220 J240
Anatomy and Impact of Export Promotion Agencies World Bank Policy Research Working Paper No 8470
19 Pages Posted 11 Jun 2018
Marcio Cruz World Bank Federal University of Parana (UFPR) - Departamento de Economia
Daniel Lederman World Bank - Latin America and Caribbean Region
Laura Zoratto World Bank
Date Written June 7 2018
Abstract
Recent literature has shown evidence of positive contributions of export promotion agencies
around the world in raising exports through the intensive and extensive margins of trade The
number of export promotion agencies has increased substantially over the past two decades
and most of them focus on assisting exporters in understanding and finding markets for their
products This paper describes the characteristics of export promotion agencies around the
world using a novel database from the World Bank in collaboration with the International
Trade Center in Geneva covering 2005-10 In addition it presents a short summary of the
literature on the impacts of export promotion agencies
Keywords Export Competitiveness International Trade and Trade Rules Rules of Origin
Trade Policy Trade and Multilateral Issues Trade and Services
Optimal Inflation and the Identification of the Phillips
Curve CEPR Discussion Paper No DP12981
29 Pages Posted 11 Jun 2018
Michael McLeay Bank of England - Monetary Assessment and Strategy Division
Silvana Tenreyro London School of Economics (LSE)
Date Written June 2018
Abstract
This paper explains why inflation follows a seemingly exogenous statistical process unrelated
to the output gap In other words it explains why it is difficult to empirically identify a Phillips
curve We show why this result need not imply that the Phillips curve does not hold -- on the
contrary our conceptual framework is built under the assumption that the Phillips curve
always holds The reason is simple if monetary policy is set with the goal of minimising
welfare losses (measured as the sum of deviations of inflation from its target and output from
its potential) subject to a Phillips curve a central bank will seek to increase inflation when
output is below potential This targeting rule will impart a negative correlation between
inflation and the output gap blurring the identification of the (positively sloped) Phillips
curve
Keywords identification Inflation targeting Phillips curve
GVCs and the Endogenous Geography of RTAs CESifo Working Paper Series No 6980
43 Pages Posted 11 Jun 2018
Lionel Fontagne University of Paris 1 Pantheacuteon Sorbonne Paris School of Economics CEPII
Gianluca Santoni Centre dEtudes Prospectives et dInfo Internationales (CEPII)
Date Written April 19 2018
Abstract
Geography economic size or common history help predicting signed regional trade
agreements (RTAs) However not all signed RTAs are ldquonaturalrdquo according to economic
determinants En-dogeneity and general equilibrium effects of RTAS are the two mechanisms
addressed in this paper We estimate the time-varying probability for a country pair to sign a
trade agreement and build upon structural gravity in general equilibrium to determine how
the patterns of Global Value Chains shape the evolving geography of optimal RTAS Our results
confirm that the endogenous geography of RTAs is shaped by the development of GVCs
Keywords preferential trade agreements global value chains structural gravity
JEL Classification F130 F140 F150
Diversity and Growth CEPR Discussion Paper No DP13011
37 Pages Posted 26 Jun 2018
Mark Gradstein Ben-Gurion University of the Negev - Department of Economics CESifo (Center for Economic Studies and
Ifo Institute) Centre for Economic Policy Research (CEPR) World Bank - Development Research Group
(DECRG)
There are 2 versions of this paper
Date Written June 2018
Abstract
The diversity of social interaction within economic communities affects productivity and
growth and is itself shaped by economic conditions These reciprocal effects raise the
possibility of multiple equilibria of setting a socially polarized economy stagnating in poverty
on a new path of social integration and economic growth through external intervention or an
internal political initiative This paper describes a simple analytical model that captures these
reciprocal effects and sheds light on the role of government capacity community leadership
federation and external credit or aid in achieving economic growth through social integration
The Economics of Language CEPR Discussion Paper No DP13002
85 Pages Posted 26 Jun 2018
Victor Ginsburgh Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics
(ECARES)
Shlomo Weber Southern Methodist University (SMU) - Department of Economics New Economic School
Date Written June 2018
Abstract
The paper brings together methodological theoretical and empirical analysis into the single
framework of linguistic diversity It reflects both historical and contemporary research by
economists and other social scientists on the impact of language on economic outcomes and
public policies We examine whether and how language influences human thinking (including
emotions) and behavior analyze the effects of linguistic distances on trade migrations
financial markets language learning and its returns The quantitative foundations of linguistic
diversity which rely on group identification linguistic distances as well as fractionalization
polarization and disenfranchisement indices are discussed in terms of their empirical
challenges and uses We conclude with an analysis of linguistic policies and shifts of languages
and examine their welfare effects and the trade-offs between the development of labor
markets and the social costs that they generate in various countries
Financial and Fiscal Interaction in the Euro Area
Crisis This Time Was Different CEPR Discussion Paper No DP13016
39 Pages Posted 3 Jul 2018
Alberto Caruso Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics
(ECARES)
Lucrezia Reichlin London Business School Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in
Economics and Statistics (ECARES) Centre for Economic Policy Research (CEPR) European Central Bank
(ECB)
Giovanni Ricco University of Warwick - Department of Economics SciencesPo - OFCE
Date Written June 2018
Abstract
This paper highlights the anomalous characteristics of the Euro Area `twin crises by
contrasting the aggregate macroeconomic dynamics in the period 2009-2013 with the
business cycle fluctuations of the previous decades We report three stylised facts First the
contraction in output was marked by an anomalous downfall in investment while
consumption savings and unemployment followed their historical relation with GDP Second
households and financial corporations debts and house prices deviated from their pre-crisis
trends Third the jump in the public deficit-GDP ratio in 2008-2009 was unprecedented and
so was the fiscal consolidation that followed Our analysis points to the financial nature of the
crisis as a likely explanation for these facts Importantly the `anomaly in public deficit is in
large part explained by extraordinary measures in support of the financial sector which show
up in the stock-flow adjustments and reveal a key interaction between the fiscal and the
financial sectors
Keywords Euro Area Government Debt Recessions
JEL Classification C11 C32 C54 E52 E62 F45
The Shocks Matter Improving Our Estimates of
Exchange Rate Pass-Through CEPR Discussion Paper No DP13037
43 Pages Posted 9 Jul 2018
Kristin J Forbes Massachusetts Institute of Technology (MIT) - Sloan School of Management National Bureau of Economic
Research (NBER)
Ida Hjortsoe
Bank of England
Tsvetelina Nenova Bank of England
There are 4 versions of this paper
Date Written July 2018
Abstract
A major challenge for monetary policy is predicting how exchange rate movements will
impact inflation We propose a new focus directly incorporating the underlying shocks that
cause exchange rate fluctuations when evaluating how these fluctuations pass through to
import and consumer prices A standard open-economy model shows that the relationship
between exchange rates and prices depends on the shocks which cause the exchange rate to
move We build on this to develop a structural Vector Autoregression (SVAR) framework for a
small open economy and apply it to the UK We show that prices respond differently to
exchange rate movements based on what caused the movements For example exchange rate
pass-through is low in response to domestic demand shocks and relatively high in response to
domestic monetary policy shocks This framework can improve our ability to estimate how
pass-through can change over short periods of time For example it can explain why sterlings
post-crisis depreciation caused a sharper increase in prices than expected while the effect of
sterlings 2013-15 appreciation was more muted We also apply this framework to forecast
the extent of pass-through from sterlings sharp depreciation corresponding to the UKs vote
to leave the European Union
Keywords consumer prices exchange rate pass-through import prices inflation vector
autoregressions
JEL Classification E31 F3 F41
Why Has Economic Growth Slowed When Innovation
Appears to Be Accelerating CEPR Discussion Paper No DP13039
29 Pages Posted 9 Jul 2018
Robert J Gordon Northwestern University - Department of Economics National Bureau of Economic Research (NBER)
Centre for Economic Policy Research (CEPR)
There are 2 versions of this paper
Date Written July 2018
Abstract
U S economic growth slowed by more than half from 32 percent per year during 1970-2006
to only 14 percent during 2006-16 and this decline was divided equally between slower
growth in hours of work and slower growth in output per hour In explaining slower growth
in hours particular emphasis is placed on the slower secular rise of life expectancy in the US
compared to other developed countries Further contributions to slowing growth are made by
a decline in the population share of both legal and illegal immigration and a turnaround from
rising to declining labor force participation Causes of declining productivity growth begin
with the slowdown in the rate of increase of educational attainment Why did productivity
growth decline after 2006 despite an increase in the rate at which new US patents were
issued in 2006-16 compared to earlier decades Part of the slowdown is attributed to the
maturity of the IT revolution which also helps to explain the trajectory of the college wage
premium Aspects of the productivity growth slowdown include the declining productivity of
research workers diminishing returns to drug innovation and the evolutionary rather than
revolutionary impact of robots and artificial intelligence
Keywords Economic Growth Immigration Innovation labor force participation Mortality
productivity
JEL Classification D24 E24
On DSGE Models
by Lawrence J Christiano Martin S Eichenbaum Mathias Trabandt - 24811 (EFG ME)
Abstract
The outcome of any important macroeconomic policy change is the
net effect of forces operating on different parts of the economy
A central challenge facing policy makers is how to assess the
relative strength of those forces Dynamic Stochastic General
Equilibrium (DSGE) models are the leading framework that
macroeconomists have for dealing with this challenge in an open
and transparent manner This paper reviews the state of DSGE
models before the financial crisis and how DSGE modelers
responded to the crisis and its aftermath In addition we
discuss the role of DSGE models in the policy process
httppapersnberorgpapersW24811utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Currency Wars Unconventional Monetary Policy Does Not Stimulate Exports
by Andrew K Rose - 24817 (IFM ITI)
Abstract
I investigate whether countries that use unconventional monetary
policy (UMP) experience export booms I use a popular gravity
model of trade which requires neither the exogeneity of UMP nor
instrumental variables for UMP In practice countries that
engage in UMP experience a drop in exports vis-a-vis countries
that are not engaged in such policies holding other things
constant Quantitative easing is associated with exports that
are about 10 lower to countries not engaged in UMP this amount
is significantly different from zero and similar to the effect of
negative nominal interest rates Thus there is no evidence that
countries have gained export markets through unconventional
monetary policy currency wars that have been launched have also
been lost UMP is also associated with a comparable drop in
imports and exchange rates suggesting that countries engage in
UMP when they are experiencing adverse macroeconomic shocks
concurrent with those that eviscerate international trade
httppapersnberorgpapersW24817utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Granular Comparative Advantage
by Cecile Gaubert Oleg Itskhoki - 24807 (EFG IFM IO ITI)
Abstract
Large firms play a pivotal role in international trade shaping
the export patterns of countries We propose and quantify a
granular multi-sector model of trade which combines fundamental
comparative advantage across sectors with granular comparative
advantage embodied in outstanding individual firms We develop
an SMM-based estimation procedure which takes full account of
the general equilibrium of the model to jointly estimate these
fundamental and granular forces using French micro-data with
information on firm domestic and export sales across
manufacturing industries We find that granularity accounts for
about 20 of the variation in realized export intensity across
sectors and is more pronounced in the most export-intensive
sectors In turn idiosyncratic firm dynamics accounts for a
large share of the evolution of a countrys comparative advantage
over time Governments face strong incentives to target trade
policy at large individual foreign exporters and to use lenient
antitrust regulation at home to substitute for
beggar-thy-neighbor trade policy
httppapersnberorgpapersW24807utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The State of New Keynesian Economics A Partial Assessment
by Jordi Gali - 24845 (EFG ME)
Abstract
I provide an overview of recent developments in monetary
economics with an emphasis on extensions of the New Keynesian
framework that assume a zero lower bound on the short term
nominal rate as well as models with household heterogeneity
httppapersnberorgpapersW24845utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Artificial Intelligence Economics and Industrial Organization
by Hal Varian - 24839 (IO PR)
Abstract
Machine learning (ML) and artificial intelligence (AI) have been
around for many years However in the last 5 years remarkable
progress has been made using multilayered neural networks in
diverse areas such as image recognition speech recognition and
machine translation AI is a general purpose technology that is
likely to impact many industries In this chapter I consider how
machine learning availability might affect the industrial
organization of both firms that provide AI services and
industries that adopt AI technology My intent is not to
provide an extensive overview of this rapidly-evolving area but
instead to provide a short summary of some of the forces at work
and to describe some possible areas for future research
httppapersnberorgpapersW24839utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Twenty Five Years of Global Imbalances CEPR Discussion Paper No DP13066
20 Pages Posted 24 Jul 2018
Maurice Obstfeld International Monetary Fund (IMF)
Date Written July 2018
Abstract
As international capital markets expanded in breadth and depth after the middle 1990s
global current account imbalances also expanded markedly Some have linked the origin of
the subsequent Global Financial Crisis (GFC) to these global imbalances This essay proposes
answers to four questions about the recent history of global imbalances Why did global
imbalances expand after the mid-1990s What circumstances and concomitant factors
provide clues about the origins of the GFC If one accepts that a mono-causal story about the
GFC based on global imbalances is inaccurate how should one view the potential threats from
excessive global imbalances today And finally what policy implications follow
Keywords current account global financial crisis (GFC) global imbalances IMF External
Sector Report
Is Automation Labor-Displacing Productivity Growth Employment and the Labor Share
by David Autor Anna Salomons - 24871 (EFG LS)
Abstract
Many technological innovations replace workers with machines but
this capital-labor substitution need not reduce aggregate labor
demand because it simultaneously induces four countervailing
responses own-industry output effects cross-industry
input-output effects between-industry shifts and final demand
effects We quantify these channels using four decades of
harmonized cross-country and industry data where we measure
automation as industry-level movements in total factor
productivity (TFP) that are common across countries We find
that automation displaces employment and reduces labors share of
value-added in the industries in which it originates (a direct
effect) In the case of employment these own-industry losses
are reversed by indirect gains in customer industries and induced
increases in aggregate demand By contrast own-industry labor
share losses are not recouped elsewhere Our framework can
account for a substantial fraction of the reallocation of
employment across industries and the aggregate fall in the labor
share over the last three decades It does not however explain
why the labor share fell more rapidly during the 2000s
httppapersnberorgpapersW24871utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Dynamic Effects of Co-Ethnic Networks on
Immigrants Economic Success CESifo Working Paper Series No 7084
43 Pages Posted 21 Jul 2018
Michele Battisti University of Palermo LUISS Guido Carli University
Giovanni Peri University of California Davis - Department of Economics
Agnese Romiti Government of the Federal Republic of Germany - Institute for Employment Research (IAB)
Date Written June 06 2018
Abstract
This paper investigates how the size of co-ethnic networks at the time of arrival affect the
economic success of immigrants in Germany Applying panel analysis with a large set of fixed
effects and controls we isolate the association between initial network size and long-run
immigrant outcomes We also look at those who were assigned to an initial location
independently of their choice allows a causal interpretation of our estimates We find that
immigrants initially located in places with larger co-ethnic networks are more likely to be
employed at first but have a lower probability of investing in human capital
Keywords networks immigration human capital employment
JEL Classification J240 J610 R230
Immigrant Artists Enrichment or Displacement CEPR Discussion Paper No DP13070
36 Pages Posted 31 Jul 2018
Karol Borowiecki University of Southern Denmark
Kathryn Graddy Brandeis University - Department of Economics
Date Written July 2018
Abstract
In order to investigate the role of immigrant artists on the development of artistic clusters in
US cities we use the US Census and American Community Survey collected every 10 years
since 1850 We identify artists and art teachers authors musicians and music teachers actors
and actresses architects and journalists their geographical location and their status as a
native or an immigrant We look at the relative growth rate of the immigrant population in
these occupations over a ten year period and how it affects the relative growth rate of native-
born individuals in these artistic occupations We find that cities that experienced immigrant
artist inflows also see a greater inflow of native artists
Keywords artistic occupations artists Immigration
JEL Classification J4 J6 N3 N9 Z1
Global Value Chains and Inequality with Endogenous Labor Supply
by Eunhee Lee Kei-Mu Yi - 24884 (ITI)
Abstract
We assess the role of global value chains in transmitting global
integration shocks to aggregate trade as well as distributional
outcomes We develop a multi-country general equilibrium trade
model that features multi-stage production with different stages
having different productivities and using factors (occupations)
with different intensities The model also features a Roy
mechanism in which heterogeneous workers endogenously choose
their sector and occupation Country- and worker-level
comparative advantages interact A reduction in trade costs
leads to countries specializing in their comparative advantage
sectors and production stages This specialization changes labor
demand and also leads to more workers shifting to their
comparative advantage sectors and occupations We calibrate our
model to the US China and the rest of the world in 2000 and
we simulate a decline in Chinas trade costs with the US
designed to mimic Chinas entry into the WTO Our simulation
results imply an increase in the skill premium in both the US
and China and the GVC ie specialization across stages is
critical to this outcome
httppapersnberorgpapersW24884utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Friedman and Phelps on the Phillips Curve Viewed from a Half Centurys Perspective
by Robert J Gordon - 24891 (EFG)
Abstract
In the late 1960s the stable negatively sloped Phillips Curve
(PC) was overturned by the Friedman-Phelps natural rate model
Their PC was vertical in the long run at the natural unemployment
rate and their short-run curve shifted up whenever unemployment
was pushed below the natural rate This paper criticizes the
underlying assumption of the Friedman-Phelps approach that the
labor market continuously clears and that changes in unemployment
down or up occur only in response to fooling of workers firms
or both A preferable and resolutely Keynesian approach
explains quantity rationing by inertia in price and wage setting
The positive correlation of inflation and unemployment in the
1970s and again in the 1990s is explained by joining the
negatively sloped Phillips Curve with a positively sloped dynamic
demand curve For any given growth of nominal GDP higher
inflation caused by adverse supply shocks implies slower real GDP
growth and higher unemployment This triangle model based on
inflation inertia demand and supply worked well to explain why
inflation and unemployment were both positively and negatively
correlated between the 1960s and 1990s but in the past decade
the slope of the short-run Phillips Curve has flattened as
inflation exhibited a muted response to high unemployment in
2009-13 and low unemployment in 2016-2018 It remains to be
seen whether a continuation of low unemployment will cause a
modest and fixed extra amount of inflation thus reviving the
stable Phillips curve of the early 1960s or whether inflation
will continuously accelerate as Friedman and Phelps would have
predicted
httppapersnberorgpapersW24891utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Tax Policy Measures in Advanced and Emerging
Economies A Novel Database IMF Working Paper No 18110
61 Pages Posted 1 Aug 2018
David Amaglobeli International Monetary Fund (IMF)
Valerio Crispolti International Monetary Fund (IMF)
Era Dabla-Norris International Monetary Fund (IMF)
Pooja Karnane International Monetary Fund (IMF)
Florian Misch International Monetary Fund (IMF)
Date Written May 2018
Abstract
This paper describes a new comprehensive database of tax policy measures in 23 advanced
and emerging market economies over the last four decades We extract this information from
more than 900 OECD Economic Surveys and 37000 tax-related news from the International
Bureau of Fiscal Documentation using text-mining techniques The innovation of this dataset
lies in its granularity changes in the rates and bases of personal and corporate income taxes
value added and sale taxes social security contributions excise and property taxes are
systematically documented In addition the database provides information on the
announcement and implementation dates whether the measures represent major changes
are part of a broader tax package and phased in over several years The paper also presents a
range of stylized facts suggesting that information from this database is useful to deepen the
analysis of tax policy changes for research and policy purposes
Keywords Tax policy Tax reforms Personal income taxes Corporate income taxes Value
added taxes Sales taxes Excise taxes Property taxes Developed countries Emerging markets
Tax Reforms Text Mining Tax Policy Implementation Lags Tax Reforms Text Mining Tax
Policy Implementation Lags Methodology for Collecting Estimating and Organizing
Macroeconomic Data General
JEL Classification C82 E61 H20 P16
Inequality Aversion Populism and the Backlash
Against Globalization CEPR Discussion Paper No DP13107
69 Pages Posted 21 Aug 2018
Lubos Pastor University of Chicago - Booth School of Business Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
Pietro Veronesi
University of Chicago - Booth School of Business Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
There are 3 versions of this paper
Date Written August 2018
Abstract
Motivated by the recent rise of populism in western democracies we develop a model in
which a populist backlash emerges endogenously in a growing economy In the model voters
dislike inequality especially the high consumption of the ``elites Economic growth
exacerbates inequality due to heterogeneity in risk aversion In response to rising inequality
rich-country voters optimally elect a populist promising to end globalization Redistribution is
of limited value in containing the backlash against globalization Countries with more
inequality higher financial development and current account deficits are more vulnerable to
populism both in the model and in the data Evidence on who voted for Brexit and Trump in
2016 also largely supports the model
Keywords Brexit Globalization inequality populism risk aversion Trump
JEL Classification D72 F65 G11 G12 G18 P16
Underemployment in the US and Europe
by David NF Bell David G Blanchflower - 24927 (IFM LS ME)
Abstract
Large numbers of part-time workers around the world both those
who choose to be part-time and those who are there involuntarily
and would prefer a full-time job report they want more hours
Full-timers who say they want to change their hours mostly say
they want to reduce them When recession hit in most countries
the number of hours of those who said they wanted more hours
rose sharply and there was a fall in the number of hours that
full-timers wanted their hours reduced by Even though the
unemployment rate has returned to its pre-recession levels in
many advanced countries underemployment in most has not
We produce estimates for a new and better underemployment rate
for twenty-five European countries In most underemployment
remains elevated We provide evidence for the UK and the US as
well as some international evidence that underemployment rather
than unemployment lowers pay in the years after the Great
Recession We also find evidence for the US that falls in the
home ownership rate have helped to keep wage pressure in check
Underemployment replaces unemployment as the main influence on
wages in the years since the Great Recession
httppapersnberorgpapersW24927utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Does Machine Translation Affect International Trade Evidence from a Large Digital Platform
by Erik Brynjolfsson Xiang Hui Meng Liu - 24917 (IO ITI PR)
Abstract
Artificial intelligence (AI) is surpassing human performance in a
growing number of domains However there is limited evidence of
its economic effects Using data from a digital platform we
study a key application of AI machine translation We find
that the introduction of a machine translation system has
significantly increased international trade on this platform
increasing exports by 175 Furthermore heterogeneous
treatment effects are all consistent with a substantial reduction
in translation-related search costs Our results provide causal
evidence that language barriers significantly hinder trade and
that AI has already begun to improve economic efficiency in at
least one domain
httppapersnberorgpapersW24917utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The US Personal Saving Rate IMF Working Paper No 18128
35 Pages Posted 1 Aug 2018
Sam Ouliaris International Monetary Fund (IMF)
Celine Rochon University of Oxford IMF
Date Written June 2018
Abstract
This paper develops a time series model for aggregate consumption to predict the US
personal saving rate It then uses the model to test whether there has been a structural break
in consumption behavior because of the 2008 financial crisis Before the crisis the personal
saving rate was trending downwards However in 2008 there was a significant rise in the
saving rate that continued until the end of 2012 suggesting a permanent change in household
behavior To assess this issue formally the unknown parameters of the model are estimated
using data for 1961Q1-2007Q4 a period which precedes the crisis The model is then used to
predict the saving rate from 2008Q1 onwards and to assess whether the rise in the saving rate
after 2008 was due to sizable but transitory incomewealth shocks or to changes in the
underlying elasticities between saving and its determinants (hence structural) The statistical
evidence suggests there was no structural break in the household saving behavior implying
that the rise in the saving rate during 2008-2012 was caused by the negative shocks to
income employment and wealth This result explains why the saving rate resumed its decline
in 2013 as real disposable income employment and net worth recovered Assuming that the
real growth in these determinants remains strong the estimated model predicts continued
negative pressures on the current account deficit and further external imbalances attributable
to the US household sector
Keywords United States Western Hemisphere consumption behavior personal saving rate
vector error-correction model structural break Consumer Economics Empirical Analysis
Personal Finance Forecasting and Simulation
JEL Classification D12 D14 E21 E27
Currency Unions Trade and Heterogeneity CESifo Working Paper Series No 7123
49 Pages Posted 24 Aug 2018
Natalie Chen University of Warwick - Department of Economics Centre for Economic Policy Research (CEPR)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
There are 2 versions of this paper
Date Written June 28 2018
Abstract
How do trade costs affect international trade This paper offers a new approach We rely on a
flexible gravity equation that predicts variable trade cost elasticities both across and within
country pairs We apply this framework to the effect of currency unions on international
trade While we estimate that currency unions are associated with a trade increase of around
38 percent on average we find substantial underlying heterogeneity Consistent with the
predictions of our framework we find effects around three times as strong for country pairs
associated with small import shares and a zero effect for large import shares Our results
imply that conventional homogeneous currency union estimates do not provide helpful
guidance for countries considering to join a currency union Instead countries need to take
into account the distribution of their trade shares to assess the impact of trade costs
Keywords currency unions euro gravity heterogeneity trade costs trade elasticity translog
JEL Classification F140 F150 F330
How Do Migration and Remittances Affect Inequality
A Case Study of Mexico IMF Working Paper No 18136
22 Pages Posted 1 Aug 2018
Zsoka Koczan International Monetary Fund (IMF)
Franz Loyola International Monetary Fund (IMF)
Date Written June 2018
Abstract
The poverty-reducing effects of remittances have been well-documented however their
effects on inequality are less clear This paper examines the impact of remittances on
inequality in Mexico using household-level information on the receiving side It hopes to
speak to their insurance role by examining how remittances are affected by domestic and
external crises the 1994 Mexican Peso crisis and the Global Financial Crisis We find that
remittances lower inequality and that they become more pro-poor over time as migration
opportunities become more widespread This also strengthens their insurance effects
mitigating some of the negative impact of shocks on the poorest
Keywords Migration Remittances Financial crises Income inequality Income distribution
Poverty reduction inequality Firm Behavior International Lending and Debt Problems
JEL Classification D21 F32 F34 J61 D31 F22 F24
Exchange Rate Forecasting on a Napkin
ECB Working Paper No 2151
Contact MICHELE CAZORZI
European Central Bank (ECB)
Email michelecazorziecbint
Auth-Page httpsssrncomauthor=343031
Co-Author MICHAŁ RUBASZEK
National Bank of Poland Warsaw
School of Economics (SGH)
Email michalrubaszeknbppl
Auth-Page httpsssrncomauthor=850188
Full Text httpsssrncomabstract=3183690
ABSTRACT This paper shows that there are two regularities in
foreign exchange markets in advanced countries with flexible
regimes First real exchange rates are mean-reverting as
implied by the Purchasing Power Parity model Second the
adjustment takes place via nominal exchange rates These features
of the data can be exploited even on the back of a napkin to
generate nominal exchange rate forecasts that outperform the
random walk The secret is to avoid estimating the pace of mean
reversion and assume that relative prices are unchanged Direct
forecasting or panel data techniques are better than the random
walk but fail to beat this simple calibrated model
______________________________
Home Sweet Home The Effect of Sugar Protectionism
on Emigration in Italy 1876-1913 CEIS Working Paper No 437
49 Pages Posted 29 Jun 2018
Carlo Ciccarelli University of Rome Tor Vergata - Faculty of Economics
Alberto Dalmazzo University of Siena - Department of Economics
Daniela Vuri University of Rome Tor Vergata IZA Institute of Labor Economics CESifo (Center for Economic Studies and
Ifo Institute for Economic Research)
Date Written June 8 2018
Abstract
Protectionist policies are often considered or even implemented as a reaction to increasing
globalization This is not new in history This paper uses the introduction of import duties on
sugar in the late nineteenth century Italy to measure the impact of protectionism on migration
out flows at the time of the fi
rst globalization Both for climate reasons and the nature of the soil the cultivation and
processing of sugar beets was geographically concentrated in a small area leading de facto to
a regional protectionist policy Our theoretical model illustrates how a tariff that favours local
producers may affect residents incentives to migrate abroad The predictions of the model
are tested with the synthetic control method which uses the variation in sugar cultivation
across areas to estimate the effect of interest Our results show that protectionism effectively
reduced the relative incentive to migrate away from sugar-producing areas
Keywords protectionism regional economics migrations 19th century Italy
JEL Classification N93 J4 C23
Integrating Services in the Economic Fitness
Approach World Bank Policy Research Working Paper No 8485
35 Pages Posted 28 Aug 2018
Andrea Zaccaria Sapienza University of Rome
Saurabh Mishra International Monetary Fund (IMF)
Masud Z Cader World Bank - International Finance Corporation (IFC)
Luciano Pietronero Sapienza University of Rome
Date Written June 21 2018
Abstract
Economic Complexity is a set of network-based and algorithmic methods for the study of
economic development and competitiveness In this framework Economic Fitness is an
innovative approach that improves the mathematical and conceptual scheme For
convenience these methods were originally conceived on trade in goods This paper extends
the Economic Fitness methodology to include a trade in services element to yield a universal
matrix of world trade and thus provide a more complete picture of a countrys development
and global competitiveness The paper applies two algorithms to the universal trade in goods
and services matrix to contrast country competitiveness and change in complexity and
diversification when services are added to the traditional goods-only matrix The results show
that (i) the competitiveness of many countries was previously over- or underestimated that
is many countries gain or lose positions in the ranking of economic fitness when services
trade is considered alongside goods and (ii) complex services tend to cluster with complex
manufacturing suggesting a common capabilities structure These findings show how
developing complex services aids diversification strategies for developing countries
Keywords International Trade and Trade Rules Common Carriers Industry Food amp
Beverage Industry Business Cycles and Stabilization Policies Plastics amp Rubber Industry
Construction Industry General Manufacturing Textiles Apparel amp Leather Industry Pulp amp
Paper Industry Trade and Services Macroeconomic Management ICT Applications
Deep Trade Agreements and Global Value Chains World Bank Policy Research Working Paper No 8491
39 Pages Posted 28 Aug 2018
Edith Laget World Bank
Alberto Osnago World Bank
Nadia Rocha World Trade Organization
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Date Written June 25 2018
Abstract
Preferential trade agreements have become deeper over time often encompassing policy
areas that go beyond traditional trade policy such as investment competition and intellectual
property rights protection In the literature a prominent argument why countries sign deep
agreements is to promote and facilitate the operation of global value chains This paper
exploits a new data set on the content of trade agreements and data on trade in value added
and in parts and components to quantify the impact of the depth of trade agreements on
bilateral cross-border production linkages The results show that adding a policy area to a
trade agreement increases the domestic value added of intermediates (forward global value
chain linkages) and the foreign value added of intermediates (backward global value chain
linkages) by 048 and 038 percent respectively At the sectoral level the positive impact of
deep trade agreements is higher for higher value-added industries suggesting that deep
agreements help countries to integrate in industries with higher levels of value added For a
larger sample of countries and years the results confirm that an additional provision in a
trade agreement increases bilateral trade in parts and components by 03 percent The
content of trade agreements also matters for global value chain integration but the impact
varies by income group Provisions outside the current mandate of the World Trade
Organization (investment and competition policy) drive the effect of trade agreements on
North-South trade in parts and components Provisions under the current World Trade
Organization mandate (tariff reduction and customs facilitation) drive the effect of trade
agreements on South-South trade in parts and components
Keywords International Trade and Trade Rules Industrial and Consumer Services and
Products Transport and Trade Logistics Competition Policy Competitiveness and
Competition Policy Trade Finance and Investment
The Effect of Immigration on Natives School
Achievement Does Length of Stay in the Host
Country Matter World Bank Policy Research Working Paper No 8492
62 Pages Posted 28 Aug 2018
Laurent Bossavie The World Bank
Date Written June 25 2018
Abstract
Using a rich data set of primary school students this paper estimates the effects of immigrant
concentration in the classroom on the academic achievement of natives In contrast with
previous contributions it exploits rare information on age-at-migration to estimate separate
spillover effects by duration of stay of immigrant classmates To identify treatment effects it
uses cohort-by-cohort deviations in immigrant concentration within schools combined with
attractive features of the Dutch school system Overall the paper finds no effect of the
concentration of immigrant students on natives test scores However although immigrant
students who have been in the country for some time have virtually no effect on natives the
analysis finds a small negative effect of recent immigrants in the classroom on natives test
scores The effect is significant only for language test scores but insignificant for mathematics
test scores When significant effect sizes are quite small compared to other educational
interventions and classroom peer effects estimated in other contexts
Keywords Indigenous Peoples Law Indigenous Peoples Indigenous Communities
Educational Sciences International Migration Migration and Development Human Migrations
amp Resettlements Effective Schools and Teachers Educational Institutions amp Facilities
Trade and Immigration 1870-2010
by David S Jacks John P Tang - 25010 (DAE)
Abstract
In this chapter we describe long-run trends in global
merchandise trade and immigration from 1870 to 2010 We revisit
the reasons why these two forces moved largely in parallel in the
decades leading up to World War I collapsed during the interwar
period and then rebounded (but with much more pronounced growth
in trade than in immigration) More substantively we also
document a large redistribution in the regional sources of goods
and people with a shift from the former industrialized core
countries--especially Europe--to those in the former
periphery--especially Asia--as well as a very striking change in
the composition of merchandise trade towards manufactured goods
precisely dating from 1950 Finally using a triple differences
framework in combination with a dramatic change in US immigration
policy we find evidence that immigration and trade potentially
acted as substitutes at least for the United States in the
interwar period
httppapersnberorgpapersW25010utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Attitudes Towards Euro Area Reforms Evidence from
a Randomized Survey Experiment CESifo Working Paper Series No 7141
35 Pages Posted 28 Aug 2018
Mathias Dolls CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute IZA Institute of Labor Economics
Nils Wehrhoumlfer University of Mannheim Graduate School of Economic and Social Sciences Students
Date Written July 09 2018
Abstract
We present the first evidence on public attitudes towards two prominent euro area reform
proposals (European Unemployment Benefit Scheme and Sovereign Insolvency Procedure)
and assess potential impediments to their implementation by means of a randomized survey
experiment in Germany We find that there is a low willingness among German voters to
accept fiscal risk-sharing through common unemployment insurance while a sovereign
insolvency procedure aimed at strengthening market discipline is supported by a majority of
the electorate Our randomized treatments confronting survey participants with potential
adverse effects of the reforms lead to significant downward shifts in approval rates Altruism
cosmopolitanism political preferences and income are important predictors of support for
the reform proposals We also show that there is a striking contrast between the low level of
support for transfers to other euro area member states and a broad acceptance of inner
German transfers
Keywords public attitudes euro area reforms European unemployment insurance
sovereign insolvency procedure
JEL Classification H550 H240 J260 D140
The Economic Effects of Refugee Return and Policy
Implications World Bank Policy Research Working Paper No 8497
65 Pages Posted 28 Aug 2018
Uri Dadush World Bank
Date Written June 27 2018
Abstract
The recent surge in the number of forcibly displaced who cross international borders in
search of protection has prompted interest in evaluating policies that achieve the possible
end points of the phenomenon As envisaged by United Nations High Commissioner for
Refugees (UNHCR) these are the integration in the country of destination relocation in a
third country and return to the country of origin The focus of this paper is on the third
aspect namely the appropriate conduct of return policy viewed from the perspective of the
host country More specifically the main question is whether it is in the economic self-interest
of host countries to return forcibly displaced persons In addressing the question four
ancillary issues are to be addressed (i) the macroeconomic impact of refugees and of their
return (ii) the labor market impact of refugees and of their return (iii) the fiscal impact of
refugees and of their return and (iv) how return policy should be formulated and executed
The available evidence and analyses allow this papers main conclusion namely that the costs
of hosting asylum seekers and refugees are front-loaded while the benefits accruing from
their integration into the labor market and the host economy typically take years to
materialize It follows that from the economic perspective their return after a short stay may
represent a costlier option than continuing to invest in their successful integration Countries
with a flexible labor market strong investment climate and a welcoming attitude to
immigrants tend to see the economic benefits of refugee inflows materialize faster
The Effect of Remittances on the Current Account in
Developing and Emerging Economies World Bank Policy Research Working Paper No 8498
26 Pages Posted 28 Aug 2018
Emmanuel Kwasi Koranteng Lartey World Bank
Date Written June 27 2018
Abstract
This paper presents an analysis of the effect of remittances on the current account in
developing and emerging economies incorporating an assessment of the extent to which
exchange rate regimes impact the relationship The main findings suggest there is a positive
effect of remittances on the current account contemporaneously but that the lagged effect is
negative which could be indicative of the existence of some underlying mechanisms
characteristic of the Dutch disease phenomenon In addition the results show that a more
flexible exchange regime dampens the contemporaneous positive effect that remittances have
on the current account The paper therefore asserts that policy makers face trade-offs
pertaining to the use of exchange rate policy in managing the effects of remittances on the
current account which should be given due consideration when such policy choices are made
Learning About Fiscal Multipliers During the
European Sovereign Debt Crisis Evidence from a
Quasi-Natural Experiment ECB Working Paper No 2154
30 Pages Posted 18 Jun 2018
Gόrnicka Lucyna IMF
Christophe Kamps European Central Bank (ECB)
Gerrit B Koester European Central Bank (ECB)
Nadine Leiner-Killinger European Central Bank (ECB)
Date Written May 30 2018
Abstract
Identifying fiscal multipliers is usually constrained by the absence of a counterfactual
scenario Our new data set allows overcoming this problem by making use of the fact that
recommendations under the EUrsquos excessive deficit procedure (EDP) provide both a baseline
no-policy-change scenario and a fiscal-adjustment EDP scenario that entails a forecast of the
macroeconomic impact of fiscal consolidation over the EDP horizon For a sample of 24 EU
countries to which 48 EDP recommendations were applied between 2009 and 2015 we
derive country-specific fiscal multipliers as actually applied by forecasters during the crisis
Our results confirm Blanchard and Leighrsquos (2013 2014) presumption that forecasters learned
during the crisis According to our findings fiscal multipliers as applied by the European
Commission increased over time ndash from about 14 in the early years of the crisis to about 23
in the later years However different from Blanchard and Leigh (2013 2014) we do not find
evidence for the hypothesis that ex-post fiscal multipliers have been substantially above 1
during the crisis
Keywords fiscal consolidation fiscal multipliers business cycle
JEL Classification E32 E62 H20 H5
Trade in Developing East Asia How it Has Changed
and Why it Matters World Bank Policy Research Working Paper No 8533
58 Pages Posted 28 Aug 2018
Ileana Cristina Constantinescu World Bank
Aaditya Mattoo World Bank - Development Research Group (DECRG)
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Date Written July 13 2018
Abstract
East Asia for long the epitome of successful engagement in trade faces serious challenges
technological change that may threaten the very model of labor intensive industrialization
and a backlash against globalization that may reduce access to important markets A detailed
analysis of the evolution of East Asias trade and trade policy in goods and services leads to
the conclusion that how East Asia copes with these global challenges will depend on how it
addresses three more proximate national and regional challenges The first is the emergence
of one East Asian country China as a global trade giantaccounting for nearly one-seventh of
global exports and one-tenth of global imports -- which is fundamentally altering the trading
patterns and opportunities of its neighbors The second is the asymmetric implementation of
national reform -- remarkable openness to goods trade and investment coexists with relative
restrictiveness of services policies -- which is affecting the evolution of comparative
advantage and productivity in each country The third is the divergence between the
relatively shallow and fragmented agreements that regulate the regions trade and
investment and the growing importance of regional and global value chains as crucial drivers
of productivity growth
Keywords International Trade and Trade Rules Common Carriers Industry Food amp
Beverage Industry Plastics amp Rubber Industry Business Cycles and Stabilization Policies
Construction Industry General Manufacturing Pulp amp Paper Industry Textiles Apparel amp
Leather Industry Export Competitiveness Industrial and Consumer Services and Products
Transport and Trade Logistics
Who are Americas Star Firms World Bank Policy Research Working Paper No 8534
70 Pages Posted 28 Aug 2018
Meghana Ayyagari George Washington University - School of Business
Asli Demirguc-Kunt World Bank
Vojislav Maksimovic University of Maryland - Robert H Smith School of Business
There are 2 versions of this paper
Date Written July 13 2018
Abstract
There is wide spread concern about a growing gap between top-performing publicly listed
firms and the rest of the economy and the implications of this for rising inequality in the US
Using conventional return calculations there is indeed a widening gap between star firms
(defined as those in top 10 percent of return on invested capital in any year) and the rest of
the economy over time especially in industries that rely on a skilled labor force However
once measurement error in intangible capital is accounted for this gap shrinks dramatically
and has not been widening over time While pricing power as measured by markups predicts
star firm status a large fraction of star firms have low markups and there is no evidence that
star firms are cutting output or investment more than other firms for the same markup The
effect of star status is persistent Five years later star firms have higher growth profits and
Tobins Q A small subset of exceptional firms may pose more pressing policy concerns with
much higher returns and the potential to exercise market power in the future
Keywords Plastics amp Rubber Industry Business Cycles and Stabilization Policies Textiles
Apparel amp Leather Industry Pulp amp Paper Industry Food amp Beverage Industry Common
Carriers Industry Construction Industry General Manufacturing Labor Markets Employment
and Unemployment
Bought Sold and Bought Again The Impact of
Complex Value Chains on Export Elasticities World Bank Policy Research Working Paper No 8535
45 Pages Posted 28 Aug 2018
Francois Michel Marie Raphael De Soyres World Bank
Erik Frohm World Bank
Vanessa Gunnella European Central Bank (ECB)
Elena Pavlova European Central Bank (ECB)
Date Written July 13 2018
Abstract
Global value chain participation affects the exchange rate pass-through to export prices and
export volumes The paper develops a partial equilibrium model of international trade with
cross-border production and shows that higher participation in global value chains reduces
the elasticities Specifically a higher share of foreign value added in exports reduces the
exchange rate pass-through to export prices and export volumes A greater share of exports
that return as imports also reduces the responsiveness of export volumes to changes in
bilateral exchange rates Finally exports of inputs that are further re-exported increase the
responsiveness to the trading partners effective exchange rate Using a novel sector-level
panel dataset with 40 countries the analysis tests and finds strong empirical support for the
theoretical predictions The paper further shows that some sectors in some countries can
even experience a decline in gross exports when their currency depreciates
Keywords International Trade and Trade Rules Industrial and Consumer Services and
Products Transport and Trade Logistics Trade and Services Macroeconomic Management
Did Austerity Cause Brexit CESifo Working Paper Series No 7159
101 Pages Posted 25 Sep 2018
Thiemo Fetzer University of Warwick
Date Written July 25 2018
Abstract
Did austerity cause Brexit This paper shows that the rise of popular support for the UK
Independence Party (UKIP) as the single most important correlate of the subsequent Leave
vote in the 2016 European Union (EU) referendum along with broader measures of political
dissatisfaction are strongly and causally associated with an individualrsquos or an arearsquos exposure
to austerity since 2010 In addition to exploiting data from the population of all electoral
contests in the UK since 2000 I leverage detailed individual level panel data allowing me to
exploit within-individual variation in exposure to specific welfare reforms as well as broader
measures of political preferences The results suggest that the EU referendum could have
resulted in a Remain victory had it not been for a range of austerity-induced welfare reforms
Further auxiliary results suggest that the welfare reforms activated existing underlying
economic grievances that have broader origins than what the current literature on Brexit
suggests Up until 2010 the UKrsquos welfare state evened out growing income differences across
the skill divide through transfer payments This pattern markedly stops from 2010 onwards
as austerity started to bite
Keywords political economy austerity globalization voting EU
JEL Classification H200 H300 H500 P160 D720
Resolving Sovereign Debt Crises The Role of Political
Risk CESifo Working Paper Series No 7161
42 Pages Posted 26 Sep 2018
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Date Written August 02 2018
Abstract
Sovereign defaults are bad news for investors and debtor countries in particular if a default
becomes messy and protracted Why are some debt crises resolved quickly in a matter of
months while others take many years to settle This paper studies the duration of sovereign
debt crises based on a new dataset and case study archive on debt renegotiations between
governments and foreign banks and bondholders Using Cox proportional hazard models I
find that domestic political instability (lsquopolitical riskrsquo) is a significant predictor of negotiation
delays after controlling for macroeconomic conditions Government crises resignations and
street protests are particularly disruptive for a quick settlement process Overall the evidence
suggests that debtor countries often lack the political ability to resolve a debt crisis
Governments in turmoil are unlikely to exit a default quickly
Keywords sovereign default crisis resolution political economy
JEL Classification F340 F510 H630
Market Potential and Global Growth over the Long
Twentieth Century CESifo Working Paper Series No 7164
53 Pages Posted 27 Sep 2018
David S Jacks Simon Fraser University (SFU) - Department of Economics National Bureau of Economic Research (NBER)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
There are 3 versions of this paper
Date Written August 02 2018
Abstract
We examine the evolution of market potential and its role in driving economic growth over
the long twentieth century Theoretically we exploit a structural gravity model to derive a
closed-form solution for a widely-used measure of market potential We are thus able to
express market potential as a function of directly observable and easily estimated variables
Empirically we collect a large dataset on aggregate and bilateral trade flows as well as output
for 51 countries We find that market potential exhibits an upward trend across all regions of
the world from the early 1930s and that this trend significantly deviates from the evolution of
world GDP Finally using exogenous variation in trade-related distances to world markets we
demonstrate a significant causal role of market potential in driving global income growth over
this period
Keywords economic geography market potential structural gravity trade costs
JEL Classification F100 N700
Growth Inequality and Poverty A Robust
Relationship World Bank Policy Research Working Paper No 8578
42 Pages Posted 17 Sep 2018
Gustavo A Merrero University of La Laguna
Luis Serveacuten World Bank - Development Research Group (DECRG)
Date Written September 6 2018
Abstract
An extensive literature on poverty traps suggests that high levels of poverty deter growth
However a seemingly basic implication of the underlying theoretical models namely that
countries suffering from higher levels of poverty should grow less rapidly has remained
untested A parallel literature has suggested a variety of mechanisms through which
inequality may affect growth in opposing directions Because inequality and poverty are
different aspects of the income distribution inequality can also affect growth through poverty
an indirect channel that has not been explicitly analyzed This paper contributes to fill both
gaps Using a large cross-country panel data set it estimates a reduced-form growth equation
adding both inequality and poverty to an otherwise standard set of growth determinants
Given inequality the correlation of growth with poverty is consistently negative In contrast
given poverty the correlation of growth with inequality can be positive or negative
depending on the empirical specification and econometric approach used Yet the indirect
effect of inequality on growth through its correlation with poverty is robustly negative Closer
inspection shows that these results are driven by the sample observations featuring high (but
not extremely high) poverty rates These empirical findings are consistent with the
predictions from an analytical framework with learning-by-doing and knowledge spillovers
in which consumers cannot save and invest if their initial endowment is below a minimum
consumption level
Keywords Inequality Inflation Small Area Estimation Poverty Mapping Poverty
Assessment Poverty Lines Poverty Monitoring amp Analysis Poverty Diagnostics Poverty
Impact Evaluation Educational Sciences
Comparison of Welfare Gains in the Armington
Krugman and Melitz Models Insights from a
Structural Gravity Approach World Bank Policy Research Working Paper No 8570
63 Pages Posted 17 Sep 2018
Edward Jay Balistreri Iowa State University
David G Tarr International Trade Analysis
Date Written August 28 2018
Abstract
How large are the estimated gains from trade from a reduction in trade costs in the
heterogeneous firms Melitz (M) model compared with the Armington (A) and Krugman (K)
models Surprisingly little is known beyond the one-sector model This paper analyzes this
question using a global trade model that contains ten regions and various numbers of sectors
(1-10) Following Arkolakis et al (2012) the analysis holds the local trade response constant
across the model comparisons based on a structural gravity estimate Various model features
and scenarios are introduced that are important to real economies almost none of which has
been examined across the three market structures with a constant trade response In
response to global reductions in iceberg trade costs in all the multi-sector models the
ranking of global welfare gains is MelitzgtKrugmangtArmington and the Krugman model
captures between 75 and 95 percent on the additional gains above the Armington model that
are estimated by the Melitz model However for individual regions there are numerous cases
of reversed welfare rankings ie MelitzltkrugmanKrugmangtArmington For individual
regions however the welfare ranking of the Armington Krugman and Melitz market
structures is model data parameter and scenario dependent The results highlight the need
for data and structural considerations in policy analysisltkrugman
Keywords International Trade and Trade Rules Trade and Services Labor Markets Trade
and Multilateral Issues
The Economic Effects of Brexit - Evidence from the
Stock Market CEPR Discussion Paper No DP13147
35 Pages Posted 17 Sep 2018
Holger Breinlich University of Nottingham - School of Economics Centre for Economic Policy Research (CEPR) London
School of Economics amp Political Science (LSE) - Centre for Economic Performance (CEP)
Elsa Leromain London School of Economics amp Political Science (LSE) - London School of Economics
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
Thomas Sampson London School of Economics amp Political Science (LSE)
Ahmed Usman University of Nottingham
Date Written August 2018
Abstract
We study stock market reactions to the Brexit referendum on 23 June 2016 in order to assess
investors expectations about the effects of leaving the European Union on the UK economy
Our results suggest that initial stock price movements were driven by fears of a cyclical
downturn and by the sterling depreciation following the referendum We also find tentative
evidence that market reactions to two subsequent speeches by Theresa May (her
Conservative Party conference and Lancaster House speeches) were more closely correlated
with potential changes to tariffs and non-tariff barriers on UK-EU trade indicating that
investors may have updated their expectations in light of the possibility of a hard Brexit We
do not find a correlation between the share of EU migrants in different industries and stock
market returns
Keywords Brexit depreciation event study Recession Stock market tariffs
JEL Classification F15 F23 G14
Understanding Euro Area Inflation Dynamics Why so
Low for so Long
IMF Working Paper No 18188
26 Pages Posted 1 Oct 2018
Yasser Abdih International Monetary Fund (IMF)
Li Lin International Monetary Fund (IMF)
Anne-Charlotte Paret Banque de France
Date Written August 2018
Abstract
Despite closing output gaps and tightening labor markets inflation has remained low inthe
euro area Based on an augmented Phillips Curve framework we find that thisphenomenon-
sometimes attributed to low global inflation-has been primarily causedby a remarkable
persistence of inflation keeping it low despite the reduction in slack Thisfeature is shown to
be specific to the euro area (in comparison with the United States)Monetary policy needs to
stay accommodative to help guide inflation back to target
Keywords Inflation Inflation expectations Inflation persistence Monetary policy
Econometric models Euro Area Phillips curve inflation persistence and expectations
General Forecasting and Simulation Monetary Policy (Targets Instruments and Effects)
JEL Classification E10 E31 E32 E37 E52 C22 C50
Financial Development Exchange Rate Regimes and
Growth Dynamics World Bank Policy Research Working Paper No 8562
34 Pages Posted 28 Aug 2018
Woubet Kassa The World Bank
Emmanuel Kwasi Koranteng Lartey World Bank
Date Written August 20 2018
Abstract
This paper utilizes data for African countries to analyze the extent to which financial
development affects the dynamics of the relationship between exchange rate flexibility and
economic growth The findings indicate that financial development exerts a positive influence
on the relationship between exchange rate flexibility and GDP growth as well as total factor
productivity growth The paper also documents a positive impact of trade openness on the
relationship between exchange rate flexibility and growth Moreover the results show a
strong and positive association between exchange rate flexibility and financial development
The findings therefore suggest that discussions and decisions on exchange rate policy should
be undertaken with consideration for structural policies that address the development of the
financial sector In addition the paper asserts that policy makers should adopt a stance that
facilitates some flexibility in exchange rates to foster development of the financial
infrastructure in these economies
Keywords International Trade and Trade Rules Industrial Economics Economic Theory amp
Research Economic Growth Currencies and Exchange Rates Educational Sciences
Macroeconomic Management
Unequal Gains Prolonged Pain A Model of
Protectionist Overshooting and Escalation CEPR Discussion Paper No DP13160
53 Pages Posted 17 Sep 2018
Emily J Blanchard Dartmouth College - Tuck School of Business
Gerald Willmann Bielefeld University IfW Kiel KU Leuven CESifo (Center for Economic Studies and Ifo Institute)
Date Written September 2018
Abstract
We develop a model of democratic political responses to macroeconomic shocks in the short
and long run We show that when economic adjustment is slower than potential political
change exogenous changes in the global marketplace can trigger populist surges in favor of
distortionary economic policies Applied to trade policy our model demonstrates that an
exogenous terms-of-trade improvement or skill-biased technological change will lead to a
spike in protectionism that blunts the younger generations incentive to acquire education In
the long run the initial surge in protectionism will gradually diminish if and only if education
enables less-skilled workers to catch up with the overall economy The more unequal the
initial distribution of human capital the greater and longer-lasting the protectionist backlash
will be unequal gains prolonged pain Evidence on key data markers suggested by the model
exhibits patterns consistent with recent populist support for Brexit and Trump
Keywords Dynamic Political Economy education Endogenous Tari Human Capital
Overlapping Generations Overshooting populism protectionism
JEL Classification D7 E6 F5
Threat or Help The Effects of Unskilled Immigrant
Workers on National Productivity Growth World Bank Policy Research Working Paper No 113185
4 Pages Posted 17 Sep 2018
Sharmila Devadas Central Bank of Malaysia
Date Written March 1 2017
Abstract
While unskilled immigrant workers have relatively low formal human capital theory suggests
that they can still contribute to productivity improvements by helping to increase efficiency
and upgrading the skills of the native labor force Empirical studies indicate that positive
productivity effects do occur This body of evidence does not provide a compelling argument
for the closing of national borders to unskilled foreigners on economic grounds
Keywords Indigenous Peoples Indigenous Peoples Law Human Migrations amp Resettlements
Construction Industry Common Carriers Industry Food amp Beverage Industry General
Manufacturing Pulp amp Paper Industry Plastics amp Rubber Industry Labor Markets Business
Cycles and Stabilization Policies International Migration Indigenous Communities Migration
and Development
Global Trade Slowdown Factors and Policies World Bank Policy Research Working Paper No 123899
4 Pages Posted 17 Sep 2018
Dorina Peteva Georgieva World Bank
Norman Loayza World Bank - Research Department
Fabian Mendez Ramos Development Research Group The World Bank
Date Written February 1 2018
Abstract
Growth in global trade has been slow since 2012 While global trade downturns are not
unprecedented the observed change in the relationship of trade to GDP poses the question
whether the trade slowdown is a transitory deviation or a more long-lasting phenomenon
brought about by structural changes This new dynamic coupled with the rise of protectionist
policies and rhetoric in many countries positions trade at the forefront of policy discussions
This brief reviews recent patterns in global trade examines the factors affecting trade--
distinguishing between transitory and structural components of the slowdown--and discusses
policies shaping the path of future trade
Keywords Trade and Multilateral Issues Trade and Services Trade Policy Trade Facilitation
International Trade and Trade Rules International Economics and Trade Transport and
Trade Logistics Trade and Regional Integration Private Sector Development Industrial and
Consumer Services and Products Competitiveness and Competition Policy Marketing Labor
Markets Private Sector Development Law Private Sector Economics Industry Law and
Development Social Policy Legal Reform Social Development Treaties Economics and
Institutions Public Sector Management and Reform Macroeconomics and Economic Growth
Public Sector Development Regulatory Regimes International Law Non Governmental
Organiz
The Productivity J-Curve How Intangibles Complement General Purpose Technologies
by Erik Brynjolfsson Daniel Rock Chad Syverson - 25148 (EFG IO PR)
Abstract
General purpose technologies (GPTs) such as AI enable and require
significant complementary investments including business process
redesign co-invention of new products and business models and
investments in human capital These complementary investments
are often intangible and poorly measured in the national
accounts even if they create valuable assets for the firm We
develop a model that shows how this leads to an underestimation
of output and productivity in the early years of a new GPT and
how later when the benefits of intangible investments are
harvested productivity will be overestimated Our model
generates a Productivity J-Curve that can explain the
productivity slowdowns often accompanying the advent of GPTs as
well as the follow-on increase in productivity later We use our
model to assess how AI-related intangible capital is currently
affecting measured total factor productivity (TFP) and output
We also conduct a historical analysis of the roles of intangibles
tied to RampD software and computer hardware finding substantial
and ongoing effects of software in particular and hardware to a
lesser extent
httppapersnberorgpapersW25148utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
New Technologies Global Value Chains and Developing Economies
by Dani Rodrik - 25164 (DEV EFG ITI)
Abstract
Many of the exports of developing countries are channeled through
global value chains (GVCs) which also act as conduits for new
technologies However new capabilities and productive
employment remain limited so far to a tiny sliver of globally
integrated firms GVCs and new technologies exhibit features
that limit the upside and may even undermine developing
countries economic performance In particular new technologies
present a double whammy to low-income countries First they are
generally biased towards skills and other capabilities This
bias reduces the comparative advantage of developing countries in
traditionally labor-intensive manufacturing (and other)
activities and decreases their gains from trade Second GVCs
make it harder for low-income countries to use their labor cost
advantage to offset their technological disadvantage by reducing
their ability to substitute unskilled labor for other production
inputs These are two independent shocks that compound each
other The evidence to date on the employment and trade fronts
is that the disadvantages may have more than offset the
advantages
httppapersnberorgpapersW25164utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Bank Runs and Moral Hazard A Review of Deposit
Insurance World Bank Policy Research Working Paper No 8589
31 Pages Posted 20 Sep 2018 Last revised 21 Sep 2018
Deniz Anginer World Bank Research
Asli Demirguc-Kunt World Bank
Date Written September 19 2018
Abstract
Deposit insurance is a widely adopted policy to promote financial stability in the banking
sector Deposit insurance helps ensure depositors confidence in the financial system and
prevents contagious bank runs but it also comes with an unintended consequence of
encouraging banks to take on excessive risk This paper reviews the economic costs and
benefits of deposit insurance and highlights the importance of institutions and specific design
features for how well deposit insurance schemes work in practice
Keywords Deposit Insurance Financial Structures Banks amp Banking Reform Judicial System
Reform Economic Growth
The Future of Work Race With-Not Against-The
Machine World Bank Research amp Policy Briefs Paper No 129680
4 Pages Posted 17 Sep 2018
Lay Lian Chuah World Bank - Development Research Group (DECRG)
Norman Loayza World Bank - Research Department
Achim Schmillen Osteuropa-Institut (OEI) Government of the Federal Republic of Germany - Institute for Employment
Research (IAB) University of Regensburg - Department of Economics and Econometrics
Date Written August 1 2018
Abstract
Will the revolution in digital and information technologies make us obsolete Will jobs be lost
and never replaced Will wages drop to intolerable levels History and economic theory and
evidence suggest that in the long term such fears are misplaced However in the short and
medium term dislocation can be severe for certain types of work places and populations In
the transition period policies are needed to facilitate labor market flexibility and mobility
introduce and strengthen safety nets and social protection and improve education and
training
Keywords Labor Markets Rural Labor Markets Armed Conflict Food Security
An Economists Guide to Climate Change Science
by Solomon Hsiang Robert E Kopp - 25189 (DEV EEE EFG HE ITI LS PE POL PR)
Abstract
Climate change management is a global challenge that requires
social science as much as it requires natural science We
provide a brief introduction to the physical science of climate
change written to provide essential background for economists
and other social scientists We also highlight some key areas in
which economists--including those studying macroeconomics
political economy and development--are in a unique position to
help climate science advance
httppapersnberorgpapersW25189utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
The Intensive Margin in Trade
by Ana M Fernandes Peter J Klenow Sergii Meleshchuk Denisse Pierola Andres Rodriguez-
Clare - 25195 (ITI)
Abstract
The Melitz model highlights the importance of the extensive
margin (the number of firms exporting) for trade flows Using
the World Banks Exporter Dynamics Database (EDD) featuring
firm-level exports from 50 countries we find that around 50 of
variation in exports is along the extensive margin --- a
quantitative victory for the Melitz framework The remaining 50
on the intensive margin (exports per exporting firm) contradicts
a special case of Melitz with Pareto-distributed firm
productivity which has become a tractable benchmark This
benchmark model predicts that conditional on the fixed costs of
exporting all variation in exports across trading partners
should occur on the extensive margin We find that moving from a
Pareto to a lognormal distribution allows the Melitz model to
match the role of the intensive margin in the EDD We use
likelihood methods and the EDD to estimate a generalized Melitz
model with a joint lognormal distribution for firm-level
productivity fixed costs and demand shifters and use exact hat
algebra to quantify the effects of a decline in trade costs on
trade flows and welfare in the estimated model The welfare
effects turn out to be quite close to those in the standard
Melitz-Pareto model when we choose the Pareto shape parameter to
fit the average trade elasticity implied by our estimated
Melitz-lognormal model although there are significant
differences regarding the effects on trade flows
httppapersnberorgpapersW25195utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Are Banks Engines of Export Financial Structures
and Export Dynamics World Bank Policy Research Working Paper No 8621
41 Pages Posted 26 Oct 2018 Last revised 30 Oct 2018
Raoul Minetti Michigan State University - Department of Economics
Alen Mulabdic World Bank
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Susan Chun Zhu Michigan State University - Department of Economics
Date Written October 25 2018
Abstract
This paper studies the impact of financial structures on the dynamics of the export sector
using rich data from over 60 countries The results reveal that bank-oriented financial
systems boost the size of the export sector more than market-oriented financial systems
However especially in middle- and low-income countries this effect mostly stems from banks
slowing down exporters exit rather than promoting firms entry into export The reduced exit
from the export sector appears to reflect domestic banks tendency to evergreen loans to
exporters (soft budget constraint) more than banks buffering role in difficult times Foreign
banks mitigate this effect and enhance the dynamism of the export sector
Contractual Frictions and the Margins of Trade World Bank Policy Research Working Paper No 8631
31 Pages Posted 31 Oct 2018 Last revised 1 Nov 2018
Theophile T Azomahou United Nations University (UNU-MERIT) Maastricht University
Hibret Belete Maemir World Bank
Hassen Abda Wako UNU-MERIT
Date Written October 30 2018
Abstract
A growing body of work has shown that the quality of national institutions that enforce
written contracts plays an important role in shaping a countrys comparative advantage
Using highly disaggregated bilateral and unique harmonized firm-level trade data across a
large number of countries this paper contributes to this literature by providing a
comprehensive analysis of the mechanisms through which institutional frictions affect the
pattern of aggregate trade flow distinguishing the effects on the intensive and extensive
margins The analysis finds that contractual friction distorts countries trade pattern beyond
its effect on domestic production structure by deterring the probability of exporting (the
extensive margin) and export sales after entry (the intensive margin) particularly in
industries that rely more heavily on relationship-specific inputs (more vulnerable to holdup
problems) The analysis also finds that contractual frictions matter more for the intensive
margin than the extensive margin of exporting In addition better contracting institutions
increase the probability of survival of new export products in more contract-intensive
industries These results have important policy implications for developing countries that
seek to boost export growth but many of which suffer from poor contracting institutions
Nominal Exchange Rate Dynamics and Monetary
Policy Uncovered Interest Rate Parity and Purchasing
Power Parity Revisited CEPR Discussion Paper No DP13235
33 Pages Posted 15 Oct 2018 Last revised 22 Oct 2018
Yossi Saadon Bank of Israel - Research Department
Nathan Sussman Hebrew University of Jerusalem
Date Written October 2018
Abstract
The increasing globalization of trade in goods and services and the deepening of financial
markets have reduced frictions that may impede the operation of the PPP and UIP
relationships in the short run In this paper we estimate the short term relative PPP and UIP
relationships Using data from Israel which has a deep market for inflation expectations for
12 months we show that relative PPP and UIP cannot be rejected Deviations from
equilibrium last less than a year Data from Israels capital account of the balance of payments
shows that the deviations are not destabilizing Our findings suggest that greater globalization
and financial deepening contribute to the effectiveness of monetary policy
Keywords Balance sheet effects Exchange Rates Inflation expectations monetary policy
purchasing power parity uncovered interest rate parity
Macroeconomic Effects of Chinas Financial Policies
by Kaiji Chen Tao Zha - 25222 (DEV EFG ME)
Abstract
The Chinese economy has undergone three major phases the
1978-1997 period marked as the SOE-led economy the 1998-2015
phase as the investment-driven economy and the new normal
economy since 2016 All three economies have been shaped by the
governments financial policies defined as a set of credit
policy monetary policy and regulatory policy We analyze the
macroeconomic effects of these financial policies throughout the
three phases and provide the stylized facts to substantiate our
analysis The stylized facts differ qualitatively across
different phases or economies We argue that the impacts of
Chinas financial policies work through transmission channels
different from those in developed economies and that a regime
switch from one economy to another was driven mainly by regime
changes in financial policies
httppapersnberorgpapersW25222utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Factor Incomes in Global Value Chains The Role of Intangibles
by Wen Chen Bart Los Marcel P Timmer - 25242 (EFG)
Abstract
Recent studies document a decline in the share of labour and a
simultaneous increase in the share of residual (factorless)
income in national GDP We argue the need for study of factor
incomes in cross-border production to complement country studies
We define a GVC production function that tracks the value added
in each stage of production in any country-industry We define a
new residual as the difference between the value of the final
good and the payments to all tangibles (capital and labour) in
any stage We focus on GVCs of manufactured goods and find the
residual to be large We interpret it as income for intangibles
that are (mostly) not covered in current national accounts
statistics We document decreasing labour and increasing capital
income shares over the period 2000-14 This is mainly due to
increasing income for intangible assets in particular in GVCs of
durable goods We provide evidence that suggests that the 2000s
should be seen as an exceptional period in the global economy
during which multinational firms benefitted from reduced labour
costs through offshoring while capitalising on existing
firm-specific intangibles such as brand names at little
marginal cost
httppapersnberorgpapersW25242utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Accounting for Firm Heterogeneity within US Industries Extended Supply-Use Tables and Trade
in Value Added using Enterprise and Establishment Level Data
by James J Fetzer Tina Highfill Kassu W Hossiso Thomas F Howells III Erich H Strassner
Jeffrey A Young - 25249 (ITI)
Abstract
This paper presents experimental tables created by the US
Bureau of Economic Analysis comparing industry-specific shares of
the components of total output of globally engaged firms located
in the United States that are part of a multinational enterprise
with those of firms that are part of an enterprise entirely
located in the United States Recent research has shown both the
importance of accounting for trade in value added when estimating
bilateral trade flows and that multinational enterprises located
in the United States account for the lions share of US trade
in goods and services However trade in value added is
typically accounted for using input-output tables that are
aggregated across all types of firms The experimental tables
are consistent with other research showing that value added as a
share of output is lower for foreign-owned firms compared with
domestic-owned firms and that exports and imports as a share of
output is larger for foreign-owned firms We also find
heterogeneity in the composition of output among different types
of domestic-owned firms Future work will analyze this
heterogeneity in more detail using establishment-level data on
production and trade
httppapersnberorgpapersW25249utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
The Falling Elasticity of Global Trade to Economic
Activity Testing the Demand Channel CESifo Working Paper No 7228
42 Pages Posted 31 Oct 2018
Marc Auboin World Trade Organization (WTO)
floriana borino World Trade Organization (WTO)
Date Written 2018
Abstract
Since the recovery from the great financial crisis in 2010 global real trade flows grew much
slower than pre-crisis in both absolute terms (growth rates) and relative terms (relative to
GDP from 21 in the great 1990rsquos to 11 since 2012) A debate has arisen as to whether this
global trade slowdown and related falling trade-to-income elasticity was structural or
cyclical Some papers emphasized the slowing pace of international vertical specialization
Other works emphasized the prominent role of aggregate demand notably when weighted by
its trade component Our paper goes in this latter direction We estimated the standard
import equation for 38 advanced and developing countries over the period 1995-2015 using
an import intensity-adjusted measure of aggregate demand (IAD) calculated from input-
output tables at country level and compared results with regressions using GDP The
integration of IAD allows us to predict 76 to 86 of the changes in global imports a better
performance than if using GDP The use of IAD also enabled us to measure the relative
importance of each component of demand according to their trade intensity The model is
able to account for over 90 of the recent trade slowdown (2012-2015) with IAD alone
explaining 80 of it The slowdown in global value chains explains more than half of the
remaining share of the global trade slowdown not explained by demand factors
Protectionism does not come up as statistically significant
Keywords investment global outlook trade policy trade forecasting business cycles
JEL Classification E220 F010 F130 F170 F440
Will Brexit Age Well Cohorts Seasoning and the Age-
Leave Gradient Past Present and Future CEPR Discussion Paper No DP13288
38 Pages Posted 5 Nov 2018
Barry Eichengreen University of California Berkeley National Bureau of Economic Research (NBER) Centre for Economic
Policy Research (CEPR)
Rebecca Mari Bocconi University
Gregory Thwaites London School of Economics amp Political Science (LSE) - London School of Economics
There are 3 versions of this paper
Date Written October 2018
Abstract
In the UKs 2016 referendum on EU membership young voters were more likely than their
elders to vote Remain Applying new methods to a half century of data we show that this
pattern reflects both ageing and cohort effects Although voters become more Eurosceptical as
they age recent cohorts are also more pro-European than their predecessors Much of the
pro-Europeanism of these recent cohorts is accounted for by their greater years of education
Going forward the ageing of the electorate will thus be offset at least in part by the
replacement of older cohorts with younger better-educated and more pro-European ones
But we also document large nationwide swings in sentiment that have little to do with either
seasoning or cohort effects Hence these demographic trends are unlikely to be the decisive
determinants of future changes in European sentiment Rather nationwide changes in
sentiment reflecting macroeconomic or other conditions and the age-turnout gradient will be
key
JEL Classification F0
Buying Votes and International Organizations The
Dirty Work-Hypothesis CEPR Discussion Paper No DP13290
62 Pages Posted 5 Nov 2018
Axel Dreher Heidelberg University
Valentin Lang University of Zurich
B Peter Rosendorff New York University (NYU) - Wilf Family Department of Politics
James Raymond Vreeland Georgetown University - School of Foreign Service and Department of Government
Date Written October 2018
Abstract
We show how major shareholders can exploit their power over international organizations to
hide their foreign-policy interventions from domestic audiences We argue that major powers
exert influence bilaterally when domestic audiences view the intervention favorably When
domestic audiences are more skeptical of a target country favors are granted via
international organizations We test this theory empirically by examining how the United
States uses bilateral aid and IMF loans to buy other countries votes in the United Nations
Security Council (UNSC) Introducing new data on voting behavior in the UNSC over the 1960-
2015 period our results show that states allied with the US receive more bilateral aid when
voting in line with the United States in the UNSC while concurring votes of states less allied
with the US are rewarded with loans from the IMF Temporary UNSC members that vote
against the United States do not receive such perks
Keywords Aid IMF United Nations Security Council voting World Bank
JEL Classification F35 O11 O19
dollar andthe euro - to a tri-polar one that includes the renminbi The dollar bloc is estimated
tocontinue to dominate having the largest share in global GDP (40 percent) followed by
therenminbi (30 percent) and the euro blocs (20 percent) The geographical area of influence
forthe RMB bloc appears to be most evident among the BRICS currencies The British
poundand the Japanese yen blocs appear to play minor roles
Keywords Economic integration Foreign exchange International monetary system
Currency Bloc Internatinal Monetary System International Monetary Arrangements and
Institutions Financial Aspects of Economic Integration Open Economy Macroeconomics
JEL Classification F15 F31 F33 F36 F41 O24
17 The US Gains from Trade Valuation Using the Demand for Foreign Factor Services
by Arnaud Costinot Andres Rodriguez-Clare - 24407 (ITI)
Abstract
About 8 cents out of every dollar spent in the United States is
spent on imports What if because of a wall or some other
extreme policy intervention imports were to remain on the other
side of the US border How much would US consumers be willing to
pay to prevent this hypothetical policy change from taking place
The answer to this question represents the welfare cost from
autarky or equivalently the welfare gains from trade In this
article we discuss how to evaluate these gains using the demand
for foreign factor services The estimates of gains from trade
for the US economy that we review range from 2 to 8 percent of
GDP
httppapersnberorgpapersW24407utm_campaign=ntwamputm_medium=emailamputm_source=ntw
A Dialogue between a Populist and an Economist CEPR Discussion Paper No DP12763
11 Pages Posted 6 Mar 2018
Tito Boeri Bocconi University - Department of Economics Centre for Economic Policy Research (CEPR) IZA Institute
of Labor Economics
Prachi Mishra Government of India - Reserve Bank of India
Chris Papageorgiou International Monetary Fund (IMF) - Research Department
Antonio Spilimbergo
International Monetary Fund (IMF) - Research Department Centre for Economic Policy Research (CEPR)
University of Michigan at Ann Arbor - The William Davidson Institute
Date Written February 2018
Abstract
In this imaginary dialogue a populist and an economist discuss the role of economic shocks to
explain populism A simple correlation between economic shocks and populism is weak
However economic shocks can explain well the phenomenon of populism in countries with
low pre-existent level of trust This is confirmed both at the macro cross-country level and
also by micro evidence obtained from surveys Finally this finding is consistent with the
ideational approach in political science which emphasizes how the populist narrative
opposes the corrupt elite to the virtuous people
Keywords Europe Political parties populism
JEL Classification A10 A12
International Capital Flow Pressures IMF Working Paper No 1830
59 Pages Posted 14 Mar 2018
Linda S Goldberg Federal Reserve Bank of New York National Bureau of Economic Research (NBER)
Signe Krogstrup IMF
There are 3 versions of this paper
Date Written February 2018
Abstract
This paper presents a new measure of capital flow pressures in the form of a recast
ExchangeMarket Pressure index The measure captures pressures that materialize in actual
internationalcapital flows as well as pressures that result in exchange rate adjustments The
formulation istheory-based relying on balance of payments equilibrium conditions and
international assetportfolio considerations Based on the modified exchange market pressure
index the paperalso proposes the Global Risk Response Index which reflects the country-
specific sensitivityof capital flow pressures to measures of global risk aversion For a large
sample of countriesover time we demonstrate time variation in the effects of global risk on
exchange marketpressures the evolving importance of the global factor across types of
countries and thechanging risk-on or risk-off status of currencies
Keywords Exchange Market Pressure Risk aversion Safe haven Capital flows Exchange
Rate Foreign Exchange Reserves Exchange Market Pressure Risk aversion Safe haven
Capital flows Exchange Rate Foreign Exchange Reserves Portfolio Choice General
JEL Classification F23 G11 G20 F32
Sovereign Defaults in Court CEPR Discussion Paper No DP12777
76 Pages Posted 13 Mar 2018
Julian Schumacher European Central Bank (ECB)
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Enderlein Henrik Hertie School of Governance
Date Written March 2018
Abstract
For centuries defaulting governments were immune from legal action by foreign creditors
This paper shows that this is no longer the case Building a dataset covering four decades we
find that creditor lawsuits have become an increasingly common feature of sovereign debt
markets The legal developments have strengthened the hands of creditors and raised the cost
of default for debtors We show that legal disputes in the US and the UK disrupt government
access to international capital markets as foreign courts can impose a financial embargo on
sovereigns The findings are consistent with theoretical models with creditor sanctions and
suggest that sovereign debt is becoming more enforceable We discuss how the threat of
litigation affects debt management government willingness to pay and the resolution of debt
crises
Keywords debt restructuring enforcement government financing sovereign default
JEL Classification F34 G15 H63 K22
Globalization and Income Inequality Revisited CESifo Working Paper Series No 6859
48 Pages Posted 20 Mar 2018
Florian Dorn
CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Clemens Fuest ifo Institute ndash Leibniz Institute for Economic Research at the University of Munich Ludwig-Maximilians-
University Munich Center for Economic Studies (CES)
Niklas Potrafke CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Date Written February 05 2018
Abstract
This paper re-examines the link between globalization and income inequality We use data for
140 countries over the period 1970-2014 and employ an IV approach to deal with the
endogeneity of globalization measures We find that the link between globalization and
income inequality differs across different groups of countries There is a robust positive
relationship between globalization and inequality in the transition countries including China
and most countries of Middle and Eastern Europe In the sample of the most advanced
economies neither OLS nor 2SLS results show any significant positive relationship between
globalization and inequality We conclude that institutions providing income insurance and
education which characterize most advanced economies but are less developed in transition
economies may have moderated effects of globalization on income inequality
Keywords globalization income inequality redistribution instrumental variable estimation
panel econometrics development levels transition economies China
JEL Classification D310 D630 F020 F600 C260 H110 H200
The US Gains from Trade Valuation Using the
Demand for Foreign Factor Services CEPR Discussion Paper No DP12788
34 Pages Posted 20 Mar 2018
Arnaud Costinot University of California San Diego (UCSD) - Department of Economics Massachusetts Institute of
Technology (MIT) - Department of Economics
Andres Rodriguez-Clare Inter-American Development Bank (IDB)
There are 2 versions of this paper
Date Written March 2018
Abstract
About 8 cents out of every dollar spent in the United States is spent on imports What if
because of a wall or some other extreme policy intervention imports were to remain on the
other side of the US border How much would US consumers be willing to pay to prevent this
hypothetical policy change from taking place The answer to this question represents the
welfare cost from autarky or equivalently the welfare gains from trade In this article we
discuss how to evaluate these gains using the demand for foreign factor services The
estimates of gains from trade for the US economy that we review range from 2 to 8 percent of
GDP
A Multidimensional Approach to Trade Policy
Indicators IMF Working Paper No 1832
38 Pages Posted 12 Mar 2018
Diego Cerdeiro International Monetary Fund (IMF)
Rachel Nam International Monetary Fund (IMF)
Date Written February 2018
Abstract
We present and discuss a set of indicators to help assess countries trade policies The
indicators relate to three policy areas - trade in goods trade in services and FDI Given
concerns about the direction of global trade policy we also consider a set of more granular
measures that reflect the evolution of countries policies since the 2008 financial crisis We
propose a simple approach to present the multidimensional aspects of trade policy that by
shedding light on relative openness across areas can facilitate policy discussions In the cross-
section of countries we find a diversity in the type of measures adopted both between and
(since the 2008 financial crisis) within policy areas lending support to the approach based on
multiple indicators The indicators time series suggest that advanced and especially
emerging economies are moving toward more open regimes over time although recently
progress has with some exceptions slowed across the board Lastly our findings also call for
stronger efforts to objectively quantify the different aspects of countries trade regimes More
data both across countries and in terms of policy areas that significantly affect trade are
needed for better-informed policy discussions
Keywords Foreign direct investment Trade policy indicators trade in goods services trade
trade barriers General Country and Industry Studies of Trade
JEL Classification F10 F14
Corporate Indebtedness and Low Productivity
Growth of Italian Firms IMF Working Paper No 1833
47 Pages Posted 12 Mar 2018
Gareth Anderson Bank of England
Mehdi Raissi International Monetary Fund (IMF) - Asia and Pacific Department
Date Written February 2018
Abstract
Productivity growth in Italy has been persistently anemic and has lagged that of the euro area
over the period 1999-2015 while the indebtedness of its corporate sector has increased
Using the ORBIS firm-level database this paper studies the long-term impact of persistent
corporate-debt accumulation on the productivity growth of Italian firms and investigates
whether total factor productivity growthvaries with the level of corporate indebtedness We
employ a novel estimation technique proposed by Chudik Mohaddes Pesaran and Raissi
(2017) to account for dynamics bi-directional feedback effects cross-firm heterogeneity and
cross-sectional dependence arising from unobserved common factors (for example oil price
shocks labor and product market frictions and stance of global financial cycle) Filtering out
the effects of unobserved common factors and controlling for firm specific characteristics we
find significant negative effects of persistent corporate debt build-up on total factor
productivity growth and weak evidence of a threshold level of corporate debt beyond which
productivity growth drops off significantly Our results have strong policy implications for
example the design of the tax system should discourage persistent corporate debt
accumulation and effective and timely frameworks to reduce corporate debt overhangs are
essential
Keywords Productivity Europe Italy Corporate debt dynamic heterogeneous panel
threshold models cross-sectional dependence Models with Panel Data Firm Behavior
Empirical Analysis General
JEL Classification C23 D22 D24 G30
Regulatory Cycles Revisiting the Political Economy of
Financial Crises IMF Working Paper No 188
90 Pages Posted 21 Mar 2018
Jihad C Dagher International Monetary Fund (IMF) - Research Department
There are 2 versions of this paper
Date Written January 2018
Abstract
Financial crises are traditionally analyzed as purely economic phenomena The political
economy of financial booms and busts remains both under-emphasized and limited to isolated
episodes This paper examines the political economy of financial policy during ten of the most
infamous financial booms and busts since the 18th century and presents consistent evidence
of pro-cyclical regulatory policies by governments Financial boomsand risk-taking during
these episodes were often amplified by political regulatory stimuli credit subsidies and an
increasing light-touch approach to financial supervision The regulatory backlash that ensues
from financial crises can only be understood in the context of the deep political ramifications
of these crises Post-crisis regulations do not always survive the following boom The
interplay between politics and financial policy over these cycles deserves further attention
History suggests that politics can be the undoing of macro-prudential regulations
Keywords Political economy Political economy Financial crises Financial Regulation Boom-
Bust Cycles Economic Models of Political Processes Rent-Seeking Elections Legislatures and
Voting Behavior Positive Analysis of Policy-Making and Implementation General
Government Policy and Regulation General
JEL Classification D72 D78 G10 G18 N00 P16
Rationality in Economics Theory and Evidence CESifo Working Paper Series No 6872
26 Pages Posted 21 Mar 2018
Sanjit Dhami University of Leicester - Department of Economics
Ali al-Nowaihi University of Leicester - Department of Economics
Date Written February 12 2018
Abstract
We examine the various senses in which economist use the term ldquorationalityrdquo and then outline
some of the commonly drawn implications and auxiliary assumptions Finally we confront the
implications with the empirical evidence drawing on the insights from the exciting new field
of behavioral economics
Keywords rationality self-regarding preferences efficient markets heuristics optimization
JEL Classification B400
Nudging and Environmental Corporate
Responsibility A Natural Experiment CEIS Working Paper No 426
22 Pages Posted 3 Apr 2018
Leonardo Becchetti University of Rome Tor Vergata - Faculty of Economics
Francesco Salustri University of Rome Tor Vergata - Department of Economics and Finance University of Turin - Department
of Economics and Statistics
Pasquale Scaramozzino University of Rome II - Faculty of Economics University of London - School of Oriental and African Studies
(SOAS) University of London - Centre for Financial and Management Studies (CeFIMS)
Date Written April 3 2018
Abstract
We devise a lsquonudgingrsquo natural experiment to test the impact of a simple form of advertising on
environmentally responsible products withwithout the increase of the responsible product
price We find that the simple use of a small shelf-poster explaining the importance of buying
a green product (withwithout a concurring price increase) generates significant changes in
market shares for some of the product classes for both food and non-food products Part of
the effect is generated by the reduced price elasticity of consumers to the poster-plus-price-
increase treatment
Keywords nudging environmental sustainability randomised field experiment
JEL Classification C93 D12 M14 Q56
11 The Role of Financial Policy
by Roger Farmer - 24498 (EFG ME)
Abstract
I review the contribution and influence of Milton Friedmans 1968
presidential address to the American Economic Association I
argue that Friedmans influence on the practice of central
banking was profound and that his argument in favour of monetary
rules was responsible for thirty years of low and stable
inflation in the period from 1979 through 2009 I present a
critique of Friedmans position that market-economies are
self-stabilizing and I describe an alternative reconciliation of
Keynesian economics with Walrasian general equilibrium theory
from that which is widely accepted today by most neo-classical
economists
httppapersnberorgpapersW24498utm_campaign=ntwamputm_medium=emailamputm_source=ntw
5 Immigrant Entrepreneurship in America Evidence from the Survey of Business Owners 2007 amp 2012
by Sari Pekkala Kerr William R Kerr - 24494 (LS PR)
Abstract
We study immigrant entrepreneurship and firm ownership in 2007
and 2012 using the Survey of Business Owners (SBO) The survival
and growth of immigrant-owned businesses over time relative to
native-founded companies is evaluated by linking the 2007 SBO to
the Longitudinal Business Database (LBD) We quantify the
dependency of the United States as a whole as well as individual
states on the contributions of immigrant entrepreneurs in terms
of firm formation and job creation We describe differences in
the types of businesses started by immigrants and the quality of
jobs created by their firms First-generation immigrants create
about 25 of new firms in the United States but this share
exceeds 40 in some states In addition Asian and Hispanic
second-generation immigrants start about 6 of new firms
Immigrant-owned firms on average create fewer jobs than
native-owned firms but much of this is explained by the industry
and geographic location of the firms Immigrant-owned firms pay
comparable wages conditional on firm traits to native-owned
firms but are less likely to offer benefits
httppapersnberorgpapersW24494utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Effects of Foreign Aid on Refugee Flows CESifo Working Paper Series No 6885
49 Pages Posted 9 Apr 2018
Axel Dreher University of Heidelberg
Andreas Fuchs University of Heidelberg - Alfred Weber Institute for Economics
Sarah Langlotz University of Heidelberg
There are 2 versions of this paper
Date Written February 15 2018
Abstract
This article analyzes whether foreign aid affects the net flows of refugees from recipient
countries Combining refugee data on 141 origin countries over the 1976-2013 period with
bilateral Official Development Assistance data we estimate the causal effects of a countryrsquos
aid receipts on both total refugee flows to the world and flows to donor countries The
interaction of donor-government fractionalization and a recipient countryrsquos probability of
receiving aid provides a powerful and excludable instrumental variable when we control for
country- and time-fixed effects that capture the levels of the interacted variables Although
our results suggest that aid induces recipient governments to encourage the return of their
citizens we find no evidence that aid reduces worldwide refugee outflows or flows to donor
countries in the short term However we observe long-run effects after four three-year
periods which appear to be driven by lagged positive effects of aid on growth
Keywords foreign aid Official Development Assistance migration refugees displaced
people humanitarian crises repatriation policies
JEL Classification F220 F350 F590 H840 O150 O190
The Political Economy of Ideas On Ideas Versus
Interests in Policymaking CEPR Discussion Paper No DP12820
44 Pages Posted 5 Apr 2018
Sharun Mukand University of Warwick - Department of Economics
Dani Rodrik Harvard University - Harvard Kennedy School (HKS) Centre for Economic Policy Research (CEPR)
National Bureau of Economic Research (NBER)
There are 2 versions of this paper
Date Written March 2018
Abstract
We develop a conceptual framework to highlight the role of ideas as a catalyst for policy and
institutional change We make an explicit distinction between ideas and vested interests and
show how they feed into each other In doing so the paper integrates the Keynes-Hayek
perspective on the importance of ideas with the currently more fashionable Stigler-Becker
(in-terests only) approach to political economy We distinguish between two kinds of
ideational politics acircldquo the battle among different worldviews on the efficacy of policy
(worldview politics) versus the politics of victimhood pride and identity (identity politics)
Political entrepreneurs discover identity and policy memes (narratives cues framing) that
shifts beliefs about how the world works or a persons belief of who he is (ie identity) Our
framework identifies a complementarity between worldview politics and identity politics and
illustrates how they may reinforce each other In particular an increase in identity
polarization may be associated with a shift in views about how the world works Furthermore
an increase in income inequality is likely to result in a greater incidence of ideational politics
Finally we show how ideas may not just constrain but also bite the interests that helped
propagate them in the first instance
Should Unemployment Insurance Be Centralized in a
State Union CESifo Working Paper Series No 6898
27 Pages Posted 19 Apr 2018
Robert Fenge University of Rostock - Department of Economics
Max Friese University of Rostock
Date Written February 21 2018
Abstract
This paper compares the decentral organization of unemployment insurance in member
states of a state union with the central organization at the upper unionrsquo level In a model of
two countries the labor force and the firm owners can migrate between the states Labor
markets exhibit unemployment due to trade unionrsquos bargaining about the wage rate In a
decentral scenario the states organize independently unemployment insurance and decide
about the rate on wages contributed to the insurance budget Due to open borders they have
to take account of migration effects However with perfect mobility between the states each
government chooses a socially optimal contribution rate such that workers are fully insured
against unemployment In the central scenario the governments overestimate the costs of
insurance when bargaining about the contribution rate and observing the common insurance
budget of both countries This leads to a less than socially optimal contribution rate
Keywords unemployment insurance policy state union centralization migration
externalities
JEL Classification F660 H770 J650
Paris Climate Agreement and the Global Economy
Winners and Losers World Bank Policy Research Working Paper No 8392
Posted 3 Apr 2018
Muthukumara Mani World Bank
Zekarias Hussein Purdue University
G Badri Narayanan Purdue University - Center for Global Trade Analysis
Deepika Wadhwa India Habitat Centre - Indian Council for Research on International Economic Relations (ICRIER)
Date Written April 2 2018
Abstract
The 2015 Paris Climate Agreement was the first instance of countries adhering to take a
collective action against global warming More than 190 countries came forward and
submitted their contributions in the form of Intended Nationally Determined Contributions
reflective of their ability and capacity to reduce greenhouse gas emissions as each country set
its own targets and actions For some countries it meant a significant decline in their
emissions by 2030 while others like China the United States and India decided on a more
gradual phasing out extending beyond 2030 This paper estimates the economic impacts of
implementation of the Paris Climate Agreement in terms of its implications for welfare gross
domestic product investments and trade for major countries and regions It uses a
computable general equilibrium framework to model global regional and country impacts
The analysis suggests that the economic impacts will be mostly felt in the European Union if
the Paris Agreement is fully implemented The European Union is likely to suffer a welfare
loss of 10 to 15 percent by 2030 Among non-European countries Australia New Zealand
and Mexico will also be affected with an expected welfare loss of about 15 percent Some of
the major emitters such as China and India will experience minimal impacts to their welfare
and the United States will experience a welfare loss of only about 07 by 2030 The sectoral
analysis of production and trade suggests a significant loss to fossil fuelbased sectors while
clean energy sectors can experience significant gains
Keywords International Trade and Trade Rules Energy and Mining Energy and
Environment Energy Demand Global Environment Energy Policies amp Economics Science of
Climate Change Climate Change and Environment Climate Change and Health
Immigrants Residential Choices and Their
Consequences CEPR Discussion Paper No DP12842
59 Pages Posted 12 Apr 2018
Christoph Albert Universitat Pompeu Fabra Students
Joan Monras Sciences Po - Department of Economics Centre for Monetary and Financial Studies (CEMFI)
There are 2 versions of this paper
Date Written April 2018
Abstract
This paper investigates the causes and effects of the spatial distribution of immigrants across
US cities We document that a) immigrants concentrate in large high-wage expensive cities
b) the earnings gap between immigrants and natives is higher in larger more expensive cities
and c) immigrants consume less locally than natives In order to explain these findings we
develop a quantitative spatial equilibrium model in which immigrants consume a fraction of
their income in their countries of origin Thus immigrants care not only about local prices but
also about price levels in their home countries This gives them a comparative advantage
relative to natives for living in high-wage high-price high-productivity cities where they also
accept lower wages than natives These incentives are stronger for immigrants coming from
lower-price index countries of origin We rely on immigrant heterogeneity to estimate the
model With the estimated model we show that current levels of immigration have reduced
economic activity in smaller less productive cities by around 5 percent while they have
expanded it in large productive cities by around 6 percent This has increased total aggregate
output per worker by around 03 percent We also discuss the welfare implications of these
results
Keywords Immigration location choices spatial equilibrium
JEL Classification F22 J31 J61 R11
The Cost of Non-Europe Revisited CEPR Discussion Paper No DP12844
48 Pages Posted 12 Apr 2018
Thierry Mayer Sciences Po
Vincent Vicard Banque de France
Soledad Zignago Banque de France
There are 2 versions of this paper
Date Written April 2018
Abstract
In this paper we quantify the Cost of Non-Europe ie the trade-related welfare gains each
country member has reaped from the European Union Thirty years after the terminology of
Non-Europe was used to give estimates of the gains from further integration we use modern
versions of the gravity model to estimate the trade creation implied by the EU and apply
those to counterfactual exercises where for instance the EU returns to a normal shallow-
type regional agreement or reverts to WTO rules Those scenarios are envisioned with or
without the exit of the United Kingdom from the EU (Brexit) happening which points to
interesting cross-country differences and potential cascade effects in doing and undoing of
trade agreements
Keywords European Union Gravity trade integration
JEL Classification F1
The Political Impact of Immigration Evidence from
the United States CEPR Discussion Paper No DP12848
57 Pages Posted 12 Apr 2018
Anna Maria Mayda
Georgetown University - Department of Economics IZA Institute of Labor Economics
Giovanni Peri University of California Davis - Department of Economics
Walter Steingress Government of Canada - Bank of Canada
Date Written April 2018
Abstract
In this paper we study the impact of immigration to the United States on the vote for the
Republican Party by analyzing county-level data on election outcomes between 1990 and
2010 Our main contribution is to separate the effect of high-skilled and low-skilled
immigrants by exploiting the different geography and timing of the inflows of these two
groups of immigrants We find that an increase in the first type of immigrants decreases the
share of the Republican vote while an inflow of the second type increases it These effects are
mainly due to the local impact of immigrants on votes of US citizens and they seem
independent of the country of origin of immigrants We also find that the pro-Republican
impact of low-skilled immigrants is stronger in low-skilled and non-urban counties This is
consistent with citizens political preferences shifting towards the Republican Party in places
where low-skilled immigrants are more likely to be perceived as competition in the labor
market and for public resources
Keywords Economic and Fiscal Channels Electoral Effects Immigration Republican Party
JEL Classification F22 J61
15 Escaping Import Competition and Downstream Tariffs
by Ana Cecilia Fieler Ann Harrison - 24527 (EEE ITI)
Abstract
We propose and provide evidence for a new source of gains from
trade Firms invest in product differentiation to escape import
competition In the data and in the model these investments are
associated with increases in measured productivity introduction
of new goods and shifts to skill-intensive sectors Investment
in differentiation downstream leads upstream firms to also
invest in differentiation For China these downstream tariff
reductions lead to big increases in measured productivity for
upstream suppliers The effect on measured productivity is
larger for upstream than for downstream firms and we explain
this difference theoretically through heterogeneous changes in
markups
httppapersnberorgpapersW24527utm_campaign=ntwamputm_medium=emailamputm_source=ntw
20 The Production of Cognitive and Non-cognitive Human Capital in the Global Economy
by Chong Xiang Stephen Yeaple - 24524 (ITI)
Abstract
A countrys welfare depends on its ability to accumulate
cognitive and noncognitive human capital However we do not
fully understand what makes some countries successful at
producing human capital and even struggle with measurement eg
international test scores are informative about the cognitive
dimension but neglect the non-cognitive dimension In this
paper we develop a multi-country open-economy
general-equilibrium framework in which countries ability to turn
resources into human capital along the cognitive and
non-cognitive dimensions is revealed by the endogenous
educational and occupational choices of its citizens and their
subsequent performance on international exams Our model allows
us to estimate countries underlying productivities of cognitive
and non-cognitive human capital We find that high test scores
do not necessarily imply high cognitive productivities (eg
Switzerland Hong Kong) and that many countries with low test
scores have high non-cognitive productivities (eg the US and
UK)
We then aggregate over these two dimensions to construct a single
educational quality index and illustrate its intuition using an
iso-education-quality curve We use our model to decompose
variation in output per capita across countries into a component
involving the educational quality index and another involving
output TFP This exact decomposition shows that the differences
in cognitive and noncognitive productivities across countries
have large implications for differences in output per worker
These results help quantify the potential payoffs of education
policies and clarify their objective eg excessive attention
to test scores may decrease aggregate output
International trade plays an important role in our model because
the gains from trade help to compensate a country for uneven
productivity across human capital types In counterfactual
exercises we show that if barriers to trade are completely
eliminated we would obtain a very different
iso-education-quality curve This implies large improvements of
overall education quality and large gains from trade for the
countries with strong comparative advantages in producing
cognitive (eg S Korea would gain 301 to 441 of its
output) or non-cognitive human capital (eg the Netherlands
would gain 188 to 556)
httppapersnberorgpapersW24524utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Il Contributo Della Demografia Alla Crescita
Economica Duecento Anni Di ldquoStoriardquo Italiana (The
Contribution of Demography to Italys Economic
Growth A Two-Hundred-Year-Long Story) Bank of Italy Occasional Paper No 431
37 Pages Posted 20 Apr 2018
Federico Barbiellini Amidei Bank of Italy
Matteo Gomellini Bank of Italy
Paolo Piselli Bank of Italy
Date Written March 28 2018
Abstract
Italian Abstract Questo lavoro esamina il contributo della demografia alla crescita
economica confrontando lrsquoItalia del passato quella di oggi e quella che vivremo in futuro
Attraverso una scomposizione contabile della crescita del PIL e del PIL pro capite si mostra
come le modifiche nella struttura per etagrave della popolazione abbiano prodotto nel passato piugrave
lontano un demographic dividend positivo Al contrario negli ultimi venticinque anni e con
ogni probabilitagrave nel futuro la demografia ha dato e daragrave un contributo diretto sensibilmente
negativo alla crescita economica I flussi migratori previsti limiteranno lrsquoampiezza di tale
contributo negativo ma non saranno in grado di invertirne il segno Nel lavoro si valutano tre
sviluppi potenzialmente indotti dagli stessi fattori demografici o da azioni di policy ndash
lrsquoestensione della vita lavorativa lrsquoaumento della partecipazione femminile al mercato del
lavoro e lrsquoincremento nei livelli di istruzione ndash che potranno contrastare i puri effetti contabili
legati allrsquoevoluzione nella struttura per etagrave
English Abstract This paper examines the contribution of demography to economic growth
in Italy by comparing the countryrsquos past present and future We use an accounting framework
to decompose GDP and per capita GDP growth and we show how changes in the age structure
of the population produced a positive demographic dividend in the past By contrast in the
last twenty-five years and arguably in the future demography has made and will continue to
make a direct negative contribution to economic growth Expected migration flows will
noticeably limit the extent of this negative contribution but they will not be able to reverse its
sign We analyze three possible developments potentially driven by demography itself or
fostered by policy actions ndash longer working lives an increase in female labour market
participation and higher education levels ndash which could counteract the pure negative
accounting effects produced by the evolution of the age structure
Note Downloadable document is in Italian
Keywords economic history demography demographic dividend forecasts
JEL Classification J11 N30
The Effects of Cash Transfers on Adult Labor Market
Outcomes World Bank Policy Research Working Paper No 8404
29 Pages Posted 16 Apr 2018
Sarah Baird George Washington University - School of Public Health and Health Services (SPHHS)
David J McKenzie World Bank - Development Research Group (DECRG) IZA Institute of Labor Economics
Berk Ozler World Bank - Development Economics Research Group (DECRG)
Date Written April 12 2018
Abstract
The basic economic model of labor supply has a very clear prediction of what should be
expected when an adult receives an unexpected cash windfall they should work less and earn
less This intuition underlies concerns that many types of cash transfers ranging from
government benefits to migrant remittances will undermine work ethics and make recipients
lazy This paper discusses a range of additional channels to this simple labor-leisure trade-off
that can make this intuition misleading in low- and middle-income countries including
missing markets price effects from conditions attached to transfers and dynamic and general
equilibrium effects The paper uses this as a lens through which to examine the evidence on
the adult labor market impacts of a wide range of cash transfer programs government
transfers charitable giving and humanitarian transfers remittances cash assistance for job
search cash transfers for business start-up and bundled interventions Overall cash transfers
that are made without an explicit employment focus (such as conditional and unconditional
cash transfers and remittances) tend to result in little to no change in adult labor The main
exceptions are transfers to the elderly and some refugees who reduce work In contrast
transfers made for job search assistance or business start-up tend to increase adult labor
supply and earnings with the likely main channels being the alleviation of liquidity and risk
constraints
Keywords Economic Assistance Disability Services amp Transfers to Poor Access of Poor to
Social Services Employment and Unemployment Labor Markets Rural Labor Markets Health
Care Services Industry
Globalisation and Urban Polarisation CEPR Discussion Paper No DP12877
24 Pages Posted 23 Apr 2018
Anthony J Venables University of Oxford Centre for Economic Policy Research (CEPR)
Date Written April 2018
Abstract
External trade affects the internal spatial structure of an economy promoting growth in some
cities or regions and decline in others Internal adjustment to these changes has often proved
to be extremely slow and painful This paper combines elements of urban and international
economics to draw out the implications of trade shocks for city performance Localisation
economies in production of internationally tradable goods mean that cities divide into two
types those producing tradables and those specialising in sectors producing just for the
national market (non-tradables) Negative trade shocks (and possibly also some positive
ones) reduce the number of cities engaged in tradable production increasing the number
producing just non-tradables This has a negative effect across all non-tradable cities which
lose population and land value Remaining tradable cities boom gaining population and land
value Depending on the initial position city size dispersion may increase this raising the
share of urban land-rents in national income and reducing the share of labour
Keywords de-industrialisation globalisation Polarisation urban
JEL Classification F12 R11 R12
Place-Based Policies for Development World Bank Policy Research Working Paper No 8410
75 Pages Posted 24 Apr 2018
Gilles Duranton University of Pennsylvania - Real Estate Department
Anthony J Venables University of Oxford Centre for Economic Policy Research (CEPR)
There are 3 versions of this paper
Date Written April 17 2018
Abstract
Many development policies such as placement of infrastructure or local economic
development schemes are place-based Such policies are generally intended to stimulate
private sector investment and economic growth in the treated place and as such they are
difficult to appraise and evaluate This paper sets out a framework for analyzing the effects of
such policies and assessing their social value It then reviews the literature on place-based
policies in the contexts of transport improvements economic corridors special economic
zones lagging regions and urban policies
Keywords Transport Services Labor Markets Urban Governance and Management Urban
Housing and Land Settlements Municipal Management and Reform Urban Housing
Macroeconomic Management Economic Forecasting Governance Diagnostic Capacity
Building Textiles Apparel amp Leather Industry Common Carriers Industry Food amp Beverage
Industry Business Cycles and Stabilization Policies Plastics amp Rubber Industry General
Manufacturing Construction Industry Pulp amp Paper Industry
Evidence on Finance and Economic Growth ECB Working Paper No 2115 ISBN 978-92-899-3031-4
79 Pages Posted 8 Dec 2017
Alexander A Popov European Central Bank (ECB)
Date Written December 6 2017
Abstract
This paper reviews and appraises the body of empirical research on the association between
financial markets and economic growth that has accumulated over the past quarter-century
The bulk of the historical evidence suggests that financial development affects economic
growth in a positive monotonic way yet recent research endeavors have provided useful and
important qualifications of this conventional wisdom Moreover the proliferation of micro-
level datasets has enabled researchers to study more precise links between theory and
measurement The paper highlights the mechanisms through which financial markets benefit
society as well as the channels through which finance can slow down long-term growth
Keywords financial markets growth
JEL Classification O4 G1
Why Has Economic Growth Slowed When Innovation Appears to be Accelerating
by Robert J Gordon - 24554 (DAE EFG PR)
Abstract
Measured between quarters with identical unemployment rates U
S economic growth slowed by more than half from 32 percent per
year during 1970-2006 to only 14 percent during 2006-16 and
only half of this GDP growth slowdown is accounted for diminished
productivity growth The paper starts from the proposition that
GDP growth matters not just productivity growth because slower
GDP growth provides fewer resources to address the nations
problems including faltering education aging infrastructure
and the looming shortfall in funding for Social Security and
Medicare and it also implies lower net investment and a reduced
rate at which new capital can embody the latest technology
The paper documents the contribution to slower GDP growth of the
separate components of demography -- fertility mortality life
expectancy and immigration Particular emphasis is placed on
the interaction between rising inequality and the slower secular
rise of life expectancy in the US compared to other developed
countries both in the form of a large gap in life expectancy
between rich and poor and the stagnation of life expectancy for
the lowest income quintile Further contributions to slowing
growth are made by a decline in the population share of both
legal and illegal immigration and a turnaround from rising to
declining labor force participation Rising inequality creates a
gap between the growth of average real per-capita income relative
to that of median real income and alternative measures of the
evolution of this gap are compared and assessed
Causes of declining productivity growth begin with the slowdown
in the rate of increase of educational attainment resulting from
the interplay of demand and supply factors including the
flattening of the college wage premium and the rising relative
price of college education Why did productivity growth decline
after 2006 despite an increase in the rate at which new US
patents were issued in 2006-16 compared to earlier decades Part
of the slowdown is attributed to the maturity of the IT
revolution which also helps to explain the trajectory of the
college wage premium Aspects of the productivity growth
slowdown include the declining productivity of research workers
diminishing returns to drug innovation and the evolutionary
rather than revolutionary impact of robots and artificial
intelligence which are replacing workers slowly and only in a
minority of industrial sectors throughout the economy Also
considered are alternative explanations of slower productivity
growth including low investment and mismeasurement
httppapersnberorgpapersW24554utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Childbearing Postponement its Option Value and the
Biological Clock CEPR Discussion Paper No DP12884
48 Pages Posted 23 Apr 2018
David de la Croix Catholic University of Louvain (UCL) - Institut de Recherches Economiques et Sociales (IRES) Catholic
University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)
Aude Pommeret Universiteacute de Savoie
Date Written April 2018
Abstract
Having children is like investing in a risky project Postponing birth is like delaying an
irreversible investment It has an option value which depends on its costs and benefits and in
particular on the additional risks motherhood brings We develop a parsimonious theory of
childbearing postponement along these lines We derive its implications for asset
accumulation income optimal age at first birth and childlessness The structural parameters
are estimated by matching the predictions of the model to data from the National Longitudinal
Survey of Youth NLSY79 The uncertainty surrounding income growth is shown to increase
with childbearing and this increase is stronger for more educated people This effect alone
can explain why the age at first birth and the childlessness rate both increase with education
We use the model to simulate two hypothetical policies Providing free medically assisted
reproduction technology does not affect the age at first birth much but lowers the
childlessness rate Insuring mothers against income risk is powerful in lowering the age at
first birth
Keywords Assisted reproduction technology Career uncertainty Late parenthood Real
option
JEL Classification D91 J13
Economic Upgrading Through Global Value Chain
Participation Which Policies Increase the Value
Added Gains World Bank Policy Research Working Paper No 8007
45 Pages Posted 1 May 2018
Victor Kummritz World Trade Organization (WTO) Graduate Institute of International and Development Studies (IHEID)
Daria Taglioni European Central Bank (ECB) - Directorate General Economics
Deborah E Winkler World Bank
Date Written March 16 2017
Abstract
The emergence of global value chains has opened up new ways to achieve development and
industrialization However new evidence shows that not all countries have gained from
participating in global value chains and that country-specific characteristics matter for
economic upgrading in global value chains This paper uses two panel data sets of developing
and industrialized countries at the sectoral level to relate global value chain participation as a
buyer and seller to domestic value added These are combined with a wide range of policy
measures at the country level that can play a role in economic upgrading through global value
chains by targeting global value chain integration or the quality and conditions of input and
output factors First the study finds that global value chain integration increases domestic
value added especially on the selling side which holds across all income levels Second the
results highlight the importance of policy for economic upgrading through global value chain
integration Although the study cannot claim causal evidence all the assessed policy areas are
consistently shown to mediate the effects of global value chains and magnify the gains for
domestic value added Third a detailed analysis shows that several policy areas mediate the
gains from global value chains more through integration as a seller Finally the study
observes that many of the results are driven by high- and upper-middle-income countries
Keywords International Trade and Trade Rules Labor Markets Rural Labor Markets Food amp
Beverage Industry Construction Industry Business Cycles and Stabilization Policies General
Manufacturing Common Carriers Industry Textiles Apparel amp Leather Industry Pulp amp Paper
Industry Plastics amp Rubber Industry Global Environment
Job Vacancies and Immigration Evidence from Pre- and Post-Mariel Miami
by Jason Anastasopoulos George J Borjas Gavin G Cook Michael Lachanski - 24580 (LS)
Abstract
How does immigration affect labor market opportunities in a
receiving country This paper contributes to the voluminous
literature by reporting findings from a new (but very old) data
set Beginning in 1951 the Conference Board constructed a
monthly job vacancy index by counting the number of help-wanted
ads published in local newspapers in 51 metropolitan areas We
use the Help-Wanted Index (HWI) to document how immigration
changes the number of job vacancies in the affected labor
markets Our analysis begins by revisiting the Mariel episode
The data reveal a marked decrease in Miamis HWI relative to many
alternative control groups in the first 4 or 5 years after
Mariel followed by recovery afterwards We find a similar
initial decline in the number of job vacancies after two other
supply shocks that hit Miami over the past few decades the
initial wave of Cuban refugees in the early 1960s as well as the
1995 refugees who were initially detoured to Guantanamo Bay We
also look beyond Miami and estimate the generic spatial
correlations that dominate the literature correlating changes in
the HWI with immigration across metropolitan areas These
correlations consistently indicate that more immigration is
associated with fewer job vacancies The trends in the HWI seem
to most strongly reflect changing labor market conditions for
low-skill workers (in terms of both wages and employment) and a
companion textual analysis of help-wanted ads in Miami before and
after the Mariel supply shock suggests a slight decline in the
relative number of low-skill job vacancies
httppapersnberorgpapersW24580utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Somatic Distance Cultural Affinities Trust and Trade CEPR Discussion Paper No DP12895
21 Pages Posted 1 May 2018
Jacques Melitz National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and
Statistics (CREST) Centre for Economic Policy Research (CEPR)
Farid Toubal Ecole Normale Superieure de Cachan (ENS) - Departement of Economics ans Management National
Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics
(CREST) Centre dEtudes Prospectives et dInfo Internationales (CEPII)
Date Written April 2018
Abstract
Somatic distance or differences in physical appearance proves to be extremely important in
the gravity model of bilateral trade in conformity with results in other areas of economics and
outside of it in the social sciences This is also true quite independently of survey evidence
about bilateral trust These findings are obtained in a sample of the 15 members of the
European Economic Association in 1996 Robustness tests also show that somatic distance
has a more reliable influence on bilateral trade than the other cultural variables The article
finally discusses the interpretation and the breadth of application of these results
Keywords Bilateral Trade Cultural interactions Language Somatic distance Trust
The Paradox of Global Thrift CEPR Discussion Paper No DP12894
59 Pages Posted 1 May 2018
Luca Fornaro Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) Barcelona Graduate
School of Economics (Barcelona GSE)
Federica Romei LUISS Guido Carli University
Date Written April 2018
Abstract
This paper describes a paradox of global thrift Consider a world in which interest rates are
low and monetary policy cannot stabilize the economy because it is frequently constrained by
the zero lower bound Now imagine that governments complement monetary policy with
prudential financial and fiscal policies because they perceive that limiting private and public
borrowing during booms will help stabilize the economy by reducing the risk of financial
crises and by creating space for fiscal interventions during busts We show that these policies
while effective from the perspective of individual countries might backfire if applied on a
global scale In a financially integrated world in fact prudential policies generate a rise in the
global supply of savings or equivalently a drop in global aggregate demand In turn weaker
global aggregate demand depresses output in countries whose monetary policy is constrained
by the zero lower bound Due to this effect the world might paradoxically experience a fall in
output and welfare following the implementation of well-intended prudential policies
Keywords aggregate demand externalities Capital Flows current account policies fiscal
policies international cooperation Liquidity traps macroprudential policies zero lower
bound
JEL Classification E32 E44 E52 F41 F42
Multihorizon Currency Returns and Purchasing
Power Parity CEPR Discussion Paper No DP12893
59 Pages Posted 1 May 2018
Mikhail Chernov UCLA Anderson
Drew Creal University of Chicago - Booth School of Business - Econometrics and Statistics
There are 2 versions of this paper
Date Written April 2018
Abstract
Exposures of expected future depreciation rates to the current interest rate differential
violate the UIP hypothesis in a distinctive pattern that is a non-monotonic function of horizon
Conversely forward risk-adjusted expected depreciation rates are monotonic We explain the
two patterns by incorporating the weak form of PPP into a no-arbitrage joint model of the
depreciation rate inflation differential domestic and foreign yield curves Short-term
departures from PPP generate the first pattern The risk premiums for these departures
generate the second pattern
Keywords affine term structure model cointegration multiple horizons purchasing power
parity uncovered interest parity
Networks and Trade CEPR Discussion Paper No DP12891
33 Pages Posted 1 May 2018
Andrew B Bernard Tuck School of Business at Dartmouth National Bureau of Economic Research (NBER) Centre for
Economic Policy Research (CEPR)
Andreas Moxnes University of Oslo - Department of Economics Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
There are 2 versions of this paper
Date Written April 2018
Abstract
Trade occurs between firms both across borders and within countries and the vast majority
of trade transactions includes at least one large firm with many trading partners This paper
reviews the literature on firm-to-firm connections in trade A growing body of evidence
coming from domestic and international transaction data has established empirical
regularities which have inspired the development of new theories emphasizing firm
heterogeneity among both buyers and suppliers in production networks Theoretical work
has considered both static and dynamic matching environments in a framework of many-to-
many matching The literature on trade and production networks is at an early stage and
there are a large number of unanswered empirical and theoretical questions
Keywords International Trade offshoring production networks productivity
JEL Classification F10 F12 F14 L11 L21
One More Time What are Institutions and How Do
They Change World Bank Policy Research Working Paper No 8422
39 Pages Posted 1 May 2018 Last revised 3 May 2018
Roumeen Islam World Bank
Date Written April 30 2018
Abstract
This paper defines institutions presents their basic characteristics and discusses forces for
institutional change It draws on a wealth of research and study by scholars in different fields
and follows from the flagship 2002 World Development Report on this topic including
relevant new research since then that illuminates key issues The definition of institutions
includes rules and organizations (specifically rules guiding peoples actions) The paper
emphasizes the diversity of institutions that can effectively perform similar functions the
arguments for and against standardization of institutions across specific transactions or
groups and the implications of these choices It highlights the relationship between informal
and formal institutions It discusses forces for institutional change influencing all economies
ranging from external shocks (whether they be economic or weather-related shocks or driven
by wars) to internal dynamics such as those following population growth or compositional
changes and those following technological innovations Many of these forces have a two-way
relationship with institutions they are affected by them and in turn influence whether and
when they change A special section is devoted to institutional transplants and their
effectiveness The paper concludes with a discussion of whether and under what conditions
institutional change can be externally directed and the lessons for aid donors
Keywords International Trade and Trade Rules Social Policy Common Property Resource
Development Legal Products Regulatory Regimes Legislation Legal Reform Judicial System
Reform Public Sector Economics Taxation amp Subsidies Public Finance Decentralization and
Poverty Reduction Economic Adjustment and Lending Macro-Fiscal Policy Educational
Sciences Competitiveness and Competition Policy
Globalization Government Popularity and the Great
Skill Divide
CEPR Discussion Paper No DP12897
56 Pages Posted 1 May 2018
Cevat Giray Aksoy European Bank for Reconstruction and Development IZA Institute of Labor Economics
Sergei M Guriev Sciences Po Centre for Economic Policy Research (CEPR) European Bank for Reconstruction and
Development (EBRD)
Daniel Treisman University of California Los Angeles (UCLA) - Department of Political Science
There are 2 versions of this paper
Date Written April 2018
Abstract
How does international trade affect the popularity of governments and leaders We provide
the first large-scale systematic evidence that the divide between skilled and unskilled
workers worldwide is producing corresponding differences in the response of political
preferences to trade shocks Using a unique data set including 118 countries and nearly
450000 individuals we find that growth in high skill intensive exports (of goods and
services) increases approval of the leader and incumbent government among skilled
individuals Growth in high skill intensive imports has the opposite effect There is no effect
on political approval among the unskilled To identify exogenous variation in international
trade we exploit the time-varying effects of air and sea distances in bilateral trade flows Our
findings suggest that the political effects of international trade differ with skill intensity and
that skilled individuals respond differently from their unskilled counterparts to trade shocks
Keywords International trade political approval political polarization skill intensity of
trade
Migratory Pressures in the Long Run International
Migration Projections to 2050 Banco de Espana Article 3817
9 Pages Posted 3 Jan 2018
Rodolfo G Campos Banco de Espantildea
Date Written December 5 2017
Abstract
This article presents bilateral international migration projections to 2050 based on a new
methodology that takes into account the population growth both in countries of origin and
countries of destination To do this the methodology used by Hanson and McIntosh (2016) to
project the future migratory flows to a sample of OECD countries is generalised to all
countries worldwide The United Nations population growth forecasts are used as a basis for
projecting future migratory flows The main findings of the exercise indicate that the number
of migrants is projected to increase from 28 of the world population in 2010 to around
35 in 2050 as a result of the strong increase in migrants from India and sub-Saharan Africa
Against this background and despite the slowdown in demographic growth in Latin America
the United States is expected to continue to receive high net immigration flows and to remain
the country with the highest stock of immigrants globally while continental Europe will post
larger net immigration flows
Immigration and Electoral Support for the Far-Left
and the Far-Right CESifo Working Paper Series No 6918
53 Pages Posted 7 May 2018
Anthony Edo Paris School of Economics (PSE)
Yvonne Giesing CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Jonathan Oumlztunc Barcelona Graduate School of Economics (Barcelona GSE)
Panu Poutvaara Ludwig Maximilian University of Munich - Faculty of Economics CESifo (Center for Economic Studies and
Ifo Institute) - Ifo Institute CESifo (Center for Economic Studies and Ifo Institute) CReAM IZA Institute of
Labor Economics
Date Written March 05 2018
Abstract
Immigration has become one of the most divisive political issues in the United States the
United Kingdom France and several other Western countries We estimate the impact of
immigration on voting for far-left and far-right candidates in France using panel data on
presidential elections from 1988 to 2017 To derive causal estimates we instrument more
recent immigration flows by past settlement patterns in 1968 We find that immigration
increases support for far-right candidates and has no robust effect on far-left voting The
increased support for far-right candidates is driven by low educated immigrants from non-
Western countries
Keywords voting immigration political economy
JEL Classification D720 F220 J150 P160
Institutions Trade and Development A Quantitative
Analysis CESifo Working Paper Series No 6920
64 Pages Posted 7 May 2018
Cosimo Beverelli World Trade Organization (WTO)
Alexander Keck World Trade Organization (WTO)
Mario Larch University of Bayreuth - Faculty of Law Business and Economics University of Bayreuth CESifo Ifo
Institute for Economic Research GEP at the University of Nottingham
Yoto Yotov Drexel University - Department of Economics amp International Business
Date Written March 05 2018
Abstract
We propose and apply methods to quantify the impact of national institutions on international
trade and development We are able to identify the direct impact of country-specific
institutions on international trade within the structural gravity framework Our approach
naturally addresses the prominent issue of endogenous institutions The empirical analysis
offers robust evidence that stronger institutions promote trade A counterfactual analysis
reveals that the changes in institutional quality in the poor countries in our sample between
1996 and 2006 have had via their impact on imports from rich countries significant and
heterogeneous real GDP effects varying between -5 and 5 percent Our methods are readily
applicable to identifying the impact of a wide range of country-specific variables on
international trade
Keywords institutional quality international trade development structural gravity
JEL Classification F130 F140 F160
5 Inference in Structural Vector Autoregressions When the Identifying Assumptions are Not Fully Believed Re-
evaluating the Role of Monetary Policy in Economic Fluctuations
by Christiane Baumeister James D Hamilton - 24597 (EFG ME)
Abstract
Reporting point estimates and error bands for structural vector
autoregressions that are only set identified is a very common
practice However unless the researcher is persuaded on the
basis of prior information that some parameter values are more
plausible than others this common practice has no formal
justification When the role and reliability of prior
information is defended Bayesian posterior probabilities can be
used to form an inference that incorporates doubts about the
identifying assumptions We illustrate how prior information can
be used about both structural coefficients and the impacts of
shocks and propose a new distribution which we call the
asymmetric t distribution for incorporating prior beliefs about
the signs of equilibrium impacts in a nondogmatic way We apply
these methods to a three-variable macroeconomic model and
conclude that monetary policy shocks were not the major driver of
output inflation or interest rates during the Great Moderation
httppapersnberorgpapersW24597utm_campaign=ntwamputm_medium=emailamputm_source=ntw
11 The Political Impact of Immigration Evidence from the United States
by Anna Maria Mayda Giovanni Peri Walter Steingress - 24510 (ITI POL)
Abstract
In this paper we study the impact of immigration to the United
States on the vote for the Republican Party by analyzing
county-level data on election outcomes between 1990 and 2010
Our main contribution is to separate the effect of high-skilled
and low-skilled immigrants by exploiting the different geography
and timing of the inflows of these two groups of immigrants We
find that an increase in the first type of immigrants decreases
the share of the Republican vote while an inflow of the second
type increases it These effects are mainly due to the local
impact of immigrants on votes of US citizens and they seem
independent of the country of origin of immigrants We also find
that the pro-Republican impact of low-skilled immigrants is
stronger in low-skilled and non-urban counties This is
consistent with citizens political preferences shifting towards
the Republican Party in places where low-skilled immigrants are
more likely to be perceived as competition in the labor market
and for public resources
httppapersnberorgpapersW24510utm_campaign=ntwamputm_medium=emailamputm_source=ntw
23 The Impact of Exports on Innovation Theory and Evidence
by Philippe Aghion Antonin Bergeaud Matthieu Lequien Marc J Melitz - 24600 (EFG ITI)
Abstract
This paper investigates the effect of export shocks on
innovation On the one hand a positive shock increases market
size and therefore innovation incentives for all firms On the
other hand it increases competition as more firms enter the
export market This in turn reduces profits and therefore
innovation incentives particularly for firms with low
productivity Overall the positive impact of the export shock on
innovation is magnified for high productivity firms whereas it
may negatively affect innovation in low productivity firms We
test this prediction with patent customs and production data
covering all French manufacturing firms To address potential
endogeneity issues we construct firm-level export proxies which
respond to aggregate conditions in a firms export destinations
but are exogenous to firm-level decisions We show that
patenting robustly increases more with export demand for
initially more productive firms This effect is reversed for the
least productive firms as the negative competition effect
dominates
httppapersnberorgpapersW24600utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Sovereign Defaults in Court CESifo Working Paper Series No 6931
75 Pages Posted 8 May 2018
Julian Schumacher European Central Bank (ECB)
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Enderlein Henrik Hertie School of Governance
There are 3 versions of this paper
Date Written March 08 2018
Abstract
For centuries defaulting governments were immune from legal action by foreign creditors
This paper shows that this is no longer the case Building a dataset covering four decades we
find that creditor lawsuits have become an increasingly common feature of sovereign debt
markets The legal developments have strengthened the hands of creditors and raised the cost
of default for debtors We show that legal disputes in the US and the UK disrupt government
access to international capital markets as foreign courts can impose a financial embargo on
sovereigns The findings are consistent with theoretical models with creditor sanctions and
suggest that sovereign debt is becoming more enforceable We discuss how the threat of
litigation affects debt management government willingness to pay and the resolution of debt
crises
Keywords sovereign default enforcement government financing debt restructuring
JEL Classification F340 G150 H630 K220
ECB Monetary Policy and the Euro Exchange Rate Bank of Italy Temi di Discussione (Working Paper) No 1172
54 Pages Posted 14 May 2018
Martina Cecioni Bank of Italy
Date Written May 3 2018
Abstract
The paper provides empirical evidence on the effects of ECB conventional and unconventional
monetary policy on the euro exchange rate focusing on the period from January 2013 to
September 2017 Innovations to conventional and unconventional monetary policies are
identified through changes in respectively short- and long-term interest rates immediately
after Governing Council meetings Both types of measures contributed to the depreciation of
the euro from mid-2014 surprises associated with conventional measures had a stronger and
more persistent effect than those associated with unconventional ones Time-varying
estimates of the effects of conventional surprises since 1999 show that the responsiveness of
exchange rates to monetary news increased markedly from 2013 State-dependence analysis
finds that the exchange rate became more sensitive to monetary policy when the ECB adopted
a policy of negative interest rates and when conventional and unconventional monetary
surprises moved in the same direction
Keywords unconventional monetary policy exchange rates European Central Bank
JEL Classification E52 E58 F31
The ECBs Fiscal Policy
by Hans-Werner Sinn - 24613 (ME)
Abstract
While the ECB helped mitigate the euro crisis in the aftermath of
Lehman it has stretched its monetary mandate and moved into
fiscal territory This text describes and summarizes the crucial
role played by the ECB in the intervention spiral resulting from
its bid to manage the crisis It also outlines ongoing
competitiveness problems in southern Europe discusses the
so-called austerity policy of the Troika comments on QE and
presents two alternative paths for the future development of
Europe
httppapersnberorgpapersW24613utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Real Convergence in the Euro Area A Long-Term
Perspective ECB Occasional Paper No 203 ISBN 978-92-899-2865-6
102 Pages Posted 5 Dec 2017
Juan Luis Diaz del Hoyo European Central Bank (ECB)
Ettore Dorrucci European Central Bank (ECB)
Frigyes Ferdinand Heinz European Central Bank (ECB)
Sona Muzikarova European Central Bank (ECB)
Date Written December 1 2017
Abstract
In the euro area there is mixed evidence that the GDP per capita of lower-income economies
has been catching up with that of higher-income economies since the start of monetary union
The significant real convergence performance of some of the most recent members contrasts
with that of the economies of southern Europe which have not met expectations However
attributing all the blame for this outcome to the introduction of the single currency simply
misses the point By taking a ldquolong viewrdquo and reviewing the evidence since the 1960s this
paper shows that certain member countries began to face a ldquonon-convergence traprdquo long
before the euro years We also provide stylised facts on (i) the central role of total factor
productivity in driving real convergence in the euro area over time alongside other factors
and (ii) the crucial interaction of real convergence with ldquoMaastricht convergencerdquo and
institutional quality the other two key components of sustainable economic convergence We
conclude that it is critical that the euro area countries facing convergence challenges enhance
the resilience of their economic structures by improving the relevant institutions and
governance
Keywords sustainable economic convergence real convergence nominal convergence GDP
per capita Maastricht convergence criteria institutional quality labour productivity total
factor productivity Five Presidentsrsquo Report Reflection Paper on the Deepening of EMU
JEL Classification E01 F15 J11 O11 O43 O47 O52 O57
Monetary Policy Transmission in the Eastern
Caribbean Currency Union IMF Working Paper No 1870
31 Pages Posted 22 May 2018
Alla Myrvoda International Monetary Fund (IMF)
Julien P M Reynaud International Monetary Fund (IMF) Universiteacute Paris I Pantheacuteon-Sorbonne
Date Written March 2018
Abstract
This paper empirically investigates international and domestic monetary policy transmission
mechanisms in the Eastern Caribbean Currency Union (ECCU) We assess interest rate pass-
through of both the US policy rate and the ECCU minimum saving deposit rate (MSR) into
domestic interest rates through the interest rate channel While economic theory suggests
that the international pass-through should be high in small open economies with fixed
exchange rates and open capital accounts our findings based on regression analysis point to
a low long-run pass-through coefficient of the US interest rate The domestic transmission
channel however is found to operate through changes in the MSR The results hold for
different interest rates (deposit and lending) and are supported by survey-based findings
Keywords Asia and Pacific Antigua and Barbuda Dominica Saint Kitts and Nevis Saint
Lucia Saint Vincent and the Grenadines Grenada Western Hemisphere monetary policy
transmission interest rate pass-through ECCU monetary policy transmission interest rate
pass-through ECCU General Monetary Policy (Targets Instruments and Effects)
JEL Classification E43 E50 E52 F31 F33 F36 O54
On the Impact of Structural Reforms on Output and
Employment Evidence from a Cross-Country Firm-
Level Analysis IMF Working Paper No 1873
36 Pages Posted 22 May 2018
Luiza Antoun de Almeida International Monetary Fund (IMF)
Vybhavi Balasundharam University of Michigan at Ann Arbor
Date Written April 2018
Abstract
This paper analyzes the effects of selected structural reforms on output and employment in
the short and medium term It uses a comprehensive cross-country firm-level dataset
covering both advanced and emerging market economies over the period 2003-2014 In line
with previous studies it finds that structural reforms have in general a positive impact on
output and employment in the medium term Furthermore the paper also assesses whether
the impact of structural reforms varies with firm-specific characteristics such as size
leverage profitability and sector We find evidence that firm characteristics do influence the
effectiveness of structural reforms These findings have relevant policy implications as they
help policymakers tailor the design of structural reforms to maximize their payoffs taking
into account their heterogeneous impact on firms
Keywords Fiscal reforms Cross-country analysis Potential output Employment Developed
countries Emerging markets structural reforms firm-level data Orbis dataset potential
growth
JEL Classification L51 D04 D22
Production Integration in the European Union CESifo Working Paper Series No 6944
34 Pages Posted 17 May 2018
Hakan Nordstrom Swedish Board of Trade
Harry Flam Stockholm University - Institute for International Economic Studies (IIES) CESifo (Center for Economic
Studies and Ifo Institute)
Date Written March 21 2018
Abstract
Measured by trade in intermediate inputs economic integration has increased between 2000
and 2014 between members of the European Union and even more with non-members
Integration is negatively related to economic size and positively to the number of years as a
member Germany is the largest hub in the production network and the centre of gravity has
moved eastward Older member states are increasingly exporting service inputs and new
member states primary and manufacturing inputs Wages are increasing faster in countries
with low initial wages indicating wage convergence as a result of production integration
Keywords global value chains economic integration input-output models wage
convergence
JEL Classification E100 F100 F600 J310
Democratic Tipping Points CESifo Working Paper Series No 6945
36 Pages Posted 17 May 2018
Antonio Ciccone Universitat Pompeu Fabra - Faculty of Economic and Business Sciences Centre for Economic Policy
Research (CEPR) Institute for the Study of Labor (IZA)
There are 2 versions of this paper
Date Written March 21 2018
Abstract
I examine whether transitory events can tip the scales against authoritarian regimes and lead
to persistent democratization I think of situations where this is a possibility as democratic
tipping points The transitory events I focus on are rainfall shocks in the most agricultural
countries in the world I show that while these shocks only affect agricultural output
contemporaneously they have persistent effects on political institutions Authoritarian
regimes experiencing negative rainfall shocks are more likely to be democratic three five and
ten years later
Keywords transitory shocks persistent democratization
Globalization and the New Normal IMF Working Paper No 1875
41 Pages Posted 22 May 2018
Bertrand Candelon University of Maastricht - Department of Economics
Alina Carare International Monetary Fund (IMF)
Jean-Baptiste Hasse
Aix-Marseille University
Date Written April 2018
Abstract
This study expands the empirical specification of Cerra and Saxena (2008) and allows short-
termoutput growth regimes to be determined by globalization Relying on a non-linear
dynamic panelrepresentation it reconciles the earlier results in the literature regarding the
two oppositenarratives of the effects of globalization on output growth Countries experience
higher growth onaverage the more open and integrated they are into the world However
once they reach a certainglobalization threshold (endogenously estimated) countries may
also experience a new normalpersistently lower short-term output growth following a
financial crisis The benefits as well asvulnerabilities accrue earlier in the globalization
process for low- and middle-income countriesTo solely reap the globalization benefits on
growth sound policies should be in place to mitigatethe negative effects stemming from
increased vulnerabilities brought by globalization
Keywords Globalization Financial crisis Banking crisis Output growth New Normal
Globalization Financial crises Banking crises Output growth
JEL Classification F30 F43 F62 F65
Public Policy in an AI Economy
by Austan Goolsbee - 24653 (PE PR)
Abstract
This paper considers the role of policy in an AI-intensive
economy (interpreting AI broadly) It emphasizes the speed of
adoption of the technology for the impact on the job market and
the implications for inequality across people and across places
It also discusses the challenges of enacting a Universal Basic
Income as a response to widespread AI adoption discuss pricing
privacy and competition policy the question of whether AI could
improve policy making itself
httppapersnberorgpapersW24653utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Aggregate and Distributional Effects of Financial
Globalization Evidence from Macro and Sectoral Data IMF Working Paper No 1883
62 Pages Posted 22 May 2018
Davide Furceri International Monetary Fund (IMF)
Prakash Loungani International Monetary Fund (IMF)
Jonathan D Ostry International Monetary Fund (IMF)
Date Written April 2018
Abstract
We take a fresh look at the aggregate and distributional effects of policies to
liberalizeinternational capital flows-financial globalization Both country- and industry-level
resultssuggest that such policies have led on average to limited output gains while
contributing tosignificant increases in inequality-that is they pose an equity-efficiency trade-
off Behindthis average lies considerable heterogeneity in effects depending on country
characteristicsLiberalization increases output in countries with high financial depth and
those that avoidfinancial crises while distributional effects are more pronounced in countries
with lowfinancial depth and inclusion and where liberalization is followed by a crisis
Difference-indifferenceestimates using sectoral data suggest that liberalization episodes
reduce the shareof labor income particularly for industries with higher external financial
dependence thosewith a higher natural propensity to use layoffs to adjust to idiosyncratic
shocks and thosewith a higher elasticity of substitution between capital and labor The
sectoral resultsunderpin a causal interpretation of the findings using macro data
Keywords Globalization Inequality Capital Account Openness Crises Institutions
JEL Classification F13 G32 O11
The Dynamics of Sovereign Debt Crises and Bailouts CEPR Discussion Paper No DP12921
44 Pages Posted 15 May 2018
Francisco Roch International Monetary Fund (IMF)
Harald Uhlig University of Chicago - Department of Economics
There are 2 versions of this paper
Date Written May 2018
Abstract
Motivated by the recent European debt crisis this paper investigates the scope for a bailout
guarantee in a sovereign debt crisis Defaults may arise from negative income shocks
government impatience or a sunspot-coordinated buyers strike We introduce a bailout
agency and characterize the strategy with the minimal actuarially fair intervention which
guarantees the no-buyers-strike fundamental equilibrium relying on the market for residual
financing The intervention makes it cheaper for governments to borrow inducing them
borrow more leaving default probabilities possibly rather unchanged The maximal backstop
will be pulled precisely when fundamentals worsen
Keywords Bailouts default Endogenous Borrowing Constraints Eurozone Debt Crisis long-
term debt OMT Self-fulfilling Crises
JEL Classification F34 F41
Cumulative Impacts of Conditional Cash Transfer Programs Experimental Evidence from Indonesia
by Nur Cahyadi Rema Hanna Benjamin A Olken Rizal Adi Prima Elan Satriawan Ekki
Syamsulhakim - 24670 (CH DEV PE)
Abstract
Conditional cash transfer (CCT) programs have spread worldwide
and are designed to promote comprehensive human capital
investments in children starting from encouraging pre-natal and
maternal care and early childhood health interventions and
continuing through incentivizing school attendance Yet
evaluating these claims over more than a few years is hard as
most CCT experiments extend the program to the control group
after a short experimental period This paper experimentally
estimates the impacts of Indonesias cash transfer program (PKH)
six years after the program launched using data from about
14000 households in 360 sub-districts across Indonesia taking
advantage of the fact that treatment and control locations
remained largely intact throughout the period We find that PKH
continues to have large static incentive effects on many of the
targeted indicators increasing usage of trained health
professionals for childbirth dramatically and halving the share
of children age 7-15 who are not enrolled in school Wage labor
for 13-15 year olds was reduced by at least one-third We also
begin to observe impacts on outcomes that may require cumulative
investments for example six years later we observe large
reductions in stunting and some evidence of increased high school
completion rates The results suggest that CCT investments can
have substantial effects on the accumulation of human capital
and that these effects can persist even when programs are
operating at large-scale without researcher intervention
httppapersnberorgpapersW24670utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Services Development and Comparative Advantage in
Manufacturing World Bank Policy Research Working Paper No 8450
47 Pages Posted 23 May 2018
Xuepeng Liu Kennesaw State University - Department of Economics and Finance
Aaditya Mattoo World Bank - Development Research Group (DECRG)
Zhi Wang George Mason University - Schar School of Policy and Government
Shang-Jin Wei Columbia Business School - Finance and Economics National Bureau of Economic Research (NBER) Centre
for Economic Policy Research (CEPR) International Monetary Fund (IMF) Tsinghua University - School of
Economics amp Management
Date Written May 22 2018
Abstract
Most manufacturing activities use inputs from the financial and business services sectors But
these services sectors also compete for resources with manufacturing activities provoking
concerns about de-industrialization -- financial services in industrial countries like the United
States and the United Kingdom and business services in developing countries like India and
the Philippines This paper examines the implications of services development for the export
performance of manufacturing sectors It develops a methodology to quantify the indirect role
of services in international trade in goods and constructs new measures of revealed
comparative advantage based on domestic value added in gross exports The paper shows
that the development of financial and business services enhances the revealed comparative
advantage of manufacturing sectors that use these services intensively but not that of other
manufacturing sectors It also finds that a country can partially overcome the handicap of an
underdeveloped domestic services sector by relying more on imported services inputs Thus
lower services trade barriers in developing countries can help to promote their
manufacturing exports
Keywords Textiles Apparel amp Leather Industry Pulp amp Paper Industry General
Manufacturing Food amp Beverage Industry Common Carriers Industry Construction Industry
Plastics amp Rubber Industry Business Cycles and Stabilization Policies International Trade and
Trade Rules Trade and Services Financial Economics Finance and Development Economic
Growth Economic Theory amp Research Industrial Economics
Thou Shalt Not Breach The Impact on Sovereign
Spreads of Noncomplying with the EU Fiscal Rules IMF Working Paper No 1887
37 Pages Posted 22 May 2018
Federico Kalan International Monetary Fund (IMF)
Adina Popescu International Monetary Fund (IMF)
Julien P M Reynaud International Monetary Fund (IMF) Universiteacute Paris I Pantheacuteon-Sorbonne
Date Written April 2018
Abstract
There is evidence that fiscal rules in particular well-designed rules are associated with lower
sovereign spreads However the impact of noncompliance with fiscal rules on spreads has not
been examined in the literature This paper estimates the effect of the Excessive Deficit
Procedure (EDP) on sovereign spreads of European Union member states Based on a sample
including the 28 European Union countries over the period 1999 to 2016 sovereign spreads
of countries placed under an EDP are found to be on average higher compared to countries
that are not under an EDP The interpretation of this result is not straight-forward as different
channels may be at play in particular those related with the credibility and the design of the
EU fiscal framework The specification accounts for typical macroeconomic fiscal and
financial determinants of sovereign spreads the System Generalized Method of Moments
estimator is used to control for endogeneity and results are robust to a range of checks on
variables and estimators
Keywords Fiscal rules Fiscal policy noncompliance sovereign spreads General Models
with Panel Data
JEL Classification E62 H60 C23
ldquoUnconventionalrdquo Monetary Policy as Conventional
Monetary Policy A Perspective from the US In the
1920s
FEDS Working Paper No 2018-019
45 Pages Posted 6 Jun 2018
Mark A Carlson Board of Governors of the Federal Reserve System
Burcu Duygan-Bump Federal Reserve Board
Date Written 2018-03-09
Abstract
To implement monetary policy in the 1920s the Federal Reserve utilized administered
interest rates and conducted open market operations in both government securities and
private money market securities sometimes in fairly considerable amounts We show how the
Fed was able to effectively use these tools to influence conditions in money markets even
those in which it was not an active participant Moreover our results suggest that the
transmission of monetary policy to money markets occurred not just through changing the
supply of reserves but importantly through financial market arbitrage and the rebalancing of
investor portfolios The tools used in the 1920s by the Federal Reserve resemble the
extraordinary monetary policy tools used by central banks recently and provide further
evidence on their effectiveness even in ordinary times
Keywords Monetary policy Unconventional monetary policy Central banking Administered
rates Money markets Quantitative easing
JEL Classification E52 E58 N22
New Perspectives on the Decline of US
Manufacturing Employment FEDS Working Paper No 2018-023
37 Pages Posted 7 Jun 2018
Teresa Fort Dartmouth College - Tuck School of Business
Justin R Pierce Federal Reserve Board
Peter Schott Yale School of Management National Bureau of Economic Research (NBER)
Date Written 2018-04-13
Abstract
We use relatively unexplored dimensions of US microdata to examine how US manufacturing
employment has evolved across industries firms establishments and regions from 1977 to
2012 We show that these data provide support for both trade- and technology-based
explanations of the overall decline of employment over this period while also highlighting the
difficulties of estimating an overall contribution for each mechanism Toward that end we
discuss how further analysis of these trends might yield sharper insights
Keywords Employment Manufacturing Output Technology Trade
AI and the Economy
by Jason Furman Robert Seamans - 24689 (PR)
Abstract
We review the evidence that artificial intelligence (AI) is
having a large effect on the economy Across a variety of
statistics--including robotics shipments AI startups and patent
counts--there is evidence of a large increase in AI-related
activity We also review recent research in this area which
suggests that AI and robotics have the potential to increase
productivity growth but may have mixed effects on labor
particularly in the short run In particular some occupations
and industries may do well while others experience labor market
upheaval We then consider current and potential policies around
AI that may help to boost productivity growth while also
mitigating any labor market downsides including evaluating the
pros and cons of an AI specific regulator expanded antitrust
enforcement and alternative strategies for dealing with the
labor-market impacts of AI including universal basic income and
guaranteed employment
httppapersnberorgpapersW24689utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Economic Policy for Artificial Intelligence
by Ajay K Agrawal Joshua S Gans Avi Goldfarb - 24690 (PR)
Abstract
Recent progress in artificial intelligence (AI) - a general
purpose technology affecting many industries - has been focused
on advances in machine learning which we recast as a
quality-adjusted drop in the price of prediction How will this
sharp drop in price impact society Policy will influence the
impact on two key dimensions diffusion and consequences
First in addition to subsidies and IP policy that will influence
the diffusion of AI in ways similar to their effect on other
technologies three policy categories - privacy trade and
liability - may be uniquely salient in their influence on the
diffusion patterns of AI Second labor and antitrust policies
will influence the consequences of AI in terms of employment
inequality and competition
httppapersnberorgpapersW24690utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Missing Profits of Nations
by Thomas R Torslov Ludvig S Wier Gabriel Zucman - 24701 (CF IFM ITI PE)
Abstract
By combining new macroeconomic statistics on the activities of
multinational companies with the national accounts of tax havens
and the worlds other countries we estimate that close to 40 of
multinational profits are shifted to low-tax countries each year
Profit shifting is highest among US multinationals the tax
revenue losses are highest for the European Union and developing
countries We show theoretically and empirically that in the
current international tax system tax authorities of high-tax
countries do not have incentives to combat profit shifting to tax
havens They instead focus their enforcement effort on
relocating profits booked in other high-tax countries--in effect
stealing revenue from each other This policy failure can
explain the persistence of profit shifting to low-tax countries
despite the high costs involved for high-tax countries We
provide a new cross-country database of GDP corporate profits
trade balances and factor shares corrected for profit shifting
showing that the global rise of the corporate capital share is
significantly under-estimated
httppapersnberorgpapersW24701utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Global Financial Cycles and Risk Premiums
by Oscar Jorda Moritz Schularick Alan M Taylor Felix Ward - 24677 (AP DAE IFM ME)
Abstract
This paper studies the synchronization of financial cycles across
17 advanced economies over the past 150 years The comovement in
credit house prices and equity prices has reached historical
highs in the past three decades The sharp increase in the
comovement of global equity markets is particularly notable We
demonstrate that fluctuations in risk premiums and not risk-free
rates and dividends account for a large part of the observed
equity price synchronization after 1990 We also show that US
monetary policy has come to play an important role as a source of
fluctuations in risk appetite across global equity markets
These fluctuations are transmitted across both fixed and floating
exchange rate regimes but the effects are more muted in floating
rate regimes
httppapersnberorgpapersW24677utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Geography of Linguistic Diversity and the Provision of Public Goods
by Klaus Desmet Joseph Gomes Ignacio Ortunyo-Ortin - 24694 (PE POL)
Abstract
This paper analyzes the importance of local interaction between
individuals of different linguistic groups for the provision of
public goods at the national level The micro-founded conceptual
framework we develop predicts that a countrys public goods (i)
decrease in its overall linguistic fractionalization and (ii)
either increase or decrease in its local learning multiplier a
measure of how local interaction affects antagonism towards other
groups in the society at large After constructing a 5 km by 5
km dataset on language use for 223 countries we empirically
explore these theoretical predictions While overall
fractionalization worsens public goods outcomes we find a
positive causal effect of local learning Conditional on a
countrys overall diversity public goods outcomes are maximized
when there are a few large-sized groups and the diversity of each
location mirrors that of the country as a whole Our large-scale
study spanning the entire globe confirms experimental
micro-evidence in favor of contact theory
httppapersnberorgpapersW24694utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Misfits in the Car Industry Offshore Assembly
Decisions at the Variety Level CEPR Discussion Paper No DP12940
39 Pages Posted 21 May 2018
Keith Head University of British Columbia (UBC) - Division of Strategy and Business Economics
Thierry Mayer Sciences Po
Date Written May 2018
Abstract
This paper estimates the role of countryvariety comparative advantage in the decision to
offshore assembly of more than 2000 models of 197 car brands headquartered in 23
countries While offshoring in the car industry has risen from 2000 to 2016 the top five
offshoring brands account for half the car assembly relocated to low-wage countries We show
that the decision to offshore a particular car model depends on two types of cost
(dis)advantage of the home country relative to foreign locations The first type the assembly
costs common to all models is estimated via a structural triadic gravity equation The second
effect model-level comparative advantage is an interaction between proxies for the models
skill and capital intensity and headquarter countrys abundance in these factors
Keywords cars Gravity offshoring
JEL Classification F1
Global Crises and Populism The Role of Eurozone
Institutions CEPR Discussion Paper No DP12944
46 Pages Posted 21 May 2018
Luigi Guiso Einaudi Institute for Economics and Finance (EIEF)
Helios Herrera University of Warwick
Massimo Morelli Bocconi University
Tommaso Sonno Catholic University of Louvain (UCL) London School of Economics amp Political Science (LSE) - Centre for
Economic Performance (CEP)
Date Written May 2018
Abstract
Populist parties are likely to gain consensus when mainstream parties and status quo
institutions fail to manage the shocks faced by their economies Institutional constraints
which limit the possible actions in the face of shocks result in poorer performance and
frustration among voters who turn to populist movements We rely on this logic to explain the
different support of populist parties among European countries in response to the
globalization shock and to the 2008-2011 - financial and sovereign debt crisis We predict a
greater success of populist parties in response to these shocks in Euro zone countries and our
empirical analysis confirms this prediction This is consistent with voters frustration for the
greater inability of the Euro zone governments to react to di cult-to-manage globalization
shocks and financial crises Our evidence has implications for the speed of construction of
political unions A slow staged process of political unification can expose the EU to a risk of
political backlash if hard to manage shocks hit the economies during the integration process
Keywords Financial Dependence Frustration Globalization populism Relocation
JEL Classification D72 D78 F14 F16
Currency Unions Trade and Heterogeneity CEPR Discussion Paper No DP12954
50 Pages Posted 31 May 2018
Natalie Chen University of Warwick - Department of Economics Centre for Economic Policy Research (CEPR)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
Date Written May 2018
Abstract
How do trade costs affect international trade This paper offers a new approach We rely on a
flexible gravity equation that predicts variable trade cost elasticities both across and within
country pairs We apply this framework to the effect of currency unions on international
trade While we estimate that currency unions are associated with a trade increase of around
38 percent on average we find substantial underlying heterogeneity Consistent with the
predictions of our framework we find effects around three times as strong for country pairs
associated with small import shares and a zero effect for large import shares Our results
imply that conventional homogeneous currency union estimates do not provide helpful
guidance for countries considering to join a currency union Instead countries need to take
into account the distribution of their trade shares to assess the impact of trade costs
Keywords Currency Unions euro Gravity Heterogeneity Trade Costs Trade Elasticity
Translog
JEL Classification F14 F15 F33
Fiscal Multipliers and Foreign Holdings of Public Debt CEPR Discussion Paper No DP12960
76 Pages Posted 5 Jun 2018
Fernando Broner CREI Barcelona GSE Universitat Pompeu Fabra CEPR
Daragh Clancy European Stability Mechanism
Aitor Erce European Stability Mechanism Banco de Espantildea - Associate Directorate General International Affairs
Alberto Martin Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) Centre for Economic
Policy Research (CEPR)
There are 2 versions of this paper
Date Written May 2018
Abstract
This paper explores a natural connection between fiscal multipliers and foreign holdings of
public debt Although fiscal expansions can raise domestic economic activity through various
channels they can also have crowding-out effects if the resources used to acquire public debt
reduce domestic consumption and investment Thus these crowding-out effects are likely to
be weaker when public debt is purchased by foreigners We test this hypothesis on (i) post-
war US data and (ii) data for a panel of 17 advanced economies from the 1980s to the
present To do so we assemble a novel database of public debt holdings by domestic and
foreign creditors for a large set of advanced economies We combine this data with standard
measures of fiscal policy shocks and show that indeed the size of fiscal multipliers is
increasing in the share of public debt held by foreigners In particular the fiscal multiplier is
smaller than one when the foreign share is low such as in the US in the 1950s and 1960s
and Japan today and larger than one when the foreign share is high such as in the US and
Ireland today
Keywords Fiscal Multiplier Foreign Holdings of Public Debt Sovereign debt
JEL Classification E62 F32 F34 F36 F41 F62 F65 G15 H63
Refugee Resettlement Redistribution and Growth CESifo Working Paper Series No 6961
26 Pages Posted 30 May 2018
Leonid V Azarnert Ariel University Center
Date Written April 09 2018
Abstract
This paper studies the effect of refugee resettlement on human capital accumulation The
analysis is performed in a growth model with endogenous fertility I show how refugee
resettlement from a more advanced and wealthier economy to a less advanced and less
wealthy economy combined with income transfers is Pareto-improving for indigenous
populations in both countries I also derive conditions for the proposed resettlement policy to
stimulate human capital accumulation and hence economic growth in both economies
Keywords refugee resettlement fertility human capital growth
JEL Classification D300 F220 J100 O100
The Impact of Trade Liberalization on Firm Productivity and Innovation
by Pian Shu Claudia Steinwender - 24715 (ITI PR)
Abstract
This chapter reviews the empirical economics literature on the
impact of trade liberalization on firms innovation-related
outcomes We define and examine four types of shocks to trade
flows import competition export opportunities access to
imported intermediates and foreign input competition Our
review reveals interesting heterogeneities at the country and
firm levels In emerging countries trade liberalization appears
to spur productivity and innovation In developed countries
export opportunities and access to imported intermediates tend to
encourage innovation but the evidence on import competition is
mixed especially for firms in the United States At the firm
level the positive effects of trade on innovation are more
pronounced at the initially more productive firms while the
negative effects are more pronounced at the initially less
productive firms
httppapersnberorgpapersW24715utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The IT Revolution and the Globalization of RampD
by Lee G Branstetter Britta M Glennon J Bradford Jensen - 24707 (ITI PR)
Abstract
Since the 1990s RampD has become less geographically concentrated
and has seen especially fast growth in emerging markets One of
the distinguishing features of the RampD globalization phenomenon
is its concentration within the softwareIT domain the increase
in foreign RampD has been largely concentrated within software and
IT-intensive multinationals and new RampD destinations are also
more software and IT-intensive multinationals than traditional
RampD destinations In this paper we document three important
phenomena (1) the globalization of RampD (2) the growing
importance of software and IT to firm innovation and (3) the
rise of new RampD hubs We argue that the shortage in
softwareIT-related human capital resulting from the large IT-
and software-biased shift in innovation drove US MNCs abroad and
particularly drove them abroad to new hubs with large
quantities of STEM workers who possessed IT and software skills
Our findings support the view that the globalization of US
multinational RampD has reinforced the technological leadership of
US-based firms in the information technology domain and that
multinationals ability to access a global talent base could
support a high rate of innovation even in the presence of the
rising (human) resource cost of frontier RampD
httppapersnberorgpapersW24707utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Global Financial Cycles and Risk Premiums CEPR Discussion Paper No DP12969
60 Pages Posted 5 Jun 2018
Ogravescar Jordagrave Federal Reserve Banks - Federal Reserve Bank of San Francisco
Moritz Schularick University of Bonn - Department of Economics Centre for Economic Policy Research (CEPR)
Alan M Taylor University of California Davis - Department of Economics University of Virginia - Department of
Economics National Bureau of Economic Research (NBER) Centre for Economic Policy Research (CEPR)
Felix Ward Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics
There are 2 versions of this paper
Date Written June 2018
Abstract
This paper studies the synchronization of financial cycles across 17 advanced economies over
the past 150 years The comovement in credit house prices and equity prices has reached
historical highs in the past three decades The sharp increase in the comovement of global
equity markets is particularly notable We demonstrate that fluctuations in risk premiums
and not risk-free rates and dividends account for a large part of the observed equity price
synchronization after 1990 We also show that US monetary policy has come to play an
important role as a source of fluctuations in risk appetite across global equity markets These
fluctuations are transmitted across both fixed and floating exchange rate regimes but the
effects are more muted in floating rate regimes
Keywords asset prices equity return premium financial centers financial cycles policy
spillovers
JEL Classification E50 F33 F42 F44 G12 N10 N20
Automation and Unemployment Help is on the Way CEPR Discussion Paper No DP12974
32 Pages Posted 11 Jun 2018
Hideki Nakamura Osaka City University
Joseph Zeira Hebrew University of Jerusalem - Department of Economics Centre for Economic Policy Research (CEPR)
LUISS Guido Carli DPTEA
Date Written June 2018
Abstract
This paper presents a model of technical change that combines two lines of research together
It is a task based model in which automation turns labor tasks to mechanized ones and there
is also a continuous addition of new labor tasks as in the expanding variety literature We
impose three simple restrictions on the model The first is that all new tasks are adopted The
second is that all new automation innovations are adopted and the third is that the share of
labor does not converge to zero in the long run We show that these restrictions imply that
unemployment due to automation is expected to converge to zero over time
Keywords automation growth Labor Income Share technical change unemployment
JEL Classification J64 O14 O30 O40
Sovereign Default in a Monetary Union CEPR Discussion Paper No DP12976
56 Pages Posted 11 Jun 2018
Sergio de Ferra Stockholm University
Federica Romei LUISS Guido Carli University
Date Written June 2018
Abstract
In the aftermath of the global fi nancial crisis sovereign default risk and the zero lower bound
have limited the ability of policy-makers in the European monetary union to achieve their
stabilization objective This paper investigates the interaction between sovereign default risk
and the conduct of monetary policy when borrowers can act strategically and they share with
their lenders a single currency in a monetary union We address this question in an
endogenous sovereign default model of heterogeneous countries in a monetary union where
the monetary authority may be constrained by the zero lower bound We uncover three main
results First in normal times debtors have a stronger incentive to default to induce more
expansionary monetary policy Second the zero lower bound or constraints on monetary
policy may act as a disciplining device to enforce repayment of sovereign debt Third
sovereign default risk induces countries with a preference for tight monetary policy to accept
a laxer policy stance These results help to shed light on the recent European experience of
high default risk expansionary monetary policy and low nominal interest rates
Keywords Heterogeneous Countries monetary union sovereign default zero lower bound
JEL Classification F34 F42 F45 H63
Evolution of Modern Business Cycle Models Accounting for the Great Recession
by Patrick J Kehoe Virgiliu Midrigan Elena Pastorino - 24741 (EFG IFM LS ME)
Abstract
Modern business cycle theory focuses on the study of dynamic
stochastic general equilibrium models that generate aggregate
fluctuations similar to those experienced by actual economies
We discuss how this theory has evolved from its roots in the
early real business cycle models of the late 1970s through the
turmoil of the Great Recession four decades later We document
the strikingly different pattern of comovements of macro
aggregates during the Great Recession compared to other postwar
recessions especially the 1982 recession We then show how two
versions of the latest generation of real business cycle models
can account respectively for the aggregate and the
cross-regional fluctuations observed in the Great Recession in
the United States
httppapersnberorgpapersW24741utm_campaign=ntwamputm_medium=emailamputm_source=ntw
What Happened Financial Factors in the Great Recession
by Mark Gertler Simon Gilchrist - 24746 (EFG ME)
Abstract
Since the onset of the Great Recession an explosion of both
theoretical and empirical research has investigated how the
financial crisis emerged and how it was transmitted to the real
sector The goal of this paper is to describe what we have
learned from this new research and how it can be used to
understand what happened during the Great Recession In the
process we also present some new evidence on the role of the
household balance sheet channel versus the disruption of banking
We examine a panel of quarterly state level data on house
prices mortgage debt and employment along with a measure of
banking distress Then exploiting both panel data and time
series methods we analyze the contribution of the house price
decline versus the banking distress indicator to the overall
decline in employment during the Great Recession We confirm a
common finding in the literature that the household balance sheet
channel is important for regional variation in employment
However we also find that the disruption in banking was central
to the overall employment contraction
httppapersnberorgpapersW24746utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Changing Structure of Immigration to the OECD
What Welfare Effects on Member Countries CESifo Working Paper Series No 6992
40 Pages Posted 27 Jun 2018
Michał Burzyński Universite du Luxembourg
Freacutedeacuteric Docquier Universiteacute catholique de Louvain CREAM Centre for Research on Environmental Appraisal amp Management
UK IZA Institute of Labor Economics
Hillel Rapoport Paris School of Economics (PSE)
Date Written April 24 2018
Abstract
We investigate the welfare implications of two pre-crisis immigration waves (1991ndash2000 and
2001ndash2010) and of the post-crisis wave (2011ndash2015) for OECD native citizens To do so we
develop a general equilibrium model that accounts for the main channels of transmission of
immigration shocks ndash the employment and wage effects the fiscal effect and the market size
effect ndash and for the interactions between them We parameterize our model for 20 selected
OECD member states We find that the three waves induce positive effects on the real income
of natives however the size of these gains varies considerably across countries and across
skill groups In relative terms the post-crisis wave induces smaller welfare gains compared to
the previous ones This is due to the changing origin mix of immigrants which translates into
lower levels of human capital and smaller fiscal gains However differences across cohorts
explain a tiny fraction of the highly persistent cross-country heterogeneity in the economic
benefits from immigration
Keywords immigration welfare crisis inequality general equilibrium
JEL Classification C680 F220 J240
Anatomy and Impact of Export Promotion Agencies World Bank Policy Research Working Paper No 8470
19 Pages Posted 11 Jun 2018
Marcio Cruz World Bank Federal University of Parana (UFPR) - Departamento de Economia
Daniel Lederman World Bank - Latin America and Caribbean Region
Laura Zoratto World Bank
Date Written June 7 2018
Abstract
Recent literature has shown evidence of positive contributions of export promotion agencies
around the world in raising exports through the intensive and extensive margins of trade The
number of export promotion agencies has increased substantially over the past two decades
and most of them focus on assisting exporters in understanding and finding markets for their
products This paper describes the characteristics of export promotion agencies around the
world using a novel database from the World Bank in collaboration with the International
Trade Center in Geneva covering 2005-10 In addition it presents a short summary of the
literature on the impacts of export promotion agencies
Keywords Export Competitiveness International Trade and Trade Rules Rules of Origin
Trade Policy Trade and Multilateral Issues Trade and Services
Optimal Inflation and the Identification of the Phillips
Curve CEPR Discussion Paper No DP12981
29 Pages Posted 11 Jun 2018
Michael McLeay Bank of England - Monetary Assessment and Strategy Division
Silvana Tenreyro London School of Economics (LSE)
Date Written June 2018
Abstract
This paper explains why inflation follows a seemingly exogenous statistical process unrelated
to the output gap In other words it explains why it is difficult to empirically identify a Phillips
curve We show why this result need not imply that the Phillips curve does not hold -- on the
contrary our conceptual framework is built under the assumption that the Phillips curve
always holds The reason is simple if monetary policy is set with the goal of minimising
welfare losses (measured as the sum of deviations of inflation from its target and output from
its potential) subject to a Phillips curve a central bank will seek to increase inflation when
output is below potential This targeting rule will impart a negative correlation between
inflation and the output gap blurring the identification of the (positively sloped) Phillips
curve
Keywords identification Inflation targeting Phillips curve
GVCs and the Endogenous Geography of RTAs CESifo Working Paper Series No 6980
43 Pages Posted 11 Jun 2018
Lionel Fontagne University of Paris 1 Pantheacuteon Sorbonne Paris School of Economics CEPII
Gianluca Santoni Centre dEtudes Prospectives et dInfo Internationales (CEPII)
Date Written April 19 2018
Abstract
Geography economic size or common history help predicting signed regional trade
agreements (RTAs) However not all signed RTAs are ldquonaturalrdquo according to economic
determinants En-dogeneity and general equilibrium effects of RTAS are the two mechanisms
addressed in this paper We estimate the time-varying probability for a country pair to sign a
trade agreement and build upon structural gravity in general equilibrium to determine how
the patterns of Global Value Chains shape the evolving geography of optimal RTAS Our results
confirm that the endogenous geography of RTAs is shaped by the development of GVCs
Keywords preferential trade agreements global value chains structural gravity
JEL Classification F130 F140 F150
Diversity and Growth CEPR Discussion Paper No DP13011
37 Pages Posted 26 Jun 2018
Mark Gradstein Ben-Gurion University of the Negev - Department of Economics CESifo (Center for Economic Studies and
Ifo Institute) Centre for Economic Policy Research (CEPR) World Bank - Development Research Group
(DECRG)
There are 2 versions of this paper
Date Written June 2018
Abstract
The diversity of social interaction within economic communities affects productivity and
growth and is itself shaped by economic conditions These reciprocal effects raise the
possibility of multiple equilibria of setting a socially polarized economy stagnating in poverty
on a new path of social integration and economic growth through external intervention or an
internal political initiative This paper describes a simple analytical model that captures these
reciprocal effects and sheds light on the role of government capacity community leadership
federation and external credit or aid in achieving economic growth through social integration
The Economics of Language CEPR Discussion Paper No DP13002
85 Pages Posted 26 Jun 2018
Victor Ginsburgh Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics
(ECARES)
Shlomo Weber Southern Methodist University (SMU) - Department of Economics New Economic School
Date Written June 2018
Abstract
The paper brings together methodological theoretical and empirical analysis into the single
framework of linguistic diversity It reflects both historical and contemporary research by
economists and other social scientists on the impact of language on economic outcomes and
public policies We examine whether and how language influences human thinking (including
emotions) and behavior analyze the effects of linguistic distances on trade migrations
financial markets language learning and its returns The quantitative foundations of linguistic
diversity which rely on group identification linguistic distances as well as fractionalization
polarization and disenfranchisement indices are discussed in terms of their empirical
challenges and uses We conclude with an analysis of linguistic policies and shifts of languages
and examine their welfare effects and the trade-offs between the development of labor
markets and the social costs that they generate in various countries
Financial and Fiscal Interaction in the Euro Area
Crisis This Time Was Different CEPR Discussion Paper No DP13016
39 Pages Posted 3 Jul 2018
Alberto Caruso Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics
(ECARES)
Lucrezia Reichlin London Business School Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in
Economics and Statistics (ECARES) Centre for Economic Policy Research (CEPR) European Central Bank
(ECB)
Giovanni Ricco University of Warwick - Department of Economics SciencesPo - OFCE
Date Written June 2018
Abstract
This paper highlights the anomalous characteristics of the Euro Area `twin crises by
contrasting the aggregate macroeconomic dynamics in the period 2009-2013 with the
business cycle fluctuations of the previous decades We report three stylised facts First the
contraction in output was marked by an anomalous downfall in investment while
consumption savings and unemployment followed their historical relation with GDP Second
households and financial corporations debts and house prices deviated from their pre-crisis
trends Third the jump in the public deficit-GDP ratio in 2008-2009 was unprecedented and
so was the fiscal consolidation that followed Our analysis points to the financial nature of the
crisis as a likely explanation for these facts Importantly the `anomaly in public deficit is in
large part explained by extraordinary measures in support of the financial sector which show
up in the stock-flow adjustments and reveal a key interaction between the fiscal and the
financial sectors
Keywords Euro Area Government Debt Recessions
JEL Classification C11 C32 C54 E52 E62 F45
The Shocks Matter Improving Our Estimates of
Exchange Rate Pass-Through CEPR Discussion Paper No DP13037
43 Pages Posted 9 Jul 2018
Kristin J Forbes Massachusetts Institute of Technology (MIT) - Sloan School of Management National Bureau of Economic
Research (NBER)
Ida Hjortsoe
Bank of England
Tsvetelina Nenova Bank of England
There are 4 versions of this paper
Date Written July 2018
Abstract
A major challenge for monetary policy is predicting how exchange rate movements will
impact inflation We propose a new focus directly incorporating the underlying shocks that
cause exchange rate fluctuations when evaluating how these fluctuations pass through to
import and consumer prices A standard open-economy model shows that the relationship
between exchange rates and prices depends on the shocks which cause the exchange rate to
move We build on this to develop a structural Vector Autoregression (SVAR) framework for a
small open economy and apply it to the UK We show that prices respond differently to
exchange rate movements based on what caused the movements For example exchange rate
pass-through is low in response to domestic demand shocks and relatively high in response to
domestic monetary policy shocks This framework can improve our ability to estimate how
pass-through can change over short periods of time For example it can explain why sterlings
post-crisis depreciation caused a sharper increase in prices than expected while the effect of
sterlings 2013-15 appreciation was more muted We also apply this framework to forecast
the extent of pass-through from sterlings sharp depreciation corresponding to the UKs vote
to leave the European Union
Keywords consumer prices exchange rate pass-through import prices inflation vector
autoregressions
JEL Classification E31 F3 F41
Why Has Economic Growth Slowed When Innovation
Appears to Be Accelerating CEPR Discussion Paper No DP13039
29 Pages Posted 9 Jul 2018
Robert J Gordon Northwestern University - Department of Economics National Bureau of Economic Research (NBER)
Centre for Economic Policy Research (CEPR)
There are 2 versions of this paper
Date Written July 2018
Abstract
U S economic growth slowed by more than half from 32 percent per year during 1970-2006
to only 14 percent during 2006-16 and this decline was divided equally between slower
growth in hours of work and slower growth in output per hour In explaining slower growth
in hours particular emphasis is placed on the slower secular rise of life expectancy in the US
compared to other developed countries Further contributions to slowing growth are made by
a decline in the population share of both legal and illegal immigration and a turnaround from
rising to declining labor force participation Causes of declining productivity growth begin
with the slowdown in the rate of increase of educational attainment Why did productivity
growth decline after 2006 despite an increase in the rate at which new US patents were
issued in 2006-16 compared to earlier decades Part of the slowdown is attributed to the
maturity of the IT revolution which also helps to explain the trajectory of the college wage
premium Aspects of the productivity growth slowdown include the declining productivity of
research workers diminishing returns to drug innovation and the evolutionary rather than
revolutionary impact of robots and artificial intelligence
Keywords Economic Growth Immigration Innovation labor force participation Mortality
productivity
JEL Classification D24 E24
On DSGE Models
by Lawrence J Christiano Martin S Eichenbaum Mathias Trabandt - 24811 (EFG ME)
Abstract
The outcome of any important macroeconomic policy change is the
net effect of forces operating on different parts of the economy
A central challenge facing policy makers is how to assess the
relative strength of those forces Dynamic Stochastic General
Equilibrium (DSGE) models are the leading framework that
macroeconomists have for dealing with this challenge in an open
and transparent manner This paper reviews the state of DSGE
models before the financial crisis and how DSGE modelers
responded to the crisis and its aftermath In addition we
discuss the role of DSGE models in the policy process
httppapersnberorgpapersW24811utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Currency Wars Unconventional Monetary Policy Does Not Stimulate Exports
by Andrew K Rose - 24817 (IFM ITI)
Abstract
I investigate whether countries that use unconventional monetary
policy (UMP) experience export booms I use a popular gravity
model of trade which requires neither the exogeneity of UMP nor
instrumental variables for UMP In practice countries that
engage in UMP experience a drop in exports vis-a-vis countries
that are not engaged in such policies holding other things
constant Quantitative easing is associated with exports that
are about 10 lower to countries not engaged in UMP this amount
is significantly different from zero and similar to the effect of
negative nominal interest rates Thus there is no evidence that
countries have gained export markets through unconventional
monetary policy currency wars that have been launched have also
been lost UMP is also associated with a comparable drop in
imports and exchange rates suggesting that countries engage in
UMP when they are experiencing adverse macroeconomic shocks
concurrent with those that eviscerate international trade
httppapersnberorgpapersW24817utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Granular Comparative Advantage
by Cecile Gaubert Oleg Itskhoki - 24807 (EFG IFM IO ITI)
Abstract
Large firms play a pivotal role in international trade shaping
the export patterns of countries We propose and quantify a
granular multi-sector model of trade which combines fundamental
comparative advantage across sectors with granular comparative
advantage embodied in outstanding individual firms We develop
an SMM-based estimation procedure which takes full account of
the general equilibrium of the model to jointly estimate these
fundamental and granular forces using French micro-data with
information on firm domestic and export sales across
manufacturing industries We find that granularity accounts for
about 20 of the variation in realized export intensity across
sectors and is more pronounced in the most export-intensive
sectors In turn idiosyncratic firm dynamics accounts for a
large share of the evolution of a countrys comparative advantage
over time Governments face strong incentives to target trade
policy at large individual foreign exporters and to use lenient
antitrust regulation at home to substitute for
beggar-thy-neighbor trade policy
httppapersnberorgpapersW24807utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The State of New Keynesian Economics A Partial Assessment
by Jordi Gali - 24845 (EFG ME)
Abstract
I provide an overview of recent developments in monetary
economics with an emphasis on extensions of the New Keynesian
framework that assume a zero lower bound on the short term
nominal rate as well as models with household heterogeneity
httppapersnberorgpapersW24845utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Artificial Intelligence Economics and Industrial Organization
by Hal Varian - 24839 (IO PR)
Abstract
Machine learning (ML) and artificial intelligence (AI) have been
around for many years However in the last 5 years remarkable
progress has been made using multilayered neural networks in
diverse areas such as image recognition speech recognition and
machine translation AI is a general purpose technology that is
likely to impact many industries In this chapter I consider how
machine learning availability might affect the industrial
organization of both firms that provide AI services and
industries that adopt AI technology My intent is not to
provide an extensive overview of this rapidly-evolving area but
instead to provide a short summary of some of the forces at work
and to describe some possible areas for future research
httppapersnberorgpapersW24839utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Twenty Five Years of Global Imbalances CEPR Discussion Paper No DP13066
20 Pages Posted 24 Jul 2018
Maurice Obstfeld International Monetary Fund (IMF)
Date Written July 2018
Abstract
As international capital markets expanded in breadth and depth after the middle 1990s
global current account imbalances also expanded markedly Some have linked the origin of
the subsequent Global Financial Crisis (GFC) to these global imbalances This essay proposes
answers to four questions about the recent history of global imbalances Why did global
imbalances expand after the mid-1990s What circumstances and concomitant factors
provide clues about the origins of the GFC If one accepts that a mono-causal story about the
GFC based on global imbalances is inaccurate how should one view the potential threats from
excessive global imbalances today And finally what policy implications follow
Keywords current account global financial crisis (GFC) global imbalances IMF External
Sector Report
Is Automation Labor-Displacing Productivity Growth Employment and the Labor Share
by David Autor Anna Salomons - 24871 (EFG LS)
Abstract
Many technological innovations replace workers with machines but
this capital-labor substitution need not reduce aggregate labor
demand because it simultaneously induces four countervailing
responses own-industry output effects cross-industry
input-output effects between-industry shifts and final demand
effects We quantify these channels using four decades of
harmonized cross-country and industry data where we measure
automation as industry-level movements in total factor
productivity (TFP) that are common across countries We find
that automation displaces employment and reduces labors share of
value-added in the industries in which it originates (a direct
effect) In the case of employment these own-industry losses
are reversed by indirect gains in customer industries and induced
increases in aggregate demand By contrast own-industry labor
share losses are not recouped elsewhere Our framework can
account for a substantial fraction of the reallocation of
employment across industries and the aggregate fall in the labor
share over the last three decades It does not however explain
why the labor share fell more rapidly during the 2000s
httppapersnberorgpapersW24871utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Dynamic Effects of Co-Ethnic Networks on
Immigrants Economic Success CESifo Working Paper Series No 7084
43 Pages Posted 21 Jul 2018
Michele Battisti University of Palermo LUISS Guido Carli University
Giovanni Peri University of California Davis - Department of Economics
Agnese Romiti Government of the Federal Republic of Germany - Institute for Employment Research (IAB)
Date Written June 06 2018
Abstract
This paper investigates how the size of co-ethnic networks at the time of arrival affect the
economic success of immigrants in Germany Applying panel analysis with a large set of fixed
effects and controls we isolate the association between initial network size and long-run
immigrant outcomes We also look at those who were assigned to an initial location
independently of their choice allows a causal interpretation of our estimates We find that
immigrants initially located in places with larger co-ethnic networks are more likely to be
employed at first but have a lower probability of investing in human capital
Keywords networks immigration human capital employment
JEL Classification J240 J610 R230
Immigrant Artists Enrichment or Displacement CEPR Discussion Paper No DP13070
36 Pages Posted 31 Jul 2018
Karol Borowiecki University of Southern Denmark
Kathryn Graddy Brandeis University - Department of Economics
Date Written July 2018
Abstract
In order to investigate the role of immigrant artists on the development of artistic clusters in
US cities we use the US Census and American Community Survey collected every 10 years
since 1850 We identify artists and art teachers authors musicians and music teachers actors
and actresses architects and journalists their geographical location and their status as a
native or an immigrant We look at the relative growth rate of the immigrant population in
these occupations over a ten year period and how it affects the relative growth rate of native-
born individuals in these artistic occupations We find that cities that experienced immigrant
artist inflows also see a greater inflow of native artists
Keywords artistic occupations artists Immigration
JEL Classification J4 J6 N3 N9 Z1
Global Value Chains and Inequality with Endogenous Labor Supply
by Eunhee Lee Kei-Mu Yi - 24884 (ITI)
Abstract
We assess the role of global value chains in transmitting global
integration shocks to aggregate trade as well as distributional
outcomes We develop a multi-country general equilibrium trade
model that features multi-stage production with different stages
having different productivities and using factors (occupations)
with different intensities The model also features a Roy
mechanism in which heterogeneous workers endogenously choose
their sector and occupation Country- and worker-level
comparative advantages interact A reduction in trade costs
leads to countries specializing in their comparative advantage
sectors and production stages This specialization changes labor
demand and also leads to more workers shifting to their
comparative advantage sectors and occupations We calibrate our
model to the US China and the rest of the world in 2000 and
we simulate a decline in Chinas trade costs with the US
designed to mimic Chinas entry into the WTO Our simulation
results imply an increase in the skill premium in both the US
and China and the GVC ie specialization across stages is
critical to this outcome
httppapersnberorgpapersW24884utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Friedman and Phelps on the Phillips Curve Viewed from a Half Centurys Perspective
by Robert J Gordon - 24891 (EFG)
Abstract
In the late 1960s the stable negatively sloped Phillips Curve
(PC) was overturned by the Friedman-Phelps natural rate model
Their PC was vertical in the long run at the natural unemployment
rate and their short-run curve shifted up whenever unemployment
was pushed below the natural rate This paper criticizes the
underlying assumption of the Friedman-Phelps approach that the
labor market continuously clears and that changes in unemployment
down or up occur only in response to fooling of workers firms
or both A preferable and resolutely Keynesian approach
explains quantity rationing by inertia in price and wage setting
The positive correlation of inflation and unemployment in the
1970s and again in the 1990s is explained by joining the
negatively sloped Phillips Curve with a positively sloped dynamic
demand curve For any given growth of nominal GDP higher
inflation caused by adverse supply shocks implies slower real GDP
growth and higher unemployment This triangle model based on
inflation inertia demand and supply worked well to explain why
inflation and unemployment were both positively and negatively
correlated between the 1960s and 1990s but in the past decade
the slope of the short-run Phillips Curve has flattened as
inflation exhibited a muted response to high unemployment in
2009-13 and low unemployment in 2016-2018 It remains to be
seen whether a continuation of low unemployment will cause a
modest and fixed extra amount of inflation thus reviving the
stable Phillips curve of the early 1960s or whether inflation
will continuously accelerate as Friedman and Phelps would have
predicted
httppapersnberorgpapersW24891utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Tax Policy Measures in Advanced and Emerging
Economies A Novel Database IMF Working Paper No 18110
61 Pages Posted 1 Aug 2018
David Amaglobeli International Monetary Fund (IMF)
Valerio Crispolti International Monetary Fund (IMF)
Era Dabla-Norris International Monetary Fund (IMF)
Pooja Karnane International Monetary Fund (IMF)
Florian Misch International Monetary Fund (IMF)
Date Written May 2018
Abstract
This paper describes a new comprehensive database of tax policy measures in 23 advanced
and emerging market economies over the last four decades We extract this information from
more than 900 OECD Economic Surveys and 37000 tax-related news from the International
Bureau of Fiscal Documentation using text-mining techniques The innovation of this dataset
lies in its granularity changes in the rates and bases of personal and corporate income taxes
value added and sale taxes social security contributions excise and property taxes are
systematically documented In addition the database provides information on the
announcement and implementation dates whether the measures represent major changes
are part of a broader tax package and phased in over several years The paper also presents a
range of stylized facts suggesting that information from this database is useful to deepen the
analysis of tax policy changes for research and policy purposes
Keywords Tax policy Tax reforms Personal income taxes Corporate income taxes Value
added taxes Sales taxes Excise taxes Property taxes Developed countries Emerging markets
Tax Reforms Text Mining Tax Policy Implementation Lags Tax Reforms Text Mining Tax
Policy Implementation Lags Methodology for Collecting Estimating and Organizing
Macroeconomic Data General
JEL Classification C82 E61 H20 P16
Inequality Aversion Populism and the Backlash
Against Globalization CEPR Discussion Paper No DP13107
69 Pages Posted 21 Aug 2018
Lubos Pastor University of Chicago - Booth School of Business Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
Pietro Veronesi
University of Chicago - Booth School of Business Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
There are 3 versions of this paper
Date Written August 2018
Abstract
Motivated by the recent rise of populism in western democracies we develop a model in
which a populist backlash emerges endogenously in a growing economy In the model voters
dislike inequality especially the high consumption of the ``elites Economic growth
exacerbates inequality due to heterogeneity in risk aversion In response to rising inequality
rich-country voters optimally elect a populist promising to end globalization Redistribution is
of limited value in containing the backlash against globalization Countries with more
inequality higher financial development and current account deficits are more vulnerable to
populism both in the model and in the data Evidence on who voted for Brexit and Trump in
2016 also largely supports the model
Keywords Brexit Globalization inequality populism risk aversion Trump
JEL Classification D72 F65 G11 G12 G18 P16
Underemployment in the US and Europe
by David NF Bell David G Blanchflower - 24927 (IFM LS ME)
Abstract
Large numbers of part-time workers around the world both those
who choose to be part-time and those who are there involuntarily
and would prefer a full-time job report they want more hours
Full-timers who say they want to change their hours mostly say
they want to reduce them When recession hit in most countries
the number of hours of those who said they wanted more hours
rose sharply and there was a fall in the number of hours that
full-timers wanted their hours reduced by Even though the
unemployment rate has returned to its pre-recession levels in
many advanced countries underemployment in most has not
We produce estimates for a new and better underemployment rate
for twenty-five European countries In most underemployment
remains elevated We provide evidence for the UK and the US as
well as some international evidence that underemployment rather
than unemployment lowers pay in the years after the Great
Recession We also find evidence for the US that falls in the
home ownership rate have helped to keep wage pressure in check
Underemployment replaces unemployment as the main influence on
wages in the years since the Great Recession
httppapersnberorgpapersW24927utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Does Machine Translation Affect International Trade Evidence from a Large Digital Platform
by Erik Brynjolfsson Xiang Hui Meng Liu - 24917 (IO ITI PR)
Abstract
Artificial intelligence (AI) is surpassing human performance in a
growing number of domains However there is limited evidence of
its economic effects Using data from a digital platform we
study a key application of AI machine translation We find
that the introduction of a machine translation system has
significantly increased international trade on this platform
increasing exports by 175 Furthermore heterogeneous
treatment effects are all consistent with a substantial reduction
in translation-related search costs Our results provide causal
evidence that language barriers significantly hinder trade and
that AI has already begun to improve economic efficiency in at
least one domain
httppapersnberorgpapersW24917utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The US Personal Saving Rate IMF Working Paper No 18128
35 Pages Posted 1 Aug 2018
Sam Ouliaris International Monetary Fund (IMF)
Celine Rochon University of Oxford IMF
Date Written June 2018
Abstract
This paper develops a time series model for aggregate consumption to predict the US
personal saving rate It then uses the model to test whether there has been a structural break
in consumption behavior because of the 2008 financial crisis Before the crisis the personal
saving rate was trending downwards However in 2008 there was a significant rise in the
saving rate that continued until the end of 2012 suggesting a permanent change in household
behavior To assess this issue formally the unknown parameters of the model are estimated
using data for 1961Q1-2007Q4 a period which precedes the crisis The model is then used to
predict the saving rate from 2008Q1 onwards and to assess whether the rise in the saving rate
after 2008 was due to sizable but transitory incomewealth shocks or to changes in the
underlying elasticities between saving and its determinants (hence structural) The statistical
evidence suggests there was no structural break in the household saving behavior implying
that the rise in the saving rate during 2008-2012 was caused by the negative shocks to
income employment and wealth This result explains why the saving rate resumed its decline
in 2013 as real disposable income employment and net worth recovered Assuming that the
real growth in these determinants remains strong the estimated model predicts continued
negative pressures on the current account deficit and further external imbalances attributable
to the US household sector
Keywords United States Western Hemisphere consumption behavior personal saving rate
vector error-correction model structural break Consumer Economics Empirical Analysis
Personal Finance Forecasting and Simulation
JEL Classification D12 D14 E21 E27
Currency Unions Trade and Heterogeneity CESifo Working Paper Series No 7123
49 Pages Posted 24 Aug 2018
Natalie Chen University of Warwick - Department of Economics Centre for Economic Policy Research (CEPR)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
There are 2 versions of this paper
Date Written June 28 2018
Abstract
How do trade costs affect international trade This paper offers a new approach We rely on a
flexible gravity equation that predicts variable trade cost elasticities both across and within
country pairs We apply this framework to the effect of currency unions on international
trade While we estimate that currency unions are associated with a trade increase of around
38 percent on average we find substantial underlying heterogeneity Consistent with the
predictions of our framework we find effects around three times as strong for country pairs
associated with small import shares and a zero effect for large import shares Our results
imply that conventional homogeneous currency union estimates do not provide helpful
guidance for countries considering to join a currency union Instead countries need to take
into account the distribution of their trade shares to assess the impact of trade costs
Keywords currency unions euro gravity heterogeneity trade costs trade elasticity translog
JEL Classification F140 F150 F330
How Do Migration and Remittances Affect Inequality
A Case Study of Mexico IMF Working Paper No 18136
22 Pages Posted 1 Aug 2018
Zsoka Koczan International Monetary Fund (IMF)
Franz Loyola International Monetary Fund (IMF)
Date Written June 2018
Abstract
The poverty-reducing effects of remittances have been well-documented however their
effects on inequality are less clear This paper examines the impact of remittances on
inequality in Mexico using household-level information on the receiving side It hopes to
speak to their insurance role by examining how remittances are affected by domestic and
external crises the 1994 Mexican Peso crisis and the Global Financial Crisis We find that
remittances lower inequality and that they become more pro-poor over time as migration
opportunities become more widespread This also strengthens their insurance effects
mitigating some of the negative impact of shocks on the poorest
Keywords Migration Remittances Financial crises Income inequality Income distribution
Poverty reduction inequality Firm Behavior International Lending and Debt Problems
JEL Classification D21 F32 F34 J61 D31 F22 F24
Exchange Rate Forecasting on a Napkin
ECB Working Paper No 2151
Contact MICHELE CAZORZI
European Central Bank (ECB)
Email michelecazorziecbint
Auth-Page httpsssrncomauthor=343031
Co-Author MICHAŁ RUBASZEK
National Bank of Poland Warsaw
School of Economics (SGH)
Email michalrubaszeknbppl
Auth-Page httpsssrncomauthor=850188
Full Text httpsssrncomabstract=3183690
ABSTRACT This paper shows that there are two regularities in
foreign exchange markets in advanced countries with flexible
regimes First real exchange rates are mean-reverting as
implied by the Purchasing Power Parity model Second the
adjustment takes place via nominal exchange rates These features
of the data can be exploited even on the back of a napkin to
generate nominal exchange rate forecasts that outperform the
random walk The secret is to avoid estimating the pace of mean
reversion and assume that relative prices are unchanged Direct
forecasting or panel data techniques are better than the random
walk but fail to beat this simple calibrated model
______________________________
Home Sweet Home The Effect of Sugar Protectionism
on Emigration in Italy 1876-1913 CEIS Working Paper No 437
49 Pages Posted 29 Jun 2018
Carlo Ciccarelli University of Rome Tor Vergata - Faculty of Economics
Alberto Dalmazzo University of Siena - Department of Economics
Daniela Vuri University of Rome Tor Vergata IZA Institute of Labor Economics CESifo (Center for Economic Studies and
Ifo Institute for Economic Research)
Date Written June 8 2018
Abstract
Protectionist policies are often considered or even implemented as a reaction to increasing
globalization This is not new in history This paper uses the introduction of import duties on
sugar in the late nineteenth century Italy to measure the impact of protectionism on migration
out flows at the time of the fi
rst globalization Both for climate reasons and the nature of the soil the cultivation and
processing of sugar beets was geographically concentrated in a small area leading de facto to
a regional protectionist policy Our theoretical model illustrates how a tariff that favours local
producers may affect residents incentives to migrate abroad The predictions of the model
are tested with the synthetic control method which uses the variation in sugar cultivation
across areas to estimate the effect of interest Our results show that protectionism effectively
reduced the relative incentive to migrate away from sugar-producing areas
Keywords protectionism regional economics migrations 19th century Italy
JEL Classification N93 J4 C23
Integrating Services in the Economic Fitness
Approach World Bank Policy Research Working Paper No 8485
35 Pages Posted 28 Aug 2018
Andrea Zaccaria Sapienza University of Rome
Saurabh Mishra International Monetary Fund (IMF)
Masud Z Cader World Bank - International Finance Corporation (IFC)
Luciano Pietronero Sapienza University of Rome
Date Written June 21 2018
Abstract
Economic Complexity is a set of network-based and algorithmic methods for the study of
economic development and competitiveness In this framework Economic Fitness is an
innovative approach that improves the mathematical and conceptual scheme For
convenience these methods were originally conceived on trade in goods This paper extends
the Economic Fitness methodology to include a trade in services element to yield a universal
matrix of world trade and thus provide a more complete picture of a countrys development
and global competitiveness The paper applies two algorithms to the universal trade in goods
and services matrix to contrast country competitiveness and change in complexity and
diversification when services are added to the traditional goods-only matrix The results show
that (i) the competitiveness of many countries was previously over- or underestimated that
is many countries gain or lose positions in the ranking of economic fitness when services
trade is considered alongside goods and (ii) complex services tend to cluster with complex
manufacturing suggesting a common capabilities structure These findings show how
developing complex services aids diversification strategies for developing countries
Keywords International Trade and Trade Rules Common Carriers Industry Food amp
Beverage Industry Business Cycles and Stabilization Policies Plastics amp Rubber Industry
Construction Industry General Manufacturing Textiles Apparel amp Leather Industry Pulp amp
Paper Industry Trade and Services Macroeconomic Management ICT Applications
Deep Trade Agreements and Global Value Chains World Bank Policy Research Working Paper No 8491
39 Pages Posted 28 Aug 2018
Edith Laget World Bank
Alberto Osnago World Bank
Nadia Rocha World Trade Organization
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Date Written June 25 2018
Abstract
Preferential trade agreements have become deeper over time often encompassing policy
areas that go beyond traditional trade policy such as investment competition and intellectual
property rights protection In the literature a prominent argument why countries sign deep
agreements is to promote and facilitate the operation of global value chains This paper
exploits a new data set on the content of trade agreements and data on trade in value added
and in parts and components to quantify the impact of the depth of trade agreements on
bilateral cross-border production linkages The results show that adding a policy area to a
trade agreement increases the domestic value added of intermediates (forward global value
chain linkages) and the foreign value added of intermediates (backward global value chain
linkages) by 048 and 038 percent respectively At the sectoral level the positive impact of
deep trade agreements is higher for higher value-added industries suggesting that deep
agreements help countries to integrate in industries with higher levels of value added For a
larger sample of countries and years the results confirm that an additional provision in a
trade agreement increases bilateral trade in parts and components by 03 percent The
content of trade agreements also matters for global value chain integration but the impact
varies by income group Provisions outside the current mandate of the World Trade
Organization (investment and competition policy) drive the effect of trade agreements on
North-South trade in parts and components Provisions under the current World Trade
Organization mandate (tariff reduction and customs facilitation) drive the effect of trade
agreements on South-South trade in parts and components
Keywords International Trade and Trade Rules Industrial and Consumer Services and
Products Transport and Trade Logistics Competition Policy Competitiveness and
Competition Policy Trade Finance and Investment
The Effect of Immigration on Natives School
Achievement Does Length of Stay in the Host
Country Matter World Bank Policy Research Working Paper No 8492
62 Pages Posted 28 Aug 2018
Laurent Bossavie The World Bank
Date Written June 25 2018
Abstract
Using a rich data set of primary school students this paper estimates the effects of immigrant
concentration in the classroom on the academic achievement of natives In contrast with
previous contributions it exploits rare information on age-at-migration to estimate separate
spillover effects by duration of stay of immigrant classmates To identify treatment effects it
uses cohort-by-cohort deviations in immigrant concentration within schools combined with
attractive features of the Dutch school system Overall the paper finds no effect of the
concentration of immigrant students on natives test scores However although immigrant
students who have been in the country for some time have virtually no effect on natives the
analysis finds a small negative effect of recent immigrants in the classroom on natives test
scores The effect is significant only for language test scores but insignificant for mathematics
test scores When significant effect sizes are quite small compared to other educational
interventions and classroom peer effects estimated in other contexts
Keywords Indigenous Peoples Law Indigenous Peoples Indigenous Communities
Educational Sciences International Migration Migration and Development Human Migrations
amp Resettlements Effective Schools and Teachers Educational Institutions amp Facilities
Trade and Immigration 1870-2010
by David S Jacks John P Tang - 25010 (DAE)
Abstract
In this chapter we describe long-run trends in global
merchandise trade and immigration from 1870 to 2010 We revisit
the reasons why these two forces moved largely in parallel in the
decades leading up to World War I collapsed during the interwar
period and then rebounded (but with much more pronounced growth
in trade than in immigration) More substantively we also
document a large redistribution in the regional sources of goods
and people with a shift from the former industrialized core
countries--especially Europe--to those in the former
periphery--especially Asia--as well as a very striking change in
the composition of merchandise trade towards manufactured goods
precisely dating from 1950 Finally using a triple differences
framework in combination with a dramatic change in US immigration
policy we find evidence that immigration and trade potentially
acted as substitutes at least for the United States in the
interwar period
httppapersnberorgpapersW25010utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Attitudes Towards Euro Area Reforms Evidence from
a Randomized Survey Experiment CESifo Working Paper Series No 7141
35 Pages Posted 28 Aug 2018
Mathias Dolls CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute IZA Institute of Labor Economics
Nils Wehrhoumlfer University of Mannheim Graduate School of Economic and Social Sciences Students
Date Written July 09 2018
Abstract
We present the first evidence on public attitudes towards two prominent euro area reform
proposals (European Unemployment Benefit Scheme and Sovereign Insolvency Procedure)
and assess potential impediments to their implementation by means of a randomized survey
experiment in Germany We find that there is a low willingness among German voters to
accept fiscal risk-sharing through common unemployment insurance while a sovereign
insolvency procedure aimed at strengthening market discipline is supported by a majority of
the electorate Our randomized treatments confronting survey participants with potential
adverse effects of the reforms lead to significant downward shifts in approval rates Altruism
cosmopolitanism political preferences and income are important predictors of support for
the reform proposals We also show that there is a striking contrast between the low level of
support for transfers to other euro area member states and a broad acceptance of inner
German transfers
Keywords public attitudes euro area reforms European unemployment insurance
sovereign insolvency procedure
JEL Classification H550 H240 J260 D140
The Economic Effects of Refugee Return and Policy
Implications World Bank Policy Research Working Paper No 8497
65 Pages Posted 28 Aug 2018
Uri Dadush World Bank
Date Written June 27 2018
Abstract
The recent surge in the number of forcibly displaced who cross international borders in
search of protection has prompted interest in evaluating policies that achieve the possible
end points of the phenomenon As envisaged by United Nations High Commissioner for
Refugees (UNHCR) these are the integration in the country of destination relocation in a
third country and return to the country of origin The focus of this paper is on the third
aspect namely the appropriate conduct of return policy viewed from the perspective of the
host country More specifically the main question is whether it is in the economic self-interest
of host countries to return forcibly displaced persons In addressing the question four
ancillary issues are to be addressed (i) the macroeconomic impact of refugees and of their
return (ii) the labor market impact of refugees and of their return (iii) the fiscal impact of
refugees and of their return and (iv) how return policy should be formulated and executed
The available evidence and analyses allow this papers main conclusion namely that the costs
of hosting asylum seekers and refugees are front-loaded while the benefits accruing from
their integration into the labor market and the host economy typically take years to
materialize It follows that from the economic perspective their return after a short stay may
represent a costlier option than continuing to invest in their successful integration Countries
with a flexible labor market strong investment climate and a welcoming attitude to
immigrants tend to see the economic benefits of refugee inflows materialize faster
The Effect of Remittances on the Current Account in
Developing and Emerging Economies World Bank Policy Research Working Paper No 8498
26 Pages Posted 28 Aug 2018
Emmanuel Kwasi Koranteng Lartey World Bank
Date Written June 27 2018
Abstract
This paper presents an analysis of the effect of remittances on the current account in
developing and emerging economies incorporating an assessment of the extent to which
exchange rate regimes impact the relationship The main findings suggest there is a positive
effect of remittances on the current account contemporaneously but that the lagged effect is
negative which could be indicative of the existence of some underlying mechanisms
characteristic of the Dutch disease phenomenon In addition the results show that a more
flexible exchange regime dampens the contemporaneous positive effect that remittances have
on the current account The paper therefore asserts that policy makers face trade-offs
pertaining to the use of exchange rate policy in managing the effects of remittances on the
current account which should be given due consideration when such policy choices are made
Learning About Fiscal Multipliers During the
European Sovereign Debt Crisis Evidence from a
Quasi-Natural Experiment ECB Working Paper No 2154
30 Pages Posted 18 Jun 2018
Gόrnicka Lucyna IMF
Christophe Kamps European Central Bank (ECB)
Gerrit B Koester European Central Bank (ECB)
Nadine Leiner-Killinger European Central Bank (ECB)
Date Written May 30 2018
Abstract
Identifying fiscal multipliers is usually constrained by the absence of a counterfactual
scenario Our new data set allows overcoming this problem by making use of the fact that
recommendations under the EUrsquos excessive deficit procedure (EDP) provide both a baseline
no-policy-change scenario and a fiscal-adjustment EDP scenario that entails a forecast of the
macroeconomic impact of fiscal consolidation over the EDP horizon For a sample of 24 EU
countries to which 48 EDP recommendations were applied between 2009 and 2015 we
derive country-specific fiscal multipliers as actually applied by forecasters during the crisis
Our results confirm Blanchard and Leighrsquos (2013 2014) presumption that forecasters learned
during the crisis According to our findings fiscal multipliers as applied by the European
Commission increased over time ndash from about 14 in the early years of the crisis to about 23
in the later years However different from Blanchard and Leigh (2013 2014) we do not find
evidence for the hypothesis that ex-post fiscal multipliers have been substantially above 1
during the crisis
Keywords fiscal consolidation fiscal multipliers business cycle
JEL Classification E32 E62 H20 H5
Trade in Developing East Asia How it Has Changed
and Why it Matters World Bank Policy Research Working Paper No 8533
58 Pages Posted 28 Aug 2018
Ileana Cristina Constantinescu World Bank
Aaditya Mattoo World Bank - Development Research Group (DECRG)
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Date Written July 13 2018
Abstract
East Asia for long the epitome of successful engagement in trade faces serious challenges
technological change that may threaten the very model of labor intensive industrialization
and a backlash against globalization that may reduce access to important markets A detailed
analysis of the evolution of East Asias trade and trade policy in goods and services leads to
the conclusion that how East Asia copes with these global challenges will depend on how it
addresses three more proximate national and regional challenges The first is the emergence
of one East Asian country China as a global trade giantaccounting for nearly one-seventh of
global exports and one-tenth of global imports -- which is fundamentally altering the trading
patterns and opportunities of its neighbors The second is the asymmetric implementation of
national reform -- remarkable openness to goods trade and investment coexists with relative
restrictiveness of services policies -- which is affecting the evolution of comparative
advantage and productivity in each country The third is the divergence between the
relatively shallow and fragmented agreements that regulate the regions trade and
investment and the growing importance of regional and global value chains as crucial drivers
of productivity growth
Keywords International Trade and Trade Rules Common Carriers Industry Food amp
Beverage Industry Plastics amp Rubber Industry Business Cycles and Stabilization Policies
Construction Industry General Manufacturing Pulp amp Paper Industry Textiles Apparel amp
Leather Industry Export Competitiveness Industrial and Consumer Services and Products
Transport and Trade Logistics
Who are Americas Star Firms World Bank Policy Research Working Paper No 8534
70 Pages Posted 28 Aug 2018
Meghana Ayyagari George Washington University - School of Business
Asli Demirguc-Kunt World Bank
Vojislav Maksimovic University of Maryland - Robert H Smith School of Business
There are 2 versions of this paper
Date Written July 13 2018
Abstract
There is wide spread concern about a growing gap between top-performing publicly listed
firms and the rest of the economy and the implications of this for rising inequality in the US
Using conventional return calculations there is indeed a widening gap between star firms
(defined as those in top 10 percent of return on invested capital in any year) and the rest of
the economy over time especially in industries that rely on a skilled labor force However
once measurement error in intangible capital is accounted for this gap shrinks dramatically
and has not been widening over time While pricing power as measured by markups predicts
star firm status a large fraction of star firms have low markups and there is no evidence that
star firms are cutting output or investment more than other firms for the same markup The
effect of star status is persistent Five years later star firms have higher growth profits and
Tobins Q A small subset of exceptional firms may pose more pressing policy concerns with
much higher returns and the potential to exercise market power in the future
Keywords Plastics amp Rubber Industry Business Cycles and Stabilization Policies Textiles
Apparel amp Leather Industry Pulp amp Paper Industry Food amp Beverage Industry Common
Carriers Industry Construction Industry General Manufacturing Labor Markets Employment
and Unemployment
Bought Sold and Bought Again The Impact of
Complex Value Chains on Export Elasticities World Bank Policy Research Working Paper No 8535
45 Pages Posted 28 Aug 2018
Francois Michel Marie Raphael De Soyres World Bank
Erik Frohm World Bank
Vanessa Gunnella European Central Bank (ECB)
Elena Pavlova European Central Bank (ECB)
Date Written July 13 2018
Abstract
Global value chain participation affects the exchange rate pass-through to export prices and
export volumes The paper develops a partial equilibrium model of international trade with
cross-border production and shows that higher participation in global value chains reduces
the elasticities Specifically a higher share of foreign value added in exports reduces the
exchange rate pass-through to export prices and export volumes A greater share of exports
that return as imports also reduces the responsiveness of export volumes to changes in
bilateral exchange rates Finally exports of inputs that are further re-exported increase the
responsiveness to the trading partners effective exchange rate Using a novel sector-level
panel dataset with 40 countries the analysis tests and finds strong empirical support for the
theoretical predictions The paper further shows that some sectors in some countries can
even experience a decline in gross exports when their currency depreciates
Keywords International Trade and Trade Rules Industrial and Consumer Services and
Products Transport and Trade Logistics Trade and Services Macroeconomic Management
Did Austerity Cause Brexit CESifo Working Paper Series No 7159
101 Pages Posted 25 Sep 2018
Thiemo Fetzer University of Warwick
Date Written July 25 2018
Abstract
Did austerity cause Brexit This paper shows that the rise of popular support for the UK
Independence Party (UKIP) as the single most important correlate of the subsequent Leave
vote in the 2016 European Union (EU) referendum along with broader measures of political
dissatisfaction are strongly and causally associated with an individualrsquos or an arearsquos exposure
to austerity since 2010 In addition to exploiting data from the population of all electoral
contests in the UK since 2000 I leverage detailed individual level panel data allowing me to
exploit within-individual variation in exposure to specific welfare reforms as well as broader
measures of political preferences The results suggest that the EU referendum could have
resulted in a Remain victory had it not been for a range of austerity-induced welfare reforms
Further auxiliary results suggest that the welfare reforms activated existing underlying
economic grievances that have broader origins than what the current literature on Brexit
suggests Up until 2010 the UKrsquos welfare state evened out growing income differences across
the skill divide through transfer payments This pattern markedly stops from 2010 onwards
as austerity started to bite
Keywords political economy austerity globalization voting EU
JEL Classification H200 H300 H500 P160 D720
Resolving Sovereign Debt Crises The Role of Political
Risk CESifo Working Paper Series No 7161
42 Pages Posted 26 Sep 2018
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Date Written August 02 2018
Abstract
Sovereign defaults are bad news for investors and debtor countries in particular if a default
becomes messy and protracted Why are some debt crises resolved quickly in a matter of
months while others take many years to settle This paper studies the duration of sovereign
debt crises based on a new dataset and case study archive on debt renegotiations between
governments and foreign banks and bondholders Using Cox proportional hazard models I
find that domestic political instability (lsquopolitical riskrsquo) is a significant predictor of negotiation
delays after controlling for macroeconomic conditions Government crises resignations and
street protests are particularly disruptive for a quick settlement process Overall the evidence
suggests that debtor countries often lack the political ability to resolve a debt crisis
Governments in turmoil are unlikely to exit a default quickly
Keywords sovereign default crisis resolution political economy
JEL Classification F340 F510 H630
Market Potential and Global Growth over the Long
Twentieth Century CESifo Working Paper Series No 7164
53 Pages Posted 27 Sep 2018
David S Jacks Simon Fraser University (SFU) - Department of Economics National Bureau of Economic Research (NBER)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
There are 3 versions of this paper
Date Written August 02 2018
Abstract
We examine the evolution of market potential and its role in driving economic growth over
the long twentieth century Theoretically we exploit a structural gravity model to derive a
closed-form solution for a widely-used measure of market potential We are thus able to
express market potential as a function of directly observable and easily estimated variables
Empirically we collect a large dataset on aggregate and bilateral trade flows as well as output
for 51 countries We find that market potential exhibits an upward trend across all regions of
the world from the early 1930s and that this trend significantly deviates from the evolution of
world GDP Finally using exogenous variation in trade-related distances to world markets we
demonstrate a significant causal role of market potential in driving global income growth over
this period
Keywords economic geography market potential structural gravity trade costs
JEL Classification F100 N700
Growth Inequality and Poverty A Robust
Relationship World Bank Policy Research Working Paper No 8578
42 Pages Posted 17 Sep 2018
Gustavo A Merrero University of La Laguna
Luis Serveacuten World Bank - Development Research Group (DECRG)
Date Written September 6 2018
Abstract
An extensive literature on poverty traps suggests that high levels of poverty deter growth
However a seemingly basic implication of the underlying theoretical models namely that
countries suffering from higher levels of poverty should grow less rapidly has remained
untested A parallel literature has suggested a variety of mechanisms through which
inequality may affect growth in opposing directions Because inequality and poverty are
different aspects of the income distribution inequality can also affect growth through poverty
an indirect channel that has not been explicitly analyzed This paper contributes to fill both
gaps Using a large cross-country panel data set it estimates a reduced-form growth equation
adding both inequality and poverty to an otherwise standard set of growth determinants
Given inequality the correlation of growth with poverty is consistently negative In contrast
given poverty the correlation of growth with inequality can be positive or negative
depending on the empirical specification and econometric approach used Yet the indirect
effect of inequality on growth through its correlation with poverty is robustly negative Closer
inspection shows that these results are driven by the sample observations featuring high (but
not extremely high) poverty rates These empirical findings are consistent with the
predictions from an analytical framework with learning-by-doing and knowledge spillovers
in which consumers cannot save and invest if their initial endowment is below a minimum
consumption level
Keywords Inequality Inflation Small Area Estimation Poverty Mapping Poverty
Assessment Poverty Lines Poverty Monitoring amp Analysis Poverty Diagnostics Poverty
Impact Evaluation Educational Sciences
Comparison of Welfare Gains in the Armington
Krugman and Melitz Models Insights from a
Structural Gravity Approach World Bank Policy Research Working Paper No 8570
63 Pages Posted 17 Sep 2018
Edward Jay Balistreri Iowa State University
David G Tarr International Trade Analysis
Date Written August 28 2018
Abstract
How large are the estimated gains from trade from a reduction in trade costs in the
heterogeneous firms Melitz (M) model compared with the Armington (A) and Krugman (K)
models Surprisingly little is known beyond the one-sector model This paper analyzes this
question using a global trade model that contains ten regions and various numbers of sectors
(1-10) Following Arkolakis et al (2012) the analysis holds the local trade response constant
across the model comparisons based on a structural gravity estimate Various model features
and scenarios are introduced that are important to real economies almost none of which has
been examined across the three market structures with a constant trade response In
response to global reductions in iceberg trade costs in all the multi-sector models the
ranking of global welfare gains is MelitzgtKrugmangtArmington and the Krugman model
captures between 75 and 95 percent on the additional gains above the Armington model that
are estimated by the Melitz model However for individual regions there are numerous cases
of reversed welfare rankings ie MelitzltkrugmanKrugmangtArmington For individual
regions however the welfare ranking of the Armington Krugman and Melitz market
structures is model data parameter and scenario dependent The results highlight the need
for data and structural considerations in policy analysisltkrugman
Keywords International Trade and Trade Rules Trade and Services Labor Markets Trade
and Multilateral Issues
The Economic Effects of Brexit - Evidence from the
Stock Market CEPR Discussion Paper No DP13147
35 Pages Posted 17 Sep 2018
Holger Breinlich University of Nottingham - School of Economics Centre for Economic Policy Research (CEPR) London
School of Economics amp Political Science (LSE) - Centre for Economic Performance (CEP)
Elsa Leromain London School of Economics amp Political Science (LSE) - London School of Economics
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
Thomas Sampson London School of Economics amp Political Science (LSE)
Ahmed Usman University of Nottingham
Date Written August 2018
Abstract
We study stock market reactions to the Brexit referendum on 23 June 2016 in order to assess
investors expectations about the effects of leaving the European Union on the UK economy
Our results suggest that initial stock price movements were driven by fears of a cyclical
downturn and by the sterling depreciation following the referendum We also find tentative
evidence that market reactions to two subsequent speeches by Theresa May (her
Conservative Party conference and Lancaster House speeches) were more closely correlated
with potential changes to tariffs and non-tariff barriers on UK-EU trade indicating that
investors may have updated their expectations in light of the possibility of a hard Brexit We
do not find a correlation between the share of EU migrants in different industries and stock
market returns
Keywords Brexit depreciation event study Recession Stock market tariffs
JEL Classification F15 F23 G14
Understanding Euro Area Inflation Dynamics Why so
Low for so Long
IMF Working Paper No 18188
26 Pages Posted 1 Oct 2018
Yasser Abdih International Monetary Fund (IMF)
Li Lin International Monetary Fund (IMF)
Anne-Charlotte Paret Banque de France
Date Written August 2018
Abstract
Despite closing output gaps and tightening labor markets inflation has remained low inthe
euro area Based on an augmented Phillips Curve framework we find that thisphenomenon-
sometimes attributed to low global inflation-has been primarily causedby a remarkable
persistence of inflation keeping it low despite the reduction in slack Thisfeature is shown to
be specific to the euro area (in comparison with the United States)Monetary policy needs to
stay accommodative to help guide inflation back to target
Keywords Inflation Inflation expectations Inflation persistence Monetary policy
Econometric models Euro Area Phillips curve inflation persistence and expectations
General Forecasting and Simulation Monetary Policy (Targets Instruments and Effects)
JEL Classification E10 E31 E32 E37 E52 C22 C50
Financial Development Exchange Rate Regimes and
Growth Dynamics World Bank Policy Research Working Paper No 8562
34 Pages Posted 28 Aug 2018
Woubet Kassa The World Bank
Emmanuel Kwasi Koranteng Lartey World Bank
Date Written August 20 2018
Abstract
This paper utilizes data for African countries to analyze the extent to which financial
development affects the dynamics of the relationship between exchange rate flexibility and
economic growth The findings indicate that financial development exerts a positive influence
on the relationship between exchange rate flexibility and GDP growth as well as total factor
productivity growth The paper also documents a positive impact of trade openness on the
relationship between exchange rate flexibility and growth Moreover the results show a
strong and positive association between exchange rate flexibility and financial development
The findings therefore suggest that discussions and decisions on exchange rate policy should
be undertaken with consideration for structural policies that address the development of the
financial sector In addition the paper asserts that policy makers should adopt a stance that
facilitates some flexibility in exchange rates to foster development of the financial
infrastructure in these economies
Keywords International Trade and Trade Rules Industrial Economics Economic Theory amp
Research Economic Growth Currencies and Exchange Rates Educational Sciences
Macroeconomic Management
Unequal Gains Prolonged Pain A Model of
Protectionist Overshooting and Escalation CEPR Discussion Paper No DP13160
53 Pages Posted 17 Sep 2018
Emily J Blanchard Dartmouth College - Tuck School of Business
Gerald Willmann Bielefeld University IfW Kiel KU Leuven CESifo (Center for Economic Studies and Ifo Institute)
Date Written September 2018
Abstract
We develop a model of democratic political responses to macroeconomic shocks in the short
and long run We show that when economic adjustment is slower than potential political
change exogenous changes in the global marketplace can trigger populist surges in favor of
distortionary economic policies Applied to trade policy our model demonstrates that an
exogenous terms-of-trade improvement or skill-biased technological change will lead to a
spike in protectionism that blunts the younger generations incentive to acquire education In
the long run the initial surge in protectionism will gradually diminish if and only if education
enables less-skilled workers to catch up with the overall economy The more unequal the
initial distribution of human capital the greater and longer-lasting the protectionist backlash
will be unequal gains prolonged pain Evidence on key data markers suggested by the model
exhibits patterns consistent with recent populist support for Brexit and Trump
Keywords Dynamic Political Economy education Endogenous Tari Human Capital
Overlapping Generations Overshooting populism protectionism
JEL Classification D7 E6 F5
Threat or Help The Effects of Unskilled Immigrant
Workers on National Productivity Growth World Bank Policy Research Working Paper No 113185
4 Pages Posted 17 Sep 2018
Sharmila Devadas Central Bank of Malaysia
Date Written March 1 2017
Abstract
While unskilled immigrant workers have relatively low formal human capital theory suggests
that they can still contribute to productivity improvements by helping to increase efficiency
and upgrading the skills of the native labor force Empirical studies indicate that positive
productivity effects do occur This body of evidence does not provide a compelling argument
for the closing of national borders to unskilled foreigners on economic grounds
Keywords Indigenous Peoples Indigenous Peoples Law Human Migrations amp Resettlements
Construction Industry Common Carriers Industry Food amp Beverage Industry General
Manufacturing Pulp amp Paper Industry Plastics amp Rubber Industry Labor Markets Business
Cycles and Stabilization Policies International Migration Indigenous Communities Migration
and Development
Global Trade Slowdown Factors and Policies World Bank Policy Research Working Paper No 123899
4 Pages Posted 17 Sep 2018
Dorina Peteva Georgieva World Bank
Norman Loayza World Bank - Research Department
Fabian Mendez Ramos Development Research Group The World Bank
Date Written February 1 2018
Abstract
Growth in global trade has been slow since 2012 While global trade downturns are not
unprecedented the observed change in the relationship of trade to GDP poses the question
whether the trade slowdown is a transitory deviation or a more long-lasting phenomenon
brought about by structural changes This new dynamic coupled with the rise of protectionist
policies and rhetoric in many countries positions trade at the forefront of policy discussions
This brief reviews recent patterns in global trade examines the factors affecting trade--
distinguishing between transitory and structural components of the slowdown--and discusses
policies shaping the path of future trade
Keywords Trade and Multilateral Issues Trade and Services Trade Policy Trade Facilitation
International Trade and Trade Rules International Economics and Trade Transport and
Trade Logistics Trade and Regional Integration Private Sector Development Industrial and
Consumer Services and Products Competitiveness and Competition Policy Marketing Labor
Markets Private Sector Development Law Private Sector Economics Industry Law and
Development Social Policy Legal Reform Social Development Treaties Economics and
Institutions Public Sector Management and Reform Macroeconomics and Economic Growth
Public Sector Development Regulatory Regimes International Law Non Governmental
Organiz
The Productivity J-Curve How Intangibles Complement General Purpose Technologies
by Erik Brynjolfsson Daniel Rock Chad Syverson - 25148 (EFG IO PR)
Abstract
General purpose technologies (GPTs) such as AI enable and require
significant complementary investments including business process
redesign co-invention of new products and business models and
investments in human capital These complementary investments
are often intangible and poorly measured in the national
accounts even if they create valuable assets for the firm We
develop a model that shows how this leads to an underestimation
of output and productivity in the early years of a new GPT and
how later when the benefits of intangible investments are
harvested productivity will be overestimated Our model
generates a Productivity J-Curve that can explain the
productivity slowdowns often accompanying the advent of GPTs as
well as the follow-on increase in productivity later We use our
model to assess how AI-related intangible capital is currently
affecting measured total factor productivity (TFP) and output
We also conduct a historical analysis of the roles of intangibles
tied to RampD software and computer hardware finding substantial
and ongoing effects of software in particular and hardware to a
lesser extent
httppapersnberorgpapersW25148utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
New Technologies Global Value Chains and Developing Economies
by Dani Rodrik - 25164 (DEV EFG ITI)
Abstract
Many of the exports of developing countries are channeled through
global value chains (GVCs) which also act as conduits for new
technologies However new capabilities and productive
employment remain limited so far to a tiny sliver of globally
integrated firms GVCs and new technologies exhibit features
that limit the upside and may even undermine developing
countries economic performance In particular new technologies
present a double whammy to low-income countries First they are
generally biased towards skills and other capabilities This
bias reduces the comparative advantage of developing countries in
traditionally labor-intensive manufacturing (and other)
activities and decreases their gains from trade Second GVCs
make it harder for low-income countries to use their labor cost
advantage to offset their technological disadvantage by reducing
their ability to substitute unskilled labor for other production
inputs These are two independent shocks that compound each
other The evidence to date on the employment and trade fronts
is that the disadvantages may have more than offset the
advantages
httppapersnberorgpapersW25164utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Bank Runs and Moral Hazard A Review of Deposit
Insurance World Bank Policy Research Working Paper No 8589
31 Pages Posted 20 Sep 2018 Last revised 21 Sep 2018
Deniz Anginer World Bank Research
Asli Demirguc-Kunt World Bank
Date Written September 19 2018
Abstract
Deposit insurance is a widely adopted policy to promote financial stability in the banking
sector Deposit insurance helps ensure depositors confidence in the financial system and
prevents contagious bank runs but it also comes with an unintended consequence of
encouraging banks to take on excessive risk This paper reviews the economic costs and
benefits of deposit insurance and highlights the importance of institutions and specific design
features for how well deposit insurance schemes work in practice
Keywords Deposit Insurance Financial Structures Banks amp Banking Reform Judicial System
Reform Economic Growth
The Future of Work Race With-Not Against-The
Machine World Bank Research amp Policy Briefs Paper No 129680
4 Pages Posted 17 Sep 2018
Lay Lian Chuah World Bank - Development Research Group (DECRG)
Norman Loayza World Bank - Research Department
Achim Schmillen Osteuropa-Institut (OEI) Government of the Federal Republic of Germany - Institute for Employment
Research (IAB) University of Regensburg - Department of Economics and Econometrics
Date Written August 1 2018
Abstract
Will the revolution in digital and information technologies make us obsolete Will jobs be lost
and never replaced Will wages drop to intolerable levels History and economic theory and
evidence suggest that in the long term such fears are misplaced However in the short and
medium term dislocation can be severe for certain types of work places and populations In
the transition period policies are needed to facilitate labor market flexibility and mobility
introduce and strengthen safety nets and social protection and improve education and
training
Keywords Labor Markets Rural Labor Markets Armed Conflict Food Security
An Economists Guide to Climate Change Science
by Solomon Hsiang Robert E Kopp - 25189 (DEV EEE EFG HE ITI LS PE POL PR)
Abstract
Climate change management is a global challenge that requires
social science as much as it requires natural science We
provide a brief introduction to the physical science of climate
change written to provide essential background for economists
and other social scientists We also highlight some key areas in
which economists--including those studying macroeconomics
political economy and development--are in a unique position to
help climate science advance
httppapersnberorgpapersW25189utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
The Intensive Margin in Trade
by Ana M Fernandes Peter J Klenow Sergii Meleshchuk Denisse Pierola Andres Rodriguez-
Clare - 25195 (ITI)
Abstract
The Melitz model highlights the importance of the extensive
margin (the number of firms exporting) for trade flows Using
the World Banks Exporter Dynamics Database (EDD) featuring
firm-level exports from 50 countries we find that around 50 of
variation in exports is along the extensive margin --- a
quantitative victory for the Melitz framework The remaining 50
on the intensive margin (exports per exporting firm) contradicts
a special case of Melitz with Pareto-distributed firm
productivity which has become a tractable benchmark This
benchmark model predicts that conditional on the fixed costs of
exporting all variation in exports across trading partners
should occur on the extensive margin We find that moving from a
Pareto to a lognormal distribution allows the Melitz model to
match the role of the intensive margin in the EDD We use
likelihood methods and the EDD to estimate a generalized Melitz
model with a joint lognormal distribution for firm-level
productivity fixed costs and demand shifters and use exact hat
algebra to quantify the effects of a decline in trade costs on
trade flows and welfare in the estimated model The welfare
effects turn out to be quite close to those in the standard
Melitz-Pareto model when we choose the Pareto shape parameter to
fit the average trade elasticity implied by our estimated
Melitz-lognormal model although there are significant
differences regarding the effects on trade flows
httppapersnberorgpapersW25195utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Are Banks Engines of Export Financial Structures
and Export Dynamics World Bank Policy Research Working Paper No 8621
41 Pages Posted 26 Oct 2018 Last revised 30 Oct 2018
Raoul Minetti Michigan State University - Department of Economics
Alen Mulabdic World Bank
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Susan Chun Zhu Michigan State University - Department of Economics
Date Written October 25 2018
Abstract
This paper studies the impact of financial structures on the dynamics of the export sector
using rich data from over 60 countries The results reveal that bank-oriented financial
systems boost the size of the export sector more than market-oriented financial systems
However especially in middle- and low-income countries this effect mostly stems from banks
slowing down exporters exit rather than promoting firms entry into export The reduced exit
from the export sector appears to reflect domestic banks tendency to evergreen loans to
exporters (soft budget constraint) more than banks buffering role in difficult times Foreign
banks mitigate this effect and enhance the dynamism of the export sector
Contractual Frictions and the Margins of Trade World Bank Policy Research Working Paper No 8631
31 Pages Posted 31 Oct 2018 Last revised 1 Nov 2018
Theophile T Azomahou United Nations University (UNU-MERIT) Maastricht University
Hibret Belete Maemir World Bank
Hassen Abda Wako UNU-MERIT
Date Written October 30 2018
Abstract
A growing body of work has shown that the quality of national institutions that enforce
written contracts plays an important role in shaping a countrys comparative advantage
Using highly disaggregated bilateral and unique harmonized firm-level trade data across a
large number of countries this paper contributes to this literature by providing a
comprehensive analysis of the mechanisms through which institutional frictions affect the
pattern of aggregate trade flow distinguishing the effects on the intensive and extensive
margins The analysis finds that contractual friction distorts countries trade pattern beyond
its effect on domestic production structure by deterring the probability of exporting (the
extensive margin) and export sales after entry (the intensive margin) particularly in
industries that rely more heavily on relationship-specific inputs (more vulnerable to holdup
problems) The analysis also finds that contractual frictions matter more for the intensive
margin than the extensive margin of exporting In addition better contracting institutions
increase the probability of survival of new export products in more contract-intensive
industries These results have important policy implications for developing countries that
seek to boost export growth but many of which suffer from poor contracting institutions
Nominal Exchange Rate Dynamics and Monetary
Policy Uncovered Interest Rate Parity and Purchasing
Power Parity Revisited CEPR Discussion Paper No DP13235
33 Pages Posted 15 Oct 2018 Last revised 22 Oct 2018
Yossi Saadon Bank of Israel - Research Department
Nathan Sussman Hebrew University of Jerusalem
Date Written October 2018
Abstract
The increasing globalization of trade in goods and services and the deepening of financial
markets have reduced frictions that may impede the operation of the PPP and UIP
relationships in the short run In this paper we estimate the short term relative PPP and UIP
relationships Using data from Israel which has a deep market for inflation expectations for
12 months we show that relative PPP and UIP cannot be rejected Deviations from
equilibrium last less than a year Data from Israels capital account of the balance of payments
shows that the deviations are not destabilizing Our findings suggest that greater globalization
and financial deepening contribute to the effectiveness of monetary policy
Keywords Balance sheet effects Exchange Rates Inflation expectations monetary policy
purchasing power parity uncovered interest rate parity
Macroeconomic Effects of Chinas Financial Policies
by Kaiji Chen Tao Zha - 25222 (DEV EFG ME)
Abstract
The Chinese economy has undergone three major phases the
1978-1997 period marked as the SOE-led economy the 1998-2015
phase as the investment-driven economy and the new normal
economy since 2016 All three economies have been shaped by the
governments financial policies defined as a set of credit
policy monetary policy and regulatory policy We analyze the
macroeconomic effects of these financial policies throughout the
three phases and provide the stylized facts to substantiate our
analysis The stylized facts differ qualitatively across
different phases or economies We argue that the impacts of
Chinas financial policies work through transmission channels
different from those in developed economies and that a regime
switch from one economy to another was driven mainly by regime
changes in financial policies
httppapersnberorgpapersW25222utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Factor Incomes in Global Value Chains The Role of Intangibles
by Wen Chen Bart Los Marcel P Timmer - 25242 (EFG)
Abstract
Recent studies document a decline in the share of labour and a
simultaneous increase in the share of residual (factorless)
income in national GDP We argue the need for study of factor
incomes in cross-border production to complement country studies
We define a GVC production function that tracks the value added
in each stage of production in any country-industry We define a
new residual as the difference between the value of the final
good and the payments to all tangibles (capital and labour) in
any stage We focus on GVCs of manufactured goods and find the
residual to be large We interpret it as income for intangibles
that are (mostly) not covered in current national accounts
statistics We document decreasing labour and increasing capital
income shares over the period 2000-14 This is mainly due to
increasing income for intangible assets in particular in GVCs of
durable goods We provide evidence that suggests that the 2000s
should be seen as an exceptional period in the global economy
during which multinational firms benefitted from reduced labour
costs through offshoring while capitalising on existing
firm-specific intangibles such as brand names at little
marginal cost
httppapersnberorgpapersW25242utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Accounting for Firm Heterogeneity within US Industries Extended Supply-Use Tables and Trade
in Value Added using Enterprise and Establishment Level Data
by James J Fetzer Tina Highfill Kassu W Hossiso Thomas F Howells III Erich H Strassner
Jeffrey A Young - 25249 (ITI)
Abstract
This paper presents experimental tables created by the US
Bureau of Economic Analysis comparing industry-specific shares of
the components of total output of globally engaged firms located
in the United States that are part of a multinational enterprise
with those of firms that are part of an enterprise entirely
located in the United States Recent research has shown both the
importance of accounting for trade in value added when estimating
bilateral trade flows and that multinational enterprises located
in the United States account for the lions share of US trade
in goods and services However trade in value added is
typically accounted for using input-output tables that are
aggregated across all types of firms The experimental tables
are consistent with other research showing that value added as a
share of output is lower for foreign-owned firms compared with
domestic-owned firms and that exports and imports as a share of
output is larger for foreign-owned firms We also find
heterogeneity in the composition of output among different types
of domestic-owned firms Future work will analyze this
heterogeneity in more detail using establishment-level data on
production and trade
httppapersnberorgpapersW25249utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
The Falling Elasticity of Global Trade to Economic
Activity Testing the Demand Channel CESifo Working Paper No 7228
42 Pages Posted 31 Oct 2018
Marc Auboin World Trade Organization (WTO)
floriana borino World Trade Organization (WTO)
Date Written 2018
Abstract
Since the recovery from the great financial crisis in 2010 global real trade flows grew much
slower than pre-crisis in both absolute terms (growth rates) and relative terms (relative to
GDP from 21 in the great 1990rsquos to 11 since 2012) A debate has arisen as to whether this
global trade slowdown and related falling trade-to-income elasticity was structural or
cyclical Some papers emphasized the slowing pace of international vertical specialization
Other works emphasized the prominent role of aggregate demand notably when weighted by
its trade component Our paper goes in this latter direction We estimated the standard
import equation for 38 advanced and developing countries over the period 1995-2015 using
an import intensity-adjusted measure of aggregate demand (IAD) calculated from input-
output tables at country level and compared results with regressions using GDP The
integration of IAD allows us to predict 76 to 86 of the changes in global imports a better
performance than if using GDP The use of IAD also enabled us to measure the relative
importance of each component of demand according to their trade intensity The model is
able to account for over 90 of the recent trade slowdown (2012-2015) with IAD alone
explaining 80 of it The slowdown in global value chains explains more than half of the
remaining share of the global trade slowdown not explained by demand factors
Protectionism does not come up as statistically significant
Keywords investment global outlook trade policy trade forecasting business cycles
JEL Classification E220 F010 F130 F170 F440
Will Brexit Age Well Cohorts Seasoning and the Age-
Leave Gradient Past Present and Future CEPR Discussion Paper No DP13288
38 Pages Posted 5 Nov 2018
Barry Eichengreen University of California Berkeley National Bureau of Economic Research (NBER) Centre for Economic
Policy Research (CEPR)
Rebecca Mari Bocconi University
Gregory Thwaites London School of Economics amp Political Science (LSE) - London School of Economics
There are 3 versions of this paper
Date Written October 2018
Abstract
In the UKs 2016 referendum on EU membership young voters were more likely than their
elders to vote Remain Applying new methods to a half century of data we show that this
pattern reflects both ageing and cohort effects Although voters become more Eurosceptical as
they age recent cohorts are also more pro-European than their predecessors Much of the
pro-Europeanism of these recent cohorts is accounted for by their greater years of education
Going forward the ageing of the electorate will thus be offset at least in part by the
replacement of older cohorts with younger better-educated and more pro-European ones
But we also document large nationwide swings in sentiment that have little to do with either
seasoning or cohort effects Hence these demographic trends are unlikely to be the decisive
determinants of future changes in European sentiment Rather nationwide changes in
sentiment reflecting macroeconomic or other conditions and the age-turnout gradient will be
key
JEL Classification F0
Buying Votes and International Organizations The
Dirty Work-Hypothesis CEPR Discussion Paper No DP13290
62 Pages Posted 5 Nov 2018
Axel Dreher Heidelberg University
Valentin Lang University of Zurich
B Peter Rosendorff New York University (NYU) - Wilf Family Department of Politics
James Raymond Vreeland Georgetown University - School of Foreign Service and Department of Government
Date Written October 2018
Abstract
We show how major shareholders can exploit their power over international organizations to
hide their foreign-policy interventions from domestic audiences We argue that major powers
exert influence bilaterally when domestic audiences view the intervention favorably When
domestic audiences are more skeptical of a target country favors are granted via
international organizations We test this theory empirically by examining how the United
States uses bilateral aid and IMF loans to buy other countries votes in the United Nations
Security Council (UNSC) Introducing new data on voting behavior in the UNSC over the 1960-
2015 period our results show that states allied with the US receive more bilateral aid when
voting in line with the United States in the UNSC while concurring votes of states less allied
with the US are rewarded with loans from the IMF Temporary UNSC members that vote
against the United States do not receive such perks
Keywords Aid IMF United Nations Security Council voting World Bank
JEL Classification F35 O11 O19
International Monetary Fund (IMF) - Research Department Centre for Economic Policy Research (CEPR)
University of Michigan at Ann Arbor - The William Davidson Institute
Date Written February 2018
Abstract
In this imaginary dialogue a populist and an economist discuss the role of economic shocks to
explain populism A simple correlation between economic shocks and populism is weak
However economic shocks can explain well the phenomenon of populism in countries with
low pre-existent level of trust This is confirmed both at the macro cross-country level and
also by micro evidence obtained from surveys Finally this finding is consistent with the
ideational approach in political science which emphasizes how the populist narrative
opposes the corrupt elite to the virtuous people
Keywords Europe Political parties populism
JEL Classification A10 A12
International Capital Flow Pressures IMF Working Paper No 1830
59 Pages Posted 14 Mar 2018
Linda S Goldberg Federal Reserve Bank of New York National Bureau of Economic Research (NBER)
Signe Krogstrup IMF
There are 3 versions of this paper
Date Written February 2018
Abstract
This paper presents a new measure of capital flow pressures in the form of a recast
ExchangeMarket Pressure index The measure captures pressures that materialize in actual
internationalcapital flows as well as pressures that result in exchange rate adjustments The
formulation istheory-based relying on balance of payments equilibrium conditions and
international assetportfolio considerations Based on the modified exchange market pressure
index the paperalso proposes the Global Risk Response Index which reflects the country-
specific sensitivityof capital flow pressures to measures of global risk aversion For a large
sample of countriesover time we demonstrate time variation in the effects of global risk on
exchange marketpressures the evolving importance of the global factor across types of
countries and thechanging risk-on or risk-off status of currencies
Keywords Exchange Market Pressure Risk aversion Safe haven Capital flows Exchange
Rate Foreign Exchange Reserves Exchange Market Pressure Risk aversion Safe haven
Capital flows Exchange Rate Foreign Exchange Reserves Portfolio Choice General
JEL Classification F23 G11 G20 F32
Sovereign Defaults in Court CEPR Discussion Paper No DP12777
76 Pages Posted 13 Mar 2018
Julian Schumacher European Central Bank (ECB)
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Enderlein Henrik Hertie School of Governance
Date Written March 2018
Abstract
For centuries defaulting governments were immune from legal action by foreign creditors
This paper shows that this is no longer the case Building a dataset covering four decades we
find that creditor lawsuits have become an increasingly common feature of sovereign debt
markets The legal developments have strengthened the hands of creditors and raised the cost
of default for debtors We show that legal disputes in the US and the UK disrupt government
access to international capital markets as foreign courts can impose a financial embargo on
sovereigns The findings are consistent with theoretical models with creditor sanctions and
suggest that sovereign debt is becoming more enforceable We discuss how the threat of
litigation affects debt management government willingness to pay and the resolution of debt
crises
Keywords debt restructuring enforcement government financing sovereign default
JEL Classification F34 G15 H63 K22
Globalization and Income Inequality Revisited CESifo Working Paper Series No 6859
48 Pages Posted 20 Mar 2018
Florian Dorn
CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Clemens Fuest ifo Institute ndash Leibniz Institute for Economic Research at the University of Munich Ludwig-Maximilians-
University Munich Center for Economic Studies (CES)
Niklas Potrafke CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Date Written February 05 2018
Abstract
This paper re-examines the link between globalization and income inequality We use data for
140 countries over the period 1970-2014 and employ an IV approach to deal with the
endogeneity of globalization measures We find that the link between globalization and
income inequality differs across different groups of countries There is a robust positive
relationship between globalization and inequality in the transition countries including China
and most countries of Middle and Eastern Europe In the sample of the most advanced
economies neither OLS nor 2SLS results show any significant positive relationship between
globalization and inequality We conclude that institutions providing income insurance and
education which characterize most advanced economies but are less developed in transition
economies may have moderated effects of globalization on income inequality
Keywords globalization income inequality redistribution instrumental variable estimation
panel econometrics development levels transition economies China
JEL Classification D310 D630 F020 F600 C260 H110 H200
The US Gains from Trade Valuation Using the
Demand for Foreign Factor Services CEPR Discussion Paper No DP12788
34 Pages Posted 20 Mar 2018
Arnaud Costinot University of California San Diego (UCSD) - Department of Economics Massachusetts Institute of
Technology (MIT) - Department of Economics
Andres Rodriguez-Clare Inter-American Development Bank (IDB)
There are 2 versions of this paper
Date Written March 2018
Abstract
About 8 cents out of every dollar spent in the United States is spent on imports What if
because of a wall or some other extreme policy intervention imports were to remain on the
other side of the US border How much would US consumers be willing to pay to prevent this
hypothetical policy change from taking place The answer to this question represents the
welfare cost from autarky or equivalently the welfare gains from trade In this article we
discuss how to evaluate these gains using the demand for foreign factor services The
estimates of gains from trade for the US economy that we review range from 2 to 8 percent of
GDP
A Multidimensional Approach to Trade Policy
Indicators IMF Working Paper No 1832
38 Pages Posted 12 Mar 2018
Diego Cerdeiro International Monetary Fund (IMF)
Rachel Nam International Monetary Fund (IMF)
Date Written February 2018
Abstract
We present and discuss a set of indicators to help assess countries trade policies The
indicators relate to three policy areas - trade in goods trade in services and FDI Given
concerns about the direction of global trade policy we also consider a set of more granular
measures that reflect the evolution of countries policies since the 2008 financial crisis We
propose a simple approach to present the multidimensional aspects of trade policy that by
shedding light on relative openness across areas can facilitate policy discussions In the cross-
section of countries we find a diversity in the type of measures adopted both between and
(since the 2008 financial crisis) within policy areas lending support to the approach based on
multiple indicators The indicators time series suggest that advanced and especially
emerging economies are moving toward more open regimes over time although recently
progress has with some exceptions slowed across the board Lastly our findings also call for
stronger efforts to objectively quantify the different aspects of countries trade regimes More
data both across countries and in terms of policy areas that significantly affect trade are
needed for better-informed policy discussions
Keywords Foreign direct investment Trade policy indicators trade in goods services trade
trade barriers General Country and Industry Studies of Trade
JEL Classification F10 F14
Corporate Indebtedness and Low Productivity
Growth of Italian Firms IMF Working Paper No 1833
47 Pages Posted 12 Mar 2018
Gareth Anderson Bank of England
Mehdi Raissi International Monetary Fund (IMF) - Asia and Pacific Department
Date Written February 2018
Abstract
Productivity growth in Italy has been persistently anemic and has lagged that of the euro area
over the period 1999-2015 while the indebtedness of its corporate sector has increased
Using the ORBIS firm-level database this paper studies the long-term impact of persistent
corporate-debt accumulation on the productivity growth of Italian firms and investigates
whether total factor productivity growthvaries with the level of corporate indebtedness We
employ a novel estimation technique proposed by Chudik Mohaddes Pesaran and Raissi
(2017) to account for dynamics bi-directional feedback effects cross-firm heterogeneity and
cross-sectional dependence arising from unobserved common factors (for example oil price
shocks labor and product market frictions and stance of global financial cycle) Filtering out
the effects of unobserved common factors and controlling for firm specific characteristics we
find significant negative effects of persistent corporate debt build-up on total factor
productivity growth and weak evidence of a threshold level of corporate debt beyond which
productivity growth drops off significantly Our results have strong policy implications for
example the design of the tax system should discourage persistent corporate debt
accumulation and effective and timely frameworks to reduce corporate debt overhangs are
essential
Keywords Productivity Europe Italy Corporate debt dynamic heterogeneous panel
threshold models cross-sectional dependence Models with Panel Data Firm Behavior
Empirical Analysis General
JEL Classification C23 D22 D24 G30
Regulatory Cycles Revisiting the Political Economy of
Financial Crises IMF Working Paper No 188
90 Pages Posted 21 Mar 2018
Jihad C Dagher International Monetary Fund (IMF) - Research Department
There are 2 versions of this paper
Date Written January 2018
Abstract
Financial crises are traditionally analyzed as purely economic phenomena The political
economy of financial booms and busts remains both under-emphasized and limited to isolated
episodes This paper examines the political economy of financial policy during ten of the most
infamous financial booms and busts since the 18th century and presents consistent evidence
of pro-cyclical regulatory policies by governments Financial boomsand risk-taking during
these episodes were often amplified by political regulatory stimuli credit subsidies and an
increasing light-touch approach to financial supervision The regulatory backlash that ensues
from financial crises can only be understood in the context of the deep political ramifications
of these crises Post-crisis regulations do not always survive the following boom The
interplay between politics and financial policy over these cycles deserves further attention
History suggests that politics can be the undoing of macro-prudential regulations
Keywords Political economy Political economy Financial crises Financial Regulation Boom-
Bust Cycles Economic Models of Political Processes Rent-Seeking Elections Legislatures and
Voting Behavior Positive Analysis of Policy-Making and Implementation General
Government Policy and Regulation General
JEL Classification D72 D78 G10 G18 N00 P16
Rationality in Economics Theory and Evidence CESifo Working Paper Series No 6872
26 Pages Posted 21 Mar 2018
Sanjit Dhami University of Leicester - Department of Economics
Ali al-Nowaihi University of Leicester - Department of Economics
Date Written February 12 2018
Abstract
We examine the various senses in which economist use the term ldquorationalityrdquo and then outline
some of the commonly drawn implications and auxiliary assumptions Finally we confront the
implications with the empirical evidence drawing on the insights from the exciting new field
of behavioral economics
Keywords rationality self-regarding preferences efficient markets heuristics optimization
JEL Classification B400
Nudging and Environmental Corporate
Responsibility A Natural Experiment CEIS Working Paper No 426
22 Pages Posted 3 Apr 2018
Leonardo Becchetti University of Rome Tor Vergata - Faculty of Economics
Francesco Salustri University of Rome Tor Vergata - Department of Economics and Finance University of Turin - Department
of Economics and Statistics
Pasquale Scaramozzino University of Rome II - Faculty of Economics University of London - School of Oriental and African Studies
(SOAS) University of London - Centre for Financial and Management Studies (CeFIMS)
Date Written April 3 2018
Abstract
We devise a lsquonudgingrsquo natural experiment to test the impact of a simple form of advertising on
environmentally responsible products withwithout the increase of the responsible product
price We find that the simple use of a small shelf-poster explaining the importance of buying
a green product (withwithout a concurring price increase) generates significant changes in
market shares for some of the product classes for both food and non-food products Part of
the effect is generated by the reduced price elasticity of consumers to the poster-plus-price-
increase treatment
Keywords nudging environmental sustainability randomised field experiment
JEL Classification C93 D12 M14 Q56
11 The Role of Financial Policy
by Roger Farmer - 24498 (EFG ME)
Abstract
I review the contribution and influence of Milton Friedmans 1968
presidential address to the American Economic Association I
argue that Friedmans influence on the practice of central
banking was profound and that his argument in favour of monetary
rules was responsible for thirty years of low and stable
inflation in the period from 1979 through 2009 I present a
critique of Friedmans position that market-economies are
self-stabilizing and I describe an alternative reconciliation of
Keynesian economics with Walrasian general equilibrium theory
from that which is widely accepted today by most neo-classical
economists
httppapersnberorgpapersW24498utm_campaign=ntwamputm_medium=emailamputm_source=ntw
5 Immigrant Entrepreneurship in America Evidence from the Survey of Business Owners 2007 amp 2012
by Sari Pekkala Kerr William R Kerr - 24494 (LS PR)
Abstract
We study immigrant entrepreneurship and firm ownership in 2007
and 2012 using the Survey of Business Owners (SBO) The survival
and growth of immigrant-owned businesses over time relative to
native-founded companies is evaluated by linking the 2007 SBO to
the Longitudinal Business Database (LBD) We quantify the
dependency of the United States as a whole as well as individual
states on the contributions of immigrant entrepreneurs in terms
of firm formation and job creation We describe differences in
the types of businesses started by immigrants and the quality of
jobs created by their firms First-generation immigrants create
about 25 of new firms in the United States but this share
exceeds 40 in some states In addition Asian and Hispanic
second-generation immigrants start about 6 of new firms
Immigrant-owned firms on average create fewer jobs than
native-owned firms but much of this is explained by the industry
and geographic location of the firms Immigrant-owned firms pay
comparable wages conditional on firm traits to native-owned
firms but are less likely to offer benefits
httppapersnberorgpapersW24494utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Effects of Foreign Aid on Refugee Flows CESifo Working Paper Series No 6885
49 Pages Posted 9 Apr 2018
Axel Dreher University of Heidelberg
Andreas Fuchs University of Heidelberg - Alfred Weber Institute for Economics
Sarah Langlotz University of Heidelberg
There are 2 versions of this paper
Date Written February 15 2018
Abstract
This article analyzes whether foreign aid affects the net flows of refugees from recipient
countries Combining refugee data on 141 origin countries over the 1976-2013 period with
bilateral Official Development Assistance data we estimate the causal effects of a countryrsquos
aid receipts on both total refugee flows to the world and flows to donor countries The
interaction of donor-government fractionalization and a recipient countryrsquos probability of
receiving aid provides a powerful and excludable instrumental variable when we control for
country- and time-fixed effects that capture the levels of the interacted variables Although
our results suggest that aid induces recipient governments to encourage the return of their
citizens we find no evidence that aid reduces worldwide refugee outflows or flows to donor
countries in the short term However we observe long-run effects after four three-year
periods which appear to be driven by lagged positive effects of aid on growth
Keywords foreign aid Official Development Assistance migration refugees displaced
people humanitarian crises repatriation policies
JEL Classification F220 F350 F590 H840 O150 O190
The Political Economy of Ideas On Ideas Versus
Interests in Policymaking CEPR Discussion Paper No DP12820
44 Pages Posted 5 Apr 2018
Sharun Mukand University of Warwick - Department of Economics
Dani Rodrik Harvard University - Harvard Kennedy School (HKS) Centre for Economic Policy Research (CEPR)
National Bureau of Economic Research (NBER)
There are 2 versions of this paper
Date Written March 2018
Abstract
We develop a conceptual framework to highlight the role of ideas as a catalyst for policy and
institutional change We make an explicit distinction between ideas and vested interests and
show how they feed into each other In doing so the paper integrates the Keynes-Hayek
perspective on the importance of ideas with the currently more fashionable Stigler-Becker
(in-terests only) approach to political economy We distinguish between two kinds of
ideational politics acircldquo the battle among different worldviews on the efficacy of policy
(worldview politics) versus the politics of victimhood pride and identity (identity politics)
Political entrepreneurs discover identity and policy memes (narratives cues framing) that
shifts beliefs about how the world works or a persons belief of who he is (ie identity) Our
framework identifies a complementarity between worldview politics and identity politics and
illustrates how they may reinforce each other In particular an increase in identity
polarization may be associated with a shift in views about how the world works Furthermore
an increase in income inequality is likely to result in a greater incidence of ideational politics
Finally we show how ideas may not just constrain but also bite the interests that helped
propagate them in the first instance
Should Unemployment Insurance Be Centralized in a
State Union CESifo Working Paper Series No 6898
27 Pages Posted 19 Apr 2018
Robert Fenge University of Rostock - Department of Economics
Max Friese University of Rostock
Date Written February 21 2018
Abstract
This paper compares the decentral organization of unemployment insurance in member
states of a state union with the central organization at the upper unionrsquo level In a model of
two countries the labor force and the firm owners can migrate between the states Labor
markets exhibit unemployment due to trade unionrsquos bargaining about the wage rate In a
decentral scenario the states organize independently unemployment insurance and decide
about the rate on wages contributed to the insurance budget Due to open borders they have
to take account of migration effects However with perfect mobility between the states each
government chooses a socially optimal contribution rate such that workers are fully insured
against unemployment In the central scenario the governments overestimate the costs of
insurance when bargaining about the contribution rate and observing the common insurance
budget of both countries This leads to a less than socially optimal contribution rate
Keywords unemployment insurance policy state union centralization migration
externalities
JEL Classification F660 H770 J650
Paris Climate Agreement and the Global Economy
Winners and Losers World Bank Policy Research Working Paper No 8392
Posted 3 Apr 2018
Muthukumara Mani World Bank
Zekarias Hussein Purdue University
G Badri Narayanan Purdue University - Center for Global Trade Analysis
Deepika Wadhwa India Habitat Centre - Indian Council for Research on International Economic Relations (ICRIER)
Date Written April 2 2018
Abstract
The 2015 Paris Climate Agreement was the first instance of countries adhering to take a
collective action against global warming More than 190 countries came forward and
submitted their contributions in the form of Intended Nationally Determined Contributions
reflective of their ability and capacity to reduce greenhouse gas emissions as each country set
its own targets and actions For some countries it meant a significant decline in their
emissions by 2030 while others like China the United States and India decided on a more
gradual phasing out extending beyond 2030 This paper estimates the economic impacts of
implementation of the Paris Climate Agreement in terms of its implications for welfare gross
domestic product investments and trade for major countries and regions It uses a
computable general equilibrium framework to model global regional and country impacts
The analysis suggests that the economic impacts will be mostly felt in the European Union if
the Paris Agreement is fully implemented The European Union is likely to suffer a welfare
loss of 10 to 15 percent by 2030 Among non-European countries Australia New Zealand
and Mexico will also be affected with an expected welfare loss of about 15 percent Some of
the major emitters such as China and India will experience minimal impacts to their welfare
and the United States will experience a welfare loss of only about 07 by 2030 The sectoral
analysis of production and trade suggests a significant loss to fossil fuelbased sectors while
clean energy sectors can experience significant gains
Keywords International Trade and Trade Rules Energy and Mining Energy and
Environment Energy Demand Global Environment Energy Policies amp Economics Science of
Climate Change Climate Change and Environment Climate Change and Health
Immigrants Residential Choices and Their
Consequences CEPR Discussion Paper No DP12842
59 Pages Posted 12 Apr 2018
Christoph Albert Universitat Pompeu Fabra Students
Joan Monras Sciences Po - Department of Economics Centre for Monetary and Financial Studies (CEMFI)
There are 2 versions of this paper
Date Written April 2018
Abstract
This paper investigates the causes and effects of the spatial distribution of immigrants across
US cities We document that a) immigrants concentrate in large high-wage expensive cities
b) the earnings gap between immigrants and natives is higher in larger more expensive cities
and c) immigrants consume less locally than natives In order to explain these findings we
develop a quantitative spatial equilibrium model in which immigrants consume a fraction of
their income in their countries of origin Thus immigrants care not only about local prices but
also about price levels in their home countries This gives them a comparative advantage
relative to natives for living in high-wage high-price high-productivity cities where they also
accept lower wages than natives These incentives are stronger for immigrants coming from
lower-price index countries of origin We rely on immigrant heterogeneity to estimate the
model With the estimated model we show that current levels of immigration have reduced
economic activity in smaller less productive cities by around 5 percent while they have
expanded it in large productive cities by around 6 percent This has increased total aggregate
output per worker by around 03 percent We also discuss the welfare implications of these
results
Keywords Immigration location choices spatial equilibrium
JEL Classification F22 J31 J61 R11
The Cost of Non-Europe Revisited CEPR Discussion Paper No DP12844
48 Pages Posted 12 Apr 2018
Thierry Mayer Sciences Po
Vincent Vicard Banque de France
Soledad Zignago Banque de France
There are 2 versions of this paper
Date Written April 2018
Abstract
In this paper we quantify the Cost of Non-Europe ie the trade-related welfare gains each
country member has reaped from the European Union Thirty years after the terminology of
Non-Europe was used to give estimates of the gains from further integration we use modern
versions of the gravity model to estimate the trade creation implied by the EU and apply
those to counterfactual exercises where for instance the EU returns to a normal shallow-
type regional agreement or reverts to WTO rules Those scenarios are envisioned with or
without the exit of the United Kingdom from the EU (Brexit) happening which points to
interesting cross-country differences and potential cascade effects in doing and undoing of
trade agreements
Keywords European Union Gravity trade integration
JEL Classification F1
The Political Impact of Immigration Evidence from
the United States CEPR Discussion Paper No DP12848
57 Pages Posted 12 Apr 2018
Anna Maria Mayda
Georgetown University - Department of Economics IZA Institute of Labor Economics
Giovanni Peri University of California Davis - Department of Economics
Walter Steingress Government of Canada - Bank of Canada
Date Written April 2018
Abstract
In this paper we study the impact of immigration to the United States on the vote for the
Republican Party by analyzing county-level data on election outcomes between 1990 and
2010 Our main contribution is to separate the effect of high-skilled and low-skilled
immigrants by exploiting the different geography and timing of the inflows of these two
groups of immigrants We find that an increase in the first type of immigrants decreases the
share of the Republican vote while an inflow of the second type increases it These effects are
mainly due to the local impact of immigrants on votes of US citizens and they seem
independent of the country of origin of immigrants We also find that the pro-Republican
impact of low-skilled immigrants is stronger in low-skilled and non-urban counties This is
consistent with citizens political preferences shifting towards the Republican Party in places
where low-skilled immigrants are more likely to be perceived as competition in the labor
market and for public resources
Keywords Economic and Fiscal Channels Electoral Effects Immigration Republican Party
JEL Classification F22 J61
15 Escaping Import Competition and Downstream Tariffs
by Ana Cecilia Fieler Ann Harrison - 24527 (EEE ITI)
Abstract
We propose and provide evidence for a new source of gains from
trade Firms invest in product differentiation to escape import
competition In the data and in the model these investments are
associated with increases in measured productivity introduction
of new goods and shifts to skill-intensive sectors Investment
in differentiation downstream leads upstream firms to also
invest in differentiation For China these downstream tariff
reductions lead to big increases in measured productivity for
upstream suppliers The effect on measured productivity is
larger for upstream than for downstream firms and we explain
this difference theoretically through heterogeneous changes in
markups
httppapersnberorgpapersW24527utm_campaign=ntwamputm_medium=emailamputm_source=ntw
20 The Production of Cognitive and Non-cognitive Human Capital in the Global Economy
by Chong Xiang Stephen Yeaple - 24524 (ITI)
Abstract
A countrys welfare depends on its ability to accumulate
cognitive and noncognitive human capital However we do not
fully understand what makes some countries successful at
producing human capital and even struggle with measurement eg
international test scores are informative about the cognitive
dimension but neglect the non-cognitive dimension In this
paper we develop a multi-country open-economy
general-equilibrium framework in which countries ability to turn
resources into human capital along the cognitive and
non-cognitive dimensions is revealed by the endogenous
educational and occupational choices of its citizens and their
subsequent performance on international exams Our model allows
us to estimate countries underlying productivities of cognitive
and non-cognitive human capital We find that high test scores
do not necessarily imply high cognitive productivities (eg
Switzerland Hong Kong) and that many countries with low test
scores have high non-cognitive productivities (eg the US and
UK)
We then aggregate over these two dimensions to construct a single
educational quality index and illustrate its intuition using an
iso-education-quality curve We use our model to decompose
variation in output per capita across countries into a component
involving the educational quality index and another involving
output TFP This exact decomposition shows that the differences
in cognitive and noncognitive productivities across countries
have large implications for differences in output per worker
These results help quantify the potential payoffs of education
policies and clarify their objective eg excessive attention
to test scores may decrease aggregate output
International trade plays an important role in our model because
the gains from trade help to compensate a country for uneven
productivity across human capital types In counterfactual
exercises we show that if barriers to trade are completely
eliminated we would obtain a very different
iso-education-quality curve This implies large improvements of
overall education quality and large gains from trade for the
countries with strong comparative advantages in producing
cognitive (eg S Korea would gain 301 to 441 of its
output) or non-cognitive human capital (eg the Netherlands
would gain 188 to 556)
httppapersnberorgpapersW24524utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Il Contributo Della Demografia Alla Crescita
Economica Duecento Anni Di ldquoStoriardquo Italiana (The
Contribution of Demography to Italys Economic
Growth A Two-Hundred-Year-Long Story) Bank of Italy Occasional Paper No 431
37 Pages Posted 20 Apr 2018
Federico Barbiellini Amidei Bank of Italy
Matteo Gomellini Bank of Italy
Paolo Piselli Bank of Italy
Date Written March 28 2018
Abstract
Italian Abstract Questo lavoro esamina il contributo della demografia alla crescita
economica confrontando lrsquoItalia del passato quella di oggi e quella che vivremo in futuro
Attraverso una scomposizione contabile della crescita del PIL e del PIL pro capite si mostra
come le modifiche nella struttura per etagrave della popolazione abbiano prodotto nel passato piugrave
lontano un demographic dividend positivo Al contrario negli ultimi venticinque anni e con
ogni probabilitagrave nel futuro la demografia ha dato e daragrave un contributo diretto sensibilmente
negativo alla crescita economica I flussi migratori previsti limiteranno lrsquoampiezza di tale
contributo negativo ma non saranno in grado di invertirne il segno Nel lavoro si valutano tre
sviluppi potenzialmente indotti dagli stessi fattori demografici o da azioni di policy ndash
lrsquoestensione della vita lavorativa lrsquoaumento della partecipazione femminile al mercato del
lavoro e lrsquoincremento nei livelli di istruzione ndash che potranno contrastare i puri effetti contabili
legati allrsquoevoluzione nella struttura per etagrave
English Abstract This paper examines the contribution of demography to economic growth
in Italy by comparing the countryrsquos past present and future We use an accounting framework
to decompose GDP and per capita GDP growth and we show how changes in the age structure
of the population produced a positive demographic dividend in the past By contrast in the
last twenty-five years and arguably in the future demography has made and will continue to
make a direct negative contribution to economic growth Expected migration flows will
noticeably limit the extent of this negative contribution but they will not be able to reverse its
sign We analyze three possible developments potentially driven by demography itself or
fostered by policy actions ndash longer working lives an increase in female labour market
participation and higher education levels ndash which could counteract the pure negative
accounting effects produced by the evolution of the age structure
Note Downloadable document is in Italian
Keywords economic history demography demographic dividend forecasts
JEL Classification J11 N30
The Effects of Cash Transfers on Adult Labor Market
Outcomes World Bank Policy Research Working Paper No 8404
29 Pages Posted 16 Apr 2018
Sarah Baird George Washington University - School of Public Health and Health Services (SPHHS)
David J McKenzie World Bank - Development Research Group (DECRG) IZA Institute of Labor Economics
Berk Ozler World Bank - Development Economics Research Group (DECRG)
Date Written April 12 2018
Abstract
The basic economic model of labor supply has a very clear prediction of what should be
expected when an adult receives an unexpected cash windfall they should work less and earn
less This intuition underlies concerns that many types of cash transfers ranging from
government benefits to migrant remittances will undermine work ethics and make recipients
lazy This paper discusses a range of additional channels to this simple labor-leisure trade-off
that can make this intuition misleading in low- and middle-income countries including
missing markets price effects from conditions attached to transfers and dynamic and general
equilibrium effects The paper uses this as a lens through which to examine the evidence on
the adult labor market impacts of a wide range of cash transfer programs government
transfers charitable giving and humanitarian transfers remittances cash assistance for job
search cash transfers for business start-up and bundled interventions Overall cash transfers
that are made without an explicit employment focus (such as conditional and unconditional
cash transfers and remittances) tend to result in little to no change in adult labor The main
exceptions are transfers to the elderly and some refugees who reduce work In contrast
transfers made for job search assistance or business start-up tend to increase adult labor
supply and earnings with the likely main channels being the alleviation of liquidity and risk
constraints
Keywords Economic Assistance Disability Services amp Transfers to Poor Access of Poor to
Social Services Employment and Unemployment Labor Markets Rural Labor Markets Health
Care Services Industry
Globalisation and Urban Polarisation CEPR Discussion Paper No DP12877
24 Pages Posted 23 Apr 2018
Anthony J Venables University of Oxford Centre for Economic Policy Research (CEPR)
Date Written April 2018
Abstract
External trade affects the internal spatial structure of an economy promoting growth in some
cities or regions and decline in others Internal adjustment to these changes has often proved
to be extremely slow and painful This paper combines elements of urban and international
economics to draw out the implications of trade shocks for city performance Localisation
economies in production of internationally tradable goods mean that cities divide into two
types those producing tradables and those specialising in sectors producing just for the
national market (non-tradables) Negative trade shocks (and possibly also some positive
ones) reduce the number of cities engaged in tradable production increasing the number
producing just non-tradables This has a negative effect across all non-tradable cities which
lose population and land value Remaining tradable cities boom gaining population and land
value Depending on the initial position city size dispersion may increase this raising the
share of urban land-rents in national income and reducing the share of labour
Keywords de-industrialisation globalisation Polarisation urban
JEL Classification F12 R11 R12
Place-Based Policies for Development World Bank Policy Research Working Paper No 8410
75 Pages Posted 24 Apr 2018
Gilles Duranton University of Pennsylvania - Real Estate Department
Anthony J Venables University of Oxford Centre for Economic Policy Research (CEPR)
There are 3 versions of this paper
Date Written April 17 2018
Abstract
Many development policies such as placement of infrastructure or local economic
development schemes are place-based Such policies are generally intended to stimulate
private sector investment and economic growth in the treated place and as such they are
difficult to appraise and evaluate This paper sets out a framework for analyzing the effects of
such policies and assessing their social value It then reviews the literature on place-based
policies in the contexts of transport improvements economic corridors special economic
zones lagging regions and urban policies
Keywords Transport Services Labor Markets Urban Governance and Management Urban
Housing and Land Settlements Municipal Management and Reform Urban Housing
Macroeconomic Management Economic Forecasting Governance Diagnostic Capacity
Building Textiles Apparel amp Leather Industry Common Carriers Industry Food amp Beverage
Industry Business Cycles and Stabilization Policies Plastics amp Rubber Industry General
Manufacturing Construction Industry Pulp amp Paper Industry
Evidence on Finance and Economic Growth ECB Working Paper No 2115 ISBN 978-92-899-3031-4
79 Pages Posted 8 Dec 2017
Alexander A Popov European Central Bank (ECB)
Date Written December 6 2017
Abstract
This paper reviews and appraises the body of empirical research on the association between
financial markets and economic growth that has accumulated over the past quarter-century
The bulk of the historical evidence suggests that financial development affects economic
growth in a positive monotonic way yet recent research endeavors have provided useful and
important qualifications of this conventional wisdom Moreover the proliferation of micro-
level datasets has enabled researchers to study more precise links between theory and
measurement The paper highlights the mechanisms through which financial markets benefit
society as well as the channels through which finance can slow down long-term growth
Keywords financial markets growth
JEL Classification O4 G1
Why Has Economic Growth Slowed When Innovation Appears to be Accelerating
by Robert J Gordon - 24554 (DAE EFG PR)
Abstract
Measured between quarters with identical unemployment rates U
S economic growth slowed by more than half from 32 percent per
year during 1970-2006 to only 14 percent during 2006-16 and
only half of this GDP growth slowdown is accounted for diminished
productivity growth The paper starts from the proposition that
GDP growth matters not just productivity growth because slower
GDP growth provides fewer resources to address the nations
problems including faltering education aging infrastructure
and the looming shortfall in funding for Social Security and
Medicare and it also implies lower net investment and a reduced
rate at which new capital can embody the latest technology
The paper documents the contribution to slower GDP growth of the
separate components of demography -- fertility mortality life
expectancy and immigration Particular emphasis is placed on
the interaction between rising inequality and the slower secular
rise of life expectancy in the US compared to other developed
countries both in the form of a large gap in life expectancy
between rich and poor and the stagnation of life expectancy for
the lowest income quintile Further contributions to slowing
growth are made by a decline in the population share of both
legal and illegal immigration and a turnaround from rising to
declining labor force participation Rising inequality creates a
gap between the growth of average real per-capita income relative
to that of median real income and alternative measures of the
evolution of this gap are compared and assessed
Causes of declining productivity growth begin with the slowdown
in the rate of increase of educational attainment resulting from
the interplay of demand and supply factors including the
flattening of the college wage premium and the rising relative
price of college education Why did productivity growth decline
after 2006 despite an increase in the rate at which new US
patents were issued in 2006-16 compared to earlier decades Part
of the slowdown is attributed to the maturity of the IT
revolution which also helps to explain the trajectory of the
college wage premium Aspects of the productivity growth
slowdown include the declining productivity of research workers
diminishing returns to drug innovation and the evolutionary
rather than revolutionary impact of robots and artificial
intelligence which are replacing workers slowly and only in a
minority of industrial sectors throughout the economy Also
considered are alternative explanations of slower productivity
growth including low investment and mismeasurement
httppapersnberorgpapersW24554utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Childbearing Postponement its Option Value and the
Biological Clock CEPR Discussion Paper No DP12884
48 Pages Posted 23 Apr 2018
David de la Croix Catholic University of Louvain (UCL) - Institut de Recherches Economiques et Sociales (IRES) Catholic
University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)
Aude Pommeret Universiteacute de Savoie
Date Written April 2018
Abstract
Having children is like investing in a risky project Postponing birth is like delaying an
irreversible investment It has an option value which depends on its costs and benefits and in
particular on the additional risks motherhood brings We develop a parsimonious theory of
childbearing postponement along these lines We derive its implications for asset
accumulation income optimal age at first birth and childlessness The structural parameters
are estimated by matching the predictions of the model to data from the National Longitudinal
Survey of Youth NLSY79 The uncertainty surrounding income growth is shown to increase
with childbearing and this increase is stronger for more educated people This effect alone
can explain why the age at first birth and the childlessness rate both increase with education
We use the model to simulate two hypothetical policies Providing free medically assisted
reproduction technology does not affect the age at first birth much but lowers the
childlessness rate Insuring mothers against income risk is powerful in lowering the age at
first birth
Keywords Assisted reproduction technology Career uncertainty Late parenthood Real
option
JEL Classification D91 J13
Economic Upgrading Through Global Value Chain
Participation Which Policies Increase the Value
Added Gains World Bank Policy Research Working Paper No 8007
45 Pages Posted 1 May 2018
Victor Kummritz World Trade Organization (WTO) Graduate Institute of International and Development Studies (IHEID)
Daria Taglioni European Central Bank (ECB) - Directorate General Economics
Deborah E Winkler World Bank
Date Written March 16 2017
Abstract
The emergence of global value chains has opened up new ways to achieve development and
industrialization However new evidence shows that not all countries have gained from
participating in global value chains and that country-specific characteristics matter for
economic upgrading in global value chains This paper uses two panel data sets of developing
and industrialized countries at the sectoral level to relate global value chain participation as a
buyer and seller to domestic value added These are combined with a wide range of policy
measures at the country level that can play a role in economic upgrading through global value
chains by targeting global value chain integration or the quality and conditions of input and
output factors First the study finds that global value chain integration increases domestic
value added especially on the selling side which holds across all income levels Second the
results highlight the importance of policy for economic upgrading through global value chain
integration Although the study cannot claim causal evidence all the assessed policy areas are
consistently shown to mediate the effects of global value chains and magnify the gains for
domestic value added Third a detailed analysis shows that several policy areas mediate the
gains from global value chains more through integration as a seller Finally the study
observes that many of the results are driven by high- and upper-middle-income countries
Keywords International Trade and Trade Rules Labor Markets Rural Labor Markets Food amp
Beverage Industry Construction Industry Business Cycles and Stabilization Policies General
Manufacturing Common Carriers Industry Textiles Apparel amp Leather Industry Pulp amp Paper
Industry Plastics amp Rubber Industry Global Environment
Job Vacancies and Immigration Evidence from Pre- and Post-Mariel Miami
by Jason Anastasopoulos George J Borjas Gavin G Cook Michael Lachanski - 24580 (LS)
Abstract
How does immigration affect labor market opportunities in a
receiving country This paper contributes to the voluminous
literature by reporting findings from a new (but very old) data
set Beginning in 1951 the Conference Board constructed a
monthly job vacancy index by counting the number of help-wanted
ads published in local newspapers in 51 metropolitan areas We
use the Help-Wanted Index (HWI) to document how immigration
changes the number of job vacancies in the affected labor
markets Our analysis begins by revisiting the Mariel episode
The data reveal a marked decrease in Miamis HWI relative to many
alternative control groups in the first 4 or 5 years after
Mariel followed by recovery afterwards We find a similar
initial decline in the number of job vacancies after two other
supply shocks that hit Miami over the past few decades the
initial wave of Cuban refugees in the early 1960s as well as the
1995 refugees who were initially detoured to Guantanamo Bay We
also look beyond Miami and estimate the generic spatial
correlations that dominate the literature correlating changes in
the HWI with immigration across metropolitan areas These
correlations consistently indicate that more immigration is
associated with fewer job vacancies The trends in the HWI seem
to most strongly reflect changing labor market conditions for
low-skill workers (in terms of both wages and employment) and a
companion textual analysis of help-wanted ads in Miami before and
after the Mariel supply shock suggests a slight decline in the
relative number of low-skill job vacancies
httppapersnberorgpapersW24580utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Somatic Distance Cultural Affinities Trust and Trade CEPR Discussion Paper No DP12895
21 Pages Posted 1 May 2018
Jacques Melitz National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and
Statistics (CREST) Centre for Economic Policy Research (CEPR)
Farid Toubal Ecole Normale Superieure de Cachan (ENS) - Departement of Economics ans Management National
Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics
(CREST) Centre dEtudes Prospectives et dInfo Internationales (CEPII)
Date Written April 2018
Abstract
Somatic distance or differences in physical appearance proves to be extremely important in
the gravity model of bilateral trade in conformity with results in other areas of economics and
outside of it in the social sciences This is also true quite independently of survey evidence
about bilateral trust These findings are obtained in a sample of the 15 members of the
European Economic Association in 1996 Robustness tests also show that somatic distance
has a more reliable influence on bilateral trade than the other cultural variables The article
finally discusses the interpretation and the breadth of application of these results
Keywords Bilateral Trade Cultural interactions Language Somatic distance Trust
The Paradox of Global Thrift CEPR Discussion Paper No DP12894
59 Pages Posted 1 May 2018
Luca Fornaro Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) Barcelona Graduate
School of Economics (Barcelona GSE)
Federica Romei LUISS Guido Carli University
Date Written April 2018
Abstract
This paper describes a paradox of global thrift Consider a world in which interest rates are
low and monetary policy cannot stabilize the economy because it is frequently constrained by
the zero lower bound Now imagine that governments complement monetary policy with
prudential financial and fiscal policies because they perceive that limiting private and public
borrowing during booms will help stabilize the economy by reducing the risk of financial
crises and by creating space for fiscal interventions during busts We show that these policies
while effective from the perspective of individual countries might backfire if applied on a
global scale In a financially integrated world in fact prudential policies generate a rise in the
global supply of savings or equivalently a drop in global aggregate demand In turn weaker
global aggregate demand depresses output in countries whose monetary policy is constrained
by the zero lower bound Due to this effect the world might paradoxically experience a fall in
output and welfare following the implementation of well-intended prudential policies
Keywords aggregate demand externalities Capital Flows current account policies fiscal
policies international cooperation Liquidity traps macroprudential policies zero lower
bound
JEL Classification E32 E44 E52 F41 F42
Multihorizon Currency Returns and Purchasing
Power Parity CEPR Discussion Paper No DP12893
59 Pages Posted 1 May 2018
Mikhail Chernov UCLA Anderson
Drew Creal University of Chicago - Booth School of Business - Econometrics and Statistics
There are 2 versions of this paper
Date Written April 2018
Abstract
Exposures of expected future depreciation rates to the current interest rate differential
violate the UIP hypothesis in a distinctive pattern that is a non-monotonic function of horizon
Conversely forward risk-adjusted expected depreciation rates are monotonic We explain the
two patterns by incorporating the weak form of PPP into a no-arbitrage joint model of the
depreciation rate inflation differential domestic and foreign yield curves Short-term
departures from PPP generate the first pattern The risk premiums for these departures
generate the second pattern
Keywords affine term structure model cointegration multiple horizons purchasing power
parity uncovered interest parity
Networks and Trade CEPR Discussion Paper No DP12891
33 Pages Posted 1 May 2018
Andrew B Bernard Tuck School of Business at Dartmouth National Bureau of Economic Research (NBER) Centre for
Economic Policy Research (CEPR)
Andreas Moxnes University of Oslo - Department of Economics Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
There are 2 versions of this paper
Date Written April 2018
Abstract
Trade occurs between firms both across borders and within countries and the vast majority
of trade transactions includes at least one large firm with many trading partners This paper
reviews the literature on firm-to-firm connections in trade A growing body of evidence
coming from domestic and international transaction data has established empirical
regularities which have inspired the development of new theories emphasizing firm
heterogeneity among both buyers and suppliers in production networks Theoretical work
has considered both static and dynamic matching environments in a framework of many-to-
many matching The literature on trade and production networks is at an early stage and
there are a large number of unanswered empirical and theoretical questions
Keywords International Trade offshoring production networks productivity
JEL Classification F10 F12 F14 L11 L21
One More Time What are Institutions and How Do
They Change World Bank Policy Research Working Paper No 8422
39 Pages Posted 1 May 2018 Last revised 3 May 2018
Roumeen Islam World Bank
Date Written April 30 2018
Abstract
This paper defines institutions presents their basic characteristics and discusses forces for
institutional change It draws on a wealth of research and study by scholars in different fields
and follows from the flagship 2002 World Development Report on this topic including
relevant new research since then that illuminates key issues The definition of institutions
includes rules and organizations (specifically rules guiding peoples actions) The paper
emphasizes the diversity of institutions that can effectively perform similar functions the
arguments for and against standardization of institutions across specific transactions or
groups and the implications of these choices It highlights the relationship between informal
and formal institutions It discusses forces for institutional change influencing all economies
ranging from external shocks (whether they be economic or weather-related shocks or driven
by wars) to internal dynamics such as those following population growth or compositional
changes and those following technological innovations Many of these forces have a two-way
relationship with institutions they are affected by them and in turn influence whether and
when they change A special section is devoted to institutional transplants and their
effectiveness The paper concludes with a discussion of whether and under what conditions
institutional change can be externally directed and the lessons for aid donors
Keywords International Trade and Trade Rules Social Policy Common Property Resource
Development Legal Products Regulatory Regimes Legislation Legal Reform Judicial System
Reform Public Sector Economics Taxation amp Subsidies Public Finance Decentralization and
Poverty Reduction Economic Adjustment and Lending Macro-Fiscal Policy Educational
Sciences Competitiveness and Competition Policy
Globalization Government Popularity and the Great
Skill Divide
CEPR Discussion Paper No DP12897
56 Pages Posted 1 May 2018
Cevat Giray Aksoy European Bank for Reconstruction and Development IZA Institute of Labor Economics
Sergei M Guriev Sciences Po Centre for Economic Policy Research (CEPR) European Bank for Reconstruction and
Development (EBRD)
Daniel Treisman University of California Los Angeles (UCLA) - Department of Political Science
There are 2 versions of this paper
Date Written April 2018
Abstract
How does international trade affect the popularity of governments and leaders We provide
the first large-scale systematic evidence that the divide between skilled and unskilled
workers worldwide is producing corresponding differences in the response of political
preferences to trade shocks Using a unique data set including 118 countries and nearly
450000 individuals we find that growth in high skill intensive exports (of goods and
services) increases approval of the leader and incumbent government among skilled
individuals Growth in high skill intensive imports has the opposite effect There is no effect
on political approval among the unskilled To identify exogenous variation in international
trade we exploit the time-varying effects of air and sea distances in bilateral trade flows Our
findings suggest that the political effects of international trade differ with skill intensity and
that skilled individuals respond differently from their unskilled counterparts to trade shocks
Keywords International trade political approval political polarization skill intensity of
trade
Migratory Pressures in the Long Run International
Migration Projections to 2050 Banco de Espana Article 3817
9 Pages Posted 3 Jan 2018
Rodolfo G Campos Banco de Espantildea
Date Written December 5 2017
Abstract
This article presents bilateral international migration projections to 2050 based on a new
methodology that takes into account the population growth both in countries of origin and
countries of destination To do this the methodology used by Hanson and McIntosh (2016) to
project the future migratory flows to a sample of OECD countries is generalised to all
countries worldwide The United Nations population growth forecasts are used as a basis for
projecting future migratory flows The main findings of the exercise indicate that the number
of migrants is projected to increase from 28 of the world population in 2010 to around
35 in 2050 as a result of the strong increase in migrants from India and sub-Saharan Africa
Against this background and despite the slowdown in demographic growth in Latin America
the United States is expected to continue to receive high net immigration flows and to remain
the country with the highest stock of immigrants globally while continental Europe will post
larger net immigration flows
Immigration and Electoral Support for the Far-Left
and the Far-Right CESifo Working Paper Series No 6918
53 Pages Posted 7 May 2018
Anthony Edo Paris School of Economics (PSE)
Yvonne Giesing CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Jonathan Oumlztunc Barcelona Graduate School of Economics (Barcelona GSE)
Panu Poutvaara Ludwig Maximilian University of Munich - Faculty of Economics CESifo (Center for Economic Studies and
Ifo Institute) - Ifo Institute CESifo (Center for Economic Studies and Ifo Institute) CReAM IZA Institute of
Labor Economics
Date Written March 05 2018
Abstract
Immigration has become one of the most divisive political issues in the United States the
United Kingdom France and several other Western countries We estimate the impact of
immigration on voting for far-left and far-right candidates in France using panel data on
presidential elections from 1988 to 2017 To derive causal estimates we instrument more
recent immigration flows by past settlement patterns in 1968 We find that immigration
increases support for far-right candidates and has no robust effect on far-left voting The
increased support for far-right candidates is driven by low educated immigrants from non-
Western countries
Keywords voting immigration political economy
JEL Classification D720 F220 J150 P160
Institutions Trade and Development A Quantitative
Analysis CESifo Working Paper Series No 6920
64 Pages Posted 7 May 2018
Cosimo Beverelli World Trade Organization (WTO)
Alexander Keck World Trade Organization (WTO)
Mario Larch University of Bayreuth - Faculty of Law Business and Economics University of Bayreuth CESifo Ifo
Institute for Economic Research GEP at the University of Nottingham
Yoto Yotov Drexel University - Department of Economics amp International Business
Date Written March 05 2018
Abstract
We propose and apply methods to quantify the impact of national institutions on international
trade and development We are able to identify the direct impact of country-specific
institutions on international trade within the structural gravity framework Our approach
naturally addresses the prominent issue of endogenous institutions The empirical analysis
offers robust evidence that stronger institutions promote trade A counterfactual analysis
reveals that the changes in institutional quality in the poor countries in our sample between
1996 and 2006 have had via their impact on imports from rich countries significant and
heterogeneous real GDP effects varying between -5 and 5 percent Our methods are readily
applicable to identifying the impact of a wide range of country-specific variables on
international trade
Keywords institutional quality international trade development structural gravity
JEL Classification F130 F140 F160
5 Inference in Structural Vector Autoregressions When the Identifying Assumptions are Not Fully Believed Re-
evaluating the Role of Monetary Policy in Economic Fluctuations
by Christiane Baumeister James D Hamilton - 24597 (EFG ME)
Abstract
Reporting point estimates and error bands for structural vector
autoregressions that are only set identified is a very common
practice However unless the researcher is persuaded on the
basis of prior information that some parameter values are more
plausible than others this common practice has no formal
justification When the role and reliability of prior
information is defended Bayesian posterior probabilities can be
used to form an inference that incorporates doubts about the
identifying assumptions We illustrate how prior information can
be used about both structural coefficients and the impacts of
shocks and propose a new distribution which we call the
asymmetric t distribution for incorporating prior beliefs about
the signs of equilibrium impacts in a nondogmatic way We apply
these methods to a three-variable macroeconomic model and
conclude that monetary policy shocks were not the major driver of
output inflation or interest rates during the Great Moderation
httppapersnberorgpapersW24597utm_campaign=ntwamputm_medium=emailamputm_source=ntw
11 The Political Impact of Immigration Evidence from the United States
by Anna Maria Mayda Giovanni Peri Walter Steingress - 24510 (ITI POL)
Abstract
In this paper we study the impact of immigration to the United
States on the vote for the Republican Party by analyzing
county-level data on election outcomes between 1990 and 2010
Our main contribution is to separate the effect of high-skilled
and low-skilled immigrants by exploiting the different geography
and timing of the inflows of these two groups of immigrants We
find that an increase in the first type of immigrants decreases
the share of the Republican vote while an inflow of the second
type increases it These effects are mainly due to the local
impact of immigrants on votes of US citizens and they seem
independent of the country of origin of immigrants We also find
that the pro-Republican impact of low-skilled immigrants is
stronger in low-skilled and non-urban counties This is
consistent with citizens political preferences shifting towards
the Republican Party in places where low-skilled immigrants are
more likely to be perceived as competition in the labor market
and for public resources
httppapersnberorgpapersW24510utm_campaign=ntwamputm_medium=emailamputm_source=ntw
23 The Impact of Exports on Innovation Theory and Evidence
by Philippe Aghion Antonin Bergeaud Matthieu Lequien Marc J Melitz - 24600 (EFG ITI)
Abstract
This paper investigates the effect of export shocks on
innovation On the one hand a positive shock increases market
size and therefore innovation incentives for all firms On the
other hand it increases competition as more firms enter the
export market This in turn reduces profits and therefore
innovation incentives particularly for firms with low
productivity Overall the positive impact of the export shock on
innovation is magnified for high productivity firms whereas it
may negatively affect innovation in low productivity firms We
test this prediction with patent customs and production data
covering all French manufacturing firms To address potential
endogeneity issues we construct firm-level export proxies which
respond to aggregate conditions in a firms export destinations
but are exogenous to firm-level decisions We show that
patenting robustly increases more with export demand for
initially more productive firms This effect is reversed for the
least productive firms as the negative competition effect
dominates
httppapersnberorgpapersW24600utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Sovereign Defaults in Court CESifo Working Paper Series No 6931
75 Pages Posted 8 May 2018
Julian Schumacher European Central Bank (ECB)
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Enderlein Henrik Hertie School of Governance
There are 3 versions of this paper
Date Written March 08 2018
Abstract
For centuries defaulting governments were immune from legal action by foreign creditors
This paper shows that this is no longer the case Building a dataset covering four decades we
find that creditor lawsuits have become an increasingly common feature of sovereign debt
markets The legal developments have strengthened the hands of creditors and raised the cost
of default for debtors We show that legal disputes in the US and the UK disrupt government
access to international capital markets as foreign courts can impose a financial embargo on
sovereigns The findings are consistent with theoretical models with creditor sanctions and
suggest that sovereign debt is becoming more enforceable We discuss how the threat of
litigation affects debt management government willingness to pay and the resolution of debt
crises
Keywords sovereign default enforcement government financing debt restructuring
JEL Classification F340 G150 H630 K220
ECB Monetary Policy and the Euro Exchange Rate Bank of Italy Temi di Discussione (Working Paper) No 1172
54 Pages Posted 14 May 2018
Martina Cecioni Bank of Italy
Date Written May 3 2018
Abstract
The paper provides empirical evidence on the effects of ECB conventional and unconventional
monetary policy on the euro exchange rate focusing on the period from January 2013 to
September 2017 Innovations to conventional and unconventional monetary policies are
identified through changes in respectively short- and long-term interest rates immediately
after Governing Council meetings Both types of measures contributed to the depreciation of
the euro from mid-2014 surprises associated with conventional measures had a stronger and
more persistent effect than those associated with unconventional ones Time-varying
estimates of the effects of conventional surprises since 1999 show that the responsiveness of
exchange rates to monetary news increased markedly from 2013 State-dependence analysis
finds that the exchange rate became more sensitive to monetary policy when the ECB adopted
a policy of negative interest rates and when conventional and unconventional monetary
surprises moved in the same direction
Keywords unconventional monetary policy exchange rates European Central Bank
JEL Classification E52 E58 F31
The ECBs Fiscal Policy
by Hans-Werner Sinn - 24613 (ME)
Abstract
While the ECB helped mitigate the euro crisis in the aftermath of
Lehman it has stretched its monetary mandate and moved into
fiscal territory This text describes and summarizes the crucial
role played by the ECB in the intervention spiral resulting from
its bid to manage the crisis It also outlines ongoing
competitiveness problems in southern Europe discusses the
so-called austerity policy of the Troika comments on QE and
presents two alternative paths for the future development of
Europe
httppapersnberorgpapersW24613utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Real Convergence in the Euro Area A Long-Term
Perspective ECB Occasional Paper No 203 ISBN 978-92-899-2865-6
102 Pages Posted 5 Dec 2017
Juan Luis Diaz del Hoyo European Central Bank (ECB)
Ettore Dorrucci European Central Bank (ECB)
Frigyes Ferdinand Heinz European Central Bank (ECB)
Sona Muzikarova European Central Bank (ECB)
Date Written December 1 2017
Abstract
In the euro area there is mixed evidence that the GDP per capita of lower-income economies
has been catching up with that of higher-income economies since the start of monetary union
The significant real convergence performance of some of the most recent members contrasts
with that of the economies of southern Europe which have not met expectations However
attributing all the blame for this outcome to the introduction of the single currency simply
misses the point By taking a ldquolong viewrdquo and reviewing the evidence since the 1960s this
paper shows that certain member countries began to face a ldquonon-convergence traprdquo long
before the euro years We also provide stylised facts on (i) the central role of total factor
productivity in driving real convergence in the euro area over time alongside other factors
and (ii) the crucial interaction of real convergence with ldquoMaastricht convergencerdquo and
institutional quality the other two key components of sustainable economic convergence We
conclude that it is critical that the euro area countries facing convergence challenges enhance
the resilience of their economic structures by improving the relevant institutions and
governance
Keywords sustainable economic convergence real convergence nominal convergence GDP
per capita Maastricht convergence criteria institutional quality labour productivity total
factor productivity Five Presidentsrsquo Report Reflection Paper on the Deepening of EMU
JEL Classification E01 F15 J11 O11 O43 O47 O52 O57
Monetary Policy Transmission in the Eastern
Caribbean Currency Union IMF Working Paper No 1870
31 Pages Posted 22 May 2018
Alla Myrvoda International Monetary Fund (IMF)
Julien P M Reynaud International Monetary Fund (IMF) Universiteacute Paris I Pantheacuteon-Sorbonne
Date Written March 2018
Abstract
This paper empirically investigates international and domestic monetary policy transmission
mechanisms in the Eastern Caribbean Currency Union (ECCU) We assess interest rate pass-
through of both the US policy rate and the ECCU minimum saving deposit rate (MSR) into
domestic interest rates through the interest rate channel While economic theory suggests
that the international pass-through should be high in small open economies with fixed
exchange rates and open capital accounts our findings based on regression analysis point to
a low long-run pass-through coefficient of the US interest rate The domestic transmission
channel however is found to operate through changes in the MSR The results hold for
different interest rates (deposit and lending) and are supported by survey-based findings
Keywords Asia and Pacific Antigua and Barbuda Dominica Saint Kitts and Nevis Saint
Lucia Saint Vincent and the Grenadines Grenada Western Hemisphere monetary policy
transmission interest rate pass-through ECCU monetary policy transmission interest rate
pass-through ECCU General Monetary Policy (Targets Instruments and Effects)
JEL Classification E43 E50 E52 F31 F33 F36 O54
On the Impact of Structural Reforms on Output and
Employment Evidence from a Cross-Country Firm-
Level Analysis IMF Working Paper No 1873
36 Pages Posted 22 May 2018
Luiza Antoun de Almeida International Monetary Fund (IMF)
Vybhavi Balasundharam University of Michigan at Ann Arbor
Date Written April 2018
Abstract
This paper analyzes the effects of selected structural reforms on output and employment in
the short and medium term It uses a comprehensive cross-country firm-level dataset
covering both advanced and emerging market economies over the period 2003-2014 In line
with previous studies it finds that structural reforms have in general a positive impact on
output and employment in the medium term Furthermore the paper also assesses whether
the impact of structural reforms varies with firm-specific characteristics such as size
leverage profitability and sector We find evidence that firm characteristics do influence the
effectiveness of structural reforms These findings have relevant policy implications as they
help policymakers tailor the design of structural reforms to maximize their payoffs taking
into account their heterogeneous impact on firms
Keywords Fiscal reforms Cross-country analysis Potential output Employment Developed
countries Emerging markets structural reforms firm-level data Orbis dataset potential
growth
JEL Classification L51 D04 D22
Production Integration in the European Union CESifo Working Paper Series No 6944
34 Pages Posted 17 May 2018
Hakan Nordstrom Swedish Board of Trade
Harry Flam Stockholm University - Institute for International Economic Studies (IIES) CESifo (Center for Economic
Studies and Ifo Institute)
Date Written March 21 2018
Abstract
Measured by trade in intermediate inputs economic integration has increased between 2000
and 2014 between members of the European Union and even more with non-members
Integration is negatively related to economic size and positively to the number of years as a
member Germany is the largest hub in the production network and the centre of gravity has
moved eastward Older member states are increasingly exporting service inputs and new
member states primary and manufacturing inputs Wages are increasing faster in countries
with low initial wages indicating wage convergence as a result of production integration
Keywords global value chains economic integration input-output models wage
convergence
JEL Classification E100 F100 F600 J310
Democratic Tipping Points CESifo Working Paper Series No 6945
36 Pages Posted 17 May 2018
Antonio Ciccone Universitat Pompeu Fabra - Faculty of Economic and Business Sciences Centre for Economic Policy
Research (CEPR) Institute for the Study of Labor (IZA)
There are 2 versions of this paper
Date Written March 21 2018
Abstract
I examine whether transitory events can tip the scales against authoritarian regimes and lead
to persistent democratization I think of situations where this is a possibility as democratic
tipping points The transitory events I focus on are rainfall shocks in the most agricultural
countries in the world I show that while these shocks only affect agricultural output
contemporaneously they have persistent effects on political institutions Authoritarian
regimes experiencing negative rainfall shocks are more likely to be democratic three five and
ten years later
Keywords transitory shocks persistent democratization
Globalization and the New Normal IMF Working Paper No 1875
41 Pages Posted 22 May 2018
Bertrand Candelon University of Maastricht - Department of Economics
Alina Carare International Monetary Fund (IMF)
Jean-Baptiste Hasse
Aix-Marseille University
Date Written April 2018
Abstract
This study expands the empirical specification of Cerra and Saxena (2008) and allows short-
termoutput growth regimes to be determined by globalization Relying on a non-linear
dynamic panelrepresentation it reconciles the earlier results in the literature regarding the
two oppositenarratives of the effects of globalization on output growth Countries experience
higher growth onaverage the more open and integrated they are into the world However
once they reach a certainglobalization threshold (endogenously estimated) countries may
also experience a new normalpersistently lower short-term output growth following a
financial crisis The benefits as well asvulnerabilities accrue earlier in the globalization
process for low- and middle-income countriesTo solely reap the globalization benefits on
growth sound policies should be in place to mitigatethe negative effects stemming from
increased vulnerabilities brought by globalization
Keywords Globalization Financial crisis Banking crisis Output growth New Normal
Globalization Financial crises Banking crises Output growth
JEL Classification F30 F43 F62 F65
Public Policy in an AI Economy
by Austan Goolsbee - 24653 (PE PR)
Abstract
This paper considers the role of policy in an AI-intensive
economy (interpreting AI broadly) It emphasizes the speed of
adoption of the technology for the impact on the job market and
the implications for inequality across people and across places
It also discusses the challenges of enacting a Universal Basic
Income as a response to widespread AI adoption discuss pricing
privacy and competition policy the question of whether AI could
improve policy making itself
httppapersnberorgpapersW24653utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Aggregate and Distributional Effects of Financial
Globalization Evidence from Macro and Sectoral Data IMF Working Paper No 1883
62 Pages Posted 22 May 2018
Davide Furceri International Monetary Fund (IMF)
Prakash Loungani International Monetary Fund (IMF)
Jonathan D Ostry International Monetary Fund (IMF)
Date Written April 2018
Abstract
We take a fresh look at the aggregate and distributional effects of policies to
liberalizeinternational capital flows-financial globalization Both country- and industry-level
resultssuggest that such policies have led on average to limited output gains while
contributing tosignificant increases in inequality-that is they pose an equity-efficiency trade-
off Behindthis average lies considerable heterogeneity in effects depending on country
characteristicsLiberalization increases output in countries with high financial depth and
those that avoidfinancial crises while distributional effects are more pronounced in countries
with lowfinancial depth and inclusion and where liberalization is followed by a crisis
Difference-indifferenceestimates using sectoral data suggest that liberalization episodes
reduce the shareof labor income particularly for industries with higher external financial
dependence thosewith a higher natural propensity to use layoffs to adjust to idiosyncratic
shocks and thosewith a higher elasticity of substitution between capital and labor The
sectoral resultsunderpin a causal interpretation of the findings using macro data
Keywords Globalization Inequality Capital Account Openness Crises Institutions
JEL Classification F13 G32 O11
The Dynamics of Sovereign Debt Crises and Bailouts CEPR Discussion Paper No DP12921
44 Pages Posted 15 May 2018
Francisco Roch International Monetary Fund (IMF)
Harald Uhlig University of Chicago - Department of Economics
There are 2 versions of this paper
Date Written May 2018
Abstract
Motivated by the recent European debt crisis this paper investigates the scope for a bailout
guarantee in a sovereign debt crisis Defaults may arise from negative income shocks
government impatience or a sunspot-coordinated buyers strike We introduce a bailout
agency and characterize the strategy with the minimal actuarially fair intervention which
guarantees the no-buyers-strike fundamental equilibrium relying on the market for residual
financing The intervention makes it cheaper for governments to borrow inducing them
borrow more leaving default probabilities possibly rather unchanged The maximal backstop
will be pulled precisely when fundamentals worsen
Keywords Bailouts default Endogenous Borrowing Constraints Eurozone Debt Crisis long-
term debt OMT Self-fulfilling Crises
JEL Classification F34 F41
Cumulative Impacts of Conditional Cash Transfer Programs Experimental Evidence from Indonesia
by Nur Cahyadi Rema Hanna Benjamin A Olken Rizal Adi Prima Elan Satriawan Ekki
Syamsulhakim - 24670 (CH DEV PE)
Abstract
Conditional cash transfer (CCT) programs have spread worldwide
and are designed to promote comprehensive human capital
investments in children starting from encouraging pre-natal and
maternal care and early childhood health interventions and
continuing through incentivizing school attendance Yet
evaluating these claims over more than a few years is hard as
most CCT experiments extend the program to the control group
after a short experimental period This paper experimentally
estimates the impacts of Indonesias cash transfer program (PKH)
six years after the program launched using data from about
14000 households in 360 sub-districts across Indonesia taking
advantage of the fact that treatment and control locations
remained largely intact throughout the period We find that PKH
continues to have large static incentive effects on many of the
targeted indicators increasing usage of trained health
professionals for childbirth dramatically and halving the share
of children age 7-15 who are not enrolled in school Wage labor
for 13-15 year olds was reduced by at least one-third We also
begin to observe impacts on outcomes that may require cumulative
investments for example six years later we observe large
reductions in stunting and some evidence of increased high school
completion rates The results suggest that CCT investments can
have substantial effects on the accumulation of human capital
and that these effects can persist even when programs are
operating at large-scale without researcher intervention
httppapersnberorgpapersW24670utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Services Development and Comparative Advantage in
Manufacturing World Bank Policy Research Working Paper No 8450
47 Pages Posted 23 May 2018
Xuepeng Liu Kennesaw State University - Department of Economics and Finance
Aaditya Mattoo World Bank - Development Research Group (DECRG)
Zhi Wang George Mason University - Schar School of Policy and Government
Shang-Jin Wei Columbia Business School - Finance and Economics National Bureau of Economic Research (NBER) Centre
for Economic Policy Research (CEPR) International Monetary Fund (IMF) Tsinghua University - School of
Economics amp Management
Date Written May 22 2018
Abstract
Most manufacturing activities use inputs from the financial and business services sectors But
these services sectors also compete for resources with manufacturing activities provoking
concerns about de-industrialization -- financial services in industrial countries like the United
States and the United Kingdom and business services in developing countries like India and
the Philippines This paper examines the implications of services development for the export
performance of manufacturing sectors It develops a methodology to quantify the indirect role
of services in international trade in goods and constructs new measures of revealed
comparative advantage based on domestic value added in gross exports The paper shows
that the development of financial and business services enhances the revealed comparative
advantage of manufacturing sectors that use these services intensively but not that of other
manufacturing sectors It also finds that a country can partially overcome the handicap of an
underdeveloped domestic services sector by relying more on imported services inputs Thus
lower services trade barriers in developing countries can help to promote their
manufacturing exports
Keywords Textiles Apparel amp Leather Industry Pulp amp Paper Industry General
Manufacturing Food amp Beverage Industry Common Carriers Industry Construction Industry
Plastics amp Rubber Industry Business Cycles and Stabilization Policies International Trade and
Trade Rules Trade and Services Financial Economics Finance and Development Economic
Growth Economic Theory amp Research Industrial Economics
Thou Shalt Not Breach The Impact on Sovereign
Spreads of Noncomplying with the EU Fiscal Rules IMF Working Paper No 1887
37 Pages Posted 22 May 2018
Federico Kalan International Monetary Fund (IMF)
Adina Popescu International Monetary Fund (IMF)
Julien P M Reynaud International Monetary Fund (IMF) Universiteacute Paris I Pantheacuteon-Sorbonne
Date Written April 2018
Abstract
There is evidence that fiscal rules in particular well-designed rules are associated with lower
sovereign spreads However the impact of noncompliance with fiscal rules on spreads has not
been examined in the literature This paper estimates the effect of the Excessive Deficit
Procedure (EDP) on sovereign spreads of European Union member states Based on a sample
including the 28 European Union countries over the period 1999 to 2016 sovereign spreads
of countries placed under an EDP are found to be on average higher compared to countries
that are not under an EDP The interpretation of this result is not straight-forward as different
channels may be at play in particular those related with the credibility and the design of the
EU fiscal framework The specification accounts for typical macroeconomic fiscal and
financial determinants of sovereign spreads the System Generalized Method of Moments
estimator is used to control for endogeneity and results are robust to a range of checks on
variables and estimators
Keywords Fiscal rules Fiscal policy noncompliance sovereign spreads General Models
with Panel Data
JEL Classification E62 H60 C23
ldquoUnconventionalrdquo Monetary Policy as Conventional
Monetary Policy A Perspective from the US In the
1920s
FEDS Working Paper No 2018-019
45 Pages Posted 6 Jun 2018
Mark A Carlson Board of Governors of the Federal Reserve System
Burcu Duygan-Bump Federal Reserve Board
Date Written 2018-03-09
Abstract
To implement monetary policy in the 1920s the Federal Reserve utilized administered
interest rates and conducted open market operations in both government securities and
private money market securities sometimes in fairly considerable amounts We show how the
Fed was able to effectively use these tools to influence conditions in money markets even
those in which it was not an active participant Moreover our results suggest that the
transmission of monetary policy to money markets occurred not just through changing the
supply of reserves but importantly through financial market arbitrage and the rebalancing of
investor portfolios The tools used in the 1920s by the Federal Reserve resemble the
extraordinary monetary policy tools used by central banks recently and provide further
evidence on their effectiveness even in ordinary times
Keywords Monetary policy Unconventional monetary policy Central banking Administered
rates Money markets Quantitative easing
JEL Classification E52 E58 N22
New Perspectives on the Decline of US
Manufacturing Employment FEDS Working Paper No 2018-023
37 Pages Posted 7 Jun 2018
Teresa Fort Dartmouth College - Tuck School of Business
Justin R Pierce Federal Reserve Board
Peter Schott Yale School of Management National Bureau of Economic Research (NBER)
Date Written 2018-04-13
Abstract
We use relatively unexplored dimensions of US microdata to examine how US manufacturing
employment has evolved across industries firms establishments and regions from 1977 to
2012 We show that these data provide support for both trade- and technology-based
explanations of the overall decline of employment over this period while also highlighting the
difficulties of estimating an overall contribution for each mechanism Toward that end we
discuss how further analysis of these trends might yield sharper insights
Keywords Employment Manufacturing Output Technology Trade
AI and the Economy
by Jason Furman Robert Seamans - 24689 (PR)
Abstract
We review the evidence that artificial intelligence (AI) is
having a large effect on the economy Across a variety of
statistics--including robotics shipments AI startups and patent
counts--there is evidence of a large increase in AI-related
activity We also review recent research in this area which
suggests that AI and robotics have the potential to increase
productivity growth but may have mixed effects on labor
particularly in the short run In particular some occupations
and industries may do well while others experience labor market
upheaval We then consider current and potential policies around
AI that may help to boost productivity growth while also
mitigating any labor market downsides including evaluating the
pros and cons of an AI specific regulator expanded antitrust
enforcement and alternative strategies for dealing with the
labor-market impacts of AI including universal basic income and
guaranteed employment
httppapersnberorgpapersW24689utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Economic Policy for Artificial Intelligence
by Ajay K Agrawal Joshua S Gans Avi Goldfarb - 24690 (PR)
Abstract
Recent progress in artificial intelligence (AI) - a general
purpose technology affecting many industries - has been focused
on advances in machine learning which we recast as a
quality-adjusted drop in the price of prediction How will this
sharp drop in price impact society Policy will influence the
impact on two key dimensions diffusion and consequences
First in addition to subsidies and IP policy that will influence
the diffusion of AI in ways similar to their effect on other
technologies three policy categories - privacy trade and
liability - may be uniquely salient in their influence on the
diffusion patterns of AI Second labor and antitrust policies
will influence the consequences of AI in terms of employment
inequality and competition
httppapersnberorgpapersW24690utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Missing Profits of Nations
by Thomas R Torslov Ludvig S Wier Gabriel Zucman - 24701 (CF IFM ITI PE)
Abstract
By combining new macroeconomic statistics on the activities of
multinational companies with the national accounts of tax havens
and the worlds other countries we estimate that close to 40 of
multinational profits are shifted to low-tax countries each year
Profit shifting is highest among US multinationals the tax
revenue losses are highest for the European Union and developing
countries We show theoretically and empirically that in the
current international tax system tax authorities of high-tax
countries do not have incentives to combat profit shifting to tax
havens They instead focus their enforcement effort on
relocating profits booked in other high-tax countries--in effect
stealing revenue from each other This policy failure can
explain the persistence of profit shifting to low-tax countries
despite the high costs involved for high-tax countries We
provide a new cross-country database of GDP corporate profits
trade balances and factor shares corrected for profit shifting
showing that the global rise of the corporate capital share is
significantly under-estimated
httppapersnberorgpapersW24701utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Global Financial Cycles and Risk Premiums
by Oscar Jorda Moritz Schularick Alan M Taylor Felix Ward - 24677 (AP DAE IFM ME)
Abstract
This paper studies the synchronization of financial cycles across
17 advanced economies over the past 150 years The comovement in
credit house prices and equity prices has reached historical
highs in the past three decades The sharp increase in the
comovement of global equity markets is particularly notable We
demonstrate that fluctuations in risk premiums and not risk-free
rates and dividends account for a large part of the observed
equity price synchronization after 1990 We also show that US
monetary policy has come to play an important role as a source of
fluctuations in risk appetite across global equity markets
These fluctuations are transmitted across both fixed and floating
exchange rate regimes but the effects are more muted in floating
rate regimes
httppapersnberorgpapersW24677utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Geography of Linguistic Diversity and the Provision of Public Goods
by Klaus Desmet Joseph Gomes Ignacio Ortunyo-Ortin - 24694 (PE POL)
Abstract
This paper analyzes the importance of local interaction between
individuals of different linguistic groups for the provision of
public goods at the national level The micro-founded conceptual
framework we develop predicts that a countrys public goods (i)
decrease in its overall linguistic fractionalization and (ii)
either increase or decrease in its local learning multiplier a
measure of how local interaction affects antagonism towards other
groups in the society at large After constructing a 5 km by 5
km dataset on language use for 223 countries we empirically
explore these theoretical predictions While overall
fractionalization worsens public goods outcomes we find a
positive causal effect of local learning Conditional on a
countrys overall diversity public goods outcomes are maximized
when there are a few large-sized groups and the diversity of each
location mirrors that of the country as a whole Our large-scale
study spanning the entire globe confirms experimental
micro-evidence in favor of contact theory
httppapersnberorgpapersW24694utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Misfits in the Car Industry Offshore Assembly
Decisions at the Variety Level CEPR Discussion Paper No DP12940
39 Pages Posted 21 May 2018
Keith Head University of British Columbia (UBC) - Division of Strategy and Business Economics
Thierry Mayer Sciences Po
Date Written May 2018
Abstract
This paper estimates the role of countryvariety comparative advantage in the decision to
offshore assembly of more than 2000 models of 197 car brands headquartered in 23
countries While offshoring in the car industry has risen from 2000 to 2016 the top five
offshoring brands account for half the car assembly relocated to low-wage countries We show
that the decision to offshore a particular car model depends on two types of cost
(dis)advantage of the home country relative to foreign locations The first type the assembly
costs common to all models is estimated via a structural triadic gravity equation The second
effect model-level comparative advantage is an interaction between proxies for the models
skill and capital intensity and headquarter countrys abundance in these factors
Keywords cars Gravity offshoring
JEL Classification F1
Global Crises and Populism The Role of Eurozone
Institutions CEPR Discussion Paper No DP12944
46 Pages Posted 21 May 2018
Luigi Guiso Einaudi Institute for Economics and Finance (EIEF)
Helios Herrera University of Warwick
Massimo Morelli Bocconi University
Tommaso Sonno Catholic University of Louvain (UCL) London School of Economics amp Political Science (LSE) - Centre for
Economic Performance (CEP)
Date Written May 2018
Abstract
Populist parties are likely to gain consensus when mainstream parties and status quo
institutions fail to manage the shocks faced by their economies Institutional constraints
which limit the possible actions in the face of shocks result in poorer performance and
frustration among voters who turn to populist movements We rely on this logic to explain the
different support of populist parties among European countries in response to the
globalization shock and to the 2008-2011 - financial and sovereign debt crisis We predict a
greater success of populist parties in response to these shocks in Euro zone countries and our
empirical analysis confirms this prediction This is consistent with voters frustration for the
greater inability of the Euro zone governments to react to di cult-to-manage globalization
shocks and financial crises Our evidence has implications for the speed of construction of
political unions A slow staged process of political unification can expose the EU to a risk of
political backlash if hard to manage shocks hit the economies during the integration process
Keywords Financial Dependence Frustration Globalization populism Relocation
JEL Classification D72 D78 F14 F16
Currency Unions Trade and Heterogeneity CEPR Discussion Paper No DP12954
50 Pages Posted 31 May 2018
Natalie Chen University of Warwick - Department of Economics Centre for Economic Policy Research (CEPR)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
Date Written May 2018
Abstract
How do trade costs affect international trade This paper offers a new approach We rely on a
flexible gravity equation that predicts variable trade cost elasticities both across and within
country pairs We apply this framework to the effect of currency unions on international
trade While we estimate that currency unions are associated with a trade increase of around
38 percent on average we find substantial underlying heterogeneity Consistent with the
predictions of our framework we find effects around three times as strong for country pairs
associated with small import shares and a zero effect for large import shares Our results
imply that conventional homogeneous currency union estimates do not provide helpful
guidance for countries considering to join a currency union Instead countries need to take
into account the distribution of their trade shares to assess the impact of trade costs
Keywords Currency Unions euro Gravity Heterogeneity Trade Costs Trade Elasticity
Translog
JEL Classification F14 F15 F33
Fiscal Multipliers and Foreign Holdings of Public Debt CEPR Discussion Paper No DP12960
76 Pages Posted 5 Jun 2018
Fernando Broner CREI Barcelona GSE Universitat Pompeu Fabra CEPR
Daragh Clancy European Stability Mechanism
Aitor Erce European Stability Mechanism Banco de Espantildea - Associate Directorate General International Affairs
Alberto Martin Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) Centre for Economic
Policy Research (CEPR)
There are 2 versions of this paper
Date Written May 2018
Abstract
This paper explores a natural connection between fiscal multipliers and foreign holdings of
public debt Although fiscal expansions can raise domestic economic activity through various
channels they can also have crowding-out effects if the resources used to acquire public debt
reduce domestic consumption and investment Thus these crowding-out effects are likely to
be weaker when public debt is purchased by foreigners We test this hypothesis on (i) post-
war US data and (ii) data for a panel of 17 advanced economies from the 1980s to the
present To do so we assemble a novel database of public debt holdings by domestic and
foreign creditors for a large set of advanced economies We combine this data with standard
measures of fiscal policy shocks and show that indeed the size of fiscal multipliers is
increasing in the share of public debt held by foreigners In particular the fiscal multiplier is
smaller than one when the foreign share is low such as in the US in the 1950s and 1960s
and Japan today and larger than one when the foreign share is high such as in the US and
Ireland today
Keywords Fiscal Multiplier Foreign Holdings of Public Debt Sovereign debt
JEL Classification E62 F32 F34 F36 F41 F62 F65 G15 H63
Refugee Resettlement Redistribution and Growth CESifo Working Paper Series No 6961
26 Pages Posted 30 May 2018
Leonid V Azarnert Ariel University Center
Date Written April 09 2018
Abstract
This paper studies the effect of refugee resettlement on human capital accumulation The
analysis is performed in a growth model with endogenous fertility I show how refugee
resettlement from a more advanced and wealthier economy to a less advanced and less
wealthy economy combined with income transfers is Pareto-improving for indigenous
populations in both countries I also derive conditions for the proposed resettlement policy to
stimulate human capital accumulation and hence economic growth in both economies
Keywords refugee resettlement fertility human capital growth
JEL Classification D300 F220 J100 O100
The Impact of Trade Liberalization on Firm Productivity and Innovation
by Pian Shu Claudia Steinwender - 24715 (ITI PR)
Abstract
This chapter reviews the empirical economics literature on the
impact of trade liberalization on firms innovation-related
outcomes We define and examine four types of shocks to trade
flows import competition export opportunities access to
imported intermediates and foreign input competition Our
review reveals interesting heterogeneities at the country and
firm levels In emerging countries trade liberalization appears
to spur productivity and innovation In developed countries
export opportunities and access to imported intermediates tend to
encourage innovation but the evidence on import competition is
mixed especially for firms in the United States At the firm
level the positive effects of trade on innovation are more
pronounced at the initially more productive firms while the
negative effects are more pronounced at the initially less
productive firms
httppapersnberorgpapersW24715utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The IT Revolution and the Globalization of RampD
by Lee G Branstetter Britta M Glennon J Bradford Jensen - 24707 (ITI PR)
Abstract
Since the 1990s RampD has become less geographically concentrated
and has seen especially fast growth in emerging markets One of
the distinguishing features of the RampD globalization phenomenon
is its concentration within the softwareIT domain the increase
in foreign RampD has been largely concentrated within software and
IT-intensive multinationals and new RampD destinations are also
more software and IT-intensive multinationals than traditional
RampD destinations In this paper we document three important
phenomena (1) the globalization of RampD (2) the growing
importance of software and IT to firm innovation and (3) the
rise of new RampD hubs We argue that the shortage in
softwareIT-related human capital resulting from the large IT-
and software-biased shift in innovation drove US MNCs abroad and
particularly drove them abroad to new hubs with large
quantities of STEM workers who possessed IT and software skills
Our findings support the view that the globalization of US
multinational RampD has reinforced the technological leadership of
US-based firms in the information technology domain and that
multinationals ability to access a global talent base could
support a high rate of innovation even in the presence of the
rising (human) resource cost of frontier RampD
httppapersnberorgpapersW24707utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Global Financial Cycles and Risk Premiums CEPR Discussion Paper No DP12969
60 Pages Posted 5 Jun 2018
Ogravescar Jordagrave Federal Reserve Banks - Federal Reserve Bank of San Francisco
Moritz Schularick University of Bonn - Department of Economics Centre for Economic Policy Research (CEPR)
Alan M Taylor University of California Davis - Department of Economics University of Virginia - Department of
Economics National Bureau of Economic Research (NBER) Centre for Economic Policy Research (CEPR)
Felix Ward Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics
There are 2 versions of this paper
Date Written June 2018
Abstract
This paper studies the synchronization of financial cycles across 17 advanced economies over
the past 150 years The comovement in credit house prices and equity prices has reached
historical highs in the past three decades The sharp increase in the comovement of global
equity markets is particularly notable We demonstrate that fluctuations in risk premiums
and not risk-free rates and dividends account for a large part of the observed equity price
synchronization after 1990 We also show that US monetary policy has come to play an
important role as a source of fluctuations in risk appetite across global equity markets These
fluctuations are transmitted across both fixed and floating exchange rate regimes but the
effects are more muted in floating rate regimes
Keywords asset prices equity return premium financial centers financial cycles policy
spillovers
JEL Classification E50 F33 F42 F44 G12 N10 N20
Automation and Unemployment Help is on the Way CEPR Discussion Paper No DP12974
32 Pages Posted 11 Jun 2018
Hideki Nakamura Osaka City University
Joseph Zeira Hebrew University of Jerusalem - Department of Economics Centre for Economic Policy Research (CEPR)
LUISS Guido Carli DPTEA
Date Written June 2018
Abstract
This paper presents a model of technical change that combines two lines of research together
It is a task based model in which automation turns labor tasks to mechanized ones and there
is also a continuous addition of new labor tasks as in the expanding variety literature We
impose three simple restrictions on the model The first is that all new tasks are adopted The
second is that all new automation innovations are adopted and the third is that the share of
labor does not converge to zero in the long run We show that these restrictions imply that
unemployment due to automation is expected to converge to zero over time
Keywords automation growth Labor Income Share technical change unemployment
JEL Classification J64 O14 O30 O40
Sovereign Default in a Monetary Union CEPR Discussion Paper No DP12976
56 Pages Posted 11 Jun 2018
Sergio de Ferra Stockholm University
Federica Romei LUISS Guido Carli University
Date Written June 2018
Abstract
In the aftermath of the global fi nancial crisis sovereign default risk and the zero lower bound
have limited the ability of policy-makers in the European monetary union to achieve their
stabilization objective This paper investigates the interaction between sovereign default risk
and the conduct of monetary policy when borrowers can act strategically and they share with
their lenders a single currency in a monetary union We address this question in an
endogenous sovereign default model of heterogeneous countries in a monetary union where
the monetary authority may be constrained by the zero lower bound We uncover three main
results First in normal times debtors have a stronger incentive to default to induce more
expansionary monetary policy Second the zero lower bound or constraints on monetary
policy may act as a disciplining device to enforce repayment of sovereign debt Third
sovereign default risk induces countries with a preference for tight monetary policy to accept
a laxer policy stance These results help to shed light on the recent European experience of
high default risk expansionary monetary policy and low nominal interest rates
Keywords Heterogeneous Countries monetary union sovereign default zero lower bound
JEL Classification F34 F42 F45 H63
Evolution of Modern Business Cycle Models Accounting for the Great Recession
by Patrick J Kehoe Virgiliu Midrigan Elena Pastorino - 24741 (EFG IFM LS ME)
Abstract
Modern business cycle theory focuses on the study of dynamic
stochastic general equilibrium models that generate aggregate
fluctuations similar to those experienced by actual economies
We discuss how this theory has evolved from its roots in the
early real business cycle models of the late 1970s through the
turmoil of the Great Recession four decades later We document
the strikingly different pattern of comovements of macro
aggregates during the Great Recession compared to other postwar
recessions especially the 1982 recession We then show how two
versions of the latest generation of real business cycle models
can account respectively for the aggregate and the
cross-regional fluctuations observed in the Great Recession in
the United States
httppapersnberorgpapersW24741utm_campaign=ntwamputm_medium=emailamputm_source=ntw
What Happened Financial Factors in the Great Recession
by Mark Gertler Simon Gilchrist - 24746 (EFG ME)
Abstract
Since the onset of the Great Recession an explosion of both
theoretical and empirical research has investigated how the
financial crisis emerged and how it was transmitted to the real
sector The goal of this paper is to describe what we have
learned from this new research and how it can be used to
understand what happened during the Great Recession In the
process we also present some new evidence on the role of the
household balance sheet channel versus the disruption of banking
We examine a panel of quarterly state level data on house
prices mortgage debt and employment along with a measure of
banking distress Then exploiting both panel data and time
series methods we analyze the contribution of the house price
decline versus the banking distress indicator to the overall
decline in employment during the Great Recession We confirm a
common finding in the literature that the household balance sheet
channel is important for regional variation in employment
However we also find that the disruption in banking was central
to the overall employment contraction
httppapersnberorgpapersW24746utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Changing Structure of Immigration to the OECD
What Welfare Effects on Member Countries CESifo Working Paper Series No 6992
40 Pages Posted 27 Jun 2018
Michał Burzyński Universite du Luxembourg
Freacutedeacuteric Docquier Universiteacute catholique de Louvain CREAM Centre for Research on Environmental Appraisal amp Management
UK IZA Institute of Labor Economics
Hillel Rapoport Paris School of Economics (PSE)
Date Written April 24 2018
Abstract
We investigate the welfare implications of two pre-crisis immigration waves (1991ndash2000 and
2001ndash2010) and of the post-crisis wave (2011ndash2015) for OECD native citizens To do so we
develop a general equilibrium model that accounts for the main channels of transmission of
immigration shocks ndash the employment and wage effects the fiscal effect and the market size
effect ndash and for the interactions between them We parameterize our model for 20 selected
OECD member states We find that the three waves induce positive effects on the real income
of natives however the size of these gains varies considerably across countries and across
skill groups In relative terms the post-crisis wave induces smaller welfare gains compared to
the previous ones This is due to the changing origin mix of immigrants which translates into
lower levels of human capital and smaller fiscal gains However differences across cohorts
explain a tiny fraction of the highly persistent cross-country heterogeneity in the economic
benefits from immigration
Keywords immigration welfare crisis inequality general equilibrium
JEL Classification C680 F220 J240
Anatomy and Impact of Export Promotion Agencies World Bank Policy Research Working Paper No 8470
19 Pages Posted 11 Jun 2018
Marcio Cruz World Bank Federal University of Parana (UFPR) - Departamento de Economia
Daniel Lederman World Bank - Latin America and Caribbean Region
Laura Zoratto World Bank
Date Written June 7 2018
Abstract
Recent literature has shown evidence of positive contributions of export promotion agencies
around the world in raising exports through the intensive and extensive margins of trade The
number of export promotion agencies has increased substantially over the past two decades
and most of them focus on assisting exporters in understanding and finding markets for their
products This paper describes the characteristics of export promotion agencies around the
world using a novel database from the World Bank in collaboration with the International
Trade Center in Geneva covering 2005-10 In addition it presents a short summary of the
literature on the impacts of export promotion agencies
Keywords Export Competitiveness International Trade and Trade Rules Rules of Origin
Trade Policy Trade and Multilateral Issues Trade and Services
Optimal Inflation and the Identification of the Phillips
Curve CEPR Discussion Paper No DP12981
29 Pages Posted 11 Jun 2018
Michael McLeay Bank of England - Monetary Assessment and Strategy Division
Silvana Tenreyro London School of Economics (LSE)
Date Written June 2018
Abstract
This paper explains why inflation follows a seemingly exogenous statistical process unrelated
to the output gap In other words it explains why it is difficult to empirically identify a Phillips
curve We show why this result need not imply that the Phillips curve does not hold -- on the
contrary our conceptual framework is built under the assumption that the Phillips curve
always holds The reason is simple if monetary policy is set with the goal of minimising
welfare losses (measured as the sum of deviations of inflation from its target and output from
its potential) subject to a Phillips curve a central bank will seek to increase inflation when
output is below potential This targeting rule will impart a negative correlation between
inflation and the output gap blurring the identification of the (positively sloped) Phillips
curve
Keywords identification Inflation targeting Phillips curve
GVCs and the Endogenous Geography of RTAs CESifo Working Paper Series No 6980
43 Pages Posted 11 Jun 2018
Lionel Fontagne University of Paris 1 Pantheacuteon Sorbonne Paris School of Economics CEPII
Gianluca Santoni Centre dEtudes Prospectives et dInfo Internationales (CEPII)
Date Written April 19 2018
Abstract
Geography economic size or common history help predicting signed regional trade
agreements (RTAs) However not all signed RTAs are ldquonaturalrdquo according to economic
determinants En-dogeneity and general equilibrium effects of RTAS are the two mechanisms
addressed in this paper We estimate the time-varying probability for a country pair to sign a
trade agreement and build upon structural gravity in general equilibrium to determine how
the patterns of Global Value Chains shape the evolving geography of optimal RTAS Our results
confirm that the endogenous geography of RTAs is shaped by the development of GVCs
Keywords preferential trade agreements global value chains structural gravity
JEL Classification F130 F140 F150
Diversity and Growth CEPR Discussion Paper No DP13011
37 Pages Posted 26 Jun 2018
Mark Gradstein Ben-Gurion University of the Negev - Department of Economics CESifo (Center for Economic Studies and
Ifo Institute) Centre for Economic Policy Research (CEPR) World Bank - Development Research Group
(DECRG)
There are 2 versions of this paper
Date Written June 2018
Abstract
The diversity of social interaction within economic communities affects productivity and
growth and is itself shaped by economic conditions These reciprocal effects raise the
possibility of multiple equilibria of setting a socially polarized economy stagnating in poverty
on a new path of social integration and economic growth through external intervention or an
internal political initiative This paper describes a simple analytical model that captures these
reciprocal effects and sheds light on the role of government capacity community leadership
federation and external credit or aid in achieving economic growth through social integration
The Economics of Language CEPR Discussion Paper No DP13002
85 Pages Posted 26 Jun 2018
Victor Ginsburgh Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics
(ECARES)
Shlomo Weber Southern Methodist University (SMU) - Department of Economics New Economic School
Date Written June 2018
Abstract
The paper brings together methodological theoretical and empirical analysis into the single
framework of linguistic diversity It reflects both historical and contemporary research by
economists and other social scientists on the impact of language on economic outcomes and
public policies We examine whether and how language influences human thinking (including
emotions) and behavior analyze the effects of linguistic distances on trade migrations
financial markets language learning and its returns The quantitative foundations of linguistic
diversity which rely on group identification linguistic distances as well as fractionalization
polarization and disenfranchisement indices are discussed in terms of their empirical
challenges and uses We conclude with an analysis of linguistic policies and shifts of languages
and examine their welfare effects and the trade-offs between the development of labor
markets and the social costs that they generate in various countries
Financial and Fiscal Interaction in the Euro Area
Crisis This Time Was Different CEPR Discussion Paper No DP13016
39 Pages Posted 3 Jul 2018
Alberto Caruso Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics
(ECARES)
Lucrezia Reichlin London Business School Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in
Economics and Statistics (ECARES) Centre for Economic Policy Research (CEPR) European Central Bank
(ECB)
Giovanni Ricco University of Warwick - Department of Economics SciencesPo - OFCE
Date Written June 2018
Abstract
This paper highlights the anomalous characteristics of the Euro Area `twin crises by
contrasting the aggregate macroeconomic dynamics in the period 2009-2013 with the
business cycle fluctuations of the previous decades We report three stylised facts First the
contraction in output was marked by an anomalous downfall in investment while
consumption savings and unemployment followed their historical relation with GDP Second
households and financial corporations debts and house prices deviated from their pre-crisis
trends Third the jump in the public deficit-GDP ratio in 2008-2009 was unprecedented and
so was the fiscal consolidation that followed Our analysis points to the financial nature of the
crisis as a likely explanation for these facts Importantly the `anomaly in public deficit is in
large part explained by extraordinary measures in support of the financial sector which show
up in the stock-flow adjustments and reveal a key interaction between the fiscal and the
financial sectors
Keywords Euro Area Government Debt Recessions
JEL Classification C11 C32 C54 E52 E62 F45
The Shocks Matter Improving Our Estimates of
Exchange Rate Pass-Through CEPR Discussion Paper No DP13037
43 Pages Posted 9 Jul 2018
Kristin J Forbes Massachusetts Institute of Technology (MIT) - Sloan School of Management National Bureau of Economic
Research (NBER)
Ida Hjortsoe
Bank of England
Tsvetelina Nenova Bank of England
There are 4 versions of this paper
Date Written July 2018
Abstract
A major challenge for monetary policy is predicting how exchange rate movements will
impact inflation We propose a new focus directly incorporating the underlying shocks that
cause exchange rate fluctuations when evaluating how these fluctuations pass through to
import and consumer prices A standard open-economy model shows that the relationship
between exchange rates and prices depends on the shocks which cause the exchange rate to
move We build on this to develop a structural Vector Autoregression (SVAR) framework for a
small open economy and apply it to the UK We show that prices respond differently to
exchange rate movements based on what caused the movements For example exchange rate
pass-through is low in response to domestic demand shocks and relatively high in response to
domestic monetary policy shocks This framework can improve our ability to estimate how
pass-through can change over short periods of time For example it can explain why sterlings
post-crisis depreciation caused a sharper increase in prices than expected while the effect of
sterlings 2013-15 appreciation was more muted We also apply this framework to forecast
the extent of pass-through from sterlings sharp depreciation corresponding to the UKs vote
to leave the European Union
Keywords consumer prices exchange rate pass-through import prices inflation vector
autoregressions
JEL Classification E31 F3 F41
Why Has Economic Growth Slowed When Innovation
Appears to Be Accelerating CEPR Discussion Paper No DP13039
29 Pages Posted 9 Jul 2018
Robert J Gordon Northwestern University - Department of Economics National Bureau of Economic Research (NBER)
Centre for Economic Policy Research (CEPR)
There are 2 versions of this paper
Date Written July 2018
Abstract
U S economic growth slowed by more than half from 32 percent per year during 1970-2006
to only 14 percent during 2006-16 and this decline was divided equally between slower
growth in hours of work and slower growth in output per hour In explaining slower growth
in hours particular emphasis is placed on the slower secular rise of life expectancy in the US
compared to other developed countries Further contributions to slowing growth are made by
a decline in the population share of both legal and illegal immigration and a turnaround from
rising to declining labor force participation Causes of declining productivity growth begin
with the slowdown in the rate of increase of educational attainment Why did productivity
growth decline after 2006 despite an increase in the rate at which new US patents were
issued in 2006-16 compared to earlier decades Part of the slowdown is attributed to the
maturity of the IT revolution which also helps to explain the trajectory of the college wage
premium Aspects of the productivity growth slowdown include the declining productivity of
research workers diminishing returns to drug innovation and the evolutionary rather than
revolutionary impact of robots and artificial intelligence
Keywords Economic Growth Immigration Innovation labor force participation Mortality
productivity
JEL Classification D24 E24
On DSGE Models
by Lawrence J Christiano Martin S Eichenbaum Mathias Trabandt - 24811 (EFG ME)
Abstract
The outcome of any important macroeconomic policy change is the
net effect of forces operating on different parts of the economy
A central challenge facing policy makers is how to assess the
relative strength of those forces Dynamic Stochastic General
Equilibrium (DSGE) models are the leading framework that
macroeconomists have for dealing with this challenge in an open
and transparent manner This paper reviews the state of DSGE
models before the financial crisis and how DSGE modelers
responded to the crisis and its aftermath In addition we
discuss the role of DSGE models in the policy process
httppapersnberorgpapersW24811utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Currency Wars Unconventional Monetary Policy Does Not Stimulate Exports
by Andrew K Rose - 24817 (IFM ITI)
Abstract
I investigate whether countries that use unconventional monetary
policy (UMP) experience export booms I use a popular gravity
model of trade which requires neither the exogeneity of UMP nor
instrumental variables for UMP In practice countries that
engage in UMP experience a drop in exports vis-a-vis countries
that are not engaged in such policies holding other things
constant Quantitative easing is associated with exports that
are about 10 lower to countries not engaged in UMP this amount
is significantly different from zero and similar to the effect of
negative nominal interest rates Thus there is no evidence that
countries have gained export markets through unconventional
monetary policy currency wars that have been launched have also
been lost UMP is also associated with a comparable drop in
imports and exchange rates suggesting that countries engage in
UMP when they are experiencing adverse macroeconomic shocks
concurrent with those that eviscerate international trade
httppapersnberorgpapersW24817utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Granular Comparative Advantage
by Cecile Gaubert Oleg Itskhoki - 24807 (EFG IFM IO ITI)
Abstract
Large firms play a pivotal role in international trade shaping
the export patterns of countries We propose and quantify a
granular multi-sector model of trade which combines fundamental
comparative advantage across sectors with granular comparative
advantage embodied in outstanding individual firms We develop
an SMM-based estimation procedure which takes full account of
the general equilibrium of the model to jointly estimate these
fundamental and granular forces using French micro-data with
information on firm domestic and export sales across
manufacturing industries We find that granularity accounts for
about 20 of the variation in realized export intensity across
sectors and is more pronounced in the most export-intensive
sectors In turn idiosyncratic firm dynamics accounts for a
large share of the evolution of a countrys comparative advantage
over time Governments face strong incentives to target trade
policy at large individual foreign exporters and to use lenient
antitrust regulation at home to substitute for
beggar-thy-neighbor trade policy
httppapersnberorgpapersW24807utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The State of New Keynesian Economics A Partial Assessment
by Jordi Gali - 24845 (EFG ME)
Abstract
I provide an overview of recent developments in monetary
economics with an emphasis on extensions of the New Keynesian
framework that assume a zero lower bound on the short term
nominal rate as well as models with household heterogeneity
httppapersnberorgpapersW24845utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Artificial Intelligence Economics and Industrial Organization
by Hal Varian - 24839 (IO PR)
Abstract
Machine learning (ML) and artificial intelligence (AI) have been
around for many years However in the last 5 years remarkable
progress has been made using multilayered neural networks in
diverse areas such as image recognition speech recognition and
machine translation AI is a general purpose technology that is
likely to impact many industries In this chapter I consider how
machine learning availability might affect the industrial
organization of both firms that provide AI services and
industries that adopt AI technology My intent is not to
provide an extensive overview of this rapidly-evolving area but
instead to provide a short summary of some of the forces at work
and to describe some possible areas for future research
httppapersnberorgpapersW24839utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Twenty Five Years of Global Imbalances CEPR Discussion Paper No DP13066
20 Pages Posted 24 Jul 2018
Maurice Obstfeld International Monetary Fund (IMF)
Date Written July 2018
Abstract
As international capital markets expanded in breadth and depth after the middle 1990s
global current account imbalances also expanded markedly Some have linked the origin of
the subsequent Global Financial Crisis (GFC) to these global imbalances This essay proposes
answers to four questions about the recent history of global imbalances Why did global
imbalances expand after the mid-1990s What circumstances and concomitant factors
provide clues about the origins of the GFC If one accepts that a mono-causal story about the
GFC based on global imbalances is inaccurate how should one view the potential threats from
excessive global imbalances today And finally what policy implications follow
Keywords current account global financial crisis (GFC) global imbalances IMF External
Sector Report
Is Automation Labor-Displacing Productivity Growth Employment and the Labor Share
by David Autor Anna Salomons - 24871 (EFG LS)
Abstract
Many technological innovations replace workers with machines but
this capital-labor substitution need not reduce aggregate labor
demand because it simultaneously induces four countervailing
responses own-industry output effects cross-industry
input-output effects between-industry shifts and final demand
effects We quantify these channels using four decades of
harmonized cross-country and industry data where we measure
automation as industry-level movements in total factor
productivity (TFP) that are common across countries We find
that automation displaces employment and reduces labors share of
value-added in the industries in which it originates (a direct
effect) In the case of employment these own-industry losses
are reversed by indirect gains in customer industries and induced
increases in aggregate demand By contrast own-industry labor
share losses are not recouped elsewhere Our framework can
account for a substantial fraction of the reallocation of
employment across industries and the aggregate fall in the labor
share over the last three decades It does not however explain
why the labor share fell more rapidly during the 2000s
httppapersnberorgpapersW24871utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Dynamic Effects of Co-Ethnic Networks on
Immigrants Economic Success CESifo Working Paper Series No 7084
43 Pages Posted 21 Jul 2018
Michele Battisti University of Palermo LUISS Guido Carli University
Giovanni Peri University of California Davis - Department of Economics
Agnese Romiti Government of the Federal Republic of Germany - Institute for Employment Research (IAB)
Date Written June 06 2018
Abstract
This paper investigates how the size of co-ethnic networks at the time of arrival affect the
economic success of immigrants in Germany Applying panel analysis with a large set of fixed
effects and controls we isolate the association between initial network size and long-run
immigrant outcomes We also look at those who were assigned to an initial location
independently of their choice allows a causal interpretation of our estimates We find that
immigrants initially located in places with larger co-ethnic networks are more likely to be
employed at first but have a lower probability of investing in human capital
Keywords networks immigration human capital employment
JEL Classification J240 J610 R230
Immigrant Artists Enrichment or Displacement CEPR Discussion Paper No DP13070
36 Pages Posted 31 Jul 2018
Karol Borowiecki University of Southern Denmark
Kathryn Graddy Brandeis University - Department of Economics
Date Written July 2018
Abstract
In order to investigate the role of immigrant artists on the development of artistic clusters in
US cities we use the US Census and American Community Survey collected every 10 years
since 1850 We identify artists and art teachers authors musicians and music teachers actors
and actresses architects and journalists their geographical location and their status as a
native or an immigrant We look at the relative growth rate of the immigrant population in
these occupations over a ten year period and how it affects the relative growth rate of native-
born individuals in these artistic occupations We find that cities that experienced immigrant
artist inflows also see a greater inflow of native artists
Keywords artistic occupations artists Immigration
JEL Classification J4 J6 N3 N9 Z1
Global Value Chains and Inequality with Endogenous Labor Supply
by Eunhee Lee Kei-Mu Yi - 24884 (ITI)
Abstract
We assess the role of global value chains in transmitting global
integration shocks to aggregate trade as well as distributional
outcomes We develop a multi-country general equilibrium trade
model that features multi-stage production with different stages
having different productivities and using factors (occupations)
with different intensities The model also features a Roy
mechanism in which heterogeneous workers endogenously choose
their sector and occupation Country- and worker-level
comparative advantages interact A reduction in trade costs
leads to countries specializing in their comparative advantage
sectors and production stages This specialization changes labor
demand and also leads to more workers shifting to their
comparative advantage sectors and occupations We calibrate our
model to the US China and the rest of the world in 2000 and
we simulate a decline in Chinas trade costs with the US
designed to mimic Chinas entry into the WTO Our simulation
results imply an increase in the skill premium in both the US
and China and the GVC ie specialization across stages is
critical to this outcome
httppapersnberorgpapersW24884utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Friedman and Phelps on the Phillips Curve Viewed from a Half Centurys Perspective
by Robert J Gordon - 24891 (EFG)
Abstract
In the late 1960s the stable negatively sloped Phillips Curve
(PC) was overturned by the Friedman-Phelps natural rate model
Their PC was vertical in the long run at the natural unemployment
rate and their short-run curve shifted up whenever unemployment
was pushed below the natural rate This paper criticizes the
underlying assumption of the Friedman-Phelps approach that the
labor market continuously clears and that changes in unemployment
down or up occur only in response to fooling of workers firms
or both A preferable and resolutely Keynesian approach
explains quantity rationing by inertia in price and wage setting
The positive correlation of inflation and unemployment in the
1970s and again in the 1990s is explained by joining the
negatively sloped Phillips Curve with a positively sloped dynamic
demand curve For any given growth of nominal GDP higher
inflation caused by adverse supply shocks implies slower real GDP
growth and higher unemployment This triangle model based on
inflation inertia demand and supply worked well to explain why
inflation and unemployment were both positively and negatively
correlated between the 1960s and 1990s but in the past decade
the slope of the short-run Phillips Curve has flattened as
inflation exhibited a muted response to high unemployment in
2009-13 and low unemployment in 2016-2018 It remains to be
seen whether a continuation of low unemployment will cause a
modest and fixed extra amount of inflation thus reviving the
stable Phillips curve of the early 1960s or whether inflation
will continuously accelerate as Friedman and Phelps would have
predicted
httppapersnberorgpapersW24891utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Tax Policy Measures in Advanced and Emerging
Economies A Novel Database IMF Working Paper No 18110
61 Pages Posted 1 Aug 2018
David Amaglobeli International Monetary Fund (IMF)
Valerio Crispolti International Monetary Fund (IMF)
Era Dabla-Norris International Monetary Fund (IMF)
Pooja Karnane International Monetary Fund (IMF)
Florian Misch International Monetary Fund (IMF)
Date Written May 2018
Abstract
This paper describes a new comprehensive database of tax policy measures in 23 advanced
and emerging market economies over the last four decades We extract this information from
more than 900 OECD Economic Surveys and 37000 tax-related news from the International
Bureau of Fiscal Documentation using text-mining techniques The innovation of this dataset
lies in its granularity changes in the rates and bases of personal and corporate income taxes
value added and sale taxes social security contributions excise and property taxes are
systematically documented In addition the database provides information on the
announcement and implementation dates whether the measures represent major changes
are part of a broader tax package and phased in over several years The paper also presents a
range of stylized facts suggesting that information from this database is useful to deepen the
analysis of tax policy changes for research and policy purposes
Keywords Tax policy Tax reforms Personal income taxes Corporate income taxes Value
added taxes Sales taxes Excise taxes Property taxes Developed countries Emerging markets
Tax Reforms Text Mining Tax Policy Implementation Lags Tax Reforms Text Mining Tax
Policy Implementation Lags Methodology for Collecting Estimating and Organizing
Macroeconomic Data General
JEL Classification C82 E61 H20 P16
Inequality Aversion Populism and the Backlash
Against Globalization CEPR Discussion Paper No DP13107
69 Pages Posted 21 Aug 2018
Lubos Pastor University of Chicago - Booth School of Business Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
Pietro Veronesi
University of Chicago - Booth School of Business Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
There are 3 versions of this paper
Date Written August 2018
Abstract
Motivated by the recent rise of populism in western democracies we develop a model in
which a populist backlash emerges endogenously in a growing economy In the model voters
dislike inequality especially the high consumption of the ``elites Economic growth
exacerbates inequality due to heterogeneity in risk aversion In response to rising inequality
rich-country voters optimally elect a populist promising to end globalization Redistribution is
of limited value in containing the backlash against globalization Countries with more
inequality higher financial development and current account deficits are more vulnerable to
populism both in the model and in the data Evidence on who voted for Brexit and Trump in
2016 also largely supports the model
Keywords Brexit Globalization inequality populism risk aversion Trump
JEL Classification D72 F65 G11 G12 G18 P16
Underemployment in the US and Europe
by David NF Bell David G Blanchflower - 24927 (IFM LS ME)
Abstract
Large numbers of part-time workers around the world both those
who choose to be part-time and those who are there involuntarily
and would prefer a full-time job report they want more hours
Full-timers who say they want to change their hours mostly say
they want to reduce them When recession hit in most countries
the number of hours of those who said they wanted more hours
rose sharply and there was a fall in the number of hours that
full-timers wanted their hours reduced by Even though the
unemployment rate has returned to its pre-recession levels in
many advanced countries underemployment in most has not
We produce estimates for a new and better underemployment rate
for twenty-five European countries In most underemployment
remains elevated We provide evidence for the UK and the US as
well as some international evidence that underemployment rather
than unemployment lowers pay in the years after the Great
Recession We also find evidence for the US that falls in the
home ownership rate have helped to keep wage pressure in check
Underemployment replaces unemployment as the main influence on
wages in the years since the Great Recession
httppapersnberorgpapersW24927utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Does Machine Translation Affect International Trade Evidence from a Large Digital Platform
by Erik Brynjolfsson Xiang Hui Meng Liu - 24917 (IO ITI PR)
Abstract
Artificial intelligence (AI) is surpassing human performance in a
growing number of domains However there is limited evidence of
its economic effects Using data from a digital platform we
study a key application of AI machine translation We find
that the introduction of a machine translation system has
significantly increased international trade on this platform
increasing exports by 175 Furthermore heterogeneous
treatment effects are all consistent with a substantial reduction
in translation-related search costs Our results provide causal
evidence that language barriers significantly hinder trade and
that AI has already begun to improve economic efficiency in at
least one domain
httppapersnberorgpapersW24917utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The US Personal Saving Rate IMF Working Paper No 18128
35 Pages Posted 1 Aug 2018
Sam Ouliaris International Monetary Fund (IMF)
Celine Rochon University of Oxford IMF
Date Written June 2018
Abstract
This paper develops a time series model for aggregate consumption to predict the US
personal saving rate It then uses the model to test whether there has been a structural break
in consumption behavior because of the 2008 financial crisis Before the crisis the personal
saving rate was trending downwards However in 2008 there was a significant rise in the
saving rate that continued until the end of 2012 suggesting a permanent change in household
behavior To assess this issue formally the unknown parameters of the model are estimated
using data for 1961Q1-2007Q4 a period which precedes the crisis The model is then used to
predict the saving rate from 2008Q1 onwards and to assess whether the rise in the saving rate
after 2008 was due to sizable but transitory incomewealth shocks or to changes in the
underlying elasticities between saving and its determinants (hence structural) The statistical
evidence suggests there was no structural break in the household saving behavior implying
that the rise in the saving rate during 2008-2012 was caused by the negative shocks to
income employment and wealth This result explains why the saving rate resumed its decline
in 2013 as real disposable income employment and net worth recovered Assuming that the
real growth in these determinants remains strong the estimated model predicts continued
negative pressures on the current account deficit and further external imbalances attributable
to the US household sector
Keywords United States Western Hemisphere consumption behavior personal saving rate
vector error-correction model structural break Consumer Economics Empirical Analysis
Personal Finance Forecasting and Simulation
JEL Classification D12 D14 E21 E27
Currency Unions Trade and Heterogeneity CESifo Working Paper Series No 7123
49 Pages Posted 24 Aug 2018
Natalie Chen University of Warwick - Department of Economics Centre for Economic Policy Research (CEPR)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
There are 2 versions of this paper
Date Written June 28 2018
Abstract
How do trade costs affect international trade This paper offers a new approach We rely on a
flexible gravity equation that predicts variable trade cost elasticities both across and within
country pairs We apply this framework to the effect of currency unions on international
trade While we estimate that currency unions are associated with a trade increase of around
38 percent on average we find substantial underlying heterogeneity Consistent with the
predictions of our framework we find effects around three times as strong for country pairs
associated with small import shares and a zero effect for large import shares Our results
imply that conventional homogeneous currency union estimates do not provide helpful
guidance for countries considering to join a currency union Instead countries need to take
into account the distribution of their trade shares to assess the impact of trade costs
Keywords currency unions euro gravity heterogeneity trade costs trade elasticity translog
JEL Classification F140 F150 F330
How Do Migration and Remittances Affect Inequality
A Case Study of Mexico IMF Working Paper No 18136
22 Pages Posted 1 Aug 2018
Zsoka Koczan International Monetary Fund (IMF)
Franz Loyola International Monetary Fund (IMF)
Date Written June 2018
Abstract
The poverty-reducing effects of remittances have been well-documented however their
effects on inequality are less clear This paper examines the impact of remittances on
inequality in Mexico using household-level information on the receiving side It hopes to
speak to their insurance role by examining how remittances are affected by domestic and
external crises the 1994 Mexican Peso crisis and the Global Financial Crisis We find that
remittances lower inequality and that they become more pro-poor over time as migration
opportunities become more widespread This also strengthens their insurance effects
mitigating some of the negative impact of shocks on the poorest
Keywords Migration Remittances Financial crises Income inequality Income distribution
Poverty reduction inequality Firm Behavior International Lending and Debt Problems
JEL Classification D21 F32 F34 J61 D31 F22 F24
Exchange Rate Forecasting on a Napkin
ECB Working Paper No 2151
Contact MICHELE CAZORZI
European Central Bank (ECB)
Email michelecazorziecbint
Auth-Page httpsssrncomauthor=343031
Co-Author MICHAŁ RUBASZEK
National Bank of Poland Warsaw
School of Economics (SGH)
Email michalrubaszeknbppl
Auth-Page httpsssrncomauthor=850188
Full Text httpsssrncomabstract=3183690
ABSTRACT This paper shows that there are two regularities in
foreign exchange markets in advanced countries with flexible
regimes First real exchange rates are mean-reverting as
implied by the Purchasing Power Parity model Second the
adjustment takes place via nominal exchange rates These features
of the data can be exploited even on the back of a napkin to
generate nominal exchange rate forecasts that outperform the
random walk The secret is to avoid estimating the pace of mean
reversion and assume that relative prices are unchanged Direct
forecasting or panel data techniques are better than the random
walk but fail to beat this simple calibrated model
______________________________
Home Sweet Home The Effect of Sugar Protectionism
on Emigration in Italy 1876-1913 CEIS Working Paper No 437
49 Pages Posted 29 Jun 2018
Carlo Ciccarelli University of Rome Tor Vergata - Faculty of Economics
Alberto Dalmazzo University of Siena - Department of Economics
Daniela Vuri University of Rome Tor Vergata IZA Institute of Labor Economics CESifo (Center for Economic Studies and
Ifo Institute for Economic Research)
Date Written June 8 2018
Abstract
Protectionist policies are often considered or even implemented as a reaction to increasing
globalization This is not new in history This paper uses the introduction of import duties on
sugar in the late nineteenth century Italy to measure the impact of protectionism on migration
out flows at the time of the fi
rst globalization Both for climate reasons and the nature of the soil the cultivation and
processing of sugar beets was geographically concentrated in a small area leading de facto to
a regional protectionist policy Our theoretical model illustrates how a tariff that favours local
producers may affect residents incentives to migrate abroad The predictions of the model
are tested with the synthetic control method which uses the variation in sugar cultivation
across areas to estimate the effect of interest Our results show that protectionism effectively
reduced the relative incentive to migrate away from sugar-producing areas
Keywords protectionism regional economics migrations 19th century Italy
JEL Classification N93 J4 C23
Integrating Services in the Economic Fitness
Approach World Bank Policy Research Working Paper No 8485
35 Pages Posted 28 Aug 2018
Andrea Zaccaria Sapienza University of Rome
Saurabh Mishra International Monetary Fund (IMF)
Masud Z Cader World Bank - International Finance Corporation (IFC)
Luciano Pietronero Sapienza University of Rome
Date Written June 21 2018
Abstract
Economic Complexity is a set of network-based and algorithmic methods for the study of
economic development and competitiveness In this framework Economic Fitness is an
innovative approach that improves the mathematical and conceptual scheme For
convenience these methods were originally conceived on trade in goods This paper extends
the Economic Fitness methodology to include a trade in services element to yield a universal
matrix of world trade and thus provide a more complete picture of a countrys development
and global competitiveness The paper applies two algorithms to the universal trade in goods
and services matrix to contrast country competitiveness and change in complexity and
diversification when services are added to the traditional goods-only matrix The results show
that (i) the competitiveness of many countries was previously over- or underestimated that
is many countries gain or lose positions in the ranking of economic fitness when services
trade is considered alongside goods and (ii) complex services tend to cluster with complex
manufacturing suggesting a common capabilities structure These findings show how
developing complex services aids diversification strategies for developing countries
Keywords International Trade and Trade Rules Common Carriers Industry Food amp
Beverage Industry Business Cycles and Stabilization Policies Plastics amp Rubber Industry
Construction Industry General Manufacturing Textiles Apparel amp Leather Industry Pulp amp
Paper Industry Trade and Services Macroeconomic Management ICT Applications
Deep Trade Agreements and Global Value Chains World Bank Policy Research Working Paper No 8491
39 Pages Posted 28 Aug 2018
Edith Laget World Bank
Alberto Osnago World Bank
Nadia Rocha World Trade Organization
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Date Written June 25 2018
Abstract
Preferential trade agreements have become deeper over time often encompassing policy
areas that go beyond traditional trade policy such as investment competition and intellectual
property rights protection In the literature a prominent argument why countries sign deep
agreements is to promote and facilitate the operation of global value chains This paper
exploits a new data set on the content of trade agreements and data on trade in value added
and in parts and components to quantify the impact of the depth of trade agreements on
bilateral cross-border production linkages The results show that adding a policy area to a
trade agreement increases the domestic value added of intermediates (forward global value
chain linkages) and the foreign value added of intermediates (backward global value chain
linkages) by 048 and 038 percent respectively At the sectoral level the positive impact of
deep trade agreements is higher for higher value-added industries suggesting that deep
agreements help countries to integrate in industries with higher levels of value added For a
larger sample of countries and years the results confirm that an additional provision in a
trade agreement increases bilateral trade in parts and components by 03 percent The
content of trade agreements also matters for global value chain integration but the impact
varies by income group Provisions outside the current mandate of the World Trade
Organization (investment and competition policy) drive the effect of trade agreements on
North-South trade in parts and components Provisions under the current World Trade
Organization mandate (tariff reduction and customs facilitation) drive the effect of trade
agreements on South-South trade in parts and components
Keywords International Trade and Trade Rules Industrial and Consumer Services and
Products Transport and Trade Logistics Competition Policy Competitiveness and
Competition Policy Trade Finance and Investment
The Effect of Immigration on Natives School
Achievement Does Length of Stay in the Host
Country Matter World Bank Policy Research Working Paper No 8492
62 Pages Posted 28 Aug 2018
Laurent Bossavie The World Bank
Date Written June 25 2018
Abstract
Using a rich data set of primary school students this paper estimates the effects of immigrant
concentration in the classroom on the academic achievement of natives In contrast with
previous contributions it exploits rare information on age-at-migration to estimate separate
spillover effects by duration of stay of immigrant classmates To identify treatment effects it
uses cohort-by-cohort deviations in immigrant concentration within schools combined with
attractive features of the Dutch school system Overall the paper finds no effect of the
concentration of immigrant students on natives test scores However although immigrant
students who have been in the country for some time have virtually no effect on natives the
analysis finds a small negative effect of recent immigrants in the classroom on natives test
scores The effect is significant only for language test scores but insignificant for mathematics
test scores When significant effect sizes are quite small compared to other educational
interventions and classroom peer effects estimated in other contexts
Keywords Indigenous Peoples Law Indigenous Peoples Indigenous Communities
Educational Sciences International Migration Migration and Development Human Migrations
amp Resettlements Effective Schools and Teachers Educational Institutions amp Facilities
Trade and Immigration 1870-2010
by David S Jacks John P Tang - 25010 (DAE)
Abstract
In this chapter we describe long-run trends in global
merchandise trade and immigration from 1870 to 2010 We revisit
the reasons why these two forces moved largely in parallel in the
decades leading up to World War I collapsed during the interwar
period and then rebounded (but with much more pronounced growth
in trade than in immigration) More substantively we also
document a large redistribution in the regional sources of goods
and people with a shift from the former industrialized core
countries--especially Europe--to those in the former
periphery--especially Asia--as well as a very striking change in
the composition of merchandise trade towards manufactured goods
precisely dating from 1950 Finally using a triple differences
framework in combination with a dramatic change in US immigration
policy we find evidence that immigration and trade potentially
acted as substitutes at least for the United States in the
interwar period
httppapersnberorgpapersW25010utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Attitudes Towards Euro Area Reforms Evidence from
a Randomized Survey Experiment CESifo Working Paper Series No 7141
35 Pages Posted 28 Aug 2018
Mathias Dolls CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute IZA Institute of Labor Economics
Nils Wehrhoumlfer University of Mannheim Graduate School of Economic and Social Sciences Students
Date Written July 09 2018
Abstract
We present the first evidence on public attitudes towards two prominent euro area reform
proposals (European Unemployment Benefit Scheme and Sovereign Insolvency Procedure)
and assess potential impediments to their implementation by means of a randomized survey
experiment in Germany We find that there is a low willingness among German voters to
accept fiscal risk-sharing through common unemployment insurance while a sovereign
insolvency procedure aimed at strengthening market discipline is supported by a majority of
the electorate Our randomized treatments confronting survey participants with potential
adverse effects of the reforms lead to significant downward shifts in approval rates Altruism
cosmopolitanism political preferences and income are important predictors of support for
the reform proposals We also show that there is a striking contrast between the low level of
support for transfers to other euro area member states and a broad acceptance of inner
German transfers
Keywords public attitudes euro area reforms European unemployment insurance
sovereign insolvency procedure
JEL Classification H550 H240 J260 D140
The Economic Effects of Refugee Return and Policy
Implications World Bank Policy Research Working Paper No 8497
65 Pages Posted 28 Aug 2018
Uri Dadush World Bank
Date Written June 27 2018
Abstract
The recent surge in the number of forcibly displaced who cross international borders in
search of protection has prompted interest in evaluating policies that achieve the possible
end points of the phenomenon As envisaged by United Nations High Commissioner for
Refugees (UNHCR) these are the integration in the country of destination relocation in a
third country and return to the country of origin The focus of this paper is on the third
aspect namely the appropriate conduct of return policy viewed from the perspective of the
host country More specifically the main question is whether it is in the economic self-interest
of host countries to return forcibly displaced persons In addressing the question four
ancillary issues are to be addressed (i) the macroeconomic impact of refugees and of their
return (ii) the labor market impact of refugees and of their return (iii) the fiscal impact of
refugees and of their return and (iv) how return policy should be formulated and executed
The available evidence and analyses allow this papers main conclusion namely that the costs
of hosting asylum seekers and refugees are front-loaded while the benefits accruing from
their integration into the labor market and the host economy typically take years to
materialize It follows that from the economic perspective their return after a short stay may
represent a costlier option than continuing to invest in their successful integration Countries
with a flexible labor market strong investment climate and a welcoming attitude to
immigrants tend to see the economic benefits of refugee inflows materialize faster
The Effect of Remittances on the Current Account in
Developing and Emerging Economies World Bank Policy Research Working Paper No 8498
26 Pages Posted 28 Aug 2018
Emmanuel Kwasi Koranteng Lartey World Bank
Date Written June 27 2018
Abstract
This paper presents an analysis of the effect of remittances on the current account in
developing and emerging economies incorporating an assessment of the extent to which
exchange rate regimes impact the relationship The main findings suggest there is a positive
effect of remittances on the current account contemporaneously but that the lagged effect is
negative which could be indicative of the existence of some underlying mechanisms
characteristic of the Dutch disease phenomenon In addition the results show that a more
flexible exchange regime dampens the contemporaneous positive effect that remittances have
on the current account The paper therefore asserts that policy makers face trade-offs
pertaining to the use of exchange rate policy in managing the effects of remittances on the
current account which should be given due consideration when such policy choices are made
Learning About Fiscal Multipliers During the
European Sovereign Debt Crisis Evidence from a
Quasi-Natural Experiment ECB Working Paper No 2154
30 Pages Posted 18 Jun 2018
Gόrnicka Lucyna IMF
Christophe Kamps European Central Bank (ECB)
Gerrit B Koester European Central Bank (ECB)
Nadine Leiner-Killinger European Central Bank (ECB)
Date Written May 30 2018
Abstract
Identifying fiscal multipliers is usually constrained by the absence of a counterfactual
scenario Our new data set allows overcoming this problem by making use of the fact that
recommendations under the EUrsquos excessive deficit procedure (EDP) provide both a baseline
no-policy-change scenario and a fiscal-adjustment EDP scenario that entails a forecast of the
macroeconomic impact of fiscal consolidation over the EDP horizon For a sample of 24 EU
countries to which 48 EDP recommendations were applied between 2009 and 2015 we
derive country-specific fiscal multipliers as actually applied by forecasters during the crisis
Our results confirm Blanchard and Leighrsquos (2013 2014) presumption that forecasters learned
during the crisis According to our findings fiscal multipliers as applied by the European
Commission increased over time ndash from about 14 in the early years of the crisis to about 23
in the later years However different from Blanchard and Leigh (2013 2014) we do not find
evidence for the hypothesis that ex-post fiscal multipliers have been substantially above 1
during the crisis
Keywords fiscal consolidation fiscal multipliers business cycle
JEL Classification E32 E62 H20 H5
Trade in Developing East Asia How it Has Changed
and Why it Matters World Bank Policy Research Working Paper No 8533
58 Pages Posted 28 Aug 2018
Ileana Cristina Constantinescu World Bank
Aaditya Mattoo World Bank - Development Research Group (DECRG)
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Date Written July 13 2018
Abstract
East Asia for long the epitome of successful engagement in trade faces serious challenges
technological change that may threaten the very model of labor intensive industrialization
and a backlash against globalization that may reduce access to important markets A detailed
analysis of the evolution of East Asias trade and trade policy in goods and services leads to
the conclusion that how East Asia copes with these global challenges will depend on how it
addresses three more proximate national and regional challenges The first is the emergence
of one East Asian country China as a global trade giantaccounting for nearly one-seventh of
global exports and one-tenth of global imports -- which is fundamentally altering the trading
patterns and opportunities of its neighbors The second is the asymmetric implementation of
national reform -- remarkable openness to goods trade and investment coexists with relative
restrictiveness of services policies -- which is affecting the evolution of comparative
advantage and productivity in each country The third is the divergence between the
relatively shallow and fragmented agreements that regulate the regions trade and
investment and the growing importance of regional and global value chains as crucial drivers
of productivity growth
Keywords International Trade and Trade Rules Common Carriers Industry Food amp
Beverage Industry Plastics amp Rubber Industry Business Cycles and Stabilization Policies
Construction Industry General Manufacturing Pulp amp Paper Industry Textiles Apparel amp
Leather Industry Export Competitiveness Industrial and Consumer Services and Products
Transport and Trade Logistics
Who are Americas Star Firms World Bank Policy Research Working Paper No 8534
70 Pages Posted 28 Aug 2018
Meghana Ayyagari George Washington University - School of Business
Asli Demirguc-Kunt World Bank
Vojislav Maksimovic University of Maryland - Robert H Smith School of Business
There are 2 versions of this paper
Date Written July 13 2018
Abstract
There is wide spread concern about a growing gap between top-performing publicly listed
firms and the rest of the economy and the implications of this for rising inequality in the US
Using conventional return calculations there is indeed a widening gap between star firms
(defined as those in top 10 percent of return on invested capital in any year) and the rest of
the economy over time especially in industries that rely on a skilled labor force However
once measurement error in intangible capital is accounted for this gap shrinks dramatically
and has not been widening over time While pricing power as measured by markups predicts
star firm status a large fraction of star firms have low markups and there is no evidence that
star firms are cutting output or investment more than other firms for the same markup The
effect of star status is persistent Five years later star firms have higher growth profits and
Tobins Q A small subset of exceptional firms may pose more pressing policy concerns with
much higher returns and the potential to exercise market power in the future
Keywords Plastics amp Rubber Industry Business Cycles and Stabilization Policies Textiles
Apparel amp Leather Industry Pulp amp Paper Industry Food amp Beverage Industry Common
Carriers Industry Construction Industry General Manufacturing Labor Markets Employment
and Unemployment
Bought Sold and Bought Again The Impact of
Complex Value Chains on Export Elasticities World Bank Policy Research Working Paper No 8535
45 Pages Posted 28 Aug 2018
Francois Michel Marie Raphael De Soyres World Bank
Erik Frohm World Bank
Vanessa Gunnella European Central Bank (ECB)
Elena Pavlova European Central Bank (ECB)
Date Written July 13 2018
Abstract
Global value chain participation affects the exchange rate pass-through to export prices and
export volumes The paper develops a partial equilibrium model of international trade with
cross-border production and shows that higher participation in global value chains reduces
the elasticities Specifically a higher share of foreign value added in exports reduces the
exchange rate pass-through to export prices and export volumes A greater share of exports
that return as imports also reduces the responsiveness of export volumes to changes in
bilateral exchange rates Finally exports of inputs that are further re-exported increase the
responsiveness to the trading partners effective exchange rate Using a novel sector-level
panel dataset with 40 countries the analysis tests and finds strong empirical support for the
theoretical predictions The paper further shows that some sectors in some countries can
even experience a decline in gross exports when their currency depreciates
Keywords International Trade and Trade Rules Industrial and Consumer Services and
Products Transport and Trade Logistics Trade and Services Macroeconomic Management
Did Austerity Cause Brexit CESifo Working Paper Series No 7159
101 Pages Posted 25 Sep 2018
Thiemo Fetzer University of Warwick
Date Written July 25 2018
Abstract
Did austerity cause Brexit This paper shows that the rise of popular support for the UK
Independence Party (UKIP) as the single most important correlate of the subsequent Leave
vote in the 2016 European Union (EU) referendum along with broader measures of political
dissatisfaction are strongly and causally associated with an individualrsquos or an arearsquos exposure
to austerity since 2010 In addition to exploiting data from the population of all electoral
contests in the UK since 2000 I leverage detailed individual level panel data allowing me to
exploit within-individual variation in exposure to specific welfare reforms as well as broader
measures of political preferences The results suggest that the EU referendum could have
resulted in a Remain victory had it not been for a range of austerity-induced welfare reforms
Further auxiliary results suggest that the welfare reforms activated existing underlying
economic grievances that have broader origins than what the current literature on Brexit
suggests Up until 2010 the UKrsquos welfare state evened out growing income differences across
the skill divide through transfer payments This pattern markedly stops from 2010 onwards
as austerity started to bite
Keywords political economy austerity globalization voting EU
JEL Classification H200 H300 H500 P160 D720
Resolving Sovereign Debt Crises The Role of Political
Risk CESifo Working Paper Series No 7161
42 Pages Posted 26 Sep 2018
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Date Written August 02 2018
Abstract
Sovereign defaults are bad news for investors and debtor countries in particular if a default
becomes messy and protracted Why are some debt crises resolved quickly in a matter of
months while others take many years to settle This paper studies the duration of sovereign
debt crises based on a new dataset and case study archive on debt renegotiations between
governments and foreign banks and bondholders Using Cox proportional hazard models I
find that domestic political instability (lsquopolitical riskrsquo) is a significant predictor of negotiation
delays after controlling for macroeconomic conditions Government crises resignations and
street protests are particularly disruptive for a quick settlement process Overall the evidence
suggests that debtor countries often lack the political ability to resolve a debt crisis
Governments in turmoil are unlikely to exit a default quickly
Keywords sovereign default crisis resolution political economy
JEL Classification F340 F510 H630
Market Potential and Global Growth over the Long
Twentieth Century CESifo Working Paper Series No 7164
53 Pages Posted 27 Sep 2018
David S Jacks Simon Fraser University (SFU) - Department of Economics National Bureau of Economic Research (NBER)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
There are 3 versions of this paper
Date Written August 02 2018
Abstract
We examine the evolution of market potential and its role in driving economic growth over
the long twentieth century Theoretically we exploit a structural gravity model to derive a
closed-form solution for a widely-used measure of market potential We are thus able to
express market potential as a function of directly observable and easily estimated variables
Empirically we collect a large dataset on aggregate and bilateral trade flows as well as output
for 51 countries We find that market potential exhibits an upward trend across all regions of
the world from the early 1930s and that this trend significantly deviates from the evolution of
world GDP Finally using exogenous variation in trade-related distances to world markets we
demonstrate a significant causal role of market potential in driving global income growth over
this period
Keywords economic geography market potential structural gravity trade costs
JEL Classification F100 N700
Growth Inequality and Poverty A Robust
Relationship World Bank Policy Research Working Paper No 8578
42 Pages Posted 17 Sep 2018
Gustavo A Merrero University of La Laguna
Luis Serveacuten World Bank - Development Research Group (DECRG)
Date Written September 6 2018
Abstract
An extensive literature on poverty traps suggests that high levels of poverty deter growth
However a seemingly basic implication of the underlying theoretical models namely that
countries suffering from higher levels of poverty should grow less rapidly has remained
untested A parallel literature has suggested a variety of mechanisms through which
inequality may affect growth in opposing directions Because inequality and poverty are
different aspects of the income distribution inequality can also affect growth through poverty
an indirect channel that has not been explicitly analyzed This paper contributes to fill both
gaps Using a large cross-country panel data set it estimates a reduced-form growth equation
adding both inequality and poverty to an otherwise standard set of growth determinants
Given inequality the correlation of growth with poverty is consistently negative In contrast
given poverty the correlation of growth with inequality can be positive or negative
depending on the empirical specification and econometric approach used Yet the indirect
effect of inequality on growth through its correlation with poverty is robustly negative Closer
inspection shows that these results are driven by the sample observations featuring high (but
not extremely high) poverty rates These empirical findings are consistent with the
predictions from an analytical framework with learning-by-doing and knowledge spillovers
in which consumers cannot save and invest if their initial endowment is below a minimum
consumption level
Keywords Inequality Inflation Small Area Estimation Poverty Mapping Poverty
Assessment Poverty Lines Poverty Monitoring amp Analysis Poverty Diagnostics Poverty
Impact Evaluation Educational Sciences
Comparison of Welfare Gains in the Armington
Krugman and Melitz Models Insights from a
Structural Gravity Approach World Bank Policy Research Working Paper No 8570
63 Pages Posted 17 Sep 2018
Edward Jay Balistreri Iowa State University
David G Tarr International Trade Analysis
Date Written August 28 2018
Abstract
How large are the estimated gains from trade from a reduction in trade costs in the
heterogeneous firms Melitz (M) model compared with the Armington (A) and Krugman (K)
models Surprisingly little is known beyond the one-sector model This paper analyzes this
question using a global trade model that contains ten regions and various numbers of sectors
(1-10) Following Arkolakis et al (2012) the analysis holds the local trade response constant
across the model comparisons based on a structural gravity estimate Various model features
and scenarios are introduced that are important to real economies almost none of which has
been examined across the three market structures with a constant trade response In
response to global reductions in iceberg trade costs in all the multi-sector models the
ranking of global welfare gains is MelitzgtKrugmangtArmington and the Krugman model
captures between 75 and 95 percent on the additional gains above the Armington model that
are estimated by the Melitz model However for individual regions there are numerous cases
of reversed welfare rankings ie MelitzltkrugmanKrugmangtArmington For individual
regions however the welfare ranking of the Armington Krugman and Melitz market
structures is model data parameter and scenario dependent The results highlight the need
for data and structural considerations in policy analysisltkrugman
Keywords International Trade and Trade Rules Trade and Services Labor Markets Trade
and Multilateral Issues
The Economic Effects of Brexit - Evidence from the
Stock Market CEPR Discussion Paper No DP13147
35 Pages Posted 17 Sep 2018
Holger Breinlich University of Nottingham - School of Economics Centre for Economic Policy Research (CEPR) London
School of Economics amp Political Science (LSE) - Centre for Economic Performance (CEP)
Elsa Leromain London School of Economics amp Political Science (LSE) - London School of Economics
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
Thomas Sampson London School of Economics amp Political Science (LSE)
Ahmed Usman University of Nottingham
Date Written August 2018
Abstract
We study stock market reactions to the Brexit referendum on 23 June 2016 in order to assess
investors expectations about the effects of leaving the European Union on the UK economy
Our results suggest that initial stock price movements were driven by fears of a cyclical
downturn and by the sterling depreciation following the referendum We also find tentative
evidence that market reactions to two subsequent speeches by Theresa May (her
Conservative Party conference and Lancaster House speeches) were more closely correlated
with potential changes to tariffs and non-tariff barriers on UK-EU trade indicating that
investors may have updated their expectations in light of the possibility of a hard Brexit We
do not find a correlation between the share of EU migrants in different industries and stock
market returns
Keywords Brexit depreciation event study Recession Stock market tariffs
JEL Classification F15 F23 G14
Understanding Euro Area Inflation Dynamics Why so
Low for so Long
IMF Working Paper No 18188
26 Pages Posted 1 Oct 2018
Yasser Abdih International Monetary Fund (IMF)
Li Lin International Monetary Fund (IMF)
Anne-Charlotte Paret Banque de France
Date Written August 2018
Abstract
Despite closing output gaps and tightening labor markets inflation has remained low inthe
euro area Based on an augmented Phillips Curve framework we find that thisphenomenon-
sometimes attributed to low global inflation-has been primarily causedby a remarkable
persistence of inflation keeping it low despite the reduction in slack Thisfeature is shown to
be specific to the euro area (in comparison with the United States)Monetary policy needs to
stay accommodative to help guide inflation back to target
Keywords Inflation Inflation expectations Inflation persistence Monetary policy
Econometric models Euro Area Phillips curve inflation persistence and expectations
General Forecasting and Simulation Monetary Policy (Targets Instruments and Effects)
JEL Classification E10 E31 E32 E37 E52 C22 C50
Financial Development Exchange Rate Regimes and
Growth Dynamics World Bank Policy Research Working Paper No 8562
34 Pages Posted 28 Aug 2018
Woubet Kassa The World Bank
Emmanuel Kwasi Koranteng Lartey World Bank
Date Written August 20 2018
Abstract
This paper utilizes data for African countries to analyze the extent to which financial
development affects the dynamics of the relationship between exchange rate flexibility and
economic growth The findings indicate that financial development exerts a positive influence
on the relationship between exchange rate flexibility and GDP growth as well as total factor
productivity growth The paper also documents a positive impact of trade openness on the
relationship between exchange rate flexibility and growth Moreover the results show a
strong and positive association between exchange rate flexibility and financial development
The findings therefore suggest that discussions and decisions on exchange rate policy should
be undertaken with consideration for structural policies that address the development of the
financial sector In addition the paper asserts that policy makers should adopt a stance that
facilitates some flexibility in exchange rates to foster development of the financial
infrastructure in these economies
Keywords International Trade and Trade Rules Industrial Economics Economic Theory amp
Research Economic Growth Currencies and Exchange Rates Educational Sciences
Macroeconomic Management
Unequal Gains Prolonged Pain A Model of
Protectionist Overshooting and Escalation CEPR Discussion Paper No DP13160
53 Pages Posted 17 Sep 2018
Emily J Blanchard Dartmouth College - Tuck School of Business
Gerald Willmann Bielefeld University IfW Kiel KU Leuven CESifo (Center for Economic Studies and Ifo Institute)
Date Written September 2018
Abstract
We develop a model of democratic political responses to macroeconomic shocks in the short
and long run We show that when economic adjustment is slower than potential political
change exogenous changes in the global marketplace can trigger populist surges in favor of
distortionary economic policies Applied to trade policy our model demonstrates that an
exogenous terms-of-trade improvement or skill-biased technological change will lead to a
spike in protectionism that blunts the younger generations incentive to acquire education In
the long run the initial surge in protectionism will gradually diminish if and only if education
enables less-skilled workers to catch up with the overall economy The more unequal the
initial distribution of human capital the greater and longer-lasting the protectionist backlash
will be unequal gains prolonged pain Evidence on key data markers suggested by the model
exhibits patterns consistent with recent populist support for Brexit and Trump
Keywords Dynamic Political Economy education Endogenous Tari Human Capital
Overlapping Generations Overshooting populism protectionism
JEL Classification D7 E6 F5
Threat or Help The Effects of Unskilled Immigrant
Workers on National Productivity Growth World Bank Policy Research Working Paper No 113185
4 Pages Posted 17 Sep 2018
Sharmila Devadas Central Bank of Malaysia
Date Written March 1 2017
Abstract
While unskilled immigrant workers have relatively low formal human capital theory suggests
that they can still contribute to productivity improvements by helping to increase efficiency
and upgrading the skills of the native labor force Empirical studies indicate that positive
productivity effects do occur This body of evidence does not provide a compelling argument
for the closing of national borders to unskilled foreigners on economic grounds
Keywords Indigenous Peoples Indigenous Peoples Law Human Migrations amp Resettlements
Construction Industry Common Carriers Industry Food amp Beverage Industry General
Manufacturing Pulp amp Paper Industry Plastics amp Rubber Industry Labor Markets Business
Cycles and Stabilization Policies International Migration Indigenous Communities Migration
and Development
Global Trade Slowdown Factors and Policies World Bank Policy Research Working Paper No 123899
4 Pages Posted 17 Sep 2018
Dorina Peteva Georgieva World Bank
Norman Loayza World Bank - Research Department
Fabian Mendez Ramos Development Research Group The World Bank
Date Written February 1 2018
Abstract
Growth in global trade has been slow since 2012 While global trade downturns are not
unprecedented the observed change in the relationship of trade to GDP poses the question
whether the trade slowdown is a transitory deviation or a more long-lasting phenomenon
brought about by structural changes This new dynamic coupled with the rise of protectionist
policies and rhetoric in many countries positions trade at the forefront of policy discussions
This brief reviews recent patterns in global trade examines the factors affecting trade--
distinguishing between transitory and structural components of the slowdown--and discusses
policies shaping the path of future trade
Keywords Trade and Multilateral Issues Trade and Services Trade Policy Trade Facilitation
International Trade and Trade Rules International Economics and Trade Transport and
Trade Logistics Trade and Regional Integration Private Sector Development Industrial and
Consumer Services and Products Competitiveness and Competition Policy Marketing Labor
Markets Private Sector Development Law Private Sector Economics Industry Law and
Development Social Policy Legal Reform Social Development Treaties Economics and
Institutions Public Sector Management and Reform Macroeconomics and Economic Growth
Public Sector Development Regulatory Regimes International Law Non Governmental
Organiz
The Productivity J-Curve How Intangibles Complement General Purpose Technologies
by Erik Brynjolfsson Daniel Rock Chad Syverson - 25148 (EFG IO PR)
Abstract
General purpose technologies (GPTs) such as AI enable and require
significant complementary investments including business process
redesign co-invention of new products and business models and
investments in human capital These complementary investments
are often intangible and poorly measured in the national
accounts even if they create valuable assets for the firm We
develop a model that shows how this leads to an underestimation
of output and productivity in the early years of a new GPT and
how later when the benefits of intangible investments are
harvested productivity will be overestimated Our model
generates a Productivity J-Curve that can explain the
productivity slowdowns often accompanying the advent of GPTs as
well as the follow-on increase in productivity later We use our
model to assess how AI-related intangible capital is currently
affecting measured total factor productivity (TFP) and output
We also conduct a historical analysis of the roles of intangibles
tied to RampD software and computer hardware finding substantial
and ongoing effects of software in particular and hardware to a
lesser extent
httppapersnberorgpapersW25148utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
New Technologies Global Value Chains and Developing Economies
by Dani Rodrik - 25164 (DEV EFG ITI)
Abstract
Many of the exports of developing countries are channeled through
global value chains (GVCs) which also act as conduits for new
technologies However new capabilities and productive
employment remain limited so far to a tiny sliver of globally
integrated firms GVCs and new technologies exhibit features
that limit the upside and may even undermine developing
countries economic performance In particular new technologies
present a double whammy to low-income countries First they are
generally biased towards skills and other capabilities This
bias reduces the comparative advantage of developing countries in
traditionally labor-intensive manufacturing (and other)
activities and decreases their gains from trade Second GVCs
make it harder for low-income countries to use their labor cost
advantage to offset their technological disadvantage by reducing
their ability to substitute unskilled labor for other production
inputs These are two independent shocks that compound each
other The evidence to date on the employment and trade fronts
is that the disadvantages may have more than offset the
advantages
httppapersnberorgpapersW25164utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Bank Runs and Moral Hazard A Review of Deposit
Insurance World Bank Policy Research Working Paper No 8589
31 Pages Posted 20 Sep 2018 Last revised 21 Sep 2018
Deniz Anginer World Bank Research
Asli Demirguc-Kunt World Bank
Date Written September 19 2018
Abstract
Deposit insurance is a widely adopted policy to promote financial stability in the banking
sector Deposit insurance helps ensure depositors confidence in the financial system and
prevents contagious bank runs but it also comes with an unintended consequence of
encouraging banks to take on excessive risk This paper reviews the economic costs and
benefits of deposit insurance and highlights the importance of institutions and specific design
features for how well deposit insurance schemes work in practice
Keywords Deposit Insurance Financial Structures Banks amp Banking Reform Judicial System
Reform Economic Growth
The Future of Work Race With-Not Against-The
Machine World Bank Research amp Policy Briefs Paper No 129680
4 Pages Posted 17 Sep 2018
Lay Lian Chuah World Bank - Development Research Group (DECRG)
Norman Loayza World Bank - Research Department
Achim Schmillen Osteuropa-Institut (OEI) Government of the Federal Republic of Germany - Institute for Employment
Research (IAB) University of Regensburg - Department of Economics and Econometrics
Date Written August 1 2018
Abstract
Will the revolution in digital and information technologies make us obsolete Will jobs be lost
and never replaced Will wages drop to intolerable levels History and economic theory and
evidence suggest that in the long term such fears are misplaced However in the short and
medium term dislocation can be severe for certain types of work places and populations In
the transition period policies are needed to facilitate labor market flexibility and mobility
introduce and strengthen safety nets and social protection and improve education and
training
Keywords Labor Markets Rural Labor Markets Armed Conflict Food Security
An Economists Guide to Climate Change Science
by Solomon Hsiang Robert E Kopp - 25189 (DEV EEE EFG HE ITI LS PE POL PR)
Abstract
Climate change management is a global challenge that requires
social science as much as it requires natural science We
provide a brief introduction to the physical science of climate
change written to provide essential background for economists
and other social scientists We also highlight some key areas in
which economists--including those studying macroeconomics
political economy and development--are in a unique position to
help climate science advance
httppapersnberorgpapersW25189utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
The Intensive Margin in Trade
by Ana M Fernandes Peter J Klenow Sergii Meleshchuk Denisse Pierola Andres Rodriguez-
Clare - 25195 (ITI)
Abstract
The Melitz model highlights the importance of the extensive
margin (the number of firms exporting) for trade flows Using
the World Banks Exporter Dynamics Database (EDD) featuring
firm-level exports from 50 countries we find that around 50 of
variation in exports is along the extensive margin --- a
quantitative victory for the Melitz framework The remaining 50
on the intensive margin (exports per exporting firm) contradicts
a special case of Melitz with Pareto-distributed firm
productivity which has become a tractable benchmark This
benchmark model predicts that conditional on the fixed costs of
exporting all variation in exports across trading partners
should occur on the extensive margin We find that moving from a
Pareto to a lognormal distribution allows the Melitz model to
match the role of the intensive margin in the EDD We use
likelihood methods and the EDD to estimate a generalized Melitz
model with a joint lognormal distribution for firm-level
productivity fixed costs and demand shifters and use exact hat
algebra to quantify the effects of a decline in trade costs on
trade flows and welfare in the estimated model The welfare
effects turn out to be quite close to those in the standard
Melitz-Pareto model when we choose the Pareto shape parameter to
fit the average trade elasticity implied by our estimated
Melitz-lognormal model although there are significant
differences regarding the effects on trade flows
httppapersnberorgpapersW25195utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Are Banks Engines of Export Financial Structures
and Export Dynamics World Bank Policy Research Working Paper No 8621
41 Pages Posted 26 Oct 2018 Last revised 30 Oct 2018
Raoul Minetti Michigan State University - Department of Economics
Alen Mulabdic World Bank
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Susan Chun Zhu Michigan State University - Department of Economics
Date Written October 25 2018
Abstract
This paper studies the impact of financial structures on the dynamics of the export sector
using rich data from over 60 countries The results reveal that bank-oriented financial
systems boost the size of the export sector more than market-oriented financial systems
However especially in middle- and low-income countries this effect mostly stems from banks
slowing down exporters exit rather than promoting firms entry into export The reduced exit
from the export sector appears to reflect domestic banks tendency to evergreen loans to
exporters (soft budget constraint) more than banks buffering role in difficult times Foreign
banks mitigate this effect and enhance the dynamism of the export sector
Contractual Frictions and the Margins of Trade World Bank Policy Research Working Paper No 8631
31 Pages Posted 31 Oct 2018 Last revised 1 Nov 2018
Theophile T Azomahou United Nations University (UNU-MERIT) Maastricht University
Hibret Belete Maemir World Bank
Hassen Abda Wako UNU-MERIT
Date Written October 30 2018
Abstract
A growing body of work has shown that the quality of national institutions that enforce
written contracts plays an important role in shaping a countrys comparative advantage
Using highly disaggregated bilateral and unique harmonized firm-level trade data across a
large number of countries this paper contributes to this literature by providing a
comprehensive analysis of the mechanisms through which institutional frictions affect the
pattern of aggregate trade flow distinguishing the effects on the intensive and extensive
margins The analysis finds that contractual friction distorts countries trade pattern beyond
its effect on domestic production structure by deterring the probability of exporting (the
extensive margin) and export sales after entry (the intensive margin) particularly in
industries that rely more heavily on relationship-specific inputs (more vulnerable to holdup
problems) The analysis also finds that contractual frictions matter more for the intensive
margin than the extensive margin of exporting In addition better contracting institutions
increase the probability of survival of new export products in more contract-intensive
industries These results have important policy implications for developing countries that
seek to boost export growth but many of which suffer from poor contracting institutions
Nominal Exchange Rate Dynamics and Monetary
Policy Uncovered Interest Rate Parity and Purchasing
Power Parity Revisited CEPR Discussion Paper No DP13235
33 Pages Posted 15 Oct 2018 Last revised 22 Oct 2018
Yossi Saadon Bank of Israel - Research Department
Nathan Sussman Hebrew University of Jerusalem
Date Written October 2018
Abstract
The increasing globalization of trade in goods and services and the deepening of financial
markets have reduced frictions that may impede the operation of the PPP and UIP
relationships in the short run In this paper we estimate the short term relative PPP and UIP
relationships Using data from Israel which has a deep market for inflation expectations for
12 months we show that relative PPP and UIP cannot be rejected Deviations from
equilibrium last less than a year Data from Israels capital account of the balance of payments
shows that the deviations are not destabilizing Our findings suggest that greater globalization
and financial deepening contribute to the effectiveness of monetary policy
Keywords Balance sheet effects Exchange Rates Inflation expectations monetary policy
purchasing power parity uncovered interest rate parity
Macroeconomic Effects of Chinas Financial Policies
by Kaiji Chen Tao Zha - 25222 (DEV EFG ME)
Abstract
The Chinese economy has undergone three major phases the
1978-1997 period marked as the SOE-led economy the 1998-2015
phase as the investment-driven economy and the new normal
economy since 2016 All three economies have been shaped by the
governments financial policies defined as a set of credit
policy monetary policy and regulatory policy We analyze the
macroeconomic effects of these financial policies throughout the
three phases and provide the stylized facts to substantiate our
analysis The stylized facts differ qualitatively across
different phases or economies We argue that the impacts of
Chinas financial policies work through transmission channels
different from those in developed economies and that a regime
switch from one economy to another was driven mainly by regime
changes in financial policies
httppapersnberorgpapersW25222utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Factor Incomes in Global Value Chains The Role of Intangibles
by Wen Chen Bart Los Marcel P Timmer - 25242 (EFG)
Abstract
Recent studies document a decline in the share of labour and a
simultaneous increase in the share of residual (factorless)
income in national GDP We argue the need for study of factor
incomes in cross-border production to complement country studies
We define a GVC production function that tracks the value added
in each stage of production in any country-industry We define a
new residual as the difference between the value of the final
good and the payments to all tangibles (capital and labour) in
any stage We focus on GVCs of manufactured goods and find the
residual to be large We interpret it as income for intangibles
that are (mostly) not covered in current national accounts
statistics We document decreasing labour and increasing capital
income shares over the period 2000-14 This is mainly due to
increasing income for intangible assets in particular in GVCs of
durable goods We provide evidence that suggests that the 2000s
should be seen as an exceptional period in the global economy
during which multinational firms benefitted from reduced labour
costs through offshoring while capitalising on existing
firm-specific intangibles such as brand names at little
marginal cost
httppapersnberorgpapersW25242utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Accounting for Firm Heterogeneity within US Industries Extended Supply-Use Tables and Trade
in Value Added using Enterprise and Establishment Level Data
by James J Fetzer Tina Highfill Kassu W Hossiso Thomas F Howells III Erich H Strassner
Jeffrey A Young - 25249 (ITI)
Abstract
This paper presents experimental tables created by the US
Bureau of Economic Analysis comparing industry-specific shares of
the components of total output of globally engaged firms located
in the United States that are part of a multinational enterprise
with those of firms that are part of an enterprise entirely
located in the United States Recent research has shown both the
importance of accounting for trade in value added when estimating
bilateral trade flows and that multinational enterprises located
in the United States account for the lions share of US trade
in goods and services However trade in value added is
typically accounted for using input-output tables that are
aggregated across all types of firms The experimental tables
are consistent with other research showing that value added as a
share of output is lower for foreign-owned firms compared with
domestic-owned firms and that exports and imports as a share of
output is larger for foreign-owned firms We also find
heterogeneity in the composition of output among different types
of domestic-owned firms Future work will analyze this
heterogeneity in more detail using establishment-level data on
production and trade
httppapersnberorgpapersW25249utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
The Falling Elasticity of Global Trade to Economic
Activity Testing the Demand Channel CESifo Working Paper No 7228
42 Pages Posted 31 Oct 2018
Marc Auboin World Trade Organization (WTO)
floriana borino World Trade Organization (WTO)
Date Written 2018
Abstract
Since the recovery from the great financial crisis in 2010 global real trade flows grew much
slower than pre-crisis in both absolute terms (growth rates) and relative terms (relative to
GDP from 21 in the great 1990rsquos to 11 since 2012) A debate has arisen as to whether this
global trade slowdown and related falling trade-to-income elasticity was structural or
cyclical Some papers emphasized the slowing pace of international vertical specialization
Other works emphasized the prominent role of aggregate demand notably when weighted by
its trade component Our paper goes in this latter direction We estimated the standard
import equation for 38 advanced and developing countries over the period 1995-2015 using
an import intensity-adjusted measure of aggregate demand (IAD) calculated from input-
output tables at country level and compared results with regressions using GDP The
integration of IAD allows us to predict 76 to 86 of the changes in global imports a better
performance than if using GDP The use of IAD also enabled us to measure the relative
importance of each component of demand according to their trade intensity The model is
able to account for over 90 of the recent trade slowdown (2012-2015) with IAD alone
explaining 80 of it The slowdown in global value chains explains more than half of the
remaining share of the global trade slowdown not explained by demand factors
Protectionism does not come up as statistically significant
Keywords investment global outlook trade policy trade forecasting business cycles
JEL Classification E220 F010 F130 F170 F440
Will Brexit Age Well Cohorts Seasoning and the Age-
Leave Gradient Past Present and Future CEPR Discussion Paper No DP13288
38 Pages Posted 5 Nov 2018
Barry Eichengreen University of California Berkeley National Bureau of Economic Research (NBER) Centre for Economic
Policy Research (CEPR)
Rebecca Mari Bocconi University
Gregory Thwaites London School of Economics amp Political Science (LSE) - London School of Economics
There are 3 versions of this paper
Date Written October 2018
Abstract
In the UKs 2016 referendum on EU membership young voters were more likely than their
elders to vote Remain Applying new methods to a half century of data we show that this
pattern reflects both ageing and cohort effects Although voters become more Eurosceptical as
they age recent cohorts are also more pro-European than their predecessors Much of the
pro-Europeanism of these recent cohorts is accounted for by their greater years of education
Going forward the ageing of the electorate will thus be offset at least in part by the
replacement of older cohorts with younger better-educated and more pro-European ones
But we also document large nationwide swings in sentiment that have little to do with either
seasoning or cohort effects Hence these demographic trends are unlikely to be the decisive
determinants of future changes in European sentiment Rather nationwide changes in
sentiment reflecting macroeconomic or other conditions and the age-turnout gradient will be
key
JEL Classification F0
Buying Votes and International Organizations The
Dirty Work-Hypothesis CEPR Discussion Paper No DP13290
62 Pages Posted 5 Nov 2018
Axel Dreher Heidelberg University
Valentin Lang University of Zurich
B Peter Rosendorff New York University (NYU) - Wilf Family Department of Politics
James Raymond Vreeland Georgetown University - School of Foreign Service and Department of Government
Date Written October 2018
Abstract
We show how major shareholders can exploit their power over international organizations to
hide their foreign-policy interventions from domestic audiences We argue that major powers
exert influence bilaterally when domestic audiences view the intervention favorably When
domestic audiences are more skeptical of a target country favors are granted via
international organizations We test this theory empirically by examining how the United
States uses bilateral aid and IMF loans to buy other countries votes in the United Nations
Security Council (UNSC) Introducing new data on voting behavior in the UNSC over the 1960-
2015 period our results show that states allied with the US receive more bilateral aid when
voting in line with the United States in the UNSC while concurring votes of states less allied
with the US are rewarded with loans from the IMF Temporary UNSC members that vote
against the United States do not receive such perks
Keywords Aid IMF United Nations Security Council voting World Bank
JEL Classification F35 O11 O19
Keywords Exchange Market Pressure Risk aversion Safe haven Capital flows Exchange
Rate Foreign Exchange Reserves Exchange Market Pressure Risk aversion Safe haven
Capital flows Exchange Rate Foreign Exchange Reserves Portfolio Choice General
JEL Classification F23 G11 G20 F32
Sovereign Defaults in Court CEPR Discussion Paper No DP12777
76 Pages Posted 13 Mar 2018
Julian Schumacher European Central Bank (ECB)
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Enderlein Henrik Hertie School of Governance
Date Written March 2018
Abstract
For centuries defaulting governments were immune from legal action by foreign creditors
This paper shows that this is no longer the case Building a dataset covering four decades we
find that creditor lawsuits have become an increasingly common feature of sovereign debt
markets The legal developments have strengthened the hands of creditors and raised the cost
of default for debtors We show that legal disputes in the US and the UK disrupt government
access to international capital markets as foreign courts can impose a financial embargo on
sovereigns The findings are consistent with theoretical models with creditor sanctions and
suggest that sovereign debt is becoming more enforceable We discuss how the threat of
litigation affects debt management government willingness to pay and the resolution of debt
crises
Keywords debt restructuring enforcement government financing sovereign default
JEL Classification F34 G15 H63 K22
Globalization and Income Inequality Revisited CESifo Working Paper Series No 6859
48 Pages Posted 20 Mar 2018
Florian Dorn
CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Clemens Fuest ifo Institute ndash Leibniz Institute for Economic Research at the University of Munich Ludwig-Maximilians-
University Munich Center for Economic Studies (CES)
Niklas Potrafke CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Date Written February 05 2018
Abstract
This paper re-examines the link between globalization and income inequality We use data for
140 countries over the period 1970-2014 and employ an IV approach to deal with the
endogeneity of globalization measures We find that the link between globalization and
income inequality differs across different groups of countries There is a robust positive
relationship between globalization and inequality in the transition countries including China
and most countries of Middle and Eastern Europe In the sample of the most advanced
economies neither OLS nor 2SLS results show any significant positive relationship between
globalization and inequality We conclude that institutions providing income insurance and
education which characterize most advanced economies but are less developed in transition
economies may have moderated effects of globalization on income inequality
Keywords globalization income inequality redistribution instrumental variable estimation
panel econometrics development levels transition economies China
JEL Classification D310 D630 F020 F600 C260 H110 H200
The US Gains from Trade Valuation Using the
Demand for Foreign Factor Services CEPR Discussion Paper No DP12788
34 Pages Posted 20 Mar 2018
Arnaud Costinot University of California San Diego (UCSD) - Department of Economics Massachusetts Institute of
Technology (MIT) - Department of Economics
Andres Rodriguez-Clare Inter-American Development Bank (IDB)
There are 2 versions of this paper
Date Written March 2018
Abstract
About 8 cents out of every dollar spent in the United States is spent on imports What if
because of a wall or some other extreme policy intervention imports were to remain on the
other side of the US border How much would US consumers be willing to pay to prevent this
hypothetical policy change from taking place The answer to this question represents the
welfare cost from autarky or equivalently the welfare gains from trade In this article we
discuss how to evaluate these gains using the demand for foreign factor services The
estimates of gains from trade for the US economy that we review range from 2 to 8 percent of
GDP
A Multidimensional Approach to Trade Policy
Indicators IMF Working Paper No 1832
38 Pages Posted 12 Mar 2018
Diego Cerdeiro International Monetary Fund (IMF)
Rachel Nam International Monetary Fund (IMF)
Date Written February 2018
Abstract
We present and discuss a set of indicators to help assess countries trade policies The
indicators relate to three policy areas - trade in goods trade in services and FDI Given
concerns about the direction of global trade policy we also consider a set of more granular
measures that reflect the evolution of countries policies since the 2008 financial crisis We
propose a simple approach to present the multidimensional aspects of trade policy that by
shedding light on relative openness across areas can facilitate policy discussions In the cross-
section of countries we find a diversity in the type of measures adopted both between and
(since the 2008 financial crisis) within policy areas lending support to the approach based on
multiple indicators The indicators time series suggest that advanced and especially
emerging economies are moving toward more open regimes over time although recently
progress has with some exceptions slowed across the board Lastly our findings also call for
stronger efforts to objectively quantify the different aspects of countries trade regimes More
data both across countries and in terms of policy areas that significantly affect trade are
needed for better-informed policy discussions
Keywords Foreign direct investment Trade policy indicators trade in goods services trade
trade barriers General Country and Industry Studies of Trade
JEL Classification F10 F14
Corporate Indebtedness and Low Productivity
Growth of Italian Firms IMF Working Paper No 1833
47 Pages Posted 12 Mar 2018
Gareth Anderson Bank of England
Mehdi Raissi International Monetary Fund (IMF) - Asia and Pacific Department
Date Written February 2018
Abstract
Productivity growth in Italy has been persistently anemic and has lagged that of the euro area
over the period 1999-2015 while the indebtedness of its corporate sector has increased
Using the ORBIS firm-level database this paper studies the long-term impact of persistent
corporate-debt accumulation on the productivity growth of Italian firms and investigates
whether total factor productivity growthvaries with the level of corporate indebtedness We
employ a novel estimation technique proposed by Chudik Mohaddes Pesaran and Raissi
(2017) to account for dynamics bi-directional feedback effects cross-firm heterogeneity and
cross-sectional dependence arising from unobserved common factors (for example oil price
shocks labor and product market frictions and stance of global financial cycle) Filtering out
the effects of unobserved common factors and controlling for firm specific characteristics we
find significant negative effects of persistent corporate debt build-up on total factor
productivity growth and weak evidence of a threshold level of corporate debt beyond which
productivity growth drops off significantly Our results have strong policy implications for
example the design of the tax system should discourage persistent corporate debt
accumulation and effective and timely frameworks to reduce corporate debt overhangs are
essential
Keywords Productivity Europe Italy Corporate debt dynamic heterogeneous panel
threshold models cross-sectional dependence Models with Panel Data Firm Behavior
Empirical Analysis General
JEL Classification C23 D22 D24 G30
Regulatory Cycles Revisiting the Political Economy of
Financial Crises IMF Working Paper No 188
90 Pages Posted 21 Mar 2018
Jihad C Dagher International Monetary Fund (IMF) - Research Department
There are 2 versions of this paper
Date Written January 2018
Abstract
Financial crises are traditionally analyzed as purely economic phenomena The political
economy of financial booms and busts remains both under-emphasized and limited to isolated
episodes This paper examines the political economy of financial policy during ten of the most
infamous financial booms and busts since the 18th century and presents consistent evidence
of pro-cyclical regulatory policies by governments Financial boomsand risk-taking during
these episodes were often amplified by political regulatory stimuli credit subsidies and an
increasing light-touch approach to financial supervision The regulatory backlash that ensues
from financial crises can only be understood in the context of the deep political ramifications
of these crises Post-crisis regulations do not always survive the following boom The
interplay between politics and financial policy over these cycles deserves further attention
History suggests that politics can be the undoing of macro-prudential regulations
Keywords Political economy Political economy Financial crises Financial Regulation Boom-
Bust Cycles Economic Models of Political Processes Rent-Seeking Elections Legislatures and
Voting Behavior Positive Analysis of Policy-Making and Implementation General
Government Policy and Regulation General
JEL Classification D72 D78 G10 G18 N00 P16
Rationality in Economics Theory and Evidence CESifo Working Paper Series No 6872
26 Pages Posted 21 Mar 2018
Sanjit Dhami University of Leicester - Department of Economics
Ali al-Nowaihi University of Leicester - Department of Economics
Date Written February 12 2018
Abstract
We examine the various senses in which economist use the term ldquorationalityrdquo and then outline
some of the commonly drawn implications and auxiliary assumptions Finally we confront the
implications with the empirical evidence drawing on the insights from the exciting new field
of behavioral economics
Keywords rationality self-regarding preferences efficient markets heuristics optimization
JEL Classification B400
Nudging and Environmental Corporate
Responsibility A Natural Experiment CEIS Working Paper No 426
22 Pages Posted 3 Apr 2018
Leonardo Becchetti University of Rome Tor Vergata - Faculty of Economics
Francesco Salustri University of Rome Tor Vergata - Department of Economics and Finance University of Turin - Department
of Economics and Statistics
Pasquale Scaramozzino University of Rome II - Faculty of Economics University of London - School of Oriental and African Studies
(SOAS) University of London - Centre for Financial and Management Studies (CeFIMS)
Date Written April 3 2018
Abstract
We devise a lsquonudgingrsquo natural experiment to test the impact of a simple form of advertising on
environmentally responsible products withwithout the increase of the responsible product
price We find that the simple use of a small shelf-poster explaining the importance of buying
a green product (withwithout a concurring price increase) generates significant changes in
market shares for some of the product classes for both food and non-food products Part of
the effect is generated by the reduced price elasticity of consumers to the poster-plus-price-
increase treatment
Keywords nudging environmental sustainability randomised field experiment
JEL Classification C93 D12 M14 Q56
11 The Role of Financial Policy
by Roger Farmer - 24498 (EFG ME)
Abstract
I review the contribution and influence of Milton Friedmans 1968
presidential address to the American Economic Association I
argue that Friedmans influence on the practice of central
banking was profound and that his argument in favour of monetary
rules was responsible for thirty years of low and stable
inflation in the period from 1979 through 2009 I present a
critique of Friedmans position that market-economies are
self-stabilizing and I describe an alternative reconciliation of
Keynesian economics with Walrasian general equilibrium theory
from that which is widely accepted today by most neo-classical
economists
httppapersnberorgpapersW24498utm_campaign=ntwamputm_medium=emailamputm_source=ntw
5 Immigrant Entrepreneurship in America Evidence from the Survey of Business Owners 2007 amp 2012
by Sari Pekkala Kerr William R Kerr - 24494 (LS PR)
Abstract
We study immigrant entrepreneurship and firm ownership in 2007
and 2012 using the Survey of Business Owners (SBO) The survival
and growth of immigrant-owned businesses over time relative to
native-founded companies is evaluated by linking the 2007 SBO to
the Longitudinal Business Database (LBD) We quantify the
dependency of the United States as a whole as well as individual
states on the contributions of immigrant entrepreneurs in terms
of firm formation and job creation We describe differences in
the types of businesses started by immigrants and the quality of
jobs created by their firms First-generation immigrants create
about 25 of new firms in the United States but this share
exceeds 40 in some states In addition Asian and Hispanic
second-generation immigrants start about 6 of new firms
Immigrant-owned firms on average create fewer jobs than
native-owned firms but much of this is explained by the industry
and geographic location of the firms Immigrant-owned firms pay
comparable wages conditional on firm traits to native-owned
firms but are less likely to offer benefits
httppapersnberorgpapersW24494utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Effects of Foreign Aid on Refugee Flows CESifo Working Paper Series No 6885
49 Pages Posted 9 Apr 2018
Axel Dreher University of Heidelberg
Andreas Fuchs University of Heidelberg - Alfred Weber Institute for Economics
Sarah Langlotz University of Heidelberg
There are 2 versions of this paper
Date Written February 15 2018
Abstract
This article analyzes whether foreign aid affects the net flows of refugees from recipient
countries Combining refugee data on 141 origin countries over the 1976-2013 period with
bilateral Official Development Assistance data we estimate the causal effects of a countryrsquos
aid receipts on both total refugee flows to the world and flows to donor countries The
interaction of donor-government fractionalization and a recipient countryrsquos probability of
receiving aid provides a powerful and excludable instrumental variable when we control for
country- and time-fixed effects that capture the levels of the interacted variables Although
our results suggest that aid induces recipient governments to encourage the return of their
citizens we find no evidence that aid reduces worldwide refugee outflows or flows to donor
countries in the short term However we observe long-run effects after four three-year
periods which appear to be driven by lagged positive effects of aid on growth
Keywords foreign aid Official Development Assistance migration refugees displaced
people humanitarian crises repatriation policies
JEL Classification F220 F350 F590 H840 O150 O190
The Political Economy of Ideas On Ideas Versus
Interests in Policymaking CEPR Discussion Paper No DP12820
44 Pages Posted 5 Apr 2018
Sharun Mukand University of Warwick - Department of Economics
Dani Rodrik Harvard University - Harvard Kennedy School (HKS) Centre for Economic Policy Research (CEPR)
National Bureau of Economic Research (NBER)
There are 2 versions of this paper
Date Written March 2018
Abstract
We develop a conceptual framework to highlight the role of ideas as a catalyst for policy and
institutional change We make an explicit distinction between ideas and vested interests and
show how they feed into each other In doing so the paper integrates the Keynes-Hayek
perspective on the importance of ideas with the currently more fashionable Stigler-Becker
(in-terests only) approach to political economy We distinguish between two kinds of
ideational politics acircldquo the battle among different worldviews on the efficacy of policy
(worldview politics) versus the politics of victimhood pride and identity (identity politics)
Political entrepreneurs discover identity and policy memes (narratives cues framing) that
shifts beliefs about how the world works or a persons belief of who he is (ie identity) Our
framework identifies a complementarity between worldview politics and identity politics and
illustrates how they may reinforce each other In particular an increase in identity
polarization may be associated with a shift in views about how the world works Furthermore
an increase in income inequality is likely to result in a greater incidence of ideational politics
Finally we show how ideas may not just constrain but also bite the interests that helped
propagate them in the first instance
Should Unemployment Insurance Be Centralized in a
State Union CESifo Working Paper Series No 6898
27 Pages Posted 19 Apr 2018
Robert Fenge University of Rostock - Department of Economics
Max Friese University of Rostock
Date Written February 21 2018
Abstract
This paper compares the decentral organization of unemployment insurance in member
states of a state union with the central organization at the upper unionrsquo level In a model of
two countries the labor force and the firm owners can migrate between the states Labor
markets exhibit unemployment due to trade unionrsquos bargaining about the wage rate In a
decentral scenario the states organize independently unemployment insurance and decide
about the rate on wages contributed to the insurance budget Due to open borders they have
to take account of migration effects However with perfect mobility between the states each
government chooses a socially optimal contribution rate such that workers are fully insured
against unemployment In the central scenario the governments overestimate the costs of
insurance when bargaining about the contribution rate and observing the common insurance
budget of both countries This leads to a less than socially optimal contribution rate
Keywords unemployment insurance policy state union centralization migration
externalities
JEL Classification F660 H770 J650
Paris Climate Agreement and the Global Economy
Winners and Losers World Bank Policy Research Working Paper No 8392
Posted 3 Apr 2018
Muthukumara Mani World Bank
Zekarias Hussein Purdue University
G Badri Narayanan Purdue University - Center for Global Trade Analysis
Deepika Wadhwa India Habitat Centre - Indian Council for Research on International Economic Relations (ICRIER)
Date Written April 2 2018
Abstract
The 2015 Paris Climate Agreement was the first instance of countries adhering to take a
collective action against global warming More than 190 countries came forward and
submitted their contributions in the form of Intended Nationally Determined Contributions
reflective of their ability and capacity to reduce greenhouse gas emissions as each country set
its own targets and actions For some countries it meant a significant decline in their
emissions by 2030 while others like China the United States and India decided on a more
gradual phasing out extending beyond 2030 This paper estimates the economic impacts of
implementation of the Paris Climate Agreement in terms of its implications for welfare gross
domestic product investments and trade for major countries and regions It uses a
computable general equilibrium framework to model global regional and country impacts
The analysis suggests that the economic impacts will be mostly felt in the European Union if
the Paris Agreement is fully implemented The European Union is likely to suffer a welfare
loss of 10 to 15 percent by 2030 Among non-European countries Australia New Zealand
and Mexico will also be affected with an expected welfare loss of about 15 percent Some of
the major emitters such as China and India will experience minimal impacts to their welfare
and the United States will experience a welfare loss of only about 07 by 2030 The sectoral
analysis of production and trade suggests a significant loss to fossil fuelbased sectors while
clean energy sectors can experience significant gains
Keywords International Trade and Trade Rules Energy and Mining Energy and
Environment Energy Demand Global Environment Energy Policies amp Economics Science of
Climate Change Climate Change and Environment Climate Change and Health
Immigrants Residential Choices and Their
Consequences CEPR Discussion Paper No DP12842
59 Pages Posted 12 Apr 2018
Christoph Albert Universitat Pompeu Fabra Students
Joan Monras Sciences Po - Department of Economics Centre for Monetary and Financial Studies (CEMFI)
There are 2 versions of this paper
Date Written April 2018
Abstract
This paper investigates the causes and effects of the spatial distribution of immigrants across
US cities We document that a) immigrants concentrate in large high-wage expensive cities
b) the earnings gap between immigrants and natives is higher in larger more expensive cities
and c) immigrants consume less locally than natives In order to explain these findings we
develop a quantitative spatial equilibrium model in which immigrants consume a fraction of
their income in their countries of origin Thus immigrants care not only about local prices but
also about price levels in their home countries This gives them a comparative advantage
relative to natives for living in high-wage high-price high-productivity cities where they also
accept lower wages than natives These incentives are stronger for immigrants coming from
lower-price index countries of origin We rely on immigrant heterogeneity to estimate the
model With the estimated model we show that current levels of immigration have reduced
economic activity in smaller less productive cities by around 5 percent while they have
expanded it in large productive cities by around 6 percent This has increased total aggregate
output per worker by around 03 percent We also discuss the welfare implications of these
results
Keywords Immigration location choices spatial equilibrium
JEL Classification F22 J31 J61 R11
The Cost of Non-Europe Revisited CEPR Discussion Paper No DP12844
48 Pages Posted 12 Apr 2018
Thierry Mayer Sciences Po
Vincent Vicard Banque de France
Soledad Zignago Banque de France
There are 2 versions of this paper
Date Written April 2018
Abstract
In this paper we quantify the Cost of Non-Europe ie the trade-related welfare gains each
country member has reaped from the European Union Thirty years after the terminology of
Non-Europe was used to give estimates of the gains from further integration we use modern
versions of the gravity model to estimate the trade creation implied by the EU and apply
those to counterfactual exercises where for instance the EU returns to a normal shallow-
type regional agreement or reverts to WTO rules Those scenarios are envisioned with or
without the exit of the United Kingdom from the EU (Brexit) happening which points to
interesting cross-country differences and potential cascade effects in doing and undoing of
trade agreements
Keywords European Union Gravity trade integration
JEL Classification F1
The Political Impact of Immigration Evidence from
the United States CEPR Discussion Paper No DP12848
57 Pages Posted 12 Apr 2018
Anna Maria Mayda
Georgetown University - Department of Economics IZA Institute of Labor Economics
Giovanni Peri University of California Davis - Department of Economics
Walter Steingress Government of Canada - Bank of Canada
Date Written April 2018
Abstract
In this paper we study the impact of immigration to the United States on the vote for the
Republican Party by analyzing county-level data on election outcomes between 1990 and
2010 Our main contribution is to separate the effect of high-skilled and low-skilled
immigrants by exploiting the different geography and timing of the inflows of these two
groups of immigrants We find that an increase in the first type of immigrants decreases the
share of the Republican vote while an inflow of the second type increases it These effects are
mainly due to the local impact of immigrants on votes of US citizens and they seem
independent of the country of origin of immigrants We also find that the pro-Republican
impact of low-skilled immigrants is stronger in low-skilled and non-urban counties This is
consistent with citizens political preferences shifting towards the Republican Party in places
where low-skilled immigrants are more likely to be perceived as competition in the labor
market and for public resources
Keywords Economic and Fiscal Channels Electoral Effects Immigration Republican Party
JEL Classification F22 J61
15 Escaping Import Competition and Downstream Tariffs
by Ana Cecilia Fieler Ann Harrison - 24527 (EEE ITI)
Abstract
We propose and provide evidence for a new source of gains from
trade Firms invest in product differentiation to escape import
competition In the data and in the model these investments are
associated with increases in measured productivity introduction
of new goods and shifts to skill-intensive sectors Investment
in differentiation downstream leads upstream firms to also
invest in differentiation For China these downstream tariff
reductions lead to big increases in measured productivity for
upstream suppliers The effect on measured productivity is
larger for upstream than for downstream firms and we explain
this difference theoretically through heterogeneous changes in
markups
httppapersnberorgpapersW24527utm_campaign=ntwamputm_medium=emailamputm_source=ntw
20 The Production of Cognitive and Non-cognitive Human Capital in the Global Economy
by Chong Xiang Stephen Yeaple - 24524 (ITI)
Abstract
A countrys welfare depends on its ability to accumulate
cognitive and noncognitive human capital However we do not
fully understand what makes some countries successful at
producing human capital and even struggle with measurement eg
international test scores are informative about the cognitive
dimension but neglect the non-cognitive dimension In this
paper we develop a multi-country open-economy
general-equilibrium framework in which countries ability to turn
resources into human capital along the cognitive and
non-cognitive dimensions is revealed by the endogenous
educational and occupational choices of its citizens and their
subsequent performance on international exams Our model allows
us to estimate countries underlying productivities of cognitive
and non-cognitive human capital We find that high test scores
do not necessarily imply high cognitive productivities (eg
Switzerland Hong Kong) and that many countries with low test
scores have high non-cognitive productivities (eg the US and
UK)
We then aggregate over these two dimensions to construct a single
educational quality index and illustrate its intuition using an
iso-education-quality curve We use our model to decompose
variation in output per capita across countries into a component
involving the educational quality index and another involving
output TFP This exact decomposition shows that the differences
in cognitive and noncognitive productivities across countries
have large implications for differences in output per worker
These results help quantify the potential payoffs of education
policies and clarify their objective eg excessive attention
to test scores may decrease aggregate output
International trade plays an important role in our model because
the gains from trade help to compensate a country for uneven
productivity across human capital types In counterfactual
exercises we show that if barriers to trade are completely
eliminated we would obtain a very different
iso-education-quality curve This implies large improvements of
overall education quality and large gains from trade for the
countries with strong comparative advantages in producing
cognitive (eg S Korea would gain 301 to 441 of its
output) or non-cognitive human capital (eg the Netherlands
would gain 188 to 556)
httppapersnberorgpapersW24524utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Il Contributo Della Demografia Alla Crescita
Economica Duecento Anni Di ldquoStoriardquo Italiana (The
Contribution of Demography to Italys Economic
Growth A Two-Hundred-Year-Long Story) Bank of Italy Occasional Paper No 431
37 Pages Posted 20 Apr 2018
Federico Barbiellini Amidei Bank of Italy
Matteo Gomellini Bank of Italy
Paolo Piselli Bank of Italy
Date Written March 28 2018
Abstract
Italian Abstract Questo lavoro esamina il contributo della demografia alla crescita
economica confrontando lrsquoItalia del passato quella di oggi e quella che vivremo in futuro
Attraverso una scomposizione contabile della crescita del PIL e del PIL pro capite si mostra
come le modifiche nella struttura per etagrave della popolazione abbiano prodotto nel passato piugrave
lontano un demographic dividend positivo Al contrario negli ultimi venticinque anni e con
ogni probabilitagrave nel futuro la demografia ha dato e daragrave un contributo diretto sensibilmente
negativo alla crescita economica I flussi migratori previsti limiteranno lrsquoampiezza di tale
contributo negativo ma non saranno in grado di invertirne il segno Nel lavoro si valutano tre
sviluppi potenzialmente indotti dagli stessi fattori demografici o da azioni di policy ndash
lrsquoestensione della vita lavorativa lrsquoaumento della partecipazione femminile al mercato del
lavoro e lrsquoincremento nei livelli di istruzione ndash che potranno contrastare i puri effetti contabili
legati allrsquoevoluzione nella struttura per etagrave
English Abstract This paper examines the contribution of demography to economic growth
in Italy by comparing the countryrsquos past present and future We use an accounting framework
to decompose GDP and per capita GDP growth and we show how changes in the age structure
of the population produced a positive demographic dividend in the past By contrast in the
last twenty-five years and arguably in the future demography has made and will continue to
make a direct negative contribution to economic growth Expected migration flows will
noticeably limit the extent of this negative contribution but they will not be able to reverse its
sign We analyze three possible developments potentially driven by demography itself or
fostered by policy actions ndash longer working lives an increase in female labour market
participation and higher education levels ndash which could counteract the pure negative
accounting effects produced by the evolution of the age structure
Note Downloadable document is in Italian
Keywords economic history demography demographic dividend forecasts
JEL Classification J11 N30
The Effects of Cash Transfers on Adult Labor Market
Outcomes World Bank Policy Research Working Paper No 8404
29 Pages Posted 16 Apr 2018
Sarah Baird George Washington University - School of Public Health and Health Services (SPHHS)
David J McKenzie World Bank - Development Research Group (DECRG) IZA Institute of Labor Economics
Berk Ozler World Bank - Development Economics Research Group (DECRG)
Date Written April 12 2018
Abstract
The basic economic model of labor supply has a very clear prediction of what should be
expected when an adult receives an unexpected cash windfall they should work less and earn
less This intuition underlies concerns that many types of cash transfers ranging from
government benefits to migrant remittances will undermine work ethics and make recipients
lazy This paper discusses a range of additional channels to this simple labor-leisure trade-off
that can make this intuition misleading in low- and middle-income countries including
missing markets price effects from conditions attached to transfers and dynamic and general
equilibrium effects The paper uses this as a lens through which to examine the evidence on
the adult labor market impacts of a wide range of cash transfer programs government
transfers charitable giving and humanitarian transfers remittances cash assistance for job
search cash transfers for business start-up and bundled interventions Overall cash transfers
that are made without an explicit employment focus (such as conditional and unconditional
cash transfers and remittances) tend to result in little to no change in adult labor The main
exceptions are transfers to the elderly and some refugees who reduce work In contrast
transfers made for job search assistance or business start-up tend to increase adult labor
supply and earnings with the likely main channels being the alleviation of liquidity and risk
constraints
Keywords Economic Assistance Disability Services amp Transfers to Poor Access of Poor to
Social Services Employment and Unemployment Labor Markets Rural Labor Markets Health
Care Services Industry
Globalisation and Urban Polarisation CEPR Discussion Paper No DP12877
24 Pages Posted 23 Apr 2018
Anthony J Venables University of Oxford Centre for Economic Policy Research (CEPR)
Date Written April 2018
Abstract
External trade affects the internal spatial structure of an economy promoting growth in some
cities or regions and decline in others Internal adjustment to these changes has often proved
to be extremely slow and painful This paper combines elements of urban and international
economics to draw out the implications of trade shocks for city performance Localisation
economies in production of internationally tradable goods mean that cities divide into two
types those producing tradables and those specialising in sectors producing just for the
national market (non-tradables) Negative trade shocks (and possibly also some positive
ones) reduce the number of cities engaged in tradable production increasing the number
producing just non-tradables This has a negative effect across all non-tradable cities which
lose population and land value Remaining tradable cities boom gaining population and land
value Depending on the initial position city size dispersion may increase this raising the
share of urban land-rents in national income and reducing the share of labour
Keywords de-industrialisation globalisation Polarisation urban
JEL Classification F12 R11 R12
Place-Based Policies for Development World Bank Policy Research Working Paper No 8410
75 Pages Posted 24 Apr 2018
Gilles Duranton University of Pennsylvania - Real Estate Department
Anthony J Venables University of Oxford Centre for Economic Policy Research (CEPR)
There are 3 versions of this paper
Date Written April 17 2018
Abstract
Many development policies such as placement of infrastructure or local economic
development schemes are place-based Such policies are generally intended to stimulate
private sector investment and economic growth in the treated place and as such they are
difficult to appraise and evaluate This paper sets out a framework for analyzing the effects of
such policies and assessing their social value It then reviews the literature on place-based
policies in the contexts of transport improvements economic corridors special economic
zones lagging regions and urban policies
Keywords Transport Services Labor Markets Urban Governance and Management Urban
Housing and Land Settlements Municipal Management and Reform Urban Housing
Macroeconomic Management Economic Forecasting Governance Diagnostic Capacity
Building Textiles Apparel amp Leather Industry Common Carriers Industry Food amp Beverage
Industry Business Cycles and Stabilization Policies Plastics amp Rubber Industry General
Manufacturing Construction Industry Pulp amp Paper Industry
Evidence on Finance and Economic Growth ECB Working Paper No 2115 ISBN 978-92-899-3031-4
79 Pages Posted 8 Dec 2017
Alexander A Popov European Central Bank (ECB)
Date Written December 6 2017
Abstract
This paper reviews and appraises the body of empirical research on the association between
financial markets and economic growth that has accumulated over the past quarter-century
The bulk of the historical evidence suggests that financial development affects economic
growth in a positive monotonic way yet recent research endeavors have provided useful and
important qualifications of this conventional wisdom Moreover the proliferation of micro-
level datasets has enabled researchers to study more precise links between theory and
measurement The paper highlights the mechanisms through which financial markets benefit
society as well as the channels through which finance can slow down long-term growth
Keywords financial markets growth
JEL Classification O4 G1
Why Has Economic Growth Slowed When Innovation Appears to be Accelerating
by Robert J Gordon - 24554 (DAE EFG PR)
Abstract
Measured between quarters with identical unemployment rates U
S economic growth slowed by more than half from 32 percent per
year during 1970-2006 to only 14 percent during 2006-16 and
only half of this GDP growth slowdown is accounted for diminished
productivity growth The paper starts from the proposition that
GDP growth matters not just productivity growth because slower
GDP growth provides fewer resources to address the nations
problems including faltering education aging infrastructure
and the looming shortfall in funding for Social Security and
Medicare and it also implies lower net investment and a reduced
rate at which new capital can embody the latest technology
The paper documents the contribution to slower GDP growth of the
separate components of demography -- fertility mortality life
expectancy and immigration Particular emphasis is placed on
the interaction between rising inequality and the slower secular
rise of life expectancy in the US compared to other developed
countries both in the form of a large gap in life expectancy
between rich and poor and the stagnation of life expectancy for
the lowest income quintile Further contributions to slowing
growth are made by a decline in the population share of both
legal and illegal immigration and a turnaround from rising to
declining labor force participation Rising inequality creates a
gap between the growth of average real per-capita income relative
to that of median real income and alternative measures of the
evolution of this gap are compared and assessed
Causes of declining productivity growth begin with the slowdown
in the rate of increase of educational attainment resulting from
the interplay of demand and supply factors including the
flattening of the college wage premium and the rising relative
price of college education Why did productivity growth decline
after 2006 despite an increase in the rate at which new US
patents were issued in 2006-16 compared to earlier decades Part
of the slowdown is attributed to the maturity of the IT
revolution which also helps to explain the trajectory of the
college wage premium Aspects of the productivity growth
slowdown include the declining productivity of research workers
diminishing returns to drug innovation and the evolutionary
rather than revolutionary impact of robots and artificial
intelligence which are replacing workers slowly and only in a
minority of industrial sectors throughout the economy Also
considered are alternative explanations of slower productivity
growth including low investment and mismeasurement
httppapersnberorgpapersW24554utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Childbearing Postponement its Option Value and the
Biological Clock CEPR Discussion Paper No DP12884
48 Pages Posted 23 Apr 2018
David de la Croix Catholic University of Louvain (UCL) - Institut de Recherches Economiques et Sociales (IRES) Catholic
University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)
Aude Pommeret Universiteacute de Savoie
Date Written April 2018
Abstract
Having children is like investing in a risky project Postponing birth is like delaying an
irreversible investment It has an option value which depends on its costs and benefits and in
particular on the additional risks motherhood brings We develop a parsimonious theory of
childbearing postponement along these lines We derive its implications for asset
accumulation income optimal age at first birth and childlessness The structural parameters
are estimated by matching the predictions of the model to data from the National Longitudinal
Survey of Youth NLSY79 The uncertainty surrounding income growth is shown to increase
with childbearing and this increase is stronger for more educated people This effect alone
can explain why the age at first birth and the childlessness rate both increase with education
We use the model to simulate two hypothetical policies Providing free medically assisted
reproduction technology does not affect the age at first birth much but lowers the
childlessness rate Insuring mothers against income risk is powerful in lowering the age at
first birth
Keywords Assisted reproduction technology Career uncertainty Late parenthood Real
option
JEL Classification D91 J13
Economic Upgrading Through Global Value Chain
Participation Which Policies Increase the Value
Added Gains World Bank Policy Research Working Paper No 8007
45 Pages Posted 1 May 2018
Victor Kummritz World Trade Organization (WTO) Graduate Institute of International and Development Studies (IHEID)
Daria Taglioni European Central Bank (ECB) - Directorate General Economics
Deborah E Winkler World Bank
Date Written March 16 2017
Abstract
The emergence of global value chains has opened up new ways to achieve development and
industrialization However new evidence shows that not all countries have gained from
participating in global value chains and that country-specific characteristics matter for
economic upgrading in global value chains This paper uses two panel data sets of developing
and industrialized countries at the sectoral level to relate global value chain participation as a
buyer and seller to domestic value added These are combined with a wide range of policy
measures at the country level that can play a role in economic upgrading through global value
chains by targeting global value chain integration or the quality and conditions of input and
output factors First the study finds that global value chain integration increases domestic
value added especially on the selling side which holds across all income levels Second the
results highlight the importance of policy for economic upgrading through global value chain
integration Although the study cannot claim causal evidence all the assessed policy areas are
consistently shown to mediate the effects of global value chains and magnify the gains for
domestic value added Third a detailed analysis shows that several policy areas mediate the
gains from global value chains more through integration as a seller Finally the study
observes that many of the results are driven by high- and upper-middle-income countries
Keywords International Trade and Trade Rules Labor Markets Rural Labor Markets Food amp
Beverage Industry Construction Industry Business Cycles and Stabilization Policies General
Manufacturing Common Carriers Industry Textiles Apparel amp Leather Industry Pulp amp Paper
Industry Plastics amp Rubber Industry Global Environment
Job Vacancies and Immigration Evidence from Pre- and Post-Mariel Miami
by Jason Anastasopoulos George J Borjas Gavin G Cook Michael Lachanski - 24580 (LS)
Abstract
How does immigration affect labor market opportunities in a
receiving country This paper contributes to the voluminous
literature by reporting findings from a new (but very old) data
set Beginning in 1951 the Conference Board constructed a
monthly job vacancy index by counting the number of help-wanted
ads published in local newspapers in 51 metropolitan areas We
use the Help-Wanted Index (HWI) to document how immigration
changes the number of job vacancies in the affected labor
markets Our analysis begins by revisiting the Mariel episode
The data reveal a marked decrease in Miamis HWI relative to many
alternative control groups in the first 4 or 5 years after
Mariel followed by recovery afterwards We find a similar
initial decline in the number of job vacancies after two other
supply shocks that hit Miami over the past few decades the
initial wave of Cuban refugees in the early 1960s as well as the
1995 refugees who were initially detoured to Guantanamo Bay We
also look beyond Miami and estimate the generic spatial
correlations that dominate the literature correlating changes in
the HWI with immigration across metropolitan areas These
correlations consistently indicate that more immigration is
associated with fewer job vacancies The trends in the HWI seem
to most strongly reflect changing labor market conditions for
low-skill workers (in terms of both wages and employment) and a
companion textual analysis of help-wanted ads in Miami before and
after the Mariel supply shock suggests a slight decline in the
relative number of low-skill job vacancies
httppapersnberorgpapersW24580utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Somatic Distance Cultural Affinities Trust and Trade CEPR Discussion Paper No DP12895
21 Pages Posted 1 May 2018
Jacques Melitz National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and
Statistics (CREST) Centre for Economic Policy Research (CEPR)
Farid Toubal Ecole Normale Superieure de Cachan (ENS) - Departement of Economics ans Management National
Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics
(CREST) Centre dEtudes Prospectives et dInfo Internationales (CEPII)
Date Written April 2018
Abstract
Somatic distance or differences in physical appearance proves to be extremely important in
the gravity model of bilateral trade in conformity with results in other areas of economics and
outside of it in the social sciences This is also true quite independently of survey evidence
about bilateral trust These findings are obtained in a sample of the 15 members of the
European Economic Association in 1996 Robustness tests also show that somatic distance
has a more reliable influence on bilateral trade than the other cultural variables The article
finally discusses the interpretation and the breadth of application of these results
Keywords Bilateral Trade Cultural interactions Language Somatic distance Trust
The Paradox of Global Thrift CEPR Discussion Paper No DP12894
59 Pages Posted 1 May 2018
Luca Fornaro Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) Barcelona Graduate
School of Economics (Barcelona GSE)
Federica Romei LUISS Guido Carli University
Date Written April 2018
Abstract
This paper describes a paradox of global thrift Consider a world in which interest rates are
low and monetary policy cannot stabilize the economy because it is frequently constrained by
the zero lower bound Now imagine that governments complement monetary policy with
prudential financial and fiscal policies because they perceive that limiting private and public
borrowing during booms will help stabilize the economy by reducing the risk of financial
crises and by creating space for fiscal interventions during busts We show that these policies
while effective from the perspective of individual countries might backfire if applied on a
global scale In a financially integrated world in fact prudential policies generate a rise in the
global supply of savings or equivalently a drop in global aggregate demand In turn weaker
global aggregate demand depresses output in countries whose monetary policy is constrained
by the zero lower bound Due to this effect the world might paradoxically experience a fall in
output and welfare following the implementation of well-intended prudential policies
Keywords aggregate demand externalities Capital Flows current account policies fiscal
policies international cooperation Liquidity traps macroprudential policies zero lower
bound
JEL Classification E32 E44 E52 F41 F42
Multihorizon Currency Returns and Purchasing
Power Parity CEPR Discussion Paper No DP12893
59 Pages Posted 1 May 2018
Mikhail Chernov UCLA Anderson
Drew Creal University of Chicago - Booth School of Business - Econometrics and Statistics
There are 2 versions of this paper
Date Written April 2018
Abstract
Exposures of expected future depreciation rates to the current interest rate differential
violate the UIP hypothesis in a distinctive pattern that is a non-monotonic function of horizon
Conversely forward risk-adjusted expected depreciation rates are monotonic We explain the
two patterns by incorporating the weak form of PPP into a no-arbitrage joint model of the
depreciation rate inflation differential domestic and foreign yield curves Short-term
departures from PPP generate the first pattern The risk premiums for these departures
generate the second pattern
Keywords affine term structure model cointegration multiple horizons purchasing power
parity uncovered interest parity
Networks and Trade CEPR Discussion Paper No DP12891
33 Pages Posted 1 May 2018
Andrew B Bernard Tuck School of Business at Dartmouth National Bureau of Economic Research (NBER) Centre for
Economic Policy Research (CEPR)
Andreas Moxnes University of Oslo - Department of Economics Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
There are 2 versions of this paper
Date Written April 2018
Abstract
Trade occurs between firms both across borders and within countries and the vast majority
of trade transactions includes at least one large firm with many trading partners This paper
reviews the literature on firm-to-firm connections in trade A growing body of evidence
coming from domestic and international transaction data has established empirical
regularities which have inspired the development of new theories emphasizing firm
heterogeneity among both buyers and suppliers in production networks Theoretical work
has considered both static and dynamic matching environments in a framework of many-to-
many matching The literature on trade and production networks is at an early stage and
there are a large number of unanswered empirical and theoretical questions
Keywords International Trade offshoring production networks productivity
JEL Classification F10 F12 F14 L11 L21
One More Time What are Institutions and How Do
They Change World Bank Policy Research Working Paper No 8422
39 Pages Posted 1 May 2018 Last revised 3 May 2018
Roumeen Islam World Bank
Date Written April 30 2018
Abstract
This paper defines institutions presents their basic characteristics and discusses forces for
institutional change It draws on a wealth of research and study by scholars in different fields
and follows from the flagship 2002 World Development Report on this topic including
relevant new research since then that illuminates key issues The definition of institutions
includes rules and organizations (specifically rules guiding peoples actions) The paper
emphasizes the diversity of institutions that can effectively perform similar functions the
arguments for and against standardization of institutions across specific transactions or
groups and the implications of these choices It highlights the relationship between informal
and formal institutions It discusses forces for institutional change influencing all economies
ranging from external shocks (whether they be economic or weather-related shocks or driven
by wars) to internal dynamics such as those following population growth or compositional
changes and those following technological innovations Many of these forces have a two-way
relationship with institutions they are affected by them and in turn influence whether and
when they change A special section is devoted to institutional transplants and their
effectiveness The paper concludes with a discussion of whether and under what conditions
institutional change can be externally directed and the lessons for aid donors
Keywords International Trade and Trade Rules Social Policy Common Property Resource
Development Legal Products Regulatory Regimes Legislation Legal Reform Judicial System
Reform Public Sector Economics Taxation amp Subsidies Public Finance Decentralization and
Poverty Reduction Economic Adjustment and Lending Macro-Fiscal Policy Educational
Sciences Competitiveness and Competition Policy
Globalization Government Popularity and the Great
Skill Divide
CEPR Discussion Paper No DP12897
56 Pages Posted 1 May 2018
Cevat Giray Aksoy European Bank for Reconstruction and Development IZA Institute of Labor Economics
Sergei M Guriev Sciences Po Centre for Economic Policy Research (CEPR) European Bank for Reconstruction and
Development (EBRD)
Daniel Treisman University of California Los Angeles (UCLA) - Department of Political Science
There are 2 versions of this paper
Date Written April 2018
Abstract
How does international trade affect the popularity of governments and leaders We provide
the first large-scale systematic evidence that the divide between skilled and unskilled
workers worldwide is producing corresponding differences in the response of political
preferences to trade shocks Using a unique data set including 118 countries and nearly
450000 individuals we find that growth in high skill intensive exports (of goods and
services) increases approval of the leader and incumbent government among skilled
individuals Growth in high skill intensive imports has the opposite effect There is no effect
on political approval among the unskilled To identify exogenous variation in international
trade we exploit the time-varying effects of air and sea distances in bilateral trade flows Our
findings suggest that the political effects of international trade differ with skill intensity and
that skilled individuals respond differently from their unskilled counterparts to trade shocks
Keywords International trade political approval political polarization skill intensity of
trade
Migratory Pressures in the Long Run International
Migration Projections to 2050 Banco de Espana Article 3817
9 Pages Posted 3 Jan 2018
Rodolfo G Campos Banco de Espantildea
Date Written December 5 2017
Abstract
This article presents bilateral international migration projections to 2050 based on a new
methodology that takes into account the population growth both in countries of origin and
countries of destination To do this the methodology used by Hanson and McIntosh (2016) to
project the future migratory flows to a sample of OECD countries is generalised to all
countries worldwide The United Nations population growth forecasts are used as a basis for
projecting future migratory flows The main findings of the exercise indicate that the number
of migrants is projected to increase from 28 of the world population in 2010 to around
35 in 2050 as a result of the strong increase in migrants from India and sub-Saharan Africa
Against this background and despite the slowdown in demographic growth in Latin America
the United States is expected to continue to receive high net immigration flows and to remain
the country with the highest stock of immigrants globally while continental Europe will post
larger net immigration flows
Immigration and Electoral Support for the Far-Left
and the Far-Right CESifo Working Paper Series No 6918
53 Pages Posted 7 May 2018
Anthony Edo Paris School of Economics (PSE)
Yvonne Giesing CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute
Jonathan Oumlztunc Barcelona Graduate School of Economics (Barcelona GSE)
Panu Poutvaara Ludwig Maximilian University of Munich - Faculty of Economics CESifo (Center for Economic Studies and
Ifo Institute) - Ifo Institute CESifo (Center for Economic Studies and Ifo Institute) CReAM IZA Institute of
Labor Economics
Date Written March 05 2018
Abstract
Immigration has become one of the most divisive political issues in the United States the
United Kingdom France and several other Western countries We estimate the impact of
immigration on voting for far-left and far-right candidates in France using panel data on
presidential elections from 1988 to 2017 To derive causal estimates we instrument more
recent immigration flows by past settlement patterns in 1968 We find that immigration
increases support for far-right candidates and has no robust effect on far-left voting The
increased support for far-right candidates is driven by low educated immigrants from non-
Western countries
Keywords voting immigration political economy
JEL Classification D720 F220 J150 P160
Institutions Trade and Development A Quantitative
Analysis CESifo Working Paper Series No 6920
64 Pages Posted 7 May 2018
Cosimo Beverelli World Trade Organization (WTO)
Alexander Keck World Trade Organization (WTO)
Mario Larch University of Bayreuth - Faculty of Law Business and Economics University of Bayreuth CESifo Ifo
Institute for Economic Research GEP at the University of Nottingham
Yoto Yotov Drexel University - Department of Economics amp International Business
Date Written March 05 2018
Abstract
We propose and apply methods to quantify the impact of national institutions on international
trade and development We are able to identify the direct impact of country-specific
institutions on international trade within the structural gravity framework Our approach
naturally addresses the prominent issue of endogenous institutions The empirical analysis
offers robust evidence that stronger institutions promote trade A counterfactual analysis
reveals that the changes in institutional quality in the poor countries in our sample between
1996 and 2006 have had via their impact on imports from rich countries significant and
heterogeneous real GDP effects varying between -5 and 5 percent Our methods are readily
applicable to identifying the impact of a wide range of country-specific variables on
international trade
Keywords institutional quality international trade development structural gravity
JEL Classification F130 F140 F160
5 Inference in Structural Vector Autoregressions When the Identifying Assumptions are Not Fully Believed Re-
evaluating the Role of Monetary Policy in Economic Fluctuations
by Christiane Baumeister James D Hamilton - 24597 (EFG ME)
Abstract
Reporting point estimates and error bands for structural vector
autoregressions that are only set identified is a very common
practice However unless the researcher is persuaded on the
basis of prior information that some parameter values are more
plausible than others this common practice has no formal
justification When the role and reliability of prior
information is defended Bayesian posterior probabilities can be
used to form an inference that incorporates doubts about the
identifying assumptions We illustrate how prior information can
be used about both structural coefficients and the impacts of
shocks and propose a new distribution which we call the
asymmetric t distribution for incorporating prior beliefs about
the signs of equilibrium impacts in a nondogmatic way We apply
these methods to a three-variable macroeconomic model and
conclude that monetary policy shocks were not the major driver of
output inflation or interest rates during the Great Moderation
httppapersnberorgpapersW24597utm_campaign=ntwamputm_medium=emailamputm_source=ntw
11 The Political Impact of Immigration Evidence from the United States
by Anna Maria Mayda Giovanni Peri Walter Steingress - 24510 (ITI POL)
Abstract
In this paper we study the impact of immigration to the United
States on the vote for the Republican Party by analyzing
county-level data on election outcomes between 1990 and 2010
Our main contribution is to separate the effect of high-skilled
and low-skilled immigrants by exploiting the different geography
and timing of the inflows of these two groups of immigrants We
find that an increase in the first type of immigrants decreases
the share of the Republican vote while an inflow of the second
type increases it These effects are mainly due to the local
impact of immigrants on votes of US citizens and they seem
independent of the country of origin of immigrants We also find
that the pro-Republican impact of low-skilled immigrants is
stronger in low-skilled and non-urban counties This is
consistent with citizens political preferences shifting towards
the Republican Party in places where low-skilled immigrants are
more likely to be perceived as competition in the labor market
and for public resources
httppapersnberorgpapersW24510utm_campaign=ntwamputm_medium=emailamputm_source=ntw
23 The Impact of Exports on Innovation Theory and Evidence
by Philippe Aghion Antonin Bergeaud Matthieu Lequien Marc J Melitz - 24600 (EFG ITI)
Abstract
This paper investigates the effect of export shocks on
innovation On the one hand a positive shock increases market
size and therefore innovation incentives for all firms On the
other hand it increases competition as more firms enter the
export market This in turn reduces profits and therefore
innovation incentives particularly for firms with low
productivity Overall the positive impact of the export shock on
innovation is magnified for high productivity firms whereas it
may negatively affect innovation in low productivity firms We
test this prediction with patent customs and production data
covering all French manufacturing firms To address potential
endogeneity issues we construct firm-level export proxies which
respond to aggregate conditions in a firms export destinations
but are exogenous to firm-level decisions We show that
patenting robustly increases more with export demand for
initially more productive firms This effect is reversed for the
least productive firms as the negative competition effect
dominates
httppapersnberorgpapersW24600utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Sovereign Defaults in Court CESifo Working Paper Series No 6931
75 Pages Posted 8 May 2018
Julian Schumacher European Central Bank (ECB)
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Enderlein Henrik Hertie School of Governance
There are 3 versions of this paper
Date Written March 08 2018
Abstract
For centuries defaulting governments were immune from legal action by foreign creditors
This paper shows that this is no longer the case Building a dataset covering four decades we
find that creditor lawsuits have become an increasingly common feature of sovereign debt
markets The legal developments have strengthened the hands of creditors and raised the cost
of default for debtors We show that legal disputes in the US and the UK disrupt government
access to international capital markets as foreign courts can impose a financial embargo on
sovereigns The findings are consistent with theoretical models with creditor sanctions and
suggest that sovereign debt is becoming more enforceable We discuss how the threat of
litigation affects debt management government willingness to pay and the resolution of debt
crises
Keywords sovereign default enforcement government financing debt restructuring
JEL Classification F340 G150 H630 K220
ECB Monetary Policy and the Euro Exchange Rate Bank of Italy Temi di Discussione (Working Paper) No 1172
54 Pages Posted 14 May 2018
Martina Cecioni Bank of Italy
Date Written May 3 2018
Abstract
The paper provides empirical evidence on the effects of ECB conventional and unconventional
monetary policy on the euro exchange rate focusing on the period from January 2013 to
September 2017 Innovations to conventional and unconventional monetary policies are
identified through changes in respectively short- and long-term interest rates immediately
after Governing Council meetings Both types of measures contributed to the depreciation of
the euro from mid-2014 surprises associated with conventional measures had a stronger and
more persistent effect than those associated with unconventional ones Time-varying
estimates of the effects of conventional surprises since 1999 show that the responsiveness of
exchange rates to monetary news increased markedly from 2013 State-dependence analysis
finds that the exchange rate became more sensitive to monetary policy when the ECB adopted
a policy of negative interest rates and when conventional and unconventional monetary
surprises moved in the same direction
Keywords unconventional monetary policy exchange rates European Central Bank
JEL Classification E52 E58 F31
The ECBs Fiscal Policy
by Hans-Werner Sinn - 24613 (ME)
Abstract
While the ECB helped mitigate the euro crisis in the aftermath of
Lehman it has stretched its monetary mandate and moved into
fiscal territory This text describes and summarizes the crucial
role played by the ECB in the intervention spiral resulting from
its bid to manage the crisis It also outlines ongoing
competitiveness problems in southern Europe discusses the
so-called austerity policy of the Troika comments on QE and
presents two alternative paths for the future development of
Europe
httppapersnberorgpapersW24613utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Real Convergence in the Euro Area A Long-Term
Perspective ECB Occasional Paper No 203 ISBN 978-92-899-2865-6
102 Pages Posted 5 Dec 2017
Juan Luis Diaz del Hoyo European Central Bank (ECB)
Ettore Dorrucci European Central Bank (ECB)
Frigyes Ferdinand Heinz European Central Bank (ECB)
Sona Muzikarova European Central Bank (ECB)
Date Written December 1 2017
Abstract
In the euro area there is mixed evidence that the GDP per capita of lower-income economies
has been catching up with that of higher-income economies since the start of monetary union
The significant real convergence performance of some of the most recent members contrasts
with that of the economies of southern Europe which have not met expectations However
attributing all the blame for this outcome to the introduction of the single currency simply
misses the point By taking a ldquolong viewrdquo and reviewing the evidence since the 1960s this
paper shows that certain member countries began to face a ldquonon-convergence traprdquo long
before the euro years We also provide stylised facts on (i) the central role of total factor
productivity in driving real convergence in the euro area over time alongside other factors
and (ii) the crucial interaction of real convergence with ldquoMaastricht convergencerdquo and
institutional quality the other two key components of sustainable economic convergence We
conclude that it is critical that the euro area countries facing convergence challenges enhance
the resilience of their economic structures by improving the relevant institutions and
governance
Keywords sustainable economic convergence real convergence nominal convergence GDP
per capita Maastricht convergence criteria institutional quality labour productivity total
factor productivity Five Presidentsrsquo Report Reflection Paper on the Deepening of EMU
JEL Classification E01 F15 J11 O11 O43 O47 O52 O57
Monetary Policy Transmission in the Eastern
Caribbean Currency Union IMF Working Paper No 1870
31 Pages Posted 22 May 2018
Alla Myrvoda International Monetary Fund (IMF)
Julien P M Reynaud International Monetary Fund (IMF) Universiteacute Paris I Pantheacuteon-Sorbonne
Date Written March 2018
Abstract
This paper empirically investigates international and domestic monetary policy transmission
mechanisms in the Eastern Caribbean Currency Union (ECCU) We assess interest rate pass-
through of both the US policy rate and the ECCU minimum saving deposit rate (MSR) into
domestic interest rates through the interest rate channel While economic theory suggests
that the international pass-through should be high in small open economies with fixed
exchange rates and open capital accounts our findings based on regression analysis point to
a low long-run pass-through coefficient of the US interest rate The domestic transmission
channel however is found to operate through changes in the MSR The results hold for
different interest rates (deposit and lending) and are supported by survey-based findings
Keywords Asia and Pacific Antigua and Barbuda Dominica Saint Kitts and Nevis Saint
Lucia Saint Vincent and the Grenadines Grenada Western Hemisphere monetary policy
transmission interest rate pass-through ECCU monetary policy transmission interest rate
pass-through ECCU General Monetary Policy (Targets Instruments and Effects)
JEL Classification E43 E50 E52 F31 F33 F36 O54
On the Impact of Structural Reforms on Output and
Employment Evidence from a Cross-Country Firm-
Level Analysis IMF Working Paper No 1873
36 Pages Posted 22 May 2018
Luiza Antoun de Almeida International Monetary Fund (IMF)
Vybhavi Balasundharam University of Michigan at Ann Arbor
Date Written April 2018
Abstract
This paper analyzes the effects of selected structural reforms on output and employment in
the short and medium term It uses a comprehensive cross-country firm-level dataset
covering both advanced and emerging market economies over the period 2003-2014 In line
with previous studies it finds that structural reforms have in general a positive impact on
output and employment in the medium term Furthermore the paper also assesses whether
the impact of structural reforms varies with firm-specific characteristics such as size
leverage profitability and sector We find evidence that firm characteristics do influence the
effectiveness of structural reforms These findings have relevant policy implications as they
help policymakers tailor the design of structural reforms to maximize their payoffs taking
into account their heterogeneous impact on firms
Keywords Fiscal reforms Cross-country analysis Potential output Employment Developed
countries Emerging markets structural reforms firm-level data Orbis dataset potential
growth
JEL Classification L51 D04 D22
Production Integration in the European Union CESifo Working Paper Series No 6944
34 Pages Posted 17 May 2018
Hakan Nordstrom Swedish Board of Trade
Harry Flam Stockholm University - Institute for International Economic Studies (IIES) CESifo (Center for Economic
Studies and Ifo Institute)
Date Written March 21 2018
Abstract
Measured by trade in intermediate inputs economic integration has increased between 2000
and 2014 between members of the European Union and even more with non-members
Integration is negatively related to economic size and positively to the number of years as a
member Germany is the largest hub in the production network and the centre of gravity has
moved eastward Older member states are increasingly exporting service inputs and new
member states primary and manufacturing inputs Wages are increasing faster in countries
with low initial wages indicating wage convergence as a result of production integration
Keywords global value chains economic integration input-output models wage
convergence
JEL Classification E100 F100 F600 J310
Democratic Tipping Points CESifo Working Paper Series No 6945
36 Pages Posted 17 May 2018
Antonio Ciccone Universitat Pompeu Fabra - Faculty of Economic and Business Sciences Centre for Economic Policy
Research (CEPR) Institute for the Study of Labor (IZA)
There are 2 versions of this paper
Date Written March 21 2018
Abstract
I examine whether transitory events can tip the scales against authoritarian regimes and lead
to persistent democratization I think of situations where this is a possibility as democratic
tipping points The transitory events I focus on are rainfall shocks in the most agricultural
countries in the world I show that while these shocks only affect agricultural output
contemporaneously they have persistent effects on political institutions Authoritarian
regimes experiencing negative rainfall shocks are more likely to be democratic three five and
ten years later
Keywords transitory shocks persistent democratization
Globalization and the New Normal IMF Working Paper No 1875
41 Pages Posted 22 May 2018
Bertrand Candelon University of Maastricht - Department of Economics
Alina Carare International Monetary Fund (IMF)
Jean-Baptiste Hasse
Aix-Marseille University
Date Written April 2018
Abstract
This study expands the empirical specification of Cerra and Saxena (2008) and allows short-
termoutput growth regimes to be determined by globalization Relying on a non-linear
dynamic panelrepresentation it reconciles the earlier results in the literature regarding the
two oppositenarratives of the effects of globalization on output growth Countries experience
higher growth onaverage the more open and integrated they are into the world However
once they reach a certainglobalization threshold (endogenously estimated) countries may
also experience a new normalpersistently lower short-term output growth following a
financial crisis The benefits as well asvulnerabilities accrue earlier in the globalization
process for low- and middle-income countriesTo solely reap the globalization benefits on
growth sound policies should be in place to mitigatethe negative effects stemming from
increased vulnerabilities brought by globalization
Keywords Globalization Financial crisis Banking crisis Output growth New Normal
Globalization Financial crises Banking crises Output growth
JEL Classification F30 F43 F62 F65
Public Policy in an AI Economy
by Austan Goolsbee - 24653 (PE PR)
Abstract
This paper considers the role of policy in an AI-intensive
economy (interpreting AI broadly) It emphasizes the speed of
adoption of the technology for the impact on the job market and
the implications for inequality across people and across places
It also discusses the challenges of enacting a Universal Basic
Income as a response to widespread AI adoption discuss pricing
privacy and competition policy the question of whether AI could
improve policy making itself
httppapersnberorgpapersW24653utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Aggregate and Distributional Effects of Financial
Globalization Evidence from Macro and Sectoral Data IMF Working Paper No 1883
62 Pages Posted 22 May 2018
Davide Furceri International Monetary Fund (IMF)
Prakash Loungani International Monetary Fund (IMF)
Jonathan D Ostry International Monetary Fund (IMF)
Date Written April 2018
Abstract
We take a fresh look at the aggregate and distributional effects of policies to
liberalizeinternational capital flows-financial globalization Both country- and industry-level
resultssuggest that such policies have led on average to limited output gains while
contributing tosignificant increases in inequality-that is they pose an equity-efficiency trade-
off Behindthis average lies considerable heterogeneity in effects depending on country
characteristicsLiberalization increases output in countries with high financial depth and
those that avoidfinancial crises while distributional effects are more pronounced in countries
with lowfinancial depth and inclusion and where liberalization is followed by a crisis
Difference-indifferenceestimates using sectoral data suggest that liberalization episodes
reduce the shareof labor income particularly for industries with higher external financial
dependence thosewith a higher natural propensity to use layoffs to adjust to idiosyncratic
shocks and thosewith a higher elasticity of substitution between capital and labor The
sectoral resultsunderpin a causal interpretation of the findings using macro data
Keywords Globalization Inequality Capital Account Openness Crises Institutions
JEL Classification F13 G32 O11
The Dynamics of Sovereign Debt Crises and Bailouts CEPR Discussion Paper No DP12921
44 Pages Posted 15 May 2018
Francisco Roch International Monetary Fund (IMF)
Harald Uhlig University of Chicago - Department of Economics
There are 2 versions of this paper
Date Written May 2018
Abstract
Motivated by the recent European debt crisis this paper investigates the scope for a bailout
guarantee in a sovereign debt crisis Defaults may arise from negative income shocks
government impatience or a sunspot-coordinated buyers strike We introduce a bailout
agency and characterize the strategy with the minimal actuarially fair intervention which
guarantees the no-buyers-strike fundamental equilibrium relying on the market for residual
financing The intervention makes it cheaper for governments to borrow inducing them
borrow more leaving default probabilities possibly rather unchanged The maximal backstop
will be pulled precisely when fundamentals worsen
Keywords Bailouts default Endogenous Borrowing Constraints Eurozone Debt Crisis long-
term debt OMT Self-fulfilling Crises
JEL Classification F34 F41
Cumulative Impacts of Conditional Cash Transfer Programs Experimental Evidence from Indonesia
by Nur Cahyadi Rema Hanna Benjamin A Olken Rizal Adi Prima Elan Satriawan Ekki
Syamsulhakim - 24670 (CH DEV PE)
Abstract
Conditional cash transfer (CCT) programs have spread worldwide
and are designed to promote comprehensive human capital
investments in children starting from encouraging pre-natal and
maternal care and early childhood health interventions and
continuing through incentivizing school attendance Yet
evaluating these claims over more than a few years is hard as
most CCT experiments extend the program to the control group
after a short experimental period This paper experimentally
estimates the impacts of Indonesias cash transfer program (PKH)
six years after the program launched using data from about
14000 households in 360 sub-districts across Indonesia taking
advantage of the fact that treatment and control locations
remained largely intact throughout the period We find that PKH
continues to have large static incentive effects on many of the
targeted indicators increasing usage of trained health
professionals for childbirth dramatically and halving the share
of children age 7-15 who are not enrolled in school Wage labor
for 13-15 year olds was reduced by at least one-third We also
begin to observe impacts on outcomes that may require cumulative
investments for example six years later we observe large
reductions in stunting and some evidence of increased high school
completion rates The results suggest that CCT investments can
have substantial effects on the accumulation of human capital
and that these effects can persist even when programs are
operating at large-scale without researcher intervention
httppapersnberorgpapersW24670utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Services Development and Comparative Advantage in
Manufacturing World Bank Policy Research Working Paper No 8450
47 Pages Posted 23 May 2018
Xuepeng Liu Kennesaw State University - Department of Economics and Finance
Aaditya Mattoo World Bank - Development Research Group (DECRG)
Zhi Wang George Mason University - Schar School of Policy and Government
Shang-Jin Wei Columbia Business School - Finance and Economics National Bureau of Economic Research (NBER) Centre
for Economic Policy Research (CEPR) International Monetary Fund (IMF) Tsinghua University - School of
Economics amp Management
Date Written May 22 2018
Abstract
Most manufacturing activities use inputs from the financial and business services sectors But
these services sectors also compete for resources with manufacturing activities provoking
concerns about de-industrialization -- financial services in industrial countries like the United
States and the United Kingdom and business services in developing countries like India and
the Philippines This paper examines the implications of services development for the export
performance of manufacturing sectors It develops a methodology to quantify the indirect role
of services in international trade in goods and constructs new measures of revealed
comparative advantage based on domestic value added in gross exports The paper shows
that the development of financial and business services enhances the revealed comparative
advantage of manufacturing sectors that use these services intensively but not that of other
manufacturing sectors It also finds that a country can partially overcome the handicap of an
underdeveloped domestic services sector by relying more on imported services inputs Thus
lower services trade barriers in developing countries can help to promote their
manufacturing exports
Keywords Textiles Apparel amp Leather Industry Pulp amp Paper Industry General
Manufacturing Food amp Beverage Industry Common Carriers Industry Construction Industry
Plastics amp Rubber Industry Business Cycles and Stabilization Policies International Trade and
Trade Rules Trade and Services Financial Economics Finance and Development Economic
Growth Economic Theory amp Research Industrial Economics
Thou Shalt Not Breach The Impact on Sovereign
Spreads of Noncomplying with the EU Fiscal Rules IMF Working Paper No 1887
37 Pages Posted 22 May 2018
Federico Kalan International Monetary Fund (IMF)
Adina Popescu International Monetary Fund (IMF)
Julien P M Reynaud International Monetary Fund (IMF) Universiteacute Paris I Pantheacuteon-Sorbonne
Date Written April 2018
Abstract
There is evidence that fiscal rules in particular well-designed rules are associated with lower
sovereign spreads However the impact of noncompliance with fiscal rules on spreads has not
been examined in the literature This paper estimates the effect of the Excessive Deficit
Procedure (EDP) on sovereign spreads of European Union member states Based on a sample
including the 28 European Union countries over the period 1999 to 2016 sovereign spreads
of countries placed under an EDP are found to be on average higher compared to countries
that are not under an EDP The interpretation of this result is not straight-forward as different
channels may be at play in particular those related with the credibility and the design of the
EU fiscal framework The specification accounts for typical macroeconomic fiscal and
financial determinants of sovereign spreads the System Generalized Method of Moments
estimator is used to control for endogeneity and results are robust to a range of checks on
variables and estimators
Keywords Fiscal rules Fiscal policy noncompliance sovereign spreads General Models
with Panel Data
JEL Classification E62 H60 C23
ldquoUnconventionalrdquo Monetary Policy as Conventional
Monetary Policy A Perspective from the US In the
1920s
FEDS Working Paper No 2018-019
45 Pages Posted 6 Jun 2018
Mark A Carlson Board of Governors of the Federal Reserve System
Burcu Duygan-Bump Federal Reserve Board
Date Written 2018-03-09
Abstract
To implement monetary policy in the 1920s the Federal Reserve utilized administered
interest rates and conducted open market operations in both government securities and
private money market securities sometimes in fairly considerable amounts We show how the
Fed was able to effectively use these tools to influence conditions in money markets even
those in which it was not an active participant Moreover our results suggest that the
transmission of monetary policy to money markets occurred not just through changing the
supply of reserves but importantly through financial market arbitrage and the rebalancing of
investor portfolios The tools used in the 1920s by the Federal Reserve resemble the
extraordinary monetary policy tools used by central banks recently and provide further
evidence on their effectiveness even in ordinary times
Keywords Monetary policy Unconventional monetary policy Central banking Administered
rates Money markets Quantitative easing
JEL Classification E52 E58 N22
New Perspectives on the Decline of US
Manufacturing Employment FEDS Working Paper No 2018-023
37 Pages Posted 7 Jun 2018
Teresa Fort Dartmouth College - Tuck School of Business
Justin R Pierce Federal Reserve Board
Peter Schott Yale School of Management National Bureau of Economic Research (NBER)
Date Written 2018-04-13
Abstract
We use relatively unexplored dimensions of US microdata to examine how US manufacturing
employment has evolved across industries firms establishments and regions from 1977 to
2012 We show that these data provide support for both trade- and technology-based
explanations of the overall decline of employment over this period while also highlighting the
difficulties of estimating an overall contribution for each mechanism Toward that end we
discuss how further analysis of these trends might yield sharper insights
Keywords Employment Manufacturing Output Technology Trade
AI and the Economy
by Jason Furman Robert Seamans - 24689 (PR)
Abstract
We review the evidence that artificial intelligence (AI) is
having a large effect on the economy Across a variety of
statistics--including robotics shipments AI startups and patent
counts--there is evidence of a large increase in AI-related
activity We also review recent research in this area which
suggests that AI and robotics have the potential to increase
productivity growth but may have mixed effects on labor
particularly in the short run In particular some occupations
and industries may do well while others experience labor market
upheaval We then consider current and potential policies around
AI that may help to boost productivity growth while also
mitigating any labor market downsides including evaluating the
pros and cons of an AI specific regulator expanded antitrust
enforcement and alternative strategies for dealing with the
labor-market impacts of AI including universal basic income and
guaranteed employment
httppapersnberorgpapersW24689utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Economic Policy for Artificial Intelligence
by Ajay K Agrawal Joshua S Gans Avi Goldfarb - 24690 (PR)
Abstract
Recent progress in artificial intelligence (AI) - a general
purpose technology affecting many industries - has been focused
on advances in machine learning which we recast as a
quality-adjusted drop in the price of prediction How will this
sharp drop in price impact society Policy will influence the
impact on two key dimensions diffusion and consequences
First in addition to subsidies and IP policy that will influence
the diffusion of AI in ways similar to their effect on other
technologies three policy categories - privacy trade and
liability - may be uniquely salient in their influence on the
diffusion patterns of AI Second labor and antitrust policies
will influence the consequences of AI in terms of employment
inequality and competition
httppapersnberorgpapersW24690utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Missing Profits of Nations
by Thomas R Torslov Ludvig S Wier Gabriel Zucman - 24701 (CF IFM ITI PE)
Abstract
By combining new macroeconomic statistics on the activities of
multinational companies with the national accounts of tax havens
and the worlds other countries we estimate that close to 40 of
multinational profits are shifted to low-tax countries each year
Profit shifting is highest among US multinationals the tax
revenue losses are highest for the European Union and developing
countries We show theoretically and empirically that in the
current international tax system tax authorities of high-tax
countries do not have incentives to combat profit shifting to tax
havens They instead focus their enforcement effort on
relocating profits booked in other high-tax countries--in effect
stealing revenue from each other This policy failure can
explain the persistence of profit shifting to low-tax countries
despite the high costs involved for high-tax countries We
provide a new cross-country database of GDP corporate profits
trade balances and factor shares corrected for profit shifting
showing that the global rise of the corporate capital share is
significantly under-estimated
httppapersnberorgpapersW24701utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Global Financial Cycles and Risk Premiums
by Oscar Jorda Moritz Schularick Alan M Taylor Felix Ward - 24677 (AP DAE IFM ME)
Abstract
This paper studies the synchronization of financial cycles across
17 advanced economies over the past 150 years The comovement in
credit house prices and equity prices has reached historical
highs in the past three decades The sharp increase in the
comovement of global equity markets is particularly notable We
demonstrate that fluctuations in risk premiums and not risk-free
rates and dividends account for a large part of the observed
equity price synchronization after 1990 We also show that US
monetary policy has come to play an important role as a source of
fluctuations in risk appetite across global equity markets
These fluctuations are transmitted across both fixed and floating
exchange rate regimes but the effects are more muted in floating
rate regimes
httppapersnberorgpapersW24677utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Geography of Linguistic Diversity and the Provision of Public Goods
by Klaus Desmet Joseph Gomes Ignacio Ortunyo-Ortin - 24694 (PE POL)
Abstract
This paper analyzes the importance of local interaction between
individuals of different linguistic groups for the provision of
public goods at the national level The micro-founded conceptual
framework we develop predicts that a countrys public goods (i)
decrease in its overall linguistic fractionalization and (ii)
either increase or decrease in its local learning multiplier a
measure of how local interaction affects antagonism towards other
groups in the society at large After constructing a 5 km by 5
km dataset on language use for 223 countries we empirically
explore these theoretical predictions While overall
fractionalization worsens public goods outcomes we find a
positive causal effect of local learning Conditional on a
countrys overall diversity public goods outcomes are maximized
when there are a few large-sized groups and the diversity of each
location mirrors that of the country as a whole Our large-scale
study spanning the entire globe confirms experimental
micro-evidence in favor of contact theory
httppapersnberorgpapersW24694utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Misfits in the Car Industry Offshore Assembly
Decisions at the Variety Level CEPR Discussion Paper No DP12940
39 Pages Posted 21 May 2018
Keith Head University of British Columbia (UBC) - Division of Strategy and Business Economics
Thierry Mayer Sciences Po
Date Written May 2018
Abstract
This paper estimates the role of countryvariety comparative advantage in the decision to
offshore assembly of more than 2000 models of 197 car brands headquartered in 23
countries While offshoring in the car industry has risen from 2000 to 2016 the top five
offshoring brands account for half the car assembly relocated to low-wage countries We show
that the decision to offshore a particular car model depends on two types of cost
(dis)advantage of the home country relative to foreign locations The first type the assembly
costs common to all models is estimated via a structural triadic gravity equation The second
effect model-level comparative advantage is an interaction between proxies for the models
skill and capital intensity and headquarter countrys abundance in these factors
Keywords cars Gravity offshoring
JEL Classification F1
Global Crises and Populism The Role of Eurozone
Institutions CEPR Discussion Paper No DP12944
46 Pages Posted 21 May 2018
Luigi Guiso Einaudi Institute for Economics and Finance (EIEF)
Helios Herrera University of Warwick
Massimo Morelli Bocconi University
Tommaso Sonno Catholic University of Louvain (UCL) London School of Economics amp Political Science (LSE) - Centre for
Economic Performance (CEP)
Date Written May 2018
Abstract
Populist parties are likely to gain consensus when mainstream parties and status quo
institutions fail to manage the shocks faced by their economies Institutional constraints
which limit the possible actions in the face of shocks result in poorer performance and
frustration among voters who turn to populist movements We rely on this logic to explain the
different support of populist parties among European countries in response to the
globalization shock and to the 2008-2011 - financial and sovereign debt crisis We predict a
greater success of populist parties in response to these shocks in Euro zone countries and our
empirical analysis confirms this prediction This is consistent with voters frustration for the
greater inability of the Euro zone governments to react to di cult-to-manage globalization
shocks and financial crises Our evidence has implications for the speed of construction of
political unions A slow staged process of political unification can expose the EU to a risk of
political backlash if hard to manage shocks hit the economies during the integration process
Keywords Financial Dependence Frustration Globalization populism Relocation
JEL Classification D72 D78 F14 F16
Currency Unions Trade and Heterogeneity CEPR Discussion Paper No DP12954
50 Pages Posted 31 May 2018
Natalie Chen University of Warwick - Department of Economics Centre for Economic Policy Research (CEPR)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
Date Written May 2018
Abstract
How do trade costs affect international trade This paper offers a new approach We rely on a
flexible gravity equation that predicts variable trade cost elasticities both across and within
country pairs We apply this framework to the effect of currency unions on international
trade While we estimate that currency unions are associated with a trade increase of around
38 percent on average we find substantial underlying heterogeneity Consistent with the
predictions of our framework we find effects around three times as strong for country pairs
associated with small import shares and a zero effect for large import shares Our results
imply that conventional homogeneous currency union estimates do not provide helpful
guidance for countries considering to join a currency union Instead countries need to take
into account the distribution of their trade shares to assess the impact of trade costs
Keywords Currency Unions euro Gravity Heterogeneity Trade Costs Trade Elasticity
Translog
JEL Classification F14 F15 F33
Fiscal Multipliers and Foreign Holdings of Public Debt CEPR Discussion Paper No DP12960
76 Pages Posted 5 Jun 2018
Fernando Broner CREI Barcelona GSE Universitat Pompeu Fabra CEPR
Daragh Clancy European Stability Mechanism
Aitor Erce European Stability Mechanism Banco de Espantildea - Associate Directorate General International Affairs
Alberto Martin Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) Centre for Economic
Policy Research (CEPR)
There are 2 versions of this paper
Date Written May 2018
Abstract
This paper explores a natural connection between fiscal multipliers and foreign holdings of
public debt Although fiscal expansions can raise domestic economic activity through various
channels they can also have crowding-out effects if the resources used to acquire public debt
reduce domestic consumption and investment Thus these crowding-out effects are likely to
be weaker when public debt is purchased by foreigners We test this hypothesis on (i) post-
war US data and (ii) data for a panel of 17 advanced economies from the 1980s to the
present To do so we assemble a novel database of public debt holdings by domestic and
foreign creditors for a large set of advanced economies We combine this data with standard
measures of fiscal policy shocks and show that indeed the size of fiscal multipliers is
increasing in the share of public debt held by foreigners In particular the fiscal multiplier is
smaller than one when the foreign share is low such as in the US in the 1950s and 1960s
and Japan today and larger than one when the foreign share is high such as in the US and
Ireland today
Keywords Fiscal Multiplier Foreign Holdings of Public Debt Sovereign debt
JEL Classification E62 F32 F34 F36 F41 F62 F65 G15 H63
Refugee Resettlement Redistribution and Growth CESifo Working Paper Series No 6961
26 Pages Posted 30 May 2018
Leonid V Azarnert Ariel University Center
Date Written April 09 2018
Abstract
This paper studies the effect of refugee resettlement on human capital accumulation The
analysis is performed in a growth model with endogenous fertility I show how refugee
resettlement from a more advanced and wealthier economy to a less advanced and less
wealthy economy combined with income transfers is Pareto-improving for indigenous
populations in both countries I also derive conditions for the proposed resettlement policy to
stimulate human capital accumulation and hence economic growth in both economies
Keywords refugee resettlement fertility human capital growth
JEL Classification D300 F220 J100 O100
The Impact of Trade Liberalization on Firm Productivity and Innovation
by Pian Shu Claudia Steinwender - 24715 (ITI PR)
Abstract
This chapter reviews the empirical economics literature on the
impact of trade liberalization on firms innovation-related
outcomes We define and examine four types of shocks to trade
flows import competition export opportunities access to
imported intermediates and foreign input competition Our
review reveals interesting heterogeneities at the country and
firm levels In emerging countries trade liberalization appears
to spur productivity and innovation In developed countries
export opportunities and access to imported intermediates tend to
encourage innovation but the evidence on import competition is
mixed especially for firms in the United States At the firm
level the positive effects of trade on innovation are more
pronounced at the initially more productive firms while the
negative effects are more pronounced at the initially less
productive firms
httppapersnberorgpapersW24715utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The IT Revolution and the Globalization of RampD
by Lee G Branstetter Britta M Glennon J Bradford Jensen - 24707 (ITI PR)
Abstract
Since the 1990s RampD has become less geographically concentrated
and has seen especially fast growth in emerging markets One of
the distinguishing features of the RampD globalization phenomenon
is its concentration within the softwareIT domain the increase
in foreign RampD has been largely concentrated within software and
IT-intensive multinationals and new RampD destinations are also
more software and IT-intensive multinationals than traditional
RampD destinations In this paper we document three important
phenomena (1) the globalization of RampD (2) the growing
importance of software and IT to firm innovation and (3) the
rise of new RampD hubs We argue that the shortage in
softwareIT-related human capital resulting from the large IT-
and software-biased shift in innovation drove US MNCs abroad and
particularly drove them abroad to new hubs with large
quantities of STEM workers who possessed IT and software skills
Our findings support the view that the globalization of US
multinational RampD has reinforced the technological leadership of
US-based firms in the information technology domain and that
multinationals ability to access a global talent base could
support a high rate of innovation even in the presence of the
rising (human) resource cost of frontier RampD
httppapersnberorgpapersW24707utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Global Financial Cycles and Risk Premiums CEPR Discussion Paper No DP12969
60 Pages Posted 5 Jun 2018
Ogravescar Jordagrave Federal Reserve Banks - Federal Reserve Bank of San Francisco
Moritz Schularick University of Bonn - Department of Economics Centre for Economic Policy Research (CEPR)
Alan M Taylor University of California Davis - Department of Economics University of Virginia - Department of
Economics National Bureau of Economic Research (NBER) Centre for Economic Policy Research (CEPR)
Felix Ward Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics
There are 2 versions of this paper
Date Written June 2018
Abstract
This paper studies the synchronization of financial cycles across 17 advanced economies over
the past 150 years The comovement in credit house prices and equity prices has reached
historical highs in the past three decades The sharp increase in the comovement of global
equity markets is particularly notable We demonstrate that fluctuations in risk premiums
and not risk-free rates and dividends account for a large part of the observed equity price
synchronization after 1990 We also show that US monetary policy has come to play an
important role as a source of fluctuations in risk appetite across global equity markets These
fluctuations are transmitted across both fixed and floating exchange rate regimes but the
effects are more muted in floating rate regimes
Keywords asset prices equity return premium financial centers financial cycles policy
spillovers
JEL Classification E50 F33 F42 F44 G12 N10 N20
Automation and Unemployment Help is on the Way CEPR Discussion Paper No DP12974
32 Pages Posted 11 Jun 2018
Hideki Nakamura Osaka City University
Joseph Zeira Hebrew University of Jerusalem - Department of Economics Centre for Economic Policy Research (CEPR)
LUISS Guido Carli DPTEA
Date Written June 2018
Abstract
This paper presents a model of technical change that combines two lines of research together
It is a task based model in which automation turns labor tasks to mechanized ones and there
is also a continuous addition of new labor tasks as in the expanding variety literature We
impose three simple restrictions on the model The first is that all new tasks are adopted The
second is that all new automation innovations are adopted and the third is that the share of
labor does not converge to zero in the long run We show that these restrictions imply that
unemployment due to automation is expected to converge to zero over time
Keywords automation growth Labor Income Share technical change unemployment
JEL Classification J64 O14 O30 O40
Sovereign Default in a Monetary Union CEPR Discussion Paper No DP12976
56 Pages Posted 11 Jun 2018
Sergio de Ferra Stockholm University
Federica Romei LUISS Guido Carli University
Date Written June 2018
Abstract
In the aftermath of the global fi nancial crisis sovereign default risk and the zero lower bound
have limited the ability of policy-makers in the European monetary union to achieve their
stabilization objective This paper investigates the interaction between sovereign default risk
and the conduct of monetary policy when borrowers can act strategically and they share with
their lenders a single currency in a monetary union We address this question in an
endogenous sovereign default model of heterogeneous countries in a monetary union where
the monetary authority may be constrained by the zero lower bound We uncover three main
results First in normal times debtors have a stronger incentive to default to induce more
expansionary monetary policy Second the zero lower bound or constraints on monetary
policy may act as a disciplining device to enforce repayment of sovereign debt Third
sovereign default risk induces countries with a preference for tight monetary policy to accept
a laxer policy stance These results help to shed light on the recent European experience of
high default risk expansionary monetary policy and low nominal interest rates
Keywords Heterogeneous Countries monetary union sovereign default zero lower bound
JEL Classification F34 F42 F45 H63
Evolution of Modern Business Cycle Models Accounting for the Great Recession
by Patrick J Kehoe Virgiliu Midrigan Elena Pastorino - 24741 (EFG IFM LS ME)
Abstract
Modern business cycle theory focuses on the study of dynamic
stochastic general equilibrium models that generate aggregate
fluctuations similar to those experienced by actual economies
We discuss how this theory has evolved from its roots in the
early real business cycle models of the late 1970s through the
turmoil of the Great Recession four decades later We document
the strikingly different pattern of comovements of macro
aggregates during the Great Recession compared to other postwar
recessions especially the 1982 recession We then show how two
versions of the latest generation of real business cycle models
can account respectively for the aggregate and the
cross-regional fluctuations observed in the Great Recession in
the United States
httppapersnberorgpapersW24741utm_campaign=ntwamputm_medium=emailamputm_source=ntw
What Happened Financial Factors in the Great Recession
by Mark Gertler Simon Gilchrist - 24746 (EFG ME)
Abstract
Since the onset of the Great Recession an explosion of both
theoretical and empirical research has investigated how the
financial crisis emerged and how it was transmitted to the real
sector The goal of this paper is to describe what we have
learned from this new research and how it can be used to
understand what happened during the Great Recession In the
process we also present some new evidence on the role of the
household balance sheet channel versus the disruption of banking
We examine a panel of quarterly state level data on house
prices mortgage debt and employment along with a measure of
banking distress Then exploiting both panel data and time
series methods we analyze the contribution of the house price
decline versus the banking distress indicator to the overall
decline in employment during the Great Recession We confirm a
common finding in the literature that the household balance sheet
channel is important for regional variation in employment
However we also find that the disruption in banking was central
to the overall employment contraction
httppapersnberorgpapersW24746utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The Changing Structure of Immigration to the OECD
What Welfare Effects on Member Countries CESifo Working Paper Series No 6992
40 Pages Posted 27 Jun 2018
Michał Burzyński Universite du Luxembourg
Freacutedeacuteric Docquier Universiteacute catholique de Louvain CREAM Centre for Research on Environmental Appraisal amp Management
UK IZA Institute of Labor Economics
Hillel Rapoport Paris School of Economics (PSE)
Date Written April 24 2018
Abstract
We investigate the welfare implications of two pre-crisis immigration waves (1991ndash2000 and
2001ndash2010) and of the post-crisis wave (2011ndash2015) for OECD native citizens To do so we
develop a general equilibrium model that accounts for the main channels of transmission of
immigration shocks ndash the employment and wage effects the fiscal effect and the market size
effect ndash and for the interactions between them We parameterize our model for 20 selected
OECD member states We find that the three waves induce positive effects on the real income
of natives however the size of these gains varies considerably across countries and across
skill groups In relative terms the post-crisis wave induces smaller welfare gains compared to
the previous ones This is due to the changing origin mix of immigrants which translates into
lower levels of human capital and smaller fiscal gains However differences across cohorts
explain a tiny fraction of the highly persistent cross-country heterogeneity in the economic
benefits from immigration
Keywords immigration welfare crisis inequality general equilibrium
JEL Classification C680 F220 J240
Anatomy and Impact of Export Promotion Agencies World Bank Policy Research Working Paper No 8470
19 Pages Posted 11 Jun 2018
Marcio Cruz World Bank Federal University of Parana (UFPR) - Departamento de Economia
Daniel Lederman World Bank - Latin America and Caribbean Region
Laura Zoratto World Bank
Date Written June 7 2018
Abstract
Recent literature has shown evidence of positive contributions of export promotion agencies
around the world in raising exports through the intensive and extensive margins of trade The
number of export promotion agencies has increased substantially over the past two decades
and most of them focus on assisting exporters in understanding and finding markets for their
products This paper describes the characteristics of export promotion agencies around the
world using a novel database from the World Bank in collaboration with the International
Trade Center in Geneva covering 2005-10 In addition it presents a short summary of the
literature on the impacts of export promotion agencies
Keywords Export Competitiveness International Trade and Trade Rules Rules of Origin
Trade Policy Trade and Multilateral Issues Trade and Services
Optimal Inflation and the Identification of the Phillips
Curve CEPR Discussion Paper No DP12981
29 Pages Posted 11 Jun 2018
Michael McLeay Bank of England - Monetary Assessment and Strategy Division
Silvana Tenreyro London School of Economics (LSE)
Date Written June 2018
Abstract
This paper explains why inflation follows a seemingly exogenous statistical process unrelated
to the output gap In other words it explains why it is difficult to empirically identify a Phillips
curve We show why this result need not imply that the Phillips curve does not hold -- on the
contrary our conceptual framework is built under the assumption that the Phillips curve
always holds The reason is simple if monetary policy is set with the goal of minimising
welfare losses (measured as the sum of deviations of inflation from its target and output from
its potential) subject to a Phillips curve a central bank will seek to increase inflation when
output is below potential This targeting rule will impart a negative correlation between
inflation and the output gap blurring the identification of the (positively sloped) Phillips
curve
Keywords identification Inflation targeting Phillips curve
GVCs and the Endogenous Geography of RTAs CESifo Working Paper Series No 6980
43 Pages Posted 11 Jun 2018
Lionel Fontagne University of Paris 1 Pantheacuteon Sorbonne Paris School of Economics CEPII
Gianluca Santoni Centre dEtudes Prospectives et dInfo Internationales (CEPII)
Date Written April 19 2018
Abstract
Geography economic size or common history help predicting signed regional trade
agreements (RTAs) However not all signed RTAs are ldquonaturalrdquo according to economic
determinants En-dogeneity and general equilibrium effects of RTAS are the two mechanisms
addressed in this paper We estimate the time-varying probability for a country pair to sign a
trade agreement and build upon structural gravity in general equilibrium to determine how
the patterns of Global Value Chains shape the evolving geography of optimal RTAS Our results
confirm that the endogenous geography of RTAs is shaped by the development of GVCs
Keywords preferential trade agreements global value chains structural gravity
JEL Classification F130 F140 F150
Diversity and Growth CEPR Discussion Paper No DP13011
37 Pages Posted 26 Jun 2018
Mark Gradstein Ben-Gurion University of the Negev - Department of Economics CESifo (Center for Economic Studies and
Ifo Institute) Centre for Economic Policy Research (CEPR) World Bank - Development Research Group
(DECRG)
There are 2 versions of this paper
Date Written June 2018
Abstract
The diversity of social interaction within economic communities affects productivity and
growth and is itself shaped by economic conditions These reciprocal effects raise the
possibility of multiple equilibria of setting a socially polarized economy stagnating in poverty
on a new path of social integration and economic growth through external intervention or an
internal political initiative This paper describes a simple analytical model that captures these
reciprocal effects and sheds light on the role of government capacity community leadership
federation and external credit or aid in achieving economic growth through social integration
The Economics of Language CEPR Discussion Paper No DP13002
85 Pages Posted 26 Jun 2018
Victor Ginsburgh Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics
(ECARES)
Shlomo Weber Southern Methodist University (SMU) - Department of Economics New Economic School
Date Written June 2018
Abstract
The paper brings together methodological theoretical and empirical analysis into the single
framework of linguistic diversity It reflects both historical and contemporary research by
economists and other social scientists on the impact of language on economic outcomes and
public policies We examine whether and how language influences human thinking (including
emotions) and behavior analyze the effects of linguistic distances on trade migrations
financial markets language learning and its returns The quantitative foundations of linguistic
diversity which rely on group identification linguistic distances as well as fractionalization
polarization and disenfranchisement indices are discussed in terms of their empirical
challenges and uses We conclude with an analysis of linguistic policies and shifts of languages
and examine their welfare effects and the trade-offs between the development of labor
markets and the social costs that they generate in various countries
Financial and Fiscal Interaction in the Euro Area
Crisis This Time Was Different CEPR Discussion Paper No DP13016
39 Pages Posted 3 Jul 2018
Alberto Caruso Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics
(ECARES)
Lucrezia Reichlin London Business School Universiteacute Libre de Bruxelles (ULB) - European Center for Advanced Research in
Economics and Statistics (ECARES) Centre for Economic Policy Research (CEPR) European Central Bank
(ECB)
Giovanni Ricco University of Warwick - Department of Economics SciencesPo - OFCE
Date Written June 2018
Abstract
This paper highlights the anomalous characteristics of the Euro Area `twin crises by
contrasting the aggregate macroeconomic dynamics in the period 2009-2013 with the
business cycle fluctuations of the previous decades We report three stylised facts First the
contraction in output was marked by an anomalous downfall in investment while
consumption savings and unemployment followed their historical relation with GDP Second
households and financial corporations debts and house prices deviated from their pre-crisis
trends Third the jump in the public deficit-GDP ratio in 2008-2009 was unprecedented and
so was the fiscal consolidation that followed Our analysis points to the financial nature of the
crisis as a likely explanation for these facts Importantly the `anomaly in public deficit is in
large part explained by extraordinary measures in support of the financial sector which show
up in the stock-flow adjustments and reveal a key interaction between the fiscal and the
financial sectors
Keywords Euro Area Government Debt Recessions
JEL Classification C11 C32 C54 E52 E62 F45
The Shocks Matter Improving Our Estimates of
Exchange Rate Pass-Through CEPR Discussion Paper No DP13037
43 Pages Posted 9 Jul 2018
Kristin J Forbes Massachusetts Institute of Technology (MIT) - Sloan School of Management National Bureau of Economic
Research (NBER)
Ida Hjortsoe
Bank of England
Tsvetelina Nenova Bank of England
There are 4 versions of this paper
Date Written July 2018
Abstract
A major challenge for monetary policy is predicting how exchange rate movements will
impact inflation We propose a new focus directly incorporating the underlying shocks that
cause exchange rate fluctuations when evaluating how these fluctuations pass through to
import and consumer prices A standard open-economy model shows that the relationship
between exchange rates and prices depends on the shocks which cause the exchange rate to
move We build on this to develop a structural Vector Autoregression (SVAR) framework for a
small open economy and apply it to the UK We show that prices respond differently to
exchange rate movements based on what caused the movements For example exchange rate
pass-through is low in response to domestic demand shocks and relatively high in response to
domestic monetary policy shocks This framework can improve our ability to estimate how
pass-through can change over short periods of time For example it can explain why sterlings
post-crisis depreciation caused a sharper increase in prices than expected while the effect of
sterlings 2013-15 appreciation was more muted We also apply this framework to forecast
the extent of pass-through from sterlings sharp depreciation corresponding to the UKs vote
to leave the European Union
Keywords consumer prices exchange rate pass-through import prices inflation vector
autoregressions
JEL Classification E31 F3 F41
Why Has Economic Growth Slowed When Innovation
Appears to Be Accelerating CEPR Discussion Paper No DP13039
29 Pages Posted 9 Jul 2018
Robert J Gordon Northwestern University - Department of Economics National Bureau of Economic Research (NBER)
Centre for Economic Policy Research (CEPR)
There are 2 versions of this paper
Date Written July 2018
Abstract
U S economic growth slowed by more than half from 32 percent per year during 1970-2006
to only 14 percent during 2006-16 and this decline was divided equally between slower
growth in hours of work and slower growth in output per hour In explaining slower growth
in hours particular emphasis is placed on the slower secular rise of life expectancy in the US
compared to other developed countries Further contributions to slowing growth are made by
a decline in the population share of both legal and illegal immigration and a turnaround from
rising to declining labor force participation Causes of declining productivity growth begin
with the slowdown in the rate of increase of educational attainment Why did productivity
growth decline after 2006 despite an increase in the rate at which new US patents were
issued in 2006-16 compared to earlier decades Part of the slowdown is attributed to the
maturity of the IT revolution which also helps to explain the trajectory of the college wage
premium Aspects of the productivity growth slowdown include the declining productivity of
research workers diminishing returns to drug innovation and the evolutionary rather than
revolutionary impact of robots and artificial intelligence
Keywords Economic Growth Immigration Innovation labor force participation Mortality
productivity
JEL Classification D24 E24
On DSGE Models
by Lawrence J Christiano Martin S Eichenbaum Mathias Trabandt - 24811 (EFG ME)
Abstract
The outcome of any important macroeconomic policy change is the
net effect of forces operating on different parts of the economy
A central challenge facing policy makers is how to assess the
relative strength of those forces Dynamic Stochastic General
Equilibrium (DSGE) models are the leading framework that
macroeconomists have for dealing with this challenge in an open
and transparent manner This paper reviews the state of DSGE
models before the financial crisis and how DSGE modelers
responded to the crisis and its aftermath In addition we
discuss the role of DSGE models in the policy process
httppapersnberorgpapersW24811utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Currency Wars Unconventional Monetary Policy Does Not Stimulate Exports
by Andrew K Rose - 24817 (IFM ITI)
Abstract
I investigate whether countries that use unconventional monetary
policy (UMP) experience export booms I use a popular gravity
model of trade which requires neither the exogeneity of UMP nor
instrumental variables for UMP In practice countries that
engage in UMP experience a drop in exports vis-a-vis countries
that are not engaged in such policies holding other things
constant Quantitative easing is associated with exports that
are about 10 lower to countries not engaged in UMP this amount
is significantly different from zero and similar to the effect of
negative nominal interest rates Thus there is no evidence that
countries have gained export markets through unconventional
monetary policy currency wars that have been launched have also
been lost UMP is also associated with a comparable drop in
imports and exchange rates suggesting that countries engage in
UMP when they are experiencing adverse macroeconomic shocks
concurrent with those that eviscerate international trade
httppapersnberorgpapersW24817utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Granular Comparative Advantage
by Cecile Gaubert Oleg Itskhoki - 24807 (EFG IFM IO ITI)
Abstract
Large firms play a pivotal role in international trade shaping
the export patterns of countries We propose and quantify a
granular multi-sector model of trade which combines fundamental
comparative advantage across sectors with granular comparative
advantage embodied in outstanding individual firms We develop
an SMM-based estimation procedure which takes full account of
the general equilibrium of the model to jointly estimate these
fundamental and granular forces using French micro-data with
information on firm domestic and export sales across
manufacturing industries We find that granularity accounts for
about 20 of the variation in realized export intensity across
sectors and is more pronounced in the most export-intensive
sectors In turn idiosyncratic firm dynamics accounts for a
large share of the evolution of a countrys comparative advantage
over time Governments face strong incentives to target trade
policy at large individual foreign exporters and to use lenient
antitrust regulation at home to substitute for
beggar-thy-neighbor trade policy
httppapersnberorgpapersW24807utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The State of New Keynesian Economics A Partial Assessment
by Jordi Gali - 24845 (EFG ME)
Abstract
I provide an overview of recent developments in monetary
economics with an emphasis on extensions of the New Keynesian
framework that assume a zero lower bound on the short term
nominal rate as well as models with household heterogeneity
httppapersnberorgpapersW24845utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Artificial Intelligence Economics and Industrial Organization
by Hal Varian - 24839 (IO PR)
Abstract
Machine learning (ML) and artificial intelligence (AI) have been
around for many years However in the last 5 years remarkable
progress has been made using multilayered neural networks in
diverse areas such as image recognition speech recognition and
machine translation AI is a general purpose technology that is
likely to impact many industries In this chapter I consider how
machine learning availability might affect the industrial
organization of both firms that provide AI services and
industries that adopt AI technology My intent is not to
provide an extensive overview of this rapidly-evolving area but
instead to provide a short summary of some of the forces at work
and to describe some possible areas for future research
httppapersnberorgpapersW24839utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Twenty Five Years of Global Imbalances CEPR Discussion Paper No DP13066
20 Pages Posted 24 Jul 2018
Maurice Obstfeld International Monetary Fund (IMF)
Date Written July 2018
Abstract
As international capital markets expanded in breadth and depth after the middle 1990s
global current account imbalances also expanded markedly Some have linked the origin of
the subsequent Global Financial Crisis (GFC) to these global imbalances This essay proposes
answers to four questions about the recent history of global imbalances Why did global
imbalances expand after the mid-1990s What circumstances and concomitant factors
provide clues about the origins of the GFC If one accepts that a mono-causal story about the
GFC based on global imbalances is inaccurate how should one view the potential threats from
excessive global imbalances today And finally what policy implications follow
Keywords current account global financial crisis (GFC) global imbalances IMF External
Sector Report
Is Automation Labor-Displacing Productivity Growth Employment and the Labor Share
by David Autor Anna Salomons - 24871 (EFG LS)
Abstract
Many technological innovations replace workers with machines but
this capital-labor substitution need not reduce aggregate labor
demand because it simultaneously induces four countervailing
responses own-industry output effects cross-industry
input-output effects between-industry shifts and final demand
effects We quantify these channels using four decades of
harmonized cross-country and industry data where we measure
automation as industry-level movements in total factor
productivity (TFP) that are common across countries We find
that automation displaces employment and reduces labors share of
value-added in the industries in which it originates (a direct
effect) In the case of employment these own-industry losses
are reversed by indirect gains in customer industries and induced
increases in aggregate demand By contrast own-industry labor
share losses are not recouped elsewhere Our framework can
account for a substantial fraction of the reallocation of
employment across industries and the aggregate fall in the labor
share over the last three decades It does not however explain
why the labor share fell more rapidly during the 2000s
httppapersnberorgpapersW24871utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Dynamic Effects of Co-Ethnic Networks on
Immigrants Economic Success CESifo Working Paper Series No 7084
43 Pages Posted 21 Jul 2018
Michele Battisti University of Palermo LUISS Guido Carli University
Giovanni Peri University of California Davis - Department of Economics
Agnese Romiti Government of the Federal Republic of Germany - Institute for Employment Research (IAB)
Date Written June 06 2018
Abstract
This paper investigates how the size of co-ethnic networks at the time of arrival affect the
economic success of immigrants in Germany Applying panel analysis with a large set of fixed
effects and controls we isolate the association between initial network size and long-run
immigrant outcomes We also look at those who were assigned to an initial location
independently of their choice allows a causal interpretation of our estimates We find that
immigrants initially located in places with larger co-ethnic networks are more likely to be
employed at first but have a lower probability of investing in human capital
Keywords networks immigration human capital employment
JEL Classification J240 J610 R230
Immigrant Artists Enrichment or Displacement CEPR Discussion Paper No DP13070
36 Pages Posted 31 Jul 2018
Karol Borowiecki University of Southern Denmark
Kathryn Graddy Brandeis University - Department of Economics
Date Written July 2018
Abstract
In order to investigate the role of immigrant artists on the development of artistic clusters in
US cities we use the US Census and American Community Survey collected every 10 years
since 1850 We identify artists and art teachers authors musicians and music teachers actors
and actresses architects and journalists their geographical location and their status as a
native or an immigrant We look at the relative growth rate of the immigrant population in
these occupations over a ten year period and how it affects the relative growth rate of native-
born individuals in these artistic occupations We find that cities that experienced immigrant
artist inflows also see a greater inflow of native artists
Keywords artistic occupations artists Immigration
JEL Classification J4 J6 N3 N9 Z1
Global Value Chains and Inequality with Endogenous Labor Supply
by Eunhee Lee Kei-Mu Yi - 24884 (ITI)
Abstract
We assess the role of global value chains in transmitting global
integration shocks to aggregate trade as well as distributional
outcomes We develop a multi-country general equilibrium trade
model that features multi-stage production with different stages
having different productivities and using factors (occupations)
with different intensities The model also features a Roy
mechanism in which heterogeneous workers endogenously choose
their sector and occupation Country- and worker-level
comparative advantages interact A reduction in trade costs
leads to countries specializing in their comparative advantage
sectors and production stages This specialization changes labor
demand and also leads to more workers shifting to their
comparative advantage sectors and occupations We calibrate our
model to the US China and the rest of the world in 2000 and
we simulate a decline in Chinas trade costs with the US
designed to mimic Chinas entry into the WTO Our simulation
results imply an increase in the skill premium in both the US
and China and the GVC ie specialization across stages is
critical to this outcome
httppapersnberorgpapersW24884utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Friedman and Phelps on the Phillips Curve Viewed from a Half Centurys Perspective
by Robert J Gordon - 24891 (EFG)
Abstract
In the late 1960s the stable negatively sloped Phillips Curve
(PC) was overturned by the Friedman-Phelps natural rate model
Their PC was vertical in the long run at the natural unemployment
rate and their short-run curve shifted up whenever unemployment
was pushed below the natural rate This paper criticizes the
underlying assumption of the Friedman-Phelps approach that the
labor market continuously clears and that changes in unemployment
down or up occur only in response to fooling of workers firms
or both A preferable and resolutely Keynesian approach
explains quantity rationing by inertia in price and wage setting
The positive correlation of inflation and unemployment in the
1970s and again in the 1990s is explained by joining the
negatively sloped Phillips Curve with a positively sloped dynamic
demand curve For any given growth of nominal GDP higher
inflation caused by adverse supply shocks implies slower real GDP
growth and higher unemployment This triangle model based on
inflation inertia demand and supply worked well to explain why
inflation and unemployment were both positively and negatively
correlated between the 1960s and 1990s but in the past decade
the slope of the short-run Phillips Curve has flattened as
inflation exhibited a muted response to high unemployment in
2009-13 and low unemployment in 2016-2018 It remains to be
seen whether a continuation of low unemployment will cause a
modest and fixed extra amount of inflation thus reviving the
stable Phillips curve of the early 1960s or whether inflation
will continuously accelerate as Friedman and Phelps would have
predicted
httppapersnberorgpapersW24891utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Tax Policy Measures in Advanced and Emerging
Economies A Novel Database IMF Working Paper No 18110
61 Pages Posted 1 Aug 2018
David Amaglobeli International Monetary Fund (IMF)
Valerio Crispolti International Monetary Fund (IMF)
Era Dabla-Norris International Monetary Fund (IMF)
Pooja Karnane International Monetary Fund (IMF)
Florian Misch International Monetary Fund (IMF)
Date Written May 2018
Abstract
This paper describes a new comprehensive database of tax policy measures in 23 advanced
and emerging market economies over the last four decades We extract this information from
more than 900 OECD Economic Surveys and 37000 tax-related news from the International
Bureau of Fiscal Documentation using text-mining techniques The innovation of this dataset
lies in its granularity changes in the rates and bases of personal and corporate income taxes
value added and sale taxes social security contributions excise and property taxes are
systematically documented In addition the database provides information on the
announcement and implementation dates whether the measures represent major changes
are part of a broader tax package and phased in over several years The paper also presents a
range of stylized facts suggesting that information from this database is useful to deepen the
analysis of tax policy changes for research and policy purposes
Keywords Tax policy Tax reforms Personal income taxes Corporate income taxes Value
added taxes Sales taxes Excise taxes Property taxes Developed countries Emerging markets
Tax Reforms Text Mining Tax Policy Implementation Lags Tax Reforms Text Mining Tax
Policy Implementation Lags Methodology for Collecting Estimating and Organizing
Macroeconomic Data General
JEL Classification C82 E61 H20 P16
Inequality Aversion Populism and the Backlash
Against Globalization CEPR Discussion Paper No DP13107
69 Pages Posted 21 Aug 2018
Lubos Pastor University of Chicago - Booth School of Business Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
Pietro Veronesi
University of Chicago - Booth School of Business Centre for Economic Policy Research (CEPR) National
Bureau of Economic Research (NBER)
There are 3 versions of this paper
Date Written August 2018
Abstract
Motivated by the recent rise of populism in western democracies we develop a model in
which a populist backlash emerges endogenously in a growing economy In the model voters
dislike inequality especially the high consumption of the ``elites Economic growth
exacerbates inequality due to heterogeneity in risk aversion In response to rising inequality
rich-country voters optimally elect a populist promising to end globalization Redistribution is
of limited value in containing the backlash against globalization Countries with more
inequality higher financial development and current account deficits are more vulnerable to
populism both in the model and in the data Evidence on who voted for Brexit and Trump in
2016 also largely supports the model
Keywords Brexit Globalization inequality populism risk aversion Trump
JEL Classification D72 F65 G11 G12 G18 P16
Underemployment in the US and Europe
by David NF Bell David G Blanchflower - 24927 (IFM LS ME)
Abstract
Large numbers of part-time workers around the world both those
who choose to be part-time and those who are there involuntarily
and would prefer a full-time job report they want more hours
Full-timers who say they want to change their hours mostly say
they want to reduce them When recession hit in most countries
the number of hours of those who said they wanted more hours
rose sharply and there was a fall in the number of hours that
full-timers wanted their hours reduced by Even though the
unemployment rate has returned to its pre-recession levels in
many advanced countries underemployment in most has not
We produce estimates for a new and better underemployment rate
for twenty-five European countries In most underemployment
remains elevated We provide evidence for the UK and the US as
well as some international evidence that underemployment rather
than unemployment lowers pay in the years after the Great
Recession We also find evidence for the US that falls in the
home ownership rate have helped to keep wage pressure in check
Underemployment replaces unemployment as the main influence on
wages in the years since the Great Recession
httppapersnberorgpapersW24927utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Does Machine Translation Affect International Trade Evidence from a Large Digital Platform
by Erik Brynjolfsson Xiang Hui Meng Liu - 24917 (IO ITI PR)
Abstract
Artificial intelligence (AI) is surpassing human performance in a
growing number of domains However there is limited evidence of
its economic effects Using data from a digital platform we
study a key application of AI machine translation We find
that the introduction of a machine translation system has
significantly increased international trade on this platform
increasing exports by 175 Furthermore heterogeneous
treatment effects are all consistent with a substantial reduction
in translation-related search costs Our results provide causal
evidence that language barriers significantly hinder trade and
that AI has already begun to improve economic efficiency in at
least one domain
httppapersnberorgpapersW24917utm_campaign=ntwamputm_medium=emailamputm_source=ntw
The US Personal Saving Rate IMF Working Paper No 18128
35 Pages Posted 1 Aug 2018
Sam Ouliaris International Monetary Fund (IMF)
Celine Rochon University of Oxford IMF
Date Written June 2018
Abstract
This paper develops a time series model for aggregate consumption to predict the US
personal saving rate It then uses the model to test whether there has been a structural break
in consumption behavior because of the 2008 financial crisis Before the crisis the personal
saving rate was trending downwards However in 2008 there was a significant rise in the
saving rate that continued until the end of 2012 suggesting a permanent change in household
behavior To assess this issue formally the unknown parameters of the model are estimated
using data for 1961Q1-2007Q4 a period which precedes the crisis The model is then used to
predict the saving rate from 2008Q1 onwards and to assess whether the rise in the saving rate
after 2008 was due to sizable but transitory incomewealth shocks or to changes in the
underlying elasticities between saving and its determinants (hence structural) The statistical
evidence suggests there was no structural break in the household saving behavior implying
that the rise in the saving rate during 2008-2012 was caused by the negative shocks to
income employment and wealth This result explains why the saving rate resumed its decline
in 2013 as real disposable income employment and net worth recovered Assuming that the
real growth in these determinants remains strong the estimated model predicts continued
negative pressures on the current account deficit and further external imbalances attributable
to the US household sector
Keywords United States Western Hemisphere consumption behavior personal saving rate
vector error-correction model structural break Consumer Economics Empirical Analysis
Personal Finance Forecasting and Simulation
JEL Classification D12 D14 E21 E27
Currency Unions Trade and Heterogeneity CESifo Working Paper Series No 7123
49 Pages Posted 24 Aug 2018
Natalie Chen University of Warwick - Department of Economics Centre for Economic Policy Research (CEPR)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
There are 2 versions of this paper
Date Written June 28 2018
Abstract
How do trade costs affect international trade This paper offers a new approach We rely on a
flexible gravity equation that predicts variable trade cost elasticities both across and within
country pairs We apply this framework to the effect of currency unions on international
trade While we estimate that currency unions are associated with a trade increase of around
38 percent on average we find substantial underlying heterogeneity Consistent with the
predictions of our framework we find effects around three times as strong for country pairs
associated with small import shares and a zero effect for large import shares Our results
imply that conventional homogeneous currency union estimates do not provide helpful
guidance for countries considering to join a currency union Instead countries need to take
into account the distribution of their trade shares to assess the impact of trade costs
Keywords currency unions euro gravity heterogeneity trade costs trade elasticity translog
JEL Classification F140 F150 F330
How Do Migration and Remittances Affect Inequality
A Case Study of Mexico IMF Working Paper No 18136
22 Pages Posted 1 Aug 2018
Zsoka Koczan International Monetary Fund (IMF)
Franz Loyola International Monetary Fund (IMF)
Date Written June 2018
Abstract
The poverty-reducing effects of remittances have been well-documented however their
effects on inequality are less clear This paper examines the impact of remittances on
inequality in Mexico using household-level information on the receiving side It hopes to
speak to their insurance role by examining how remittances are affected by domestic and
external crises the 1994 Mexican Peso crisis and the Global Financial Crisis We find that
remittances lower inequality and that they become more pro-poor over time as migration
opportunities become more widespread This also strengthens their insurance effects
mitigating some of the negative impact of shocks on the poorest
Keywords Migration Remittances Financial crises Income inequality Income distribution
Poverty reduction inequality Firm Behavior International Lending and Debt Problems
JEL Classification D21 F32 F34 J61 D31 F22 F24
Exchange Rate Forecasting on a Napkin
ECB Working Paper No 2151
Contact MICHELE CAZORZI
European Central Bank (ECB)
Email michelecazorziecbint
Auth-Page httpsssrncomauthor=343031
Co-Author MICHAŁ RUBASZEK
National Bank of Poland Warsaw
School of Economics (SGH)
Email michalrubaszeknbppl
Auth-Page httpsssrncomauthor=850188
Full Text httpsssrncomabstract=3183690
ABSTRACT This paper shows that there are two regularities in
foreign exchange markets in advanced countries with flexible
regimes First real exchange rates are mean-reverting as
implied by the Purchasing Power Parity model Second the
adjustment takes place via nominal exchange rates These features
of the data can be exploited even on the back of a napkin to
generate nominal exchange rate forecasts that outperform the
random walk The secret is to avoid estimating the pace of mean
reversion and assume that relative prices are unchanged Direct
forecasting or panel data techniques are better than the random
walk but fail to beat this simple calibrated model
______________________________
Home Sweet Home The Effect of Sugar Protectionism
on Emigration in Italy 1876-1913 CEIS Working Paper No 437
49 Pages Posted 29 Jun 2018
Carlo Ciccarelli University of Rome Tor Vergata - Faculty of Economics
Alberto Dalmazzo University of Siena - Department of Economics
Daniela Vuri University of Rome Tor Vergata IZA Institute of Labor Economics CESifo (Center for Economic Studies and
Ifo Institute for Economic Research)
Date Written June 8 2018
Abstract
Protectionist policies are often considered or even implemented as a reaction to increasing
globalization This is not new in history This paper uses the introduction of import duties on
sugar in the late nineteenth century Italy to measure the impact of protectionism on migration
out flows at the time of the fi
rst globalization Both for climate reasons and the nature of the soil the cultivation and
processing of sugar beets was geographically concentrated in a small area leading de facto to
a regional protectionist policy Our theoretical model illustrates how a tariff that favours local
producers may affect residents incentives to migrate abroad The predictions of the model
are tested with the synthetic control method which uses the variation in sugar cultivation
across areas to estimate the effect of interest Our results show that protectionism effectively
reduced the relative incentive to migrate away from sugar-producing areas
Keywords protectionism regional economics migrations 19th century Italy
JEL Classification N93 J4 C23
Integrating Services in the Economic Fitness
Approach World Bank Policy Research Working Paper No 8485
35 Pages Posted 28 Aug 2018
Andrea Zaccaria Sapienza University of Rome
Saurabh Mishra International Monetary Fund (IMF)
Masud Z Cader World Bank - International Finance Corporation (IFC)
Luciano Pietronero Sapienza University of Rome
Date Written June 21 2018
Abstract
Economic Complexity is a set of network-based and algorithmic methods for the study of
economic development and competitiveness In this framework Economic Fitness is an
innovative approach that improves the mathematical and conceptual scheme For
convenience these methods were originally conceived on trade in goods This paper extends
the Economic Fitness methodology to include a trade in services element to yield a universal
matrix of world trade and thus provide a more complete picture of a countrys development
and global competitiveness The paper applies two algorithms to the universal trade in goods
and services matrix to contrast country competitiveness and change in complexity and
diversification when services are added to the traditional goods-only matrix The results show
that (i) the competitiveness of many countries was previously over- or underestimated that
is many countries gain or lose positions in the ranking of economic fitness when services
trade is considered alongside goods and (ii) complex services tend to cluster with complex
manufacturing suggesting a common capabilities structure These findings show how
developing complex services aids diversification strategies for developing countries
Keywords International Trade and Trade Rules Common Carriers Industry Food amp
Beverage Industry Business Cycles and Stabilization Policies Plastics amp Rubber Industry
Construction Industry General Manufacturing Textiles Apparel amp Leather Industry Pulp amp
Paper Industry Trade and Services Macroeconomic Management ICT Applications
Deep Trade Agreements and Global Value Chains World Bank Policy Research Working Paper No 8491
39 Pages Posted 28 Aug 2018
Edith Laget World Bank
Alberto Osnago World Bank
Nadia Rocha World Trade Organization
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Date Written June 25 2018
Abstract
Preferential trade agreements have become deeper over time often encompassing policy
areas that go beyond traditional trade policy such as investment competition and intellectual
property rights protection In the literature a prominent argument why countries sign deep
agreements is to promote and facilitate the operation of global value chains This paper
exploits a new data set on the content of trade agreements and data on trade in value added
and in parts and components to quantify the impact of the depth of trade agreements on
bilateral cross-border production linkages The results show that adding a policy area to a
trade agreement increases the domestic value added of intermediates (forward global value
chain linkages) and the foreign value added of intermediates (backward global value chain
linkages) by 048 and 038 percent respectively At the sectoral level the positive impact of
deep trade agreements is higher for higher value-added industries suggesting that deep
agreements help countries to integrate in industries with higher levels of value added For a
larger sample of countries and years the results confirm that an additional provision in a
trade agreement increases bilateral trade in parts and components by 03 percent The
content of trade agreements also matters for global value chain integration but the impact
varies by income group Provisions outside the current mandate of the World Trade
Organization (investment and competition policy) drive the effect of trade agreements on
North-South trade in parts and components Provisions under the current World Trade
Organization mandate (tariff reduction and customs facilitation) drive the effect of trade
agreements on South-South trade in parts and components
Keywords International Trade and Trade Rules Industrial and Consumer Services and
Products Transport and Trade Logistics Competition Policy Competitiveness and
Competition Policy Trade Finance and Investment
The Effect of Immigration on Natives School
Achievement Does Length of Stay in the Host
Country Matter World Bank Policy Research Working Paper No 8492
62 Pages Posted 28 Aug 2018
Laurent Bossavie The World Bank
Date Written June 25 2018
Abstract
Using a rich data set of primary school students this paper estimates the effects of immigrant
concentration in the classroom on the academic achievement of natives In contrast with
previous contributions it exploits rare information on age-at-migration to estimate separate
spillover effects by duration of stay of immigrant classmates To identify treatment effects it
uses cohort-by-cohort deviations in immigrant concentration within schools combined with
attractive features of the Dutch school system Overall the paper finds no effect of the
concentration of immigrant students on natives test scores However although immigrant
students who have been in the country for some time have virtually no effect on natives the
analysis finds a small negative effect of recent immigrants in the classroom on natives test
scores The effect is significant only for language test scores but insignificant for mathematics
test scores When significant effect sizes are quite small compared to other educational
interventions and classroom peer effects estimated in other contexts
Keywords Indigenous Peoples Law Indigenous Peoples Indigenous Communities
Educational Sciences International Migration Migration and Development Human Migrations
amp Resettlements Effective Schools and Teachers Educational Institutions amp Facilities
Trade and Immigration 1870-2010
by David S Jacks John P Tang - 25010 (DAE)
Abstract
In this chapter we describe long-run trends in global
merchandise trade and immigration from 1870 to 2010 We revisit
the reasons why these two forces moved largely in parallel in the
decades leading up to World War I collapsed during the interwar
period and then rebounded (but with much more pronounced growth
in trade than in immigration) More substantively we also
document a large redistribution in the regional sources of goods
and people with a shift from the former industrialized core
countries--especially Europe--to those in the former
periphery--especially Asia--as well as a very striking change in
the composition of merchandise trade towards manufactured goods
precisely dating from 1950 Finally using a triple differences
framework in combination with a dramatic change in US immigration
policy we find evidence that immigration and trade potentially
acted as substitutes at least for the United States in the
interwar period
httppapersnberorgpapersW25010utm_campaign=ntwamputm_medium=emailamputm_source=ntw
Attitudes Towards Euro Area Reforms Evidence from
a Randomized Survey Experiment CESifo Working Paper Series No 7141
35 Pages Posted 28 Aug 2018
Mathias Dolls CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute IZA Institute of Labor Economics
Nils Wehrhoumlfer University of Mannheim Graduate School of Economic and Social Sciences Students
Date Written July 09 2018
Abstract
We present the first evidence on public attitudes towards two prominent euro area reform
proposals (European Unemployment Benefit Scheme and Sovereign Insolvency Procedure)
and assess potential impediments to their implementation by means of a randomized survey
experiment in Germany We find that there is a low willingness among German voters to
accept fiscal risk-sharing through common unemployment insurance while a sovereign
insolvency procedure aimed at strengthening market discipline is supported by a majority of
the electorate Our randomized treatments confronting survey participants with potential
adverse effects of the reforms lead to significant downward shifts in approval rates Altruism
cosmopolitanism political preferences and income are important predictors of support for
the reform proposals We also show that there is a striking contrast between the low level of
support for transfers to other euro area member states and a broad acceptance of inner
German transfers
Keywords public attitudes euro area reforms European unemployment insurance
sovereign insolvency procedure
JEL Classification H550 H240 J260 D140
The Economic Effects of Refugee Return and Policy
Implications World Bank Policy Research Working Paper No 8497
65 Pages Posted 28 Aug 2018
Uri Dadush World Bank
Date Written June 27 2018
Abstract
The recent surge in the number of forcibly displaced who cross international borders in
search of protection has prompted interest in evaluating policies that achieve the possible
end points of the phenomenon As envisaged by United Nations High Commissioner for
Refugees (UNHCR) these are the integration in the country of destination relocation in a
third country and return to the country of origin The focus of this paper is on the third
aspect namely the appropriate conduct of return policy viewed from the perspective of the
host country More specifically the main question is whether it is in the economic self-interest
of host countries to return forcibly displaced persons In addressing the question four
ancillary issues are to be addressed (i) the macroeconomic impact of refugees and of their
return (ii) the labor market impact of refugees and of their return (iii) the fiscal impact of
refugees and of their return and (iv) how return policy should be formulated and executed
The available evidence and analyses allow this papers main conclusion namely that the costs
of hosting asylum seekers and refugees are front-loaded while the benefits accruing from
their integration into the labor market and the host economy typically take years to
materialize It follows that from the economic perspective their return after a short stay may
represent a costlier option than continuing to invest in their successful integration Countries
with a flexible labor market strong investment climate and a welcoming attitude to
immigrants tend to see the economic benefits of refugee inflows materialize faster
The Effect of Remittances on the Current Account in
Developing and Emerging Economies World Bank Policy Research Working Paper No 8498
26 Pages Posted 28 Aug 2018
Emmanuel Kwasi Koranteng Lartey World Bank
Date Written June 27 2018
Abstract
This paper presents an analysis of the effect of remittances on the current account in
developing and emerging economies incorporating an assessment of the extent to which
exchange rate regimes impact the relationship The main findings suggest there is a positive
effect of remittances on the current account contemporaneously but that the lagged effect is
negative which could be indicative of the existence of some underlying mechanisms
characteristic of the Dutch disease phenomenon In addition the results show that a more
flexible exchange regime dampens the contemporaneous positive effect that remittances have
on the current account The paper therefore asserts that policy makers face trade-offs
pertaining to the use of exchange rate policy in managing the effects of remittances on the
current account which should be given due consideration when such policy choices are made
Learning About Fiscal Multipliers During the
European Sovereign Debt Crisis Evidence from a
Quasi-Natural Experiment ECB Working Paper No 2154
30 Pages Posted 18 Jun 2018
Gόrnicka Lucyna IMF
Christophe Kamps European Central Bank (ECB)
Gerrit B Koester European Central Bank (ECB)
Nadine Leiner-Killinger European Central Bank (ECB)
Date Written May 30 2018
Abstract
Identifying fiscal multipliers is usually constrained by the absence of a counterfactual
scenario Our new data set allows overcoming this problem by making use of the fact that
recommendations under the EUrsquos excessive deficit procedure (EDP) provide both a baseline
no-policy-change scenario and a fiscal-adjustment EDP scenario that entails a forecast of the
macroeconomic impact of fiscal consolidation over the EDP horizon For a sample of 24 EU
countries to which 48 EDP recommendations were applied between 2009 and 2015 we
derive country-specific fiscal multipliers as actually applied by forecasters during the crisis
Our results confirm Blanchard and Leighrsquos (2013 2014) presumption that forecasters learned
during the crisis According to our findings fiscal multipliers as applied by the European
Commission increased over time ndash from about 14 in the early years of the crisis to about 23
in the later years However different from Blanchard and Leigh (2013 2014) we do not find
evidence for the hypothesis that ex-post fiscal multipliers have been substantially above 1
during the crisis
Keywords fiscal consolidation fiscal multipliers business cycle
JEL Classification E32 E62 H20 H5
Trade in Developing East Asia How it Has Changed
and Why it Matters World Bank Policy Research Working Paper No 8533
58 Pages Posted 28 Aug 2018
Ileana Cristina Constantinescu World Bank
Aaditya Mattoo World Bank - Development Research Group (DECRG)
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Date Written July 13 2018
Abstract
East Asia for long the epitome of successful engagement in trade faces serious challenges
technological change that may threaten the very model of labor intensive industrialization
and a backlash against globalization that may reduce access to important markets A detailed
analysis of the evolution of East Asias trade and trade policy in goods and services leads to
the conclusion that how East Asia copes with these global challenges will depend on how it
addresses three more proximate national and regional challenges The first is the emergence
of one East Asian country China as a global trade giantaccounting for nearly one-seventh of
global exports and one-tenth of global imports -- which is fundamentally altering the trading
patterns and opportunities of its neighbors The second is the asymmetric implementation of
national reform -- remarkable openness to goods trade and investment coexists with relative
restrictiveness of services policies -- which is affecting the evolution of comparative
advantage and productivity in each country The third is the divergence between the
relatively shallow and fragmented agreements that regulate the regions trade and
investment and the growing importance of regional and global value chains as crucial drivers
of productivity growth
Keywords International Trade and Trade Rules Common Carriers Industry Food amp
Beverage Industry Plastics amp Rubber Industry Business Cycles and Stabilization Policies
Construction Industry General Manufacturing Pulp amp Paper Industry Textiles Apparel amp
Leather Industry Export Competitiveness Industrial and Consumer Services and Products
Transport and Trade Logistics
Who are Americas Star Firms World Bank Policy Research Working Paper No 8534
70 Pages Posted 28 Aug 2018
Meghana Ayyagari George Washington University - School of Business
Asli Demirguc-Kunt World Bank
Vojislav Maksimovic University of Maryland - Robert H Smith School of Business
There are 2 versions of this paper
Date Written July 13 2018
Abstract
There is wide spread concern about a growing gap between top-performing publicly listed
firms and the rest of the economy and the implications of this for rising inequality in the US
Using conventional return calculations there is indeed a widening gap between star firms
(defined as those in top 10 percent of return on invested capital in any year) and the rest of
the economy over time especially in industries that rely on a skilled labor force However
once measurement error in intangible capital is accounted for this gap shrinks dramatically
and has not been widening over time While pricing power as measured by markups predicts
star firm status a large fraction of star firms have low markups and there is no evidence that
star firms are cutting output or investment more than other firms for the same markup The
effect of star status is persistent Five years later star firms have higher growth profits and
Tobins Q A small subset of exceptional firms may pose more pressing policy concerns with
much higher returns and the potential to exercise market power in the future
Keywords Plastics amp Rubber Industry Business Cycles and Stabilization Policies Textiles
Apparel amp Leather Industry Pulp amp Paper Industry Food amp Beverage Industry Common
Carriers Industry Construction Industry General Manufacturing Labor Markets Employment
and Unemployment
Bought Sold and Bought Again The Impact of
Complex Value Chains on Export Elasticities World Bank Policy Research Working Paper No 8535
45 Pages Posted 28 Aug 2018
Francois Michel Marie Raphael De Soyres World Bank
Erik Frohm World Bank
Vanessa Gunnella European Central Bank (ECB)
Elena Pavlova European Central Bank (ECB)
Date Written July 13 2018
Abstract
Global value chain participation affects the exchange rate pass-through to export prices and
export volumes The paper develops a partial equilibrium model of international trade with
cross-border production and shows that higher participation in global value chains reduces
the elasticities Specifically a higher share of foreign value added in exports reduces the
exchange rate pass-through to export prices and export volumes A greater share of exports
that return as imports also reduces the responsiveness of export volumes to changes in
bilateral exchange rates Finally exports of inputs that are further re-exported increase the
responsiveness to the trading partners effective exchange rate Using a novel sector-level
panel dataset with 40 countries the analysis tests and finds strong empirical support for the
theoretical predictions The paper further shows that some sectors in some countries can
even experience a decline in gross exports when their currency depreciates
Keywords International Trade and Trade Rules Industrial and Consumer Services and
Products Transport and Trade Logistics Trade and Services Macroeconomic Management
Did Austerity Cause Brexit CESifo Working Paper Series No 7159
101 Pages Posted 25 Sep 2018
Thiemo Fetzer University of Warwick
Date Written July 25 2018
Abstract
Did austerity cause Brexit This paper shows that the rise of popular support for the UK
Independence Party (UKIP) as the single most important correlate of the subsequent Leave
vote in the 2016 European Union (EU) referendum along with broader measures of political
dissatisfaction are strongly and causally associated with an individualrsquos or an arearsquos exposure
to austerity since 2010 In addition to exploiting data from the population of all electoral
contests in the UK since 2000 I leverage detailed individual level panel data allowing me to
exploit within-individual variation in exposure to specific welfare reforms as well as broader
measures of political preferences The results suggest that the EU referendum could have
resulted in a Remain victory had it not been for a range of austerity-induced welfare reforms
Further auxiliary results suggest that the welfare reforms activated existing underlying
economic grievances that have broader origins than what the current literature on Brexit
suggests Up until 2010 the UKrsquos welfare state evened out growing income differences across
the skill divide through transfer payments This pattern markedly stops from 2010 onwards
as austerity started to bite
Keywords political economy austerity globalization voting EU
JEL Classification H200 H300 H500 P160 D720
Resolving Sovereign Debt Crises The Role of Political
Risk CESifo Working Paper Series No 7161
42 Pages Posted 26 Sep 2018
Christoph Trebesch Kiel Institute for the World Economy Centre for Economic Policy Research (CEPR)
Date Written August 02 2018
Abstract
Sovereign defaults are bad news for investors and debtor countries in particular if a default
becomes messy and protracted Why are some debt crises resolved quickly in a matter of
months while others take many years to settle This paper studies the duration of sovereign
debt crises based on a new dataset and case study archive on debt renegotiations between
governments and foreign banks and bondholders Using Cox proportional hazard models I
find that domestic political instability (lsquopolitical riskrsquo) is a significant predictor of negotiation
delays after controlling for macroeconomic conditions Government crises resignations and
street protests are particularly disruptive for a quick settlement process Overall the evidence
suggests that debtor countries often lack the political ability to resolve a debt crisis
Governments in turmoil are unlikely to exit a default quickly
Keywords sovereign default crisis resolution political economy
JEL Classification F340 F510 H630
Market Potential and Global Growth over the Long
Twentieth Century CESifo Working Paper Series No 7164
53 Pages Posted 27 Sep 2018
David S Jacks Simon Fraser University (SFU) - Department of Economics National Bureau of Economic Research (NBER)
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
There are 3 versions of this paper
Date Written August 02 2018
Abstract
We examine the evolution of market potential and its role in driving economic growth over
the long twentieth century Theoretically we exploit a structural gravity model to derive a
closed-form solution for a widely-used measure of market potential We are thus able to
express market potential as a function of directly observable and easily estimated variables
Empirically we collect a large dataset on aggregate and bilateral trade flows as well as output
for 51 countries We find that market potential exhibits an upward trend across all regions of
the world from the early 1930s and that this trend significantly deviates from the evolution of
world GDP Finally using exogenous variation in trade-related distances to world markets we
demonstrate a significant causal role of market potential in driving global income growth over
this period
Keywords economic geography market potential structural gravity trade costs
JEL Classification F100 N700
Growth Inequality and Poverty A Robust
Relationship World Bank Policy Research Working Paper No 8578
42 Pages Posted 17 Sep 2018
Gustavo A Merrero University of La Laguna
Luis Serveacuten World Bank - Development Research Group (DECRG)
Date Written September 6 2018
Abstract
An extensive literature on poverty traps suggests that high levels of poverty deter growth
However a seemingly basic implication of the underlying theoretical models namely that
countries suffering from higher levels of poverty should grow less rapidly has remained
untested A parallel literature has suggested a variety of mechanisms through which
inequality may affect growth in opposing directions Because inequality and poverty are
different aspects of the income distribution inequality can also affect growth through poverty
an indirect channel that has not been explicitly analyzed This paper contributes to fill both
gaps Using a large cross-country panel data set it estimates a reduced-form growth equation
adding both inequality and poverty to an otherwise standard set of growth determinants
Given inequality the correlation of growth with poverty is consistently negative In contrast
given poverty the correlation of growth with inequality can be positive or negative
depending on the empirical specification and econometric approach used Yet the indirect
effect of inequality on growth through its correlation with poverty is robustly negative Closer
inspection shows that these results are driven by the sample observations featuring high (but
not extremely high) poverty rates These empirical findings are consistent with the
predictions from an analytical framework with learning-by-doing and knowledge spillovers
in which consumers cannot save and invest if their initial endowment is below a minimum
consumption level
Keywords Inequality Inflation Small Area Estimation Poverty Mapping Poverty
Assessment Poverty Lines Poverty Monitoring amp Analysis Poverty Diagnostics Poverty
Impact Evaluation Educational Sciences
Comparison of Welfare Gains in the Armington
Krugman and Melitz Models Insights from a
Structural Gravity Approach World Bank Policy Research Working Paper No 8570
63 Pages Posted 17 Sep 2018
Edward Jay Balistreri Iowa State University
David G Tarr International Trade Analysis
Date Written August 28 2018
Abstract
How large are the estimated gains from trade from a reduction in trade costs in the
heterogeneous firms Melitz (M) model compared with the Armington (A) and Krugman (K)
models Surprisingly little is known beyond the one-sector model This paper analyzes this
question using a global trade model that contains ten regions and various numbers of sectors
(1-10) Following Arkolakis et al (2012) the analysis holds the local trade response constant
across the model comparisons based on a structural gravity estimate Various model features
and scenarios are introduced that are important to real economies almost none of which has
been examined across the three market structures with a constant trade response In
response to global reductions in iceberg trade costs in all the multi-sector models the
ranking of global welfare gains is MelitzgtKrugmangtArmington and the Krugman model
captures between 75 and 95 percent on the additional gains above the Armington model that
are estimated by the Melitz model However for individual regions there are numerous cases
of reversed welfare rankings ie MelitzltkrugmanKrugmangtArmington For individual
regions however the welfare ranking of the Armington Krugman and Melitz market
structures is model data parameter and scenario dependent The results highlight the need
for data and structural considerations in policy analysisltkrugman
Keywords International Trade and Trade Rules Trade and Services Labor Markets Trade
and Multilateral Issues
The Economic Effects of Brexit - Evidence from the
Stock Market CEPR Discussion Paper No DP13147
35 Pages Posted 17 Sep 2018
Holger Breinlich University of Nottingham - School of Economics Centre for Economic Policy Research (CEPR) London
School of Economics amp Political Science (LSE) - Centre for Economic Performance (CEP)
Elsa Leromain London School of Economics amp Political Science (LSE) - London School of Economics
Dennis Novy University of Warwick Centre for Economic Policy Research (CEPR) Centre for Economic Performance
(CEP) CESifo (Center for Economic Studies and Ifo Institute)
Thomas Sampson London School of Economics amp Political Science (LSE)
Ahmed Usman University of Nottingham
Date Written August 2018
Abstract
We study stock market reactions to the Brexit referendum on 23 June 2016 in order to assess
investors expectations about the effects of leaving the European Union on the UK economy
Our results suggest that initial stock price movements were driven by fears of a cyclical
downturn and by the sterling depreciation following the referendum We also find tentative
evidence that market reactions to two subsequent speeches by Theresa May (her
Conservative Party conference and Lancaster House speeches) were more closely correlated
with potential changes to tariffs and non-tariff barriers on UK-EU trade indicating that
investors may have updated their expectations in light of the possibility of a hard Brexit We
do not find a correlation between the share of EU migrants in different industries and stock
market returns
Keywords Brexit depreciation event study Recession Stock market tariffs
JEL Classification F15 F23 G14
Understanding Euro Area Inflation Dynamics Why so
Low for so Long
IMF Working Paper No 18188
26 Pages Posted 1 Oct 2018
Yasser Abdih International Monetary Fund (IMF)
Li Lin International Monetary Fund (IMF)
Anne-Charlotte Paret Banque de France
Date Written August 2018
Abstract
Despite closing output gaps and tightening labor markets inflation has remained low inthe
euro area Based on an augmented Phillips Curve framework we find that thisphenomenon-
sometimes attributed to low global inflation-has been primarily causedby a remarkable
persistence of inflation keeping it low despite the reduction in slack Thisfeature is shown to
be specific to the euro area (in comparison with the United States)Monetary policy needs to
stay accommodative to help guide inflation back to target
Keywords Inflation Inflation expectations Inflation persistence Monetary policy
Econometric models Euro Area Phillips curve inflation persistence and expectations
General Forecasting and Simulation Monetary Policy (Targets Instruments and Effects)
JEL Classification E10 E31 E32 E37 E52 C22 C50
Financial Development Exchange Rate Regimes and
Growth Dynamics World Bank Policy Research Working Paper No 8562
34 Pages Posted 28 Aug 2018
Woubet Kassa The World Bank
Emmanuel Kwasi Koranteng Lartey World Bank
Date Written August 20 2018
Abstract
This paper utilizes data for African countries to analyze the extent to which financial
development affects the dynamics of the relationship between exchange rate flexibility and
economic growth The findings indicate that financial development exerts a positive influence
on the relationship between exchange rate flexibility and GDP growth as well as total factor
productivity growth The paper also documents a positive impact of trade openness on the
relationship between exchange rate flexibility and growth Moreover the results show a
strong and positive association between exchange rate flexibility and financial development
The findings therefore suggest that discussions and decisions on exchange rate policy should
be undertaken with consideration for structural policies that address the development of the
financial sector In addition the paper asserts that policy makers should adopt a stance that
facilitates some flexibility in exchange rates to foster development of the financial
infrastructure in these economies
Keywords International Trade and Trade Rules Industrial Economics Economic Theory amp
Research Economic Growth Currencies and Exchange Rates Educational Sciences
Macroeconomic Management
Unequal Gains Prolonged Pain A Model of
Protectionist Overshooting and Escalation CEPR Discussion Paper No DP13160
53 Pages Posted 17 Sep 2018
Emily J Blanchard Dartmouth College - Tuck School of Business
Gerald Willmann Bielefeld University IfW Kiel KU Leuven CESifo (Center for Economic Studies and Ifo Institute)
Date Written September 2018
Abstract
We develop a model of democratic political responses to macroeconomic shocks in the short
and long run We show that when economic adjustment is slower than potential political
change exogenous changes in the global marketplace can trigger populist surges in favor of
distortionary economic policies Applied to trade policy our model demonstrates that an
exogenous terms-of-trade improvement or skill-biased technological change will lead to a
spike in protectionism that blunts the younger generations incentive to acquire education In
the long run the initial surge in protectionism will gradually diminish if and only if education
enables less-skilled workers to catch up with the overall economy The more unequal the
initial distribution of human capital the greater and longer-lasting the protectionist backlash
will be unequal gains prolonged pain Evidence on key data markers suggested by the model
exhibits patterns consistent with recent populist support for Brexit and Trump
Keywords Dynamic Political Economy education Endogenous Tari Human Capital
Overlapping Generations Overshooting populism protectionism
JEL Classification D7 E6 F5
Threat or Help The Effects of Unskilled Immigrant
Workers on National Productivity Growth World Bank Policy Research Working Paper No 113185
4 Pages Posted 17 Sep 2018
Sharmila Devadas Central Bank of Malaysia
Date Written March 1 2017
Abstract
While unskilled immigrant workers have relatively low formal human capital theory suggests
that they can still contribute to productivity improvements by helping to increase efficiency
and upgrading the skills of the native labor force Empirical studies indicate that positive
productivity effects do occur This body of evidence does not provide a compelling argument
for the closing of national borders to unskilled foreigners on economic grounds
Keywords Indigenous Peoples Indigenous Peoples Law Human Migrations amp Resettlements
Construction Industry Common Carriers Industry Food amp Beverage Industry General
Manufacturing Pulp amp Paper Industry Plastics amp Rubber Industry Labor Markets Business
Cycles and Stabilization Policies International Migration Indigenous Communities Migration
and Development
Global Trade Slowdown Factors and Policies World Bank Policy Research Working Paper No 123899
4 Pages Posted 17 Sep 2018
Dorina Peteva Georgieva World Bank
Norman Loayza World Bank - Research Department
Fabian Mendez Ramos Development Research Group The World Bank
Date Written February 1 2018
Abstract
Growth in global trade has been slow since 2012 While global trade downturns are not
unprecedented the observed change in the relationship of trade to GDP poses the question
whether the trade slowdown is a transitory deviation or a more long-lasting phenomenon
brought about by structural changes This new dynamic coupled with the rise of protectionist
policies and rhetoric in many countries positions trade at the forefront of policy discussions
This brief reviews recent patterns in global trade examines the factors affecting trade--
distinguishing between transitory and structural components of the slowdown--and discusses
policies shaping the path of future trade
Keywords Trade and Multilateral Issues Trade and Services Trade Policy Trade Facilitation
International Trade and Trade Rules International Economics and Trade Transport and
Trade Logistics Trade and Regional Integration Private Sector Development Industrial and
Consumer Services and Products Competitiveness and Competition Policy Marketing Labor
Markets Private Sector Development Law Private Sector Economics Industry Law and
Development Social Policy Legal Reform Social Development Treaties Economics and
Institutions Public Sector Management and Reform Macroeconomics and Economic Growth
Public Sector Development Regulatory Regimes International Law Non Governmental
Organiz
The Productivity J-Curve How Intangibles Complement General Purpose Technologies
by Erik Brynjolfsson Daniel Rock Chad Syverson - 25148 (EFG IO PR)
Abstract
General purpose technologies (GPTs) such as AI enable and require
significant complementary investments including business process
redesign co-invention of new products and business models and
investments in human capital These complementary investments
are often intangible and poorly measured in the national
accounts even if they create valuable assets for the firm We
develop a model that shows how this leads to an underestimation
of output and productivity in the early years of a new GPT and
how later when the benefits of intangible investments are
harvested productivity will be overestimated Our model
generates a Productivity J-Curve that can explain the
productivity slowdowns often accompanying the advent of GPTs as
well as the follow-on increase in productivity later We use our
model to assess how AI-related intangible capital is currently
affecting measured total factor productivity (TFP) and output
We also conduct a historical analysis of the roles of intangibles
tied to RampD software and computer hardware finding substantial
and ongoing effects of software in particular and hardware to a
lesser extent
httppapersnberorgpapersW25148utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
New Technologies Global Value Chains and Developing Economies
by Dani Rodrik - 25164 (DEV EFG ITI)
Abstract
Many of the exports of developing countries are channeled through
global value chains (GVCs) which also act as conduits for new
technologies However new capabilities and productive
employment remain limited so far to a tiny sliver of globally
integrated firms GVCs and new technologies exhibit features
that limit the upside and may even undermine developing
countries economic performance In particular new technologies
present a double whammy to low-income countries First they are
generally biased towards skills and other capabilities This
bias reduces the comparative advantage of developing countries in
traditionally labor-intensive manufacturing (and other)
activities and decreases their gains from trade Second GVCs
make it harder for low-income countries to use their labor cost
advantage to offset their technological disadvantage by reducing
their ability to substitute unskilled labor for other production
inputs These are two independent shocks that compound each
other The evidence to date on the employment and trade fronts
is that the disadvantages may have more than offset the
advantages
httppapersnberorgpapersW25164utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Bank Runs and Moral Hazard A Review of Deposit
Insurance World Bank Policy Research Working Paper No 8589
31 Pages Posted 20 Sep 2018 Last revised 21 Sep 2018
Deniz Anginer World Bank Research
Asli Demirguc-Kunt World Bank
Date Written September 19 2018
Abstract
Deposit insurance is a widely adopted policy to promote financial stability in the banking
sector Deposit insurance helps ensure depositors confidence in the financial system and
prevents contagious bank runs but it also comes with an unintended consequence of
encouraging banks to take on excessive risk This paper reviews the economic costs and
benefits of deposit insurance and highlights the importance of institutions and specific design
features for how well deposit insurance schemes work in practice
Keywords Deposit Insurance Financial Structures Banks amp Banking Reform Judicial System
Reform Economic Growth
The Future of Work Race With-Not Against-The
Machine World Bank Research amp Policy Briefs Paper No 129680
4 Pages Posted 17 Sep 2018
Lay Lian Chuah World Bank - Development Research Group (DECRG)
Norman Loayza World Bank - Research Department
Achim Schmillen Osteuropa-Institut (OEI) Government of the Federal Republic of Germany - Institute for Employment
Research (IAB) University of Regensburg - Department of Economics and Econometrics
Date Written August 1 2018
Abstract
Will the revolution in digital and information technologies make us obsolete Will jobs be lost
and never replaced Will wages drop to intolerable levels History and economic theory and
evidence suggest that in the long term such fears are misplaced However in the short and
medium term dislocation can be severe for certain types of work places and populations In
the transition period policies are needed to facilitate labor market flexibility and mobility
introduce and strengthen safety nets and social protection and improve education and
training
Keywords Labor Markets Rural Labor Markets Armed Conflict Food Security
An Economists Guide to Climate Change Science
by Solomon Hsiang Robert E Kopp - 25189 (DEV EEE EFG HE ITI LS PE POL PR)
Abstract
Climate change management is a global challenge that requires
social science as much as it requires natural science We
provide a brief introduction to the physical science of climate
change written to provide essential background for economists
and other social scientists We also highlight some key areas in
which economists--including those studying macroeconomics
political economy and development--are in a unique position to
help climate science advance
httppapersnberorgpapersW25189utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
The Intensive Margin in Trade
by Ana M Fernandes Peter J Klenow Sergii Meleshchuk Denisse Pierola Andres Rodriguez-
Clare - 25195 (ITI)
Abstract
The Melitz model highlights the importance of the extensive
margin (the number of firms exporting) for trade flows Using
the World Banks Exporter Dynamics Database (EDD) featuring
firm-level exports from 50 countries we find that around 50 of
variation in exports is along the extensive margin --- a
quantitative victory for the Melitz framework The remaining 50
on the intensive margin (exports per exporting firm) contradicts
a special case of Melitz with Pareto-distributed firm
productivity which has become a tractable benchmark This
benchmark model predicts that conditional on the fixed costs of
exporting all variation in exports across trading partners
should occur on the extensive margin We find that moving from a
Pareto to a lognormal distribution allows the Melitz model to
match the role of the intensive margin in the EDD We use
likelihood methods and the EDD to estimate a generalized Melitz
model with a joint lognormal distribution for firm-level
productivity fixed costs and demand shifters and use exact hat
algebra to quantify the effects of a decline in trade costs on
trade flows and welfare in the estimated model The welfare
effects turn out to be quite close to those in the standard
Melitz-Pareto model when we choose the Pareto shape parameter to
fit the average trade elasticity implied by our estimated
Melitz-lognormal model although there are significant
differences regarding the effects on trade flows
httppapersnberorgpapersW25195utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Are Banks Engines of Export Financial Structures
and Export Dynamics World Bank Policy Research Working Paper No 8621
41 Pages Posted 26 Oct 2018 Last revised 30 Oct 2018
Raoul Minetti Michigan State University - Department of Economics
Alen Mulabdic World Bank
Michele Ruta Economic Research Division WTO Columbia Business School - Economics Department International
Monetary Fund (IMF)
Susan Chun Zhu Michigan State University - Department of Economics
Date Written October 25 2018
Abstract
This paper studies the impact of financial structures on the dynamics of the export sector
using rich data from over 60 countries The results reveal that bank-oriented financial
systems boost the size of the export sector more than market-oriented financial systems
However especially in middle- and low-income countries this effect mostly stems from banks
slowing down exporters exit rather than promoting firms entry into export The reduced exit
from the export sector appears to reflect domestic banks tendency to evergreen loans to
exporters (soft budget constraint) more than banks buffering role in difficult times Foreign
banks mitigate this effect and enhance the dynamism of the export sector
Contractual Frictions and the Margins of Trade World Bank Policy Research Working Paper No 8631
31 Pages Posted 31 Oct 2018 Last revised 1 Nov 2018
Theophile T Azomahou United Nations University (UNU-MERIT) Maastricht University
Hibret Belete Maemir World Bank
Hassen Abda Wako UNU-MERIT
Date Written October 30 2018
Abstract
A growing body of work has shown that the quality of national institutions that enforce
written contracts plays an important role in shaping a countrys comparative advantage
Using highly disaggregated bilateral and unique harmonized firm-level trade data across a
large number of countries this paper contributes to this literature by providing a
comprehensive analysis of the mechanisms through which institutional frictions affect the
pattern of aggregate trade flow distinguishing the effects on the intensive and extensive
margins The analysis finds that contractual friction distorts countries trade pattern beyond
its effect on domestic production structure by deterring the probability of exporting (the
extensive margin) and export sales after entry (the intensive margin) particularly in
industries that rely more heavily on relationship-specific inputs (more vulnerable to holdup
problems) The analysis also finds that contractual frictions matter more for the intensive
margin than the extensive margin of exporting In addition better contracting institutions
increase the probability of survival of new export products in more contract-intensive
industries These results have important policy implications for developing countries that
seek to boost export growth but many of which suffer from poor contracting institutions
Nominal Exchange Rate Dynamics and Monetary
Policy Uncovered Interest Rate Parity and Purchasing
Power Parity Revisited CEPR Discussion Paper No DP13235
33 Pages Posted 15 Oct 2018 Last revised 22 Oct 2018
Yossi Saadon Bank of Israel - Research Department
Nathan Sussman Hebrew University of Jerusalem
Date Written October 2018
Abstract
The increasing globalization of trade in goods and services and the deepening of financial
markets have reduced frictions that may impede the operation of the PPP and UIP
relationships in the short run In this paper we estimate the short term relative PPP and UIP
relationships Using data from Israel which has a deep market for inflation expectations for
12 months we show that relative PPP and UIP cannot be rejected Deviations from
equilibrium last less than a year Data from Israels capital account of the balance of payments
shows that the deviations are not destabilizing Our findings suggest that greater globalization
and financial deepening contribute to the effectiveness of monetary policy
Keywords Balance sheet effects Exchange Rates Inflation expectations monetary policy
purchasing power parity uncovered interest rate parity
Macroeconomic Effects of Chinas Financial Policies
by Kaiji Chen Tao Zha - 25222 (DEV EFG ME)
Abstract
The Chinese economy has undergone three major phases the
1978-1997 period marked as the SOE-led economy the 1998-2015
phase as the investment-driven economy and the new normal
economy since 2016 All three economies have been shaped by the
governments financial policies defined as a set of credit
policy monetary policy and regulatory policy We analyze the
macroeconomic effects of these financial policies throughout the
three phases and provide the stylized facts to substantiate our
analysis The stylized facts differ qualitatively across
different phases or economies We argue that the impacts of
Chinas financial policies work through transmission channels
different from those in developed economies and that a regime
switch from one economy to another was driven mainly by regime
changes in financial policies
httppapersnberorgpapersW25222utm_campaign=ntwamputm_medium=emailamputm_source=ntw
g10
Factor Incomes in Global Value Chains The Role of Intangibles
by Wen Chen Bart Los Marcel P Timmer - 25242 (EFG)
Abstract
Recent studies document a decline in the share of labour and a
simultaneous increase in the share of residual (factorless)
income in national GDP We argue the need for study of factor
incomes in cross-border production to complement country studies
We define a GVC production function that tracks the value added
in each stage of production in any country-industry We define a
new residual as the difference between the value of the final
good and the payments to all tangibles (capital and labour) in
any stage We focus on GVCs of manufactured goods and find the
residual to be large We interpret it as income for intangibles
that are (mostly) not covered in current national accounts
statistics We document decreasing labour and increasing capital
income shares over the period 2000-14 This is mainly due to
increasing income for intangible assets in particular in GVCs of
durable goods We provide evidence that suggests that the 2000s
should be seen as an exceptional period in the global economy
during which multinational firms benefitted from reduced labour
costs through offshoring while capitalising on existing
firm-specific intangibles such as brand names at little
marginal cost
httppapersnberorgpapersW25242utm_campaign=ntwamputm_medium=emailamputm_source=ntw
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Accounting for Firm Heterogeneity within US Industries Extended Supply-Use Tables and Trade
in Value Added using Enterprise and Establishment Level Data
by James J Fetzer Tina Highfill Kassu W Hossiso Thomas F Howells III Erich H Strassner
Jeffrey A Young - 25249 (ITI)
Abstract
This paper presents experimental tables created by the US
Bureau of Economic Analysis comparing industry-specific shares of
the components of total output of globally engaged firms located
in the United States that are part of a multinational enterprise
with those of firms that are part of an enterprise entirely
located in the United States Recent research has shown both the
importance of accounting for trade in value added when estimating
bilateral trade flows and that multinational enterprises located
in the United States account for the lions share of US trade
in goods and services However trade in value added is
typically accounted for using input-output tables that are
aggregated across all types of firms The experimental tables
are consistent with other research showing that value added as a
share of output is lower for foreign-owned firms compared with
domestic-owned firms and that exports and imports as a share of
output is larger for foreign-owned firms We also find
heterogeneity in the composition of output among different types
of domestic-owned firms Future work will analyze this
heterogeneity in more detail using establishment-level data on
production and trade
httppapersnberorgpapersW25249utm_campaign=ntwamputm_medium=emailamputm_source=ntw
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The Falling Elasticity of Global Trade to Economic
Activity Testing the Demand Channel CESifo Working Paper No 7228
42 Pages Posted 31 Oct 2018
Marc Auboin World Trade Organization (WTO)
floriana borino World Trade Organization (WTO)
Date Written 2018
Abstract
Since the recovery from the great financial crisis in 2010 global real trade flows grew much
slower than pre-crisis in both absolute terms (growth rates) and relative terms (relative to
GDP from 21 in the great 1990rsquos to 11 since 2012) A debate has arisen as to whether this
global trade slowdown and related falling trade-to-income elasticity was structural or
cyclical Some papers emphasized the slowing pace of international vertical specialization
Other works emphasized the prominent role of aggregate demand notably when weighted by
its trade component Our paper goes in this latter direction We estimated the standard
import equation for 38 advanced and developing countries over the period 1995-2015 using
an import intensity-adjusted measure of aggregate demand (IAD) calculated from input-
output tables at country level and compared results with regressions using GDP The
integration of IAD allows us to predict 76 to 86 of the changes in global imports a better
performance than if using GDP The use of IAD also enabled us to measure the relative
importance of each component of demand according to their trade intensity The model is
able to account for over 90 of the recent trade slowdown (2012-2015) with IAD alone
explaining 80 of it The slowdown in global value chains explains more than half of the
remaining share of the global trade slowdown not explained by demand factors
Protectionism does not come up as statistically significant
Keywords investment global outlook trade policy trade forecasting business cycles
JEL Classification E220 F010 F130 F170 F440
Will Brexit Age Well Cohorts Seasoning and the Age-
Leave Gradient Past Present and Future CEPR Discussion Paper No DP13288
38 Pages Posted 5 Nov 2018
Barry Eichengreen University of California Berkeley National Bureau of Economic Research (NBER) Centre for Economic
Policy Research (CEPR)
Rebecca Mari Bocconi University
Gregory Thwaites London School of Economics amp Political Science (LSE) - London School of Economics
There are 3 versions of this paper
Date Written October 2018
Abstract
In the UKs 2016 referendum on EU membership young voters were more likely than their
elders to vote Remain Applying new methods to a half century of data we show that this
pattern reflects both ageing and cohort effects Although voters become more Eurosceptical as
they age recent cohorts are also more pro-European than their predecessors Much of the
pro-Europeanism of these recent cohorts is accounted for by their greater years of education
Going forward the ageing of the electorate will thus be offset at least in part by the
replacement of older cohorts with younger better-educated and more pro-European ones
But we also document large nationwide swings in sentiment that have little to do with either
seasoning or cohort effects Hence these demographic trends are unlikely to be the decisive
determinants of future changes in European sentiment Rather nationwide changes in
sentiment reflecting macroeconomic or other conditions and the age-turnout gradient will be
key
JEL Classification F0
Buying Votes and International Organizations The
Dirty Work-Hypothesis CEPR Discussion Paper No DP13290
62 Pages Posted 5 Nov 2018
Axel Dreher Heidelberg University
Valentin Lang University of Zurich
B Peter Rosendorff New York University (NYU) - Wilf Family Department of Politics
James Raymond Vreeland Georgetown University - School of Foreign Service and Department of Government
Date Written October 2018
Abstract
We show how major shareholders can exploit their power over international organizations to
hide their foreign-policy interventions from domestic audiences We argue that major powers
exert influence bilaterally when domestic audiences view the intervention favorably When
domestic audiences are more skeptical of a target country favors are granted via
international organizations We test this theory empirically by examining how the United
States uses bilateral aid and IMF loans to buy other countries votes in the United Nations
Security Council (UNSC) Introducing new data on voting behavior in the UNSC over the 1960-
2015 period our results show that states allied with the US receive more bilateral aid when
voting in line with the United States in the UNSC while concurring votes of states less allied
with the US are rewarded with loans from the IMF Temporary UNSC members that vote
against the United States do not receive such perks
Keywords Aid IMF United Nations Security Council voting World Bank
JEL Classification F35 O11 O19