Content Type: Working Paper / Publication Year: within 10 Years / Topic: Economics

201. Economic Complexity Report for Western Australia

Author:: Ricardo Hausmann, Eric Protzer, Jorge Tapia, and Ana Grisanti
Publication Date:: 04-2021
Content Type:: Working Paper
Institution:: The John F. Kennedy School of Government at Harvard University
Abstract:: The Government of Western Australia (WA), acting through its Department of Primary Industries and Regional Development (DPIRD), invited the Growth Lab of the Center for International Development (CID) at Harvard University to partner with the state to better understand and address constraints to economic diversification through a collaborative applied research project. The project seeks to apply growth diagnostic and economic complexity methodologies to inform policy design in order to accelerate productive transformation, economic diversification, and more inclusive and resilient job creation across Western Australia. This Economic Complexity Report is organized in six sections, including this brief introduction. Section 2 explains the methodology of economic complexity, including its theoretical foundations and main concepts, as well as the adjustments that were required to obtain the required export data at a subnational level and incorporate the service sector to the analysis. Section 3 describes the structure of the WA economy, identifying its productive capacities and exploring its complexity profile. This is done at the state, regional, and city levels. Section 4 identifies industries with high potential and organizes them into groupings to capture important patterns among the opportunities. Section 5 contextualizes the opportunities further by identifying relevant viability and attractiveness factors that complement the complexity metrics and consider local conditions, as well as a criterion for regional participation in the state-wide diversification strategy. Finally, Section 6 summarizes the main findings of this report and discusses implications for Government of WA strategy and policy toward capitalizing on these revealed opportunities.
Topic:: Development, Economics, Economic Complexity, and Job Creation
Political Geography:: Australia

202. Western Australia Research Findings and Policy Recommendations

Author:: Ricardo Hausmann, Douglas Barrios, Ana Grisanti, Semiray Kasoolu, Tim O'Brien, Eric Protzer, Rushabh Sanghvi, Nikita Taniparti, and Jorge Tapia
Publication Date:: 04-2021
Content Type:: Working Paper
Institution:: The John F. Kennedy School of Government at Harvard University
Abstract:: The Government of Western Australia (WA), acting through its Department of Primary Industries and Regional Development (DPIRD), invited the Growth Lab of the Center for International Development at Harvard University to partner with the state to better understand and address constraints to economic diversification through a collaborative applied research project. The project seeks to apply growth diagnostic and economic complexity methodologies to inform policy design in order to accelerate productive transformation, economic diversification, and more inclusive and resilient job creation across Western Australia. This report is organized in six sections, including this brief introduction. Section 2 is an Executive Summary. Section 3 explains the methodologies of Growth Diagnostics and Economic Complexity, including its theoretical foundations and main concepts. Section 4 describes the main findings of the Economic Complexity Report, including a characterization of Western Australia’s complexity profile. This is done at the state, regional, and city levels. Additionally, this section identifies diversification opportunities with high potential and organizes them into groupings to capture important patterns among the opportunities. This section also contextualizes the opportunities further by identifying relevant viability and attractiveness factors that complement the complexity metrics and consider local conditions. Section 5 highlights the main findings of the Growth Perspective Report. This section describes the economic growth process of Western Australia — with a focus on the past two decades — and identifies several issues with the way that growth has occurred. This section highlights three key channels through which negative externalities have manifested: labor market imbalances, pro-cyclicality of fiscal policy, and a misalignment of public goods. The section provides perspectives on the ways in which each of these channels have hampered the quality of growth and explores the deep-rooted factors that underpin these adverse dynamics. Section 6 introduces a policy framework that can be leveraged by WA to capitalize on revealed diversification opportunities and address the factors that impact the quality of the growth process of the state.
Topic:: Economics, Economic Growth, Diversification, and Job Creation
Political Geography:: Australia

203. Let’s Take the Con Out of Randomized Control Trials in Development: The Puzzles and Paradoxes of External Validity, Empirically Illustrated

Author:: Lant Pritchett
Publication Date:: 05-2021
Content Type:: Working Paper
Institution:: The John F. Kennedy School of Government at Harvard University
Abstract:: The enthusiasm for the potential of RCTs in development rests in part on the assumption that the use of the rigorous evidence that emerges from an RCT (or from a small set of studies identified as rigorous in a “systematic” review) leads to the adoption of more effective policies, programs or projects. However, the supposed benefits of using rigorous evidence for “evidence based” policy making depend critically on the extent to which there is external validity. If estimates of causal impact or treatment effects that have internal validity (are unbiased) in one context (where the relevant “context” could be country, region, implementing organization, complementary policies, initial conditions, etc.) cannot be applied to another context then applying evidence that is rigorous in one context may actually reduce predictive accuracy in other contexts relative to simple evidence from that context—even if that evidence is biased (Pritchett and Sandefur 2015). Using empirical estimates from a large number of developing countries of the difference in student learning in public and private schools (just as one potential policy application) I show that commonly made assumptions about external validity are, in the face of the actual observed heterogeneity across contexts, both logically incoherent and empirically unhelpful. Logically incoherent, in that it is impossible to reconcile general claims about external validity of rigorous estimates of causal impact and the heterogeneity of the raw facts about differentials. Empirically unhelpful in that using a single (or small set) of rigorous estimates to apply to all other actually leads to a larger root mean square error of prediction of the “true” causal impact across contexts than just using the estimates from non-experimental data from each country. In the data about private and public schools, under plausible assumptions, an exclusive reliance on the rigorous evidence has RMSE three times worse than using the biased OLS result from each context. In making policy decisions one needs to rely on an understanding of the relevant phenomena that encompasses all of the available evidence.
Topic:: Development, Economics, Education, and Public Policy
Political Geography:: Global Focus

204. A Generation of Italian Economists

Author:: Enrico Nano, Ugo Panizza, and Martina Viarengo
Publication Date:: 05-2021
Content Type:: Working Paper
Institution:: The John F. Kennedy School of Government at Harvard University
Abstract:: We examine the role of financial aid in shaping the formation of human capital in economics. Specifically, we study the impact of a large merit-based scholarship for graduate studies in affecting individuals’ occupational choices, career trajectories, and labor market outcomes of a generation of Italian economists with special focus on gender gaps and the role of social mobility. We construct a unique dataset that combines archival sources and includes microdata for the universe of applicants to the scholarship program and follow these individuals over their professional life. Our unique sample that focuses on the high end of the talent and ability distribution also allows us to analyze the characteristics of top graduates, a group which tends to be under-sampled in most surveys. We discuss five main results. First, women are less likely to be shortlisted for a scholarship as they tend to receive lower scores in the most subjective criteria used in the initial screening of candidates. Second, scholarship winners are much more likely to choose a research career and this effect is larger for women. Third, women who work in Italian universities tend to have less citations than men who work in Italy. However, the citation gender gap is smaller for candidates who received a scholarship. Fourth, women take longer to be promoted to the rank of full professor, even after controlling for academic productivity. Fifth, it is easier to become a high achiever for individuals from households with a lower socio-economic status if they reside in high social mobility provinces. However, high-achievers from lower socio-economic status households face an up-hill battle even in high social mobility provinces.
Topic:: Economics, Education, Gender Issues, Human Capital, Career, and Financial Aid
Political Geography:: Europe and Italy

205. Independent Assessment of the Implementation of the 2020 State Budget of Azerbaijan

Author:: CESD Research Team
Publication Date:: 06-2021
Content Type:: Working Paper
Institution:: Center for Economic and Social Development (CESD)
Abstract:: This independent evaluation aims to investigate the implementation of the 2020 State Budget of Azerbaijan. The pandemic, which has lasted since 2020, has brought significant changes in the world. The changes in terms of both quality and quantity were reflected in the economic environment and individual's livelihood. Because of the requirement for long-term quarantine conditions to battle the pandemic, both developed and developing countries have experienced economic downturns. The research comprises forecast indicators defined by the appropriate executive authority during the year, as well as the draft legislation on 2020 state budget implementation, in addition to the forecast indicators represented in the material provided with the original and updated draft state budget for 2020. The basic order is as follows; introduction, revenues, expenditures, fiscal sustainability, sequestration of costs, cost reduction, receipt of subsidies from the budget, optimization of receivables, distribution of expenditures, and debts. The results included graphical and tabular descriptions.
Topic:: Economics, Government, Budget, and COVID-19
Political Geography:: Azerbaijan and South Caucasus

206. Trade and the Spatial Distribution of Transport Infrastructure

Author:: Gabriel Felbermayr and Alexander Tarasov
Publication Date:: 04-2021
Content Type:: Working Paper
Institution:: Kiel Institute for the World Economy (IfW)
Abstract:: The distribution of transport infrastructure across space is the outcome of deliberate government planning that reflects a desire to unlock the welfare gains from regional economic integration. Yet, despite being one of the oldest government activities, the economic forces shaping the endogenous emergence of infrastructure have not been rigorously studied. This paper provides a stylized analytical framework of open economies in which planners decide non-cooperatively on transport infrastructure investments across continuous space. Allowing for intra- and international trade, the resulting equilibrium investment schedule features underinvestment that turns out particularly severe in border regions and that is amplified by the presence of discrete border costs. In European data, the mechanism explains about 16% of the border effect identified in a conventionally specified gravity regression.
Topic:: Economics, Infrastructure, Governance, Borders, and Trade
Political Geography:: Global Focus

207. The Role of Global Climate Change in Structural Transformation of Sub-Saharan Africa

Author:: Askar Mukashov and Christian Henning
Publication Date:: 06-2021
Content Type:: Working Paper
Institution:: Kiel Institute for the World Economy (IfW)
Abstract:: With increasing evidence that rural households in Sub-Saharan Africa (SSA) opt for deagrarianization as an adaptation strategy to climate change, it is becoming important to understand the role of Global Climate Change (GCC) in ongoing structural transformation processes in these countries. We use Senegal as a case study country and analyze how various GCC scenarios affect the country's economic sectors, households' welfare, and structural transformation patterns. Our simulation results suggest that GCC can increase the country's deagrarianization pace, with industrial and service sectors in the capital Dakar being the most important destinations of the former agricultural labor force. Although unplanned urbanization smoothes the overall negative impact of GCC and decreases spatial income disparities, uncontrolled deagrarianization is also associated with negative externalities. Previous growth-focused studies suggest that services partaking in Senegal’s deagrarianization can hamper its long-term growth prospects, and our results suggest that productivity increase of services can redirect part of the former agricultural labor force towards industrial sectors.
Topic:: Agriculture, Climate Change, Economics, Environment, Labor Issues, Income Inequality, Rural, and Housing
Political Geography:: Africa and Senegal

208. Capitalism Recoupled

Author:: Dennis J. Snower and Colm Kelly
Publication Date:: 07-2021
Content Type:: Working Paper
Institution:: Kiel Institute for the World Economy (IfW)
Abstract:: This paper examines major forces that have decoupled economic and business prosperity from social prosperity and explores how recoupling can be promoted. Economists have specified well-known conditions under which free market enterprise with shareholder value maximization is efficient. These conditions are systematically violated by three forces – globalization, technological advance and financialization (GTF) – that have weakened the connections between economies and societies over the past four decades. Consequently, the recoupling process requires abandoning the default premise of economic decision making that social progress follows financial performance. For business, it calls for a move from shareholder to stakeholder value. For government, it calls for setting legal obligations, targets and incentives to ensure that stakeholder value is compatible with a rigorously defined concept of “societal and planetary value.”
Topic:: Economics, Globalization, Science and Technology, Capitalism, and Economic Theory
Political Geography:: Global Focus

209. Cordon of Conformity: Why DSGE models Are Not the Future of Macroeconomics

Author:: Servaas Storm
Publication Date:: 02-2021
Content Type:: Working Paper
Institution:: Institute for New Economic Thinking (INET)
Abstract:: The Rebuilding Macroeconomic Theory Project, led by David Vines and Samuel Wills (2020), is an important, albeit long overdue, initiative to rethink a failing mainstream macroeconomics. Professors Vines and Wills, who must be congratulated for stepping up to the challenge of trying to make mainstream macroeconomics relevant again, call for a new multiple-equilibrium and diverse (MEADE) paradigm for macroeconomics. Their idea is to start with simple models, ideally two-dimensional sketches, that explain mechanisms that can cause multiple equilibria. These mechanisms should then be incorporated into larger DSGE models in a new, multiple-equilibrium synthesis – to see how the fundamental pieces of the economy fit together, subject to it being ‘properly micro-founded’. This paper argues that the MEADE paradigm is bound to fail, because it maintains the DSGE model as the unifying framework at the center of macroeconomic analysis. The paper reviews 10 fundamental weaknesses inherent in DSGE models which make these models irreparably useless for macroeconomic policy analysis. Mainstream macroeconomics must put DSGE models, once and for all, in the Museum of Implausible Economic Models – and learn important lessons from non-DSGE macroeconomic approaches.
Topic:: Economics, Economic Growth, Macroeconomics, Money, Demand, and Models
Political Geography:: Global Focus

210. Country Risk

Author:: Tarek A. Hassan, Jesse Schreger, Markus Schwedeler, and Ahmed Tahoun
Publication Date:: 03-2021
Content Type:: Working Paper
Institution:: Institute for New Economic Thinking (INET)
Abstract:: We construct new measures of country risk and sentiment as perceived by global investors and executives using textual analysis of the quarterly earnings calls of publicly listed firms around the world. Our quarterly measures cover 45 countries from 2002-2020. We use our measures to provide a novel characterization of country risk and to provide a harmonized definition of crises. We demonstrate that elevated perceptions of a country's riskiness are associated with significant falls in local asset prices and capital outflows, even after global financial conditions are controlled for. Increases in country risk are associated with reductions in firm-level investment and employment. We also show direct evidence of a novel type of contagion, where foreign risk is transmitted across borders through firm-level exposures. Exposed firms suffer falling market valuations and significantly retrench their hiring and investment in response to crises abroad. Finally, we provide direct evidence that heterogeneous currency loadings on global risk help explain the cross-country pattern of interest rates and currency risk premia.
Topic:: Economics, Employment, Investment, Risk, and Contagion
Political Geography:: Global Focus

211. The Updated Okun Method for Estimation of Potential Output with Broad Measures of Labor Underutilization: An Empirical Analysis

Author:: Claudia Fontanari, Antonella Palumbo, and Chiara Salvatori
Publication Date:: 05-2021
Content Type:: Working Paper
Institution:: Institute for New Economic Thinking (INET)
Abstract:: This paper extends to different indicators of labor underutilization the Updated Okun Method (UOM) for estimation of potential output proposed in Fontanari et al (2020), which, from a demand-led growth perspective, regards potential output as an empirical approximation to fullemployment output, as in A.M.Okun’s (1962) original method. Based on the apparent incapability of the official rate of unemployment to fully account for labor underutilization, in this paper we offer estimates of Okun’s law both with broad unemployment indicators and with an indicator of ‘standardized hours worked’ which we propose as a novel measure of the labor input. The paper reflects on the possible different empirical measures of full employment. The various measures of potential output that we extract from our analysis show greater output gaps than those produced by standard methods, thus highlighting a systematic tendency of the latter to underestimate potential output. Output gaps that underestimate the size of the output loss or that tend to close too soon during recovery, may produce a bias towards untimely restriction.
Topic:: Economics, Labor Issues, Economic Growth, Demand, and Unemployment
Political Geography:: Global Focus

212. Bagehot for Central Bankers

Author:: Laurent Le Maux
Publication Date:: 02-2021
Content Type:: Working Paper
Institution:: Institute for New Economic Thinking (INET)
Abstract:: Walter Bagehot (1873) published his famous book, Lombard Street, almost 150 years ago. The adage “lending freely against good collateral at a penalty rate” is associated with his name and his book has always been set on a pedestal and is still considered as the leading reference on the role of lender of last resort. Nonetheless, without a clear understanding of the theoretical grounds and the institutional features of the British banking system, any interpretation of Bagehot’s writings remains vague if not misleading—which is worrisome if they are supposed to provide a guideline for policy makers. The purpose of the present paper is to determine whether Bagehot’s recommendation remains relevant for modern central bankers or whether it was indigenous to the monetary and banking architecture of Victorian times.
Topic:: Economics, History, Central Bank, and Lending
Political Geography:: Global Focus

213. Automotive Global Value Chains in Europe

Author:: Matteo Gaddi and Nadia Garbellini
Publication Date:: 08-2021
Content Type:: Working Paper
Institution:: Institute for New Economic Thinking (INET)
Abstract:: In this paper we examine the main transformations that are affecting European automotive industry and which challenges, in particular due to the transition to new forms of propulsion, the industry is going to face. The automotive industry is central to the European economy and the nature of the Global Value Chains are rapidly shifting. While individual countries have developed economic plans to address this, a broader EU wide plan is critically important to addressing the employment and environmental effects of these shifts.
Topic:: Economics, Industrial Policy, European Union, Manufacturing, and Global Value Chains
Political Geography:: Europe

214. How Milton Friedman Exploited White Supremacy to Privatize Education

Author:: Nancy MacLean
Publication Date:: 09-2021
Content Type:: Working Paper
Institution:: Institute for New Economic Thinking (INET)
Abstract:: This paper traces the origins of today’s campaigns for school vouchers and other modes of public funding for private education to efforts by Milton Friedman beginning in 1955. It reveals that the endgame of the “school choice” enterprise for libertarians was not then— and is not now--to enhance education for all children; it was a strategy, ultimately, to offload the full cost of schooling onto parents as part of a larger quest to privatize public services and resources. Based on extensive original archival research, this paper shows how Friedman’s case for vouchers to promote “educational freedom” buttressed the case of Southern advocates of the policy of massive resistance to Brown v. Board of Education. His approach—supported by many other Mont Pelerin Society members and leading libertarians of the day --taught white supremacists a more sophisticated, and for more than a decade, court-proof way to preserve Jim Crow. All they had to do was cease overt focus on race and instead deploy a neoliberal language of personal liberty, government failure and the need for market competition in the provision of public education.
Topic:: Economics, Education, Supreme Court, White Supremacy, Segregation, Private Schools, School Choice, and Public Schools
Political Geography:: North America and United States of America

215. Why do Sovereign Borrowers Post Collateral? Evidence from the 19th Century

Author:: Marc Flandreau, Stefano Pietrosanti, and Carlotta E. Schuster
Publication Date:: 10-2021
Content Type:: Working Paper
Institution:: Institute for New Economic Thinking (INET)
Abstract:: This paper explores the reasons why sovereign borrowers post collateral. Such behavior is paradoxical because conventional interpretations of collateral stress repossession of the assets pledged as the key to securing lenders against information asymmetries and moral hazard. However, repossession is generally difficult in the case of sovereign debt and in some cases impossible. Nevertheless, such sovereign “hypothecations” have a long history and are again becoming very popular today in developing countries. To explain sovereign collateralization, we emphasize an informational channel. Posting collateral produces information on opaque borrowers by displaying borrowers’ behavior and resources. We support this interpretation by examining the hypothecation “mania” of 1849-1875, when sovereigns borrowing in the London Stock Exchange pledged all kinds of intangible revenues. Yet, at that time, sovereign immunity fully protected both sovereigns and their assets and possessions. Still, we show that hypothecations significantly decreased the cost of sovereign debt. To explain how, we stress the pledges’ role in documenting sovereigns’ wealth and the management of revenue streams. Based on an exhaustive library of bond prospectuses collected from primary sources, matched with a panel of sovereign bond yields and an innovative measure of sovereign fiscal transparency, we show that collateral minutely described in debt covenants served to document and monitor sovereign resources and development prospects. Encasing this information in contracts written by lawyers served to certify the quality of the resulting data disclosure process, explaining investors’ readiness to pay a premium.
Topic:: Economics, Finance, History, Innovation, Contracts, Sovereign Debt, and Collateral
Political Geography:: Global Focus

216. Inflation? It’s Import Prices and the Labor Share!

Author:: Lance Taylor and Nelson H. Barbosa-Filho
Publication Date:: 01-2021
Content Type:: Working Paper
Institution:: Institute for New Economic Thinking (INET)
Abstract:: Recognizing that inflation of the value of output and its costs of production must be equal, we focus on a cost-based macroeconomic structuralist approach in contrast to micro-oriented monetarist analysis. For decades the import and profit shares of cost have risen, while the wage share has declined to around 50% with money wage increases lagging the sum of growth rates of prices and productivity. Conflicting claims to income are the underlying source of inflationary pressure. Inflation affects income (labor’s spending power) and wealth. Monetarist theory around 1900 concentrated on the latter (Bryan and the “Cross of Gold)” leading to the standard Laffer curve. It was replaced by the Friedman-Phelps model which has incorrect dynamics (labor payments do not fall during an expansion – they go up). Samuelson and Solow introduced a version of the Phillips curve that violates macroeconomic accounting. Rational expectations replaced Friedman but was immediately falsified by output drops after the Volcker shock treatment around 1980. There followed a complicated transition from rational expectations to inflation targeting, anchored by economists’ misunderstanding of the physical meaning of ergodicity and ontological blindness. It did not help that the real balance effect is irrelevant because money makes up a small part of wealth. Rather than issuing veiled threats of disaster if its policy advice is not followed, the Fed now announces inflation targets which it cannot meet. Contemporary structuralist theory suggests that conflicting income claims set the inflation rate. Firms can mark up costs but workers have latent bargaining power over the labor share that they can exercise. Import costs and policy repercussions complicate the picture, but a simple vector error correction model and visual analysis suggest that money wages would have to grow one percentage point faster than prices plus productivity for several years if the Fed is to meet a three percent inflation target. The results pose a Biden policy trilemma: (i) the only path toward a more egalitarian size distribution of income is through a rising labor share (money wage growth exceeds price plus productivity growth), (ii) which would provoke faster inflation with feedback to rising interest rates, and (iii) the resulting asset price deflation likely facing political resistance from Wall Street and affluent households.
Topic:: Economics, Labor Issues, Inflation, Imports, and Structuralism
Political Geography:: Global Focus

217. The Erroneous Foundations of Law and Economics

Author:: Mark Glick and Gabriel A. Lozada
Publication Date:: 02-2021
Content Type:: Working Paper
Institution:: Institute for New Economic Thinking (INET)
Abstract:: The fundamental originating principle of law and economics (L&E) is that legal decisions should be (and are) based on maximizing efficiency. But L&E proponents do not define “efficiency” in the way agreed to by most economists, as Pareto Efficiency. A Pareto optimal condition is obtained when no one can be made better off without making someone worse off. Pareto Improvements are win-win changes where no losers exist. In the judicial system, however, there are always winners and losers, because under Article III § 2 of the Constitution a legal case does not exist unless there is a justiciable “case or controversy” in need of resolution. Unable to use Pareto Efficiency, L&E scholars have been forced to adopt alternative definitions of efficiency. Most L&E scholars claim to define “efficiency” based on the work of Kaldor and Hicks, but (perhaps unwittingly) instead use a definition of “efficiency” derived from the 19th century idea of consumer surplus, which encompasses L&E notions such as “wealth maximization,” and “consumer welfare” in antitrust. Neither of these alternative definitions is viable, however. Outside of L&E, the Kaldor-Hicks approach has long been recognized to be riddled with logical inconsistencies and ethical failures, and the surplus approach is even more deficient. Remarkably, virtually none of the numerous L&E textbooks even hint at such problems. Critically, all definitions of efficiency improvements in economics are biased in favor of wealthy individuals or firms, either because they are dependent on the status quo ante distribution of assets, or because they bestow large advantages on parties with political influence or who can afford to bring lawsuits quickly. Many L&E practitioners treat efficiency improvements instead as being objectively good, an error revealing that L&E is primarily motivated by its neoliberal policy agenda.
Topic:: Economics, Law, Neoliberalism, and Efficiency
Political Geography:: Global Focus

218. The National FDI Observatories, a Bulwark Against the Imbalance Effects of Chinese FDI In Africa?

Author:: Joel Moudio and Steve Tametong
Publication Date:: 07-2021
Content Type:: Working Paper
Institution:: The Nkafu Policy Institute
Abstract:: Sino-African relations are structured around three axes: trade, Chinese financing in Africa and foreign direct investment (FDI). The latter is the key element in the multinationalisation of companies. Between 2003 and 2018, Chinese FDI in Africa dropped from USD 75 million to USD 2.7 billion1 ; this is in contrast to the period 2004-2008 when Africa attracted about 10% of Chinese direct investment (Sanfilippo, 2010), with a peak in 2008 of about USD 5.5 billion “due to the purchase of 20% of the shares of the Standard Bank of South Africa by the Industrial and Commercial Bank of China (ICBC)”.2. These include: cross-border mergers and acquisitions, intra-group loans and borrowing, and the creation of subsidiaries abroad. While Chinese FDI in Africa is growing exponentially and is a development boon for African countries (1), it is also partly a “danger” for African economies. The case of Cameroon will illustrate this (2). In this context, the establishment of a National FDI Observatory (NFOID) under the joint action of civil society becomes a necessity in order to compensate for the State’s inadequacies in terms of monitoring and surveillance of the perverse effects of FDI (3).
Topic:: Civil Society, Economics, Hegemony, and Foreign Interference
Political Geography:: Africa and Cameroon

219. The Resurgence of Covid19 and its Impact on the Economies of CEMAC Countries

Author:: Cyriaque Junior Medjo Mekok
Publication Date:: 08-2021
Content Type:: Working Paper
Institution:: The Nkafu Policy Institute
Abstract:: For more than a year, the world has been facing a phenomenon that has literally redefined habits within communities. This phenomenon is the global Corona virus pandemic, identified in December 2019 in China, in the city of Wuhan. Declared a pandemic by the World Health Organisation (WHO), it has multiplied cases of contamination and death throughout the world. As no country is self-sufficient, the Corona virus pandemic has forced all nations to adopt measures to protect their populations and territories. Since mid-January 2021, the WHO has authorised the release of Covid19 vaccines in the world in general and in Africa in particular. Astra Zeneca, Moderna, Pfizer/BioNTech, Johnson & Johnson and others are now being used to combat the disease. Even if their effectiveness is established at 66% in general against 85% for the severe forms, their ineffectiveness against the more contagious South African variant represents a disadvantage for their marketing in Africa. In order to better understand our subject, we will take stock of the resurgence of this crisis in the economies of the CEMAC countries (I), state its harmful effects on their economies (II) and provide prospects and solutions for economic recovery (III).
Topic:: Economics, Regional Cooperation, Pandemic, COVID-19, Health Crisis, and CEMAC (Central African Economic and Monetary Community)
Political Geography:: Africa, Chad, Cameroon, Central African Republic, Equatorial Guinea, Gabon, and Republic of Congo

220. Urban Governance in Cameroon: Between Laissez-Faire And Faire-Laisser

Author:: Joseph MagloirenOlinga Olinga
Publication Date:: 09-2021
Content Type:: Working Paper
Institution:: The Nkafu Policy Institute
Abstract:: From a geohistorical point of view, Cameroonian cities are characterised by what B. TAMRU (2001) describes as a “process of vulnerability“. This concept is in line with the phenomenological approach, which studies the impact of human actions on risk and its aggravation, based on the study of damage (P. PIGEON, 1994). However, urban dynamics are still poorly taken into account in the diagnosis of environmental risks. In this case, the flood risk is rarely studied in all its spatio-temporal depth: “The risk of flooding is thus most often analysed at a time “t”, according to a given hazard, on channels considered as stable”. From this point of view, starting from a diachronic analysis, the geohistorical context of Cameroon cities, particularly urban centres such as Douala (economic capital) and Yaoundé (political capital), constitutes an important key to reading the current urbanistic, social, economic and environmental challenges. Based on recent news, in particular the images of the Yaoundé VII Town Hall flooded after the downpour of 8 June 2021, this paper analyses the vulnerabilities of Cameroon cities through the prism of two variables: firstly, the socio-spatial processes that produce them and, secondly, the mechanisms that determine the capacity of cities to adapt to environmental risks. It brings to the fore the thorny issue of urban governance lato sensu. The case of the Commune of Yaoundé VII is symptomatic of urban governance in Cameroon and raises the question of whether municipal executives are definitively caught in the dilemma of “laissez-faire” and “faire laisser”.
Topic:: Economics, Environment, Governance, and Urban
Political Geography:: Africa and Cameroon

221. Diaspora Investors and Access to Bank Credit in Cameroon: Constraints and Opportunities

Author:: Ballo Ngomna and Joel Moudio
Publication Date:: 09-2021
Content Type:: Working Paper
Institution:: The Nkafu Policy Institute
Abstract:: According to the Doing Business 2020 report, “compared to the previous year, sub-Saharan African economies improved their average score by 0.9 points” on the Doing Business index, which ranks countries on the ease of doing business. Overall, Cameroon’s index value (46.1) does not give it an honourable ranking (167th out of 190). However, its ranking is better in terms of obtaining loans (80th out of 190), one of the ten components used to calculate the index.
Topic:: Economics, Finance, Credit, and Banking
Political Geography:: Africa and Cameroon

222. Perspectives on the Formalization of the Informal Economy in Cameroon

Author:: Joel Moudio Motto
Publication Date:: 10-2021
Content Type:: Working Paper
Institution:: The Nkafu Policy Institute
Abstract:: Informal sector practices are the third most frequently cited barriers – after corruption and administrative bureaucracy – for formal enterprises in sub-Saharan Africa (Moyo & Sibindi, 2020). To address this, many programs are being implemented to crack down on and penalize non-compliance. Policies are also being implemented for reducing registration costs and imposing taxes on informal activities and formalization campaigns (De Mel et al., 2014). The issues raised by these measures are fiscal and compliance issues. From this point of view, the non-participation of the informal economy in tax revenues limits the action of the State, hence the need to formalize, by organizing informal channels into associations or interest groups, despite the tax and standardization challenges.
Topic:: Economics, Governance, Tax Systems, and Informal Economy
Political Geography:: Africa and Cameroon

223. Report on the 2021 Budget of Cameroon: An Analysis of the Sustainability of the Public Debt

Author:: Jean-Cedric Kouam, Henri Kouam Tamto, Bin Joachem Meh, and Marlyse Noussi
Publication Date:: 11-2021
Content Type:: Working Paper
Institution:: The Nkafu Policy Institute
Abstract:: The purpose of this report is to analyze the 2021 budget of the State of Cameroon, examining the sustainability of public debt. We use data extracted from the Republic of Cameroon’s Finance Laws, notably those for 2021; available public debt data from the Autonomous Sinking Fund; as well as forecasts made by the Ministry of the Economy, Planning, and Regional Development in the New National Development Strategy 2020-2030. Using the framework for analyzing public debt sustainability defined jointly by the International Monetary Fund and the World Bank in 2018, we show that Cameroon’s public debt, while still sustainable (estimated at 46.9% of Gross Domestic Product, thus remaining below the community threshold of 70%), still poses a high risk of external debt distress on the Cameroonian economy. This result means that, in the absence of concrete and radical actions by the government to reduce its rate of indebtedness, it will be difficult for the Cameroonian Treasury to honor all the government’s financial commitments on the bond markets in the near future, particularly with respect to debt service payments. We show that Cameroon’s liquidity and solvency ratios correspond to a policy that can be improved. Some debt and debt service indicators are significantly above short-term benchmarks over the entire study period from 2021 to 2030. Given this situation, it is urgent that the government define and implement an effective and efficient fiscal policy capable of bringing Cameroon to the level of development hoped for by 2035. This requires a more optimal reallocation of resources in order to guarantee productive investments and sustainable human development (Fambon, 2002). In this sense, this report emphasizes the need to guarantee the competitiveness of national enterprises, which includes the promotion of national private investment and the choice of loans at preferential rates that require the repurchase and/or cancellation of certain components of the country’s public debt. Thus, the study recommends several economic policy proposals to the Cameroonian government to reduce the debt burden.
Topic:: Debt, Economics, Governance, Finance, and Public Debt
Political Geography:: Africa and Cameroon

224. Free Trade as a Catalyst to the Fourth Industrial Revolution Technologies in Cameroon’s Manufacturing Sector

Author:: Henri Kouam
Publication Date:: 12-2021
Content Type:: Working Paper
Institution:: The Nkafu Policy Institute
Abstract:: The Fourth Industrial Revolution is rapidly changing the nature of work in recent times. Policymakers are grappling with integrating 4IR technologies into their economies, but for Cameroon and Nigeria, free trade is a useful tool in supporting manufacturing and innovation. Free trade will increase competition in the Cameroonian market as lower trade barriers will increase the flows of goods and services into Cameroon. Admittedly, local manufacturers will innovate their processes in order to protect their market share and reduce the impact of foreign competition. Medium and high-tech manufacturing exports in Cameroon will drive by increased demand from other African countries and price-driven competition in local markets.
Topic:: Economics, International Trade and Finance, Free Trade, Manufacturing, and Industrialization
Political Geography:: Africa and Cameroon

225. The Economic Importance of Motorcycles to Europe

Author:: Oxford Economics
Publication Date:: 09-2021
Content Type:: Working Paper
Institution:: Oxford Economics
Abstract:: Motorcycle-related activity supports €21.4 billion of output (GDP) across Europe a year, sustains 389,000 jobs, and generates €16.6 billion of tax revenues, according to research by Oxford Economics. This means that in 2019 economic activities associated with motorcycling generated more GDP, and employed more people, than the metropolitan area economies centred on Venice, Malaga, and Palma de Mallorca. The total tax impact would have been sufficient to cover the pay of 380,000 teachers, or some 6.5% of all European teachers. Four-fifths of the total was accounted for by six countries, namely Italy (23%), Germany (20%), France (13%), the UK (11%), Spain (7%), and Austria (7%). This report, commissioned by ACEM, the motorcycle industry in Europe, also investigates the international trade in motorcycles and parts. In 2019, manufacturers in the EU-27 and the UK sold €2.1 billion of these goods to non-European customers—so that exports accounted for 39% of their total sales by value. Even so, European countries had a trade deficit in these products, with imports totalling €4.5 billion. Large quantities are imported from Asian countries where European manufacturers face high import tariffs. These high custom duties protect their domestic markets by making European vehicles relatively more expensive. This report, commissioned by ACEM, the motorcycle industry in Europe, also investigates the international trade in motorcycles and parts. In 2019, manufacturers in the EU-27 and the UK sold €2.1 billion of these goods to non-European customers—so that exports accounted for 39% of their total sales by value. Even so, European countries had a trade deficit in these products, with imports totalling €4.5 billion. Large quantities are imported from Asian countries where European manufacturers face high import tariffs. These high custom duties protect their domestic markets by making European vehicles relatively more expensive.
Topic:: Economics, Fiscal Policy, Manufacturing, and Motor Vehicles
Political Geography:: Europe

226. The economic contribution of UK rail

Author:: Oxford Economics
Publication Date:: 09-2021
Content Type:: Working Paper
Institution:: Oxford Economics
Abstract:: The UK railway sector supported £42.9 billion of economic production (GVA) in 2019, associated with 710,000 jobs. Productivity and wage levels, both on the railways and in the rail supply sector, were above-average in every region. The UK railway sector supported £42.9 billion of economic production and was associated with 710,000 jobs and £14.1 billion in tax revenues in 2019, new research by Oxford Economics finds. The rail transport system—Network Rail and the train and metro system operators—accounted for £12.2 billion of that total Gross Value Added (GVA) measure of output. For every £1 of activity on the railway system itself, a further £2.50 of income was generated elsewhere in the UK economy, as a result of supply chain links and other knock-on effects. This extra GVA comprised £17.8 billion in the rail supply sector, £0.9 billion in on-station retail and its suppliers, and £12.0 billion across the wider consumer-facing economy due to wage-funded employee spending (the so-called ‘induced impact’). The study, commissioned by the Railway Industry Association (RIA), also finds that both productivity and wages are higher than the economy-wide average, in both the rail transport system and rail supply sector. This is true not just for the UK as a whole, but for every one of its 12 constituent regions and countries. Finally, the analysis looks at the potential impact of extra public spending on the UK rail infrastructure. Looking further into the future, if rail infrastructure spending were 50% higher than the ‘baseline’ expectation, an extra 104,000 rail supply sector jobs would be supported throughout the five-year period 2025-29. Even if these jobs simply displaced other work, the economy would still benefit, because of their high-productivity, high-wage nature. In the more immediate future, the economy will still be recovering from the Covid pandemic, and will therefore have a degree of spare capacity. This means that any extra jobs created by an uplift in rail infrastructure investment could be genuinely additional, rather than displacing other employment. And this work could support more new jobs in turn, through induced effects. Here, we find that every extra £100 million per annum of spending on rail infrastructure would support an additional 1,400 well-paid jobs in the rail supply sector, plus a further 700 jobs across the wider consumer-facing economy.
Topic:: Economics, Infrastructure, Railways, and Travel
Political Geography:: United Kingdom and Europe

227. Assessing the Economic, Societal and Cultural Benefits of YouTube in Brazil

Author:: Oxford Economics
Publication Date:: 09-2021
Content Type:: Working Paper
Institution:: Oxford Economics
Abstract:: Read how Oxford Economics and YouTube partnered to identify the economic and societal benefits of YouTube in Brazil. Through our rigorous economic modelling and survey capabilities, we found that, in 2020, YouTube contributed R$3.4 billion to Brazil’s GDP and 122,000 full-time equivalent jobs. Our research shows that YouTube fosters significant positive trends for Brazil’s creators in terms of professional goal achievement, business growth, and improved practical skills, as well as serving as a vital resource for teachers and learners
Topic:: Economics, GDP, Social Media, and YouTube
Political Geography:: Brazil and South America

228. The socio-economic impact of cultivated meat in the UK

Author:: Oxford Economics
Publication Date:: 09-2021
Content Type:: Working Paper
Institution:: Oxford Economics
Abstract:: A report on the potential socio-economic benefits of the cultivated meat sector in conjunction with leading UK producer Ivy Farm Technologies. The cultivated meat industry is in its infancy, both in the UK and in most countries around the world. But it clearly presents significant opportunities for entrepreneurs, investors, and other commercial partners to exploit the global potential of a move away from conventional farming towards more sustainable methods. However, the UK industry is currently not able to take advantage of the commercial opportunities while it awaits regulatory approval. This report has sought to demonstrate that there is a strong economic rationale for allowing UK firms to move from research and development into production. As the report highlights, the UK cultivated meat market has the potential to grow into an industry with a total gross value added contribution to UK GDP of over £2 billion in 2030. The detailed analysis of the value of economic activity generated, the number of highly-skilled jobs created and supported, and the taxation revenue (up to £523 million) generated shows the industry has the potential to become an important sectoral driver of growth during the next decade.
Topic:: Economics, Job Creation, Socioeconomics, and Business Management
Political Geography:: United Kingdom and Europe

229. Future of Construction

Author:: Oxford Economics
Publication Date:: 10-2021
Content Type:: Working Paper
Institution:: Oxford Economics
Abstract:: Future of Construction gives forecasts for global construction to 2030 as well as perspectives on climate related challenges for the construction industry. Global construction output in 2020 was US$10.7 trillion (in 2017 prices and exchange rates) and we expect this to grow by 42% or US$4.5 trillion between 2020 and 2030 to reach US$15.2 trillion. The Global Construction industry is set to be a global engine for economic growth and recovery from COVID. Shorter term, global construction output is expected to reach US$13.3 trillion by 2025 – adding US$2.6 trillion to output in the five years from 2020. Asia Pacific will account for US$2.5 trillion of growth in construction output between 2020 and 2030, up by over 50% to become a US$7.4 trillion market by 2030. Construction output in North America will grow by 32%, or US$580 billion from 2020 to 2030, to US$2.4 trillion in 2030. Western Europe is forecast to grow by 23% between 2020 and 2030 and is expected to push up construction output to US$2.5 trillion in 2030. Average annual growth in construction of 3.6% per annum over the decade to 2030 will be higher than manufacturing or services.
Topic:: Climate Change, Economics, Green Technology, Manufacturing, and Construction
Political Geography:: Global Focus

230. The Economic Impact of an Online Retail Sales Tax in the UK

Author:: Oxford Economics
Publication Date:: 11-2021
Content Type:: Working Paper
Institution:: Oxford Economics
Abstract:: Amazon have commissioned Oxford Economics to produce an independent quantitative assessment of the economic implications of the introduction of an online sales tax in the UK. On 27 July 2020, HM Treasury (HMT) announced a call for evidence around the issue of a business rates review. Contained within this document was a consideration of alternative tax bases that could raise revenue for the Exchequer to compensate for any shortfall that might be created by business rates reform. One of the options proposed was an online sales tax (OST). In this context, Amazon have commissioned Oxford Economics to produce an independent quantitative assessment of the economic implications of the introduction of such a tax in the UK. We find that that the introduction of an OST would raise around £1.6 billion in government revenue. The burden of the tax would be split between consumers, online sales platforms, and upstream businesses. Our analysis shows that a majority of the tax’s burden will most likely be borne by consumers who could lose around £1.3 billion in welfare terms. The net inefficiencies due to the OST are estimated to be around £200 million (i.e., 13% of the revenue). The government’s fiscal options will need to be assessed against a range of economic as well as procedural criteria. In our assessment of the OST against the Treasury Select Committee’s principles of taxation, we found that the OST is distortive and also could potentially restrict SMEs from competing in the retail market. Further, the disproportionate impact on households in the lowest income decile and on economically weaker regions of the UK as well as the restrictive effect on the elderly and the disabled raise questions about the fairness of the OST.
Topic:: Economics, Digital Economy, Retail, and Digitalization
Political Geography:: United Kingdom and Europe

231. Economic impact of illicit tobacco in Australia

Author:: Oxford Economics
Publication Date:: 12-2021
Content Type:: Working Paper
Institution:: Oxford Economics
Abstract:: This report commissioned by British American Tobacco Australia, examines the size of the illicit market as well as the economic effects of that market on the national economy. Gains to illicit traders and the potential impact of issues such as money laundering are also discussed. In total, we estimate around $4.9 billion in revenue was lost by the legal economy to the illicit economy by the illicit tobacco trade in 2019. Of the $4.9 billion lost to the legal economy in 2019, we estimate some $2.1 billion flowed to illicit operators.
Topic:: Agriculture, Economics, Tobacco, and Illegal Trade
Political Geography:: Australia

232. A decomposition method to evaluate the ‘paradox of progress’ with evidence for Argentina

Author:: Javier Alejo, Leonardo Gasparini, Gabriel Montes-Rojas, and Walter Sosa-Escudero
Publication Date:: 12-2021
Content Type:: Working Paper
Institution:: Center for Distributive, Labor and Social Studies (CEDLAS)
Abstract:: The ‘paradox of progress’ is an empirical regularity that associates more education with larger income inequality. Two driving and competing factors behind this phenomenon are the convexity of the ‘Mincer equation’ (that links wages and education) and the heterogeneity in its returns, as captured by quantile regressions. We propose a joint least-squares and quantile regression statistical framework to derive a decomposition in order to evaluate the relative contribution of each explanation. The estimators are based on the ‘functional derivative’ approach. We apply the proposed decomposition strategy to the case of Argentina 1992 to 2015.
Topic:: Economics, Education, Inequality, Quantile Regression, and Paradox of Progress
Political Geography:: Argentina and South America

233. The Organizational Roots of Market Design Failure: Structural Abstraction, the Limits of Hierarchy, and the California Energy Crisis of 2000/01.

Author:: Georg Rilinger
Publication Date:: 12-2021
Content Type:: Working Paper
Institution:: Max Planck Institute for the Study of Societies
Abstract:: Economic sociologists have rarely studied organizational reasons why market design pro- cesses fail. Drawing on the organizational literature on mistakes and accidents, the paper identifies such reasons for a fatal design decision during the creation of California’s first electricity markets. Designers proposed weak oversight structures even though their mod- els called for active and permanent regulatory control. Sellers like Enron could therefore manipulate the market without fear of detection, prolonging the western energy crisis. A process of “structural abstraction” explains this mistake. Designers were split into three groups that worked in different divisions and relied on local frames to understand the over- sight requirements. Each group missed information the others were aware of and arrived at the conclusion that minimal oversight would suffice. Higher levels of the hierarchy should have discovered and resolved these discrepancies. However, these levels considered the is- sue at a higher level of abstraction. Such structural abstraction made room for ambiguities that obscured the local disagreements.
Topic:: Climate Change, Economics, Energy Policy, Electricity, and Energy Crisis
Political Geography:: California, North America, and United States of America

234. Risen from the Ruins: The Economic History of Socialism in the German Democratic Republic

Author:: Tricontinental: Institute for Social Research
Publication Date:: 04-2021
Content Type:: Working Paper
Institution:: Tricontinental: Institute for Social Research
Abstract:: The German Democratic Republic (DDR) was a socialist state founded in 1949 as a democratic, antifascist reaction to the Second World War. It redistributed land, socialised the means of production, and collectivised the agricultural system. This socialist state established an egalitarian education, healthcare, and social system, and guaranteed equal rights between men and women. It cultivated friendly and close-knit economic relationships with other socialist states and supported countries fighting for their independence in Latin America, Asia, and Africa by showing international solidarity. The establishment of a just society based on the principles of equality was the DDR’s declared objective. With public ownership of the means of production as its foundation, the country developed into a powerful and efficient industrial state that used its economic profit for the benefit of its citizens and guaranteed them a life of social security. Ultimately, the DDR was extremely successful in realising its main socio-political goal: the satisfaction of the growing material and cultural needs of its people. But why bother re-examining the DDR’s achievements, principles, and structures thirty years after its downfall? What can we learn from the DDR’s alternative economic practices in today’s world, where the triumph of capitalism has exacerbated the problems of inequality and poverty and has resulted in more frequent crises? What did socialist democracy really look like? What contradictions arose from the everyday application of a planned economy? What lessons can we draw from the DDR’s ultimate failure? With this series Studies on the DDR, the Internationale Forschungsstelle DDR (International Research Centre DDR) together with Tricontinental: Institute for Social Research seek to encourage a new engagement with the history and principles of the DDR. It is our goal to re-evaluate the legacy and experiences of this socialist state. For this reason, we use the German acronym DDR, or Deutsche Demokratische Republik, (English: GDR) specifically because it often represents a positive point of reference in many parts of the world and especially for countries in the Global South. This educational series on the socialist agenda and realities of the DDR explores aspects of everyday life, provides facts about the country’s social achievements, and examines the political and economic foundations of this socialist state. By reflecting on the lived experiences of daily life, which are generally left out of the dominant narrative due to the crushing victory of capitalism and the dominance of the market economy, we hope to make a useful contribution to the debate currently taking place within progressive movements. After all, millions of people around the world are still fighting for advancements that were once a given in this socialist system but were lost with its downfall. This first publication in Studies on the DDR will briefly outline the formation of the DDR and its economic circumstances from the country’s inception to its end. In order to fully understand the specific DDR brand of socialism, we must highlight the historical conditions from which it emerged. The DDR was born in times of crisis in the aftermath of a devastating war as Germany – the instigator of the Second World War – was divided in two. It is imperative that we examine the DDR in its relationship to West Germany, which it opposed in the ensuing Cold War between the communist and capitalist systems. In 1990, after the reunification of Germany, the DDR economy was dismantled. It was treated as a shock therapy prototype for the austerity measures that were soon imposed on other countries – and not just the former socialist states. At the same time, the DDR was politically, judicially, and morally delegitimised. The publications in this series are a rejection of the narrative propagated by enemies of socialism, both new and old, that the downfall of the DDR proves the inevitable failure of socialist policy and economy. By depicting the realities of life in the DDR and by affirming the experiences of DDR citizens, we hope to remind the reader that alternatives to capitalism did and do exist.
Topic:: Economics, Governance, State Building, Socialism, and Political Crisis
Political Geography:: Europe, Germany, and East Germany

235. Economic Sentiment Indicators and Foreign Direct Investment: Empirical Evidence from European Union Countries

Author:: Andrzej Cieślik and Mahdi Ghodsi
Publication Date:: 07-2021
Content Type:: Working Paper
Institution:: The Vienna Institute for International Economic Studies (WIIW)
Abstract:: This paper studies the role of business sentiment in the decisions of multinational enterprises (MNEs) to undertake foreign direct investment (FDI) across European Union (EU) member states. Based on the knowledge-capital model, the study employs the Pseudo Poisson Maximum Likelihood (PPML) estimator and panel data to examine empirically the determinants of FDI across EU member states during the period 2003-2017. The empirical evidence suggests that better economic sentiment in an EU Member State induces MNEs to undertake FDI in that country, while worse economic sentiment in an EU member state motivates an MNE in that country to invest abroad.
Topic:: Economics, Markets, Foreign Direct Investment, European Union, Business, and Multinational Corporations
Political Geography:: Europe

236. German Economy Winter 2021: Recovery temporarily on hold

Author:: Martin Ademmer, Dominik Groll, Nils Jannsen, Saskia Meuchelbock, Jens Boysen-Hogrefe, Nils Sonnenberg, and Stefan Kooths
Publication Date:: 12-2021
Content Type:: Working Paper
Institution:: Kiel Institute for the World Economy (IfW)
Abstract:: The recovery of the German economy is interrupted once again. In the winter, the new Covid-19 wave will particularly hit activity in contact-intensive service sectors as in previous waves. As a result, there will be a setback in private consumer spending and probably also small declines in GDP. To the extent that the burdens of the pandemic ease in the spring, a strong recovery will set in, similar to the pattern observed this year. Economic momentum will likely be particularly high as the supply bottlenecks, which are massively dampening industrial production in this year, are expected to ease. Overall, the renewed slowdown in the recovery process caused by the pandemic will probably be larger than we had expected in our autumn economic outlook. However, the setback will be not as severe as last winter. In 2022, GDP will probably increase by 4 percent and thus less strongly than we had expected three months ago (5.1 percent). For 2023, we revise GDP growth upwards to 3.3 percent (autumn outlook: 2.3 percent). This year, GDP will increase by 2.6 percent. Inflation will remain high for the time being, also because supply bottlenecks continue to increase manufacturing costs and tighten the supply of consumer goods. At the same time, private households have accumulated additional savings of around 200 billion euros since the beginning of the pandemic and therefore have a rather high willingness to pay. Consumer price inflation will probably be around 3 percent both this and next year, before easing again in 2023. The public budget deficit will fall noticeably from 3.8 percent in relation to GDP in 2021 to 1.8 percent in 2022 due to the reduced burden of the pandemic. However, the budgets are still expected to close with a deficit of 1.4 percent in 2023.
Topic:: Economics, GDP, Pandemic, and COVID-19
Political Geography:: Europe and Germany

237. World Economy Autumn 2021: Stumbling blocks on the road to recovery

Author:: Klaus-Jurgen Gern, Ulrich Stolzenburg, Stefan Kooths, and Philipp Hauber
Publication Date:: 09-2021
Content Type:: Working Paper
Institution:: Kiel Institute for the World Economy (IfW)
Abstract:: The global recovery has lost momentum in the first half of 2021 amid new surges of Covid-19 cases and supply chain disruptions. We still expect world production to rebound strongly after the historic collapse in the previous year but we have lowered our forecast for global GDP growth from 6.7 percent to 5.9 percent. At the same time we are now slightly more upbeat for the coming year with global production expected to grow by 5 percent (June forecast: 4.8 percent). With the economy gradually slowing towards the end of the forecast horizon, we expect still relatively strong annual growth of 3.8 percent in 2023. Consumer price inflation has accelerated markedly over the course of this year, largely due to temporary factors. Our baseline forecast expects price pressures to ease in the coming year and monetary policy to remain accommodative. There are, however, upside risks to inflation as large extra savings amassed by private households in many countries over the past year could fuel a sustained rise in prices. In that case, central banks could tighten policy considerably with negative consequences for the growth outlook.
Topic:: Economics, GDP, Inflation, and COVID-19
Political Geography:: Global Focus

238. Post-Corona-Boom Underway

Author:: Klaus-Jurgen Gern, Philipp Hauber, Stefan Kooths, and Ulrich Stolzenburg
Publication Date:: 06-2021
Content Type:: Working Paper
Institution:: Kiel Institute for the World Economy (IfW)
Abstract:: The global economy remained on track in the first months of 2021, despite surging covid-19 infections and renewed containment measures in many countries. The impact of the pandemic was largely confined to the service sectors. Meanwhile, the pronounced upturn in industrial production and global trade continued until spring, but has started to falter as a result of supply bottlenecks and logistical problems. The tensions in the global economic fabric are reflected not least in sharp price increases for raw materials, intermediate goods and transportation services, which have already contributed to a noticeable rise in consumer prices. Continued highly expansionary monetary policy and considerable fiscal policy stimulus, notably in the United States, but also in the euro zone, are fuelling economic activity this year and next. We expect global output (measured on a purchasing power parity basis) to increase by 6.7 percent in 2021 and by 4.8 percent in 2022, which is still substantially above medium-term trend growth. In view of the high economic momentum and higher inflation risks, we expect the Federal Reserve to start tightening earlier than previously expected. This is associated with the risk of a significant deterioration in financing conditions going forward, particularly for some emerging economies
Topic:: Economics, Economic Growth, Pandemic, and COVID-19
Political Geography:: Global Focus

239. Green gifts from abroad? FDI and firms' green management

Author:: Peter Kannen, Finn Ole Semrau, and Frauke Steglich
Publication Date:: 11-2021
Content Type:: Working Paper
Institution:: Kiel Institute for the World Economy (IfW)
Abstract:: Improvements of firms' environmental performance crucially determine the speed of a country's green economic transformation. In this paper, we investigate whether firms with foreign ownership are more likely to adopt 'green' management practices, which determine the capability to monitor and improve a firm's impact on the environment. By using multi-country firm-level data, we show that foreign ownership increases the likelihood of implementing green management practices. Considering country heterogeneity, we reveal that only firms based in more developed economies and in countries with better environmental performance benefit from foreign direct investment, while this is not the case for firms based in less developed economies or countries with weak environmental performance. In addition, we find that the effect is more robust for manufacturing sector firms than for service sector firms. Overall, our results suggest that foreign ownership can contribute towards a country's green economic transformation.
Topic:: Development, Economics, Environment, Green Technology, and Green Transition
Political Geography:: Global Focus

240. Sovereign Bonds since Waterloo

Author:: Josefin Meyer and Christoph Trebesch
Publication Date:: 12-2021
Content Type:: Working Paper
Institution:: Kiel Institute for the World Economy (IfW)
Abstract:: This paper studies external sovereign bonds as an asset class. We compile a new database of 266,000 monthly prices of foreign-currency government bonds traded in London and New York between 1815 (the Battle of Waterloo) and 2016, covering up to 91 countries. Our main insight is that, as in equity markets, the returns on external sovereign bonds have been sufficiently high to compensate for risk. Real ex-post returns average more than 6 percent annually across two centuries, including default episodes, major wars, and global crises. This represents an excess return of 3-4 percent above US or UK government bonds, which is comparable to stocks and outperforms corporate bonds. Central to this finding are the high average coupons offered on external sovereign bonds. The observed returns are hard to reconcile with canonical theoretical models and the degree of credit risk in this market, as measured by historical default and recovery rates. Based on our archive of more than 300 sovereign debt restructurings since 1815, we show that full repudiation is rare; the median creditor loss (haircut) is below 50 percent.
Topic:: Economics, Governance, Finance, and Bonds
Political Geography:: Global Focus

241. Procedurally Justifiable Strategies: Integrating Context Effects into Multistage Decision Making

Author:: Fynn Kemper and Philipp Wichaardt
Publication Date:: 12-2021
Content Type:: Working Paper
Institution:: Kiel Institute for the World Economy (IfW)
Abstract:: This paper proposes a simple framework to model contextual influences on procedural decision making. In terms of utility, we differentiate between monetary payoffs and contextual psychological ones, e.g. deriving from the subjects’ normative frame of reference. Monetary payoffs are treated as common knowledge while psychological payoffs are treated as partly unforeseeable. Regarding behaviour, we assume that players act optimal given their local perception of the game. As perceptions may be incorrect, we do not consider common equilibrium conditions but instead require strategies to be procedurally justifiable. As we will argue, various common inconsistencies considered in behavioural economics can be understood as procedurally justifiable behaviour. With the present framework, we add an abstract tool to the discussion which allows to consider also the behavioural implications of players foreseeing the corresponding behavioural effects ̶ which is often not considered in the respective original models.
Topic:: Economics, Monetary Policy, and Models
Political Geography:: Global Focus

242. Does COVID-19 Change the Long-Term Prospects of Latecomer Industrialisation?

Author:: Tilman Altenburg, Clara Brandi, Anna Pegels, Andreas Stamm, Christiaan Vrolijk, and Tina Zintl
Publication Date:: 01-2021
Content Type:: Working Paper
Institution:: German Institute of Development and Sustainability (IDOS)
Abstract:: This study explores to what extent the COVID-19 crisis affects the long-term prospects for industrial development. The focus of the study is on latecomer economies – those facing an uphill battle because they joined global markets at a point in time when other economies had already established global production networks. In a first step, we analyse how the prospects for industrialisation are changing, mainly as a consequence of three global megatrends: digitalisation and automation of production; global economic power shifts; and the greening of economies. These trends create new opportunities for latecomer industrialisation, but they also raise entry barriers to markets, especially for country with weak innovation systems. We then explore COVID-19 effects through the analytical lens of the pre-COVID megatrends. While the pandemic has had a severe impact on the world economy, such impacts will not change the ongoing trends fundamentally. The ongoing recovery from COVID-19 is not showing much structural transformation – despite many voices demanding to “build back better”. Yet, the pandemic is accelerating or decelerating some of the previous trends. One is the trend towards online trading. The dominance of international trading platforms may lead to concentration in “upstream” activities such as manufacturing, crowding out weaker market actors. At the same time, platform economies are boosting delivery activities, such as courier services. Another trend that may be accelerated by the pandemic is towards the reshoring of previously offshored productive tasks, yet, evidence here is mixed, and we may see other risk-hedging strategies rather than large-scale reshoring. We may also see the gap between dynamic economies in East/Southeast Asia and other developing regions widening, because the former recovered faster due to vaccination programmes and fiscal stimulus packages. Regarding the greening of economies, some major economies initiated green fiscal stimulus packages, accelerating for example the development of global green hydrogen economy. Also, the trend towards tele-work is reducing emissions from the transport sector. Overall, however, the pandemic does not seem to alter the ongoing, but slow, progress towards greener economies. We conclude with police recommendations in five domains: i) Fostering economic resilience through economic diversification; ii) the need to develop pharmaceutical and medical supply industries in all countries; iii) increased investments in digital capabilities, including the ability to regulate platform economies; iv) strengthening domestic revenue generation to increase policy space and resilience, including pro-environmental fiscal reforms; and v) improving international governance e.g. in the domains of intellectual property rights and technology-sharing.
Topic:: Development, Economics, Governance, Industrialization, Resilience, and COVID-19
Political Geography:: Global Focus

243. The Political Economy of Syria’s Physical Fragmentation and Dependence

Author:: Samir Aita
Publication Date:: 08-2021
Content Type:: Working Paper
Institution:: The Geneva Centre for Security Policy
Abstract:: It is difficult to imagine how the Syrian conflict could be resolved through a political process alone that does not directly involve the combating forces in Syria – namely the Syrian army and its associated militias linked to the power system in Damascus, the Syrian Democratic Forces (SDF) and their Democratic Union Party (PYD) power system, as well as the “opposition” factions and their respective backers, i.e. Iran and Russia, the USA and Turkey. Similarly, it is difficult to imagine such a solution without addressing the political economy that has emerged and that now underpins these forces’ power, the warlords’ chaos-inducing advantages gained from the country’s physical fragmentation, the hidden or open bargains between these warlords and other powers, and the deterioration of Syrians’ living conditions to unbearable levels. The current situation, where the country’s physical fragmentation has reached relative stability, could persist for a long time at the people’s expense. However, several factors could reignite the conflict: growing competition over resources and rent-seeking activities, even within each area of influence; the ongoing decline in much-needed international aid; and the further deterioration of the situation expected in Lebanon and its consequences for Syria.
Topic:: Economics, Political Economy, Politics, Conflict, Peace, and Strategic Stability
Political Geography:: Middle East and Syria

244. How Central Asians Pushed Chinese Firms to Localize

Author:: Dirk Van Der Kley and Niva Yau
Publication Date:: 10-2021
Content Type:: Working Paper
Institution:: Carnegie Endowment for International Peace
Abstract:: There has been a sea change in China’s economic involvement in Central Asia. Large-scale transport and electricity projects funded by Chinese government loans have dried up. Hydrocarbon exports to China continue, but they are not the focus of most new projects. Instead, there are a growing number of industrial projects that seek to make value-added products that can be exported. These projects are increasingly staffed by Central Asians who receive technical training from Chinese firms. This change has been primarily driven by Central Asian states. The region’s governments have long pushed for industrial capacity building, including the upskilling of local workers. In addition, debt concerns in Kyrgyzstan in particular have made Chinese loans less attractive and less prevalent. This trend has coincided with Chinese policy banks’ embrace of more conservative lending policies globally for infrastructure projects. Chinese firms have begun adapting to these demands. They have steadily increased their proportions of local hires by training Central Asian workers both onsite and in China to address skills shortages. They have tried to engage local communities to earn a social license for their overseas operations. The Chinese government is now following suit. It is developing more formal cooperation agreements on industrialization and upskilling in addition to pre-existing, ad-hoc arrangements by individual companies. So far, the outcomes have been mixed. Many Chinese firms in Central Asia are employing more locals. Yet the more closely integrated these Chinese firms become with the region’s economies, the more they must deal with, or be co-opted by, localized corruption and political fights. Newly available polling data shows that public sentiments toward China are becoming more negative. Chinese companies are flexibly adapting to this environment of heightened expectations in a variety of ways. The views that outside observers in Washington and elsewhere harbor of China’s infrastructure investments through the Belt and Road Initiative (BRI) in Central Asia are outdated and do not reflect how much Chinese firms and eventually the Chinese government have adapted to meet local needs. Any Western-proposed alternative to the BRI needs to take these considerations into account.
Topic:: Economics, Business, Industry, and Job Creation
Political Geography:: China, Central Asia, and Asia

245. The Social and Economic Impacts of COVID-19 Mitigation Measures on Citizens and Permanent Residents During the Circuit Breaker Period in Singapore

Author:: Patrick Daly, Caroline Brassard, Jamie McCaughey, Reuben Ng, Laavanya Kathiravelu, and Benjamin Horton
Publication Date:: 08-2021
Content Type:: Working Paper
Institution:: Centre for Non-Traditional Security Studies, S. Rajaratnam School of International Studies
Abstract:: The Singapore government instituted a set of ‘Circuit Breaker’ (CB) measures in April 2020 to combat the COVID-19 pandemic. These included restricting international travel, closing non-essential businesses, telecommuting, home-based learning, wearing faces masks in public spaces, temperature screening, rigorous contract tracing, and isolating infected and exposed persons. The COVID-19 CB measures helped the government control COVID-19 transmission in Singapore but disrupted economic and social life. This NTS Insight presents data from a representative survey on the social and economic impacts of Singapore’s COVID-19 mitigation measures during the CB period on Singaporean citizens and permanent residents from 7 May to 16 July 2020. Our results show that the top three cited disruptions caused by the CB were all social in nature. However, just under half of all respondents reported some form of direct economic disruption – while up to 80% of respondents expressed concerns about their longer-term financial situation. Finally, our disaggregated analysis shows that some of the negative impacts of the CB period disproportionately impacted potentially vulnerable segments of the population.
Topic:: Economics, Public Health, Pandemic, and COVID-19
Political Geography:: Asia and Singapore

246. The Organizational Roots of Market Design Failure: Structural Abstraction, the Limits of Hierarchy, and the California Energy Crisis of 2000/01

Author:: Georg Rilinger
Publication Date:: 12-2021
Content Type:: Working Paper
Institution:: Max Planck Sciences Po Center on Coping with Instability in Market Societies (MaxPo)
Abstract:: Economic sociologists have rarely studied organizational reasons why market design processes fail. Drawing on the organizational literature on mistakes and accidents, the paper identifies such reasons for a fatal design decision during the creation of California’s first electricity markets. Designers proposed weak oversight structures even though their models called for active and permanent regulatory control. Sellers like Enron could therefore manipulate the market without fear of detection, prolonging the western energy crisis. A process of “structural abstraction” explains this mistake. Designers were split into three groups that worked in different divisions and relied on local frames to understand the oversight requirements. Each group missed information the others were aware of and arrived at the conclusion that minimal oversight would suffice. Higher levels of the hierarchy should have discovered and resolved these discrepancies. However, these levels considered the issue at a higher level of abstraction. Such structural abstraction made room for ambiguities that obscured the local disagreements.
Topic:: Economics, Markets, Sociology, Hierarchy, and Energy Crisis
Political Geography:: California, North America, and United States of America

247. Low inflation bends the Phillips curve around the world

Author:: Kristin Forbes, Joseph E. Gagnon, and Christopher G. Collins
Publication Date:: 03-2020
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: This paper models inflation by combining the multicountry framework of one of its authors (Forbes) with the nonlinear specification proposed by the other two (Gagnon and Collins). The results find strong support for a Phillips curve that becomes nonlinear when inflation is low, in which case excess economic slack has little effect on inflation. This finding is consistent with evidence of downward nominal wage and price rigidity. The estimates also show a significant and economically meaningful Phillips curve relationship between slack and inflation when slack is negative (i.e., when output is above long-run potential). In this nonlinear model, international factors play a large role in explaining headline inflation, a role that has increased over time, supporting the results of Forbes’ linear model.
Topic:: Economics, Inflation, and Data
Political Geography:: Global Focus

248. Export controls: America’s other national security threat

Author:: Chad P. Bown
Publication Date:: 05-2020
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: While the public was transfixed by the Trump administration’s policies alleging that imports were a threat to America’s national security during 2017–20, there was a concomitant and more quiet US policy shift on the export side. Addressing the national security threat presented by exports posed different economic and institutional challenges from those associated with import policy, including the acknowledgment that export controls for legitimate national security reasons can be the first-best policy to confront the problem at its source. Yet, export controls could also be misused as a beggar-thy-neighbor policy to redistribute economic well-being across countries, even from one ally to another. This paper describes how US export control policy evolved over 2017–20, as well as the international institutions—first the Coordinating Committee for Multilateral Export Controls (COCOM), then the Wassenaar Arrangement—historically tasked with multilateralizing US export restrictions used to protect national security. With the potential for US export control policy to brush up more frequently against WTO rules designed to limit the use of export restrictions, the paper also highlights new challenges for the WTO’s system of resolving trade disputes. Overall, a US failure to strike the right balance for its export control policy would result in it being ineffective at addressing national security risks, costly for the economy, and problematic for trade and diplomatic relations.
Topic:: Economics, Government, National Security, Exports, and Trade
Political Geography:: North America and United States of America

249. To what extent are tariffs offset by exchange rates?

Author:: Olivier Jeanne
Publication Date:: 01-2020
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: In theory, tariffs are partially offset by a currency appreciation in the tariff-imposing country or by a depreciation in the country on which the tariff is imposed. Based on a calibrated model, this paper finds that US tariffs imposed in 2018 should not have had a large impact on the dollar but may have significantly depreciated the renminbi. This prediction is consistent with a high-frequency event analysis looking at the impact of tariff-related news on the dollar and the renminbi. Tariff-related news explains about one-third of the renminbi depreciation observed in 2018.
Topic:: Economics, Tariffs, Exchange Rate Policy, and Currency
Political Geography:: North America and United States of America

250. Central bank policy sets the lower bound on bond yields

Author:: Joseph E. Gagnon and Olivier Jeanne
Publication Date:: 01-2020
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: This paper shows that the scope for bond yields to fall below zero is strictly limited by market expectations about how far below zero central banks are willing to set their short-term policy rates. If a central bank communicates a credible commitment to keeping its policy rate above a given level under all circumstances, then bond yields must be higher than that level. This result holds true even in a model in which central banks are able to depress the term premium in bond yields below zero via large-scale purchases of long-term bonds, also known as quantitative easing (QE). QE becomes less effective as bond yields approach their lower bound.
Topic:: Economics, Finance, Central Bank, and Global Bond Market
Political Geography:: Global Focus

251. Global value chains and the removal of trade protection

Author:: Chad P. Bown, Aksel Erbahar, and Maurizio Zanardi
Publication Date:: 02-2020
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: This paper examines how trade protection is affected by changes in the value-added content of production arising through global value chains (GVCs). Exploiting a new set of World Trade Organization (WTO) rules adopted in 1995 that impose an exogenously timed requirement for countries to reevaluate their previously imposed trade protection, the authors adopt an instrumental variables strategy and identify the causal effect of GVC integration on the likelihood that a trade barrier is removed. Using a newly constructed dataset of protection removal decisions involving 10 countries, 41 trading partners, and 18 industries over 1995–2013, they find that bilateral industry-specific domestic value-added growth in foreign production significantly raises the probability of removing a duty. The results are not limited to imports from China but are only found for the protection decisions of high-income countries. Back-of-the-envelope calculations indicate that rapid GVC growth in the 2000s freed almost a third of the trade flows subject to the most common temporary restrictions (i.e., antidumping) applied by high-income countries in 2006.
Topic:: Economics, International Trade and Finance, Global Markets, Finance, and Trade
Political Geography:: Global Focus

252. A program for strengthening the Federal Reserve's ability to fight the next recession

Author:: David Reifschneider and David Wilcox
Publication Date:: 03-2020
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: If the Federal Reserve does not decisively change the way it conducts monetary policy, it will probably not be capable of fighting recessions in the future as effectively as it fought them in the past. This reality helped motivate the Fed to undertake the policy framework review in which it is currently engaged. Researchers have suggested many steps the Fed could take to improve its recession-fighting ability; however, no consensus has emerged as to which of these steps would be both practical and maximally effective. This paper aims to fill that gap. It recommends that the Fed commit as soon as possible to a new approach for fighting recessions, involving two key elements. First, the Fed should commit that whenever it runs out of room to cut the federal funds rate further, it will leave the rate at its minimum level until the labor market recovers and inflation returns to 2 percent. Second, the Fed should commit that under the same circumstances, it will begin to purchase longer-term assets in volume and will continue such purchases until the labor market recovers. If the forces driving the next recession are not unusually severe, this framework might allow the Fed to be as effective at fighting that recession as it was in the past. If the next recession is more severe, however, the Fed will probably run out of ammunition even if it takes the two steps recommended here. Therefore, both monetary and fiscal policymakers should consider yet other steps they could take to enhance their ability to fight future recessions.
Topic:: Economics, Monetary Policy, and Federal Reserve
Political Geography:: North America, Global Focus, and United States of America

253. Why Trump shot the sheriffs: The end of WTO dispute settlement 1.0

Author:: Chad P. Bown and Soumaya Keynes
Publication Date:: 03-2020
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: On December 10, 2019, the World Trade Organization’s (WTO) 25-year-old system of resolving disputes broke down. This paper explains why. It describes the dysfunctional system that preceded the WTO, when the United States dealt with politically troublesome imports by using voluntary export restraints and increasingly resorted to the “aggressively unilateral” Section 301 policy to resolve trade concerns. The WTO was a compromise between the rest of the world and the United States, whereby the latter accepted some constraints with the expectation that the new system of binding dispute settlement would serve its interests. But although the creation of the WTO resolved some concerns about American unilateralism in the short term, its system of handling disputes turned out to be politically unsustainable.
Topic:: Economics, World Trade Organization, Trade, and Donald Trump
Political Geography:: North America and United States of America

254. Doing Business in Bolivia: a case study in the Andean regulatory framework

Author:: Jorge Ignacio Del Castillo Machicado
Publication Date:: 04-2020
Content Type:: Working Paper
Institution:: Institute for Advanced Development Studies (INESAD)
Abstract:: This article researches on the evolution of the business regulatory framework of Bolivia from 2006 to 2017 and its relationship with the country’s Labor productivity, Total Factor Productivity, and its Informal Economy size. To do this, it analyzes the Doing Business annual reports and standardizes each year overall score to the most recent methodology developed by the World Bank Group. Furthermore, it complements its finding with qualitative data through semi-structured interviews to key actors in the Bolivian economy. Overall, this paper finds that few steps have been taken to improve Bolivia’s Business regulatory framework from the period of 2006-2017, result in a lower rank in the Doing Business report and keeping its score constant. The lack of initiative in working towards more efficient policies, complex nature and poor adaptability of new technological practices have stagnated the improvements of business regulations along their lifecycles. As a consequence, Bolivia Total Factor Productivity, Informal Economy size and Labor productivity have shown no improvement over the last 10 years.
Topic:: Economics, Science and Technology, Labor Issues, World Bank, Regulation, and Business
Political Geography:: Latin America and Bolivia

255. South Korea's 5G Ambitions

Author:: Clara Gillespie
Publication Date:: 05-2020
Content Type:: Working Paper
Institution:: Korea Economic Institute of America (KEI)
Abstract:: Under President Moon Jae-in, South Korea has set an ambitious target to move from being “first in the world” in the race to 5G to “first in global quality.” Yet, while a range of industry and government stakeholders are investing heavily in making this vision a reality, a number of factors are likely to weigh on whether or not these efforts yield significant results. These include uncertainties about how to further accelerate development in ways that lead to better returns on investments, and about how to navigate complex geopolitical considerations, including ongoing debates about Huawei’s involvement in 5G network infrastructure. Each of these areas will, in turn, require domestic stakeholders to make complex assessments about potential tradeoffs and risks. Thus, this paper assesses South Korea’s emerging 5G era at the one-year mark, and highlights key successes, setbacks, and ongoing challenges. Building on these findings, the paper concludes by offering several potential scenarios for future development, and suggestions for ways forward.
Topic:: Economics, Science and Technology, and 5G
Political Geography:: Asia and South Korea

256. The Impact of the EAEU-Iran Preferential Trade Agreement

Author:: Amat Adarov and Mahdi Ghodsi
Publication Date:: 05-2020
Content Type:: Working Paper
Institution:: The Vienna Institute for International Economic Studies (WIIW)
Abstract:: The preferential trade agreement between the Eurasian Economic Union (EAEU) and Iran on mutual trade entered into force in October 2019. In this report we estimate its expected impact at aggregate and sectoral levels using the gravity model of trade based on the global sample of bilateral trade flows at the HS 6-digit level. The analysis suggests that the implementation of the agreement will boost mutual trade for both trading partners, with relatively greater gains expected for the EAEU’s exports to Iran. On aggregate, the total gains in mutual trade are estimated to reach almost USD 46 million, with exports from the EAEU to Iran expected to increase by 9.7%, compared with a rise in exports from Iran to the EAEU of up to 4%. The difference in the impact will also be significant across the five EAEU countries as well as across sectors, with the major export gains expected to accrue in the chemicals and agri-food sectors, especially trade in miscellaneous fruits and vegetables, as well as in the textile, polymer production and metals sectors.
Topic:: Economics, Treaties and Agreements, Global Political Economy, Exports, and Trade
Political Geography:: Iran, Kazakhstan, Armenia, and Belarus

257. New Productivity Drivers: Revisiting the Role of Digital Capital, FDI and Integration at Aggregate and Sectoral Levels

Author:: Amat Adarov and Robert Stehrer
Publication Date:: 04-2020
Content Type:: Working Paper
Institution:: The Vienna Institute for International Economic Studies (WIIW)
Abstract:: The paper studies the drivers of productivity at country and sectoral levels over the period 2000-2017 with the focus on the impact of capital accumulation and structure. The analysis confirms an especially important role of ICT and intangible digital capital for productivity growth, particularly in the manufacturing sectors. While backward global value chain participation and EU integration are also found to be instrumental for accelerating productivity growth, the impact of inward foreign direct investment is not robustly detected when the data is purged from the effects of special purpose entities and outlier countries.
Topic:: Economics, Foreign Direct Investment, European Union, Digital Economy, Capital Flows, and Trade
Political Geography:: Europe and Global Focus

258. Robotisation, Employment and Industrial Growth Intertwined Across Global Value Chains

Author:: Mahdi Ghodsi, Oliver Reiter, Robert Stehrer, and Roman Stöllinger
Publication Date:: 04-2020
Content Type:: Working Paper
Institution:: The Vienna Institute for International Economic Studies (WIIW)
Abstract:: The global economy is currently experiencing a new wave of technological change involving new technologies, especially in the realm of artificial intelligence and robotics, but not limited to it. One key concern in this context is the consequences of these new technologies on the labour market. This paper provides a comprehensive analysis of the direct and indirect effects of the rise of industrial robots and productivity via international value chains on various industrial indicators, including employment and real value added. The paper thereby adds to the existing empirical work on the relationship between technological change, employment and industrial growth by adding data on industrial robots while controlling for other technological advancements measured by total factor productivity (TFP). The results indicate that the overall impact of the installation of new robots did not statistically affect the growth of industrial employment during the period 2000–2014 significantly, while the overall impact on the real value added growth of industries in the world was positive and significant. The methodology also allows for a differentiation between the impact of robots across various industries and countries based on two different perspectives of source and destination industries across global value chains.
Topic:: Economics, Science and Technology, Digital Economy, Economic Growth, Industry, and Robotics
Political Geography:: Global Focus

259. Japan and the Visegrad 4: The Unsensational Strategic Partners

Author:: Rudolf Furst
Publication Date:: 05-2020
Content Type:: Working Paper
Institution:: Institute of International Relations Prague
Abstract:: The Euro-Japanese rapprochement stimulates the Japanese interest in the new EU member states, which are then matched with Japanese investments and Japan’s global trade strategy. The V4 countries benefit from their geographical position, existing infrastructure and political stability, industrial tradition, and low labour costs, emphasizes Rudolf Fürst.
Topic:: Economics, Bilateral Relations, Labor Issues, European Union, Political stability, and Industry
Political Geography:: Japan, Europe, and Asia

260. Pandemic, informality, and vulnerability: Impact of COVID-19 on livelihoods in India

Author:: Surbhi Kesar, Rosa Abraham, Rahul Lahoti, Paaritosh Nath, and Amit Basole
Publication Date:: 06-2020
Content Type:: Working Paper
Institution:: Centre for Sustainable Employment, Azim Premji University
Abstract:: We analyze findings from a large-scale survey of around 5000 respondents across 12 states of India to study the impact of COVID-19 pandemic containment measures (lockdown) on employment, livelihoods, food security and access to relief measures. We find a massive increase in unemployment, an equally dramatic fall in earnings among informal workers, large increases in food insecurity, depletion of savings and patchy coverage of relief measures. Two-thirds of our respondents lost work. The few informal workers who were still employed during the lockdown experienced more than a fifty percent drop in their earnings. Even among regular wage workers, half received either no salary or reduced salary during the lockdown. Almost eighty percent of surveyed households experienced a reduction in their food intake and a similar percentage of urban households did not have enough money to pay next month's rent. We also use a set of logistic regressions to identify how employment loss and food intake varies with individual and householdlevel characteristics. We find that migrants and urban Muslims are significantly worse off with respect to employment and food security. Among employment categories, self-employed workers were more food secure. The Public Distribution System (PDS) system was seen to have the widest reach among social security measures. However, even under PDS, 16 percent of vulnerable urban households did not have access to government rations. Further, half of the respondents reported not receiving any cash transfers (state or central). We conclude that much more is needed in the way of direct fiscal support that has been announced thus far by state and central governments in India.
Topic:: Economics, Labor Issues, Employment, Unemployment, Pandemic, and COVID-19
Political Geography:: India

261. The impact economy: balancing profit and impact

Author:: Dirk Schoenmaker
Publication Date:: 07-2020
Content Type:: Working Paper
Institution:: Bruegel
Abstract:: Governments and companies can reinforce each other in their pursuit of sustainable development, which is based on three pillars: economic, social and environmental. An impact economy, in which governments and companies balance profit and impact, is best placed to achieve the United Nations sustainable development goals.
Topic:: Economics, Environment, United Nations, Governance, Sustainable Development Goals, Business, and Private Sector
Political Geography:: Global Focus

262. Forecasting exchange rates of major currencies with long maturity forward rates

Author:: Zsolt Darvas and Zoltan Schepp
Publication Date:: 04-2020
Content Type:: Working Paper
Institution:: Bruegel
Abstract:: This paper presents unprecedented exchange rate forecasting results based upon a new model which approximates the gap between the fundamental equilibrium exchange rate and the actual exchange rate with the long-maturity forward exchange rate.
Topic:: Economics, Governance, Global Political Economy, and Exchange Rate Policy
Political Geography:: Global Focus

263. La Riqueza Escondida de Loreto: Análisis de Complejidad Económica y Oportunidades de Diversificación Productiva

Author:: Ricardo Hausmann and Miguel Angel Santos
Publication Date:: 10-2020
Content Type:: Working Paper
Institution:: The John F. Kennedy School of Government at Harvard University
Abstract:: El Laboratorio de Crecimiento de la Universidad de Harvard, bajo el auspicio de la Fundación Gordon and Betty Moore, ha desarrollado esta investigación para identificar las capacidades productivas existentes en Loreto y las actividades económicas con potencial para liderar la transformación estructural de su economía. Este reporte forma parte de una investigación más amplia – Transformación estructural y restricciones limitantes a la prosperidad en Loreto, Perú – que busca aportar insumos para el desarrollo de políticas públicas a escala nacional y regional que contribuyan a promover el desarrollo productivo y la prosperidad de la región, tomando en cuenta sus características particulares.
Topic:: Development, Economics, Diversification, and Economic Complexity
Political Geography:: Central America and Mexico

264. 30 Years of Economic Transformation in CEE: Key Five Lessons For Belarus

Author:: Aleś Alachnovič, Andrzej Raczko, Izabela Styczynska, Jarosław Neneman, Kateryna Karunska, Krzysztof Głowacki, Pawel Swianiewicz, and Sierž Naŭrodski
Publication Date:: 04-2020
Content Type:: Working Paper
Institution:: Center for Social and Economic Research - CASE
Abstract:: Belarusian economy has been stagnating in 2011-2015 after 15 years of a high annual average growth rate. In 2015, after four years of stagnation, the Belarusian economy slid into a recession, its first since 1996, and experienced both cyclical and structural recessions. Since 2015, the Belarusian government and the National Bank of Belarus have been giving economic reforms a good chance thanks to gradual but consistent actions aimed at maintaining macroeconomic stability and economic liberalization. It seems that the economic authorities have sustained more transformation efforts during 2015-2018 than in the previous 24 years since 1991. As the relative welfare level in Belarus is currently 64% compared to the Central and Eastern Europe (CEE) countries average, Belarus needs to build stronger fundaments of sustainable growth by continuing and accelerating the implementation of institutional transformation, primarily by fostering elimination of existing administrative mechanisms of inefficient resource allocation. Based on the experience of the CEE countries’ economic transformation, we highlight five lessons for the purpose of the economic reforms that Belarus still faces today: keeping macroeconomic stability, restructuring and improving the governance of state-owned enterprises, developing the financial market, increasing taxation efficiency, and deepening fiscal decentralization.
Topic:: Economics, Governance, Economic Growth, and Trade
Political Geography:: Eurasia and Belarus

265. Syria’s Growing Economic Woes: Lebanon’s Crisis, the Caesar Act and Now the Coronavirus

Author:: Jihad Yazigi
Publication Date:: 03-2020
Content Type:: Working Paper
Institution:: Arab Reform Initiative (ARI)
Abstract:: The already bleak prospects of the Syrian economy have worsened in recent months with the Lebanon crisis, the enactment of the Caesar Act and now the coronavirus pandemic. This paper examines their impact on the Syrian economy and the population at large. While the cumulative impact is hard to assess at this stage, Syria’s population will remain heavily dependent on the international humanitarian effort. The future of this effort will itself depend on major donor countries whose own economies are likely to emerge weakened from the coronavirus pandemic.
Topic:: Economics, Public Health, Humanitarian Crisis, Pandemic, and COVID-19
Political Geography:: Middle East, Lebanon, and Syria

266. Lebanon: Government Recovery Plan Asks Too Much of Ordinary Lebanese, and Not Enough from Elites

Author:: Sami Halabi
Publication Date:: 06-2020
Content Type:: Working Paper
Institution:: Arab Reform Initiative (ARI)
Abstract:: Facing an economy in free-fall, the Lebanese government has finally adopted a financial recovery plan that it has sent to the IMF and international donors. This paper argues that the plan fails to introduce strong accountability measures to address rampant corruption and mismanagement and does not tackle widespread inequality which could be done through a better distribution of losses and the introduction of more progressive taxation. Despite the government’s stated promise to “protect the poorest segments of the population from the dire consequences of the crisis”, the paper expects the plan to inevitably harm Lebanon’s poorest as well as its middle class.
Topic:: Economics, Financial Crisis, Governance, and Recovery
Political Geography:: Middle East and Lebanon

267. Salvaging Lebanon: Expert Opinions on a Way out of the Crisis

Author:: Ismael Sheikh Hassan
Publication Date:: 09-2020
Content Type:: Working Paper
Institution:: Arab Reform Initiative (ARI)
Abstract:: Lebanon is facing an unprecedented crisis with financial and economic collapse, lack of political trust, institutional deadlock, health crisis, and environmental degradation, to name a few. To face these challenges, the government should undertake a reform plan that addresses key priority areas to restore trust and salvage the country. We’ve asked experts to give their views about what they see as essential reforms in each area.
Topic:: Economics, Financial Crisis, and Reform
Political Geography:: Middle East and Lebanon

268. Study of State Finances 2020-21 (Provisional)

Author:: Avani Kapur, Sharad Pandey, U Ranjan, and Vastav Irava
Publication Date:: 05-2020
Content Type:: Working Paper
Institution:: Centre for Policy Research, India
Abstract:: The ‘Study of State Finances 2020-21’ Working Paper delves into the revenue and expenditure performance of 17 States. As the COVID-19 pandemic tightens its grip, this timely analysis offers a unique window into the fiscal space available with States prior to the lockdown. This information is critical at a time when they are expected to craft adequate social protection responses and restart their economies.
Topic:: Economics, Governance, Finance, and COVID-19
Political Geography:: South Asia and India

269. Evaluating Recent Proposals to Reform the Power Sector in India

Author:: Deepak Sanan and Sanjay Mitra
Publication Date:: 11-2020
Content Type:: Working Paper
Institution:: Centre for Policy Research, India
Abstract:: Reforms designed to address core issues and their sequencing and timing would be critical to ensure the eventual success of the latest initiatives in the power sector. Lessons from the experience of earlier sectoral reform programmes and recommendations regarding the general architecture of central interventions, would need to be taken on board. Through a simple scenario building exercise, this paper concludes that the parlous financial position of the distribution utilities after lockdown requires that “reforms” follow “recovery”. The concurrent roll out of stringent reform measures on several fronts during a period of severe financial stress could seriously impair the prospects of a viable power sector in the near future. This, in turn, will not only hamper our planned promotion of renewables-based electricity but act as a brake on the entire process of economic recovery.
Topic:: Economics, Energy Policy, Governance, and Reform
Political Geography:: South Asia and India

270. Wage effects of employer-mediated transfers

Author:: Santiago Garriga and Dario Tortarolo
Publication Date:: 08-2020
Content Type:: Working Paper
Institution:: Nottingham Interdisciplinary Centre for Economic and Political Research (NICEP)
Abstract:: We explore how the way in which tax credits are disbursed affects employer’s behavior, wages, and employment. We exploit a change in the payment system in Argentina that was gradually rolled out between 2003 and 2010. Under the old system, employers were in charge of delivering family allowances to their employees together with the monthly salary, and the transfer was deducted from employer social security contributions. For transparency purposes, the government eliminated the intermediary role of firms and started depositing the transfer directly into workers’ bank accounts. Using employer-employee administrative data and an event-study approach, we show that the way tax credits are disbursed matters for the final economic incidence. Our evidence suggests that employers shift part of the incidence of the transfer by paying lower wages. We document larger wage effects in small and less unionized firms and we do not find evidence of pay equity concerns (e.g., effect mostly driven by new hires rather than incumbent workers). Our findings are therefore in line with the hypothesis that transfers are not all captured dollar for dollar by workers. These results raise questions about the use of employers as intermediaries to disburse the transfer; where less salient schemes may lead to capture by employers.
Topic:: Economics, Labor Issues, Employment, Work Culture, and Economic Inequality
Political Geography:: Argentina and Latin America

271. It takes two to tango: Labour responses to an income tax holiday in Argentina

Author:: Dario Tortarolo, Guillermo Cruces, and Victoria Castillo
Publication Date:: 07-2020
Content Type:: Working Paper
Institution:: Nottingham Interdisciplinary Centre for Economic and Political Research (NICEP)
Abstract:: We exploit a large, quasi-randomized, 2.5-year-long income tax holiday to identify intertemporal labor responses of high-wage earners to net wage changes. In August 2013, the Argentine government exempted a group of wage earners from the income tax for 2.5 years while leaving in place the tax on other high-wage earners. Eligibility was based on whether past wage earnings were below a fixed threshold, thus levying sharply different marginal and average tax rates—effectively 0% for workers below the threshold. Using rich population-wide administrative data and a regression discontinuity design, we estimate a precise and very small wage earnings elasticity of 0.017 for this large, salient, and temporary income tax change. Responses are larger for more flexible outcomes (overtime hours) and for more elastic groups (job switchers and managers). We also find avoidance responses from new entrants who faced no tax if their first monthly wage was below the fixed threshold. This strategic entry below the threshold to dodge taxes required coordination with employers. Our findings indicate rigidities in the labor market that require employer-employee cooperation to be overcome for wage earners to be able to respond to tax changes.
Topic:: Economics, Labor Issues, Income Inequality, and Tax Systems
Political Geography:: Argentina and Latin America

272. Imperfect competition in product and labour markets. A quantitative analysis

Author:: Dario Tortarolo and Roman D. Zarate
Publication Date:: 05-2020
Content Type:: Working Paper
Institution:: Nottingham Interdisciplinary Centre for Economic and Political Research (NICEP)
Abstract:: We disentangle the extent of imperfect competition in product and labor markets using plant level data. We derive a formula for the ratio between markups and markdowns assuming costminimizing firms that face upward-sloping labour supply and downward-sloping product demand curves. We then separate this combined measure of market power by estimating firm-level labour supply elasticities instrumenting wages with a different set of instruments: including the use of intermediate inputs, input price shocks, and TFP shocks. Our results suggest that both markets exhibit imperfect competition, but the variation is mainly driven by markups. We also estimate the relative gains of removing market power dispersion on allocative efficiency, finding that markups are more important on TFP than markdowns.
Topic:: Economics, Labor Issues, Finance, Labor Market, Supply Chains, and Price
Political Geography:: Global Focus

273. The political economy of competition, regulation and transformation: Black Economic Empowerment (BEE) and quota allocations in South African industrial fisheries

Author:: Thando Vilakazi and Stefano Ponte
Publication Date:: 09-2020
Content Type:: Working Paper
Institution:: Centre for Business and Development Studies (CBDS), Copenhagen Business School
Abstract:: Power asymmetries in value chains mean that inequalities in returns, access to key resources and share of value added are reinforced and skewed against smaller players. Policies put in place to enforce market rules and ensure fairness can be ineffective in the context of entrenched market power, lack of competition, and high levels of control by lead firms over key resources and rights – necessitating different rules of the game to change the inequalities. Under these circumstances, transformation and economic participation of marginalized groups are unlikely to be achieved, with important socio-economic and political implications. South Africa’s Black Economic Empowerment (BEE) policies and competition laws target economic redress and inclusion of historically disadvantaged people in the ownership and control of economic activity and productive assets. BEE criteria have been embedded in a number of industry empowerment charters, a Broad-Based BEE Act and a series of codes of implementation. South Africa’s competition law is well-established and effectively implemented. Yet, the impacts of these instruments have been frustratingly limited and slow, especially in sectors where a few companies dominate. The paper draws on secondary sources and in-depth interviews with industry players in the South African Hake Deep Sea Trawl (HDST) fishery to examine the interactions between industrial fishery quota allocations by the government, BEE policy, and competition dynamics as they impact on allocation of finite access to national resource endowments. It shows that, even in one of the most regulated sectors of South Africa’s economy, large incumbents maintain a disproportionate amount of bargaining power vis-à-vis smaller players in HDST fishery, both upstream and downstream, and throughout the domestic and global value chains. We conclude that as long as rules protect incumbency, inequality will be sustained. Even where scale economies are at play, quota allocation, transformation and competition regulation should go hand in hand to facilitate the effective participation of black-owned businesses as competitors in the hake value chain.
Topic:: Economics, Markets, Race, Economic Inequality, Economic Policy, Participation, Fishing, and Value Chains
Political Geography:: South Africa

274. Not every time is the right time for real-time marketing: branding in the COVID-19 pandemic

Author:: Lisa Ann Richey and Maha Rafi Atal
Publication Date:: 08-2020
Content Type:: Working Paper
Institution:: Centre for Business and Development Studies (CBDS), Copenhagen Business School
Abstract:: As the global Covid-19 pandemic spread through Europe and North America, companies raced to communicate how they were responding to the crisis. Advertising that focuses on a company’s response to humanitarian crises is hardly new. Every holiday season features a parade of brands touting their seasonal partnerships with charitable causes. Yet these exercises in “Covid-branding” struck a particular nerve with both consumers and media commentators because so many of the brands stuck to the same script.
Topic:: Economics, Markets, Communications, and Advertising
Political Geography:: Europe, North America, and Global Focus

275. The FDI-led Growth Regimes of the East-Central and South-Eastern European Periphery

Author:: Dragos Adascalitei and Cornel Ban
Publication Date:: 06-2020
Content Type:: Working Paper
Institution:: Centre for Business and Development Studies (CBDS), Copenhagen Business School
Abstract:: The East-Central European countries that joined the EU in the 2000s are the unsung success of economic development. This paper discusses the consolidation of an export-led growth model in this region by drawing on an alternative school of thought to Varieties of Capitalism: growth regimes. By focusing on three distinct time periods (2000-2008, 2008-2012 and 2012-2019), it shows that despite marginal shifts towards consumption-led growth through personal debt or wage increases, the core of the region’s economic model continues to be heavily dependent on exports. Combining IPE and CPE analytical frameworks, we show that the consolidation of the CEE export-led model has both systemic and national roots. Specifically, we argue that growing international competition from Asia in the beginning of 2000s has forced firms in Western economies to seek alternative sources of competitiveness that involved a mix of wage moderation at home and expansion towards the East. The internationalization of Western firms met capital hungry Eastern governments, which were all too happy to use FDI to restore the competitiveness of their outdated SOEs. Backed by a social bloc that involved domestic and foreign capital as well as workers in the tradeable sectors, the export-led growth model took off and generated growth rates well above those in core countries. The 2000s also saw an increase in debt fueled consumption, that partially compensated for the lack of wage growth in the region. The crisis provided an opportunity to put an end to hybridization and to reinforce the export-led component of growth through short-term austerity measures and deeper labor market reforms. These changes consolidated the export-led model that remained in place even amidst political reconfigurations that, at least rhetorically, aimed to fight the economic dependency of the region on FDI. After the crisis ended, however, the closing of the debt-finance consumption channel combined with the German export boom to the rest of the world and local demographic decline to put upwards pressure on wage-financed consumption increases without inflationary or external balance problems. Yet despite historically low spreads in the region’s bond markets, this did not count as a full Kaleckian turn, however, with the region’s contribution of consumption to GDP growth remaining far below both consumption-led growth regimes and balanced ones.
Topic:: Economics, International Political Economy, Foreign Direct Investment, Economic Growth, Exports, State-Owned Enterprises, and Consumerism
Political Geography:: Eastern Europe and Central Europe

276. Zombie Prevalence and Survival

Author:: Debamanyu Das and Saurabh Roy
Publication Date:: 11-2020
Content Type:: Working Paper
Institution:: Political Economy Research Institute (PERI), University of Massachusetts Amherst
Abstract:: We document the rise in the share of zombie ﬁrms starting from the late 1990s in the U.S. economy across various sectors. We compare multiple deﬁnitions used in literature to identify zombies and discuss how they continue to survive. We ﬁnd zombies issue more debt compared to non-zombies. A subset of zombies deﬁned as growing zombies are able to raise equity too.
Topic:: Debt, Economics, Political Economy, Equity, and Zombie Firms
Political Geography:: North America and United States of America

277. Eternal return on capital: Nihilistic repetition in the asset economy

Author:: Amin Samman
Publication Date:: 05-2020
Content Type:: Working Paper
Institution:: City Political Economy Research Centre (CITYPERC), University of London
Abstract:: What can the idea of eternal return tell us about contemporary financial society? In this essay I follow Nietzsche by deploying it as an existential provocation, linking the prospect of endless recurrence to the daily routines of the asset economy. This entails a departure from simple notions of cyclical time, typically associated with political economy and the study of economic history, in favor of a more complex view that sees recurrence and return as figures that organize and reflect the experience of life under the sign of finance. In particular, I argue that the reordering of class around the axis of asset ownership has produced two seemingly distinct structures of feeling— one based on the thrill of endless turnover and return on capital, the other on the drudgery of recurring payment schedules and debt rollovers. Though on the surface at odds with each other, both are anchored in a deeper libidinal economy associated with the asset form and ultimately nihilistic in character. The asset economy should therefore be seen as producing a very peculiar form of eternity based on the abolition of time through repetition. I conclude by foregrounding questions of culture and imagination, exploring these in connection with contemporary forms of on-demand television and the possibility of a time beyond the bad eternity of the asset economy.
Topic:: Economics, History, Capitalism, Finance, Digital Economy, Temporality, Assets, Nihilism, and Historical Imagination
Political Geography:: Global Focus

278. COVID-19 and External Shock: Economic Impacts and Policy Options

Author:: Miguel Jaramillo and Hugo Nopo
Publication Date:: 06-2020
Content Type:: Working Paper
Institution:: Group for the Analysis of Development (GRADE)
Abstract:: Latin America is currently suffering from two independent but related shocks: the impact of COVID-19 and the shock of commodity prices. Peru, we argue, is a case in which the strongest impact comes from the pandemic. Peru was the first country in Latin America to react and implement sanitary and economic measures against the coronavirus. The country has been in mandatory quarantine since Monday, March 16. This carries very important challenges for all economic actors. Global and national activity has suffered a sudden stop with direct implications for: (i) the income generating capacity of independent workers, (ii) the jobs of formal and informal and informal workers, and (iii) the survival of small, medium and large companies. In this note we consider the situation of Peruvian households in the face of the pandemic, exploring their vulnerabilities through an analysis of their main source of income generation: work. We also consider the situation of the companies that employ the workers under analysis. We present an overview of what the government’s main action have been so far and offer some recommendations.
Topic:: Economics, Political Economy, Economic Policy, Coronavirus, Pandemic, and COVID-19
Political Geography:: Latin America and Peru

279. Transcending History’s Heavy Hand The Future in Economic Action

Author:: Jens Beckert and Timur Ergen
Publication Date:: 03-2020
Content Type:: Working Paper
Institution:: Max Planck Institute for the Study of Societies
Abstract:: This paper discusses sociological analyses of the formation and role of expectations in the economy. Recognition of the social constitution of expectations advances the understand- ing of economic action under conditions of uncertainty and helps to explain core features of modern capitalist societies. The range of applications of the analytical perspective is il- lustrated by closer examination of three core spheres of capitalist societies: consumption, investment, and innovation. To provide an idea of core challenges of the approach, three major research questions for the sociological analysis of expectations are presented.
Topic:: Economics, Markets, Sociology, Capitalism, and Innovation
Political Geography:: Global Focus

280. Comovement of Home Prices: A Conditional Copula Approach

Author:: Lei Hou, Wei Long, and Qi Li
Publication Date:: 02-2020
Content Type:: Working Paper
Abstract:: Even though housing markets in different areas are relatively localized, regional home prices have become closely correlated and tend to be simultaneously affected by many national economic factors. In this paper, through the dynamic copula model, we confirm that regional home price dependence is time-varying and the conventional time-invariant copulas underestimate the degree of dependence during economic expansions and recessions. In essence, the U.S. residential real estate market has become more integrated since the mid-1980s. Using the conditional copula model, we further identify how the dependence among regional housing markets evolves along with some fundamental economic factors such as unemployment rate and interest rate. These findings can help investors and home buyers to better identify and evaluate the systematic risk in the nationwide housing market.
Topic:: Economics, Unemployment, and Housing
Political Geography:: China, Asia, North America, and United States of America

281. The Millennials' Transition from School-to-Work

Author:: Yuet-Yee Linda Wong and Audra J. Bowlus
Publication Date:: 03-2020
Content Type:: Working Paper
Institution:: Centre for Human Capital and Productivity (CHCP), Western University
Abstract:: We present the first study of the high school-to-work transition for American Millennial males and females. Using data from the PSID Transition to Adulthood from 2005-2011, we estimate the Burdett and Mortensen (1998) model and study changes between Generation X and Millennials. We find convergence in racial differences in transition patterns across the generations and in gender earnings by the Great Recession. These patterns are driven by a large decline in search efficiencies for white males. Finally, we show the labor market deteriorated for high school graduates prior to, with a further decline during, the Great Recession.
Topic:: Economics, Education, Global Recession, Human Capital, Labor Market, and Productivity
Political Geography:: United States

282. Prices, Profits, Proxies, and Production

Author:: Victor H. Aguiar, Roy Allen, and Nail Kashaev
Publication Date:: 03-2020
Content Type:: Working Paper
Institution:: Centre for Human Capital and Productivity (CHCP), Western University
Abstract:: This paper studies nonparametric identification and counterfactual bounds for heterogeneous firms that can be ranked in terms of productivity. Our approach works when quantities and prices are latent rendering standard approaches inapplicable. Instead, we require observation of profits or other optimizing-values such as costs or revenues, and either prices or price proxies of flexibly chosen variables. We extend classical duality results for price-taking firms to a setup with discrete heterogeneity, endogeneity, and limited variation in possibly latent prices. Finally, we show that convergence results for nonparametric estimators may be directly converted to convergence results for production sets.
Topic:: Economics, Human Capital, Profit, Productivity, and Price
Political Geography:: Canada and Global Focus

283. Optimal Contracting with Altruistic Agents: A Structural Model of Medicare Payments for Dialysis Drugs

Author:: Martin Gaynor, Nirav Mehta, and Seth Richards-Shubik
Publication Date:: 05-2020
Content Type:: Working Paper
Institution:: Centre for Human Capital and Productivity (CHCP), Western University
Abstract:: We study physician agency and optimal payment policy in the context of an expensive medication used in dialysis care. Using Medicare claims data we estimate a structural model of treatment decisions, in which physicians differ in their altruism and marginal costs, and this heterogeneity is unobservable to the government. In a novel application of nonlinear pricing methods, we theoretically characterize the optimal unrestricted contract in this screening environment with multidimensional heterogeneity. We combine these results with the estimated model to construct the optimal contract and simulate counterfactual outcomes. The optimal contract is a flexible fee-for-service contract, which pays for reported treatments but uses variable marginal payments instead of constant reimbursement rates, resulting in substantial health improvements and reductions in costs. Our structural approach also yields important qualitative findings, such as rejecting the optimality of any linear contract, and may be employed more broadly to analyze a variety of applications.
Topic:: Economics, Government, Health, Health Care Policy, Human Capital, Productivity, and Medicare
Political Geography:: United States

284. Child Skill Production: Accounting for Parental and Market-Based Time and Goods Investments

Author:: Elizabeth Caucutt, Lance Lochner, Joseph Mullins, and Youngmin Park
Publication Date:: 08-2020
Content Type:: Working Paper
Institution:: Centre for Human Capital and Productivity (CHCP), Western University
Abstract:: This paper studies the multidimensional nature of investments in children within a dynamic framework. In particular, we examine the roles of parental time investments, purchased home goods/services inputs, and market-based child care services. We first document strong increases in total investment expenditures by maternal education; yet expenditure shares, which skew heavily towards parental time, vary little with parental schooling. Second, we develop an intergenerational lifecycle model with multiple child investment inputs to study these patterns and the impacts of policies that alter the prices of different inputs. We analytically characterize investment behavior, focusing on the substitutability of different investment inputs and the way parental skills affect the productivity of family-based inputs. Third, we develop an estimation strategy that exploits intratemporal optimality conditions based on relative demand to estimate substitutability between inputs, the relative productivity of different inputs, and the role played by parental education. This approach requires no assumptions about the dynamics of skill investment, preferences, or credit markets. We also account for mismeasured inputs and wages, as well as unobserved heterogeneity in parenting skills. We further show how noisy measures of child achievement (measured several years apart) can also be incorporated in a generalized method of moments approach to additionally identify the dynamics of skill accumulation. Fourth, we use data from the Child Development Supplement of the Panel Study of Income Dynamics to estimate the skill production technology for children ages 12 and younger. Our estimates suggest complementarity between parental time and home goods/services inputs as well as between these family-based inputs and market-based child care, with elasticities of substitution ranging from 0.2 to 0.5. We find no systematic effects of parental education on the relative productivity of parental time and other home inputs. Finally, we use counterfactual simulations to explore the extent and sources of variation in investments across families, as well as investment responses to changes in input prices. We find that variation in prices explains 48% of the overall variance in investment expenditures, and differences in wages explain more than half of the investment expenditure gap between college-educated and non-college-educated parents. We further show that accounting for the degree of input complementarity implied by our estimates has important implications for the responses of individual inputs to any price change and for the responses in total investments and skill accumulation to large (but not small) price changes.
Topic:: Economics, Labor Issues, Children, Human Capital, Economic Mobility, Credit, Productivity, Skilled Labor, and Price
Political Geography:: Global Focus

285. The EITC and Maternal Time Use: More Time Working and Less Time with Kids?

Author:: Jacob Bastian and Lance Lochner
Publication Date:: 08-2020
Content Type:: Working Paper
Institution:: Centre for Human Capital and Productivity (CHCP), Western University
Abstract:: Parents spend considerable time and resources investing in their children's development. Given evidence that the Earned Income Tax Credit (EITC) aects maternal labor supply, we investigate how the EITC aects a broad array of time-use activities, focusing on the amount and nature of time spent with children. Using 2003-2018 time-use data, we nd that federal and state EITC expansions increase maternal work time, which reduces time devoted to home production, leisure, and time with children. However, for children of all ages, almost none of the reduction comes from time devoted to investment activities, such as active learning and development activities.
Topic:: Economics, Labor Issues, Children, Women, Income Inequality, Tax Systems, Human Capital, Family, and Productivity
Political Geography:: United States

286. Marriage, Children, and Labor Supply: Beliefs and Outcomes

Author:: Yifan Gong, Todd Stinebrickner, and Ralph Stinebrickner
Publication Date:: 04-2020
Content Type:: Working Paper
Institution:: Centre for Human Capital and Productivity (CHCP), Western University
Abstract:: While a large literature is interested in the relationship between family and labor supply outcomes, little is known about the expectations of these objects at earlier stages. We examine these expectations, taking advantage of unique data from the Berea Panel Study. In addition to characterizing expectations, starting during college, the data details outcomes for ten years after graduation. Methodological contributions come from approaches to validate quality of survey expectations data and the recognition that expectations data, along with longitudinal data, can potentially help address endogeneity issues arising in the estimation of the causal effect of family on labor supply.
Topic:: Economics, Labor Issues, Human Capital, Family, Labor Market, and Productivity
Political Geography:: Canada and Global Focus

287. Perceived and Actual Option Values of College Enrollment

Author:: Yifan Gong, Ralph Stinebrickner, and Todd Stinebrickner
Publication Date:: 08-2020
Content Type:: Working Paper
Institution:: Centre for Human Capital and Productivity (CHCP), Western University
Abstract:: An important feature of post-secondary schooling is the experimentation that accompanies sequential decision-making. Specifically, by entering college, a student gains the option to decide at a future time whether it is optimal to remain in college or to drop out, after resolving uncertainty that existed at entrance about factors that affect the return to college. This paper uses data from the Berea Panel Study to quantify the value of this option. The unique nature of the data allows us to make a distinction between “actual” option values and “perceived” option values and to examine the accuracy of students’ perceptions. We find that the average perceived option value is 65% smaller than the average actual option value ($8,670 versus $25,040). A further investigation suggests that this understatement is not due to misperceptions about how much uncertainty is resolved during college, but, rather, because of overoptimism at entrance about the returns to college. In terms of policy implications related to college entrance, we do not find evidence that students understate the overall value of college, which depends on the sum of the option value and expectations at entrance about the returns to college.
Topic:: Economics, Labor Issues, Human Capital, Higher Education, Economic Mobility, and Productivity
Political Geography:: Global Focus

288. Self-Employment and Development

Author:: Juan Herreno and Sergio Ocampo
Publication Date:: 11-2020
Content Type:: Working Paper
Institution:: Centre for Human Capital and Productivity (CHCP), Western University
Abstract:: Selection into self-employment among the poor is dominated by subsistence concerns, which leads to high levels of unproductive self-employment in developing countries. We incorporate this view into an otherwise benchmark macro-development model by allowing for labor frictions. Standard models that rely only on financial frictions are at odds with crucial features of the data, including large self-employment rates among the poor and the response of labor markets after well-identified labor demand shocks. We study the efficacy of a wide range of development policies on occupational choices, prices, and productivity. We find that providing unemployment benefits improves selection into self-employment, increasing total-factor productivity (TFP). Self-employment grants and unconditional transfers lower TFP by making self-employment more attractive to low-productivity individuals. Finally, financial reforms that improve access to credit succeed in raising productivity, but they do not address the subsistence concerns of poor individuals. Self-employment is still concentrated among the poor after the reforms take place.
Topic:: Economics, Labor Issues, Employment, Human Capital, Macroeconomics, Economic Development, and Productivity
Political Geography:: Global Focus

289. One Nation, One Language? Domestic Language Diversity, Trade and Welfare

Author:: Tamara Gurevitch, Peter R. Herman, Farid Toubal, and Yoto V. Yotov
Publication Date:: 12-2020
Content Type:: Working Paper
Institution:: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:: Using new data on linguistic diversity across and within countries, we examine novel channels though which language affects trade patterns and economic welfare. We find that linguistic similarity within a country accounts for about 10 percent of estimated `home bias', demonstrating the importance of shared languages for domestic integration. To highlight the general equilibrium implications of domestic language proximity, we simulate the repeal of Quebec's Bill 101, which made French an official language in Canada and established fundamental language rights for Frenchspeakers. The analysis demonstrates that domestic language diversity has significant implications for Canada's welfare but also sizable economic consequences that stretch far beyond its borders.
Topic:: Economics, Global Political Economy, Economic Growth, Linguistics, and Trade
Political Geography:: Canada and Quebec

290. Wealth and Shifting Demand Pressures on the Price Level in England After the Black Death

Author:: Anthony Edo and Jacques Melitz
Publication Date:: 12-2020
Content Type:: Working Paper
Institution:: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:: The scale of the rise in personal wealth following the Black Death calls the life-cycle hypothesis of consumption into consideration. This paper shows for the first time that the wealth effect of the Black Death on the price level continued in England for generations, up to 1450. Indeed, in absence of consideration of the wealth effect, other influences on the price level do not even appear in the econometric analysis. The separate roles of coinage, population, trade, wages and annual number of days worked for wages all also receive attention and new results follow for adjustment in the labor market.
Topic:: Economics, International Political Economy, Infectious Diseases, Population, Trade, and Labor Market
Political Geography:: Europe and England

291. Global giants and local stars: How changes in brand ownership affect competition

Author:: Vanessa Alviarez, Keith Head, and Thierry Mayer
Publication Date:: 11-2020
Content Type:: Working Paper
Institution:: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:: We assess the consequences for consumers in 76 countries of multinational acquisitions in beer and spirits. Outcomes depend on how changes in ownership affect markups versus efficiency. We find that owner fixed effects contribute very little to the performance of brands. On average, foreign ownership tends to raise costs and lower appeal. Using the estimated model, we simulate the consequences of counterfactual national merger regulation. The US beer price index would have been 4-7% higher without divestitures. Up to 30% savings could have been obtained in Latin America by emulating the pro-competition policies of the US and EU.
Topic:: Economics, International Political Economy, and Multinational Corporations
Political Geography:: United States, United Kingdom, Latin America, and Global Focus

292. MULTIPRIL: a new database on multilateral price levels and currency misalignments

Author:: Cécile Couharde, Carl Grekou, and Valérie Mignon
Publication Date:: 10-2020
Content Type:: Working Paper
Institution:: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:: This paper describes the new CEPII-MULTIPRIL database on Multilateral Price Levels (MPL) introduced in 2020. The MULTIPRIL database covers a wide sample of 178 countries over the 1990-2018 period, and includes relative price level series computed vis-à-vis two sets of trading partners (177 and the top 30) according to three different trade-weighting schemes. It also contains MPL-based currency misalignments series for 156 countries over the 1991-2018 period. MULTIPRIL offers the potential to improve the coverage and quality of worldwide price-competitiveness comparisons. By focusing on price level data, it usefully complements the EQCHANGE database on equilibrium exchange rates and currency misalignments derived from series in indices. Its multilateral setting provides a more comprehensive picture of relative price levels and currency misalignments compared to existing bilateral measures.
Topic:: Economics, International Political Economy, Exchange Rate Policy, Trade, Database, and Price
Political Geography:: Global Focus

293. COVID-Induced Sovereign Risk in the Euro Area: When Did the ECB Stop the Contagion?

Author:: Aymeric Ortmans and Fabien Tripier
Publication Date:: 10-2020
Content Type:: Working Paper
Institution:: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:: This paper studies how the announcement of the ECB’s monetary policies stopped the spread of the COVID-19 pandemic to the European sovereign debt market. We show that up to March 9, the occurrence of new cases in euro area countries had a sizeable and persistent effect on 10-year sovereign bond spreads relative to Germany: 10 new confirmed cases per million people were accompanied by an immediate spread increase of 0.03 percentage points (ppt) that lasted 5 days, for a total increase of 0.35 ppt. For periods afterwards,the effect falls to near zero and is not significant. We interpret this change as an indicator of the success of the ECB’s March 12 press conference, despite the “we are not here to close spreads” controversy. Our results hold for the stock market, providing further evidence of the effectiveness of the ECB’s March 12 announcements in stopping the financial turmoil. A counterfactual analysis shows that without the shift in the sensitivity of sovereign bond markets to COVID-19, spreads would have surged to 4.2% in France, 12.5% in Spain, and 19.5% in Italy by March 18, when the ECB’s Pandemic Emergency Purchase Programme was finally announced.
Topic:: Debt, Economics, International Political Economy, Markets, Central Bank, COVID-19, and Banking
Political Geography:: Europe

294. Corporate tax avoidance and industry concentration

Author:: Farid Toubal, Mathieu Parenti, and Julien Martin
Publication Date:: 07-2020
Content Type:: Working Paper
Institution:: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:: This paper argues that tax avoidance by large corporations has contributed to the 25% increase in concentration among U.S. firms since the mid-1990s. Corporate tax avoidance gives large firms a competitive edge, which translates into larger market shares and an increase in the granularity of the economy. We develop IV and difference-in-differences strategies that show the causal impact of tax avoidance on firm-level sales. Had firms not resorted to tax avoidance in 2017, our results imply that the average industry concentration would have been 8.3% lower, which is around its early 2000 level.
Topic:: Economics, International Political Economy, Markets, Tax Systems, Corporations, Tax Evasion, and Corporate Tax
Political Geography:: United States and Global Focus

295. Grey Zones in Global Finance: the Distorted Geography of Cross-Border Investments

Author:: Vincent Vicard, Amélie Guillin, and Anne-Laure Delatte
Publication Date:: 05-2020
Content Type:: Working Paper
Institution:: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:: Tax avoidance schemes generate artificially complex cross-border financial structures inflating measured international investment stocks in tax havens. Using a standard gravity framework, we estimate that about 40% of global assets (FDI, portfolio equity and debt) are `abnormal' – unexplained – stocks. Abnormal stocks are increasing over time and concentrated in a limited number of jurisdictions. Six jurisdictions including three European countries are the largest contributors: Cayman, Bermuda, Luxembourg, Hong Kong, Ireland and the Netherlands. Interestingly, the Luxleaks in 2014 do not appear to have diverted cross-border investments away.
Topic:: Economics, International Political Economy, International Trade and Finance, Finance, Borders, Investment, and Stock Markets
Political Geography:: Global Focus

296. Private Credit under Political Influence: Evidence from France

Author:: Anne-Laure Delatte, Adrien Matray, and Noémie Pinardon-Touati
Publication Date:: 04-2020
Content Type:: Working Paper
Institution:: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:: Formally independent private banks change their supply of credit to the corporate sector for the constituencies of contested political incumbents in order to improve their reelection prospects. In return, politicians grant such banks access to the profitable market for loans to local public entities among their constituencies. We examine French credit registry data for 2007--2017 and find that credit granted to the private sector increases by 9%--14% in the year during which a powerful incumbent faces a contested election. In line with politicians returning the favor, banks that grant more credit to private firms in election years gain market share in the local public entity debt market after the election is held. Thus we establish that, if politicians can control the allocation of rents, then formal independence does not ensure the private sector's effective independence from politically motivated distortions.
Topic:: Economics, International Political Economy, Private Sector, Credit, and Banking
Political Geography:: France

297. Currency Misalignments and Exchange Rate Regimes in Latin American countries: A Trade-Off issue

Author:: Jorge Carrera, Blaise Gnimassoun, Valérie Mignon, and Romain Restout
Publication Date:: 04-2020
Content Type:: Working Paper
Institution:: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:: This paper conducts an in-depth empirical investigation on the impact of the exchange rate regime (ERR) on real currency misalignments in a panel of 17 Latin American countries over the 1970-2016 period. We consider explicitly the two dimensions of misalignments, size and persistence, and evaluate four different ERR classifications. We also pay attention to cross-sectional dependencies across countries that appear to be important in Latin America, and provide several robustness checks. Our main findings show that, although fixed ERR perform well in limiting the size of misalignments – and in reducing inflation and fiscal deficit – the disequilibria are more persistent. On the contrary, allowing for more flexibility reduces persistence but increases the size of misalignments. Overall, we show that Latin American countries face a crucial trade-off when they have to choose their ERR.
Topic:: Economics, International Political Economy, Exchange Rate Policy, and Currency
Political Geography:: Latin America

298. Immigration and Worker-Firm Matching

Author:: Gianluca Orefice and Giovanni Peri
Publication Date:: 03-2020
Content Type:: Working Paper
Institution:: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:: The process of matching between firms and workers is an important mechanism in determining the distribution of wages. In a labor market characterised by large dispersion of workers' productivity and worker-firm complementarity, high quality firms have strong incentives to screen for the quality of workers. This process will increase the positive quality association of firm-worker matches known as positive assortative matching (PAM). Immigration in a local labor market, by increasing the variance of workers abilities, may drive stronger PAM between firms and workers. Using French matched employer-employee (DADS) data over the period 1995-2005 we document that positive supply-driven changes of immigrant workers in a district increased the strength of PAM. We then show that this association is consistent with causality, is quantitatively significant, and is associated with higher average productivity and firm profits, but also with higher wage dispersion. We also show that the increased degree of positive assortative matching is mainly reached by high-productive firms "losing" lower quality workers and "attracting" higher quality workers.
Topic:: Economics, International Political Economy, Labor Issues, Immigration, Immigrants, and Migrant Workers
Political Geography:: France

299. Cross-border Investments and Uncertainty Firm-level Evidence

Author:: Rafael Cezar, Timothée Gigout, and Fabien Tripier
Publication Date:: 03-2020
Content Type:: Working Paper
Institution:: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:: This paper studies the impact of uncertainty on cross-border investments. We build a data-set of firm-level outward Foreign Direct Investments between 2000 and 2015. We create a time and country varying measure of uncertainty based on the dispersion of idiosyncratic investment returns. An increase in uncertainty delays cross-border flows to the affected country. Yet, this average effect hides strong heterogeneity. Firms with low ex-ante performance durably reduce their foreign investments. Meanwhile high-performing firms increase their investments after the initial shock. We interpret these results as the evidence of a cleansing effect of uncertainty shocks among multinational firms in the presence of financial frictions.
Topic:: Economics, International Political Economy, Foreign Direct Investment, Borders, and Investment
Political Geography:: Global Focus

300. Weather Shocks and Migration Intentions in Western Africa: Insights from a Multilevel Analysis

Author:: Simone Bertolia, Frédéric Docquier, Hillel Rapoport, and Ilse Ruyssen
Publication Date:: 02-2020
Content Type:: Working Paper
Institution:: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:: We use a multilevel approach to characterize the relationship between weather shocks and (internal and international) migration intentions. We combine individual survey data on migration intentions with measures of localized weather shocks for Western African countries over 2008-2016. A meta-analysis on results from about 310,000 regressions is conducted to identify the specification of weather anoma-lies that maximizes the goodness of fit of our empirical model. We then use this best specification to document heterogeneous mobility responses to weather shocks, which can be due to differences in long-term climatic conditions, migration percep- tions, or adaptation capabilities. We find that droughts are associated with a higher probability of migration intentions in Senegal, Niger and Ivory Coast. The effect on international migration intentions are only significant in Niger. These effects are amplified, but qualitatively similar, when restricting the sample to rural low-skilled respondents.
Topic:: Economics, International Political Economy, Migration, Labor Issues, Skilled Labor, and Weather
Political Geography:: West Africa, Senegal, Ivory Coast, and Niger

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