CEPR News In focus this week: 15 June 15 Jun 2023 This weekly press briefing highlights some of the latest research reports, discussion papers and other publications from CEPR. It also features some of the latest columns on VoxEU, as well as new blogs/reviews, audio interviews and short films.
GENEROUS PANDEMIC SUPPORT PACKAGES FUEL INFLATION RESURGENCE A study by Òscar Jordà and Fernanda Nechio exploits variation in governments’ fiscal responses to show that a large portion of the resurgence in inflation can be attributed to generous pandemic support packages towards their citizens. The traditional Phillips mechanism is alive and well – a boost to demand causes prices to rise.
HOW FIRMS USE ARTIFICIAL INTELLIGENCE: Cross-country evidence on business characteristics, asset complementarities, and productivity A study by Flavio Calvino and Luca Fontanelli examines patterns of AI use across 11 countries, focusing on firm characteristics, the role of complementary assets, and the links between AI use and productivity. The research reveals evidence of polarised adoption – with larger and more productive firms more likely to use AI – indicating the potential for widening gaps between leaders and other firms and reinforces the need for policies aimed at fostering an inclusive digital transformation.
THE EU NEEDS A PERMANENT CENTRAL FISCAL CAPACITY FOR COMMONLY FINANCED PUBLIC GOODS A well-functioning economic union needs a permanent central fiscal capacity. Writing at VoxEU, Marco Buti, Alessandro Coloccia and Marcello Messori argue that European public goods are a promising way for the EU to pursue projects implemented at a centralised level by means of common financing. The authors devise an operational definition of European public goods and lay out ways to fund and deliver them.
ENHANCED TRADE OPPORTUNITIES FOR BYSTANDER COUNTRIES AMID US-CHINA TRADE WAR A study by Pablo Fajgelbaum et al. finds that the US-China trade dispute generally enhanced trade opportunities for most countries rather than just causing shifts in trade patterns across destinations. The authors also find an important role for country factors driving the responsiveness to tariffs, as opposed to more standard explanations related to sectoral scale elasticities and specialisation patterns.
PUBLIC BACKSTOPS DURING CRISES IN 2022-2023 A study by Timo Löyttyniemi describes how public backstops were frequently used during several events of severe financial instability during 2022–2023. Governments, central banks, and authorities intervened with the tools at their disposal to prevent the financial instabilities from causing larger turmoil in energy markets, derivatives markets, and banking. A variety of public backstop arrangements were used to prevent further spillovers and instabilities.
LOCAL SHOCKS AND AUTHORITARIAN VOTING IN ITALY A study by Augusto Cerqua, Chiara Ferrante and Marco Letta documents that two earthquakes in Italy resulted in sharply diverging electoral outcomes: while the 2012 Emilia quake did not alter voting behaviour, the 2009 L'Aquila earthquake paved the way for a persistent authoritarian backlash in the most affected areas. These different political outcomes originate from a stark contrast in post-disaster reconstruction processes and the related shifts in institutional trust. The findings support the notion that local shocks can turn ‘places that don't recover’ into authoritarian hotbeds.
RAPID RISE OF 'BUY NOW, PAY LATER' AND DIGITAL WALLETS RAISES POLICY CONCERNS A study by Wenlong Bian, Lin William Cong and Yang Ji uses data from a world-leading Chinese provider to document that 'buy now, pay later’ dominates e-wallet transactions and expands FinTech credit to underserved consumers. It also substantially boosts consumer spending, but users – especially those relying on e-wallets as their sole credit source – carefully moderate borrowing when incurring interest charges. These findings can help policymakers tackle the challenges arising from the expansion of digital wallets and 'buy now, pay later’.
INFLATION SINCE COVID: Demand or supply A study by Andrea Cerrato and Giulia Gitti documents changes in the slope of the Phillips curve before, during, and after COVID, exploiting panel variation in inflation and unemployment dynamics across US metropolitan areas. The slope of the Phillips curve dropped to zero during the pandemic and more than tripled relative to pre-COVID from March 2021 onward. Demand factors explain around 1.4 out of the 5.6 percentage-point increase in CPI inflation in the US from March 2021 to September 2022.
FOSTERING A SUSTAINABLE DIGITAL TRANSFORMATION Writing at VoxEU, Ana Abeliansky et al. discuss two side effects of automation – increased inequality and a rise in carbon emissions – and propose a policy response to deal with both problems simultaneously. The authors suggest that by imposing a higher tax on automation-driven emissions and redistributing the proceeds so as to mitigate increased inequality through education and re-training, such a policy could reduce resistance to new technologies, increase skill levels, and foster the transition to cleaner electricity production.
RECONSTRUCTION AID TO UKRAINE: Lessons from Eastern Europe in the 1990s Writing at VoxEU, Janine Wedel outlines four critical elements for Ukraine’s post-war reconstruction, drawing lessons from Eastern Europe in the 1990s. Ukraine will need significant investments in infrastructure as well as coordinated and targeted technical assistance rooted in expertise with the local landscape. Furthermore, the programme for reconstruction should be directed by a single agency with headquarters in Kyiv. Finally, extra care should be taken to prevent corrupt practices from emerging between aid donors and recipients.
PUBLIC SCHOOL GRANTS PROGRAMME BOOSTS EDUCATION QUALITY IN PAKISTAN Private schools in Pakistan, as in many other countries, are financed almost entirely through school fees. Therefore, when public schools improve, private schools must also improve or risk losing valuable revenue as parents opt for public schools. This column examines the effect of a public school grants programme in rural Pakistan and estimates the ‘education multiplier’ for the effect of public funding on private sector school quality. The authors find that grants given to public schools increase test scores in both public and private schools as a result of increased competition.
EAST ASIA EMERGES AS ELECTRONICS MANUFACTURING POWERHOUSE: Lessons for US Policy In recent decades, East Asia has transformed into a hub for the manufacturing of electronics such as smartphones, televisions, and semiconductors. This column outlines the key ingredients in this transition, which include international investment, competition, properly aligned incentives, high levels of human capital, and entrepreneurship. It provides examples of success from Japan, South Korea, Taiwan, and China, and also describes the challenges faced by Malaysia. Finally, it draws implications from East Asia for successful policy in the US, which is looking to re-shore its electronics manufacturing.
THE INFLUENCE OF NEIGHBOURHOODS ON EARLY CHILDHOOD DEVELOPMENT Writing at VoxEU, John List, Fatemeh Momeni, Michael Vlassopoulos and Yves Zenou discuss the influence of neighbourhoods on early childhood development, drawing upon findings from interventions by the Chicago Heights Early Childhood Center. Children attending the Pre-K programme experience significant cognitive gains when surrounded by treated neighbours within a 0.5 kilometre radius. Interventions that promote social interactions among participants and with non-participants are likely to generate larger positive externalities on cognitive skills.
HOW MALE AND FEMALE ECONOMISTS COLLABORATE When there are more women in the workplace, that means either more gender diverse teams, or more collaboration between women. There are more female economists now, so how is that reflected in the way researchers collaborate? And what type of teams produce the best results? Anja Prummer talks to Tim Phillips about gender diversity, homophily, and whether she should have chosen a male co-author.