CEPR News In focus this week: 12 October 12 Oct 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.
THE RISKS OF RISK-BASED AI REGULATION: Analysis of the European Union’s AI Act A recent CEPR study scrutinises the European Commission's AI Act, under final trilogue negotiations. The author argues for a shift from regulating AI outputs to focusing on inputs, specifically data management, proposing a 'liability matrix' based on deployment frequency and potential harm sources. This approach challenges the EU's current 'risk-based approach,' offering a more nuanced and comprehensive regulatory perspective.
HOW TRADE COOPERATION BY THE UNITED STATES, THE EUROPEAN UNION, AND CHINA CAN COMBAT CLIMATE CHANGE The CEPR study by Chad Brown delves into trade tensions arising from diverse climate policies, highlighting the differing approaches of the US, China, and the European Union. These policies, ranging from subsidies to carbon pricing, create intricate international spillover effects impacting various industries and global supply chains. The study underlines the inadequacy of the WTO's response due to current dispute settlement challenges and proposes reforms in global trade rules as a way forward, urging the US, EU, and China to prioritise these changes for effective cooperation on trade and climate issues.
ISRAEL'S JUDICIAL OVERHAUL MAY CAUSE SIGNIFICANT ECONOMIC DAMAGE A new CEPR study by Itai Ater, Itzchak Tzachi Raz and Yannay Spitzer analyses the economic implications of Israel's judicial overhaul, a key check on executive power. By concentrating power, the overhaul risks crony capitalism, weakening economic rights, corrupting civil services, and causing brain drain, potentially harming long-term growth. Short-term evidence indicates capital markets are responding swiftly, leading to significant wealth loss. The research suggests a potential economic decline of 9% to 45%, especially impacting Israel's high-tech sector reliant on foreign investment. The study emphasises the importance of thoughtful evaluation to protect Israel's economic stability and future growth.
DATA ANALYTICS SKILLS DOMINATE DIGITAL JOB MARKET IN UK, CANADA, AND US A study by Julia Schmidt, Graham Pilgrim and Annabelle Mourougane applies natural language processing to online job advertisements in the UK, Canada and the US, to show that data analytics skills contribute most to the aggregate data-related labour demand in all three countries. The information and communication and finance industries are the most data-intensive in all three countries, while larger differences in labour demand persist across countries for agriculture, mining and quarrying, and electricity, gas, steam and air conditioning supply.
CONSERVATION AREAS IN ENGLAND IMPEDE CLIMATE ACTION, RESULTING IN MILLIONS OF TONNES OF CO2 EMISSIONS Writing at VoxEU, Thiemo Fetzer explores the barriers to climate action in England implied by conservation areas, where simple retrofitting measures such as double glazing or the installation of solar photovoltaic panels require approval, a potentially lengthy and often expensive process. The findings suggest the desire to maintain an “appealing character” in these areas comes at a cost of 3-4 million tonnes of avoidable CO2 emissions per year.
THE ZOMBIE LENDING CHANNEL OF MONETARY POLICY Does the increasing number of zombie firms matter for the monetary policy transmission? A study by Bruno Albuquerque and Chenyu Mao finds that when interest rates increase, banks have incentives to offer more favourable credit conditions to zombie firms to prevent them from defaulting. More productive firms may then be hardest hit by tighter financial conditions.
NEW EVIDENCE CHALLENGES POPULAR NARRATIVE: Spatial Inequality Declines in European Countries, Diverging from North America Spatial inequality has become a key policy concern across much of the advanced world, prompting a spate of government action on the issue in recent years. Writing at VoxEU, Luis Bauluz and colleagues present evidence showing that, contrary to the popular narrative, North America and Europe have followed different patterns on spatial inequality, with inequality actually falling in the European countries studied. The research highlights that spatial inequality in wages is not a major contributor to national income inequality.
THE EVOLUTION OF MODERN SANCTIONS AND THE COMPLEX INTERPLAY OF ECONOMIC WARFARE IN WARS OF ATTRITION Present-day sanctions have their origins in economic warfare in the two World Wars. Writing at VoxEU, Mark Harrison reviews that experience and the lessons we can learn, highlighting how modern economies were tough targets; economic warfare took time; economic warfare was powerful – eventually; and the threat of economic warfare was also powerful. Economic warfare belongs to wars of attrition. In such wars, economic warfare is inherently intertwined with wars of attrition, where economic and military strategies complement rather than replace each other.
CHINA'S DECLINING STATE-CONTROLLED ENTERPRISES FUEL ECONOMIC GROWTH AS SKILLED WORKERS TRANSITION TO THE PRIVATE SECTOR A study by Hanming Fang, Ming Li, Zenan Wu and Yapei Zhang shows that when the number of state-owned or state-controlled enterprises in China fell dramatically at the end of the 20th century, high-skilled individuals reluctantly transformed into successful entrepreneurs who catalysed economic growth in subsequent decades. The research demonstrates how the allure of state-sector employment for high-skilled workers not only discourages the growth of the private sector through labour allocation but, more importantly, impedes the establishment of new productive private firms.
THE IMPACT OF HIGH TEMPERATURES ON PROFESSIONAL TENNIS PLAYERS A study by Matteo Picchio and Jan C. van Ours finds that the performance of male tennis players significantly decreases with ambient temperature, and that the effect is larger for older and less-skilled players and when there is more at stake. There is also evidence of adaptation, with the impact of high temperatures lessening if the heat lasts for several days. The research suggests that high temperatures may affect productivity of workers through their impact on mental or physical health.
LESSONS FROM HISTORY FROM THREE GENERATIONS OF CURRENCY CRISES A study by Linda Yueh shows that the 1980s crisis in Latin America, 1990s crisis in Mexico, and late 1990s crisis in Asia were all characterised by significant capital inflows followed by sharp reversals in confidence, outflows of financial capital, and international assistance. These crises emphasise the importance of credible policymaking, as well as sustainable trade and budget deficits.
PATIENCE LINKED TO STUDENT ACHIEVEMENT GAPS IN ITALY AND THE UNITED STATES A study by Eric Hanushek, Lavinia Kinne, Pietro Sancassani and Ludger Woessmann finds that patience – in the context of the relative valuation of present versus future payoffs – is closely related to regional student achievement gaps in Italy and the US. Using data from Facebook, the authors construct subnational measures of patience and find that they account for two-thirds of achievement variation across Italian regions and one-third of the variation across the US. Recent evidence showing that traits like patience can be improved through specific interventions suggests these findings could have significant policy implications.
THE SLOWDOWN IN POTENTIAL GROWTH Estimates of potential growth – the best an economy can do – drive development and poverty reduction. Lower potential is a problem that constrains policymakers and so affects all of us. New research analyses the long downward trend in potential growth, makes projections for the next decade, and suggest ways we can boost it. Sinem Kilic Celik talks to Tim Phillips.