This week from CEPR: August 15th

Thursday, August 15, 2019

Highlights from some of the latest research reports published in the Centre for Economic Policy Research (CEPR) network’s long-running series of discussion papers, as well as some other recent CEPR publications.

Also, links to some of the latest columns on Vox, the Centre’s policy portal, which provides ‘research-based policy analysis and commentary from leading economists’.

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  • GLOBAL FIRMS’ EXPORT PRICING STRATEGY: Evidence from China on product differentiation, market power and price variation 

MARKETS AND MARKUP: A NEW EMPIRICAL FRAMEWORK AND EVIDENCE ON EXPORTERS FROM CHINA
Giancarlo Corsetti, Meredith A Crowley, Lu Han and Huasheng Song  
CEPR DP No. 13904 05 August 2019

A new CEPR study by Giancarlo Corsetti, Meredith Crowley, Lu Han and Huasheng Song explores the forces that drive a global firm's export pricing strategy. Using Chinese customs data, their study shows that controlling for selectivity unveils significant pricing-to-market for highly differentiated goods. Measured in the importer's currency, the prices of highly differentiated goods are more stable than those of less differentiated products. The study concludes: 

  • Firms exporting high differentiation goods make moderate but significant destination-specific adjustments to mark-ups in response to movements of bilateral exchange rates.  Mark-up adjustments account for up to three quarters of incomplete exchange rate pass-through into import prices.
  • In contrast, producers of commodities and low differentiation goods make minuscule or no adjustments. These different elasticities are mirrored (inversely) by cross-market adjustments in quantities exported.
  • The nature of the good matters enormously in gauging the extent of international market segmentation and firms' market power across markets. To the extent that firms producing differentiated products are in a better position to segment markets and use their market power. 

Figure 3: Markup dispersion across destinations for top three firms in 2007 and 2008

 


  • END-OF-LIFE MEDICAL EXPENSES PLACE SERIOUS FINANCIAL BURDENS ON HOUSEHOLDS: The latest research evidence

END-OF-LIFE MEDICAL EXPENSES
Eric Baird French, John Bailey Jones, Elaine Kelly and Jeremy McCauley 
CEPR DP No. 13913 07 August 2019

A new CEPR study reviews the research evidence on end-of-life expenses, documenting their level, composition, funding and contribution to aggregate medical spending around the world. Evidence suggests that end-of-life expenses have a significant effect on household savings and other financial behaviour, such as insurance choices. Among the findings: 

  • As mortality rates have fallen, death has become concentrated at older ages and is more likely to result from chronic conditions.
  • Life expectancy follows a strong socioeconomic gradient both in the United States and elsewhere, with more advantaged individuals living longer than their less advantaged compatriots.
  • End-of-life medical spending may provide an important motive for retirement saving and is associated with significant declines in household wealth.
  • Long-term care is arguably the most significant financial burden that older households bear for medical services. Although most OECD countries other than the United States provide universal insurance for acute care, many fail to provide similar insurance for long-term care.
  • A shift toward palliative care would significantly improve the quality, and possibly even the length, of life for those with terminal diseases.
  • There is tremendous cross-country variation in how end-of-life care is provided and financed. Further research into cross-country variations could inform any potential end-of-life financing reforms that may affect both government costs and households’ wellbeing.

Figure 6: Long-Term Care Expenditures in the OECD, as Precentages of GDP, 2016

 


  • COMMUNICATIONS TECHNOLOGY GIVES A BIG BOOST TO PRODUCTIVITY GROWTH: Evidence from Europe and the European Union  
PRODUCTIVITY, NETWORK EFFECTS AND TELECOMMUNICATIONS CAPITAL: 
Evidence from the Unites States and the European Union
Harald Edquist, Peter Goodridge, Jonathan Haskel  
CEPR DP No. 13910 29 July 2019

Did the huge investment in telecommunications networks in the 1990s affect subsequent total factor productivity (TFP)? A new study by Harald Edquist, Peter Goodridge and Jonathan Haskel finds evidence of a significant correlation between growth in the contribution of telecoms capital services and TFP, which is consistent with the presence of network effects or ‘spillovers’. : 

The study estimates that spillovers from communications technology potentially explain: around a third of TFP growth in North European economies; two-thirds in Scandinavian economies; and around nine-tenths in the United States. The study also estimates that the total social rate of return to communications technology capital is around five times its private rate of return. Estimates further suggest that a slowdown in communications technology capital accumulation ’explains’ only 9% of the TFP slowdown prior to the 2008 economic crisis in the EU and 54% in the United States. 

Table 5: Economic significance: contribution of CT capital services, 1990-2007, by country

 

Notes: Column 1 presents countries included. Column 2 presents mean TFP growth. Column 3 presents mean contribution of CT capital services. Column 4 is the contribution of CT network externalities to growth. Column 5 is the percentage of TFP explained by the CT spillover estimate. 



PUBLIC TRANSIT INFRASTRUCTURE PROMOTES SOCIAL CONNECTIONS AND PRODUCTIVITY IN CITIES: Evidence from New York

Theresa Kuchler, Johannes Stroebel
09 August 2019

A new study by Theresa Kuchler and Johannes Stroebel explores the link between public transit and social connectedness in New York City. It finds the first suggestive evidence that the city’s public transit system plays an important role in enabling social ties to be formed and maintained across geographical distances, increasing productivity through the mixing of people and ideas.  


THE PARLIAMENTARY BREXIT ENDGAME: No-deal outcome is unlikely but plausible

Christopher Tyson 
07 August 2019

In a new study, Christopher Tyson outlines a model of parliamentary preferences, calibrated to the profiles of members on the meaningful and indicative votes, that can be used to analyse the Brexit ‘endgame’ in a reasoned manner.

The study finds that, under the circumstances presented within the model, a deal is much more likely to be passed than no deal. The status of no deal as the legal default outcome could conceivably help to pass a withdrawal agreement, if a last-gasp vote were to be held on the cusp of the deadline. Remain advocates face formidable political challenges and will need to target both mainstream Labour and mainstream Conservative members, recruiting both hard and soft Remain MPs as appropriate for the two necessary majorities. 


BETTER ACCESS TO BANK CREDIT ENCOURAGES FIRMS TO ADOPT NEW TECHNOLOGIES AND BOOST THEIR PRODUCTIVITY: Evidence from Russia

Çağatay Bircan, Ralph De Haas 
10 August 2019

Using data from a large emerging market – Russia – a new study by Çağatay Bircan and Ralph De Haas analyses whether better access to bank credit can accelerate technological diffusion and narrow the productivity gap between leading and lagging firms. The results show that while bank loans can encourage firms to adopt new technologies and become more productive, long-run benefits vary substantially across industries and regions.

 


POLICIES TO PROMOTE ENTREPRENEURSHIP  MAKE BUSINESS MORE DYNAMIC IN SWEDEN THAN IN AMERICA

Fredrik Heyman, Pehr-Johan Norbäck, Lars Persson
12 August 2019

Recent studies document a 30-year decline in business dynamism in the United States, manifested particularly in the declining share of young firms as well as their share of job creation. A new study by Fredrik Heyman, Pehr-Johan Norbäck and Lars Persson shows that this has not been the case in Sweden, where policies to encourage entrepreneurship have been highly effective, by increasing incentives for firms to find new business opportunities, to use new technologies, to experiment and to grow – locally as well as globally. 

HOW AUTOMATION HAS CONTRIBUTED TO ‘DESKILLING’ AMONG MANUFACTURING WORKERS

David Kunst  
09 August 2019

A new study by David Kunst argues that the conventional distinction between white-collar and production workers has concealed substantial deskilling among manufacturing production workers since the 1950s. The study suggests that automation has reduced the demand for skilled craftsmen around the world, thereby reducing the number of jobs in which workers with little formal education could acquire significant marketable skills.


FLUCTUATIONS IN A FIRM’S FORTUNES AFFECT THE WAGES OF HIGH-SKILLED WORKERS MORE THAN THEIR LOWER SKILLED COLLEAGUES: Evidence from Sweden

Benjamin Friedrich, Lisa Laun, Costas Meghir, Luigi Pistaferri 
08 August 2019


 

A new study by Benjamin Friedrich, Lisa Laun, Costas Meghir and Luigi Pistaferri demonstrates that shocks to firm productivity are passed on as variation in wages. The variation is large for high-skilled workers, whereas unskilled workers, perhaps due to union or minimum wage protection, experience much smaller fluctuations.

The research relates directly to understanding the amount and sources of risk faced by workers and also to the competitiveness of the labour market.

THE ROLE OF ACCOUNTANTS IN TAX EVASION: Evidence from Italy

Marco Battaglini, Luigi Guiso, Chiara Lacava, Eleonora Patacchini 
08 August 2019

A new study by Marco Battaglini, Luigi Guiso, Chiara Lacava and Eleonora Patacchini uses tax records of 2.5 million taxpayers in Italy with corresponding audit files to show that levels of evasion by taxpayers served by the same accountant are strongly correlated. Accountants can drive this correlation in two ways: either by serving as tax evasion facilitators, or as information hubs.


THE IMPACT OF AMERICAN’S PRIVATE PRISONS: Moderate increases in sentence lengths but not likelihood of conviction

Christian Dippel, Michael Poyker
06 August 2019

Since the first private prison in the United States opened in 1984, the imprisoned population has increased by 194% while the country’s overall population increased by only 36%. In a new study, Christian Dippel and Michael Poyker examine the relationship between these two events, asking whether the growth of the private prison industry contributed to climbing incarceration rates.

It concludes that private prisons moderately increased sentence lengths but not the likelihood of conviction but finds no evidence that private prisons directly influenced judges or exacerbated existing racial biases in the judicial system. 

CENTRAL BANKS WITH TOO MANY ROLES RISK THEIR REPUTATIONS: Evidence from Iceland

Jon Danielsson 
06 August 2019

As central banks accumulate ever more job functions, their reputation risk increases. A new study by Jon Danielsson offers a cautionary tale from Iceland where, after the central bank was put in charge of capital controls, it was subject to severe attacks because of perceived mistakes in how the capital controls were enforced. The study concludes that the accumulation of powers ultimately erodes a central bank’s independence and subjects it to regulatory paralysis. 


LONG-TERM RISKS OF OUR FOCUS ON SHORT-TERM CONCERNS

Jon Danielsson, Robert Macrae 
12 August 2019

The type of risk we most care about is long-term – what happens over years or decades – but we tend to manage that risk over short periods. In a new study, Jon Danielsson and Robert Macrae argue that the dissonance of risk is that we measure and manage what we don't care about and ignore what we do.

The consequence is the wasting of resources, procyclicality, poor performance, and insufficient attention towards important long-term risk. The short-term bias can even be a driver of systemic risk.


KEY DRIVERS OF URBAN GROWTH: Evidence from 450 Japanese cities

Tomoya Mori 
11 August 2019

The growth of large cities is often attributed to their proximity to external geographical advantages. A new study by Tomoya Mori uses data on 450 Japanese cities to show that in fact, there is a stronger correlation between their relationship to neighbouring populations and their spatial patterns, industrial composition, hierarchal position and overall size.

Larger cities are formed in places where a larger number of industries co-locate to share consumers. This spatial coordination of industries leads to the positive correlation between the size, spacing, and industrial diversity of a city.   

 

 

SOCIAL MEDIA POLARISATION: Why the trolls often win

Yves Zenou interviewed by Tim Phillips, 09 August 2019

When does social media polarise opinion, and when does it bring us closer together? Yves Zenou tells Tim Phillips about a new economic model that shows us how affinity can become division, and why the trolls often win.



THE NOT SO SWEET SIDE OF SUGAR: Changing behaviour around food and physical activity

Rachel Griffith, 08 August 2019

Rachel Griffith, Director of the Institute for Fiscal Studies, is the fourth woman to feature in the CEPR/UBS Women in Economics Series. She sees her role as an academic not in terms of dictating what policy should be, but exploring mechanisms for achieving the goals that society sets.

Here she discusses how holistic policies are needed to counter the problems of obesity and poor nutrition, with the aim of changing peoples’ entire decision-making processes around food and physical activity.