This week from CEPR: December 02

Thursday, December 2, 2021

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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    • New Discussion Papers


    • HOW THE PRESSURES OF COVID CONTRIBUTED TOWARDS SOCIAL UNREST: Evidence from the United States        

    COVID-19 AND THE FORCES BEHIND SOCIAL UNREST
    Mario Lackner, Uwe Sunde, Rudolf Winter-Ebmer 
    CEPR DP No. 16756  | December 2021

    Looming existential threats and intensifying socio-economic and political divides led to the Covid-19 pandemic triggering increased social unrest by intensifying some of the root causes.

    This is a main findings of a new CEPR study by Mario Lackner, Uwe Sunde and Rudolf Winter-Ebmer, which provides evidence for a link between the Covid-19 pandemic and outbreaks of social unrest, as well as for the forces underlying this link. The authors use a unique combination of nationally representative survey data, event data on social unrest, and data on Covid-19 fatalities and unemployment at a weekly resolution to show that:  

    • Pandemic-related unemployment and Covid-19 fatalities intensified negative emotional stress, anxiety, and aggression.
    • It also increased negative perceptions of the state of the economy, and led to a deterioration of economic confidence among individuals.
    • These effects are largely unaffected by political polarisation, as reflected by party affiliation or alignment of party preferences with the party of the state governor. 
    • The prevalence of negative emotional stress, particularly in economically strained and politically polarised environments, was, in turn, associated with intensified social unrest as measured by political protests. No such link is found for economic perceptions.
    • These results potentially only capture the tip of the iceberg in terms of the social implications of the Covid-19 pandemic.

    Overall, the research shows that an increasing discontent with existing socio-economic living conditions might have been spurred by the consequences of Covid-19, with the result of an increasing prevalence of negative emotional stress, which is associated with greater social unrest.


    • ECONOMIC CONSEQUENCES OF THE DONBAS WAR AND THE ANNEXATION OF CRIMEA ON THE UKRAINIAN ECONOMY    

    PRODUCTION NETWORKS AND WAR
    Vasily Korovkin and Alexey Makarin        
    CEPR DP No. 16759  | December 2021

    A new CEPR study by Vasily Korovkin and Alexey Makarin examines how Ukraine's production network has been affected by the devastating conflict of the Donbas War and the annexation of Crimea. Using unique data on Ukrainian railway shipments, the research also uncovers several novel indirect effects of conflict on firms. Among the findings:

    1. There are substantial effects on interfirm trade – trade declines even between partners outside the conflict areas if one of them had traded with those areas before the start of the war. The magnitude of such second-degree effect of conflict is one-third of the first-degree effect. Ignoring this would lead to an underestimate of the total impact of conflict on trade by about 67%. 
    2. War induces sudden changes in the production-network structure that influence firm performance. Firms that became more central – after the conflict practically cut off certain regions from the rest of Ukraine – received a relative boost to their revenues and profits. 
    3. Finally, estimating counterfactuals in a production-network model, the research shows that production network adjustment would be able to mitigate 80% of the losses in median firm revenue after the initial network-destruction shock, keeping outside factors the same.

    Figure: Conflict Areas and Railroads in Ukraine

    Notes: The map highlights the areas directly affected by the Russia-Ukraine conflict and displays the geographic location of the railroads and the railway stations. The Crimean Peninsula, in black at the bottom of the map, was occupied by Russia in early 2014. The Donetsk People’s Republic (DPR) and Luhansk People’s Republic (LPR) territories, in black with a red rim to the right, have been the areas of armed conflict since April 2014. The rest of the Donbas region, in light grey, consists of the Donetsk and Luhansk provinces. Black lines indicate the Ukrainian railroads. Red dots represent the railway stations in our railway-shipments data.


    • HOW EDUCATION AND GDP DRIVE THE COVID-19 VACCINATION CAMPAIGN   

    HOW EDUCATION AND GDP DRIVE THE COVID-19 VACCINATION CAMPAIGN
    Toan Luu Duc Huynh, Vu M. Ngo, Phuc V. Nguyen, Huan H. Nguyen, Klaus F Zimmermann
    CEPR DP No. 16757 | December 2021

    The two most potent variables explaining the speed of the COVID-19 vaccination campaign are countries’ education level and GDP per capita. More democratic countries have an initial advantage. Infection intensities support early vaccinations.

    These are the main findings of a new CEPR study by Toan Luu Duc Huynh, Vu M. Ngo, Phuc V. Nguyen, Huan H. Nguyen and Klaus Zimmermann, which examines the factors and process contributing towards vaccination success. 

    The authors identify a variety of factors playing a crucial role including the availability of vaccines, including pandemic pressures, economic strength (GDP), educational development and political regimes. Examining the speed of vaccinations across countries, the research shows that initially authoritarian countries are slow in the vaccination process, while education is most relevant for scaling up the campaign and financial strength of the economies drive them to higher vaccination rates.



    THE EUROPEAN COMMISSION’S NEW ECONOMIC UNCERTAINTY INDICATOR

    Maarten Verwey, Christian Gayer, Andreas Reuter, Fiona Morice           
    29 November 2021

    Writing at Vox, Maarten Verwey, Christian Gayer, Andreas Reuter and Fiona Morice present the features of the European Commission’s new index for uncertainty in the economy, based on its EU-wide Programme of Business and Consumer Surveys, and its evolution in response to the COVID-19 pandemic and the stringency of the related restrictions. 

    The authors also compare the indicator to survey-based indicators of economic confidence, as well as to other existing uncertainty gauges, and offers a glimpse of the rich set of geographical, sectoral, and sub-sectoral breakdowns of the new data. 

     

    HOW CLIMATE CHANGE REALLOCATES CAPITAL AND LABOUR: New evidence from Brazil

    Christoph Albert, Paula Bustos, Jacopo Ponticelli              
    26 November 2021

    Using new data on extreme weather events in Brazil, a study by Christoph Albert, Paula Bustos and Jacopo Ponticelli shows that climate change has a significant impact on labour and capital reallocation across regions, sectors, and firms. 

    The research shows that long periods of excess dryness lead to the reallocation of capital and labour away from affected regions. Excess dryness over the last two decades has also changed the structure of the economy – not only in directly affected areas, but also in regions that were integrated with them via labour and capital markets.


    THE LIGHTS ARE OUT: Satellite data uncovers contractions in regional Chinese economic activity caused by US Tariffs 

    Davin Chor, Bingjing Li            
    25 November 2021

    A study by Davin Chor and Bingjing Li confirms that the tariffs enacted by the US on exports from China starting in 2018 had a negative impact on economic performance in the short run. The authors use satellite readings of night-time luminosity to show that that locations within China that were more exposed to the US tariffs experienced a larger decrease in night light intensity, pointing to a contraction in local economic activity. By contrast, exposure to China’s retaliatory tariffs appeared to have no significant effect on grid-level night lights. 


    THE 2021 SURGE IN INFLATION: A look at sticky prices

    Javier G. Gómez-Pineda, Juan Manuel Julio, Julián Roa-Rozo           
    28 November 2021

    Is current inflation here to stay? A study by Javier Gómez-Pineda, Juan Manuel Julio and Julián Roa-Rozo argues that sticky-price inflation, which focuses on components of the consumer price index with infrequent price changes, is particularly useful at the moment as it can help control for ongoing changes in the relative prices of goods and provides hints about future CPI inflation. In October 2021, monthly sticky-price inflation, partially corrected for base effects, was 5.3%. In turn, the CPI inflation forecast for October 2022 is 5.6% and highly uncertain.


    THE COVID-19 RECESSION IN FRANCE MAY BE OVER, BUT VIGILANCE IS KEY

    Laurent Ferrara, Valérie Mignon             
    30 November 2021

    Writing at Vox, Laurent Ferrara and Valérie Mignon discuss recent findings from the French business cycle dating committee, which show that the recession reached its trough in the second quarter of 2020. 

    Since the third quarter of 2020, the economy has been in a recovery phase, with the majority of commercial sectors experiencing an increase in activity. Nevertheless, past experiences suggest caution about future growth, especially regarding the policy support for economic activity. 


    AIR AND WATER POLLUTION ARE DECLINING BUT GREENHOUSE GAS EMISSIONS ARE NOT: Lessons from the last half century of US environmental policy

    Joseph S. Shapiro          
    02 December 2021


     

    Half a century has passed since the US enacted a slate of environmental legislation in the 1970s, including the Clean Air Act, Clean Water Act, and Safe Drinking Water Act. How effective have they been? 

    Writing at Vox, Joseph Shapiro shows that air and water pollution are declining but greenhouse gas emissions are not because CO2 has been targeted less by environmental policy. These trends appear to provide large net benefits to US society and using cost-effective market-based policies does not appear to have systematic implications for the equality of environmental outcomes.


    MARKETS VIEW ELECTORAL SUCCESS OF RIGHT-WING POPULIST PARTIES AS UNEQUIVOCALLY FAVOURABLE 

    Sebastian Stöckl, Martin Rode          
    30 November 2021

    Financial markets have shown contradictory reactions to the formation of populist administrations. Writing as part of the Vox debate on populism, Sebastian Stöckl and Martin Rode examine whether there is any systematic reason behind the radically different outcomes, using data for 331 elections in 41 EU and OECD countries. 

    The research shows that the immediate uncertainty introduced into financial markets by an increase in populist vote shares varies according to the populist host ideology. Markets are mostly suspicious of left-wing populism but view the electoral success of right-wing populist parties as unequivocally favourable, possibly because of the tendency for the political and economic elite to collude.


    WHAT DRIVES GENDER WAGE GAPS? New firm-level evidence from France

    Marco G. Palladino, Alexandra Roulet, Mark Stabile              
    07 December 2021

    Using French data from 1995 to 2015, a study by Marco Palladino, Alexandra Roulet and Mark Stabile finds that discrepancies in pay are driven largely by men and women working in different firms rather than similar men and women being paid differently at the same firm. Understanding why the share of the gender gap ascribed to firms persists over time and across cohorts remains an essential policy puzzle for further reducing wage disparities. 


    THE RECEPTION OF ECB COMMUNICATION AMONG EXPERTS AND NON-EXPERTS ON TWITTER

    Michael Ehrmann, Alena Wabitsch              
    29 November 2021

    Monetary policy issues are discussed on social media by experts and also increasingly by non-experts, presenting a challenge to central banks using social media to communicate with their target audiences. 

    A study by Michael Ehrmann and Alena Wabitsch finds that ECB-related tweets that offer more subjective views and tweets expressed in stronger language are more likely to get retweeted, thereby shaping the tone of the virtual discussions. The research shows that both experts and non-experts are responsive to ECB communication – in most cases, information is simply relayed on Twitter, but there are also instances of controversial discussions being triggered. 


    HOW EURO AREA CONSUMERS ADJUST INFLATION EXPECTATIONS DURING COVID-19

    Ewa Stanisławska, Maritta Paloviita         
    26 November 2021

    Covid-19 contributed to an increase in consumer inflation expectations, but greater trust in the ECB is associated with more muted responsiveness of inflation expectations.

    Using the new ECB Consumer Expectations Survey conducted in the middle of the Covid-19 pandemic, a study by Ewa Stanisławska and Maritta Paloviita explores how consumers adjust their medium-term inflation views in response to changes in short-term inflation expectations and inflation perceptions. 



    COMING OUT IN AMERICA 

    Raquel Fernández, Sahar Parsa interviewed by Tim Phillips, 26 November 2021

    Two new papers pinpoint the election of 1992 as a turning point in the attitudes of Americans to same-sex relationships, and ask, what has caused this change? Raquel Fernandez and Sahar Parsa of NYU tell Tim Phillips about the complex relationship between political and social attitudes.

    Download the free Discussion Paper: Fernández, R and Parsa, S. 2021. 'Gay Politics Goes Mainstream: Democrats, Republicans, and Same-Sex Relationships'. CEPR



    PROFIT SHIFTING: The role of intangible assets

    Manthos Delis interviewed by Tim Phillips, 30 November 2021

    Many multinational firms shift profits to where they are taxed least. A new global database reveals which type of firms employ this accounting trick the most. Manthos Delis of Montpellier Business School and Fotis Delis of the University of Piraeus explain what can be done to discourage them.

    Read more about the research behind this video and download the Discussion Paper:
    Delis, M, Delis, F, Laeven, L and Ongena, S. 2021. 'Global Evidence on Profit Shifting: The Role of Intangible Assets'. London, Centre for Economic Policy Research.