This week from CEPR: February 13

Thursday, February 13, 2020

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 RECESSIONS
    Marco E. Terrones, Ayhan Kose, Naotaka Sugawara    
    CEPR DP No. 14397  09 February 2020 

    A new CEPR study by Marco Terrones, Ayhan Kose and Naotaka Sugawara sheds new light on the characteristics of global recessions with a focus on the 2009 downturn. Among the findings:

    • During each of the four global recessions highlighted in this study (1975, 1982, 1991 and 2009), annual real per capita global GDP contracted, and this contraction was accompanied by weakening of other key indicators of global economic activity. 
    • The duration of a typical global recession is about one year – which is also the average duration of national recessions.
    • The global recessions were highly synchronised internationally, with severe economic and financial disruptions in many countries around the world. 
    • Although the four global recessions coincided with recessions in the United States, not every US recession coincided with a global recession: in fact, the United States experienced six additional recessions during the period 1950-2019.
    • The 2009 global recession, set off by the global financial crisis, was by far the deepest and most synchronised of the four recessions. 
    • As the epicentre of the crisis, advanced economies felt the brunt of the recession. 
    • The expansion following the 2009 recession has been the weakest in the post-war period in advanced economies, as many of them have struggled to overcome the legacies of the crisis and structural weaknesses in demand. 
    • In contrast, most emerging market and developing economies weathered the 2009 global recession relatively well and delivered a stronger recovery than after previous global recessions.
    • The long-term forecasts for global GDP growth have steadily declined since the 2009 recession, from 3.3% in 2008 to 2.5% in 2019. These downgrades reflect not just persistently mediocre growth outturns in many countries but also protracted weakness in the fundamental drivers of growth, including productivity and investment. 

    Figure 12: Global growth forecasts

    Sources: Consensus Economics, World Bank. Note: Panel A shows differences in growth forecasts for current years as of December of the year and those made a year ago, in percentage points. The sample includes 85 countries, consisting of 33 advanced economies and 52 EMDEs, weighted by GDP in US dollars. In Panel B, the horizontal axis refers to the year of consensus forecast surveys.


    • ASIA'S EMERGENCE IN GLOBAL BEVERAGE MARKETS: The rise of wine   

    ASIA'S EMERGENCE IN GLOBAL BEVERAGE MARKETS: The rise of wine 
    Kym Anderson   
    CEPR DP No. 14389  05 February 2020

    A new CEPR study by Kym Anderson examines recent trends in Asia’s growing consumption, importation and production of alcohol, and draws on these findings to project possible future global beverage market developments. Among the findings:   

    • Alcohol consumption has been growing more rapidly in Asia than in the rest of the world, more than doubling since 1998 and raising the region’s share of global alcohol expenditure from one-fifth to one-third. 
    • Asia’s mix of alcohol consumption has converged on the global average mix, growing fastest for wine.
    • Wine’s share of alcohol consumption in Asia is rising in all Asian economies, but has yet to reach 4% in any of them.
    • Within Asia, it is the more affluent economies of East Asia where the per capita level of and growth in wine consumption is greatest.
    • China is dominating the growth in Asia’s total wine consumption, raising its share from half in 2000 to more than three-quarters in 2018 – while India’s wine consumption remains less than one-seventieth that of China’s.
    • Asia’s wine grape production is limited mostly to China, where wine production has been expanding slower than wine consumption and has recently declined.
    • Imports account in volume terms for barely 2% of Asia’s beer consumption and 4% of its spirits consumption, but for almost 100% of its wine consumption (except in China where it had slumped to 40% by 2018 and Japan where it has averaged 6%), such that the annual value of Asia’s wine imports now exceeds that of spirits or beer imports.
    • The average price of Asia’s wine imports is about twice the global average.
    • China dominates Asia’s wine imports, accounting for two-thirds of its volume and half its value in 2018.
    • France and Australia are the leading exporters of wine to China in value terms, with Chile and occasionally Spain also being important in volume terms.
    • Bilateral free trade agreements have influenced the sources of Asia’s wine imports over recent years.
    • China’s shares of global consumption of all three alcohols are projected to be around 2 percentage points higher in 2025 than in 2016-18, and the rest of Asia’s about half a percentage point higher.

    Figure 6: Value of net imports of beer, spirits and wine, Asia, 1995 to 2017 (US$ billion)

      

    Source: United Nations (2019). 


    • SOCIAL GROUPS AND THE EFFECTIVENESS OF PROTESTS 

    SOCIAL GROUPS AND THE EFFECTIVENESS OF PROTESTS
    Marco Battaglini, Rebecca Morton, Eleonora Patacchini   
    CEPR DP No. 14385 05 February 2020

    A new CEPR study by Marco Battaglini, Rebecca Morton and Eleonora Patacchini finds that social media can play an important role in protests beyond simply a way in which citizens can coordinate their actions. Indeed, they find, the information aggregation and the coordination motives behind public protests are intimately connected and cannot be conceptually separated. Among the findings: 

    • Information sharing can lead to individuals making protest decisions based on the experiences of the majority in their group rather than simply their own personal experiences. 
    • In this way, information sharing within social groups can result in more informationally efficient protest choices by citizens and to more efficient public policies as a consequence.
    • Banning social media use during times of unrest may not only limit the ability of protesters to coordinate their actions but also the extent that their actions convey useful information to policy-makers.
    • When conflict is high, policy-makers are significantly less likely to make efficient choices and protests provide less information to policy-makers.
    • Information sharing in social groups significantly affects citizens' protest decisions and as a consequence mitigates the effects of high conflict, leading to greater efficiency in policy-makers' choices. 


    A NEW APPROACH TO CLOSING THE WORKPLACE GENDER GAP 

    Joyce He, Sonia Kang, Nicola Lacetera   
    08 February 2020

    Many work environments require their employees to apply for promotions, a process that results in fewer women opting to compete. Writing at Vox, Joyce He and colleagues offer an alternative change promotion scheme – a default where everyone is considered but has the option to ‘opt out’ – which could help close the gender gap in applications to compete for promotions and potentially save millions on ineffective training.  


     

    THE NATIVE-IMMIGRANT GAP IN WEALTH AND FINANCIAL DECISIONS: Evidence from Italy 

    Graziella Bertocchi, Marianna Brunetti, Anzelika Zaiceva    
    07 February 2020

    Immigrants find themselves worse-off both in terms of wealth holdings and allocation across assets compared with native households. The consequences are potentially sizeable for the immigrants' wellbeing. They inhibit integration and have consequences for the country’s financial markets.

    These are the central findings of a new study by Graziella Bertocchi and colleagues, using evidence from Italy. The authors suggest that as the share of immigrant households grows across most European countries, these gaps are likely to imply visible consequences for financial markets, the macroeconomic context and social policies. 


     

    BANK INTERMEDIATION WHEN INTEREST RATES ARE VERY LOW FOR LONG

    Michael Brei, Claudio Borio, Leonardo Gambacorta   
    07 February 2020

    A study Claudio Borio and colleagues at the Bank for International Settlements sheds light on how banks adjust their business in a very low interest rate environment. The results are mixed news for financial stability and for banks’ capacity to support economic activity through lending. 

    The study shows a shift to less risky portfolios, combined with higher capitalisation, strengthening banks’ resilience and lending capacity. But lower profitability due to the lower net interest margins may make banks more vulnerable and less able to provide loans in the longer term.


     

    HOW SERVICES BOOST GOODS EXPORTS: Evidence from Belgium 

    Andrea Ariu, Florian Mayneris, Mathieu Parenti    
    06 February 2020

    The most successful manufacturing firms thrive through selling services that are associated with their goods. Services increase the appeal of a firm’s products, thus allowing it to sell more and at higher prices in international markets. Considering goods and services separately in trade agreement negotiations is likely to miss part of the business and welfare gains and losses.

    These are the main findings of a new study by Andrea Ariu and colleagues using data from Belgian exporters. 


     

    LONG-TERM GROWTH FORECASTS BY ECONOMIC RESEARCHERS ARE BIASED UPWARDS AND INVOLVE SIGNIFICANT UNCERTAINTY: Evidence from Japan

    Masayuki Morikawa   
    10 February 2020

    Do academic researchers in economics make accurate long-term growth forecasts? A study by Masayuki Morikawa uses evidence from Japan to show that forecasts tend to be biased upwards and involve significant uncertainty, even for researchers specialising in macroeconomics or economic growth.


     

    A ROADMAP FOR DIGITAL-LED ECONOMIC DEVELOPMENT

    Toby Phillips    
    05 February 2020


     

    In richer developed nations, almost 90% of people are online, but this share is less than 20% in the least developed countries. The Pathways for Prosperity Commission’s final report proposes a ‘digital compact’, with countries working towards a shared vision for the future crafted with the input of industry, civil society and other national leaders. The study offers pragmatic suggestions to help developing countries make the most of technological change. 


     

    INADEQUATE DATA PROTECTION: A threat to economic and national security

    Susan Ariel Aaronson    
    05 February 2020

    Individuals, citizens and firms have become increasingly dependent on data-driven services such as artificial intelligence and apps, and the same is true of defence and national security officials. A column on Vox argues that the US failure to develop adequate governance for how firms use and monetise data affects national security in many ways. The author also examines specific examples of the misuse of data and assesses the responses by the United States and the EU. 


     

    HOW TO DEAL WITH BIG TECH MERGERS

    Massimo Motta, Martin Peitz   
    11 February 2020

    Big Tech mergers increasingly require regulatory authorities with enhanced toolboxes. To ensure genuine competition in the digital marketplace, novel theories of harm will need to be elaborated and applied. A study by Massimo Motta and Martin Peitz provides guidance on these issues, arguing that to investigate Big Tech mergers properly, competition law will need to restructure the standards and burden of proof.


     

    MORE (OR LESS) ECONOMIC LIMITS OF THE BLOCKCHAIN

    Joshua Gans, Neil Gandal    
    06 February 2020

    Cryptocurrencies such as Bitcoin rely on a ‘proof of work’ scheme to allow nodes in the network to ‘agree’ to append a block of transactions to the blockchain, but this scheme requires real resources (a cost) from the node. 

    A study by Joshua Gans and Neil Gandal examines an alternative consensus mechanism in the form of ‘proof of stake’ protocols. Their results show that an economically sustainable network will involve the same cost, regardless of whether it is proof of work or proof of stake. The study also suggests that permissioned networks will not be able to economise on costs relative to permissionless networks.


     

    A ZERO PRICE CAN BE SPECIAL

    Joshua Gans   
    10 February 2020

    Economists have argued that zero is just another price, and not a lower bound. Writing at Vox, Joshua Gans describes a framework in which a monopoly has negative net costs, and can price below zero if it chooses. In these markets, setting a negative price would reduce the monopolist's profit. His model additionally implies that the assumption that more competition always improves welfare is false. 


    LEVERAGE RISK AND INVESTMENT: The case of gold clauses in the 1930s

    Joao Gomes, Mete Kilic, Sebastien Plante   
    09 February 2020

    A joint resolution of the US Congress in June 1933 invalidated gold clauses, which allowed for repayment in gold as well as paper, in public as well as private debt contracts. A series of lawsuits ensued, but in 1935 a complex and confused ruling by the Supreme Court determined that the action by Congress, while unconstitutional, could be maintained. 

    Writing at Vox, Joao Gomes and colleagues argue that about one-third of the dramatic drop in the aggregate investment of public firms over 1933 and 1934 is explained by these events. By 1936, nearly all of the, now positive, net investment is accounted for by the elimination of these leverage risks to corporate balance sheets. 


    CUTTING SOCIAL LINKS BETWEEN ACTIVE OFFENDERS DOES NOT NECESSARILY LEAD TO A DECREASE IN THE AGGREGATE LEVEL OF CRIME: Counter-intuitive findings from game theory

    Theodoros Rapanos, Marc Sommer, Yves Zenou     
    06 February 2020

    Information and social norms affect people’s decisions whether to commit crimes and perceived risks and costs of being caught. A study by Marc Sommer and colleagues finds that surprisingly, severing these information links – even between relatively active offenders – does not necessarily lead to a decrease in the aggregate level of crime. 



    CENTRAL BANKS AND REGIONAL INEQUALITY

    Andrew Haldane interviewed by Tim Phillips, 07 February 2019

    Is regional inequality a problem that central banks should worry about? Andy Haldane of the Bank of England tells Tim Phillips why he thinks the answer is yes: but why we also need to think about what, and how, we measure.



    THE LOCAL IMPACTS OF GLOBAL INVESTMENT FLOWS

    Riccardo Crescenzi, Arnaud Dyevre and Roberto Ganau   

    While policy-makers typically go the extra mile in an effort to attract global investments, they often hold serious misconceptions about the impact of multinationals. 
    Riccardo Crescenzi, Arnaud Dyevre and Roberto Ganau from the Global Investment and Local Development research team at LSE present some new evidence on the impacts - both positive and negative - of foreign direct investment on local economies. Understanding this impact is key to uncovering the mechanisms of knowledge diffusion, global cooperation and local growth.