This week from CEPR: February 25

Thursday, February 25, 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


    • NEW FINDINGS ON THE LINK BETWEEN PARENTAL AGE AND BIRTH DEFECTS: Evidence from Norway

    Parental Age and Birth Defects: A Sibling Study
    Hans K Hvide, Julian Johnsen, Kjell G Salvanes
    CEPR DP No. 15836  | February 2021

    The age at which parents are having children has increased substantially across the Western world over the last few decades, with many highlighting this trend as a potential risk factor for birth disorders. New findings suggest the existing literature may have underestimated the negative effects of parental aging on adverse offspring outcomes and there appears to be a strong and convex causal effect of parental aging on the increased risk of children’s adverse outcomes.

    A study by Hans Hvide, Julian Johnsen and Kjell Salvanes uses data covering all births in Norway over 31 years and employs a sibling design, to examine the effect of parental aging on birth defects. Among the findings: 

    • Increased parental age is strongly associated with the increased risk of offspring birth defects and stillbirth.
    • Results are similar for low birth weight and preterm birth.
    • The effect of parental aging on adverse birth outcomes appears to be convex: while the 40–44 parental age category had an increased risk relative to the benchmark group, it was vastly exceeded by the risk for the 45–49 parental age category.
    • Methods applied by the existing literature may have led to a large underestimation of the effects of parental aging on offspring birth defects and stillbirth.

    • SCHOOL-CLOSURE DURING COVID-19 IS COUNTERPRODUCTIVE AND SELF-DEFEATING: Evidence from the Netherlands   

    SCHOOL-CLOSURE IS COUNTERPRODUCTIVE AND SELF-DEFEATING
    Coen N. Teulings      
    Issue 69 Covid Economics | 18 February 2021

    The Netherlands has recently closed down primary and secondary education in response to the covid-19 pandemic. Using a SIR model for the Netherlands, a study by Coen Teulings, featured in CEPR’s Covid Economics, shows that school closures during the Covid-19 pandemic may actually be counter-productive (as it increases future vulnerability to infection) and hard to reverse (since the increased vulnerability demands continuation). Among the findings:

    • Though the rise of B117 (‘the British version’) has been used to argue for school-closure, B117 increases the negative effects of school-closure. 
    • School-closure has been based on a misunderstanding of the dynamics in a multi-group SIR model. 
    • Immunity by prior infection is shown to provide a larger contribution to ending the pandemic than vaccination. 
    • A cost-benefit analysis shows school-closure to be extremely costly. 
    • Behavioural economics explains why decision making and the public debate are so distorted, to the detriment of youngsters.

    • THE ECONOMIC AND INSTITUTIONAL CONSEQUENCES OF POPULISM IN LATIN AMERICA 

    ECONOMIC AND INSTITUTIONAL CONSEQUENCES OF POPULISM
    Nicolas Magud, Antonio Spilimbergo
    CEPR DP No. 15824 | February 2021

    Populist regimes in Latin America are found to weaken institutions and macroeconomic (fiscal, monetary, and external) indicators, resulting in crises and worse income distribution. The duration of populist regimes depends on favourable external conditions. In particular, the commodity super-cycle of the 2000s and easy financing conditions allowed populists to stay in power longer than in past episodes.

    These are among the findings of a new study by Nicolas Magud and Antonio Spilimbergo, which analyses the institutional and economic consequences of populism in Latin America in the last 50 years. Among the findings:

    • The recent wave of populists in power coincides with a windfall coming from favourable external conditions (namely, high commodity prices and easy financing conditions). In turn, this has helped to extend their duration in power compared to past events.
    • Populist governments weaken a country’s institutions, including democratic accountability, property rights, and business freedom. This effect persists even after populist regimes are gone and represents one of the negative long-run consequences of such regimes. 
    • Under populist governments the size of the public sector increases, the fiscal balance deteriorates, an inflation tax is often used, the domestic currency appreciates in real terms, and the external current account deficit increases (or the surplus falls). 
    • Populist policies frequently result in a domestic boom that eventually collapses as the economy adjust to its fundamentals. However, populist regimes do not seem to have a differential effect on real GDP growth when compared with non-populists. 
    • The distribution of income worsens in the aftermath of populist economic policies. 
    • Beneficial external conditions enable populist governments to loosen the public purse in order to pursue populists’ redistributive policies. Populist leaders also weaken some institutions to help achieve these objectives. 
    • But usually, the gains from populist policies result in an economic crisis. The policies that Latin American populist leaders implemented have not been sustainable.


    FISCAL PLANS IN EUROPE: No divergence but no coordination

    Vincent Aussilloux, Adam Baïz, Matthieu Garrigue, Philippe Martin, Dimitris Mavridis        
    19 February 2021

    Writing at Vox, CEPR’s Vice President Philippe Martin and colleagues present a preliminary analysis of different European nations’ policy responses to the Covid-19 pandemic so far, focusing on which measures have been deployed to address each side of the economic shock and where a ‘mixed approach’ has been taken to work in tandem. At a time where coordinated action may be needed, there is a concerning level of inconsistency in strategy: 

    • UK and Dutch Covid-19 recovery plans are overwhelmingly demand-driven. 
    • Spain, Germany & France have fiscal plans more balanced between supply and demand measures.
    • UK recovery measures (1.1% of GDP) are much smaller than those of its European neighbours.
     

    SHAPING AFRICA’S POST-COVID RECOVERY: A new eBook

    Rabah Arezki, Simeon Djankov, Ugo Panizza                  
    23 February 2021

    While most African countries have been largely spared so far from the direct health effect of the Covid-19 pandemic, the continent’s economy has been significantly hurt by the economic consequences. This is particularly concerning given Africa’s high prevalence of extreme poverty.

    A new CEPR/FGM eBook edited by Rabah Arezki, Simeon Djankov and Ugo Panizza focuses on business and household responses to the Covid-19 crisis in Africa, as well as access to international finance, patterns in international borrowing, and country-specific experiences during the pandemic. 


    BOOSTING WOMEN’S LABOUR-FORCE PARTICIPATION IS KEY TO LIFTING LONG-TERM GROWTH

    Stephanie Kelly, Abigail Watt, Nancy Hardie, Jeremy Lawson              
    18 February 2021

    Making more efficient use of women in the labour market creates an opportunity to boost potential growth into the future. A study by economists from the Aberdeen Standard Investments Research Institute uses data from a wide sample of countries to show that that governments looking to maximise growth should prioritise: 

    • Paternity leave legislation 
    • Tax wedges 
    • Employment protections. 

    Policies targeting gender parity should also focus not only on women’s labour-supply decisions but on men’s behaviour as well. The Covid-19 experience has brought the risks of the current balance into sharp relief: Unequal caring responsibilities and over-representation in less secure work in the service sector has resulted in more women than men leaving employment. 


    THE IMPORTANCE OF SUBNATIONAL GOVERNMENTS FOR ECONOMIC DEVELOPMENT IN AFRICA

    Yohan Iddawela, Neil Lee, Andrés Rodríguez-Pose                
    21 February 2021

    New research by Yohan Iddawela, Neil Lee and Andrés Rodríguez-Pose demonstrates the crucial role of sub-national governments in driving economic activity within African regions. They find that countries with better local and regional governments in Africa can end up on the right side of the development divide. Those with weak local government quality will struggle to propel economic development.

    For policy, these results highlight the importance of building capacity, increasing voice, transparency and accountability, and stemming corruption at a sub-national level. Focusing on these issues at the national level does not suffice. 


    PANDEMICS SWING ELECTIONS, BUT NOT AS MUCH AS YOU THINK: Evidence from the 1918 influenza pandemic

    Leticia Abad, Noel Maurer                  
    19 February 2021

    Will the Covid-19 pandemic affect the outcomes of future elections? Writing at Vox, Leticia Abad and Noel Maurer use historical data from the 1918 influenza pandemic to show that while Flu deaths did have a small effect on elections in the United States – voters did indeed blame incumbent parties for bad health outcomes, it appears voters cared about other things much more.  


    THE PANDEMIC AND GREECE’S DEBT

    George Alogoskoufis            
    23 February 2021


     

    Greece’s debt usually rises in periods of recession and stagnation and is only stabilised in periods of recovery and growth. Writing at Vox, George Alogoskoufis, former Greek Minister of Economy and Finance, outlines three potential methods for dealing with Greece’s exorbitantly high public debt after the crisis: 

    1. Increases in taxation/reductions of government spending. 
    2. Debt restructuring and (partial) debt write-offs. 
    3. A policy of ‘gradual adjustment’ in which economic growth helps the debt burden shrink relative to GDP over time.

    The precise policy mix will involve significant coordination among euro area countries, but Greece must also implement domestic reforms to facilitate a dynamic and sustainable recovery. It is important that the Greek government does not abandon the reformist growth agenda on the basis of which it was elected in June 2019 because of the pandemic. 


    JIM CROW IN THE SADDLE: The expulsion of African American jockeys from American racing

    Michael Leeds, Hugh Rockoff              
    22 February 2021

    African American jockeys were once a common feature of horseracing in the US. While the barriers have been lifted in recent years, Black jockeys have been unable to approach the level of performance that had once been commonplace, and horseracing has become another sad example of the legacy of Jim Crow.

    This study by Michael Leeds and Hugh Rockoff uses historical sources and statistical analysis to document the exclusion of Black jockeys in the late 19th and early 20th centuries, despite their proven talent. 


    WHY THE UNITED STATES CURRENTLY HAS THE BEST RESEARCH UNIVERSITIES: Incentives, resources, and virtuous circles

    W. Bentley MacLeod, Miguel Urquiola                 
    22 February 2021

    In 1875, the United States had none of the world’s leading research universities; today, it accounts for the majority of the top-ranked institutions. Writing at Vox, W. Bentley MacLeod and Miguel Urquiola argues that US universities were well on their way to leadership before WWII, which is often quoted as the source of this reversal, and highlights reforms that began after the Civil War and enhanced the incentives and resources the system directs at research. The story is not one of success by design, but the consequence of competition and the confluence of a number of incentive mechanism that together help explain current performance.


    REFUGEES AND RESPONSIBILITY-SHARING: An emerging trend in the face of record numbers of forcibly displaced people

    Xavier Devictor, Quy-Toan Do, Andrei Levchenko                  
    20 February 2021

    While most refugees remain in a country neighbouring theirs, recent decades have seen a trend towards a more globalised and far-reaching refugee network, and a gradual improvement in the sharing of refugee-hosting responsibilities across countries.

    This study by Xavier Devictor, Quy-Toan Do and Andrei Levchenko examines the spatial distribution of refugees and its evolution over time, using data on worldwide bilateral refugee stocks from 1987-2017 compiled by the United Nations High Commissioner for Refugees. 


    HOW TO HELP SAVE HUMANITY’S FUTURE: Three proposed changes to the regulatory framework for renewable energy

    Avinash Persaud           
    23 February 2021

    The switch to renewable energies is necessary for humanity’s future, but it is currently too slow. For developing countries, the critical obstacle is the pricing, ownership, land-use and approval processes renewable projects have to go through. Writing at Vox, Avinash Persaud argues that to bring dividends for sunnier, developing countries and provide more projects for green investors, countries should:

    1. Streamline the approval process, 
    2. Broaden the ownership of assets through mandated initial public offerings and small-investor allocations while supporting big foreign investors in the short-run, and 
    3. Offer an attractive feed-in tariff that predictably ratchets down in favour of consumers once investors reach their return threshold.

    HOW THE GEOGRAPHY OF INNOVATION HAS CHANGED OVER TIME: Evidence from the United States

    Mike Andrews, Alexander Whalley             
    20 February 2021

    How has the geography of innovation changed over time? Writing at Vox, W. Bentley MacLeod and Miguel Urquiola use data on locations of all US patents between 1836-2016 to show that while concentration was as high as it is today in the late 1860s, it declined and remained at much lower levels for most of 20th century, indicating substantial turnover in the identities of top inventing places.

    The findings suggest that the location of invention is not fixed by geography or historical accident, and that policy may have a role to play in promoting local or regional innovation.


    HOW MUCH CAPITAL SHOULD BANKS HOLD? Lesson for future crises 

    Caterina Mendicino, Kalin Nikolov, Juan Rubio-Ramirez, Javier Suarez, Dominik Supera                  
    24 February 2021

    A study by Javier Suarez and colleagues assesses how much capital would be optimal for banks to hold, taking into consideration the risk of banking crises driven by borrower defaults. It finds that capital requirements of around 15% provide the optimal trade-off between lowering the frequency of banking crises caused by borrower defaults and maintaining the availability of credit in normal times. While the exact figure depends on a number of assumptions, it is higher than both the Basel III minimum and the optimum implied by macroeconomic frameworks that underestimate or neglect the impact of borrower default on bank solvency.


    INSTITUTIONS AND POWER STRUCTURE: Imperial China and feudal Europe compared

    Ruixue Jia, Gérard Roland, Yang Xie                 
    21 February 2021

    Property rights and the rule of law were weaker in Imperial China than in premodern Europe. And yet, ordinary people in Imperial China had more access to elite status than their European counterparts. What explains this seeming contradiction?

    A study by Ruixue Jia, Gérard Roland and Yang Xie makes sense of this by employing a theory of power structures in which a more symmetric relationship between elites and ordinary people stabilizes autocratic rule. If a ruler’s power is absolute, this stabilising effect will be stronger, and the ruler’s incentive to promote such symmetry will be greater. 



    HOW CAN WE PROTECT LOW INCOME COUNTRIES AGAINST THE NEXT PANDEMIC? Patent pools for generic drugs

    Mark Schankerman interviewed by Tim Phillips, 19 February 2021

    Diffusion of new drugs is painfully slow in low-income countries. Mark Schankerman tells Tim Phillips about how patent pools accelerate the process, and how we could still do a better job of licensing life-saving medicines.


    HOW AFRICA CAN RECOVER FROM COVID-19

    Simeon Djankov, Ugo Panizza interviewed by Tim Phillips, 23 February 2021

    Africa’s citizens have so far mostly been spared the direct health consequences of the pandemic, but many of its economies are on life support. Ugo Panizza and Simeon Djankov, two of the editors of a new CEPR ebook about Africa's recovery, talk to Tim Phillips about post-Covid debt, FDI, food security, and how it's in all our interests to step up and help.

    Download the free eBook, Shaping Africa’s Post-Covid Recovery, here.