This week from CEPR: February 7

Thursday, February 7, 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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    • ECONOMICS OF PARENTING: New insights on parenting styles, choice of neighbourhood and how children’s skills development

    The Economics of Parenting 
    Matthias Doepke, Giuseppe Sorrenti and Fabrizio Zilibotti 
    CEPR DP No. 13500

    Parenting decisions are among the most consequential choices people make throughout their lives – and they have become a booming field of economic research in recent years. A new CEPR study provides an overview of what the findings reveal about a range of topics, including parenting styles (authoritarian, permissive or somewhere in between), where families choose to live, how children develop skills and people’s fertility choices (whether, when and how many kids to have).

    Starting with the work of pioneers such as Gary Becker, economists have used the toolset of their discipline to understand what parents do and how parents’ actions affect their children. The findings of this body of research already play a crucial role in policy-making: for example, the observation that many important skills are acquired during the first years of life has led to calls for more support for high-quality day-care and pre-school, which is now being implemented in many places.

    As this example shows, the economics of parenting takes a central place in some major policy challenges. Rising inequality, increased segregation, low social mobility and more generally increased polarisation in society are trends confronting most industrialised countries.

    Figure 1: Inequality, Redistribution, and Intensive Parenting across Countries

    • GIRLS’ PERFORMANCE AT MATHEMATICS: The impact of family attitudes

    Born in the Family: Preferences for Boys and the Gender Gap in Math 
    Gaia Dossi, David Figlio, Paola Giuliano and Paola Sapienza
    CEPR DP No. 13504

    Girls who grow up in families with a preference for boys score three percentage points lower on mathematics tests compared with girls raised in other families. There are similarly strong effects in the correlations between girls’ performance in mathematics and maternal attitudes towards gender roles.

    These are the key findings of a CEPR study that analyses evidence from two different approaches and data sources: nine birth cohorts of Florida-native children; and the US National Longitudinal Survey of Youth. The researchers conclude that socialisation at home can explain a non-trivial part of the observed gender disparities in mathematics performance. They also document that maternal attitudes on gender roles correlate with those of their children, supporting the hypothesis that preferences transmitted through the family influence children’s behaviour.

    • THE LOGIC OF FEAR: How media coverage of immigrant crimes stokes populism

    The Logic of Fear – Populism and Media Coverage of Immigrant Crimes 
    Mathieu Couttenier, Sophie Hatte, Mathias Thoenig and Stephanos Vlachos 
    CEPR DP No. 13496

    Media coverage of immigrant criminality had a big impact on voting in the November 2009 ‘minaret ban’ referendum in Switzerland, according to CEPR research. Counterfactual simulations show that under a law forbidding newspapers to disclose a perpetrator’s nationality, the vote in favour of the ban would have decreased by five percentage points (from 57.6% to 52.6%).

    The campaign to ban the minaret, successfully led by the populist Swiss People’s Party, played aggressively on fears of Muslim immigration and linked Islam with terrorism and violence. Combining an exhaustive violent crime detection dataset with detailed information on crime coverage from 12 newspapers, the new study quantifies the extent of pre-vote media bias in the coverage of migrant criminality.

    Figure A1.1: Crime concern in European populist parties’ rhetoric

    Source: Volkens et al. (2015a). EU countries 2005-2015. Share of quasi-sentences (% of total words count) spent by major parties on different topics. Notes: LHS: Most prominent topics in the political manifestos of parties classified as Nationalist. RHS: Mentions of "Law and Order" in political manifestos across the five largest party types

    • GLOBAL EFFECTS OF A US-CHINA TRADE WAR: New evidence of gains for Europe but big global losses

    The Global Macroeconomics of a Trade War: The EAGLE Model on the US-China Trade Conflict 
    Wilko Bolt, Kostas Mavromatis and Sweder van Wijnbergen 
    CEPR DP No. 13495

    A new CEPR study examines the global macroeconomic effects of introducing US tariffs against Chinese imports into the United States, and subsequently Chinese tariffs against US imports into China, consistent with recent trade policies by the two countries’ governments. The results show that a unilateral tariff from the United States against China dampens US exports but global output contracts. Global output contracts even further after China retaliates. 

    The euro area benefits from this trade war, the research shows. These European ‘trade diversion’ benefits are caused by cheaper imports from China and improved competitiveness in the United States. As price stickiness in the export sector in each region increases, the negative effects of tariffs in the United States and China are mitigated, but the positive effects in the euro area are then also dampened.


    Intergenerational Mobility in Africa 
    Alberto Alesina, Sebastian Hohmann, Stelios Michalopoulos and Elias Papaioannou 
    CEPR DP No. 13497

    A new CEPR study examines intergenerational mobility in educational attainment in Africa since independence. Analysing census data on more than 14 million individuals across 26 countries, the research team looks at the relationship between parents’ and children’s educational outcomes to explore where in Africa can be described as the land of educational opportunity.

    First, the researchers map and characterise the geography of intergenerational mobility. They find substantial variation both across and within African countries with differences in the literacy of the ‘old generation’ being the strongest correlate of mobility. Intergenerational inertia is stronger for rural households compared with urban ones, and it is present for both boys and girls.

    Second, the study explores the correlates of mobility across more than 2,800 regions. Colonial investments in the transport network and missionary activity are associated with upward mobility. Mobility is also higher in regions close to the coast and national capitals as well as in rugged areas without malaria. Upward mobility is higher and downward mobility is lower in regions that were more developed at independence, with higher urbanisation and employment in services and manufacturing.

    Third, the researchers identify the effects of regions on educational mobility by exploiting within-family variation from children whose families moved during primary school age. Boys and (especially) girls whose families move to regions with higher upward mobility are much more likely to complete primary schooling when the move takes place before the age of 12 compared with their older siblings. 

    Figure 3: Pan-Africa: District-level estimates of Intergenerational Mobility, individuals aged 14-18

    GENTRIFICATION AND PIONEER BUSINESSES: Evidence from New York and Philadelphia

    Kristian Behrens, Brahim Boualam, Julien Martin, Florian Mayneris
    31 January 2019

    The likelihood of a poor neighbourhood gentrifying is raised by the presence of a small group of about 20 industries mostly linked to cultural, recreational and creative activities. That is the central finding of a CEPR study by Kristian Behrens and colleagues of gentrification in New York and Philadelphia between 1990 and 2010.

    Urban planners are increasingly willing to adopt policies to temper neighbourhood changes and to assist potential losers from these changes, but how can future spots of gentrification be anticipated? This study provides evidence on the micro-geographical scale of the process and the key role that businesses play in it.


    Çağatay Bircan
    31 January 2019

    The ownership structure of plants acquired by multinationals has a significant impact on their productivity, according to research by Cagatay Bircan. Physical efficiency gains and reductions in price are much higher in the case of majority-owned affiliates. 

    Evidence is mixed on the effects of multinational activity on productivity and competitiveness in host economies. This study provides new evidence that multinationals’ productivity effects may be previously under-estimated. The results suggest that the ownership structure of multinationals and foreign acquisitions play an important role in driving aggregate productivity growth.


    Jan Stráský, Guillaume Claveres
    28 January 2019

    A European fiscal capacity can avoid permanent transfers and improve stabilisation, according to the latest contribution to the VoxEU debate on euro area reform. The authors argue that an unemployment reinsurance scheme could be designed in such a way that it would benefit all members of the currency area and would not lead to permanent transfers among countries.

    Calls to complement national automatic stabilisers and financial integration in the euro area with a common fiscal instrument have provoked a mixed response. Jan Stráský and Guillaume Claveres show that fiscal risk-sharing brings an additional layer of stabilisation compared to national stabilisers, particularly when monetary policy is constrained by the effective zero lower bound for interest rates.


    Thomas N. Hubbard
    30 January 2019

    Harold Demsetz, who passed away in January 2019, was an enormously influential figure in industrial organisation, the economics of organisation, and law and economics. Writing on VoxEU, his friend and colleague Thomas Hubbard outlines some of his most influential ideas and characterises his thinking as rigorous, insightful and highly relevant to central problems in industrial organisation and business strategy today.


    Scott Baker, Lorenz Kueng, Leslie McGranahan, Brian T. Melzer
    30 January 2019

    During and after the Global Crisis, economists and policy-makers proposed a commitment to increase consumption taxes in the future as a way to shift consumption to the present. New research tests the impact of this ‘unconventional fiscal policy’ using data on car sales. The study by Scott Baker and colleagues finds that households respond dramatically to planned tax increases, but this depends on them having access to credit so they can bring forward their spending.

    THE ECONOMIC BOOST FROM DEEP-WATER PORTS: Trade and growth in the age of global value chains

    Carlo Altomonte, Laura Bonacorsi, Italo Colantone
    28 January 2019

    Creation of new deep-water ports around the world is likely to boost trade and growth, according to research by Carlo Altomonte and colleagues. Their study provides evidence on tripling the maximum size of container ships and the rapid expansion and positive growth effects of ‘global value chains’ over the period 1995-2007. 

    Amid Brexit and protectionist moves by President Trump, many observers are warning about the negative effects that a rise in trade barriers could have on growth. This study first highlights the important role of deep-water ports allowing countries to gain from trade. It then shows that becoming embedded in global value chains is a powerful determinant of growth, even if it implies that a growing share of gross exports represents value added that has been produced in foreign countries. 


    Guay Lim, Robert Dixon, Jan van Ours
    28 January 2019

    How do US labour market flows between employment and unemployment respond to changes in output growth? New CEPR research by Jan van Ours and colleagues provides evidence for the period between 1990 and 2017 of a stable but asymmetric relationship: changes are larger in contractionary periods than in expansionary ones, 

    The study notes that one version of Okun’s law specifies a relationship between the change in the unemployment rate and output growth. The researchers use US labour market flows data to investigate this relationship and find that the net flows between employment and unemployment are sensitive to changes in growth but respond differently to positive and negative changes.

    DEATH AND TAXES: Evidence from Colombia of how political violence shapes local fiscal institutions and state-building

    Rafael Ch, Jacob Shapiro, Abbey Steele, Juan F. Vargas
    29 January 2019

    Municipalities in Colombia affected by internal conflict have tax institutions consistent with the preferences of parties that have managed to inflict more violence in the past, according to research by Rafael Ch and colleagues on political violence, local fiscal institutions and state-building

    It is widely accepted that war between states can lead to increased fiscal capacity. Yet there is no similarly clear, historically consistent accounting of how civil wars have affected state capacity and tax revenues. Using recent evidence from Colombia, this study shows that internal armed conflict can help interest groups capture municipal institutions for their own private benefit, impeding state-building.

    PATIENTS’ CONTRIBUTION TO OVERUSE OF PRESCRIPTION DRUGS: Evidence from public health clinics in Mali

    Carolina Lopez, Anja Sautmann, Simone Schaner
    29 January 2019

    Heightened demand from patients sometimes pressures doctors into going against their own professional judgement and writing a prescription anyway. That is the conclusion of research by Carolina Lopez and colleagues, which provides evidence from malaria treatment at public health clinics in Mali.

    Healthcare systems around the world battle high rates of overtreatment. This study investigates the role of patient demand in this, using a randomised evaluation of malaria treatment at public health clinics in Mali. It finds no evidence of doctors attempting to increase treatment rates or intensity, but instead heightened demand from patients. In such situations, interventions that make it easier for doctors to resist patient demands could help sustain subsidies and reduce overtreatment.


    Andreas Fuster, Paul Goldsmith-Pinkham, Tarun Ramadorai, Ansgar Walther
    11 January 2019

    The use of machine learning in credit allocation should allow lenders to extend credit more effectively, but the shift from traditional to machine learning lending models may have important distributional effects for consumers. New research studies the effect of machine learning on mortgage lending in the United States.

    The study, summarised on VoxEU and the most read column in January 2019, finds that machine learning would offer lower rates to racial groups who were already at an advantage under the traditional model, but it would also benefit disadvantaged groups by enabling them to obtain a mortgage in the first place.


    Kevin O'Rourke interviewed by Tim Phillips
    1 February 2019

    Trade growth is slowing down. But is it, as the media and populist politicians claim, the end of globalisation? Kevin O’Rourke tells Tim Phillips how economic history can answer the question, and what we can learn from the history of global trade.