This week from CEPR: January 14

Thursday, January 14, 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


    • ZOOMSHOCK: The geography and local labour market consequences of working from home        

    ZOOMSHOCK: The geography and local labour market consequences of working from home
    Gianni De Fraja, Jesse Matheson, James Rockey 
    CEPR DP No. 15655  | January 2021

    The Covid-19 health crisis has led to a substantial increase in work done from home, which shifts economic activity across geographic space. This shift, referred to here as a ‘Zoomshock’, has important implications for local businesses and services; much of the clientele of restaurants, coffee bars, pubs, hair stylists, health clubs, and the like located near workplaces is transferred to establishments located near where people live.

    A new CEPR study by Gianni De Fraja, Jesse Matheson and James Rockey measures the impact of the Zoomshock for UK neighbourhoods. The research finds three important empirical facts:  

    1. First, the Zoomshock is large; many workers can work-from-home and live in a different neighbourhood than they work
    2. Second, the Zoomshock is very heterogeneous; economic activity is decreasing in productive city centres and increasing residential suburbs. The precise changes are often quite different in seemingly similar neighbourhoods
    3. Third, the Zoomshock moves workers away from neighbourhoods with a large supply of locally consumed services to neighbourhoods where the supply of these services is relatively scarce.

    Aid should focus on neighbourhoods which are experiencing the largest negative Zoomshocks. If a significant fraction of work continues to take place at home once public health restrictions are eased, then policy should encourage and facilitate businesses relocating to where there is demand.


    • THE GLOBALIZATION OF REFUGEE FLOWS AND CHANGING PARADIGMS OF RESPONSIBILITY-SHARING    

    THE GLOBALIZATION OF REFUGEE FLOWS
    Xavier Devictor, Quy-Toan Do, Andrei A. Levchenko       
    CEPR DP No. 15652  | January 2021

    The flow and distribution of refugees worldwide has changed in the last few decades. The share of refugees who move to further-away destinations, including OECD countries, has grown over time. Trends which bring a new dynamic to the debate on refugee responsibility-sharing.

     A new CEPR study by Xavier Devictor, Quy-Toan Do and Andrei Levchenko analyses the spatial distribution of refugees since 1980, and establishes several stylised facts about refugees today compared with past decades. Among the Findings:  

    1. Refugees still predominantly reside in developing countries neighbouring their country of origin
    2. The share of refugees who move to further-away destinations has been grown 
    3. Refugees are less likely to seek protection in a neighbouring country 
    4. Refugees are less geographically concentrated
    5. Refugees are more likely to reside in a high-income OECD country.

    As it explores the notion of responsibility-sharing, the challenge for the international community is to determine how such trends can be sustained, at a pace which is optimal from a protection perspective, but also taking into account economic and political considerations across all potential refugee-hosting countries.


    • POLICY SUPPORT FOR BUSINESSES DURING COVID: Inadequate, especially for vulnerable firms and countries   

    POLICIES TO SUPPORT BUSINESSES THROUGH THE COVID-19 SHOCK: A Firm Level Perspective
    Xavier Cirera, Marcio Cruz, Elwyn Davies, Arti Grover, Leonardo Iacovone, Jose Ernesto Lopez Cordova, Denis Medvedev, Franklin Okechukwu Maduko, Gaurav Nayyar, Santiago Reyes Ortega and Jesica Torres
    Issue 64 Covid Economics  | 13 January 2021

    While governments around the world have implemented a wide range of policy support measures, evidence on the reach of these policies, the alignment of measures with firm needs, and their targeting and effectiveness indicate substantial deficiencies, especially for the more vulnerable firms and countries.

    A new CEPR paper by Denis Medvedev and colleagues provides the most comprehensive assessment to date of these issues, focusing primarily on the developing economies. Relying on a novel dataset covering more than 120,000 firms in 60 countries, the study identifies mismatches between policies provided and policies most sought and provides some indicative evidence regarding mistargeting of policies and their effectiveness in addressing liquidity constraints and preventing layoffs. Among the findings:  

    • Policy support has been especially limited for the most vulnerable firms and countries 
    • Micro firms are about half as likely to access support as large firms
    • Smaller firms, especially those owned by women in sectors such hospitality, are facing some of the largest declines in sales and the most limited access to policy support
    • Firms in high-income countries are about five times more likely to receive public support than firms in low-incomes countries
    • Initial policy responses were limited as well as often being mistargeted 
      • Likely as a result of barriers to access support and lack of targeting capacity, with firms that did not experience shock or sales drop benefiting from support and firms experiencing large negative shocks not having access to public support
    • Policies such as credit and cash transfers appear to be helping firms address liquidity constraints while receiving wage subsidies seems to be associated with lower probability of firing workers

    The evidence provides some early guidance for policymakers on tailoring their Covid-19 business support packages and points to new directions in data and research efforts needed to guide policy responses. 



    WE HAVE BUILT THEM, AND PEOPLE WILL COME: A ‘bottom-up’ approach for COVID-19 vaccines

    Anita Shet, Baldeep K. Dhaliwal, David Bloom          
    08 January 2021

    A study by Anita Shet, Baldeep Dhaliwal and David Bloom argues that a ‘bottom-up’ approach to administering Covid-19 vaccines – where the community is a resource and an active partner, not just a passive recipient of services – is critical for rebuilding trust and addressing inequities. For a Covid-19 vaccine to gain public trust, we must communicate that the effort is not just about saving lives, but also about improving livelihoods. 

     

    THE PANDEMIC ENDGAME: Analysis of different scenarios of vaccination campaign speed and effectiveness

    Dirk Niepelt, Martín Gonzalez-Eiras             
    11 January 2021

    In the Covid-19 endgame, policymakers face one key question: will the pandemic end sooner rather than later? If yes, strict social distancing is likely to be optimal.

    A new study by Dirk Niepelt and Martín Gonzalez-Eiras argues that countries whose vaccination campaigns are proceeding quickly should impose a strict lockdown, while countries whose campaigns will not be completed within a few months should not impose a lockdown at all. In contrast, if the appearance of a cure is more ‘stochastic' – for example, if the virus mutates further or the vaccines turn out to be less effective than hoped – optimal policy calls for alternating between lockdowns and ‘inverse lockdowns’, with the latter stimulating social interaction.


    AIR POLLUTION POLICY SHOULD FOCUS ON THE MOST VULNERABLE PEOPLE, NOT JUST THE MOST POLLUTED PLACES

    Tatyana Deryugina, Nolan Miller, David Molitor, Julian Reif           
    13 January 2021

    A shift in focus is needed from targeting the most polluted places to serving the most vulnerable people. A study by Tatyana Deryugina, Nolan Miller, David Molitor and Julian Reif shows that basing air quality regulations on pollution levels may be less valuable than reducing air pollution in regions with vulnerable populations. Programmes that reduce poverty or improve access to health care may also lessen the recipients’ susceptibility to acute pollution exposure.


    TRADE POLICY UNCERTAINTY IS HAMPERING ECONOMIC ACTIVITY 

    Ingo Borchert, Mattia Di Ubaldo          
    11 January 2021

    Developing countries obtain non-reciprocal tariff reductions from many industrialised countries through Generalised Systems of Preferences, but the uncertainty surrounding the continuation of preferential treatment is likely to undermine the schemes’ effectiveness.

    A study by Ingo Borchert and Mattia Di Ubaldo studies the 2014 reform of the EU’s Generalised System of Preferences, which removed the uncertainty on preferences for a subset of beneficiary countries. The results show that the removal of uncertainty led to an increase in EU imports from affected countries by about 45% without any changes in other market access conditions. This average trade impact is driven by country-sector pairs that are most exposed to preferences uncertainty prior to the reform, for which trade increased by over 70%.


    EURO AREA RISK-SHARING DURING THE COVID-19 CRISIS

    Alessandro Giovannini, Carl-Wolfram Horn, Francesco Paolo Mongelli            
    10 January 2021

    The economic fallout from the Covid-19 crisis has been asymmetric across euro area countries, leaving room for risk-sharing channels to operate.  A study by Alessandro Giovannini, Carl-Wolfram Horn and Francesco Mongelli examines income risk-sharing in the euro area and finds that while it has so far been low, it was resilient throughout the crisis. Initial portfolio investment reverted quickly and intra-euro area cross-border portfolio investment exhibited low volatility. Only cross-border public flows have been limited.

    This suggests that the provision of unprecedented policy support has prevented private risk-sharing channels from collapsing, reducing the risk of a sudden stop in cross-border financial flows and a further exacerbation of the crisis.


    THE ECONOMIC IMPACT OF ANCIENT COLONISATION

    Dimitris K. Chronopoulos, Sotiris Kampanelis, Daniel Oto-Peralías, John O.S. Wilson         
    09 January 2021


     

    A recent study by Dimitris Chronopoulos, Sotiris Kampanelis, Daniel Oto-Peralías and John Wilson demonstrates the enduring impact of ancient colonialism can still be felt in the economic geography of the Mediterranean region.

    Areas of the Mediterranean region once colonised by the Phoenicians, Greeks & Etruscans have higher population densities & enhanced economic activity to this day, effects due more to the episode of ancient colonisation than to geographic attributes. The impact of ancient colonialism can thus be traced back more than two millennia, to the origin of the Mediterranean urban system.


    COVID-19 IN THE AMERICAS: North-South differences and the labour market channel

    Marcela Escobari, Eduardo Levy Yeyati          
    07 January 2021

    Covid-19’s impact on welfare, as well as its legacy, will differ significantly between North and South America because of differences in the labour market structure across the two continents. Writing at Vox, Marcela Escobari and Eduardo Levy Yeyati highlight informal labour markets in developing economies of South America as a potential explanation for the larger and more persistent impact of the pandemic in the South as compared to North America. The authors suggest the need for targeted training and new regulation to mitigate the precariousness of the workforce in these economies.


    CHINA’S POST-PANDEMIC RECOVERY MAY HOLD CLUES TO THE FUTURE OF GLOBAL VALUE CHAINS

    Adnan Seric, Holger Görg, Wan-Hsin Liu, Michael Windisch             
    07 January 2021

    The Covid-19 pandemic has exposed the fragility of the global trade network underpinning global value chains. Initial disruptions in the supply chains for key medical goods due to surges in demand and newly erected trade barriers have prompted policymakers around the world to question their country’s reliance on foreign suppliers and international production networks.

    Writing at Vox, Adnan Seric, Holger Görg, Wan-Hsin Liu, Michael Windisch take a closer look at China’s post-pandemic recovery and argue that its response may hold clues to the future of global value chains.


    ‘LEANING AGAINST THE WIND’ AND THE RISK OF FINANCIAL CRISES

    Moritz Schularick, Lucas ter Steege, Felix Ward             
    12 January 2021

    Can monetary policymakers defuse rising financial stability risks by ‘leaning against the wind’ and increasing interest rates?

    Writing at Vox, Moritz Schularick, Lucas ter Steege and Felix Ward review the state-dependent effects of monetary policy on financial stability, based on the ‘near-universe’ of advanced economy financial cycles since the 19th century. The authors show that deploying discretionary leaning against the wind policies during credit and asset price booms are more likely to trigger crises than prevent them.


    WILL INFLATION MAKE A COMEBACK AS POPULATIONS AGE? 

    Olli Rehn        
    13 January 2021

    Global population ageing will lead to a trend reversal, with saving rates falling, real wages increasing, and greater inflationary pressures. The change in China’s economic model from forced saving towards increased consumption is amplifying this trend. And yet, central banks thus far have either failed to see or admit that an inflection point is at hand.

    Writing at Vox, Olli Rehn reviews a new book by Charles Goodhart and Manoj Pradhan in which the authors examine megatrends reshaping societies and economies. The book challenges the mainstream narrative in economics on how ongoing megatrends sustain low inflation and also low inflation expectations, and presents some of the most analytically robust criticism of central banking in years. Whether they are proved right or wrong, their arguments should prompt a much-needed reflection on widely held assumptions about future developments.


    IT IS TIME TO AUCTION SLOTS AT CONGESTED AIRPORTS

    Martin Bichler, Peter Cramton, Peter Gritzmann, Axel Ockenfels         
    10 January 2021

    Airport time slots are currently awarded by historic use, with only a small number reserved for new entrants. This hampers competition, promotes inefficient slot utilisation, and contributes to congestion.

     Writing at Vox, Martin Bichler and colleagues revisit the idea of carefully auctioning time slots at congested airports in order to foster competition by more flexibly allocating slots, as opposed to the current use-it-or-lose-it approach which favours the status quo. The current low-demand situation induced by Covid-19 creates a unique opportunity for regulators to reshape airport slot allocation.


    EDWARD LAZEAR: Tribute to a great economist 

    Paul Oyer, Kathryn Shaw                
    09 January 2021

    'During the financial crisis of 2008, Eddie found himself leading more governmental stimulus and activity than any Chicago economist hoped to see in a lifetime'. Edward Lazear, the first personnel economist, passed away in November 2020. Writing at Vox, Paul Oyer and Kathryn Shaw review his many contributions to the world of economics and beyond.

    The authors, two close colleagues and co-authors, highlight some of Lazear’s key research papers, focusing on tournaments, retirement, and piece rate payments. They look at his creation of and contributions to important institutions in the economics community, as well as his work in public policy.


    FINANCIAL GLOBALISATION AND INEQUALITY: Capital flows as a two-edged sword

    Barry Eichengreen, Balazs Csonto, Asmaa El-Ganainy, Zsoka Koczan             
    14 January 2021

    Global inequality has fallen in recent decades, but within-country inequality has risen in a significant number of national economies during the same period. Writing at Vox, Barry Eichengreen, Balazs Csonto, Asmaa El-Ganainy and Zsoka Koczan identify the channels through which financial globalisation accentuates inequality and suggests how these could be mitigated by accompanying policies.  



    THE REFUGEE'S DILEMMA

    Mathias Thoenig interviewed by Tim Phillips, 08 January 2021

    A new study uses detailed data on the persecution of Jews in Nazi Germany to investigate why individuals become refugees. Mathias Thoenig tells Tim Phillips about a simple policy that would have saved hundreds of thousands of lives in the 1930s, but is still ignored today.



    HOW EFFECTIVE IS SOCIAL DISTANCING? Evidence from the United States

    Difang Huang interviewed by Tim Phillips, 07 January 2021

    In his Covid Economics paper [Issue 59, Paper 4] , Difang Huang uses data from the United States to show that social distancing lowered the average daily infection cases by 12%, and provides evidence that the effects are heterogeneous in an individual's income, race, education, and political belief. Here he discusses these findings with CEPR's Tim Phillips. You can find his paper here.