This week from CEPR: July 11th

Thursday, July 11, 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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    WOMEN SHAPING GLOBAL ECONOMIC GOVERNANCE: New book on how to restore trust in globalisation and democracy

    The nomination of Christine Lagarde to be the next President of the European Central Bank is the latest example of women in top positions in economic policy-making around the globe. A new CEPR book celebrates that emerging trend by bringing together leading women thinkers in government, business, finance, academia, international organisations and the media to focus on the big challenges of global economic governance.

    Contributors to Women Shaping Global Economic Governance – who include Lagarde, European Commissioner for Trade Cecilia Malmström, Germany’s Chancellor Angela Merkel and CEPR President Beatrice Weder di Mauro, among many others – discuss how to respond to three big shifts in the global economy – the digital revolution, the environmental revolution and the social revolution – and the accompanying return of geopolitics. A central theme is how to restore trust in global economic governance at a time when millions of voters seem to have lost faith in the system.

    EFFECTIVENESS OF CHINESE AID: New evidence from development projects in Africa

    Is Favoritism a Threat to Chinese Aid Effectiveness? A Subnational Analysis of Chinese Development Projects
    Axel Dreher, Andreas Fuchs, Roland Hodler, Brad Parks, Paul Raschky and Michael Tierney 
    CEPR DP No. 13840 03 July 2019

    The foreign aid provided by China comes with few strings attached, allowing leaders of recipient countries to use it for domestic political purposes. But according to a new CEPR study, despite Chinese favouritism towards the birth regions of national leaders, the effectiveness of the aid is not reduced. Contrary to conventional wisdom, local receipt of Chinese aid does not undermine economic development outcomes at either the district or provincial level. 

    The vulnerability of Chinese aid to political capture has prompted speculation that it may be economically ineffective, or even harmful. The new research tests these claims by estimating the effect of Chinese aid on sub-national economic development – as measured by per capita night-time light emissions – and whether this effect is different in politically favoured jurisdictions than in other parts of the country.

    The results – from 709 provinces and 5,835 districts within 47 African countries over the period from 2001 to 2012 – demonstrate that Chinese aid improves local development outcomes, regardless of whether such aid is allocated to politically consequential jurisdictions.

    Figure 1: Value of Chinese aid projects per capita in subnational ADM2 units in Africa (total value in 2009 US$, 2000-12)

    BUSINESS LINKS IN MODERN EUROPE REFLECT THE TRANSPORT NETWORKS OF ANCIENT ROME: New evidence on connectivity and economic integration

    Roman Transport Network Connectivity and Economic Integration
    Matthias Flueckiger, Erik Hornung, Mario Larch, Markus Ludwig and Allard Mees
    CEPR DP No. 13838 03 July 2019

    Despite fundamental changes in available transport technologies, today’s patterns of connectivity in Europe reflect patterns established by ancient Rome, according to new CEPR research. Business links are much stronger between regions that were better connected within the Roman network, illustrating the long-lasting and multi-faceted consequences of infrastructure investments.

    The study shows how the creation of the first integrated pan-European transport network during Roman times influenced the pattern of inter-regional trade within Western Europe over two millennia. Along with continued economic integration, greater connectivity also led to a convergence of values tastes and attitudes. This network-induced assimilation in fundamental determinants of economic interaction, in turn, helps to explain patterns of economic interaction today.

    The researchers conclude that current barriers to integration are an outcome of historical integration. Policy-makers need to take account of the long-run consequences of public infrastructure investments. These investments can create or reshape networks in which the transmission of positive and negative shocks is more pronounced. 

    Figure 2: Aggregate energy intensity, its components and the number of foreign affiliates in the Indonesian manufacturing industry, 1983-2001

    Note: Figure maps trade flows of terra sigillata between grid-cell pairs. Each colour is specific to one origin grid cell. Thicker
    lines indicate larger volumes of flows. 

    ECONOMICS OF BASIC RESEARCH: New insights on public investment in innovation in a globalised world

    From Local to Global: A Unified Theory of Public Basic Research
    Hans Gersbach, Ulrich Schetter and Samuel Schmassmann
    CEPR DP No. 13833 01 July 2019

    National governments are typically investing too little public money in basic research. At the global level, basic research is too heavily concentrated in industrialised countries. And basic research is insufficiently directed to support innovation in complex, high-tech industries.

    These are the central results of a new CEPR study of the economics of basic research – the foundation for generating ideas that private firms can take up in applied research to develop new products, new services and new processes. The authors analyse public investment in basic research in a multi-country, multi-industry environment with international trade. A country's current specialisation in international trade thus determines which ideas can be commercialised domestically.

    Comparing the basic research investments of national governments with the optimal investments of a global social planner, the researchers show that national investments are inefficient.

    Figure 2: Basic Research and Innovation


    Note: Data on basic research investments relative to GDP are taken from the OECD dataset `Main
    Science and Technology Indicators' (downloaded in December 2017) and refer to the 20-year average
    from 1995 to 2015. The variables on the ordinate are for the year 2015.

    ROBOTS AND FIRMS: Evidence from Spain of the positive employment effects of new technology

    Michael Koch, Ilya Manuylov, Marcel Smolka 
    01 July 2019

    Robot-adopting firms create new job opportunities and expand their scale of operations, while non-adopters experience negative output & employment effects in the face of tougher competition. That is the conclusion of a study of manufacturing in Spain by Michael Koch, Ilya Manuylov and Marcel Smolka.

    The rise of robots has sparked an intense debate about the labour market effects of their adoption. This research explores differences in robot adoption across firms and analyses the labour market effects of robot adoption at the firm level

    A WAY OUT FROM ROCK BOTTOM: Economic policies to reduce ‘deaths of despair’

    William H. Dow, Anna Godøy, Chris Lowenstein, Michael Reich
    07 July 2019

    The US minimum wage and earned income tax credit – two key policy levers for raising incomes for low-wage workers – significantly reduce non-drug suicides among adults without a college degree. The effect is stronger among women.

    These are among the findings of new research by William Dow, Anna Godøy, Chris Lowenstein and Michael Reich. Their study contributes to recent efforts by policy-makers and researchers to understand the causes of and effective policy responses to recent increases in mortality due to alcohol, drugs and suicide in the United States – what have become known as ‘deaths of despair’. The findings point to the role of economic policies as important determinants of health.



    Diether W. Beuermann, Kirabo Jackson
    06 July 2019

    Secondary school choice does not appear to lead to improvements in children's performance in examinations, but it does have a sizable effect on short-run non-cognitive outcomes that may affect longer-run outcomes. These are the central findings of new research by Diether Beuermann and Kirabo Jackson.

    Their study notes that most parents have strong views about the schools to which they would prefer to send their children. But evidence shows that attending sought-after public secondary schools does not improve examination performance.


    Fariha Kamal
    07 July 2019

    Business entities that outsource physical transformation activities while retaining ownership of intellectual property and controlling sales to customers have become a growing phenomenon in the US economy.
    Analysing 2012 data from the US Census Bureau, Fariha Kamal provides a new conceptual definition of ‘factoryless’ activity, comparing factoryless goods producer firms to service providers outside the manufacturing sector, and hybrid manufacturers to traditional manufacturers within the manufacturing sector.

    The analysis reveals several meaningful correlations between factoryless status at the firm level and conceptual variables such as employment mix, innovation and importing activities.



    Alberto Alesina, Sebastian Hohmann, Stelios Michalopoulos, Elias Papaioannou
    06 July 2019

    Over the last few decades, education in Africa has been rising and living standards have been improving. Yet certain countries and regions face rampant conflict and persistent poverty.

    Research by Alberto Alesina, Sebastian Hohmann, Stelios Michalopoulos and Elias Papaioannou uses individual-level data covering more than 20 million people spanning 26 African countries since the late 1960s to study intergenerational mobility in education across the continent. Their study uncovers large variation in upward and downward mobility both across and within countries.

    THE GENDER PROMOTION GAP: Evidence from the European Central Bank

    Laura Hospido, Luc Laeven, Ana Lamo
    17 June 2019


    The under-representation of women in economics is perhaps nowhere as visible as in central banks. Research by Laura Hospido, Luc Laeven and Ana Lamo uses anonymised personnel data to analyse the career progression of men and women at the European Central Bank (ECB).

    Their study finds that a wage gap in favour of men emerges within a few years of hiring, with one important driver being the presence of children. Women were also less likely to be promoted to a higher salary band up until 2010, when the ECB issued a statement supporting diversity and took measures to support gender balance. Following this change, the promotion gap disappeared.



    Hites Ahir, Nicholas Bloom, Davide Furceri
    18 June 2019

    Recent developments have inspired efforts to measure trade uncertainty. A study by Hites Ahir, Nicholas Bloom and Davide Furceri presents a new index of world trade uncertainty for 143 countries, measured on a quarterly basis from 1996 onwards, using the Economist Intelligence Unit country reports. The index shows that uncertainty in trade is rising sharply. This has important implications for global economic prospects.


    Ufuk Akcigit, Sina T. Ates
    17 June 2019

    Declining knowledge diffusion in the US economy has played a key role in rising market concentration and a slowdown in business dynamism in recent decades. That is one of the conclusions of new research by Ufuk Akcigit and Sina Ates.

    They document a higher concentration of patenting in the hands of firms with the largest stock and a changing nature of patents, especially in the post-2000 period, which suggests a heavy use of intellectual property protection by market leaders to limit the diffusion of knowledge.


    Markus K Brunnermeier, Harold James, Jean-Pierre Landau
    03 July 2019

    A new kind of currency area will emerge, held together by digital interconnectedness, according to Markus Brunnermeier, Harold James and Jean-Pierre Landau. These digital currency areas will cut across borders, increase currency competition and may redefine the international monetary system.

    Thanks to digitalisation, we now can hold money on our mobile phones and transfer wealth in real time to almost every corner of the world. Currencies can be swapped within milliseconds on smart phones and people can hold many currencies simultaneously in digital wallets. These authors consider how digitalisation will affect the international monetary system. 

    REGIONAL DISPARITIES WITHIN COUNTRIES: The economic geography of sovereignist Europe

    Gianmarco Ottaviano
    03 July 2019

    As long as many people and firms are not geographically mobile – and those who are tend to be the most skilled and productive – easier distant interactions can actually strengthen rather than weaken agglomeration economies. Recent electoral trends in Europe can be understood to a surprisingly large extent from this angle. 

    These are the conclusions of Gianmarco Ottaviano in a contribution to Vox. Economic geography is striking back, he says. After a couple of decades of easy talk about the ‘death of distance’ in the age of globalisation, the promise of a world of rising living standards for all is increasingly challenged by the resilience of regional disparities within countries.

    THE PROTECTIONIST INSTINCT: How labour market shocks shape the demand for trade protection

    Rafael Di Tella, Dani Rodrik 
    01 July 2019

    Economists have traditionally emphasised the benefits of openness to trade, but populists resist it. How generalised is the demand for trade protection? And how does it compare with other disruptions in the labour market? Analysis by Rafael Di Tella and Dani Rodrik suggests that people often react by demanding trade protection when faced with shocks that generate unemployment, with the largest effects observed when it is caused by imports arriving from a poor country. 

    MISDIRECTION AND THE TRADE WAR MALEDICTION OF 2018: Scaling the US–China bilateral tariff hikes

    Simon Evenett, Johannes Fritz
    01 July 2019

    Any notion that the trade war has disrupted unfettered Chinese exports to the US should be set aside; so too should claims that previous US administrations hadn't taken extensive measures to limit Chinese commercial opportunities in the US market. These are among the conclusions of analysis by Simon Evenett and Johannes Fritz. What is the practical and intellectual significance of the US-China tariff hikes of 2018? They argue that the uncertainty engendered by the trade tensions is likely to have had a larger economic impact than the direct restrictive effect on international trade. 

    CROSS-BORDER SHOPPING: Evidence from Norwegians going to Sweden

    Richard Friberg, Frode Steen, Simen Ulsaker
    02 July 2019

    With large price differences across a border, consumers may travel long distances to take advantage of lower prices abroad. That is the central finding of research by Richard Friberg, Frode Steen and Simen Ulsaker on Norwegians shopping in Sweden. The study uses sales data from a Norwegian grocery chain to examine how cross-border shopping into Sweden responds to changes in relative prices. It shows that the response to price changes is highest at some distance from the border, where consumers respond by reconsidering whether or not to travel abroad for their shopping.

    UNTOUCHABLE FIRMS: Market power, business dynamism and productivity growth in the intangible economy

    Maarten de Ridder
    02 July 2019

    Rising use of intangible inputs provides a unified explanation for three economic trends, according to research by Maarten de Ridder: the slowdown in productivity growth, the decline of business dynamism, and the rise of market power and firm concentration. He argues that firms with high intangible adoption disrupt sectors and initially boost productivity, but negatively affect the entry of new firms and suppress the effect of R&D on innovation and growth in the long run.

    THE GLOBAL CAPITAL FLOWS CYCLE AND ITS DRIVERS: Not only a US monetary policy story

    Maurizio Michael Habib, Fabrizio Venditti
    05 July 2019

    Research from the European Central Bank finds that financial shocks matter more than US monetary policy as drivers of the global cycle in capital flows. What’s more, Maurizio Michael Habib and Fabrizio Venditti find, domestic policies may still mitigate the cycle at the country level. Their study notes that there is a global capital flows cycle that is intimately connected to global risk. They argue that, contrary to common wisdom, US monetary policy is not the only factor, or even the main factor, behind global risk and this global cycle.

    DEEP ORIGINS: A new take on the economics of persistence

    Morgan Kelly
    05 July 2019

    Did medieval pogroms prefigure Nazi zealotry? Does the slave trade continue to affect trust between people in Africa? Does a country’s prosperity depend on the genetic diversity of its population? Such studies of ‘deep origins’ should be treated with caution, according to Morgan Kelly. He notes that a large body of work on persistence finds that many modern outcomes strongly reflect characteristics of the same places in the past. Although these regressions feature unusually high t statistics, they usually also display severe spatial autocorrelation in residuals.

    ITALY IS A VERY SICK PATIENT: Interview with Fabio Ghironi

    Fabio Ghironi by Tim Phillips, 05 July 2019

    Are Italy's populist policies of miniBOTs and flat taxes the right medicine for its economic sickness? Fabio Ghironi tells Tim Phillips that if Italy doesn't attempt fundamental structural reforms, it may be on the path to Eurexit.

    BREAKING HABITS: Interview with Esther Duflo

    Esther Duflo, 01 July 2019

    Getting people to change their habits around food is extremely difficult. In a Vox short film interview, Esther Duflo discusses how she has been involved in a number of experiments in India aimed at getting people to consume iron in various forms, but none of them has been entirely successful.

    She notes: ‘It is clear that in a place like India, the main issue that people are facing is not a deficit of calories but it is a deficit in nutrients’. Iron is a good example of this and one that is of particular importance to the health and development of adolescent girls. The technology exists to add iron to wheat or salt.