This week from CEPR: July 25th

Thursday, July 25, 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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  • CHINA'S OVERSEAS LENDING: New evidence on its size, destinations and characteristics 

China's Overseas Lending
Sebastian Horn, Carmen Reinhart and Christoph Trebesch  
CEPR DP No. 13867 15 July 2019

Roughly one half of China's overseas loans to the developing world are ‘hidden’, distorting risk assessment of the three dozen countries involved in terms of both policy surveillance and the market pricing of sovereign debt. That is one of the findings of new CEPR research, which analyses a dataset covering a total of 1,974 Chinese loans and 2,947 Chinese grants to 152 countries from 1949 to 2017. 

In an investigation of the size, destinations and characteristics of China's overseas lending, the authors identify three key distinguishing features:

  • First, almost all China's lending and investment abroad is official. As a result, the standard ‘push’ and ‘pull’ drivers of private cross-border flows do not play the same role.
  • Second, the documentation of China's capital exports is (at best) opaque. China does not report on its official lending and there are no comprehensive standardised data on Chinese overseas debt stocks and flows.
  • Third, the type of flows is tailored by recipient. Advanced and higher middle-income countries tend to receive portfolio debt flows, via sovereign bond purchases by the People's Bank of China. Lower income developing economies mostly receive direct loans from China's state-owned banks, often at market rates and backed by collateral such as oil.

Figure 1: China's Overseas Lending Boom

Note: This figure shows a subset of outstanding Chinese overseas debt claims as reported in China’s BoP Statistics, scaled by global GDP.

  • WHEN RELIGIOSITY CONSTRAINS EDUCATION AND ECONOMIC PROGRESS: Evidence from late nineteenth century France 

Devotion and Development: Religiosity, Education, and Economic Progress in 19th-Century France 
Mara Squicciarini
CEPR DP No. 13877 20 July 2019

New analysis of the variable intensity of Catholic religiosity across French districts and cantons during the Second Industrial Revolution (1870-1914) shows that more religious locations had lower economic development at that time, though not before.

This was a crucial phase of modern economic growth in France, with technology becoming skill-intensive and the introduction of technical education in primary schools. At the same time, the Catholic Church was promoting a particularly anti-scientific programme and opposed the adoption of a technical curriculum.

The CEPR study indicates that schooling was the key mechanism: more religious areas saw slower introduction of the technical curriculum and instead a push for religious education. Religious education, in turn, was negatively associated with industrial development about 10 to 15 years later, when school-aged children entered the labour market. This negative relationship was more pronounced in skill-intensive industrial sectors.

Figure 2: Religiosity and industrial employment

Note: The figures plot the share of refractory clergy against the share of industrial employment in the 1866 (left panel) and in 1901 (right panel).

  • WHEN POLITICAL DYNASTIES FIGHT TO DEFEND DEMOCRACY: Evidence from France's 1940 Enabling Act  

A Positive Effect of Political Dynasties: the Case of France's 1940 Enabling Act
Jean Lacroix, Pierre-Guillaume Méon and Kim Oosterlinck 
CEPR DP No. 13871 19 July 2019

While political dynasties in democracies are often thought of in negative terms, a new CEPR study indicates that they can be strong defenders of democratic ideals. This claim is backed by an analysis of the vote by the French parliament on 10 July 1940 on an enabling act to grant full power to Marshal Philippe Petain, thereby ending the Third Republic.

Using newly collected data from the biographies of the members of the then parliament, the researchers observe that members of a democratic dynasty were more likely – by a margin of between 7.6 and 9.0 percentage points – to oppose the act than were members of other political dynasties or elected representatives belonging to no political dynasty. They report suggestive evidence showing that the effect of democratic dynasties was possibly driven by internalised democratic norms and beliefs.

Figure 2: Mean comparison – Shares of parliamentarians opposing the act *** p<0.01, ** p<0.05, * p<0.1 



Lars Peter Hansen, Thomas Sargent
22 July 2019

False pretences of knowledge about complicated economic situations have become all too common in public policy debates. Economics Nobel laureates Lars Peter Hansen and Thomas Sargent argue that policy-makers should take into account what they don't know in their decision-making. They describe a tractable approach for acknowledging, characterising and responding to different forms of uncertainty, by using theories and statistical methods available at any particular moment.


Lene Kromann, Anders Sørensen
15 July 2019

Firms facing strong competition from Chinese exporters are the ones making the biggest investments in automation technologies. That is one of the findings of research by Lene Kromann and Anders Sørensen, which analyses survey data and evidence from factory visits on the surprisingly slow adoption of automated production capital in Danish manufacturing industries.


Charles Courtemanche, Art Carden, Xilin Zhou, Murugi Ndirangu 
18 July 2019

Walmart Supercenters improve food security in the local area, especially among low-income households and those with children, according to research by Charles Courtemanche, Art Carden, Xilin Zhou and Murugi Ndirangu. Their study suggests that the unintended consequences of policies aimed at thwarting Walmart’s market entry may reduce food security for the most vulnerable segments of society.


Nikhil Datta
19 July 2019

‘Atypical’ workers may like flexibility – but they would prefer a steady job, according to research by Nikhil Datta. His study finds that the rise of work arrangements like self-employment, freelancing, gig work and zero-hour contracts is not due to workers wanting or demanding these jobs, but rather because they have no other choice. What’s more, workers would agree to earn less in order to increase their employment security.


Jessica Pac, Ann P. Bartel, Christopher J. Ruhm, Jane Waldfogel 
21 July 2019

A new study by Jessica Pac, Ann Bartel, Christopher Ruhm and Jane Waldfogel uses data on over 270,000 mother-child pairs in California, which implemented paid family leave in 2004, to examine the relationship between paid family leave and breastfeeding. It finds that paid family leave significantly increases overall breastfeeding duration, potentially leading to longer-term health improvements for children and mothers, particularly among disadvantaged families. 

The researchers note that mothers in the United States breastfeed their infants at higher rates today than at any point in documented history, but low-income mothers have become less likely to do so. A leading reason for mothers to stop breastfeeding is the need to return to work.


David Arnold 
19 July 2019


While increases in efficiency from privatisation in Brazil might contribute to overall economic growth, the country’s most vulnerable workers could also be exposed to significant risk of decreased wages. That is the central message of analysis by David Arnold.

In the early days of his administration, Brazilian president Jair Bolsonaro announced plans to privatise several of the country’s largest state-owned enterprises and airports. Fearing such a move would lower both wages and employment, labour unions organised in opposition to Bolsonaro’s plans. The study looks anew at evidence testing whether privatisation offers more than merely an immediate infusion of revenue.


Giovanni Peri, Akira Sasahara 
15 July 2019

Though the economic consequences of climate change will be felt across the globe, not all populations will be affected equally. Research by Giovanni Peri and Akira Sasahara examines the impact of rising temperatures on migrant communities.

Using historical data from three decades (1970-2000), the study finds that higher temperatures increased the number of rural-to-urban migrations in middle-income countries while decreasing rural-to-urban migrations in poor countries. The prospect of climate change leaving large rural populations trapped in poverty adds urgency to the case for addressing the asymmetric effects of global warming. 

EU POLICY RECOMMENDATIONS: A stronger legal framework is not enough to foster national compliance

Xuepeng Liu, Huimin Shi
11 July 2019

In 2011, the EU introduced stricter rules to monitor the implementation of country-specific policy recommendations. Research by Konstantinos Efstathiou and Guntram Wolff investigates whether these new laws have increased national compliance.

They find no evidence that these stricter processes matter for implementation rates, whereas macroeconomic fundamentals and market pressure are important determinants of implementation progress. These results suggest ways to improve the effectiveness of European policy coordination that go beyond stronger legal processes.


Sayuri Shirai 
18 July 2019

Modern money theory has recently gained prominence in light of doubts about the effectiveness of monetary policy in addressing economic shortfalls. Writing at Vox, former Bank of Japan board member Sayuri Shirai assesses the implications of implementing the theory’s policy prescriptions, and the challenges it presents in the case of Japan – an economy that some have argued has already been subject to such policy. She concludes that Japan’s labour shortages and low inflation mean that modern monetary theory’s fiscal stimulus suggestions may be harder to implement than they initially seem. 

COOLING DOWN STRESS IN CRISIS TIMES: Lessons from the Banque de France in promoting financial stability in a decentralised payments landscape

Maylis Avaro, Vincent Bignon
20 July 2019

Research by Maylis Avaro and Vincent Bignon goes back to late nineteenth century France to explore the implications of today’s more decentralised and less banked payments landscape for the design of central banks’ interventions when fighting financial crises.

The Banque de France operated a very wide discount window and used a variety of risk management techniques to effectively subdue risk-taking behaviours and to protect its balance sheet from taking any loss. This helped it to stabilise the economy and to overcome the consequences of negative income shocks.

MONETARY POLICY SURPRISES: The impact on bank equity values in a time of low and negative interest rates

Miguel Ampudia, Skander Van den Heuvel 
17 July 2019

The effects of interest rate surprises on banks are different when nominal interest rates are very low, according to research by Miguel Ampudia and Skander Van den Heuvel. Their study reveals how, in ‘normal’ times, policy rate announcements that are below market expectations tend to boost banks’ stock prices on average. When interest rates are very low, however, there is a reversal of this effect, with negative rate surprises reducing banks’ stock prices. This negative impact is larger for banks whose funding relies more on retail deposits than on other sources of funding.


Luca Fornaro, Federica Romei 
16 July 2019

Prudential fiscal and financial policies lead to an increase in national savings and current account surpluses of booming countries, but the world may become stuck in a global liquidity trap as a result. That is the conclusion of analysis of the paradox of global thrift by Luca Fornaro and Federica Romei. This paradox of global thrift may lead to a fall in global output and welfare.

CORPORATE BOND DEFAULTS IN CHINA: Low by global standards; the sharp rise post-2014 is essential for further market development

Marlene Amstad, Zhiguo He 
16 July 2019

China’s corporate bond ratings are sharply skewed upward, which is partly explained by the large amounts of bonds by issuers who are mostly linked to the government. Research by Marlene Amstad and Zhiguo He proposes credit spreads as an alternative, market-based measure of credit risk.

Their study also argues that the main reason for the high credit ratings and low dispersion of credit spreads is the very short and limited history of defaults in China. The post-2014 sharp rise in corporate bond defaults is therefore essential for further market development, particularly because Chinese defaults remain low relative to global standards.




Hannes Schwandt interviewed by Tim Phillips, 19 July 2019

Supposedly ‘green’ diesel engines with devices to cheat emissions tests have been polluting as much as 150 ordinary cars. Hannes Schwandt tells Tim Phillips about the staggering human cost of VW’s fraud. 


Lucrezia Reichlin, 15 July 2019

Lucrezia Reichlin of the London Business School is the third economist to be the focus of the CEPR/UBS Women in Economics series. She is one of the pioneers of Big Data and, along with her co-authors, has revolutionised how models are built.

Here she talks about the need for parsimonious models that exploit a data-rich environment to capture the simple drivers of the economy from complex data sets. Measuring the activity within an open economy not only helps us to predict what is coming, but also to understand what is happening now and to see and learn from our mistakes.


John Van Reenen, 19 July 2019

John Van Reenen discusses how ‘superstar firms’ such as Google and Apple have changed the global economy. Although these companies are big, they employ relatively few workers and this has contributed to depression of the overall aggregate share of labour in the economy. The risks arising from the market dominance of these firms also pose policy challenges.