This week from CEPR: June 13th
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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DO WE HAVE A SOUND BANKING SYSTEM AT LAST? CEPR report assesses achievements and remaining business of a decade of financial regulation
Edited by Patrick Bolton, Stephen Cecchetti, Jean-Pierre Danthine, Xavier Vives
While there have been improvements in financial regulation and supervision over the decade since the global financial crisis, there is still no framework for dealing with shadow banking and new digital competitors for incumbent banks. What’s more, new regulations and high compliance costs make entry difficult, and they have increased the tendency for market concentration, potentially aggravating the problem of banks that are ‘too big to fail’.
These are among the conclusions of Sound at Last? Assessing a Decade of Financial Regulation, the first report in a new series – The Future of Banking – from the IESE Business School and CEPR with the support of Citi.
Co-authored by four leading economists and CEPR researchers – Professors Patrick Bolton, Stephen Cecchetti, Jean-Pierre Danthine and Xavier Vives – the report notes that the legacy of the crisis is stronger and better capitalised banks, as well as regulators and supervisors with increased clout who pay more attention to systemic risk.
But the crisis has also left a legacy of high leverage in advanced economies, especially in terms of ratios of sovereign debt to GDP. At the same time, interest rates are at very low levels. All of this, together with the digital disruption of the sector, poses formidable challenges for the banking industry.
Down load the FREE pdf here
FLEXIBLE PARENTAL LEAVE FOR NEW DADS BOOSTS MUMS’ HEALTH: Evidence from Sweden
When Dad Can Stay Home: Fathers’ Workplace Flexibility and Maternal Health
Petra Persson and Maya Rossin-Slater
CEPR DP No. 13780 05 June 2019
Giving fathers greater flexibility around when they can take parental leave reduces the risk of mothers experiencing physical health complications in the months after giving birth and also improves their mental health. These are the central findings of a new CEPR study that analyses the results of a reform to parental leave policies in Sweden.
The researchers note that while workplace flexibility is widely understood to be a key determinant of maternal labour supply, less is known about fathers’ demand for flexibility or about spillover effects of flexibility initiatives within households. Their study examines these issues in the context of a critical period in family life – the months immediately following childbirth – and identifies the impacts of paternal access to workplace flexibility on maternal postpartum health.
The results suggest that mothers bear the burden from a lack of workplace flexibility not only directly through greater career costs of family formation, but also indirectly, as fathers’ inability to respond to domestic shocks exacerbates the maternal health costs of childbearing.
Figure 1: Cumulative Distribution of Initiation of Post-Baseline Paternity Leave for Fathers of Firstborn Children Born in 2011 and 2012
Note: The figure plots the cumulative distribution of the initiation of post-baseline parental leave among fathers by month following childbirth separately for fathers of firstborn singleton children born in 2011 and 2012.
THE AFTERMATH OF A FINANCIAL CRISIS: New cross-country evidence of patterns of regulation followed by renewed liberalisation
Financial Crises and Liberalisation: Progress or Reversals?
Nauro Campos, Paul De Grauwe, Yuemei Ji, Angelo Martelli and Orkun Saka
CEPR DP No. 13776 03 June 2019
Governments typically react to crises by re-regulating financial markets, but these new regulations are only temporary and a process of financial liberalisation restarts a few years after the crisis. One decade later, financial markets have returned to their pre-crisis level of liberalisation.
These are the central findings of a study using a recent comprehensive dataset on financial liberalisation across 94 countries for the period between 1973 and 2015. Among member states of the European Union, however, the researchers do not find sufficient evidence to support these observations.
Figure 2: Average financial liberalization in Euro and Non-Euro EU countries between the years 2000 and 2015
Note: The figure shows the aggregate financial liberalisation index averaged over 12 Euro and 10 Non-euro EU countries.
DRIVERLESS CARS: Effective policies and social norms for improved road safety
Effective Policies and Social Norms in the Presence of Driverless Cars: Theory and Experiment
Antonio Cabrales, Ryan Kendall and Angel Sánchez
CEPR DP No. 13784 06 June 2019
Since driving is the most deadly activity that most humans participate in, it is essential to understand the complex interaction between human and automated drivers before the latter becomes a reality. A new CEPR study explores which policies will effectively discourage unsafe (fast) drivers in a situation where driverless cars operate on the same roads as human-driven cars.
The researchers use game theory to analyse a world in which driverless cars are the slowest and safest choice whereas faster driving speeds lead to higher potential payoffs but higher probabilities of accidents. Faster speeds also have a negative externality on the population.
Exploring three different interventions – namely, framing the situation in a safety-conscious manner; putting in place fines by an external agent (traffic police); and setting up a scheme in which fines are imposed according to the participation of the drivers’ community – the study finds that the third is the most effective policy.
Thomas Cornelissen, Christian Dustmann
|Starting school at an early age boosts both cognitive and non-cognitive skills up to the age of 11. That is the central finding of research by Thomas Cornelissen and Christian Dustmann. The effects that their study finds tend to be strongest for boys from disadvantaged family backgrounds.
Primary education starts at age 6 or 7 in most OECD countries, but in the UK children start primary school at the age of 4 or 5. This research exploits local variation in school entry rules in the UK to investigate the effects of schooling at an early age on cognitive and non-cognitive development.
MARRIED BUT AS YET CHILDLESS WOMEN APPLYING FOR PART-TIME JOBS FACE DISCRIMINATION, Evidence from Germany, Switzerland and Austria
Sascha O. Becker, Ana Fernandes, Doris Weichselbaumer
BEYOND LEFT VERSUS RIGHT: The impact on inequality of the emerging social divide of nationalist versus cosmopolitan
Nicola Gennaioli, Guido Tabellini
|If globalisation clusters society in a nationalist versus cosmopolitan cleavage instead of the traditional left versus right, this may dampen demand for redistribution despite potential increases in income inequality. That is the conclusion of research by Nicola Gennaioli and Guido Tabellini.
In recent decades, the political systems of advanced democracies have witnessed large changes, often in reaction to economic shocks due to globalisation and technology. This study uses insights from the social psychology of groups to explain how when large shocks hit, new cleavages in society emerge. This causes individuals to shift their beliefs about themselves and others in the direction of new social stereotypes.
CONTRASTING PATTERNS OF FIRM GROWTH BETWEEN MORE AND LESS DEVELOPED COUNTRIES: Evidence from Colombia and the US
Marcela Eslava, John Haltiwanger, Alvaro Pinzón
|A key difference between more and less developed countries lies in the speed at which the average business grows over its lifecycle. New research by Marcela Eslava, John Haltiwanger and Alvaro Pinzón compares manufacturing firms in Colombia and the US, and concludes that average lifecycle growth differences across countries with diverging income levels are largely driven by the superstars and the worst performers.
Relative to the US, Colombia has an overwhelming prevalence of micro-establishments, a deficit of superstar plants, and less strict market selection pressure for underperforming plants
Weicheng Lian, Natalija Novta, Evgenia Pugacheva, Yannick Timmer, Petia Topalova
|Rising trade tensions and sluggish productivity growth are likely to slow the decline in the relative price of capital goods, which would hold back real investment growth. That is the conclusion of IMF research by Weicheng Lian, Natalija Novta, Evgenia Pugacheva, Yannick Timmer and Petia Topalova.
The dramatic decline in the relative price of capital goods has been an important – but overlooked – driver of real investment. This study analyses cross-country price data to establish that deepening trade integration and productivity growth have both contributed to this decline. The reversal of these factors will slow the price decline.
|Growing international imbalances are widely understood to have led President Nixon to end gold convertibility in 1971. New research by Michael Bordo argues that a key fundamental underlying these imbalances was rising US inflation, in turn created by the country’s macroeconomic policies. Nixon blamed the rest of the world instead of correcting US monetary and fiscal policies.
The study identifies similarities between the imbalances of the 1960s and 1970s and those of today, especially regarding fiscal policies and the use of tariff protection as a strategic tool.
Selahattin İmrohoroğlu, Sagiri Kitao, Tomoaki Yamada
|Japan leads the advanced economies in the speed and magnitude of demographic ageing and has the highest debt-to-output ratio. Rising social insurance expenditures are projected to outpace revenues by far and to create a fiscal burden.
New analysis by Selahattin Imrohoroğlu, Sagiri Kitao and Tomoaki Yamada presents sobering projections for Japanese government debt in the absence of reform. But, the authors argue, a combination of policies, including policies to encourage greater labour participation by women and to enhance productivity, could achieve sustainability.
IMPROVING AGRICULTURAL PRODUCTIVITY: Evidence from Bangladesh on how to disseminate a new technology
Asad Islam, Philip Ushchev, Yves Zenou, Xin Zhang
|In many developing countries, agricultural productivity has remained very low due to sluggish diffusion and adoption of new efficient cultivation methods. New research by Asad Islam, Philip Ushchev, Yves Zenou and Xin Zhang describes the results of a field experiment in Bangladesh in which randomly picked farmers received training in a new technology.
Their study finds that an increase in the number of farmers in a village who received training increased the adoption rate of the technology among ‘untreated’ farmers. The findings suggest that frequent information and training are the easiest ways to help disseminate a new technology and encourage its adoption.
HOW JUDGES RESPOND TO LOCAL NORMS WHEN MAKING CRIMINAL JUSTICE DECISIONS: Evidence from North Carolina
David Abrams, Roberto Galbiati, Emeric Henry, Arnaud Philippe
|The rule of law in advanced democracies is based on the assumption that the law and its application are the same for all citizens. But research has shown that judges respond to ideology or political biases in their sentencing decisions.
New research by David Abrams, Roberto Galbiati, Emeric Henry and Arnaud Philippe examines how location can also influence criminal court sentences using data from the US state of North Carolina’s superior court system. It shows that even after controlling for characteristics of judges, sentencing varies by location and responds to local norms.
|Over the last four decades, China’s economy grew at an astonishing pace while remaining in the grip of an authoritarian political regime. In contrast, 1900-37 was a period when financial practices were largely freed from constraints of authoritarian rule
New research by Debin Ma examines that period, when rules governing the treaty port of Shanghai attracted major Western banks (and sheltered the Bank of China’s Shanghai branch) by curbing or sidestepping state power.
Minouche Shafik interviewed by Tim Phillips, 07 June 2019
The United Nations’ special rapporteur recently claimed that the UK’s social safety net has been ‘replaced with a harsh and uncaring ethos’. Dame Minouche Shafik, director of the LSE, talks to Tim Phillips about whether our welfare states can survive in their current form, and what might replace them.
Marianne Bertrand, 04 June 2019
Marianne Bertrand examines a question at the heart of the functioning of democracies: the role that large firms play in influencing laws and how this influence and lobbying can result in policies that are not always in the interests of the majority. As an educator, she finds this a rewarding subject: students enter a class with a very black and white view of it, but leave with a clearer understanding of how important the decisions they may be involved in making will be.