This week from CEPR: March 7
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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TRUMP’S TRADE WAR: US consumers, not foreigners, are paying all of the 2018 tariffs
The Impact of the 2018 Trade War on US Prices and Welfare
Mary Amiti, Stephen Redding and David Weinstein
CEPR DP No. 13564 2 March 2019
A new CEPR study of the effects of the Trump administration’s trade policy finds that the full incidence of the tariffs introduced in 2018 falls on domestic consumers, with a reduction in US real income of $1.4 billion per month by the end of 2018. The researchers detect similar patterns for foreign countries that have retaliated against the United States, indicating that the trade war also reduced their real incomes.
Over the course of 2018, the United States experienced substantial increases in the prices of intermediates and final goods, dramatic changes to its supply chain network, reductions in availability of imported varieties, and complete pass-through of the tariffs into domestic prices of imported goods.
Figure 3: 12-month Proportional Change in Import Prices by Tariff Wave
Notes: Proportional change in an import-share-weighted average of 12-month relative changes in U.S. import unit values inclusive of tariffs (import values divided by input quantities) for each tariff wave and for unaffected countries and products; proportional changes for each wave are normalized to equal zero in the month prior to the introduction of the tariff; tariff waves are defined in Section 2 of the paper.
COMPOSITION OF US IMPORTS: Evidence of intensified competition in global markets but growing concentration at the national level
Concentration in International Markets: Evidence from US Imports
Alessandra Bonfiglioli, Rosario Crinò and Gino Gancia
CEPR DP No. 13566 3 March 2019
New CEPR research uses transaction-level data to study changes in the concentration of US imports. The study finds that concentration has fallen in the typical industry, while it is stable by industry and country of origin. The fall in concentration is driven by the extensive margin: the number of exporting firms has grown; and the number of exported products has fallen more for top firms. Instead, average revenue per product of top firms has increased.
At the industry level, top firms are converging, but top firms within countries are diverging. These facts suggest that intensified competition in international markets co-exists with growing concentration among national producers.
INDIAN PARENTS’ PREFERENCES FOR THEIR DAUGHTERS’ EDUCATION AND AGE AT MARRIAGE: Evidence from Rajasthan
Preferences and Beliefs in the Marriage Market for Young Brides
Abigail Adams and Alison Andrew
CEPR DP No. 13567 3 March 2019
Parents in Rajasthan, India, have a strong preference for delaying a daughter’s marriage until the age of 18 but no further. That is the central conclusion of a new CEPR study, which uses using hypothetical vignettes to elicit average parental preferences over a daughter’s education and age of marriage, and subjective beliefs about the evolution of her prospects in the marriage market.
The researchers find that conditional on a marriage match, parents place little intrinsic value on a daughter’s education. But they believe that the probability of receiving a good marriage offer increases strongly with a daughter’s education but deteriorates quickly with her age on leaving school.
Figure 1: Ex Post Experiment: Visual Aid
- EFFECTS OF AUSTERITY: Contrasting effects of spending-based deficit reduction policies and tax-based plans
Effects of Austerity: Expenditure- and Tax-based Approaches
Alberto Alesina, Carlo Favero and Francesco Giavazzi
CEPR DP No. 13565 3 March 2019
Spending-based deficit reduction policies are remarkably less costly than tax-based plans, according to a new CEPR study of ‘austerity’. The research finds that the former have on average a close to zero effect on output and lead to a reduction of the ratio of public debt to GDP. Tax-based plans have the opposite effect and cause large and long lasting recessions.
The researchers claim that discussions of austerity in general have distracted commentators and policy-makers from a very important result, namely the enormous difference, on average, between expenditure- and tax-based austerity plans. Their results also apply to the recent episodes of European austerity, which in this respect were not especially different from previous cases.
MERGERS AND ACQUISITIONS: Too much talk of creating value from intangible assets suggests bidders are being over-optimistic
The Intangibles Song in Takeover Announcements: Good Tempo, Hollow Tune
Zoran Filipović and Alexander Wagner
CEPR DP No. 13560 1 March 2019
Announcements of corporate takeovers that feature more talk about creating value from intangible assets complete more quickly. But the value of these deals to the acquiring form is questionable: the greater the ‘intangibles talk’, the lower the returns to bidders at the time of announcement.
These are the conclusions of a new CEPR study that develops a novel word list of intangibles and applies it to takeovers. Payment mode choices and insider trades suggest that intangibles talk reflects managerial over-optimism. Overall, the researchers conclude, takeover announcements can provide important information about the quality of deals.
Figure 1: The most frequent intangibles words in takeover announcements
WEALTH BEGETS WEALTH, EVEN IN RELATIVELY EGALITARIAN SWEDEN: Evidence on intergenerational mobility
Understanding Intergenerational Mobility: The Role of Nature versus Nurture in Wealth and Other Economic Outcomes and Behaviors
Sandra Black, Paul Devereux, Petter Lundborg and Kaveh Majlesi
CEPR DP No. 13559 28 February 2019
Wealth transmission from one generation to the next is not primarily because children from wealthier families are inherently more talented. Rather, it is that even in relatively egalitarian Sweden, wealth begets wealth. That is the central conclusion of a new CEPR study, which uses administrative data on the net wealth of a large sample of Swedish adoptees merged with similar information for their biological and adoptive parents.
Comparing the relationship between the wealth of adopted and biological parents and that of the adopted child, the researchers find that, even prior to any inheritance, there is a substantial role for environment and a much smaller role for pre-birth factors. They find little evidence that nature/nurture interactions are important. When bequests are taken into account, the role of adoptive parental wealth becomes much stronger.
The study also finds that environmental influences are relatively more important for wealth-related variables, such as savings and investment decisions, than for human capital. The authors conclude by studying consumption as an overall measure of welfare and find that, like wealth, it is more determined by environment than by biology.
GENDER DIFFERENCES IN STUDYING SCIENCE: New evidence from Ireland
It’s Not Just for Boys! Understanding Gender Differences in STEM
Judith Delaney and Paul Devereux
CEPR DP No. 13558 28 February 2019
Differential subject choices and grades in secondary school explain a substantial proportion of the under-representation of women in university programmes in science, technology, engineering, and mathematics (STEM). That is one of the findings of a new CEPR study, which uses unique data on preference rankings for all secondary school students who apply for college in Ireland and detailed information on school subjects and grades to decompose the sources of the gender gap in STEM.
The research finds that of the raw gap of 22 percentage points, about 13 percentage points are explained by differential subject choices and grades. Subject choices are more important than grades: the male comparative advantage in STEM (as measured by subject grades) explains about 3 percentage points of the gender gap. Differences in overall achievement between girls and boys have a negligible effect.
Strikingly, there remains a gender gap of 9 percentage points even for young people who have identical preparation at the end of secondary school (in terms of both subjects studied and grades achieved); but this gap is only 4 percentage points for STEM-ready students. Gender gaps are smaller among high-achieving students and for students who go to school in more affluent areas. And there is no gender gap in science: the large gaps are in engineering and technology.
GENDER DIFFERENCES IN PERFORMANCE UNDER PRESSURE: Evidence from a Korean TV quiz show
Girls’ and Boys’ Performance in Competitions: What We Can Learn from a Korean Quiz Show
Alison Booth and Jungmin Lee
CEPR DP No. 13552 27 February 2019
A comparison of the performance of high-ability adolescent girls and boys who participated in a long-running Korean TV quiz show finds a gender gap in performance – in favour of boys – across episodes of the show. To investigate underlying mechanisms that might explain this, a new CEPR study explores how male and female performance varies under different rules of the game.
The researchers find that there are no gender gaps when stress is kept to a minimum -- that is, in games without fastest-finger buzzers, knockouts or penalties. But in games with these features, there are significant gender gaps. There are also larger gender gaps in performance in Round 2 of the shows, which is consistent with girls being increasingly hindered by psychological stress and risk aversion when competition is higher.
Finally, the study uses panel data to estimate performance in the games in which all players stay in for 25 questions. Here, the researchers find that girls are less likely to respond faster especially when their winning probability is higher. Further, the gender gap is more salient at the end of the game. These results are also consistent with gendered behavioural responses to psychological pressure.
Figure 1. Gender Differences in Score between Round 1 and 2
Note: The horizontal axis represents Round 1 score quintiles and the vertical axis the average score of Round 2 for each
quintile. B represents boys and G girls. The lines are simple regression lines.
REVEALING IMPLICIT STEREOTYPES: Evidence from immigrants in Italian schools
Revealing Stereotypes: Evidence from Immigrants in Schools
Alberto Alesina, Michela Carlana, Eliana La Ferrara and Paolo Pinotti
CEPR DP No. 13555 28 February 2019
Revealing schoolteachers’ unconscious biases affects their grading of immigrant and native students, according to a CEPR study in Italian schools. The research also finds that mathematics teachers with stronger stereotypes give lower grades to immigrants compared with natives with the same performance, but literature teachers do not differentially grade immigrants based on their own stereotypes.
There is a lively debate about whether biased behaviour can be changed through the use of ‘implicit bias training’ or awareness of stereotypes, but until now, there has been little evidence to guide this debate. Using data on teachers’ stereotypes about immigrants elicited through an Implicit Association Test, the new research suggests that revealing biases may be a powerful intervention to reduce discrimination; but it may also induce a reaction from individuals who were not acting in a biased way.
Figure 4: The impact of revealing bias to teachers on grading of immigrant and native students
Notes: This graph shows the distribution of grades given to native and immigrant children by math and literature teachers eligible (light blue bars) and non-eligible (striped bars) for receiving feedback about own IAT score before end of semester grading.
FADING STARS: New evidence on superstar firms in the US economy
CEPR DP No. 13553 27 February 2019
Contrary to common wisdom, ‘superstar’ firms have not become larger and more productive. What’s more, their contribution to aggregate US productivity growth has fallen by more than one third since 2000. These are the conclusions of new CEPR research, which studies the evolution of superstar firms in the US economy over the past 60 years.
Figure 5: Total Contributions of the Stars
Note: the figure plots the contributions of star firms to US labor productivity growth. The dashed lines show the averages for 1960-2000, and 2001-2016. Top 20 averages: 33 bps down to 19 bps. Top 4 by Industry averages: 72 bps down to 43 bps.
IMPACT OF ECONOMIC SANCTIONS: Evidence from Russia, Europe and America
Which Sanctions Matter? Analysis of the EU/Russian Sanctions of 2014
Matej Belin and Jan Hanousek
CEPR DP No. 13549 25 February 2019
Russian sanctions imposed on European and American food imports resulted in about an eight times stronger decline in trade flows than those imposed by the European Union (EU) and the United States on exports of extraction equipment. That is the central finding of CEPR analysis of a natural experiment of reciprocal imposition of trade sanctions by Russia and the EU since 2014.
Using UNCTAD/BACI bilateral flows data, the researchers investigate the effectiveness of narrow versus broadly defined sanctions, and differences in the effectiveness of sanctions imposed on exports and imports. Their results do not appear to be driven by diversion of trade flows via non-sanctioning countries. Hence the difference in sanctions’ effectiveness can be attributed to the broader range of sanctioned goods and potentially to a stronger position of enforcement of sanctions on imports rather than exports.
Laura Veldkamp interviewed by Tim Phillips, 01 March 2019
The digital economy makes it possible for data-savvy firms to grow very large, very quickly. Laura Veldkamp of Columbia Business School tells Tim Phillips about her new project to model the Big Data economy.
Edited by Antonio Fatás
The rapid rise and sudden crash in the price of Bitcoin over the last two years have been a wake-up call to early optimistic views about the disruptive possibilities of cryptocurrencies and other new financial technologies (‘fintech’). Yet while the price of Bitcoin remains far from its record levels, there are many areas of fintech where progress is happening, and these new technologies still receive the attention of aspiring entrepreneurs, established financial institutions as well as central banks and regulators.
A new eBook from CEPR and VoxEU summarises the latest research evidence on the impact of the new technologies, as well as the views of policymakers on how to manage the possible disruption in financial markets. Eleven chapters bring together contributions from leading economists involved in CEPR's new Research & Policy Network on “Fintech and Digital Currencies”: