This week from CEPR: May 20

Thursday, May 20, 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


    • HOW SOCIAL MEDIA AFFECTS TRADITIONAL-MEDIA REPORTING OF CONFLICTS: Evidence from the Israeli-Palestinian Conflict  

    READING TWITTER IN THE NEWSROOM: How Social Media Affects Traditional-Media Reporting of Conflicts
    Sophie Hatte, Etienne Madinier, Ekaterina Zhuravskaya  
    DP16167 | 17 May 2021

    Social media has dramatically changed the landscape of traditional-media news on conflicts. The ability of ‘citizen journalists’/first-hand witnesses to instantly post content online, has changed the extent, tonality, and content of traditional-media reporting of conflicts. New evidence suggests this can have substantial effects on the narrative of how conflicts are reported, helping the side of the conflict that has more civilian casualties.

    A new CEPR study by Sophie Hatte, Etienne Madinier and Ekaterina Zhuravskaya analyses social-media posts in Israel and Palestine, driven by internet outages as a result of lightning strikes and technical failures, to test whether and how information available on social media affects traditional-media reporting of conflicts, with a focus on the United States. Among the findings: 

    • When social media in the conflict zone is not muted by internet outages, conflict news stories on US TV are more numerous and longer. 
    • These stories have higher emotional intensity and focus more on the suffering of civilians and less on the role of US foreign policy or elections. 
    • Social-media-driven democratisation of the conflict news, i.e., the shift of focus from information provided by war gatekeepers to information from ordinary people, helps the narrative on the side of the conflict that has more civilian casualties.

    • SIGNIFICANT ECONOMIC COSTS ASSOCIATED WITH PHYSICAL CLIMATE RISKS BY THE END OF THE CENTURY  

    FAILING YOUNG AND TEMPORARY WORKERS: The impact of Covid-19 on a dual labour market
    Roshen Fernando, Larry Weifeng Liu, Warwick McKibbin    
    DP16154 | 14 May 2021

    Increased climate risks include sea-level rise, crop yield changes, heat-induced impacts on labour, and increased incidence of diseases, droughts, floods, heat waves, cold waves, storms and wildfires. These will likely cause significant economic shocks to labour force and sectoral productivity, and have wider macroeconomic consequences. 

    A new CEPR study by Roshen Fernando, Larry Weifeng Liu and Warwick McKibbin assesses the global economic consequences of climate-related risk in three broad areas: (1) the macroeconomic impacts of physical climate risk due to chronic climate change associated with global temperature increases and climate-related extreme shocks; (2) the macroeconomic effects of climate policies designed to transition to net zero emissions by 2050 (transition risk); and (3) the potential macroeconomic consequences of changes in risk premia in financial markets associated with increasing concern over climate events. The results demonstrate that: 

    • Physical climate change is likely to cause large economic losses, both through chronic climate change and extreme climate shocks. 
    • If countries implement effective policies to achieve zero net emissions by 2050, adjustment costs can be significant, particularly for fossil-intensive economies and sectors. There is enormous uncertainty about which policies, if any, governments might follow, which is why there is a considerable risk for different industries and countries.
    • Financial markets may become much more disruptive, especially concerning pricing of financial risks associated with climate change. 
    • Emerging and developing economies are likely to be most at risk
    • Sectorally, the largest impacts tend to be on agriculture in many countries.
    • Transition risks vary according to the ambition and the design of policies to reduce emissions. The results demonstrate that there can be potentially significant costs associated with policies to reduce emissions, and the costs differ across sectors and across countries. 

    The authors show how existing economic models can be used to explore various scenarios about future climate change and explore alternative pathways for achieving significant action against future climate risks.


    • AIRBNB NEGATIVELY IMPACTS LONG-TERM RENTAL MARKETS: Evidence from Berlin  

    AIRBNB AND RENTAL MARKETS: Evidence from Berlin
    Tomaso Duso, Claus Michelsen, Maximilian Schaefer, Kevin Tran     
    DP16150 | 13 May 2021

    The rapid expansion of Airbnb and the short-term rental market has had wide-ranging and sometimes disruptive effects. Landlords find it more profitable to offer their homes on the short-term market instead of supplying them as long-term rentals causing supply shortages and rent increases. For a policy intervention with the aim of relieving the housing market to be effective, reducing professional short-term renting is key.

    These are the main findings of a new CEPR study by Tomaso Duso, Claus Michelsen, Maximilian Schaefer and Kevin Tran, which examines two policy interventions in Berlin to study the impact of Airbnb on rents as well as the crowding out of long-term rental supply. It is the first study to yield causal evidence consistent with Airbnb negatively impacting long-term rental markets.

    While the first intervention significantly reduced the number of high-availability Airbnb listings bookable for most of the year, the second intervention led to the exit of mostly occasional, low-availability listings. The reduction in Airbnb supply has a much larger impact on rents and long-term rental supply for the first reform. This is consistent with more professional Airbnb hosts substituting back to the long-term rental market. 

    One additional nearby high-availability Airbnb listing crowds out 0.6 long-term rentals and, consequently, increases the asked square-meter rent by 1.8 percent on average. This marginal effect tends to be smaller in districts with a higher Airbnb density. However, these districts experienced a larger slowdown in rent increases following the reform due to larger reductions in Airbnb supply. 



    GLOBAL UNCERTAINTY IS DECLINING 

    Hites Ahir, Nicholas Bloom, Davide Furceri                 
    18 May 2021

    Global uncertainty has fallen back to its long-run average after reaching a historical high in 2020. Writing at Vox, Hites Ahir, Nicholas Bloom and Davide Furceri show how this is driven by a significant decline in two key drivers of global uncertainty over the last few years: US–China trade tensions and Brexit negotiations. 

    The results show that uncertainty related to COVID-19 is also starting to subside, especially in developed countries where vaccines rollout has started to pick up. Given this, and because US–China trade and Brexit tensions impacted developed countries more, the authors observe a more salient decline in uncertainty in developed countries than in developing ones.

     

    FREE TRADE AGREEMENTS DO NOT ALWAYS ENSURE FREE TRADE: Lessons for the UK post-Brexit

    Jan I. Haaland, Ian Wooton                           
    14 May 2021

    Writing at Vox, Jan I. Haaland and Ian Wooton investigate the impact of shifting from a customs union to a free trade agreement in a model of imperfect competition, where the critical mechanism is the introduction of rules of origin rather than any divergence in tariff rates. The study shows that this may have significant economic importance to a country such as the UK, where Brexit could result in large, discrete changes in economic activity with strong regional implications (even if future free trade agreements happen to have the same external tariffs as those of the customs union). 

    Surprisingly, the issue of rules of origin received little attention in the British press during the negotiations between the UK and EU, despite the term ‘rules of origin’ appearing 87 times in the resulting trade agreement between the UK and the EU. 


    BREXIT IS DETERRING INTERNATIONAL STUDENTS FROM APPLYING TO UK UNIVERSITIES – ESPECIALLY IN STEM SUBJECTS

    Catalina Amuedo-Dorantes, Agnese Romiti                       
    15 May 2021

    A study by Catalina Amuedo-Dorantes and Agnese Romiti shows how Brexit significantly lowered applications from EU students to UK universities, especially for science, technology, engineering and mathematics subjects and for more selective institutions. International student enrolments also dropped – will the UK's ability to attract international talent be permanently affected?  

    The results are significant, as attracting international students is critical for public universities in the UK increasingly facing funding cuts and a diminishing domestic youth population.


    WHY ARE TRADE WARS HARMFUL AND DIFFICULT TO WIN? New data on the 1930s protectionist spiral

    Kris Mitchener, Kevin O'Rourke, Kirsten Wandschneider                       
    19 May 2021

    The Trump administration’s pursuit of protectionist trade policies was predicated to some extent on the belief that America was too lucrative a market to face retaliation. Using the most detailed data set of bilateral trade flows constructed to date for the interwar period, a study by Kris Mitchener, Kevin O'Rourke and Kirsten Wandschneider shows that in fact the United States faced substantial and widespread retaliation from trade partners in response to protectionist measures employed in the wake of the Great Depression. Exports to retaliating countries fell by as much as 33%. 

    DEFAULT EXPECTATIONS AND CURRENCY MOVEMENTS

    Pasquale Della Corte, Lucio Sarno, Maik Schmeling, Christian Wagner                           
    17 May 2021

    A study by Pasquale Della Corte, Lucio Sarno, Maik Schmeling and Christian Wagner uses data from a broad set of currencies to uncover a strong link between exchange rate movements and sovereign risk across all exchange rate regimes. The authors show that this relationship is largely caused by countries’ exposure to global sovereign risk factors and shown to be driven by changes in default expectations. 


    BOLD AND COUNTRY-TAILORED POLICIES ARE NEEDED TO CLOSE GENDER WAGE GAPS IN EUROPE

    Gabriele Ciminelli, Cyrille Schwellnus                     
    16 May 2021

    Women in Europe still earn roughly 15% less per hour than similarly qualified men. A study by Gabriele Ciminelli and Cyrille Schwellnus analyses the drivers of gender wage gaps and finds that in Northern and Western Europe the gap is largely a consequence of childbirth (a ‘glass ceiling’), while in Central and Eastern Europe it is due more to social norms, gender stereotyping, and discrimination (or ‘sticky floors’). Closing gender wage gaps will thus require policies tailored to the circumstances of individual countries. 

    THE GOVERNMENT AS AN (EFFECTIVE) VENTURE CAPITALIST

    Jessica Bai, Shai Bernstein, Abhishek Dev, Josh Lerner                    
    14 May 2021

    Government funding to boost innovation has seen an uplift since the unfolding of the COVID crisis. Using extensive global data, a study by Jessica Bai, Shai Bernstein, Abhishek Dev and Josh Lerner examines how government funding programmes focused on early-stage companies interact with private capital markets, and finds a positive relationship between government funding at this business stage and private capital allocation. Increased reliance on private capital markets enabled governments to mitigate investment frictions, improve capital allocation, and thereby increase local innovation.  


    FISCAL RESPONSES TO THE COVID-19 CRISIS IN EUROPE: Economic growth as the ultimate constraint

    Martin Larch, Janis Malzubris, Stefano Santacroce                          
    19 May 2021

    In 2020, EU member states launched massive fiscal responses to the Covid-19 pandemic. The activation of the severe economic downturn clause of the Stability and Growth Pact, coupled with a decisive intervention of the ECB, offered member states the flexibility to stage their fiscal response.

    As this study by Martin Larch, Janis Malzubris and Stefano Santacroce reveals, however, countries with very high debt and/or high sustainability risks are bound by their meagre growth prospects. If unaddressed, future reviews of the EU fiscal rules may buy time, but not solve the underlying issues. 


    WHY DO GENDER DIFFERENCES IN THE LABOUR MARKET PERSIST? 

    Danilo Cavapozzi, Marco Francesconi, Cheti Nicoletti                             
    13 May 2021

    A new study by Danilo Cavapozzi, Marco Francesconi and Cheti Nicoletti finds that one reason may be women’s gender role attitudes on maternal labour market decisions. The authors show that social pressure is at least as strong as social learning in influencing labour market behaviour. 


    HOW INTERACTIONS BETWEEN GROUPS WITH DIFFERENT COGNITIVE SKILL LEVELS AFFECT COOPERATION

    Eugenio Proto, Aldo Rustichini, Andis Sofianos                 
    13 May 2021

    Using an indefinitely repeated Prisoner’s Dilemma game, a study by Eugenio Proto, Aldo Rustichini and Andis Sofianos finds that integrating players with different abilities leads to higher cooperation rates and higher aggregate payoffs than when they play separately. This is related to the strategy implementation of high-skill players, who are shown to be less lenient in integrated groups. 

    Despite the many forces in society that tend to segregate individuals according to similar characteristics, a large part of social interaction occurs among individuals who are very different from one another in many respects. This study highlights how cognitive ability is one especially important characteristic.


    THE ‘GLOBAL SANCTIONS DATA BASE’: Mapping international sanction policies from 1950-2019

    Gabriel Felbermayr, Aleksandra Kirilakha, Constantinos Syropoulos, Erdal Yalcin, Yoto Yotov                    
    18 May 2021

    Writing at Vox, Gabriel Felbermayr, Aleksandra Kirilakha, Constantinos Syropoulos, Erdal Yalcin and Yoto Yotov present findings from the newly updated Global Sanctions Data Base, which now includes the years of the Trump presidency and provides a more comprehensive coverage of 1,101 economic sanction cases in the years from 1950 to 2019. 

    The data base covers the more recent past which has seen an emergence of interstate political conflicts, political polarisation, and extensive use of coercive sanctions intended to limit the international movement of goods, assets, and people. 



    WHY VACCINE CONTRACTS SHOULD HAVE INCENTIVES FOR ACCELERATED PRODUCTION: The role of adjustment costs

    Daniel Gros interviewed by Tim Phillips, 18 May 2021

    Experience with Covid-19 has shown how vaccinating the population as quickly as possible can be of paramount importance, however with fixed contracts the benefits for early delivery of such vaccines are huge for society, but non-existent for suppliers. Daniel Gros (Centre for European Policy Studies) talks to Tim Philips about why vaccine contracts should have incentives for accelerated production built into them.

    The paper discussed can be found here:
    Covid Economics Issue 77: Incentives for accelerating the production of Covid-19 vaccines in the presence of adjustment costs by Claudius Gros & Daniel Gros.