This week from CEPR: November 04

Thursday, November 4, 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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  • WESTERN SOCIETIES ARE EXPERIENCING AN 'EPIDEMIC OF LONELINESS', AND IT MAY HAVE SIGNIFICANT ECONOMIC IMPLICATIONS  

ALONE AND LONELY. THE ECONOMIC COST OF SOLITUDE FOR REGIONS IN EUROPE
Chiara Burlina and Andrés Rodríguez-Pose  
CEPR Discussion Paper No. 16674 | October 2021 

The amount of time we spent by ourselves, living alone or without strong social relationships, is rising in the Western world, a phenomenon that was made worse by the Covid-19 pandemic, research suggests it may have significant economic implications.

These are the main findings of a new CEPR paper by Chiara Burlina and Andrés Rodríguez-Pose, which analyses the consequences of solitude on regional economic performance across Europe, distinguishing between two of its key dimensions: alone living, proxied by the regional share of the population in one-person households; and loneliness, proxied by the aggregate share of social interactions. The research reveals that: 

  • Solitude has important implications for economic development, but the effects are varied when considering those who are ‘lonely’ and those who ‘live alone’.
    • Lonely people generally suffer more from depression, are more likely to report mental health problems and, thus, participate less in the labour force. Loneliness can therefore trigger a decline in economic activity and income growth.
    • The increasing wave of people choosing to live alone – rather than being forced to by external circumstances – can propel economic growth, provided they remain active in the labour force and willing to network and interact with others.
  • While alone living is a substantial driver of economic growth across European regions, high shares of lonely people undermine it. 
    • European regions with a lower sociability over time grow less than those where local citizens are more likely to engage in interaction with others on a more regular basis. But this connection is greatly dependent on the frequency of interactions.
  • The connection of loneliness with economic growth is, however, dependent on the frequency of in-person meetings, with large shares of the population meeting others on a weekly basis yielding the best economic returns.

Figure: Distribution of the sociability index - the aggregate share of social interactions (2017)


  • WOMEN ARE SIGNIFICANTLY UNDERREPRESENTED IN THE ECONOMIC PROFESSION ACROSS EUROPE AND THE WORLD  

WOMEN IN ECONOMICS: Europe and the World
Emmanuelle Auriol, Guido Friebel, Alisa Weinberger and Sascha 
CEPR Discussion Paper No. 16686 | October 2021

Based on data collected from the top research institutions in economics around the globe (including universities, business schools and other organisations such as central banks), a new CEPR study by Emmanuelle Auriol, Guido Friebel, Alisa Weinberger and Sascha Wilhelm documents the underrepresentation of women in economics. Among the findings: 

  • For the 238 universities and business schools in the sample, women hold 25% of senior level positions (full professor, associate professor) and 37% of junior level positions. 
  • In the 82 US universities and business schools, the figures are 20% on the senior level and 32% on the entry level, while in the 122 European institutions, the numbers are 27% and 38%, respectively, with some heterogeneity across countries. 
  • The numbers also show that the highest-ranking institutions (in terms of research output) have fewer women in senior positions, in the US, this effect is even present on the junior level.
  • The "leaky pipeline" may hence begin earlier than oftentimes assumed, and is even more of an issue in the highly integrated market of the US. 
  • In Europe, an institution ranked 100 places higher has three percentage points fewer women in senior positions, but in the US it is almost 5 percentage points.

Figure: Proportion of Women in All Academic Positions (Full Database)

Notes: This figure plots information on all positions in the full database as of February 2021. Countries for which we have no observations in our database are left blank.


  • FINTECH LENDING REDUCES FINANCING CONSTRAINTS AND SPURS INVESTMENT AND FIRM GROWTH: Evidence from Loan Applications in Portugal  

THE REAL EFFECTS OF FINTECH LENDING ON SMES: Evidence from Loan Applications
Afonso Eça, Miguel Ferreira, Melissa Prado and A. Emanuele Rizzo
CEPR Discussion Paper No. 16684 | October 2021

While small and medium enterprises (SMEs) have traditionally depended on banks for credit, individual investors are increasingly providing credit to SMEs through Peer-to-Business (P2B) platforms.

A new CEPR study by Afonso Eça, Miguel Ferreira, Melissa Prado and Emanuele Rizzo examines the impact of FinTech lending on firm growth, investment, and financing using a unique data set from a leading independent P2B platform including both accepted and rejected loan applications in Portugal. The authors uncover novel empirical  findings about the effects of FinTech credit on small businesses: 

  • FinTech serves the same segment of high quality and creditworthy small businesses as banks. 
  • Firms use FinTech loans to reduce bank dependence, especially from less liquid banks. Firms that access FinTech lending increase assets, employment, and sales relative to firms that get their loan application rejected. 
  • Firms that borrow through P2B platforms are larger, more profitable, lower credit risk, and have prior lending relationships with the banking sector.
  • Firms increase leverage as they substitute long-term bank debt with long-term FinTech debt and short-term bank debt. 
  • FinTech lending reduces financing constraints and spurs investment and firm growth. Fin-Tech loans allow SMEs to increase assets, employment, and sales relative to SMEs with rejected loan applications.


ECONOMIC PERFORMANCE OF FRENCH SMEs DURING THE COVID-19 CRISIS

Anne Epaulard, Etienne Fize, Titouan Le Calvé, Philippe Martin, Hélène Paris, Kevin Parra Ramirez, David Sraer             
02 November 2021

Analysis of bank account data from 100k French firms finds those in accommodation and food services doing surprising well, while many in the construction sector are struggling financially. New study by Philippe Martin and colleagues suggests Covid fiscal support may not have worked as intended, and that policymakers should continue to monitor bankruptcies closely in the coming months.

 

CARBON TAX RECYCLING AND POPULAR SUPPORT IN GERMANY

Rick van der Ploeg, Armon Rezai, Miguel Tovar               
02 November 2021

Carbon taxes are unpopular because the poor are disproportionately hurt. But revenue from carbon taxation can be returned to all citizens via lump-sum payments (‘climate dividends’) to lower energy prices. Policymakers in Germany have taken up such ‘tax-and-distribute’ policies. A new study by Rick van der Ploeg, Armon Rezai and Miguel Tovar evaluates the effects of carbon taxes on households to show that: 

  • The transparency of such a policy increases political support if a substantial majority of the population benefit from the carbon tax plus cash disbursal. 
  • However, endogenous behaviour blunts the effectiveness of such transfers; for Germany, it diminishes political approval from 60% to 30%. 
  • Using revenue for lowering income taxes as well for dividends increases popular support back to above 50%.

THE RISKS OF PERSISTENTLY HIGHER US INFLATION

Davide Brignone, Alistair Dieppe, Martino Ricci                                      
01 November 2021

Using the ECB-Global model, Davide Brignone, Alistair Dieppe and Martino Ricci estimates the impact on inflation of the fiscal stimulus to be limited. Three scenarios are undertaken to quantify the upside risks to inflation which could arise from considering a steeper Phillips curve, stronger fiscal multipliers, and rising inflation expectations. 

The results suggest that the impact on inflation from these sources of risk is likely to be moderate, unless all of the risks materialise simultaneously, and the Fed does not depart from the assumed monetary policy path.  


 

COVID-19 SUPPORT DISTORTED THE PROCESS OF CREATIVE DESTRUCTION IN THE NETHERLANDS

Daan Freeman, Leon Bettendorf, Yvonne Adema                                      
03 November 2021

A study by Daan Freeman, Leon Bettendorf and Yvonne Adema reveals that unlike in other countries, government support during COVID disrupted the creative destruction process in the Netherlands by saving a disproportionately high number of low-productivity firms. 

The authors suggest this might be because the support measures were more widely and easily available. The speed of the phasing out will play an important role in determining how many firms that have been propped up fail once the support is removed or even has to be paid back.


 

DOES AUTOMATION LEAD TO EXPORT QUALITY UPGRADING? Evidence from developing and developed economies

Timothy DeStefano, Jonathan Timmis                                       
30 October 2021

Robots are rapidly becoming a key part of manufacturing in developed and developing economies. Examining a new channel for how automation can affect manufacturing exports – quality upgrading, a study by Timothy DeStefano and Jonathan Timmis shows that robot diffusion increases the quality of exports. 

Global quality improvements are predominantly driven by the upgrading of developing country exports, while quality improvements within both developed and developing countries are driven by the catch-up of (initially) lower-quality exports. The authors also find that sophisticated or more basic robot applications are associated with quality gains in developed and developing economies, respectively.


THE GROWING BACKLASH AGAINST GLOBALISATION

Italo Colantone, Gianmarco Ottaviano, Piero Stanig                                   
01 November 2021


 

Writing at Vox, Italo Colantone, Gianmarco Ottaviano and Piero Stanig argue that globalisation is at stake partly due to reasons that are not strictly related to trade, which include increased automation, immigration and crisis-driven fiscal austerity. The political sustainability of globalisation – and arguably of the international liberal order – will depend on how successful societies are at managing in a more inclusive way the distributional consequences of structural change. 


THERE IS NO PLANET B’, BUT FOR BANKS THERE ARE ‘COUNTRIES B TO Z’: Domestic climate policy and cross-border bank lending

Emanuela Benincasa, Gazi Kabaș, Steven Ongena                                   
25 October 2021

Do banks use cross-border lending to react to higher climate policy stringency in their home countries? A study by Emanuela Benincasa, Gazi Kabaș and Steven Ongena examines global syndicated loans to show that banks increase their cross-border lending in response to greater climate policy stringency in their home country, if the home country has more stringent climate policy than the borrowers' countries. Used in this way as a regulatory arbitrage tool, cross-border lending can reduce the effectiveness of climate policies if global coordination is not enforced.  

LENDING TO UNPRODUCTIVE FIRMS COULD DELAY RECOVERY AND CAUSE PERMANENT PRODUCTIVITY AND OUTPUT LOSSES

Viral Acharya, Simone Lenzu, Olivier Wang                                    
29 October 2021

Banking crises of the past several decades have encouraged regulatory forbearance towards banks combined with accommodative monetary policy. Used too aggressively, these policies can lead to ‘zombie lending’ – the extension of new credit or prolonging of existing loans to low-productivity firms. While such policies may stabilise the economy in the short run, a study by Viral Acharya, Simone Lenzu and Olivier Wang shows that they risk transforming transitory shocks into phases of delayed recovery and permanent productivity and output losses. 



THE FRAGILE TRIANGLE: Price stability, bank regulation and central bank reserves

Hans Gersbach 16 October

For the first time in a generation, economists are worried about inflation risks in advanced economies. Hans Gersbach argues that the risk to price stability is higher than we assume. The reason: tightening bank regulation that has massively increased central bank reserves.

Read more about the research discussed: Hans Gersbach, The fragile triangle: Price stability, bank regulation and central bank reserves, CEPR Policy Insight No 112.



HOW CRISES REWIRE OUR BRAINS

Ulrike Malmendier interviewed by Tim Phillips, 29 October 2021

When we live through a financial crisis, many of us think differently about money afterwards. Neuroscientists can show that the experience changes the physical structure of our brains, and Ulrike Malmendier tells Tim Phillips how this should also change the way that economists think about preferences for risk.

Read more about the research presented and download the free Discussion Paper
Malmendier, U. 2021. 'Experience Effects in Finance: Foundations, Applications, and Future Directions'.