This week from CEPR: November 11

Thursday, November 11, 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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  • THE BENEFITS OF EU INSTITUTIONAL INTEGRATION: Evidence from Norway

INSTITUTIONAL INTEGRATION AND PRODUCTIVITY GROWTH: Evidence from the 1995 Enlargement of the European Union
Nauro F. Campos, Fabrizio Coricelli and Emanuele Franceschi  
CEPR Discussion Paper No. 16696 | November 2021 

Exploiting the 1995 European Union (EU) enlargement, when all candidate countries (Sweden, Finland and Austria) joined the Single Market but one – Norway, a new CEPR study by Nauro Campos, Fabrizio Coricelli and Emanuele Franceschi studies the productivity effects of deepening integration, that is, of moving further from purely economic to institutional integration. This research is the first to estimate the economic gains induced by institutional integration, in addition to those from pure economic integration, at regional and sectoral levels.

The results robustly indicate that by choosing not to follow the institutional integration route seems to have led Norway to incur a significant loss of productivity, especially in industry, in the seven years after the referendum. The study calculates that productivity in the average Norwegian region grew 0.6 percentage points per year slower than what it would have grown had Norway joined the EU in 1995. This is large given average productivity growth being normally between 1.5 and 2% per annum. The Norwegian experience indicates that institutional integration delivers significantly larger benefits than pure economic integration.


  • FACIAL RECOGNITION AI IN CHINA: How innovation and autocracy can be mutually reinforcing  

AI-TOCRACY
Martin Beraja, Andrew Kao, David Yang and Noam Yuchtman 
CEPR Discussion Paper No. 16703 | November 2021

A new CEPR study by Martin Beraja, Andrew Kao, David Yang and Noam Yuchtman argues that innovation and autocracy can be mutually reinforcing when: (i) the new technology bolsters the autocrat's power; and (ii) the autocrat's demand for the technology stimulates further innovation in applications beyond those benefiting it directly. 

Using the example of facial recognition AI development in China, the authors gather comprehensive data on AI firms and government procurement contracts, as well as on social unrest across China during the last decade, to show that: 

  • Autocrats benefit from AI: local unrest leads to greater government procurement of facial recognition AI, and increased AI procurement suppresses subsequent unrest.
  • AI innovation benefits from autocrats' suppression of unrest: the contracted AI firms innovate more both for the government and commercial markets. 
  • Taken together, these results suggest the possibility of sustained AI innovation under the Chinese regime: AI innovation entrenches the regime, and the regime's investment in AI for political control stimulates further frontier innovation.

Figure: Public Security, Unrest, and AI Contracts

Notes: Each circle represents a prefecture in our dataset that has at least one public security AI contract that is an AI firm’s first government contract. In Panel A, circle size indicates the number of unrest events in a prefecture, while in Panel B, circle size indicates the number of public security AI contracts awarded in the prefecture.


  • ASYLUM RECOGNITION RATES IN EUROPE: Persecution, Policies and Performance  

ASYLUM RECOGNITION RATES IN EUROPE: Persecution, Policies and Performance
Timothy J. Hatton
CEPR Discussion Paper No. 16684 | October 2021

A minority of applicants for asylum in Europe gain some form of recognition as refugees, causing substantial controversy. From the early 2000s, the EU introduced a series of directives to prevent a ‘race to the bottom’ in asylum policies and to harmonise policy between destination countries but the results have not been fully assessed. 

In a new CEPR paper, Timothy Hatton examines the determinants of recognition rates for asylum applicants from 65 origin countries to 20 European destinations from 2003 to 2017. Among the findings: 

  • While asylum policies are often seen as becoming ever more restrictive, there has been a strong upward trend in recognition rates from the mid-2000s, just as the EU was developing its common asylum policy. 
  • The EU directives sought to mitigate or reverse what might otherwise be a race to the bottom among individual countries seeking to deflect asylum applicants to their neighbours.
  • The outcomes of the EU directives have been mixed, however, taken together, they made a modest contribution to the trend increase in recognition rates, most of which is due to increased political terror and human rights repression in a range of origin countries. 
  • The European asylum system has received sustained criticism for the lack of consistency across countries in the way that decisions on refugee status determination are made, resulting in what some describe as an ‘asylum lottery’. EU directives appear to have contributed to relative convergence only insofar as they accounted for the increase in average recognition rates.
  • But differences between European countries remain large, even after accounting origin country composition and for differences in the adoption of EU directives. Some of this may be accounted for by differences in bureaucratic frameworks through which policy is administered.

Figure: Annual average recognition rates 2003-2018 by destination country

Notes: Average annual recognition rates defined as recognised/total decisions. Source: Eurostat database



HOW EFFECTIVE WERE THE NEXT GENERATION EU FUNDS? 

Fabio Canova, Evi Pappa              
09 November 2021

A study by Fabio Canova and Evi Pappa finds that while both the European Regional Development Fund and the European Social Fund have contributed to job creation and economic recovery, the former had a more short-term direct effect and the latter a more medium- to long-term indirect impact. There is significant regional heterogeneity in these impacts, driven by location, level of development, EU tenure, and euro area membership.

 

DEMAND FOR METALS SET TO SOAR AS COUNTRIES PUSH FOR NET-ZERO EMISSIONS  

Lukas Boer, Andrea Pescatori, Martin Stuermer, Nico Valckx               
05 November 2021

Low greenhouse gas technologies including renewable energy, electric vehicles, hydrogen, and carbon capture require more metals than their fossil fuel-based counterparts. Writing at Vox, Lukas Boer, Andrea Pescatori, Martin Stuermer and Nico Valckx show that prices for copper, nickel, cobalt, and lithium could reach historical peaks for an unprecedented, sustained period in a net zero emissions scenario. The total value of production could rise more than four-fold for the period 2021-2040, rivalling the total value of crude oil production.


THE IMPORTANCE OF ELONS: Entrepreneurs are key drivers of firms’ success

Sónia Félix, Sudipto Karmakar, Petr Sedláček                                       
05 November 2021

Using data from Portugal, a study by Sónia Félix, Sudipto Karmakar and Petr Sedláček shows that entrepreneurs themselves are key determinants of firm performance. Serial entrepreneurship is widespread, and businesses of serial entrepreneurs outperform all other firms along multiple dimensions. They have a disproportionate impact on the aggregate economy, including for our understanding and modelling of top income inequality.  


COMBATTING CLIMATE CHANGE: A CEPR collection

Beatrice Weder di Mauro                                       
08 November 2021

Submerged beneath the flood of information, initiatives, ideas, and pronouncements, it is hard to keep sight of what is needed for the goal of limiting global warming to 1.5°C. Writing at Vox, CEPR President Beatrice Weder di Mauro introduces a new eBook that brings together 45 Vox columns on the economics of climate change with the aim of (1) providing an overview of some of the key issues from the economist’s perspective, (2) stimulating further research, and (3) demonstrating how CEPR is fully engaged with this central debate of our times and how the power of its network can promote excellent research and relevant policy.  


THE UK’S POST-COVID FISCAL RULES

Ethan Ilzetzki                                        
11 November 2021

The October 2021 Centre for Macroeconomics survey asked the members of its UK panel to evaluate the performance of UK fiscal rules to date and which rules would best serve the British economy going forward. Writing at Vox, Ethan Ilzetzki reveals that the majority of the panel thinks the sequence of fiscal rules in place in the UK since 1997 have caused a material reduction in UK public debt. 

However, twice as many panellists thought these rules harmed the conduct of macroeconomic policy than those that thought they helped. Going forward, a majority of the panel believes that well-designed rules limiting public deficits or debts would best improve the conduct of macroeconomic policy, but nearly a third would scrap fiscal rules altogether.


COMBATTING REGIONAL INEQUALITY THROUGH CORPORATE INVESTMENT: Evidence from Japan

Cameron LaPoint, Shogo Sakabe                                    
08 November 2021


 

Growing regional inequality has led policymakers to offer firms tax breaks to attract investment and jobs to economically peripheral regions. Writing at Vox, Cameron LaPoint and Shogo Sakabe examine a place-based bonus depreciation scheme in Japan which granted high-tech manufacturers immediate cost deductions from their corporate income tax bill. The research shows that: 

  • The policy generated big gains in employment and investment in building construction and in machines at pre-existing production sites. 
  • This response was driven by firms which rely on costly but long-lived capital inputs like industrial machines. 
  • How firms react to spatially targeted tax incentives ultimately depends on their internal network and their composition of intermediate capital inputs.  

HOW GLOBAL AGRICULTURAL VALUE CHAINS CHANGED THE STRUCTURE OF ECONOMIES

Sunghun Lim                                    
06 November 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.  

WHEN INDUSTRIAL POLICY WORKED: The case of South Korea

Jaedo Choi, Andrei Levchenko                                     
09 November 2021

A study by Jaedo Choi and Andrei Levchenko shows that South Korea’s 1970s industrial policy measures are an example of where activist industrial policy appears to have succeeded, with the temporary subsidies having a large and statistically significant effect on firm sales as long as 30 years after they ended.  

However, today’s policymakers face the same challenge as those in the past: identifying conditions – such as dynamic productivity effects or externalities – under which activist industrial policy is welfare-improving. There are relevant lessons to be learned for countries pushing industrial policy higher up the agenda. 



TELEMIGRATION AND DEVELOPMENT: How many services jobs will be offshored?

Jonathan Dingel and Richard Baldwin 09 November

In the Covid epidemic, millions of knowledge workers discovered that they could do their jobs from home. So why not go further, and employ low-wage workers in the global south to do these jobs instead? Jonathan Dingel and Richard Baldwin have estimated how many services jobs can be offshored today, and the economic impact for developing countries.

Download the Discussion Paper behind this video: Baldwin, R and Dingel, J. 2021. 'Telemigration and development: On the offshorability of teleworkable jobs'. London, Centre for Economic Policy Research.



CREATING A RESILIENT SOCIETY

Markus K Brunnermeier interviewed by Tim Phillips, 05 November 2021

Repeated environmental and economic crises in recent years are encouraging many people to ask, is this really the best way to run a planet? Markus Brunnermeier tells Tim Phillips how we can do a better job of coping with shocks.