This week from CEPR: October 03

Thursday, October 3, 2019

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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    • TRANSITION FROM PLAN TO MARKET CAUSED MAJOR DEPRIVATION IN FORMER COMMUNIST COUNTRIES 

    TRANSITION FROM PLAN TO MARKET, HEIGHT AND WELL-BEING
    Alicia Adsera Ribera, Francesca Dalla Pozza, Sergei Guriev, Lukas Kleine-Rueschkamp, Elena Nikolova 
    CEPR DP No. 14027 | 25 September

    A new CEPR study by Alicia Ribera, Francesca Pozza, Sergei Guriev, Lukas Kleine-Rueschkamp and Elena Nikolova re-evaluates the impact of transition from a planned economy to a market economy in former communist countries on people’s health and wellbeing. 

    The results show clear evidence of the high social cost of early transition reforms: cohorts born around the start of transition are shorter than their older or younger peers. The difference in height suggests that the first years of reforms in post-communist countries were accompanied by major deprivation.

    The study provides suggestive evidence for the importance of three mechanisms that partly explain these results: the decline of GDP per capita; the deterioration of healthcare systems; and food scarcity. 

    On a positive note, the data show that cohorts that experienced transition in their infancy are now better educated and more satisfied with their lives than their counterparts. Overall, the results imply that the transition process has been a traumatic experience, but that its negative impact has largely been overcome.

    Figure 1: Countries of origin

     


    • BETTER INTERNET ACCESS REDUCES PEOPLE’S APPROVAL OF THEIR GOVERNMENTS AND RAISES THEIR PERCEPTIONS OF CORRUPTION 

    INTERNET AND CONFIDENCE IN GOVERNMENT
    Sergei Guriev, Nikita Melnikov, Ekaterina Zhuravskaya 
    CEPR DP No. 14022 | 25 September

    A new CEPR study by Sergei Guriev, Nikita Melnikov and Ekaterina Zhuravskaya shows that an increase in internet access reduces government approval and increases the perception of corruption in government. Analysing survey date on over 840,000 individuals from over 2,200 sub-national regions in 116 countries between 2008-2017 from the Gallup World Poll, the researchers find that:

    • This effect is present only when the internet is not censored and is stronger when traditional media are censored. 
    • Actual incidents of corruption translate into higher corruption perception only in places covered by 3G. 
    • In Europe, the expansion of mobile internet increased the vote shares of anti-establishment populist parties.
    • As many populist politicians in Europe have been found spreading misinformation, the results suggest that the internet is a tool that can be used both to inform and to mis-inform the public.

    Figure 1: The growth of 3G netowkr coverage between 2007 and 2018


    • DISCRIMINATION AGAINST JOB APPLICANTS OF NORTH AFRICAN ORIGIN: New evidence from the French public and private sectors

    WHEN CORRESPONDENCE STUDIES FAIL TO DETECT HIRING DISCRIMINATION
    Pierre Cahuc, Stéphane Carcillo, Andreea Minea, Marie-Anne Valfort   
    CEPR DP No. 14028 | 27 September

    Fictitious low-skilled applicants in the private sector are half as likely to be called back by the employers when they are of North African origin than when they are of French origin. In contrast, the origin of the fictitious applicants does not impact their callback rate in the public sector.

    These are among the findings of a new CEPR study by Pierre Cahuc, Stéphane Carcillo, Andreea Minea and Marie-Anne Valfort, which uses a correspondence study to explore discriminatory preferences and beliefs among employers in both the public and private sector. 

    The research also finds that although minority candidates are as likely to get invited, their chances of being hired may be smaller after the interviews, Recruiters seem to display similarly strong negative discriminatory attitudes towards North Africans in both sectors. 

    The study indicates that discrimination at the invitation stage is a poor predictor of discrimination at the hiring stage. This suggests that many correspondence studies may fail to detect the extent of hiring discrimination.

    Figure 4: Distribution of applications of French and north African candidates

    Note: 8% of job openings have no North African applicant, while 12.5% of openings have 10 French applicants. The horizontal axis reports the number of applications per job. The horizontal axis reports the number of applications per job. The distributions of North African and French applications are approximated by Poisson distributions with parameter Na=V and Nf=V; respectively, where Na and Nf denote the number of North African and French applications and V stands for the number of vacant jobs.



    BREXIT UNCERTAINTY INCREASING FOR UK BUSINESSES

    Nicholas Bloom, Philip Bunn, Scarlet Chen, Paul Mizen, Pawel Smietanka  
    25 September 2019

    Brexit uncertainty is at an all-time high for export-intensive UK firms, investment continues to fall and stocks are being held high. These are among the latest data from a survey of chief financial officers (CFOs) at 3,000 small, medium and large UK businesses. 

    Writing at Vox, Nicholas Bloom and colleagues summarise the latest results of The Decision Maker Panel, a monthly survey of 3,000 CFOs, which provides data on the uncertainty created by the Brexit process and the effect that is having on British businesses. 

    The results reveal a broad-based rise in the proportion of respondents reporting that Brexit was one of their top three sources of uncertainty in recent months to close to the highest level since the EU referendum. That uncertainty is also expected to be more persistent than previously thought. 


    THE IMPACT OF MULTINATIONAL ENTERPRISES ON THE GLOBAL ECONOMY

    Koen De Backer, Sébastien Miroudot, Davide Rigo   
    25 September 2019

    A new study by Koen De Backer, Sébastien Miroudot and Davide Rigo shows that multinational enterprises (MNEs) and their networks of foreign affiliates are important components in today’s global economy and, contrary to conventional wisdom, they interact considerably with domestic companies in their host economies.

    The results show that while most MNE activities are still ‘at home’, MNE affiliates operate as the lynchpin between international and domestic parts of value chains as they cooperate and contract significantly with domestic companies in the host economy. MNEs typically rely on SMEs (small and medium-sized enterprises) to become global firms and expand internationally. 


    THE IDEAS OF MARTIN FELDSTEIN AND THEIR INFLUENCE ON THE ECONOMICS PROFESSION AND PUBLIC POLICY

    James Poterba, Lawrence H. Summers   
    25 September 2019

    Martin Feldstein, who passed away in June 2019, was one of the most important applied economists of the last half-century. As president of the National Bureau of Economic Research for nearly 30 years, Feldstein advanced the conduct and dissemination of economic research, and helped to create the modern economics profession. 

    Writing at Vox, James Poterba and Lawrence Summers, two of his former students and close colleagues, celebrate his intellectual legacy, outline his seminal contributions on a wide range of topics in public economics and beyond, his pioneering use of large data sets, and his influential voice in US public policy over many decades. 


    US STATE PRESCRIPTION OPIOID POLICIES HAVE HAD LITTLE EFFECT ON WELLBEING OR MORTALITY

    Robert Kaestner, Engy Ziedan   
    26 September 2019

    Since 1999, the United States has experienced a three-fold rise in opioid prescriptions, a four-fold rise in prescription opioid-related mortality, and a ten-fold rise in non-prescription opioid deaths. In response, many states have enacted laws to monitor opioid-prescribing behaviour. 

    A new study by Robert Kaestner and Engy Ziedan finds little evidence that such laws have had significant effects on wellbeing or mortality. Recognising the grave risks associated with prescription opioids, the study also considers their benefits: the reduction in pain and consequent salutary effects associated with responsibly used prescription opioids. 


    THE GROWTH OF SKILLED TRADEABLE SERVICES 

    Fabian Eckert, Sharat Ganapati, Conor Walsh    26 September 2019

    A new study by Fabian Eckert, Sharat Ganapati and Conor Walsh studies a group of service industries that are skill-intensive, widely traded, largely city-based and have recently seen explosive wage growth due to the information and communication technology revolution. 

    The results show that unlike any other sector, wage growth in these industries has been strongly biased toward the densest local labour markets and the highest-paying firms. These developments alone explain 30% of the increase in inequality between the 50th and 90th percentiles of the wage distribution. The study suggests that in the future, only the most skilled individuals, the densest labour markets and the highest paying firms are likely to participate directly in the growth of skilled tradeable services.

     

    SEEMINGLY SMALL TARIFFS CAN SUBSTANTIALLY DISRUPT GLOBAL VALUE CHAINS: Knock-on consequences of the US-China trade war

    Jayant Menon   
    27 September 2019

    A study by Jayant Menon shows that seemingly small tariffs can substantially disrupt global value chains, both through the difference between nominal and effective tariff rates and the relative costs of relocation and transhipment, and also because of how the trade dispute is being perceived. If it is seen as a symptom of an enduring geopolitical struggle for global economic dominance, then it could recur.   


    THE RISE OF NICHE CONSUMPTION

    Brent Neiman, Joseph Vavra   
    26 September 2019

    In recent decades, the choice of product varieties available to consumers has exploded, even though the retail sector has become dominated by a few very large firms. 

    A study by Brent Neiman and Joseph Vavra shows that this changing environment has led households to concentrate their spending on a few preferred products, which often differ from those consumed by their neighbours. Using data from 700 million grocery store transactions and a novel economic framework, their results show that this development is driven by households selecting products that better match their particular tastes, with large welfare gains.


    PURCHASING TIME-BOUND WORK PERMITS: A solution to international migration?

    Michael Lokshin, Martin Ravallion  
    27 September 2019

    Free migration would bring large gains globally but is politically controversial. A study by Michael Lokshin and Martin Ravallion argues that a more feasible policy is to let citizens in host countries rent out their right-to-work for a period, financed by foreigners purchasing time-bound work permits. This would be a pro-poor social policy in host countries, and bring first-order welfare gains to new migrants from low-wage economies. 


    THE FINANCIAL DEVELOPMENT OF LONDON IN THE 17TH CENTURY

    Nathan Sussman   
    28 September 2019

    A study by Nathan Sussman uses the debt contracts of the Corporation of London from the 17th century to show that the financial development of London between 1638 and 1683 advanced in step with its rival Amsterdam. The supply of capital came mainly from London's wealthy citizens. During this period there is strong correlation between capital deepening in England, and rising GDP per capita. 


    AIR POLLUTION REDUCES THE RELATIVE PRODUCTIVITY OF WORKERS: Evidence from India

    Achyuta Adhvaryu, Sadish D, Namrata Kala, Anant Nyshadham   
    29 September 2019

    A new study by Achyuta Adhvaryu, Sadish D, Namrata Kala and Anant Nyshadham uses evidence from Indian garment factories to show how air pollution reduces the relative productivity of workers in tasks in which they are otherwise more efficient. Effective managers can respond by reallocating workers to other tasks in order to bring total productivity losses to near zero. 


    TECHNOLOGY ADOPTION VIA MACHINE IMPORTS AFFECTED BY PEER INFLUENCE: Evidence from Hungarian firms

    Gábor Békés, Peter Harasztosi   
    30 September 2019

    A new study by Gábor Békés and Peter Harasztosi finds that firms are more likely to import a particular piece of sector-specific machinery when other local firms previously imported the same machine. A similar pattern holds with the choice of the machine’s source country. Using new firm-level data from Hungary for the period 1992-2003, the results show that benefits are concentrated in large and foreign-owned companies, while small and domestically owned firms may actually be adversely affected.


    COMPARING NON-PERFORMING ASSET MEASURES ACROSS COUNTRIES

    Patrizia Baudino, Raihan Zamil   
    30 September 2019

    Non-performing assets are a double-edged sword. On the one hand, they often trigger episodes of financial crises. On the other, once a crisis erupts, market participants must have confidence in banks’ reported asset quality metrics in order to regain faith in the financial system. 

    A study by Patrizia Baudino and Raihan Zamil shows that accounting standards and prudential frameworks to identify and measure non-performing assets vary widely across countries. This presents a challenge for comparing credit risk across banks and countries, for which the study proposes a range of policy options, including a greater emphasis in supervision. 


    MONETARY POLICY FOR A BUBBLY WORLD

    Vladimir Asriyan, Luca Fornaro, Alberto Martin, Jaume Ventura   
    30 September 2019

    A new study by Vladimir Asriyan and colleagues provides a macroeconomic framework of rational bubbles, credit and monetary policy. A central feature of the framework is the presence of financial frictions, which limit the supply of backed assets and create space for unbacked assets to emerge. The study argues that in a world of low interest rates and volatile asset values, monetary policy plays a key role by expanding and stabilising the supply of unbacked assets at an optimal level. 

    PRICES OF CANNABIS SOLD ON THE DARK WEB: New evidence of quantity discounts, quality premia and the effects of legality

    Jakub Červený, Jan van Ours    
    28 September 2019

    A new study by Jakub Červený and Jan van Ours examines the price of cannabis sold over the ‘dark web’ through an anonymous internet marketplace called AlphaBay. The study, which analyses cannabis prices of 500 listings from 140 sellers originating from 18 countries, shows that cannabis prices are lower if sold in larger quantities, increase with perceived quality, and are substantially higher from countries where it is still an illicit drug. The internet-based cannabis market thus seems to be characterised by ‘monopolistic competition’. 



    THE DEATH OF BANKS?

    Tara Rice, Kathryn Petralia interviewed by Tim Phillips

    24 September 2019

    On 24 September, CEPR launched the latest Geneva Report on the world economy, called Banking disrupted? Financial intermediation in an era of transformational technology. Tim Phillips asks Tara Rice and Kathryn Petralia, two of the authors, whether fintechs and cryptocurrencies signal the beginning of the end for banks.


    LESSONS FROM THE IRISH BANKING CRISIS

    Patrick Honohan, Martin Sandbu interviewed by Tim Phillips

    27 September 2019

    Patrick Honohan took over as governor of the Central Bank of Ireland in 2009 with the economy in meltdown, and steered it through its deepest crisis. His new book re-examines what happened, and lessons for future crises. Tim Phillips talks to Patrick and Martin Sandbu of the Financial Times about what policy-makers and central bankers can learn from Ireland's ordeal.