This week from CEPR: September 23

Thursday, September 23, 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


    • THE REMOVAL OF ROAMING SURCHARGES IN EUROPE LED TO LARGE OVERALL WELFARE EFFECTS: Price Caps and the European Roam-Like-At-Home Regulation   

    EVALUATING THE IMPACT OF PRICE CAPS: Evidence from the European Roam-Like-at-Home Regulation
    Giulia Canzian, Gianluca Mazzararella, Louis Ranchail, Frank Verboven, Stefano Verzillo
    CEPR Discussion Paper No. 16554 | September 2021 

    New evidence shows European Roam-Like-At-Home (RLAH) regulation, which banned all mobile roaming surcharges to consumers travelling within the EEA, and at the same time further tightened the wholesale price caps applicable to foreign operators when enabling international roaming to travellers, created surplus gains that are much larger than the operators' profit reductions. 

    These are the main findings of a new CEPR study by Giulia Canzian, Gianluca Mazzararella, Louis Ranchail, Frank Verboven and Stefano Verzillo which measures the impact of the European Roam-Like-At-Home Regulation on EEA roaming traffic on welfare, consumer surplus, retail and wholesale profits, using the Rest of the World as a control group. Among the findings: 

    • The regulation substantially raised international roaming volumes within the EEA, even more strongly for data than for voice services. 
    • Wholesale revenues also increased, but by proportionately less than wholesale volumes in the case of data services. 
    • There are substantial differences in impact among operators. 
      • Operators from countries in the Central-East and South of the EEA experience higher traffic increases than operators from the West and especially from the North. 
      • Mobile virtual network operators (MVNOs) experience higher traffic increases than mobile network operators (MNOs), as they constrained roaming traffic more strongly before the regulation.
    • The gains in consumer surplus are large, and mainly stem from data services.
    • The consumer gains are proportionately larger in small, open economies and in countries with previously high roaming prices.
    • Total welfare increases considerably, because the consumer surplus gains far outweigh profit losses.
      • The total annual consumer surplus gains of 2 billion Euro come at the expense of 1.3 billion Euro retail profit losses, as operators can no longer charge their customers for roaming services but still incur wholesale costs.
      • Wholesale profits increase by about 300 million Euro, mainly because of increased wholesale revenues, but also partly because of lower costs of providing roaming services after the regulation. The impact of the regulation on total welfare thus amounts to an annual amount of almost 1 billion Euro, or about 80% of EEA roaming revenues before the regulation.

    The findings show how price cap regulation remains important in markets with competitive bottleneck problems and show the delicate balance of the distributional effects of regulations: different consumer gains across EEA countries, and overall consumer gains coming at the expense of  firms with differing network infrastructures.


    • DO COUNTRIES BENEFIT FROM SERVICING THEIR DEBTS DURING TIMES OF WIDESPREAD SOVEREIGN DEFAULTS? Evidence from 1980s Colombia    

    ON THE BENEFITS OF REPAYING
    Francesca Caselli, Matilde Faralli, Paolo Manasse, Ugo Panizza
    CEPR Discussion Paper No. 16539 | September 2021

    The majority of research on international sovereign debt focuses on studying the consequences of not repaying on several economic outcomes, such as access to the international capital market, GDP growth, and international trade. A new CEPR study by Francesca Caselli, Matilde Faralli, Paolo Manasse and Ugo Panizza, takes a different approach, the first of its kind, and asks – do countries benefit from servicing their debts during times of widespread sovereign defaults?   

    The authors focus on the case of Colombia, the only large Latin American country that is generally deemed as not having defaulted in the 1980s. Using archival research and formal econometric estimates of Colombia's probability of default, the research shows that: 

    • In the early 1980s Colombia's economic fundamentals were not significantly different from those of the Latin American countries that defaulted on their debts. 
    • The different path chosen by Colombia was largely political in nature, and due to the authorities' belief that maintaining a good reputation in the international capital market would have substantial long-term payoffs. 
    • Although Colombia had to re-profile its debts, high-level political support from the US allowed Colombia do to so outside the standard framework of an IMF program. 
    • In the short to medium run, Colombia benefited from avoiding an explicit default. Specifically, GDP growth in the 1980s is found to be higher than it would have been if behaved like its neighbouring countries. 
    • However, Colombia's behaviour in the 1980s did not lead to long-term reputational benefits or better access to international capital markets at time of crisis.

    • FIRMS ARE REWARDED FOR BEING ‘GREEN’ IN THE FORM OF CHEAPER LOANS – HOWEVER, ONLY WHEN BORROWING FROM A GREEN CONSORTIUM OF LENDERS  

    WHEN GREEN MEETS GREEN
    Hans Degryse, Roman Goncharenko, Carola Theunisz, Tamas Vadasz 
    CEPR Discussion Paper No. 16536 | September 2021

    A new CEPR study by Hans Degryse, Roman Goncharenko, Carola Theunisz and Tamas Vadasz investigates whether and how the environmental consciousness (greenness for short) of firms and banks is reflected in the pricing of bank credit. 

    Using a large international sample of syndicated loans over the period 2011-2019, the research shows that firms are indeed rewarded for being green in the form of cheaper loans -- however, only when borrowing from a green consortium of lenders, and only after the ratification of the Paris Agreement in 2015. 

    The authors conclude that environmental attitudes do matter "when green meets green”. The Paris Agreement, as the world's first comprehensive climate agreement, raised public awareness of climate-related risks and increased the soft commitment of policymakers to a stricter enforcement of climate policy. This shifts the perception of climate transition risk by investors, therefore materially influencing equilibrium prices.



    TEAMS BECOME MORE PRODUCTIVE WHEN THEIR HOURS ARE SHORTER: Evidence from Japan

    Ruo Shangguan, Jed DeVaro, Hideo Owan        
    18 September 2021

    Can companies, by asking less of their workers, actually get more out of them? Using evidence from Japan, a study by Ruo Shangguan, Jed DeVaro and Hideo Owan shows that long working hours of key team members harm team productivity. In contrast, shorter hours cause the opposite effect, perhaps because workers recover from fatigue and arrive for work with increased energy and focus.

     

    FOSTERING FINTECH FOR FINANCIAL TRANSFORMATION

    Thorsten Beck, Yung Chul Park          
    16 September 2021

    The recent wave of financial innovation related to digitalisation has created the need for a flexible regulatory framework that can accommodate the changing landscape of financial service providers while safeguarding stability.

    Writing at Vox, editors Thorsten Beck and Yung Chul Park introduce a new eBook that takes stock of financial digitalisation over the past decade and applies global lessons to the regulatory debates in Korea.
      


    THE IMPACT OF TRADE COSTS CAN BE WEAK OR STRONG – DEPENDING ON HOW MUCH COUNTRIES TRADE

    Natalie Chen, Dennis Novy                                  
    17 September 2021

    A study by Natalie Chen and Dennis Novy finds that the impact of trade costs depends on how intensively countries trade. Falling trade costs boost trade between countries with initially ‘thin’ trading relationships where the scope for growth is largest. But they have a much weaker impact for country pairs that are already trading heavily.


    THE US MILITARY INCREASINGLY TARGETS HIGH-SKILLED RECRUITS AS WAR BECOMES MORE TECHNOLOGICALLY ADVANCED

    Andrea Asoni, Andrea Gilli, Mauro Gilli, Tino Sanandaji                                  
    19 September 2021

    There is a common perception that the US military predominantly recruits individuals from the most disadvantaged socioeconomic backgrounds with limited other career options. Writing at Vox, Andrea Asoni, Andrea Gilli, Mauro Gilli and Tino Sanandaji show that this is no longer the case. 

    The research details how skill-biased technological change has led the US military to recruit more higher-skilled personnel since the 1990s, and while in 1979 the probability of joining the military was clearly higher for those with lower-than-average family income, for the 1997 cohort the probability was much more evenly distributed.


    ECONOMIC INTEGRATION FOSTERS THE SPREAD OF DEMOCRACY

    Giacomo Magistretti, Marco Tabellini                                   
    20 September 2021

    Can democracy be exported? Writing at Vox, Giacomo Magistretti and Marco Tabellini use a large cross-country dataset from 1960 to 2015 to show that, while the ‘top-down’ imposition of political institutions is not desirable and rarely successful, democracy can indeed be ‘exported’ – from more democratic to less democratic countries – through repeated trade interactions. 

    The findings suggests that economic integration might be advantageous to less democratic countries not only directly by fostering GDP growth, but also indirectly by favouring the transition to democracy and the socioeconomic and political benefits associated with it.


    INTELLECTUAL PROPERTY RIGHTS AND WAGE INEQUALITY IN INDIA 

    Sourav Bhattacharya, Pavel Chakraborty, Chirantan Chatterjee                              
    20 September 2021


     

    Innovation and technology adoption contribute significantly to rising income inequality, yet most studies focus on the effects in OECD countries. A new study by Sourav Bhattacharya, Pavel Chakraborty and Chirantan Chatterjee uses a change in the patent regime in India to estimate the impact on wage inequality between managerial and non-managerial workers in a firm. 

    The authors find that stronger intellectual property protection has a sharper impact on the demand for managerial skill for technologically advanced firms, highlighting both within and between firm inequality. 


    STALIN’S GULAGS AND THEIR LEGACY

    Gerhard Toews, Pierre-Louis Vézina                          
    23 September 2021 

    'Enemies of the people’ were the millions of artists, engineers, managers, or professors who were thought to be a threat to the Soviet regime solely for being the educated elite. Along with millions of non-political prisoners, they were forcedly resettled to the Gulag, the system of labour camps across the Soviet Union. A study by Gerhard Toews and Pierre-Louis Vézina looks at the long-run consequences of this dark resettlement episode. It shows that areas around camps with a larger share of enemies of the people among camp prisoners are more prosperous today, as captured by firms’ wages and profits, as well as night lights per capita.


    PATENT BUYOUTS CAN HELP WIN THE RACE AGAINST CORONAVIRUS MUTATIONS

    Michael Stolpe
    23 September 2021 

    To win the critical race between vaccines and mutations, the worldwide vaccination Covid-19 campaign must mobilise economies of scale. The most effective way to do so, Michael Stolpe argues, is to convert the existing Covid-19 Vaccines Global Access initiative into a more generously endowed global fund. Instead of merely obtaining the surplus vaccines of rich countries, and relying on unpredictable donations, the initiative should acquire the most promising vaccine patents and offer free production licenses to every qualified vaccine and generic drug manufacturer in the global South. 


    EVIDENCE FROM FRANCE SHOWS TAX HAVENS MAY BIAS PRODUCTIVITY MEASUREMENTS

    Vincent Aussilloux, Jean-Charles Bricongne, Samuel Delpeuch, Margarita Lopez Forero
    21 September 2021

    French multinational enterprises have been expanding their activity abroad, including for profit-shifting purposes. These tax planning activities may alter the measurement and our understanding of their real activity. Vincent Aussilloux, Jean-Charles Bricongne, Samuel Delpeuch, and Margarita Lopez Forero use French micro-data from 1997 to 2015 to show that firm-measured productivity declines in the years following multinationals’ establishment of tax havens. Had these new presences in tax havens not been established, the annual growth of French aggregate labour productivity would have been 0.06% higher, which is tantamount to 9.7% of the observed annual aggregate labour productivity growth.



    RETHINKING EUROPE’S ECONOMIC ARCHITECTURE 

    Jean Pisani-Ferry, interviewed by Tim Phillips 21 September

    Questions over the way that Europe is constructed economically have never been more important or urgent. Jean Pisani-Ferry of Sciences Po tells Tim Phillips what issues the CEPR research policy network dedicated to Europe’s Economic Architecture will be focusing on, and how it can influence discussions among policymakers.



    THE FLIGHT FROM QUALITY

    Kathryn Judge and Anil Kashyap interviewed by Tim Phillips, 17 September 2021

    In March 2020 we all assumed there would be some reaction to Covid-19 on Wall Street but, when markets did the opposite of what most people expected, the Fed had to step in to stabilise the economy. Anil Kashyap and Kathryn Judge tell Tim Phillips what happened, why, and how to stop it happening again.

    Read more about the research behind this: VoxColumn: Reforming the macroprudential regulatory architecture in the US, Kathryn Judge, Anil Kashyap.