This week from CEPR: September 26

Thursday, September 26, 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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    • POLITICAL EFFECTS OF THE INTERNET AND SOCIAL MEDIA: The latest research evidence

    Political Effects of the Internet and Social Media
    Ruben Enikolopov, Maria Petrova, Ekaterina Zhuravskaya 
    CEPR DP No. 13996 | 16 September

    A new CEPR study by Ruben Enikolopov, Maria Petrova and Ekaterina Zhuravskaya reviews empirical evidence from recent political economy research and asks: how does the internet and social media affect political outcomes? Among the findings:  

    • In places where the main public grievances are related to corruption, subversion of power and control of the traditional media by autocrats, free internet and social media do help accountability by informing the public and facilitating the organisation of protests. 
    • Autocrats increasingly resort to censoring the internet, banning those social media that they cannot monitor and flooding with misinformation those social media networks that they cannot ban.
    • Younger people (who are usually more experienced users) seem to be much less affected by fake news than older people, or at least, the young share fake news much less.
    • There is some evidence that in democracies, populist parties – both on the extreme right and extreme left of the political spectrum – benefit more from amplification of existing grievances by social media and the internet than parties in the centre.
    • There could be something inherent to social media that makes it more likely to carry messages of extreme, xenophobic or populist nature. The format of communications and the speed with which users are able to react are more suited for shorter, simpler and more emotionally charged messages.

    • CLIMATE CHANGE SIGNIFICANTLY INTENSIFIES ECONOMIC INEQUALITY AND HUMAN MIGRATION 

    Climate Change, Inequality, and Human Migration 
    Michal Burzynski, Jaime de Melo, Christoph Deuster, Frédéric Docquier 
    CEPR DP No. 13997 | 16 September

    A new CEPR study by Michal Burzynski, Jaime de Melo, Christoph Deuster and Frédéric Docquier investigates the long-term implications of climate change for local, inter-regional and international migration of workers. The study uses evidence from nearly all of the world's countries to examine the effects of changing temperature and sea level on income distribution and individual decisions about fertility, education and mobility. Among the findings: 

    • Climate change intensifies poverty and income inequality, creating favourable conditions for urbanisation and migration from low- to high-latitude countries. 
    • Projections suggest that climate change will induce the voluntary and forced displacement of 100 to 160 million workers (200 to 300 million climate migrants of all ages) over the course of the 21st century. 
    • Under current migration laws and policies, forcibly displaced people predominantly relocate within their country and merely 20% of climate migrants opt for long-haul migration to OECD countries. 

    The study concludes that if climate change induces generalised and persistent conflicts over resources in regions at risk, there will be significantly larger cross-border flows in the future.

    Figure 8: Spatial structure of climate migration over the 21st century

    Notes: Figure 8 depicts the projected stocks of international, internal, and local migrants over the 21st century. The thickness of the bars is proportional to the size of the flow; see the legend in bottom right corner (in million people). The following regions are considered: East Asia and Pacic (EAP), Sub-Saharan Africa (SSA), Central Asia and the Rest of Europe (CARE), the Middle East and North Africa (MENA), Latin America and the Caribbean (LAC).


    • SHARED READING AT HOME: Lack of understanding of the potential of informal learning activities contribute to social inequalities in early childhood

    SOCIAL ORIGINS, SHARED BOOK READING AND LANGUAGE SKILLS IN EARLY CHILDHOOD: evidence from an information experiment
    Carlo Barone, Denis Fougère, Clement Pin   
    CEPR DP No. 14006 | 17 September

    Shared book reading between parents and children is often regarded as a significant mediator of social inequalities in processes of early skill development. A new CEPR study by Carlo Barone, Denis Fougère and Clement Pin argues that socially biased gaps between parents in access to information about the benefits of this activity for school success contribute to inequalities between children in access to this activity and in their language development. 

    The study tests this hypothesis with a large-scale field experiment assessing the causal impact of an information intervention targeting parents of pre-schoolers on both the frequency of shared book reading and the receptive vocabulary of children. 

    The results indicate that low-educated parents are more reactive to this information intervention, with significant effects on the language development of their children. The study concludes that information barriers on the potential of informal learning activities at home contribute to social inequalities in early childhood. Removing these barriers is a cost-effective way to reduce these inequalities.



    WHY ARE ECONOMISTS LETTING THE WORLD DOWN ON CLIMATE CHANGE?

    Andrew Oswald, Nicholas Stern  
    17 September 2019

    Andrew Oswald and Nicholas Stern argue that despite economic forces being the major driver of the carbon dioxide problem, economists have so far been too silent on the subject. For example, the Quarterly Journal of Economics, the most-cited journal in economics, has never published an article on climate change. 

    They argue that good economics can and should play a fundamental role in guiding the policy framework that will influence investment decisions in the coming years, which makes it so important that the profession dramatically increases its work now.


    BANKING, FINTECH, BIG TECH: Emerging challenges for financial policy-makers

    Kathryn Petralia, Thomas Philippon, Tara Rice, Nicolas Véron   
    25 September 2019

    FinTech and Big Tech firms are both increasingly stepping on banks’ traditional turf. This column introduces the 22nd Geneva Report on the World Economy, which looks at the challenges generated by new technology-enabled entrants to the global banking industry and the public authorities that oversee it. 

    The Report – written by Kathryn Petralia, Thomas Philippon, Tara Rice and Nicolas Véron – argues that while the financial landscape will continue its radical transformation for the consumer, banking at large will remain a business conducted primarily by government chartered and regulated entities, including many incumbent banks. 


    HOW TRADE AGREEMENTS CAN ADDRESS NON-TARIFF BARRIERS

    Gene Grossman, Phillip McCalman, Robert Staiger   
    23 September 2019

    A new study by Gene Grossman, Phillip McCalman and Robert Staiger presents a new framework to analyse how different forms of trade agreements can address the recent rise in non-tariff barriers, such as differing regulations across countries, which continue to pose obstacles to trade. For various economic environments, they discuss whether and how these treaties can achieve global efficiency.


    POTENTIAL OUTPUT AND EU FISCAL SURVEILLANCE: Analysis from the European Commission 

    Marco Buti, Nicolas Carnot, Atanas Hristov, Kieran Mc Morrow, Werner Roeger, Valerie Vandermeulen   
    23 September 2019

    A new study by European Commission economists argues that much of the recent criticism of the usefulness of the EU’s commonly agreed methodology for estimating potential output and output gaps is both conceptually and empirically inaccurate, as well as being neglectful of the plausibility of the EU’s potential output estimates compared with other business cycle indicators. 

    The results show that many of the criticisms focus to an excessive degree on the role of potential output in EU fiscal surveillance, with the practice of surveillance being much more flexible and less rigid than many commentators tend to suggest.


    HOW GENTRIFICATION AFFECTS CHILDREN’S HEALTH AND WELLBEING: Evidence from New York City

    Kacie Dragan, Ingrid Gould Ellen, Sherry Glied    19 September 2019

    A new study by Kacie Dragan, Ingrid Gould Ellen and Sherry Glied examines how gentrification affects children’s health and wellbeing in New York City, at a time when the pace of gentrification is accelerating in the world’s wealthiest cities. 

    The results show that low-income children born in areas that gentrify are no more likely to move than those born in areas that don't gentrify, and that those that do move tend to end up living in areas of lower poverty. Moreover, gentrification does not appear to alter dramatically the health status or health-system use of children by age 9–11, although children growing up in gentrifying areas show somewhat elevated levels of anxiety and depression.

     

    GLOBAL LESSONS FROM EUROSCEPTICISM: Building togetherness and public trust 

    Stephanie Bergbauer, Jean-Francois Jamet, Hanni Schölermann, Livio Stracca, Carina Stubenrauch   
    20 September 2019

    Recent successes of populist movements in Europe seem to reflect eroded trust in the EU’s institutions. A new study by European Central Bank (ECB) economists asks what global lessons can be drawn from recent research on Euroscepticism at the ECB and elsewhere.

    The study argues that taking citizens’ concerns seriously and addressing salient issues, building on a sense of togetherness, and caring about public trust should inspire a course of action at the global level. Insufficient progress along these dimensions has played a key role not only in Brexit, but also in the backlash against the multilateral world order underpinning globalisation.


    ‘HELICOPTER MONEY’ AS A POLICY OPTION: A discussion with Lucrezia Reichlin, Adair Turner and Michael Woodford

    Lucrezia Reichlin, Adair Turner, Michael Woodford   
    23 September 2019

    With persistently weak economic conditions becoming the norm in Europe, economists are considering increasingly unconventional policy options. One tool that has yet to be taken out of storage is ‘helicopter money’ – that is, the overt monetary financing of government deficits. 

    This Vox column recounts a policy debate on helicopter money that was held at the London Business School (LBS) in April 2013, with Lucrezia Reichlin, Adair Turner and Michael Woodford, three of the world’s leading monetary economists. 


    NEW SUPERVISORY ARCHITECTURE IN EUROPE: A tale of two trends

    Miguel Ampudia, Thorsten Beck, Andreas Beyer, Jean-Edouard Colliard, Agnese Leonello, Angela Maddaloni, David Marques-Ibanez  
    20 September 2019

    The decade since the Global Crisis has seen notable changes in the architecture of supervision, with separation of responsibility for monetary and financial stability having been reversed in many countries on the one hand, and a move towards more cross-border cooperation between supervisors on the other. 

    A new study by Andreas Beyer and colleagues discusses these two trends in Europe, where responsibility for supervision of the largest banks is housed in the same authority with responsibility for monetary policy, the European Central Bank. The authors argue that the Single Supervisory Mechanism is a good reflection of the subtle economics of supervisory architecture and the many trade-offs that have to be taken into account. 


    WORKING CONDITIONS ON DIGITAL LABOUR PLATFORMS: Low wages and little regulation

    Janine Berg, Marianne Furrer, Ellie Harmon, Uma Rani, Michael ‘Six’ Silberman   
    20 September 2019

    Cross-border, digital labour platforms permit real-time hiring for a range of jobs, from IT programming to graphic design, copywriting and routine clerical tasks. But little is known about working conditions on these platforms or about their employees. 

    A new study by Janine Berg and colleagues begins to fill the gap in the scholarship using an International Labour Organization (ILO) survey of 3,500 workers from 75 countries and five major microtask platforms. The results show that even workers who perform valuable labour for successful companies often do so for low wages and without the protection of a regulated employment relationship.


    GIVE CLIMATE AND TRADE NEGOTIATORS A NEW JOINT MISSION: Low-carbon trade agreements 

    Richard Samans   
    22 September 2019

    A new study by Richard Samans argues that the world’s climate change strategy and the global trading system are both in need of an infusion of fresh momentum. He explains that the climate and trade diplomatic communities need each other more than they know and it is time to bring them together. 

    Samans claims the best way to reinvigorate both climate and trade diplomacy is to think and act outside the box of the Paris Agreement and conventional free trade agreements and push for low-carbon trade agreement.


    END-OF-LIFE MEDICAL EXPENSES PLACE SERIOUS FINANCIAL BURDENS ON HOUSEHOLDS: The latest research evidence

    Eric French, John Jones, Elaine Kelly, Jeremy McCauley   
    22 September 2019

    A new study by Eric French, John Jones, Elaine Kelly and Jeremy McCauley examines end-of-life medical expenses, which can be expensive for both governments and households. Long-term care may impose additional costs, particularly when decedents are older or suffer from disabling chronic conditions.

    The study shows that in most developed countries, including the United States, end-of-life expenses only constitute around 10% of aggregate medical spending and that such expenditures on formal medical services are reasonably well insured. The extent of insurance for long-term care, on the other hand, varies substantially. 


    EFFECTIVENESS OF MONETARY INCENTIVES TO VOTE: Evidence from Peru

    Mariella Gonzales, Gianmarco León-Ciliotta, Luis R. Martinez   
    23 September 2019

    To counter the worldwide fall in electoral participation over the last 30 years, some governments have introduced compulsory voting, with ten countries currently punishing abstainers with a fine. 

    A new study by Mariella Gonzales and colleagues examines the question of whether and how voter turnout is affected by changes in the value of the fine, drawing on the experience of Peru, where voting has been compulsory since 1933 and the abstention fine was reformed after 2006. Results show that compulsory voting with low fines helps reduce the burden on those that pay them without fundamentally undermining the effectiveness of the system. 


    QUANTIFYING THE EXTRAORDINARY RISE IN TRADE POLICY UNCERTAINTY: Brexit, Trump and US-China trade tensions

    Scott Baker, Nicholas Bloom, Steven Davis   
    17 September 2019

    Tariff threats, hikes and retaliations have become a major source of economic uncertainty and stock market volatility, according to new research by Scott Baker, Nicholas Bloom and Steven Davis. Their study explores why in the course of a few months, trade policy went from a relative afterthought in financial markets to perhaps the most pressing question affecting investments and corporate strategy around the globe. 

    The researchers conclude that the recent rise in trade policy uncertainty, driven by the US withdrawal from the Trans-Pacific Partnership, tariff hikes on US steel and aluminium imports, Brexit uncertainty and escalating US-China trade tensions, is extraordinary by several metrics.


    INCREASING BUSINESS CYCLE SYNCHRONISATION: The role of global value chains, market power and extensive margin adjustments

    Francois de Soyres, Alexandre Gaillard   
    21 September 2019

    The recent increase in synchronisation of business cycles across countries is significantly associated with trade in intermediate inputs. This is an important consequence of global value chains, but we cannot understand it if we use a model in which real GDP movements are simply decomposed into changes in technology and factor supply. 

    A new study by Francois de Soyres and Alexandre Gaillard argues that accounting for profits and extensive margin adjustments reconciles theory and data and enriches our understanding of what makes countries interdependent, offering the first quantitative solution to the 'trade co-movement puzzle'.


    VENTURE CAPITAL-BACKED FIRMS ACHIEVE GREATER SUCCESS: Contributions to the aggregate economy 

    Ufuk Akcigit, Emin Dinlersoz, Jeremy Greenwood, Veronika Penciakova   
    24 September 2019

    A new study by Ufuk Akcigit, Emin Dinlersoz, Jeremy Greenwood and Veronika Penciakova assesses the impact of venture capital funding on the growth trajectories that firms take. Analysis of employment and patenting data show that venture capital-backed firms are likely to achieve greater success and contribute more significantly to the aggregate economy. The absence of venture capital funding would lower aggregate growth by 28%.


    FLAWED RECRUITMENT PRACTICES CREATE HIRING CHALLENGES FOR JAPANESE COMPANIES

    Hideo Owan   
    19 September 2019

    Many Japanese companies complain about a shortage of qualified workers. A new study by Hideo Owan argues that the difficulty is partly driven by flawed recruitment practices. It suggests improvements to the hiring process, such as customised aptitude tests and team-based structured interviews to remedy the situation. 


    SOTHEBY’S AND CHRISTIE’S EXPAND PRIVATE SALES: Implications for the art market

    Kathryn Graddy   
    21 September 2019

    A new study by Kathryn Graddy examines the recent push into private sales of two of the largest art auction houses, Christie’s and Sotheby’s, who already dominate the high-end public auction system in art. The study explores whether this development may reduce competition. It explores the potential implications for the art market, which in its current form provides important information about prices to a host of players, including buyers, sellers, investors, students of art history and even economists. 


    RESTARTING ASSET PURCHASES IN THE EURO AREA: Lessons from €2 trillion of ECB purchases

    Ralph Koijen, François Koulischer, Benoît Nguyen, Motohiro Yogo   
    18 September 2019

    Recent economic performance in the euro area has once again raised the possibility of the European Central Bank conducting asset purchases. A new study by Ralph Koijen, François Koulischer, Benoît Nguyen and Motohiro Yogo sorts security-level portfolio holdings data by investor type and across countries in the euro area to study portfolio rebalancing during the ECB purchase programme from 2015-17. The results show that there was a material difference in the impact on investors by geography – with foreign investors selling more than half of purchases. 

    MACROPRUDENTIAL POLICY COULD HAVE REDUCED IMBALANCES IN THE EURO AREA

    Marcin Bielecki, Michał Brzoza-Brzezina, Marcin Kolasa, Krzysztof Makarski    
    18 September 2019

    The boom-bust cycle in the euro area periphery has almost toppled the euro. A new study by Marcin Bielecki and colleagues suggests that region-specific macroprudential policy could have substantially smoothed the credit cycle in the periphery and reduced the build-up of external imbalances.

    In contrast, common monetary policy could have stabilised output in both the periphery and the core slightly better, but it would have been incapable of significantly influencing either housing markets or the periphery’s trade balance. The study also offers policy guidelines in case internal imbalances should arise again in the euro area. 


    PEER EFFECTS IN PRODUCT ADOPTION ARE LARGE AND LONG-LASTING: Evidence from the mobile phone industry

    Drew Johnston, Theresa Kuchler, Johannes Stroebel, Arlene Wong    
    18 September 2019

    A study by Drew Johnston, Theresa Kuchler, Johannes Stroebel and Arlene Wong uses Facebook data to show that when a person buys a new phone, the peer effects that tempt friends to purchase too are large and long-lasting. 

    The results show that the effects are strongest for the young and less educated. Peer effects may also cause friends to switch operating systems when they buy new phones.  


    MINIMUM WAGE EFFECTS DEPEND ON FRICTIONS IN THE LOCAL LABOUR MARKET: Evidence from Japan

    Hiroko Okudaira, Miho Takizawa, Kenta Yamanouchi   
    24 September 2019

    A new study by Hiroko Okudaira, Miho Takizawa and Kenta Yamanouchi examines increases in the minimum wage in Japan and finds a more pronounced negative employment effect in local labour markets where employers have less control over wages.

    The results suggest that increasing the minimum wage is not a simple redistribution policy. In markets in which employers capture little surplus in the labour market, an increase in the minimum wage is likely to reduce employment growth. In contrast, in markets where employers can control their wages, increasing the minimum wage can be an efficient policy in boosting the incomes of low earners without a loss in employment.