Religion and Economic Development: Past, Present, and Future

This chapter examines the role of religion in economic development, both historically and today. Religion's influence varies globally, with high religiosity in countries like Pakistan and low rates in China. Despite declines in some Western countries, religion remains influential worldwide, with projected growth in Muslim populations due to higher fertility rates. Religion continues to shape societal norms and institutions, such as education and politics, even after its direct influence fades. The chapter explores how religious institutions and norms have impacted economic outcomes, focusing on both persistence and decline. It also examines cultural transmission, institutional entrenchment, networks, and religious competition as mechanisms sustaining religion's influence. We explore the relationship between religion and secularization, showing that economic development does not always reduce religiosity. Lastly, the chapter highlights gaps in the literature and suggests future research areas on the evolving role of religion in economic development.

Blockading Britain and Germany during World War 1: Preparations, conduct and consequences of Economic Warfare

A pre-war policy of free trade in Britain and protection in Germany meant that Britain entered the war producing 35 per cent of its food needs while Germany produced 80 per cent. And yet Britain managed to feed itself adequately while Germany faced food shortages. Britain successfully adopted a range of counter-measures, exhibiting a capacity for substitution, allowing the economy to be flexible enough to survive the German blockade. The blockade accounted for at most around a quarter of the decline in German food consumption, which was largely the result of a collapse in domestic production caused by excessive mobilisation. German counter-measures were sometimes successful, but at other times indicate a less flexible economy with a limited capacity for substitution. The British government quickly reversed wartime policies to boost agricultural production and entered World War 2 equally vulnerable to submarine blockade, while Germany pursued autarkic policies to avoid dependence on seaborne imports.

How did Japan catch-up with the West? Some implications of recent revisions to Japan’s historical growth record

This paper uses recently revised data on Japanese GDP to analyse the process by which Japan caught-up with the West. The new historical national accounts suggest that Japan was more than one-third richer in 1874 than suggested by Maddison, and that the Meiji period growth built on earlier development. We show that (1) despite trend GDP per capita growth during the Tokugawa shogunate, the catching-up process only started after 1890 with respect to Britain, and after World War 1 with respect to the United States and many European nations (2) although catching up was driven by the dynamic productivity performance of Japanese manufacturing, Japanese success in exporting manufactured goods was just as much driven by limiting the growth of real wages (3) despite claims that Japan was following a distinctive Asian path of labour-intensive industrialisation, capital played an important role in the catching-up process.

Incentives to Produce Race-related Research

An established literature has studied potential biases in the economics publication process based on traits of authors. We complement such work by studying whether the subject matter of study relates to publication outcomes. We do so in the context of race-related research: work that studies economic well-being across racial/ethnic groups. We investigate the implicit career incentives economists have to work on such topics by examining paths to publication for a corpus of 22,056 NBER working papers (WPs) posted from 1974 to 2015. We use an algorithm to classify whether a given WP studies race-related issues. We then construct paths to publication from WPs to data on published articles, and compare paths for race-related WPs to various counterfactual sets of WPs. We document that unconditionally, race-related NBER WPs are less likely to be published in any journal, in an economics journal, and more likely to publish in lower tier economics journals. Once we condition on observable characteristics including field and author affiliations, differences in paths to publication largely disappear, and such work is actually slightly more likely to publish in top-tier economics journals. Consistent with unconditional differences in paths to publication being salient to researchers, we find evidence of ex ante selection into WPs studying race-related issues in that they are of higher readability than other WPs. To understand the interplay with selection of researchers, we compare results to paths to publications for 10,306 CEPR WPs posted from 1984 to 2015. We conclude by discussing implications for economists’ incentives to contribute to debates on race and ethnicity in the economy.

Race-related Research in Economics

Issues of racial justice and economic inequalities between racial and ethnic groups have risen to the top of public debate. Economists’ ability to contribute to these debates is based on the body of race-related research. We study the volume and content of race-related research in economics. We base our analysis on a corpus of 225,000 economics publications from 1960 to 2020 to which we apply an algorithmic approach to classify race-related work. We present three new facts. First, since 1960 less than 2% of economics publications have been race-related. There is an uptick in such work in the mid 1990s. Among the top-5 journals this is driven by the American Economic Review, Quarterly Journal of Economics and the Journal of Political Economy. Econometrica and the Review of Economic Studies have each cumulatively published fewer than 15 race-related articles since 1960. Second, on content, while over 50% of race-related publications in the 1970s focused on Black individuals, by the 2010s this had fallen to 20%. There has been a steady decline in the share of race-related research on discrimination since the 1980s, with a rise in the share of studies on identity. Finally, we apply our algorithm to NBER and CEPR working papers posted over the last four decades, to study an earlier stage of the research process. We document a balkanization of race-related research into a few fields, and its continued absence from many others – a result that holds even within the subset of research examining issues of inequality or diversity. We discuss implications of our findings for economists’ ability to contribute to debates on race and ethnicity in the economy.

Do Economic Warfare and Sanctions Work? Three Centuries of Evidence

We draw lessons from three centuries of economic warfare and sanctions. Establishing cause and effect is difficult because much else was typically changing during periods of conflict. Unintended consequences were everywhere. Impact was followed (and sometimes preceded) by adaptation so that countermeasures blunted the effectiveness of economic warfare measures and sanctions. This does not mean that the original measures were unimportant, because countermeasures were costly to the target country. Civilian lives and interests were collateral damage. Economic warfare and sanctions worked most effectively when complemented by fighting power either engaged in conventional warfare or credibly threatening war as a deterrent, and they were ineffective in its absence.

To the Depths of the Sunk Cost: Experiments Revisiting the Elusive Effect

Despite being often discussed both in practice and academic circles, the sunk cost effect remains empirically elusive. Our model based on reference point dependence suggests that the traditional way of testing it—by assigning discounts—may not produce the desired effect. Motivated by this, we evaluate it across the gain-loss divide in two pre-registered experiments. In an online study, we randomize the price (low, medium, or high) of a ticket to enter a real-effort task and observe its effect on play time. Despite varying the sunk cost by $2 for a 14-minute task and the sample size of N=1,806, we detect only a small effect (0.09 SD or 1.1 minutes). We further explore the economic applications of the effect in a field experiment on YouTube with N=11,328 videos in which we randomize whether the time until a pre-video ad becomes skippable is shortened (0 s), default (5 s), or extended (10 s). The intervention has an overall insignificant effect on video engagement. This is driven by a sizable negative effect on the extensive margin, a channel which is not present in the online study. Specifically, more users leave before the video starts in the extended treatment (5.2 pp. or 28% more relative to the shortened treatment). Taking the results of both studies together, we offer a cautionary tale that applying even the most intuitive behavioral effects in policy settings can prove challenging.

Perceived Social Acceptance and Migrants’ Financial Inclusion

We conducted a telephonic survey experiment with 2,115 Venezuelan migrants to examine how their perceptions of Colombian’s social acceptance influence their engagement with the financial system. We find that 66% of the subjects we interviewed underestimate the extent to which natives are open towards migrants. We then show that providing accurate information reduces belief errors by 23 percentage points. This correction increases migrants’ willingness to interact with the financial system. In particular, individuals who initially underestimated Colombian’s acceptance of migrants are 15% more likely to visit a bank and request financial information in the next two months relative to the control group. These individuals also show a 12% increase in the willingness to open a digital wallet and an 18% increase in the willingness to open a savings account. These effects are concentrated among individuals who have not experienced episodes of discrimination in Colombia. We find no effects on the willingness to apply for a loan or an insurance product, consistent with the idea that supply barriers play a significant role for the financial inclusion of vulnerable populations. Using an instrumental variable strategy, we show that the increased willingness to engage with the financial system is driven by belief updating. In a short follow-up survey six months later, we find that belief corrections persist over time, and while we are underpowered to detect significant behavioral effects, the patterns remain consistent with the baseline results. Our findings highlight that misperceptions about native’s social acceptance of migrants can drive self-exclusion from the financial system.

Politics of Food: An Experiment on Trust in Expert Regulation and Economic Costs of Political Polarization

Addressing rising political polarization has become a focal point for policy makers. Yet, there is little evidence of its economic impacts, especially in contexts where partisanship cannot be easily hidden. To fill this gap, we study a novel channel: the perception of out-group partisan oversight of independent civil service reduces trust in regulation, affecting key markets (e.g., food and medicine). First, we motivate it by demonstrating the salience of the association between the president and expert regulators in US media reporting. Second, in a pre-registered experiment with 5,566 individuals, we test the channel by exploiting an alignment in the way that the EPA under Trump and Biden defended the safety of spraying citrus crops with antibiotics. This enabled us to randomize the partisanship of the administration, holding the scientific arguments constant. Despite the EPA’s independence, out-group administration reduces support for the spraying by 26%, lowers trust in the EPA’s evaluation, and increases donations to an NGO opposing the spraying by 15%. We find no overall effect on the willing- ness to pay for citrus products, measured in an obfuscated follow-up survey. However, we document significant differences in effects for elastic vs. inelastic consumers. Taken together, polarization has the potential to affect economic decisions. However, a reduction in trust might not translate into lower demand, especially for inelastic consumers.

Discrimination by Teachers: Role of Attitudes, Beliefs, and Empathy

We investigate whether discrimination by teachers explains the large gap in educational outcomes between students from marginalized and non-marginalized groups. Using the context of India, we start with a correspondence study to show that teachers assign 0.29 standard deviations lower grade to an exam of equal quality but with a lower caste surname. We then conduct incentivized surveys, behavioral experiments, and vignettes to highlight some of the invisible elements that are critical to understanding discrimination. We find that teachers hold biased attitudes and beliefs about lower caste individuals, which are associated with poor grading outcomes. We conduct a mechanism intervention based on invoking empathy among teachers to mitigate discrimination. We find that discrimination disappears in the treatment group, and the effect is largest for teachers with higher baseline empathy. These findings are not due to social desirability. Our findings offer a proof-of-concept to understand mental processes that could be instrumental in designing policies to mitigate discrimination.

The Impact of World War II Army Service on Income and Mobility in the 1960s by Ethnoracial Group

We link the 1940 full-count Census to World War II enlistment records and 1969 administrative tax returns to study how WWII service in the Army and Army Airforce impacted the income and mobility of non-Hispanic White, Black, Hispanic, Asian, and Native American male Army veterans relative to their non-Army counterparts in 1969. The size of our data set provides enough power to shed new light on previously understudied groups, such as Hispanics, Asians, and Native Americans. In comparisons of Army veterans with non-Army men, Ordinary Least Squares estimates suggest that WWII Army veterans had higher incomes than non-Army men within the same group, and Army veterans were less likely to change counties between 1940 and 1969 than non-Army men within the non-Hispanic White, Black, and Hispanic groups. Worries about selection bias led us to estimate the effects with a fuzzy regression discontinuity design that compares men who were just too young to serve during World War II to men who were just old enough to serve. Those results showed that Army veterans had lower adjusted gross incomes than non-Army men within the non-Hispanic White, Black, and Asian groups, and slightly higher incomes within the Hispanic and Native American groups. The differences varied by type of income. Migration across county boundaries was lower for Army veterans than non-Army men among non-Hispanic Whites, Asians, and Native Americans, and there were only small differences among Blacks and Hispanics.

Toxic Content and User Engagement on Social Media: Evidence from a Field Experiment

Most social media users have encountered harassment online, but there is scarce evidence of how this type of toxic content impacts engagement. In a pre-registered browser extension field experiment, we randomly hid toxic content for six weeks on Facebook, Twitter, and YouTube. Lowering exposure to toxicity reduced advertising impressions, time spent, and other measures of engagement, and reduced the toxicity of user-generated content. A survey experiment provides evidence that toxicity triggers curiosity and that engagement and welfare are not necessarily aligned. Taken together, our results suggest that platforms face a trade-off between curbing toxicity and increasing engagement.

Currency Wars and Trade

The Great Depression is the canonical case of a widespread currency war, with more than 70 countries devaluing their currencies relative to gold between 1929 and 1936. What were the currency war’s effects on trade flows? We use newly-compiled, high- frequency bilateral trade data and gravity models that account for when and whether trade partners had devalued to identify the effects of the currency war on global trade. Our empirical estimates show that a country’s trade was reduced by more than 21% following devaluation. This negative and statistically significant decline in trade suggests that the currency war destroyed the trade-enhancing benefits of the global monetary standard, ending regime coordination and increasing trade costs.

Climbing the Ivory Tower: How Socio-Economic Background Shapes Academia

We explore how socio-economic background shapes academia, collecting the largest dataset of U.S. academics’ backgrounds and research output. Individuals from poorer backgrounds have been severely underrepresented for seven decades, especially in humanities and elite universities. Father’s occupation predicts professors’ discipline choice and, thus, the direction of research. While we find no differences in the average number of publications, academics from poorer backgrounds are both more likely to not publish and to have outstanding publication records. Academics from poorer backgrounds introduce more novel scientific concepts, but are less likely to receive recognition, as measured by citations, Nobel Prize nominations, and awards.

Anticipation of Discrimination and Misperceptions in Cooperation Dilemmas

Does anticipation of discrimination (beliefs individuals hold about the behavior of others towards them) undermine cooperation? We develop a new design to isolate the role of anticipation from confounding motives. Using the trust game, we measure anticipation as the double difference between the amount transferred to outgroup vs. ingroup trustees when the trustor's own identity is revealed vs. concealed. Using the context of affective polarization, we find that anticipation of discrimination undermines cooperation by the same magnitude as taste-based and statistical dis- crimination. However, anticipation of discrimination is misperceived. Our method can be used to study anticipation of discrimination across societal divisions.

Milk Wars: Cooperation, Contestation, Conflict and the Irish War of Independence

Agricultural cooperation is seen as a way to solve collective action problems and has been associated with high social capital and other beneficial impacts in the countryside beyond productivity increases. But what if it comes into conflict with existing private concerns? The Irish dairy cooperatives from the 1890s entered a contested market for milk, and soon became associated with various degrees of conflict: legal disputes and physical violence. We hypothesize that this led to poor social capital, manifesting in conflict during the Irish War of Independence. We analyze novel data on cooperative and private creameries, as well as measures of conflict. Our findings indicate a significant positive correlation between the presence of cooperatives and local conflict intensities, persisting even after controlling for various confounders. An instrumental variable approach based on prior specialization in dairying validates this. Cooperation might thus both reflect social capital but also have pernicious impacts on it.

Transportation Costs in the Antebellum U.S. A New County-Level Dataset with Time, Region, and Direction Specific Freight Rates, 1820–1860

We construct county-to-county transport cost data set for each decade between 1820 and 1860 in the United States using time-, region-, and direction of transport specific freight rates and the historical transport networks. We document several stylized facts about the effects of canals and railways on the average county-to-county transport cost, market access, and the role of new transportation network in the shaping the direction of domestic trade. We show that by 1860, the canals and railways led to the shift of the highest market access region from the Atlantic coast and Mississippi region to the Midwest and the Great Lakes region, and their absence would have increased the transport costs by more than sixty percent in the Northeast and by almost fifty percent in the South. In addition, by 1840, canals had substantially lowered the costs of transporting goods from the Midwest to the east, making the northern route cheaper than the original route via the Mississippi River and the Atlantic coast.

Politicized Scientists: Credibility Cost of Political Expression on Twitter

As social media is increasingly popular, we examine the reputational costs of its increased centrality among academics. Analyzing posts of 98,000 scientists on Twitter (2016-2022) reveals substantial and varied political discourse. We assess the impact of such online political expression with online experiments on a representative sample of 3,700 U.S. respondents and 135 journalists who rate vignettes of synthetic academic profiles with varied political affiliations. Politically neutral scientists are viewed as the most credible. Strikingly, on both the 'left' and 'right' sides of politically neutral, there is a monotonic penalty for scientists displaying political affiliations: the stronger their posts, the less credible their profile and research are perceived, and the lower the public's willingness to read their content, especially among oppositely aligned respondents. A survey of 128 scientists shows awareness of this penalty and a consensus on avoiding political expression outside their expertise.

Beyond the Headlines: The intangible costs of terrorism

Do terrorist attacks affect life satisfaction and mental health? To explore this question, we analyse data on all casualty-causing terrorist incidents in Great Britain from 1992 to 2020, and combine this information with individual-level data from the British Household Panel Survey and the UK Household Longitudinal Survey over the same period. To get as close as possible to a causal interpretation, we exploit variation within individuals, net of potential temporal and attack-specific unobserved factors, and report an array of different specifications and robustness tests. Our analysis reveals that geographic proximity to terrorist attacks decreases life satisfaction, particularly when the incidents occurred within the month before the interview. We also find that individuals with pre-existing mental vulnerabilities exhibit higher distress levels following a recent terrorism shock.

AI-Generated Production Networks: Measurement and Applications to Global Trade

This paper leverages generative AI to build a network structure over 5,000 product nodes, where directed edges represent input-output relationships in production. We layout a two-step 'build-prune' approach using an ensemble of prompt-tuned generative AI classifications. The 'build' step provides an initial distribution of edge predictions, the 'prune' step then re-evaluates all edges. With our AI-generated Production Network (AIPNET) in toe, we document a host of shifts in the network position of products and countries during the 21st century. Finally, we study production network spillovers using the natural experiment presented by the 2017 blockade of Qatar. We find strong evidence of such spill-overs, suggestive of on-shoring of critical production. This descriptive and causal evidence demonstrates some of the many research possibilities opened up by our granular measurement of product linkages, including studies of on-shoring, industrial policy, and other recent shifts in global trade.

Can Schools Change Religious Attitudes? Evidence from German State Reforms of Compulsory Religious Education

We study whether compulsory religious education in schools affects students’ religiosity as adults. We exploit the staggered termination of compulsory religious education across German states in models with state and cohort fixed effects. Using three different datasets, we find that abolishing compulsory religious education significantly reduced religiosity of affected students in adulthood. It also reduced the religious actions of personal prayer, church-going, and church membership. Beyond religious attitudes, the reform led to higher labor-market participation and earnings. The reform did not affect ethical and political values or non-religious school outcomes.

Patience and Subnational Differences in Human Capital: Regional Analysis with Facebook Interests

Decisions to invest in human capital depend on people’s time preferences. This paper shows that differences in patience are closely related to substantial subnational differences in educational achievement, leading to new perspectives on longstanding within-country disparities. We use social-media data – Facebook interests – to construct novel regional measures of patience within Italy and the United States. The approach is first validated with a cross-country analysis of patience and Facebook interests. We then show that patience is strongly positively associated with student achievement across regions in both countries, accounting for three-quarters of the achievement variation across Italian regions and one-third across U.S. states. The finding is confirmed in an identification strategy employing variation in ancestry countries of the current population of U.S. states. Results hold for six other countries with more limited regional achievement data.

Skills and Earnings: A Multidimensional Perspective on Human Capital

The multitude of tasks performed in the labor market requires skills in many dimensions. Traditionally, human capital has been proxied primarily by educational attainment. However, an expanding body of literature highlights the importance of various skill dimensions for success in the labor market. This paper examines the returns to cognitive, personality, and social skills as three important dimensions of basic skills. Recent advances in text analysis of online job postings and professional networking platforms offer novel methods for assessing a wider range of applied skill dimensions and their labor market relevance. A synthesis and integration of the evidence on the relationship between multidimensional skills and earnings, including the matching of skill supply and demand, will enhance our understanding of the role of human capital in the labor market.

Advantage Magazine: Then and Now - Autumn 2024

Did Tariffs Make American Manufacturing Great? New Evidence from the Gilded Age

We study the relationship between tariffs and labor productivity in US manufacturing between 1870 and 1909. Using highly disaggregated tariff data, state-industry data for the manufacturing sector, and a novel identification strategy, results show that tariffs reduced labor productivity. Tariffs also generally reduced the average size of establishments within an industry but raised output prices, value-added, gross output, employment, and the number of establishments. We also find evidence of heterogeneity in the association between tariffs and value added, gross output, employment, and establishments across groups of industries. We conclude that tariffs may have reduced labor productivity in manufacturing by weakening import competition and by inducing entry of smaller, less productive domestic firms. Our research also reveals that lobbying by powerful and productive industries may have been at play. The era’s high tariffs are unlikely to have helped the US become a globally competitive manufacturer.

Tackling Sexual Harassment: Short and Long-Run Experimental Evidence from India

Sexual harassment awareness training is a key tool to combat sexual harassment, which affects nearly 205 million people in the workplace (ILO, 2022). This paper provides the first randomized evaluation of such training in collaboration with colleges in Delhi, India, to study its impact on sexual harassment. I randomly assigned men to receive this training, with empathy-building, and collected reports of sexual harassment from women in their classes. The training significantly reduced sexual harassment for up to 3 years and altered men's perceptions of social disapproval more than their intrinsic attitudes. It also led to a long-lasting reduction in classroom romantic relationships. A mechanism experiment suggests this is due to women finding it difficult to judge men's quality when social disapproval generates a pooling equilibrium. A similar intervention for women had no detectable effects. Finally, men's training increased women's labor market engagement without affecting their mental well-being or test scores.

The impact of the energy price crisis on GB consumers: a difference-in-difference experiment

In April 2022, consumers in Great Britain (GB) witnessed a 54% increase in the energy price cap, as a result of Russia’s invasion of Ukraine on February 24th, which sent wholesale gas prices spiralling across Europe. We leverage high-frequency data collected by the Smart Energy Research Lab, a representative panel containing daily gas and electricity data for around 13,000 households in Great Britain between January 2021 and December 2023 to investigate the implications. We exploit several datasets linked to the panel data which include time-varying and cross-sectional information. We rely on two price shocks: 1) in October 2021 a wave of energy retail suppliers leaving the industry. At this time over two million consumers on fixed contracts were forced to join a new supplier and pay a variable tariff, and 2) these consumers were exposed to a second price shock caused by the Ukraine-Russia conflict which fed through April 2022’s energy price cap. Exploiting this pseudo-natural experiment, we use a difference-in-difference framework to estimate average treatment effects on this group of consumers and find that they would have consumed an additional 10 percentage points more electricity and 16 percentage points more gas had their prices remained fixed. These estimates are robust to a battery of robustness checks and point towards a significant loss in welfare for consumers on variable tariffs in the early stages of the energy price crisis

The New Wave? The Role of Human Capital and STEM Skills in Technology Adoption in the UK

Which types of human capital influence the adoption of advanced technologies? We study the skill-biased adoption of information and communication technologies (ICT) across two waves in the UK. Specifically, we compare the ‘new wave’ of cloud and machine learning / AI technologies during the 2010s - pre-LLM - with the previous wave of personal computer adoption in the 1990s and early 2000s. At the area-level we see the emergence of a distinct STEM-biased adoption effect for the second wave of cloud and machine learning / AI technologies (ML/AI), alongside a general skill-biased effect. A one-standard deviation increase in the baseline share of STEM workers in areas is associated with around 0.3 of a standard deviation higher adoption of cloud and ML/AI. We find similar effects at the firm level where we are able to test for the influence of a wide range of skills. In turn, this STEM-biased adoption pattern has encouraged the concentration of these technologies, leading to more acute differences between high-tech and low-tech areas and firms. In contrast with classical technology diffusion, recent cloud and ML/AI adoption in the UK seems more likely to widen inequalities than reduce them.

Temperature Variability and Natural Disasters

This paper studies natural disasters and the psychological costs of climate change. It presents what we believe to be the first evidence that higher temperature variability and not a higher level of temperature is what predicts natural disasters. This conclusion holds whether or not we control for the (incorrectly signed) impact of temperature. The analysis draws upon longdifferences regression equations using GDIS data from 1960-2018 for 176 countries and the contiguous states of the USA. Results are checked on FEMA data. Wellbeing impact losses are calculated. To our knowledge, the paper’s results are unknown to natural and social scientists.

Population Centers and Coordination: Evidence from County-Seat Wars

We study the process of long-run urban growth using a unique setting of close elections that determined “county seats” (capitals) in the frontier United States. Employing a regression discontinuity design, we show that winning towns rapidly became the economic and population centers of their counties as new migrants coordinated on them as destinations. This coordination was largest in the early years of a county’s history, but limited in later decades. Using generalized random forests, we show that the economic changes were not zero sum locally: specific choices of county seat could increase long-run county population and income. As county administration was limited in this era, the public sector did not play a substantial role in this growth. Instead, these results illustrate how a political process can select spatial equilibria through a shock that is neither related to locational fundamentals nor confers direct productivity advantages on the location.

Cultural Remittances and Modern Fertility

We argue that migrants played a significant role in the diffusion of the demographic transition from France to the rest of Europe in the late 19th century. Employing novel data on French immigration from other European regions from 1850 to 1930, we find that higher immigration to France translated into lower fertility in the region of origin after a few decades - both in crossregion regressions for various periods, and in a panel setting with region fixed effects. These results are robust to the inclusion of a variety of controls, and across multiple specifications. We also find that immigrants who themselves became French citizens achieved lower fertility, particularly those who moved to French regions with the lowest fertility levels. We interpret these findings in terms of cultural remittances, consistently with insights from a theoretical framework where migrants act as vectors of cultural diffusion, spreading new information, social norms and preferences pertaining to modern fertility to their regions of origin.

How do firms cope with economic shocks in real time?

We study how businesses adjust to significant rises in energy costs. This matters for both the current energy crisis and the longer-term shift towards Net Zero. Using firm-level real-time survey and administrative data backed by a pre-registered analysis plan, we examine how firms respond to the energy price shock triggered by Russia’s invasion of Ukraine along output, price, input, process and survival margins. We find that, on average, firms pass on some cost increases, build up cash reserves, and face higher debt, but do not yet see layoffs or bankruptcies. However, effects are highly heterogeneous by size and industry: for instance, small firms tend to increase cash reserves and prices, while large firms invest more in capital. We estimate separate elasticities for many small industry cells and subsequently use k-means clustering techniques on the estimated effects to identify high-dimensional firm-adaptation archetypes. These estimates can help tailor firm support in the energy transition both in the short and the long term. More generally, the machinery developed in this paper enables policymakers to evaluate and adjust economic policy in near-real time

Insurers Monitor Shocks to Collateral: Micro Evidence from Mortgage-backed Securities

This paper uncovers if and how insurance companies react to shocks to collateral in their portfolio of securitized assets. We address this question in the context of commercial real estate cash flow shocks, which are informationally opaque to holders of commercial mortgage-backed securities (CMBS). Using detailed micro data, we show that cash flow shocks during the COVID-19 pandemic predict CRE mortgage delinquency, especially those stemming from lease expiration of offices, reflecting lower demand for these properties. Insurers react to such cash flow shocks by selling more exposed CMBS—mirrored by a surge in small banks holding CMBS—and the composition of their CMBS portfolio affects their trading behavior in other assets. Our results indicate that institutional investors actively monitor underlying asset risk, and even gain an informational advantage over some banks.

Gendered Language in Academic Evaluations: Evidence from the Italian University System

We analyze the impact of evaluator and candidate gender on the language used in academic evaluations using data on 295,000 evaluation reports for applicants seeking professorial promotion across all academic fields in Italy. In this context, candidates are assessed by a national-level committee composed of five randomly selected evaluators from the corresponding field. We observe that the language used in evaluation reports varies significantly with applicants’ productivity and professional ties to evaluators, but we find no indication that the language of the assessments depends on the gender of either the candidates or the evaluators.

When London Burned to Sticks: The Economic Impact of the Great Fire of 1666

This study provides a comprehensive understanding of the Great Fire’s effects on London’s economic geography. Our analysis reveals both continuity and change. There was a swift postfire recovery accompanied by some shift in economic activity towards the City of Westminster by 1690, with markets spreading outside the City, but financial services largely remaining inside. Analysis of London Hearth Tax records further illustrates a significant change in the wealth distribution, with wealthier households returning to fire-impacted areas, reshaping the city’s housing and social structure.

Historical Self-Governance and Norms of Cooperation

Does self-governance, a hallmark of democratic societies, foster norms of generalized cooperation? Does this effect persist, and if so, why? I investigate these questions using a natural experiment in Switzerland. In the middle-ages, the absence of an heir resulted in the extinction of a prominent noble dynasty. As a result, some Swiss municipalities became self-governing, whereas the others remained under feudalism for another 600 years. Evidence from a behavioral experiment, World Values Survey, and Swiss Household Panel consistently shows that individuals from historically self-governing municipalities exhibit stronger norms of cooperation today. Referenda data on voter-turnout allow me to trace these effects on individually costly and socially beneficial actions for over 150 years. Furthermore, norms of cooperation map into prosocial behaviors like charitable giving and environmental protection. Uniquely, Switzerland tracks every family’s place of origin in registration data, which I use to demonstrate persistence from cultural transmission in a context of historically low migration.

The Meritocratic Illusion: Inequality and the Cognitive Basis of Redistribution

Can inequality in rewards result in an erosion in broad-based support for meritocratic norms? We hypothesize that unequal rewards between the successful and the rest, drives a cognitive gap in their meritocratic beliefs, and hence their social preferences for redistribution. Two separate experiments (one in the UK and the other in the USA) show that the elite develop and maintain “meritocratic bias” in the redistributive taxes they propose, even when not applied to their own income: lower taxes on the rich and fewer transfers to the poor, including those who failed despite high effort. These social preferences at least partially reflect a self-serving meritocratic illusion that their own high income was deserved. A Wason Card task confirms that individuals maintain their illusion of being meritocratic, by not expending cognitive effort to process information that may undermine their self-image even when incentivized to do otherwise.

Local Decline and Populism

Support for right-wing populist parties is characterised by considerable regional heterogeneity and especially concentrated in regions that have experienced economic decline. It remains unclear, however, whether the spatial externalities of local decline, including homelessness and crime, boost support for populist parties, even among those not directly affected by such decline. In this paper, we contribute to filling this gap in two ways. First, we gather novel data on a particularly visible form of local decline, high-street vacancies, that comprise 83,000 premises in England and Wales. Second, we investigate the influence of local decline on support for the right-wing populist UK Independence Party (UKIP) between 2009 and 2019. We find a significant positive association between high-street vacancy rates and UKIP support. These results enhance our understanding of how changes in the lived environment shape political preferences and behaviour, particularly in relation to right-wing populism.

How Do You Find A Good Manager?

This paper develops a novel method to identify the causal contribution of managers to team performance. The method requires repeated random assignment of managers to multiple teams and controls for individual skills. A good manager is someone who consistently causes their team to produce more than the sum of their parts. In a large pre-registered lab experiment, we find that good managers have roughly twice the impact on team performance as good workers do. People who nominate themselves to be in charge perform worse than managers appointed by lottery. This appears to be partly because self-promoted managers are overconfident, especially about their social skills. Managerial performance is positively predicted by economic decision-making skill and fluid intelligence – but not gender, age, or ethnicity. Selecting managers on skills rather than demographics or preferences for leadership could substantially increase organizational productivity.

Social Influence in Online Reviews: Evidence from the Steam Store

How does social influence affect consumer ratings? Using a dataset from the popular Steam gaming platform I investigate how quality judgements depend on pre-existing consumer assessments. In 2019, Steam introduced a new review system which decreased the exposure of users to previous ratings. Firstly, I find that user ratings are dependent on average ratings. A 10 percent increase in average rating increases the probability a review is positive by 5.4% before the policy change, but only by 2.8% after. The result is not due to selection, and is robust to a wide range of alternative specifications. Secondly, the effect is heavily asymmetric: individual reviewers are more negative when exposed to a lower average rating, but do not respond to a higher one. This negativity compounds and inflates the gap between lower rated and higher rated games. Overall, these social influence effects are driven by less experienced users on the platform. Finally, using estimates of owner data, I run a structural model of game choice. A 1% increase in rating is equivalent to a 2.5 dollar price reduction. This suggests social influence has large implications for buyers and sellers.

Market Exposure, Civic Values, and Rules

Does markets exposure foster or erode civic values and rules necessary to constrain opportunistic behavior? Using a natural experiment on market location from Ethiopia, I compare individuals who are from the same clan and attend the same market but vary in their exposure to that market. I find a positive effect of market exposure on civic values and rule formation. This result arises because individuals trade primarily in livestock, which is prone to cooperation problem from asymmetric information and weak state capacity. I use vignette studies to show that societies develop different types of exchange structures to mitigate this problem, which then shapes civic values and rules. In societies far from markets, there is no need for civic values and rules, as individuals rarely attend markets and sell livestock eponymously within their social network. In societies near markets, ephemeral and impersonal nature of market exchange creates a demand for civic values and community sanctioning as lubricants to conclude exchange, otherwise individuals end up losing gains from trade. Exposure to markets without asymmetric information has no effect on civic values and rules, suggesting that prosperity and contact hypothesis are not the channels.

Elections and Rural Road Construction: Evidence from India

This paper analyzes the existence of electoral cycles in infrastructure provision in the context of a large rural road building program in India. We use data covering 150,000 roads over a decade to demonstrate an increase in road building activity before state elections. These electoral cycles in rural road building do not translate into efficiency losses in terms of quality, cost or delay. However, we find evidence that politicians build roads with a lower stipulated construction time before elections. In line with our model’s predictions, we also find that electoral constituencies with a larger share of uninformed voters display larger electoral cycles.

Gender Inequality and the Colonial Economy: Evidence from Anglican Marriage Registers in Urban British Africa

We use Anglican marriage registers from six major cities in British Africa to examine how colonial educational and occupational opportunities affected gender inequality among the sampled couples in terms of access to schooling and the formal economy. The marriage registers concern more than 30,000 Anglican converts making up a comparatively advantaged group of urban Africans aspiring to advance their economic and social status during British colonial rule through conversion to Christianity. We use the couple’s signature literacy and occupational descriptors to argue that mission schools and the colonial economy opened up a gender gap in access to formal employment during the early colonial period that declined again after the 1940s through the Africanization and feminization of the civil service. We discern that the gender gap among the sampled couples closed earlier and faster in our West African cities where women’s tradition of financial independence contested Christian missionary ideals of female domesticity more prevalent in our East African locations. Comparison with census data indicates that our sampled couples were forerunners for the educational and occupational developments of the average African in the sampled cities.

Team production on the battlefield: Evidence from NATO in Afghanistan

Managing military operations across and between teams of partner nations remains a first-order challenge to security and development during conflict. NATO, under the umbrella of the International Security Assistance Force (ISAF), brought together troops from 28 countries to help enhance security provision in Afghanistan. ISAF units were given responsibility for specific operational units. The assignment of responsibilities to different national armed forces could lead to coordination problems. We explore whether the provision of security is affected by horizontal frictions (when different countries are responsible for different sides of borders) or vertical frictions (when different countries control different levels of the operational hierarchy). We find that both horizontal frictions and vertical frictions reduce military support activities, including aid projects. They are also associated with higher levels of insurgent violence. These findings indicate that misalignment between units within military organizations can undermine the effectiveness of security and development interventions during war, with broader implications for managing complex teams under risk

Advantage Magazine, Nick Crafts Tribute Edition - Spring 2024

The virtuous spiral of Smithian growth: colonialism as a contradiction

As the world experiences a fourth industrial revolution - in Information Technology - we look back at how things turned out in the first Industrial Revolution, which began when Adam Smith was writing The Wealth of Nations. For the historical record, we draw on the recent study of Power and Progress by Daron Acemoglu and Simon Johnson, who describe how the benefits of innovation were – or were not - spread across society in Britain at that time. This paper focuses on the case of India under colonial rule, however, where two themes emerge. First, how the transfer of technology under the control of a private company – based in London and granted monopoly powers by the British government - was enough to stymie the ‘virtuous spiral of Smithian growth’ for a century or more. Second, how two centuries of colonial control also deprived the indigenous population of what Amartya Sen has claimed is the key insurance against famine - namely democratic accountability. The paper end with brief remarks on how industrial policy in India of today could help spread the benefits of the current IT revolution.

Performative State Capacity and Climate (In)Action

Climate action requires significant public- and private sector investment to achieve meaningful reductions in carbon emissions. This paper documents that large-scale austerity, coupled with barriers to flows of data and a lack of (digital) skills in (local) government, may have been a significant barrier to delivering climate action in the form of retrofitting. Decomposing heterogeneity in estimated treatment effects of a large-scale energy efficiency savings program that was rolled out through a regression discontinuity design in the early 2010s, we find that both the extent of austerity-induced local budget cuts and poor digital connectivity – may be responsible for up to 30% fewer retrofit installations that counterfactually would have taken place had it not been for austerity.

Opinion Polls, Turnout and the Demand for Safe Seats

Do opinion polls sway turnout and shape political competition in majoritarian systems? Can they strengthen the persistence of safe seats? Analysing national opinion polls during UK general elections and the perceived safeness of constituencies, we find that pre-election polls significantly affect voter turnout. Non-competitive elections predicted by national polls suppress turnout, especially in areas with low perceived electoral competition. This reinforces the advantage of trailing parties in their strongholds, potentially fuelling party demand for safe seats that may give rise to demands for gerrymandering. This can exacerbate spatial polarization of the electoral landscape, with implications for governance regarding opinion polling

Local Crime and Prosocial Attitudes: Evidence from Charitable Donations

Combining longitudinal postcode-level data on charitable donations made through a UK giving portal with publicly available data on local crime and neighborhood characteristics, we study the relationship between local crime and local residents’ charitable giving and we investigate the possible mechanisms underlying this relationship. An increase in local crime corresponds to a sizeable increase in the overall size of unscheduled charitable donations. This effect is mainly driven by the responses of female and gender unclassified donors. Donation responses also reflect postcode variation in socio-economic characteristics, levels of mental health, and political leanings, but mainly so for female and gender-unidentified donors.

The Hidden Toll of the Pandemic: Excess Mortality in non-COVID-19 Hospital Patients

Seasonal infectious diseases can cause demand and supply pressures that reduce the ability of healthcare systems to provide high-quality care. This may generate negative spillover effects on the health outcomes of patients seeking medical help for unrelated reasons. Separating these indirect burdens from the direct consequences for infected patients is usually impossible because of a lack of suitable data and an absence of population testing. However, this paper finds robust empirical evidence of excess mortality among non-COVID-19 patients in an integrated public healthcare system: the English NHS. Analysing the forecast error in the NHS’ model for predicted mortality, we find at least one additional excess death among patients who sought medical help for reasons unrelated to COVID-19 for every 42 COVID-19-related deaths in the population. We identify COVID-19 pressures as a key driver of non-COVID-19 excess mortality in NHS hospitals during the pandemic, and characterise the hospital populations and medical conditions that are disproportionately affected. Our findings have substantive relevance in shaping our understanding of the wider burden of COVID-19, and other seasonal diseases more generally, and can contribute to debates on optimal public health policy.

Conflict and Gender Norms

We study the relationship between exposure to historical conflict involving heavy weaponry and male-favoring gender norms. We argue that the physical nature of such conflict produced cultural norms favoring males and male offspring. We focus on spatial variation in gender norms across India, a dynamic developing economy in which gender inequality persists. We show robust evidence that areas with high exposure to pre-colonial conflict are significantly more likely to exhibit male-favoring gender norms as measured by male-biased sex ratios and crimes against women. We document how conflict-related gender norms have been transmitted over time via male-favoring folkloric traditions, the gender identity of temple gods, and patrilocal exogamy, and have been transmitted across space by migrants originally from areas with high conflict exposure. Our results shed new light on the deep roots of gen- der norms in the developing world, and provide a novel answer to India’s “missing women” problem.

Assimilate for God: The Impact of Religious Divisions on Danish American Communities

The cultural assimilation of immigrants into the host society is often equated with prospects for economic success, with religion seen as a potential barrier. We investigate the role of ethnic enclaves and churches for the assimilation of Danish Americans using a difference-in-differences setting. Following the ordination of a divisive religious figure in 1883, this otherwise small and homogeneous group split into rival Lutheran revivalist camps - so-called “Happy” and “Holy” Danes. The former sought the preservation of Danish culture and tradition, while the latter encouraged assimilation. We use data from the US census and Danish American church and newspaper archives, and find that Danish Americans living in a county with a “Happy” church chose more Danish names for their children. Newspapers read by “Holy Danes” saw a more rapid Anglicization of the language used. Religious beliefs thus facilitated assimilation. Divergence in behaviour only emerged following the religious division

Relocation from China (with Chinese Characteristics)

The share of Chinese goods in US imports has fallen sharply since 2018, as production for the US market has shifted from China to other countries. Does this trend represent US-China ‘decoupling’, or are other US trade partners playing growing roles as intermediaries in ongoing US-China economic relations? Using firm-level and product-level data, we find that Chinese manufacturing investment and Chinese-produced parts have increasingly flowed to third-country ‘winners’ who have simultaneously increased their US market share. We present evidence that our findings capture expanding indirect relationships linking China and the US rather than broader economic trends within the ‘winners’ themselves.

The Effect of Content Moderation on Online and Offline Hate: Evidence from Germany’s NetzDG

We study the online and offline effects of content moderation on social media using the introduction of Germany’s “Network Enforcement Act” (NetzDG), which fines social media platforms failing to remove hateful posts. We show that the law transformed social media discourse: posts became less hateful, refugee-related content less inflammatory, and the use of moderated platforms increased. The NetzDG also had offline effects by reducing anti-refugee hate crimes by 1% for every standard deviation in exposure to far-right social media use. The law reduced hate crimes partly by making it harder for perpetrators to coordinate, without changing attitudes toward refugees.

Who would be affected by Capital Gains Tax reform?

This briefing presents new research on the distribution of capital gains and characteristics of taxpayers who receive them. It contributes to the debate on Capital Gain Tax (CGT) reform by outlining who would be most affected by changes to this tax. We investigate this question using de-identified, confidential data accessed via HMRC, which provides information on all individuals with taxable capital gains from 1997 to 2020.

The Effect of Social Media on Elections: Evidence from the United States

We study how social media affects election outcomes in the United States. We use variation in the number of Twitter users across counties induced by early adopters at the 2007 South by Southwest (SXSW) festival, a key event in Twitter’s rise to popularity. We show that this variation is unrelated to observable county characteristics and electoral outcomes before the launch of Twitter. Our results indicate that Twitter lowered the Republican vote share in the 2016 and 2020 presidential elections, but had limited effects on Congressional elections and previous presidential elections. Evidence from survey data, primary elections, and text analysis of millions of tweets suggests that Twitter’s relatively liberal content may have persuaded voters with moderate views to vote against Donald Trump.

Social Media and Stock Market Participation

We investigate the effect of social media adoption on stock market participation in the United States. Using plausibly exogenous variation in the early adoption of Twitter across counties, we show that a 10% increase in social media usage is associated with a 2.5% higher rate of stock ownership and an overall increase in stock market wealth. Consistent with the idea that social media can lower the cost of accessing information, we find that Twitter adoption is associated with a decline in the number of financial advisors and has larger effects on stock ownership in counties with lower levels of pre-existing stock market knowledge. Twitter adoption also fuels interest in “meme stocks,” which tend to be more volatile and owned by retail investors. Overall, our results suggest a distinct impact of social media platforms on household portfolio choices that differs from that of other modern information technologies.

Measuring Science: Performance Metrics and the Allocation of Talent

We study how performance metrics affect the allocation of talent by exploiting the introduction of the first citation database in science. For technical reasons, it only covered citations from certain journals and years, creating quasi-random variation: some citations became visible, while others remained invisible. We identify the effects of citation metrics by comparing the predictiveness of visible to invisible citations. Citation metrics increased assortative matching between scientists and departments by reducing information frictions over geographic and intellectual distance. Highly-cited scientists from lower-ranked departments (“hidden stars”) and from minorities benefited more. Citation metrics also affected promotions and NSF-grants, suggesting Matthew effects.

Informational Boundaries of the State

Formal conceptions of state capacity have mostly focused on indirect measures of state capacity – by, for instance, using the state’s fiscal or extractive capacity as a proxy for its overall capacity. Yet, this input or extractive view of state capacity falls short, especially since cross-country empirical evidence suggests that similar levels of fiscal capacity, measured by tax revenues as a percentage of GDP, can produce starkly different outputs – both in classic economic terms and in broader terms that citizens would recognize as desirable outcomes, including quality of life, health, security, equality of opportunity, and intergenerational mobility. This paper argues that a central step towards addressing these shortcomings of the conventional view is to account for a crucial and largely ignored boundary of the state or dimension of state capacity: its capacity to gather, process, and deploy information in its conduct of fiscal policy. Specifically, we study how the presence or lack of such informational capacity constrains governments in responding to crises, such as the recent energy price shock. Our framework provides the analytical toolkit to examine how the informational boundary of the state shapes the incentives for policymakers to resort to untargeted and/or distortionary policy instruments, as opposed to targeted and non-distortionary ones, in responding to crises. The policy response to the energy crisis following the invasion of Ukraine provides the empirical context upon which we bring this theoretical framework to bear on data, though the latter can be straightforwardly extended to other recent crises.

Holy Cows and Spilt Milk: The Impact of Religious Conflict on Firm-Level Productivity

We consider the impact of non-violent religious conflict on firm-level productivity. We zoom in on a Protestant and otherwise very homogeneous country: early twentieth century Denmark. We exploit variation due to the emergence of pietist movements who fought for the hearts and minds of Danes. In the countryside, much of the religious debate concerned whether or not creameries - the main catalyst of the industrial revolution in Denmark - should be closed on Sundays in accordance with the Third Commandment. We construct a rich microlevel dataset for 964 creameries and combine this with various measures of the intensity of the religious conflict. Exploiting variation in preaching by a prominent religious figure, we provide plausibly causal evidence that religious conflict hampered firm-level productivity. Examining the mechanism, we proceed to demonstrate that the reduction in productivity is due to the religious conflict rather than whether or not the factory produced on Sundays.

Using Behavioral Economics to Reduce Poverty and Oppression

Until recently, economics conceived of poverty solely as a lack of material resources. This view likely captures the reality of poverty experienced by many people around the globe. However, two waves of behavioral economics demonstrate that the narrowing of people’s external environments may change people themselves: poverty lowers the quality of decision-making, and poverty and oppression may depress the capacity to aspire. Poverty and a history of oppression also change how individuals are perceived. To overcome these effects may require helping people acquire new mental models. This essay discusses key findings from behavioral economics, the implications for agency, and some interventions with promising outcomes. We hope to inspire scholars and policymakers to think more deeply about the nature of poverty and oppression and to consider policies that target the psychological and sociological factors that create cycles of poverty.

Urban-Biased Structural Change

Using firm-level data from France, we document that the shift of economic activity from manufacturing to services over the last few decades has been urban-biased: structural change has been more pronounced in areas with higher population density. This bias can be accounted for by the location choices of large services firms that sort into big cities and large manufacturing firms that increasingly locate in suburban and rural areas. Motivated by these findings, we estimate a structural model of city formation with heterogeneous firms and international trade. We find that agglomeration economies have strengthened for services but weakened for manufacturing. This divergence is a key driver of the urban bias but it dampens aggregate structural change. Rising manufacturing productivity and falling international trade costs further contribute to the growth of large services firms in the densest urban areas, boosting services productivity and services exports, but also land prices.

Can Crises Affect Citizen Activism? Evidence from a Pandemic

We consider the largely unexpected shock caused by the second wave of the COVID-19 pandemic in India to assess whether major crises that impact the well-being of a large number of individuals can be catalysts for civic activism. Exploiting state-level variation in COVID-19 peaks and quasi-randomness in subjects’ participation in an online survey fielded between March and July 2021, we elicit willingness to act against fraud and corruption in the provision of health services by supporting an NGO engaged in advocacy for health-sector regulation. By comparing responses of subjects surveyed before and after the COVID-19 peak in their state of residence, we find evidence of a large and significant increase in anti-corruption activism post peak. Our data suggest that this surge in activism can be attributed to heightened perceptions of corruption in the healthcare sector, increased awareness of individuals’ own rights and entitlements, a greater willingness to take risks, and a positive shift in beliefs regarding others’ willingness to fight corruption in the provision of healthcare services.

How Big is the Media Multiplier? Evidence from Dyadic News Data

This paper estimates the size of the media multiplier, an easily generalizable model-based measure of how far media coverage magnifies the economic response to shocks. We combine monthly aggregated and anonymized credit card activity data from 114 card issuing countries in 5 destination countries with a large corpus of news coverage in issuing countries reporting on violent events in the destinations. To define and quantify the media multiplier we estimate a model in which latent beliefs, shaped by either events or news coverage, drive card activity. According to the model, media coverage can more than triple the economic impact of an event. We document, through our model, that this effect is highly heterogenous and depends on the broader media representation of countries in each others news. We speculate about the role of the media in driving international travel patterns an.

Losing on the Home Front? Battlefield Casualties, Media, and Public Support for Foreign Interventions

How domestic constituents respond to signals of weakness in foreign wars remains an important question in international relations. In this paper, we study the impact of battlefield casualties and media coverage on public demand for war termination. To identify the effect of troop fatalities, we leverage the otherwise exogenous timing of survey collection across 26,776 respondents from nine members of the International Security Assistance Force (ISAF) in Afghanistan. Quasi-experimental evidence demonstrates that battlefield casualties increase coverage of the Afghan conflict and public demand for withdrawal, with heterogeneous effects consistent with an original theoretical argument. Evidence from a survey experiment replicates the main results. To shed light on the media mechanism, we leverage a news pressure design and find that major sporting matches occurring around the time of battlefield casualties drive down subsequent coverage, and significantly weaken the effect of casualties on support for war termination. These results highlight the crucial role that media play in shaping public support for foreign military interventions.

How Cognitive Skills Affect Strategic Behavior: Cognitive Ability, Fluid Intelligence and Judgment

We explore the influence of cognitive ability and judgment on strategic behavior in the beauty contest game. Using the level-k model of bounded rationality, cognitive ability and judgment both predict higher level strategic thinking. However, individuals with better judgment choose the Nash equilibrium action less frequently, and we uncover a novel dynamic mechanism that sheds light on this pattern. Taken together, our results indicate that fluid (i.e., analytical) intelligence is a primary driver of strategic level-k thinking, while facets of judgment that are distinct from fluid intelligence drive the lower inclination of high judgment individuals to choose the equilibrium action.

The Effect of Mechanisation on Labour: Evidence from the Diffusion of Steam

We use the two earliest industrial censuses from 19th-century France to investigate the impact on industrial labour of one of the largest waves of mechanisation in history, the diffusion of steam power. We establish using OLS and IV analyses that wages and employment both grew significantly more among steam-adopting industries compared to their non-adopting peers. Growth in total revenue was also significantly higher among steam adopters while labour’s share did not change significantly compared to nonadopters. These findings dispute the common view that the historical modernisation of industry set labour back in absolute terms or relative to capitalists.

From the Death of God to the Rise of Hitler

Can weakened religiosity lead to the rise of totalitarianism? The Nazi Party set itself up as a political religion, emphasizing redemption, sacrifice, rituals, and communal spirit. This had a major impact on its success: Where the Christian Church only had shallow roots, the Nazis received higher electoral support and saw more party entry. "Shallow Christianity" reflects the geography of medieval Christianization and the strength of pagan practices, which we use as sources of exogenous variation. We also find predictive power at the individual level: Within each municipality, the likelihood of joining the Nazi Party was higher for those with less Christian first names.

Wars and the Labor Market Outcomes of Minorities in the U.S.

This chapter reviews key literature studying the effects of wars on minority and underrepresented groups in U.S. labor markets in the 20th century. These labor markets, characterized by historically pervasive barriers to entry into certain occupations and industries, promotions, and fair pay for underrepresented workers, experienced severe challenges during times of war. These challenges served to break down some of the barriers faced by underrepresented workers. Recent years have shown that sudden labor shortages, similar to those induced by large-scale wars, are not a feature of the past. Hence, a better understanding of such shortages and their effects on different groups continues to be important, especially since opportunities and equality in the labor market are closely intertwined with political, legal, and socioeconomic equality. The focus here is on the labor market outcomes of Black and white women, as well as Black men, during and after the two World Wars. Their labor inputs compensated for the lack of white male workers during the war years; however, only WWII generated significant and more prolonged socioeconomic progress for both groups. This chapter summarizes theoretical considerations that can explain why some war-induced labor market shocks are persistent while others are not, as well as the empirical literature related to the labor market experiences of women and Black workers during and after the World Wars.

Railways and the European Fertility Transition

We show that the spread of the railway network slowed the decline of fertility in Europe during the late nineteenth and early twentieth centuries. We construct novel data on market access across sub-national regions in Europe and use both a panel fixed effects approach and an instrumental variables strategy that leverages variation in market access stemming from access to distant markets. We find that greater market access predicts higher fertility, with a standardized magnitude of 0.14. Consistent with an interpretation that market access increased fertility by raising incomes relative to the returns to child quality and the opportunity cost of childbearing, we show that our results are driven by locations that achieved higher levels of income per capita despite lagging in human capital and female labor force participation.

Religion and Growth

We use the elements of a macroeconomic production function—physical capital, human capital, labor, and technology—together with standard growth models to frame the role of religion in economic growth. Unifying a growing literature, we argue that religion can enhance or impinge upon economic growth through all four elements because it shapes individual preferences, societal norms, and institutions. Religion affects physical capital accumulation by influencing thrift and financial development. It affects human capital through both religious and secular education. It affects population and labor by influencing work effort, fertility, and the demographic transition. And it affects total factor productivity by constraining or unleashing technological change and through rituals, legal institutions, political economy, and conflict. Synthesizing a disjoint literature in this way opens many interesting directions for future research.

European Business Cycles and Economic Growth, 1300-2000

The modern business cycle features long expansions combined with short recessions, and is thus related to the emergence of sustained economic growth. It also features significant international co-movement, and is therefore associated with growing market integration and globalisation. When did these patterns first appear? This paper explores the changing nature of the business cycle using historical national accounts for nine European economies between 1300 and 2000. For the sample as a whole, the modern business cycle emerged at the end of the eighteenth century.

Epidemics and pandemics: from the Justinianic Plague to the Spanish Flu

This article provides an overview of current knowledge about the economic consequences of major epidemics and pandemics in the long run of history, from the Justinianic Plague of the 540s to the Spanish Flu of 1918-19. For the preindustrial period, the analysis concentrates on plagues (and particularly on the Black Death pandemic of the fourteenth century and on the last great European plagues of the seventeenth), which stand out in the comparison with other epidemics both because of their outsized economic and demographic effects, and for having concentrated the attention of economic historians and other social scientists. For the industrial period, cholera is taken as the main pandemic threat of the nineteenth century. The article concludes analyzing the Spanish Flu, which made the world aware of the danger posed by the influenza viruses - and which is arguably the best term of comparison with the recent Covid-19 pandemic, due to some epidemiological similarities. The article illustrates the short, medium and long-run consequences of the various epidemics and pandemics discussed, and also highlights the importance of the historical context in mediating the impact of any epidemic, against tendencies to generalize from some well-known, but possibly exceptional, cases such as the Black Death. This and other findings teach us some useful lessons for understanding better recent pandemics, like Covid-19, and might help to build preparedness against future threats of a similar kind.

The Returns to Viral Media: The Case of US Campaign Contributions

Social media has changed the structure of mass communication. In this paper we explore its role in influencing political donations. Using a daily dataset of campaign contributions and Twitter activity for US Members of Congress 2019-2020, we find that attention on Twitter (as measured by likes) is positively correlated with the amount of daily small donations received. However, this is not true for everybody: the impact on campaign donations is highly skewed, indicating very concentrated returns to attention that are in line with a 'winner-takes-all' market. Our results are confirmed in a geography-based causal design linking member's donations across states.

Catch me if you can: Gaps in the Register of Overseas Entities

The Register of Overseas Entities (ROE) was introduced by the government in Spring 2022 with the commitment that it would “require anonymous foreign owners of UK property to reveal their real identities”. We use data released by Companies House and HM Land Registry to assess to what extent the ROE is currently delivering on this aim. We identify and quantify several major ‘gaps’ in the scope and operation of the register and make recommendations for how the register could be improved.

Economic Warfare: Lessons from Two World Wars

Economic warfare was a product of the total wars of the twentieth century. Four lessons are discussed: (1) Modern economies are resilient under attack. (2) The action of economic warfare is slow. (3) Economic warfare is powerful—eventually. (4) The threat of economic warfare is also powerful—although not always as hoped. To conclude, economic warfare belongs to wars of attrition. In such wars, economic and military measures are complements, not substitutes.

On the promises and perils of Smithian growth – from pin factory to AI

For path-breaking insights on how prices can guide the efficient allocation of resources and on how innovation and investment can spur economic growth, Adam Smith is justly renowned. He was, however, well aware of problems posed by market dominance - specifically in banking and, more generally, wherever getting to the scale that delivers increasing returns leads to monopolistic behaviour. For the historical record, we draw on the recent wide-ranging survey by Acemoglu and Johnson on how the benefits of innovation have been spread across society since the Industrial Revolution. We also consider these issues in the context of geo-political competition.

Social Networks, Gender Norms and Labor Supply: Experimental Evidence Using a Job Search Platform

This paper studies the role of job search frictions and peer effects in shaping female employment outcomes in developing countries. Motivated by a collective model of household decision-making, we conduct a randomized field experiment in Delhi, India where we randomly offer a hyper-local digital job search and matching service to married couples on their own (non-network treatment), together with the wife's peer network (network treatment), or not at all. Approximately one year later, we find no significant impact on wives' overall likelihood of working in either treatment group, but wives in the non-network treatment group reduce their work intensity and casual work, while those in the network treatment group increase their home-based self-employment. Strikingly, husbands' labor market outcomes also improved significantly in the network treatment group. We show theoretically and empirically that our findings can be explained by the home-bound structure of women’s social networks that reinforce (conservative) social norms about women's outside-of-home work.

Domino Secessions: Evidence from the U.S.

We analyze how secession movements unfold and the interdependence of regions’ decisions to secede. We first model and then empirically examine how secessions can occur sequentially because the costs of secession decrease with the number of seceders and because regions update their decisions based on whether other regions decide to secede. We verify the existence of these “domino secessions” using the canonical case of the secession of southern U.S. states in the 1860s. We first establish that financial markets priced in the costs of secession to geographically-specific assets (state bonds) after Lincoln’s election in the fall of 1860 – long before war broke out. We then show that state bond yields reflect the decreasing costs of secession in two ways. First, as the number of states seceding increased, yields on the bonds of states that had already seceded fell. Second, seceding states with more heterogeneous voters had higher risk premia, reflecting investors beliefs that further sub-secession was more likely in these locations.

Activating Change: The Role of Information and Beliefs in Social Activism

What motivates individuals to participate in social activism? Do awareness campaigns and information about others’ willingness to act play a role? We conduct an online experiment within a survey of nearly 2000 Indian men, focusing on activism to combat health sector fraud during the COVID-19 pandemic. In different treatment groups, we either provide information about the social problem, correct misaligned beliefs about others’ willingness to act, or both. Participants are then cross-randomized to engage in one of three forms of activism: signing a petition, making a donation to an NGO fighting for the cause, or watching a video on ways to support the cause. We also experimentally examine the impact of allowing subjects to choose between the three forms of activism. Providing information and correcting downward biased beliefs about others increases petition signing, but has no impact on donations and video viewing. Giving participants a choice of actions decreases the probability of any single action being taken up. Our comprehensive examination of the factors influencing engagement in different forms of activism within a unified framework generates insights on the motivations behind participation in collective efforts for social change.

Trajectories of Early Childhood Skill Development and Maternal Mental Health

We investigate the impacts of a perinatal psychosocial intervention on trajectories of maternal mental health and child skills, from birth to age 3. We find improved maternal mental health and functioning (0.17 to 0.29 SD), modest but imprecisely estimated improvements in parenting (0.07 to 0.11 SD), and transitory improvements in child socioemotional development (0.06 to 0.39 SD). The intervention had negligible influence on physical health and cognition. Estimates of a skill production function reveal the intervention attenuated the negative association between maternal depression and child outcomes, and narrowed outcome gaps between mothers who were and were not depressed in pregnancy.

Napoleonic Administrative Reforms and Development. Lessons from the Italian Mezzogiorno

We study how changes in the administrative hierarchy of a country affect development at the city level. We exploit the 1806 Napoleonic administrative reform implemented in the Kingdom of Naples as a historical experiment to assess whether district capitals endowed with supra-municipal administrative functions by law gained an urban development premium compared with non-capital cities. We assemble an original dataset combining historical data from 1648 to 1911, and rely on difference-in-differences and instrumental variable estimation strategies. We find that district capitals recorded a time-persistent population growth premium in the period 1828–1911, and experienced higher industrialization both before and after the Italian unification occurred in 1861, compared with non-capital cities. We explain our results through mechanisms related to public goods provision and transport network accessibility.

(How) Do electoral surprises drive business cycles? Evidence from a new dataset

This paper documents that surprise election outcomes – measured as deviations between realised vote shares and expected vote shares based on a newly constructed dataset of opinion polls and party and candidate vote shares close to election day – are causing non-negligible short-term contractions in economic activity. We find that, on average, a percentage point higher surprise is associated with a 0.37 percentage point lower year-on-year growth rate one year after the election. These effects are only present in countries with strong democracies and seem to operate mainly through increased economic policy uncertainty and lower investment growth over a window of up to eight quarters after an election. In addition, surprise performances of left-wing political parties and in elections with transitions to left-wing governments (pre-defined from the Parlgov Database) are associated with the largest effects on the economy.

Distributional and climate implications of policy responses to energy price shocks

Which households are most affected by energy price shocks? What can we learn about the distributional implications of carbon taxes? How do interventions in energy markets affect these patterns? This paper introduces a measurement framework that leverages granular property-level data representing more than 50% of the English and Welsh housing stock. We use this ex-ante measurement framework to investigate these questions and set out an empirical evaluation framework to study the causal effects of the energy crisis more broadly. We find that the energy price shock has a more pronounced effect on relatively more affluent areas highlighting the likely progressive impact of carbon taxation. We document that commonly used untargeted interventions in energy markets significantly weaken market price signals for able-to-pay households. Alternative, more targeted policies are cheaper, easily implementable, and could better align energy saving incentives.

Differences in On-the-Job Learning across Firms

We present evidence consistent with large disparities across firms in the on-the-job learning their young employees experience, using administrative datasets from Brazil and Italy. We categorize firms into discrete “classes”—which our conceptual framework interprets as skill-learning classes—using a clustering methodology that groups together firms with similar distributions of unexplained wage growth. Mincerian returns to experience vary widely across experiences acquired in different firm classes. Moreover, past experiences at firms with better on-the-job learning lead to subsequent jobs featuring greater non-routine task content. Three empirical tests leveraging firm stayers and movers, hiring wages, and displaced workers point towards a portable and general human capital interpretation. Heterogeneous employment experiences explain an important share of wage variance by age 35, thus contributing to shape wage inequality. Lastly, we show that firms’ observable attributes only mildly predict on-the-job learning opportunities.

Economic Impact of Significant New Deployment of Infrastructure: Historical examples and links to potential high impact outcomes for 5G

This paper aims to examine quantitatively and qualitatively the impact of five key general-purpose technologies in order to gain insights into what factors may arise in relation to 5G as a potential example. We first attempt a definition of what constitutes a general-purpose technology, providing a potential framework for analysis of impact mechanisms then take this to the five case studies. It is difficult to capture the impacts of such technologies because their scope is broad and commonly a suitable base case from which to measure impact is missing. In addition, there are in each case antecedents and complementary developments which influence their impact. However, our analysis points to a range of factors that must be considered in relation to potential new candidate technologies, including a range of potential governmental interventions.

Ethnic conflict: the role of ethnic representation

We investigate the impact of the political representation of minority groups on the incidence of ethnic conflict in India. We code data on Hindu-Muslim violence and Muslim political representation in India and leverage quasi-random variation in legislator religion generated by the results of close elections. We find that the presence of Muslim legislators results in a large and significant decline in Hindu-Muslim conflict. The average result is driven by richer states and those with greater police strength. Our results suggest that the political empowerment of minority communities can contribute to curbing civil conflict.

Italy in the great divergence: what can we learn from Engel’s law?

We estimate and internationally compare the evolution of GDP pc in central-northern and, for the first time, southern Italy in 1400-1861. To address concerns on the representativeness of daily wages, we rely on an unconventional demand approach, using a general equilibrium model and occupational data. Our estimates are consistent with an “industrious revolution” in the “long 18th century” (1650-1800). Central-northern Italy stagnated. Southern Italy, though poorer, was growing slowly. Our comparison suggests that the “great divergence” between Europe and Asia in the 18th century was rooted in contingent institutional developments, rather than persistent differences.

The Political Effects of the 1918 Influenza Pandemic in Weimar Germany

How do health crises affect election results? We combine a panel of election results from 1893–1933 with spatial heterogeneity in excess mortality due to the 1918 Influenza to assess the pandemic’s effect on voting behavior across German constituencies. Applying a dynamic differences-in-differences approach, we find that areas with higher influenza mortality saw a lasting shift towards left-wing parties. We argue that pandemic intensity increased the salience of public health policy, prompting voters to reward parties signaling competence in health issues. Alternative explanations such as pandemic-induced economic hardship, punishment of incumbents for inadequate policy responses, or polarization of the electorate towards more extremist parties are not supported by our findings.

Advantage Magazine – Summer 2023

Information Aggregation with Delegation of Votes

Liquid democracy is a system that combines aspects of direct democracy and representative democracy by allowing voters to either vote directly themselves, or delegate their votes to others. In this paper we study the information aggregation properties of liquid democracy in a setting with heterogeneously informed truth-seeking voters—who want the election outcome to match an underlying state of the world—and partisan voters. We establish that liquid democracy admits equilibria which improve welfare and information aggregation over direct and representative democracy when voters’ preferences and information precisions are publicly or privately known. Liquid democracy also admits equilibria which do worse than the other two systems. We discuss features of efficient and inefficient equilibria and provide conditions under which voters can more easily coordinate on the efficient equilibria in liquid democracy than the other two systems.

If You Do Not Change Your Behavior: Preventive Repression in Lithuania under Soviet Rule

Who is targeted by preventive repression and why? In the Soviet Union, the KGB applied a form of low-intensity preventive policing, called profilaktika. Citizens found to be engaging in politically and socially disruptive misdemeanors were invited to discuss their behavior and to receive a warning. Using novel data from Lithuania, a former Soviet republic, in the late 1950s and the 1970s, we study the profile and behaviors of the citizens who became subjects of interest to the KGB. We use topic modeling to investigate the operational focuses of profilaktika. We find that profilaktika began as a way of managing specific threats or “known risks” that arose from the experience of postwar Sovietization. The proportion of “unknown risks” – people without risk factors in their background or personal records – increased by the 1970s. These people were targeted because of their anti-Soviet behaviour, which the KGB attributed to “contagious” foreign influences and the spread of harmful values.

Brexit and consumer food prices

Brexit continues to affect the UK economy. The results in this report are updates to the original study of Bakker et al. (2022), showing that higher non-tariff barriers due to Brexit are affecting food price inflation and costing households in the UK. While the original paper used data up to January 2022, this report updates the dataset through to March 2023. The methodology is otherwise identical so for more details please consult the original paper (appended to this paper).

Did the policy response to the energy crisis cause crime? Evidence from England

The invasion of Ukraine has led to an unprecedented increase in energy prices in much of Western Europe with policy makers actively intervening in energy markets to cushion the shock. The UK's policy response stands out: the energy price guarantee (EPG) was entirely untargeted and is, in real terms, much less generous to those living in properties with low energy efficiency. Using granular data and following a documented research approach this paper documents that areas more exposed to the energy price shock saw a notable increase in burglaries and anti-social behaviour: the energy price shock is responsible for a 6 to 10 percent increase in burglaries and a 9 to 24 percent increase in police reported anti-social behaviour between October 2022 to March 2023 inclusive. A quantification of policy alternatives suggests that a more targeted energy support package and/or a more energy efficient housing stock could have resulted in a drastically less pronounced uptick in crime.

Murphy’s Law or Luck of the Irish? Disparate Treatment of the Irish in 19th Century Courts

Using data on 100 years of 19th century criminal trials at London's Old Bailey, this paper offers clear evidence of disparate treatment of Irish-named defendants and victims by English juries. We measure surname Irishness and Englishness using place of birth in the 1881 census. Irish-named defendants are 11% less likely to plea, 3% more likely to be convicted by the jury, and 16% less likely to receive a jury recommendation for mercy. These disparities are: (i) largest for violent crimes and for defendants with more distinctive Irish surnames; (ii) robust to case characteristic controls and proxies for signals associated with Irish surnames (social class, Irish county of origin, criminality); (iii) particularly visible for Irish defendants in cases with English victims; and (iv) spill-over onto English-named defendants with Irish co-defendants. Disparate treatment is first visible in the 1830s, after which it grows, then persists through to the end of the century. In particular, the gap in jury conviction rates became larger during the twenty years after the Irish Potato Famine-induced migration to London. We do not find evidence, however, that the first bombing campaign of the Irish Republican Brotherhood (in 1867 and the 1880s) further exacerbated these disparities.

Unconditional Convergence in Manufacturing Productivity across U.S. States: What the Long-Run Data Show

Emergency Care Centers, Hospital Performance and Population Health

Hospitals are under increasing pressure as they bear a growing burden of chronic disease while also dealing with emergency cases that do not all require hospital care. Many countries have responded by introducing alternative facilities that provide 24/7 care for basic and medium-complexity cases. Using administrative data, we investigate impacts of the opening of these intermediate facilities (UPA) in the state of Rio de Janeiro in Brazil. We find that an UPA opening in the catchment area of a hospital reduces hospital outpatient procedures and admissions and that this is associated with improved hospital performance. There is a decline in inpatient mortality, particularly mortality from the more complex conditions that hospitals are best equipped to deal with. There is no discernible change in the risk profile of cases going to hospital, and no concurrent policy changes that can account for these findings. In order to capture displacement effects, we investigate city-level population outcomes. We find that two-thirds of the decline in hospital mortality is offset by deaths in UPAs. Looking at individual death causes, we see a net decline in deaths from congestive heart failure.

British Economic Growth and Development

British per capita GDP grew at an average annual rate of 0.13 per cent between 1086 and 1700. Although the annual growth rate increased to 0.48 per cent between 1700 and 1870, the period covering the Industrial Revolution, this was still not particularly fast. What mattered for Britain’s catching-up and forging ahead of other economies was its resilience, with few episodes of negative growth. By the late nineteenth century, other countries had begun to emulate Britain’s Industrial Revolution and by the beginning of the twentieth century, the United States had emerged as the new per capita income leader. However, the process by which the United States and Germany overtook Britain owed more to a later structural shift out of agriculture and developments within services than to any change in the comparative productivity position within manufacturing. After 1870, other countries were bound to grow faster than Britain while catching-up, and once Britain had fallen behind, it too could benefit from borrowing technology and institutions from abroad. TFP growth has been an important proximate source of Britain’s rise to GDP per capita leadership and also of Britain’s relative economic decline since 1870. However, the ultimate source of these developments in technology lies in the institutional framework. Britain’s rise to GDP per capita leadership occurred as innovators responded to the factor price combination that they faced within an environment shaped by the Enlightenment. After 1870, British relative decline occurred as barriers to competition arose and slowed the response to technological change.

From the Manufacturing Belt to the Rust Belt. Spatial Inequalities in the United States: An Interdisciplinary Literature Review

This paper reviews research on spatial inequalities in the United States focusing on the Manufacturing Belt and Rust Belt. It offers a taxonomy of scholarship in this area and assesses its contribution to our understanding of the evolution of U.S. spatial inequalities since the middle of the nineteenth century. This scholarship has shown that the initial location of the Manufacturing Belt was influenced by natural resources, location of initial European settlements and early development of canals. The dominant position of the belt was the result of its large market potential which allowed firms to take advantage of agglomeration economies, supply-chain linkages and low-cost access to the consumers. Its decline and subsequent emergence of the Rust Belt was the result of rising labor costs and diminished location advantage.

Slavery and the British Industrial Revolution

Did overseas slave-holding by Britons accelerate the Industrial Revolution? We provide theory and evidence on the contribution of slave wealth to Britain’s growth prior to 1835. We compare areas of Britain with high and low exposure to the colonial plantation economy, using granular data on wealth from compensation records. Before the major expansion of slave holding from the 1640s onwards, both types of area exhibited similar levels of economic activity. However, by the 1830s, slavery wealth is strongly correlated with economic development – slave-holding areas are less agricultural, closer to cotton mills, and have higher property wealth. We rationalize these findings using a dynamic spatial model, where slavery investment raises the return to capital accumulation, expanding production in capital-intensive sectors. To establish causality, we use arguably exogenous variation in slave mortality on the passage from Africa to the Indies, driven by weather shocks. We show that weather shocks influenced the continued involvement of ancestors in the slave trade; weather-induced slave mortality of slave-trading ancestors in each area is strongly predictive of slaveholding in 1833. Quantifying our model using the observed data, we find that Britain would have been substantially poorer and more agricultural in the absence of overseas slave wealth. Overall, our findings are consistent with the view that slavery wealth accelerated Britain’s industrial revolution.

Electoral Importance and the News Market: Novel Data and Quasi-Experimental Evidence from India

Information conveyed through news media influences political behavior. But to what extent are media markets themselves shaped by political motives? We build a novel panel data set of newspaper markets in India from 2002 to 2017 to measure the impact of changes in electoral importance on how news markets develop over time. We exploit the announcement of an exogenous change in the boundaries of electoral constituencies to causally identify the relationship between the (future) electoral importance of news markets and the change in the number and circulation of newspapers. Using an event-study approach and a staggered difference-in-differences approach, we show that markets that became more electorally important experienced a significant rise in both circulation and the number of titles per capita. Both supply and demand seem to drive the increase, but we estimate that the former explains almost all the variation in the short run and around 60% in the long run. Finally, we document how effects vary with prior levels of political competition and newspapers' characteristics, and discuss implications for voting behavior and democratic accountability.

Regulatory barriers to climate action: evidence from conservation areas in England

Preserving heritage is an important part of maintaining collective identity for future generations. Yet, in the context of the climate crisis, it is imperative to understand to what extent there is a tangible trade-off between conserving “character” vis-a-vis averting the worst of climate change – a much more existential threat to those future generations. Studying data for more than half of the English housing stock, I show that conservation area status – a special area-based designation to preserve the unique character of a neighborhood – not to be confused with preservation of historic buildings – in England may be responsible for up to 3.2 million tons of avoidable CO2 emissions annually. Using a suite of micro-econometric methods and alternative identification strategies ranging from saturated specifications, border discontinuity, matching estimation and an instrumental variables approach leveraging World War II wartime destruction in London – I show that properties in conservation areas have a notable worse energy efficiency; experience lower investment in retrofitting and consume notably higher levels of energy owing to poor energy efficiency. Effect sizes are very consistent comparing engineering based energy consumption estimates with actual consumption data. Effects can be directly attributed to planning requirements for otherwise permitted development that only apply to properties by virtue of them being located inside a conservation area.

Improved menstrual health and the workplace: an RCT with female Bangladeshi garment workers

Menstruation can limit female labor force participation, especially in low-income countries, where menstrual hygiene practices are constrained by lack of finances and information. In a randomized controlled trial with around 1,900 female workers from four Bangladeshi garment factories, we relax both constraints individually and jointly by providing free sanitary pads and information. Both access to sanitary pads and information improve menstrual practices, either by the adoption of new technologies, or by knowledge gains and improved use of traditional materials, and both interventions improve health outcomes. However, these positive effects do not translate to better labor outcomes, such as earnings and work attendance

Shadow Lobbyists

Special interest influence via lobbying is increasingly controversial and legislative efforts to deal with this issue have centred on the principle of transparency. In this paper we evaluate the effectiveness of the current regulatory framework provided by the US Lobbying Disclosure Act (LDA). Specifically, we study the role of ex-Congressional officials who join US lobbying firms in positions that could be related to lobbying activity but without officially registering as lobbyists themselves. We find that firm lobbying revenues increase significantly when these potential ‘shadow lobbyists’ join, with effects in the range of 10-20%. This shadow lobbyist revenue effect is comparable to the effect of a registered lobbyist at the median of the industry skill distribution. As such, it is challenging to reconcile the measured shadow lobbyist effect with the 20% working time threshold for registering as a lobbyist. Based on our estimates, the unaccounted for contributions of unregistered lobbyists can be valued at $149 million USD in revenue terms and this effect is concentrated within the industry’s largest and most active firms.

Connected Lending of Last Resort

Because of secrecy, little is known about the political economy of central bank lending. Utilizing a novel, hand-collected historical daily dataset on loans to commercial banks, we analyze how personal connections matter for lending of last resort, highlighting the importance of governance for this core function of central banks. We show that, when faced with a banking panic in November 1930, the Banque de France (BdF) lent selectively rather than broadly, providing substantially more liquidity to connected banks – those whose board members were BdF shareholders. The BdF’s selective lending policy failed to internalize a negative externality – that lending would be insufficient to arrest the panic and that distress via contagion would spillover to connected banks. Connected lending of last resort fueled the worst banking crisis in French history, caused an unprecedented government bailout of the central bank, and resulted in loss of shareholder control over the central bank.

Exploring European Regional Trade

We use the new dataset of trade flows across 269 European regions in 24 countries constructed in Santamaría et al. (2020) to systematically explore for the first time trade patterns within and across country borders. We focus on the differences between home trade, country trade and foreign trade. We document the following facts: (i) European regional trade has a strong home and country bias, (ii) geographic distance and national borders are important determinants of regional trade, but cannot explain the strong regional home bias and (iii) the home bias is heterogeneous across regions and seems to be driven by political regional borders.

Community Networks and Trade

Do community networks shape firm-to-firm trade in emerging economies? We study the role of communities in facilitating firm-to-firm trade and firm outcomes using data on firm-to-firm transactions and firm owners’ community (castes) affiliations for the universe of medium- and large- sized firms in West Bengal, India. We find that firms are substantially more likely to trade, and trade more, with firms from their own caste. Studying the mechanisms underlying this effect, we find evidence consistent both with castes alleviating trade frictions and taste-based discrimination by firms against those outside their community. Guided by these stylized facts, we develop a model of firm to-firm trade in which communities affect pair productivity and matching costs and estimate the model using our reduced-form estimates. A counterfactual extending the positive effects of castes on trade to all potential supplier-client pairs would increase the number of network links by 60% and increase average firm-to-firm sales by 20%.

Tax and Occupancy of Business Properties: Theory and Evidence from UK Business Rates

We study the impact of commercial property taxation on vacancy rates and rents in the UK, using a new data-set, and exploiting exogenous variations in property tax rates from reliefs in the UK system: small business rate relief (SBRR), retail relief and empty property relief. We estimate that the retail relief reduces vacancies by 85%, and SBRR relief by up to 49%, while empty property exemption increases them by up to 89%. The effect of retail relief on clusters of urban properties (the “High St”) is no different to its overall effect. SBRR increases (decreases) the likelihood that a property is occupied by a small (large) business. We also use data on asking prices for rental properties to study the effect of reliefs on rental rates. Rental rates move in the opposite direction to vacancy rates, except in the case of empty property relief. All these findings are consistent with a novel model of directed search in the commercial property market, also presented in the paper.

Historical roots, cultural selection and the ‘New World Order’

Francis Fukuyama’s bold prediction that Western liberal democracy is ‘the final form of human government’ was promptly challenged by Samuel Huntington, who foresaw the future as a continuing clash of civilisations. This latter view has found support in the recent Beijing declaration by China and Russia of a ‘New World Order’ with distinct spheres of influence for different cultures. After discussing the contrast between such historical perspectives (of ‘immaculate convergence’ versus cultural diversity), we outline two accounts of how forms of governance emerge from competitive struggle (either domestically or between nation states). However, to set the scene for applying these perspectives to current events, the paper begins with a summary of three eras of political economy post World War II - including the current ‘age of the strongman’, to use the terminology of Gideon Rachman. Subsequently, these various perspectives are employed to see what light they may throw on the disastrous turn of events following the Beijing declaration, with a focus on Russia, where the history of a powerful central state has played a crucial role. How enduring the Russian example may prove in the Darwinian struggle of cultural competition is, of course, a key issue for our time.

Man vs. Machine: Technological Promise and Political Limits of Automated Regulation Enforcement

New technologies allow perfect detection of environmental violations at near-zero marginal cost, but take-up is low. We conducted a field experiment to evaluate enforcement of water conservation rules with smart meters in Fresno, CA. Households were randomly assigned combinations of enforcement method (automated or in-person inspections) and fines. Automated enforcement increased households’ punishment rates from 0.1 to 14%, decreased water use by 3%, and reduced violations by 17%, while higher fine levels had little effect. However, automated enforcement also increased customer complaints by 1,102%, ultimately causing its cancellation and highlighting that political considerations limit technological solutions to enforcement challenges.

Behavioral Responses to a Pension Savings Mandate: Quasi-experimental Evidence from Swiss Tax Data

A straightforward policy tool to boost retirement savings is requiring workers to contribute some fraction of their earnings to a pension account. Drawing on detailed administrative tax data on income, wealth, and savings, I study the savings response to the occupational pension savings mandate in Switzerland using regression discontinuity and difference-in-differences designs. I find that employees respond to being obliged to contribute to an occupational pension account by raising voluntary forms of retirement savings such as preferentially taxed private pension savings and occupational pension buy-ins. The crowding-in effect on private pension savings is driven by reduced information frictions and increased salience of retirement savings and facilitated by having another earner in the household. The additional retirement savings appear to be funded by reduced private savings rather than lower current consumption, leaving total savings un-affected by the mandate, although this is imprecisely estimated.

How large is the energy savings potential in the UK?

Which households will be most affected by the energy price shock? How large are the energy, financial, and environmental benefits of improved energy efficiency of the British residential building stock? How do policies or interventions in price setting in energy markets affect these incentives? We develop a measurement and ex-ante modelling approach using granular property-level micro data representing around 50% of the English and Welsh building stock. This allows us to quantify the likely impact of recent energy price shocks on energy bills and how these bills would look like if energy savings measures were implemented. We find, on average, that the energy price shock acts as a form of progressive taxation hitting better-off regions more than poorer ones, in absolute terms. We estimate that on aggregate, 30% of energy consumption could be saved if buildings were upgraded to their highest energy efficiency standard. At market prices, these savings range between GBP 10 to 20 billion pounds per year with the highest energy savings largely concentrated in the wealthiest parts of the UK. However, current policies weaken incentives for households to invest in energy efficiency upgrades. Current policies, such as the energy price cap, appears to be very regressive. Alternative, more targeted policies, are cheaper, easily implementable and could align incentives better

Global Universal Basic Skills: Current Deficits and Implications for World Development

How far is the world away from ensuring that every child obtains the basic skills needed to be internationally competitive? And what would accomplishing this mean for world development? Based on the micro data of international and regional achievement tests, we map achievement onto a common (PISA) scale. We then estimate the share of children not achieving basic skills for 159 countries that cover 98.1% of world population and 99.4% of world GDP. We find that at least two-thirds of the world’s youth do not reach basic skill levels, ranging from 24% in North America to 89% in South Asia and 94% in Sub-Saharan Africa. Our economic analysis suggests that the present value of lost world economic output due to missing the goal of global universal basic skills amounts to over $700 trillion over the remaining century, or 11% of discounted GDP.

Financing UK democracy: A stocktake of 20 years of political donations

Political donations in the UK have been subject to comprehensive disclosure since 2001. We study the data produced as part of this disclosure policy to evaluate the role of private and public political finance over time. Total political donations have grown by 250% since 2001, reaching over £100 million in real terms for the first time in 2019. This increase has been driven by donations from private individuals, who now account for approximately 60% of donations in election years compared to 40-50% up to the late 2010s. Furthermore, ‘superdonors’ (those contributing more than £100,000) have been a prominent driver of the rise, increasing their own share from approximately 36% in 2017 to 46% in 2019. We also show that private donations to Labour fell sharply in the final stages of Jeremy Corbyn’s leadership. Overall, these trends have benefited the Conservative Party, leading to an historic resource gap between the two main parties emerging circa 2019. We calculate that the ‘resource gap’ between parties now stands at approximately £27 million compared to an historic average of £8-10 million (even when taking account of publicly-funded ‘Short’ money provided to the Opposition).

The midlife crisis

This paper documents a longitudinal crisis of midlife among the inhabitants of rich nations. Yet middle-aged citizens in our data sets are close to their peak earnings, have typically experienced little or no illness, reside in some of the safest countries in the world, and live in the most prosperous era in human history. This is paradoxical and troubling. The finding is consistent, however, with the prediction -- one little-known to economists -- of Elliott Jaques (1965). Our analysis does not rest on elementary cross-sectional analysis. Instead the paper uses panel and through-time data on, in total, approximately 500,000 individuals. It checks that the key results are not due to cohort effects. Nor do we rely on simple life-satisfaction measures. The paper shows that there are approximately quadratic hill-shaped patterns in data on midlife suicide, sleeping problems, alcohol dependence, concentration difficulties, memory problems, intense job strain, disabling headaches, suicidal feelings, and extreme depression. We believe the seriousness of this societal problem has not been grasped by the affluent world’s policy-makers.

NAFTA and drug-related violence in Mexico

We study how NAFTA changed the geography of violence in Mexico. We propose that this open border policy increased trafficking profits of Mexican cartels, resulting in violent competition among them. We test this hypothesis by comparing changes in drug-related homicides after NAFTA’s introduction in 1994 across municipalities with and without drug-trafficking routes. Routes are predicted least cost paths connecting municipalities with a recent history of detected drug tracking with U.S. land ports of entry. On these routes, homicides increase by 2.3 per 100,000 inhabitants, which is equivalent to 27% of the pre-NAFTA mean. These results cannot be explained by changes in worker’s opportunity costs of using violence resulting from the trade shock.

Estimating Inter­generational Returns to Medical Care : New Evidence from At ­Risk Newborns

Targeted treatments of newborns with delicate health stocks have been shown to have considerable returns in terms of survival and later life outcomes. We seek to determine to what degree such treatments are transmitted across generations. We follow three generations of linked microdata from Chile, and use a regression discontinuity design to study the impacts of targeted neonatal health policies based on birth weight assignment rules. While we observe well­ -known first generation impacts of intensive treatment targeted to very low birth weight newborns, we document the surprising fact that these policies have negative impacts on measures of well­being at birth for second­ generation individuals born to mothers who were treated at birth. We show that the mechanism which explains this is a strong impact of early life medical treatment on the likelihood that marginal treated individuals go on to give birth later in life, with receipt in the first generation considerably reverting negative gradients in early life health and eventual fertility. These new stylised facts and results suggest the long­ term implications of health policies within family lineages may be quite different to their short term implications, placing more weight on necessary reinforcing interventions.

Analysis of Twins

The occurrence of twin births has been widely used as a natural experiment. With a focus upon the use of twin births for identification of causal effects in economics, this chapter provides a critical review of methods and results.

Advantage Magazine – Autumn 2022

Maternal Investments in Children : The Role of Expected Effort and Returns

We investigate the importance of subjective expectations of returns to and effort costs of the two principal investments that mothers make in newborns : breastfeeding and stimulation. We find heterogeneity across mothers in expected effort costs and expected returns for outcomes in the cognitive, socio-emotional and health domains, and that this contributes to explaining heterogeneity in investments. We find no significant differences across women in preferences for child developmental outcomes. We simulate the impact of alternative policies on investments. Our findings highlight the relevance of interventions designed to address maternal depression and reduce perinatal fatigue alongside interventions that increase perceived returns to investments.

Persecution, Pogroms and Genocide : A Conceptual Framework and New Evidence

Persecution, pogroms, and genocide have plagued humanity for centuries, costing millions of lives and haunting survivors. Economists and economic historians have recently made new contributions to the understanding of these phenomena. We provide a novel conceptual framework which highlights the inter-relationship between the intensity of persecution and migration patterns across dozens of historical episodes. Using this framework as a lens, we survey the growing literature on the causes and consequences of persecution, pogroms, and genocide. Finally, we discuss gaps in the literature and take several tentative steps towards explaining the differences in survival rates of European Jews in the 20th century

How to Increase Housing Affordability? Understanding Local Deterrents to Building Multifamily Housing

This paper studies how various land-use regulations interact to affect housing supply and affordability. We use cross-sectional variation across space from a novel parcel-level zoning data and a boundary discontinuity design at regulation boundaries to obtain causal estimates for the effect of various zoning regulations on the supply of different types of housing, single-family house prices, multifamily rents, and households’ willingness-to-pay for higher density. We find that relaxing density restrictions (minimum lot size and maximum dwelling units), either alone or jointly with relaxing other regulations, is most effective at increasing supply, particularly of multifamily properties, and reducing rents and house prices. Conversely, enabling multifamily zoning or relaxing height regulations alone has little impact. Our results suggest that the small-scale reforms in zoning regulations proposed around the country can increase housing affordability. However, a fall in multifamily rents is often accompanied by a reduction in single-family house prices, complicating the political economy of land-use reform.

Impact of the COVID-19 Crisis on India’s Rural Youth : Evidence from a Panel Survey and an Experiment

This paper presents evidence on the short and long-term impact of the COVID-19 crisis on India’s rural youth. We interviewed about 2,000 vocational trainees from Bihar and Jharkhand three times after the first national lockdown in 2020, between June 2020 and December 2021. We find that a third of respondents who were in salaried jobs pre-lockdown lost their jobs, and half of those who worked out of state returned home shortly after the lockdown. We report a stark difference between men and women: while many male workers took up informal employment, most female workers dropped out of the labor force. In the second part of the paper, we use a randomised experiment to document the effects of a government-supported digital platform designed to provide jobs to low-skilled workers. The platform turned out to be difficult to use and publicised only a few job ads. We find no effect on job search intensity or employment. Our findings suggest that bridging the gap between rural young workers and urban formal labor markets requires more active and targeted policy interventions, especially for female workers

Behavioral Messages and Debt Repayment

We conduct a randomized experiment involving 7,063 late-paying clients of a large Colombian bank to compare the effects of text messages that leverage different behavioral motives on loan delinquency. Our results show that receiving a message decreases the likelihood of borrowers being late by 4%. The effects are more pronounced when messages leverage social norms. Using machine learning tools, we find that the effects are concentrated among borrowers with higher credit scores and unsecured loans. A second experiment shows that this type of message is ineffective in preventing on-time borrowers from falling into loan delinquency.

Flow of Ideas : Economic Societies and the Rise of Useful Knowledge

Economic societies emerged during the late eighteenth-century. We argue that these institutions reduced the costs of accessing useful knowledge by adopting, producing, and diffusing new ideas. Combining location information for the universe of 3,300 members across active economic societies in Germany with those of patent holders and World’s Fair exhibitors, we show that regions with more members were more innovative in the late nineteenth- century. This long-lasting effect of societies arguably arose through agglomeration economies and localized knowledge spillovers. To support this claim, we provide evidence suggesting an immediate increase in manufacturing, an earlier establishment of vocational schools, and a higher density of highly skilled mechanical workers by mid-nineteenth century in regions with more members. We also show that regions with members from the same society had higher similarity in patenting, suggesting that social networks facilitated spatial knowledge diffusion and, to some extent, shaped the geography of innovation

Small Firm Growth and the VAT Threshold : Evidence for the UK

This paper studies the effect of the VAT threshold on firm growth in the UK, using administrative tax data, and exogenous variation over time in the threshold, combined with turnover bin fixed effects, for identification. We find that annual growth in turnover slows by up to 2 p.p. points (almost one third of the average growth rate of 7 p.p. in our data) when firm turnover gets close to the threshold, and this growth slowdown persists for levels of turnover close to, and above the threshold. Growth in firm costs shows a similar pattern, indicating that the response to the threshold is likely to be a real response rather than an evasion response. Firms that select into the Flat-Rate Scheme have a less pronounced slowdown response than other firms. Similar patterns of turnover and cost growth around the threshold are also observed for non-incorporated businesses. Finally, simulation results clarify the relative contribution of “crossers” (firms who eventually register for VAT) and "non-crossers" (those who permanently stay below the threshold) in explaining our empirical findings.

Taxation and migration by the super-rich

Using administrative data on the globally connected super-rich in the UK, we study the effect of a large tax reform on migration behaviour. Prior to 2017, o shore investment returns for `non-doms' (individuals tax resident in the UK but with connections to other countries) were untaxed. Average off shore investment returns for these individuals exceeded £420,000; even without considering other types of income, this puts them in the top 0.2% of the population. A reform in 2017 brought long-stayers and UK-born non-doms into the standard tax system, reducing their effective net of average tax rate by between 8.8% and 13.0%. We find that migration responses were limited: our central estimate of the migration elasticity is 0.02, and across a range of speci cations we can rule out elasticities larger than 0.5. Using reforms for the UK-born super-rich who were living abroad, we find that migration elasticities are limited even for recent arrivals, for whom our central estimate is 0.18. Assuming similar elasticities for all non-doms, abolition of the preferential regime would increase tax revenue collected from non-doms by £3.2 billion (84%).

Mistaking Noise for Bias Victimhood and Hutu-Tutsi Reconciliation in East Africa

The difficulty in resurrecting inter-ethnic cooperation in the aftermath of violence and genocide is one of the biggest challenges facing post-conflict societies. Using experimental data from post-genocide Rwanda and Burundi, this paper shows that an unwarranted tendency to blame others for negative outcomes is a behavioural barrier that makes reconciliation difficult. We show that individuals systematically (and mistakenly) blame accidental negative shocks (noise) to the deliberate intent of individuals (bias). This victimhood bias wherein individuals ascribe noise to bias is much larger for (a) individuals for whom ethnic identity is salient; (b) for those who have had greater exposure to inter-ethnic violence. Further, we observe that both inter-ethnic contact and economic development are associated with a decline in this victimhood bias. Finally, those with a lower victimhood bias are more likely to behave cooperatively in inter-ethnic relationships. Our results suggest that insurance agreements that limit negative shocks and reduce noise, can encourage reconciliation by mitigating feelings of victimhood.

Bootstrapping Science? The Impact of a “Return Human Capital” Programme on Chinese Research Productivity

We study the impact of a large-scale scientist recruitment program – China’s Junior Thousand Talents Plan (青年千人计划) – on the productivity of recruited scholars and their local peers in Chinese host universities. Using a comprehensive dataset of published scientific articles, we estimate effects on quantity and quality in a matched difference-in-differences framework. We observe neutral direct productivity effects for participants over a 6-year post-period: an initial drop is followed by a fully offsetting recovery. However, the program participants collaborate at higher rates with more junior China-based co-authors at their host institutions. Looking to peers in the hosting department, we observe positive and rising productivity impacts for peer scholars, equivalent to approximately 0.6 of a publication per peer scholar in the long-run. Heterogeneity analysis and the absence of correlated resource effects point to the peer effect being rooted in a knowledge spillover mechanism.

British business cycles, 1270-1870

Annual estimates of GDP constructed from the output side are used to analyse British business cycles between 1270 and 1870. After c.1670 the scale of recessions tended to diminish as the economy grew, diversified and became more resilient. Until c.1730, business cycles were driven largely by agricultural fluctuations, but shocks to industry and commerce became more important over time as the structure of the economy changed. A number of severe recessions can be identified, associated with harvest failures, disease outbreaks, wars and disruptions to commerce. Monetary and financial factors also played a role in some of these severe recessions.

Catching-up and falling behind : Russian economic growth,1690s-1880s

This paper provides decadal estimates of GDP per capita for the Russian Empire from the 1690s to the 1880s. GDP per capita in the 1880s was barely 3 per cent higher than in the 1690s, but this was not the result of continuous stagnation. Rather, positive growth during the first half of the eighteenth century was followed by negative growth between the 1760s and 1800s and stagnation from the 1800s to the 1880s. The main driver of this variation in GDP per capita was the relationship between population and land, with land per capita increasing to the 1760s, then declining to the 1800s and staying stable during the nineteenth century. This suggests that serfdom may not have been as strong a barrier to eighteenth century growth as has often been suggested, nor its abolition in 1861 as significant for subsequent growth. Although large-scale industry grew more rapidly than the rest of the economy, particularly after Peter the Great’s reforms in the early eighteenth century, this had only a minor effect on the economy as a whole, as it was starting from a very low base and still only accounted for 10 per cent of GDP by the 1880s. Russian economic growth before the 1760s resulted in catching-up on northwest Europe, but this was followed by a period of relative decline, leaving mid-nineteenth century Russia further behind than at the beginning of the eighteenth century.

Regional Variation of GDP per head within China, 1080-1850 : implications for the great divergence debate

We examine regional variation in Chinese GDP per head for five benchmark years from the Song dynasty to the Qing. For the Ming and Qing dynasties, we provide a breakdown of regional GDP per head across seven macro regions, establishing that East Central China was the richest macro region. In addition, we provide data on the Yangzi Delta, the core of East Central China, widely seen as the richest part of China since 1400. Yangzi Delta GDP per head was 64 to 67 per cent higher than in China as a whole for three of the four Ming and Qing benchmarks, and 52 per cent higher during the late Ming. For the Northern Song dynasty, although it is not possible to derive a full regional breakdown, we provide data for Kaifeng Fu, the region containing the capital city. GDP per head in Kaifeng Fu was more than twice the level of China as a whole. Combined with aggregate data for GDP per head, these estimates suggest that China was the leading economy in the world during the Song dynasty and that the Great Divergence began around 1700 as the leading region of China fell decisively behind the leading region of Europe.

Political Identity and Foreign Aid Efficacy : Evidence from Pakistani Schools

We conduct a field experiment to study whether concerns to preserve an anti-liberal self-image affect low cost, private school owners' willingness to explore a collaboration with a liberal Pakistani NGO. While explicitly revealing the NGO's liberal motivation to school owners has a significant impact on beliefs about the NGO's objectives, on average, we find only limited evidence that treated school owners are less willing to explore a collaboration with our partner NGO. However, heterogeneous treatment effects suggest that differences in political identity cause negative reactions among the minority of school owners expressing conservative beliefs during a seemingly unrelated follow-up survey.

Deep historical roots, culture choice and the New World Order

Gerard Roland examines data going back to 3,000 BC for historical roots that might explain the current division of nations as between cultures of collectivism and individualism. In response to the appeal for theories bearing on the empirical evidence presented - and of recent moves by Russia and China to create a ‘New World Order’ based on similar cultural division - three contributions are discussed. First is the ‘competing powers’ perspective of Acemoglu and Robinson, who propose that individualism flourishes where power is evenly balanced between the state and the people : otherwise, either Despotism or Disorder will ultimately prevail. Then there is Ken Binmore’s study of cooperative social contracts: this offers support for stable societies of each cultural type, based on the folk theorem of repeated games. Finally the notion that dictatorship may be sustained by deception rather than repression - by leaders whom Guriev and Treisman call ‘spin dictators’. In the light of these perspectives, what to make of the current drive for a new global order that recognizes different ‘spheres of influence’ for each of Roland’s cultural types? We look specifically at the case of Russia.

Import Liberalization as Export Destruction? Evidence from the United States

How does import protection affect export performance? In trade models with scale economies, import liberalization can reduce industry-level exports by cutting domestic production. We show that this export destruction mechanism reduced US export growth following the permanent normalization of trade relations with China (PNTR). But there was also an offsetting boost to exports from lower input costs. We use our empirical results to calibrate the strength of scale economies in a quantitative trade model. Counterfactual analysis implies that while PNTR increased aggregate US exports relative to GDP, exports declined in the most exposed industries because of the export destruction effect. On aggregate, the US and China both gain from PNTR, but the gains are larger for China.

Estimating the Gains (and Losses) of Revenue Management

Despite the wide adoption of revenue management in many industries such as airline, railway, and hospitality, there is still scarce empirical evidence on the gains or losses of such strategies compared to uniform pricing or fully flexible strategies. We quantify such gains and losses and identify their underlying sources in the context of French railway transportation. The identification of demand is complicated by censoring and the absence of exogenous price variations. We develop an original identification strategy combining temporal variations in relative prices, consumers’ rationality and weak optimality conditions on the firm’s pricing strategy. Our results suggest similar or better performance of the actual revenue management compared to optimal uniform pricing, but also substantial losses of up to 16.2% compared to the optimal pricing strategy. We also highlight the key role of revenue management in acquiring information when demand is uncertain.

Natural disasters and local government finance: Evidence from typhoon Haiyan

This paper examines how natural disasters affect low public finances and their interplay with intergovernmental transfers and external resources. We document the causal effect of a natural disaster on the allocation of local public resources the local government fiscal dynamics by exploiting the random nature of the 2013 Typhoon Haiyan, one of the most devastating natural disasters in recent history. Combining data on local government finance with reports on the level of damages caused by the typhoon, we employ several estimation strategies: we first rely on difference-in-differences and event study designs, and we further address a potential endogeneity concern by instrumenting the intensity exposure to the typhoon with distance to the storm path. We show that local revenue and public expenditures remain largely unaffected, except debt service, which are on average 15% lower in affected cities or municipalities. However, we document important heterogeneity in local revenue responses. We find no support for the moral hazard problem: our results indicate that external aid leads to higher local expenditures, particularly general public services, socioeconomic expenditures, including education and social services, and debt payments. These results highlight the crucial role of central government transfers in supporting local governments and mitigating the geographical economic disparities in the aftermath of exogenous shocks such as natural disasters.

In the grip of Whitehall? The effects of party control on local fiscal policy in the UK

This paper uses an instrumental variable approach based on close elections to evaluate the effects of political parties on local fiscal policy in England from 1998 to 2015. Our main finding is that when we condition on the central government grant, political control of the council by Labour or Conservative parties has no effect on total service expenditure, the composition of that expenditure, and the property tax rate (council tax per band D property). We find the same null results for capital expenditure, debt, and authorized debt limits. Using data on the distribution of income within local authorities, we find no evidence that this null result is being driven by homogeneous electorates rather than fiscal constraints. Thus, our results confirm the widely expressed belief that centrally imposed constraints on local government fiscal policy (rate-capping, and more recently, compulsory referenda, and the Prudential Code for borrowing) hold local government fiscal policy in a tight grip.

The Creativity Premium.

Success in life increasingly depends on key skills that allow people to thrive in education, the labor market, and their interactions with others. In this paper, we emphasize creativity as a key skill that is essential to open-ended problem solving and resistant to automation. We use rich longitudinal data to study the relationship between people’s creativity measured in childhood and their individual attributes and life outcomes. We find that childhood creativity predicts labor market and educational success: more creative individuals earn more during the course of their careers, work in higher occupational categories, and reach higher levels of educational attainment. Our analysis of attributes further suggests that creative individuals have a package of practical skills that allows them to thrive in work environments where learning from experience is important. We combine insights from our findings with evidence from psychology to propose creativity-improving interventions that could lead to substantial economic benefits.

Church and State in historical political economy

Over many centuries, church and state have grown together, and apart. Sometimes linked like Siamese twins, sometimes in conflict with each other. This chapter discusses the major themes in the literature on church and state, some of the findings in the political economy of religion, and evaluates emerging directions in research on church-state relations.

Advantage Magazine, Economic History Special – Spring 2022

Revolution in Progress? The Rise of Remote Work in the UK

The pandemic was accompanied by a wave of adoption of remote work practices. This paper uses online job vacancy data to study how UK firms have adopted remote work. Overall, remote work increased by 300%. Our analysis finds little evidence that occupations have fundamentally changed to better accommodate remote work tasks, nor evidence of changes in the occupational composition of jobs. We find that the overall increase in remote working is driven by the increasing use of remote work at the firm level, especially among firms that were less likely to use remote work before the pandemic. This is consistent with changes in organisational practices or updated information about the viability of large-scale remote working.

Credit supply and green Investments

Does an increase in credit supply affect firms’ likelihood to invest in green technologies? To answer this question, we use text algorithms to extract information on green investments from the comments to the financial statements of Italian SMEs between 2015 and 2019. To identify the effect of credit supply, we use all loans disbursed by banks operating in Italy to construct a firm-specific time-varying instrument for credit availability. We find a large positive elasticity of green investments to credit supply. The effect is concentrated among firms with high availability of internal capital and in areas with higher preferences for environmental protection. Subsidies and market competition can spur green investments if combined with environmental awareness.

The distribution of the gender wage gap: An equilibrium model

We develop an equilibrium model of the labor market to investigate the joint evolution of gender gaps in labor force participation and wages. We do this overall and by task-based occupation and skill, which allows us to study distributional effects. We structurally estimate the model using data from Mexico over a period during which women’s participation increased by fifty percent. We provide new evidence that male and female labor are closer substitutes in high-paying analytical task-intensive occupations than in lower-paying manual and routine task-intensive occupations. We find that demand trends favored women, especially college-educated women. Consistent with these results, we see a widening of the gender wage gap at the lower end of the distribution, alongside a narrowing at the top. We derive own and cross-occupation wage elasticities of labor supply varying with skill, gender and time, and our counterfactual estimates demonstrate that ignoring the countervailing effects of equilibrium wage adjustments on labor supplies, as is commonly done in the literature, can be misleading. We find that increased appliance availability was the key driver of increases in the participation of unskilled women, and fertility decline a key driver for skilled women. The growth of appliances acted to widen the gender wage gap and the decline of fertility to narrow it. We also trace equilibrium impacts of growth in college attainment, which was more rapid among women, and of emigration, which was dominated by unskilled men.

Missing women in Colonial India

We construct novel data on female population shares by age, district, and religion in South Asia from 1881 to 1931. Sex ratios skew male in Northern India and are more balanced in Southern and Eastern India, including Burma. Male-biased sex ratios emerge most visibly after age 10, and this is not specific to any one region, religion, or time period. Sikhs have the most male-biased sex ratios, followed by Hindus, Muslims, and Jains. The female share correlates across religious groups within districts. Evidence that sex ratios correlate with suitability for wheat and rice is weaker than suggested by the existing literature.

Hidden hazards and screening policy: Predicting undetected lead exposure in Illinois

Lead exposure still threatens children’s health despite policies aiming to identify lead exposure sources. Some US states require de jure universal screening while others target screening, but little research examines the relative benefits of these approaches. We link lead tests for children born in Illinois between 2010 and 2014 to geocoded birth records and potential exposure sources. We train a random forest regression model that predicts children’s blood lead levels (BLLs) to estimate the geographic distribution of undetected lead poisoning. We use these estimates to compare de jure universal screening against targeted screening. Because no policy achieves perfect compliance, we analyze different incremental screening expansions. We estimate that 6,626 untested children had a BLL≥ 5µ/dL, in addition to the 18,115 detected cases. 83% of these undetected cases should have been screened under the current policy. Model-based targeted screening can improve upon both the status quo and expanded universal screening.

Forced displacement in history: Some recent research

Forced displacement as a consequence of wars, civil conflicts, or natural disasters does not only have contemporaneous consequences but also long-run repercussions. This eclectic overview summarizes some recent research on forced displacement in economic history. While many of the episodes covered refer to Europe, this survey points to literature across all continents. It highlights new developments, and points to gaps in the literature.

Measuring top income shares in the UK

Information about the share of total income held by the richest 1%, or other top income groups, is increasingly used to discuss inequality levels and trends within and between nations. A top income share is the ratio of the total income held by the top income group divided by total personal income (the ‘income control total’). We compare two approaches to estimating income control totals: the ‘external’ approach used by the World Inequality Database, and an augmented ‘internal’ approach. We argue in favour of the latter, with reference to five desirable properties that a top share series would ideally possess. The choice matters: our augmented ‘internal’ approach yields estimates of the UK top 1% share that are around 2 percentage points higher than the ‘external’ approach.

Gifted children programs’ short and long-term impact: Higher Education, earnings, and the knowledge economy

We estimate the short-run and longer-term effects of gifted children programs (GCP) in high schools in Israel. The program tracks the most talented students into gifted children classes, starting 10th grade. They receive more resources in smaller classes, a unique curriculum, access to high-quality teachers, and courses in universities. We use test scores in exams that measure cognitive achievements or intelligence and ability, measured in different ages, to select a comparison group of equally gifted students from other cities where GCP was not offered at the time. Based on administrative data, we follow 22 cohorts of GCP participants who graduated high school in 1992-2013. We measure treatment effects on outcomes, ranging from high school to the labour market in their 30s and 40s. Remarkably, the results we obtain do not vary when using alternative measures of ability or in the age, they are assessed. The evidence on the impact of GCP on academic achievements in high school is mixed, some compulsory subjects are affected negatively, and fewer are affected positively. However, these estimates are very small, implying a tiny effect size. These results stand in contrast to the abundance of educational resources enjoyed by GCP participants, in addition to better peers in terms of SES background and outcomes. We discuss in this context the objective of the program to widen the scope and area of interest of its participants beyond the regular curriculum. We also highlight the potential adverse effect of the Big-Fish-Little-Pond Effect. In the longer run, we find meaningful positive effects of GCP on higher education attainment. All gifted children achieve a BA degree, but a much higher share of GCP participants graduate with a double major. The effect of getting a Ph.D. is also positive, driven by more Ph.D. degrees in Elite Universities. GCP participants study more math, computer, and physical sciences but engage less in engineering programs. The net effect on STEM degrees is, therefore, zero. However, a much higher share of GCP participants graduated with two STEM majors. This evidence, along with the significant effect on a double major, suggests that GCP enhances the impact of “multipotentiality,” which characterizes many gifted adolescents. We find no effect of GCP on employment and earnings. Nor do we find that they work more than other equally talented children in the various sectors of the knowledge economy: hi-tech manufacturing, hi-tech services, and academic institutions. Finally, we examine marriage and family formation patterns as mediating effects and find no discerned GCP effects.

Solving the longitude puzzle: A story of clocks, ships and cities

In the nineteenth century, the process of European expansion led to unprecedented changes in the urban landscape outside of Europe, with the urban population moving towards the coast and tripling in size. We argue that the majority of these changes can be explained by a single innovation, the chronometer, which allowed to precisely measure longitude at sea. Identification exploits the fact that the navigation advantages provided by the chronometer were limited to offshore navigation under a cloudy sky and were therefore different across different sea regions. Using high-resolution data on climate, ship routes, and demography, we show that the chronometer led to major changes in the prevailing transoceanic sailing routes and, through this channel, affected the global distribution of cities and population and guided the expansion of the British Empire.

Pandemic pressures and Public Health Care: Evidence from England

This paper documents that the COVID-19 pandemic induced pressures on the health care system have significant adverse knock-on effects on the accessibility and quality of non-COVID-19 care. We observe persistently worsened performance and longer waiting times in A&E; drastically limited access to specialist care; notably delayed or inaccessible diagnostic services; acutely undermined access to and quality of cancer care. We find that providers under COVID-19 pressures experience notably more excess deaths among non-COVID related hospital episodes such as, for example, for treatment of heart attacks. We estimate there to be at least one such non-COVID-19 related excess death among patients being admitted to hospital for non-COVID-19 reasons for every 30 COVID-19 deaths that is caused by the disruption to the quality of care due to COVID-19. In total, this amounts to 4,003 non COVID-19 excess deaths from March 2020 to February 2021. Further, there are at least 32,189 missing cancer patients that should counterfactually have started receiving treatment which suggests continued increased numbers of excess deaths in the future due to delayed access to care in the past.

Income contingency and the electorate’s support for tuition

We show that the electorate’s preferences for using tuition to finance higher education strongly depend on the design of the payment scheme. In representative surveys of the German electorate (N>18,000), experimentally replacing regular upfront by deferred income-contingent payments increases public support for tuition by 18 percentage points. The treatment turns a plurality opposed to tuition into a strong majority of 62 percent in favour. Additional experiments reveal that the treatment effect similarly shows when framed as loan repayments, when answers carry political consequences, and in a survey of adolescents. Reduced fairness concerns and improved student situations act as strong mediators.

Does going cashless make you tax-rich? Evidence from India's demonetization experiment

This paper investigates the effect of electronic payments technology on firms’ tax compliance in a large developing economy. We consider India’s demonetization policy which, by limiting the availability of cash, led to a large increase in the use of electronic forms of payments. Using administrative data on firms’ tax returns and variation in the strength of the demonetization shock across local areas, we find that greater use of electronic payments leads to firms reporting more sales to the tax authorities. This effect is strong enough to explain roughly half of the large (11%) increase in reported sales observed during demonetization.

Safe at last? LATE effects of a mass immunisation campaign on households' economic insecurity

We study the effects of receiving immunisation from Covid-19 on households’ economic insecurity. To provide causal estimates we use a fuzzy regression discontinuity design (RDD) which takes advantage of the United Kingdom’s immunisation plan. The plan was primarily based on age, granting differential eligibility to proximate cohorts. We estimate local average treatment effects (LATE) on perceived levels of economic insecurity, today and in the future. We find that immunisation triggered less pessimistic financial feelings, among the vaccinated interviewees, particularly when looking at 3 months ahead. Using a difference-in-discontinuity design we next document that immunisation was more salient for women as well as for large households with children. Our results indicate that the mass immunisation campaign against Covid-19 had relevant short-run economic effects, well beyond its expected impact on people’s health.

Dynamic impacts of lockdown on domestic violence: evidence from multiple policy shifts in Chile

We leverage staggered implementation of lockdown across Chile’s 346 municipalities, identifying dynamic impacts on domestic violence (DV). Using administrative data, we find lockdown imposition increases indicators of DV-related distress, while decreasing DV reports to the police. We identify male job loss as a mechanism driving distress, and female job loss as driving decreased reporting. Stimulus payments to poor households act on both margins, their impacts partially differentiated by lockdown status. Once lockdown is lifted, police reports surge but we see a ratchet effect in distress. Our findings accentuate the controversy around welfare impacts of lockdown mandates.

Health and labour market impacts of twin birth: evidence from a Swedish IVF policy mandate

IVF allows women to delay birth and pursue careers, but IVF massively increases the risk of twin birth. There is limited evidence of how having twins influences women’s post-birth careers. We investigate this, leveraging a single embryo transfer (SET) mandate implemented in Sweden in 2003, following which the share of twin births showed a precipitous drop of 70%. Linking birth registers to hospitalization and earnings registers, we identify substantial improvements in maternal and child health and women’s earnings following IVF birth, alongside an increase in subsequent fertility. We provide the first comprehensive evaluation of SET, relevant given the secular rise in IVF births and growing concerns over twin birth risk. We contribute new estimates of the child penalty imposed by twin as opposed to singleton birth, relevant to the secular rise in the global twin birth rate.

Voice and political engagement: evidence from a natural field experiment

We conduct a natural field experiment with a major European party to test whether giving party supporters the opportunity to voice their opinions increases their engagement in the party’s electoral campaign. In our experiment, the party asked a random subset of supporters for their opinions on the importance of different topics. Giving supporters more opportunities to voice their opinions increases their engagement in the campaign as measured using behavioural data from the party’s smartphone application. Survey data reveals that our voice treatments also increase other margins of campaign effort as well as perceived voice. Our evidence highlights that parties can increase their supporters’ investment in the democratic process by implementing policies that increase their voice.

Micromotives and macromoves: political preferences and internal migration in England and Wales

When people migrate internally, do they tend to move to locations that reflect their political preferences? To address this question, we first compile a unique panel dataset on the universe of population movements in England and Wales across 346 local authority districts over the period 2002-2015, and estimate a gravity model of internal migration. We show that proximity in partisan composition exerts an important positive effect on migration flows, which is of a similar order of magnitude as wage differentials or ethnic proximity. We then use individual survey-based data over the same time period to investigate some of the micro-foundations underlying the “macromoves”. We find that political alignment to the district of residence contributes to individuals’ sense of belonging and ‘fitting in’ – consistent with the existence of a political homophily mechanism – and that a migrant’s political ideology can predict the partisanship of the destination district.

Fertility and labour market responses to reductions in mortality

We investigate women’s fertility, labour and marriage market responses to large declines in child mortality. We find delayed childbearing, with lower intensive and extensive margin fertility, a decline in the chances of ever having married, increased labour force participation and an improvement in occupational status. This constitutes the first evidence that improvements in child survival allow women to start fertility later and invest more in the labour market. We present a new theory of fertility that incorporates dynamic choices and reconciles our findings with existing models of behaviour.

Resilience, adaptability and transformability: Danish butter factories in the face of coal shortages

Economic historians have debated the importance of energy for economic development. Energy economists would argue that energy systems need to be adaptable in the face of shocks. In this light, we consider the case of Denmark, a country which was almost entirely dependent on imports of coal, and where a long coastline made imports, largely from the UK, cheap and available. Towards the end of the First World War, however, and well into the 1920s, coal imports were cut off or difficult to obtain. We exploit detailed microlevel data from butter factories, covering the period 1900-28. We find that firms were able to adapt and make use of alternative fuels, notably peat, although its availability varied across the country. Employing a difference-in-differences approach, we find significant productivity advantages for creameries closer to available peat fields in the wake of the coal shortage.

Economic challenges and success in the post-COVID era

Transportation Costs in the Age of Road Freight: Evidence from United States 1955-2010

This paper examines the temporal and spatial evolution of road freight transportation costs between 1955 and 2010. For that purpose, we have constructed a new data set of minimal road transport costs for freight transport in every decade between 1955 and 2010 for 3105×3105 county-pairs. We use a methodology which combines the time-evolution of the road network’s layout with spatially disaggregated transport-related costs: average driving speeds, fuel consumption, fuel prices, labour costs, and vehicle operating costs. The new data set allows to document main facts about the development of county-pair transport costs since the 1950s and examine their temporal as well as spatial changes.

Measuring the epidemiological impact of a false negative: Evidence from a natural experiment

Reliable COVID-19 testing remains a central pillar to manage the pandemic. Yet, the accuracy and reliability of tests and test equipment has regularly been brought into question. Both false-positive and false-negative test results convey costs. Yet, false negatives are likely more problematic due to the risk of onward transmission and the failure to break infection chains as a result. This paper studies the epidemiological impact of a false negative in the context of a high vaccine uptake country. Between 2 September and 12 October an estimated 43,000 PCR tests in the UK may have produced a false negative test result with individuals infected being told that they tested negative. These instances were particularly pronounced in the South West of England. Using a synthetic control method approach concentrating on the 13 most affected regions, this paper estimates that every false negative COVID-19 case is likely to have caused between 0.6 to 1.6 additional infections in the subsequent weeks.

Gravity and heterogeneous trade cost elasticities

How do trade costs affect international trade? This paper offers a new approach. We rely on a flexible gravity equation that predicts variable trade cost elasticities, both across and within country pairs. We apply this framework to popular trade cost variables such as currency unions, trade agreements, and WTO membership. While we estimate that these variables are associated with increased bilateral trade on average, we find substantial heterogeneity. Consistent with the predictions of our framework, trade cost effects are strong for ‘thin’ bilateral relationships characterised by small import shares, and weak or even zero for ‘thick’ relationships.

The psychological gains from COVID-19 vaccination: who benefits the most?

We quantify the impact of COVID-19 vaccination on psychological well-being using information from a large-scale panel survey representative of the UK population. Exploiting exogenous variation in the timing of vaccinations, we find that vaccination increases psychological well-being by 0.12 standard deviation, compensating for around one half of the overall decrease caused by the pandemic. This effect persists for at least two months, and it is associated with a decrease in the perceived likelihood of contracting COVID-19 and higher engagement in social activities. The improvement is 1.5 times larger for mentally distressed individuals, supporting the prioritisation of this group in vaccination roll-outs.

Population growth, immigration, and labour market dynamics

This paper examines the role of population flows on labour market dynamics across immigrant and native-born populations in the United Kingdom. Population flows are large, and cyclical, driven first by the maturation of baby boom cohorts in the 1980s, and latterly by immigration in the 2000s. New measures of labour market flows by migrant status uncover both the flow origins of disparities in the levels and cyclicalities of immigrant and native labour market outcomes, as well as their more recent convergence. A novel dynamic accounting framework reveals that population flows have played a non-trivial role in the volatility of labour markets among both the UK-born and, especially, immigrants.

A field study of donor behaviour in the Iranian kidney market

Iran has the world’s only government-regulated kidney market, in which around 1000 individuals go through live kidney-removal surgery annually. We report the results of the first field study of donor behaviour in this unique and controversial market. Those who enter the market have low income, typically entering to raise funds. They have lower risk tolerance and higher patience levels than the Iranian average. There is no difference in rationality from population averages. There is evidence of altruism among participants. This might shed light on the sort of people likely to participate if other nations were to operate such markets.

Without liberty and justice, what extremes to expect? Two contemporary perspectives

From a wide-ranging historical survey, Acemoglu and Robinson conclude that the preservation of liberty depends on being in a ‘narrow corridor’ where there is a balance of power between the state and society. We first examine the support Binmore's game-theoretic treatment of Social Contracts provides for such a ‘narrow corridor’ of liberty and justice – and what extremes to expect without them. We also consider how the biological model of Competing Species helps to describe the dynamics of conflicting powers outside the narrow corridor– where, as in contemporary Russia and China, any Social Contracts that exist are neither free nor fair.

Religious practice and student performance: Evidence from Ramadan fasting

We investigate how the intensity of Ramadan affects educational outcomes by exploiting spatio-temporal variation in annual fasting hours. Longer fasting hours are related to increases in student performance in a panel of TIMMS test scores (1995–2019) across Muslim countries but not other countries. Results are confirmed in a panel of PISA test scores (2003–2018) allowing within country-wave comparisons of Muslim to non-Muslim students across Europe. We provide evidence consistent with the hypothesis that a demanding Ramadan during adolescence affects educational performance by facilitating formation of social capital and social identity via increased religious participation and shared experiences among students.

The taxation of capital gains: principles, practice, and directions for reform

Capital gains are particularly complex to tax given their infrequency, the different ways in which they are generated, and worries about harming productivity. There are theoretical arguments in support of everything from zero rates to high rates of tax on capital. In this paper, I first discuss the impact of capital gains on inequality, which often motivates discussions about how gains should be taxed. I then set out the principles that determine how gains should be taxed, in particular how the tax rate should relate to income tax rates. I propose that capital gains tax rates be equalized with income tax rates, subject to provisions to allow gains to be ‘smoothed’ over time and to remove inflation from the tax base. I highlight key transitional issues in moving to such a tax structure. Finally, I discuss the specific lessons for Canada.

Advantage Magazine, Climate Change and Pollution Special – Autumn 2021

New area- and population-based geographic crosswalks for U.S. counties and congressional districts, 1790-2020

A common problem in applied research involves harmonising geographic units across time or different levels of aggregation. One approach is to use “crosswalks” that associate factors located within some “origin” unit to different “reference” units based on relative areas. We develop an alternative approach based on relative population, accounting for heterogeneities in urbanization within counties. We construct population-based crosswalks for 1790 through 2020, mapping county-level data across U.S. Censuses as well as from counties to congressional districts. Using official Census data for congressional districts, we show that population-based weights outperform area-based ones in terms of similarity to official data.

The UK Clean Air Act, black smoke, and infant mortality

This paper estimates the effects of the 1956 UK Clean Air Act on infant mortality. Using novel data, I exploit the seasonality in demand for coal to analyse the effects of a staggered expansion of a ban on local smoke emission. The findings show that the policy eliminated the seasonal difference in air quality as well as infant mortality. According to my instrumental variables estimates, the reduction in air pollution between 1957 and 1973 can account for 70 % of the observed decline in infant mortality during the same period. The results are relevant to explain the fast decline in post-war infant mortality in developed countries and understand the effect of pollution on infant mortality in many developing countries.

The Right to Health and the Health Effects of Denials

We investigate supply-side barriers to medical care in Colombia, where citizens have a constitutional right to health, but insurance companies impose restrictions. We use administrative data on judicial claims for health as a proxy for unmet demand. We validate this using the health services utilization register, showing that judicial claims map into large, pervasive decreases in medical consultations, procedures, hospitalizations and emergency care. This manifests in population health outcomes. We identify increases in mortality pervasive across cause, age, sex, and income, with larger increases for cancer and individuals over the age of fifty.

Stunting and wasting in a growing economy: biological living standards in Portugal during the twentieth century

Portugal's real income per head grew by a factor of eight during the second half of the twentieth century, a period of fast convergence towards Western European living standards. We use a new sample of about 3,400 infants and children living in Lisbon to document trends in the prevalence of stunting and wasting between 1906 and 1994. We find that stunting and wasting fell quickly from around 1950, for both males and females. We additionally use a sample of more than 26,000 young adult males covering the entire country, which shows a consistent decrease in wasting and stunting with the expected time lag. We discuss these trends in relation to changes in income and public policy, which affected the ontogenetic environment of children. Sustained progress began well before the introduction of democracy

Domestic violence: the potential role of job loss and unemployment benefits

One in three women worldwide report having experienced domestic violence at some stage in their lives, and yet we do not have a clear understanding of the underlying causal mechanisms. Understanding causes is key to devising effective policy interventions. Using administrative data from Brazil, we investigate the role of unemployment, an economic shock, and whether unemployment benefits mitigate any impacts of job loss on domestic violence.

Comparative European institutions and the Little Divergence, 1385-1800

Why did the countries that first benefited from access to the New World – Castile and Portugal – decline relative to their followers, especially England and the Netherlands? The dominant narrative is that worse initial institutions at the time of the opening of the Atlantic trade explain the Iberian divergence. In this paper, we build a new dataset which allows for a comparison of institutional quality over time. We consider the frequency and nature of parliamentary meetings, the frequency and intensity of extraordinary taxation and coin debasement, and real interest rates and spreads for public debt. We find no evidence that the political institutions of Portugal and Spain were worse until the English Civil War.

Religion and abortion: The role of politician identity

Debates around abortion typically invoke religion and politics but there is no causal evidence of the impact of politician religion on abortion. Leveraging quasi-random variation in politician religion generated by close elections in India and controlling for the party affiliation of politicians, we find lower rates of sex-selective abortion in districts won by Muslim state legislators, consistent with a higher reported aversion to abortion among Muslims compared to Hindus. The competing hypothesis that this reflects weaker son preference among Muslims is undermined by stated preference data and by demonstrating that fertility and girl-biased infant mortality increase in Muslim-won districts.

De-escalation technology: the impact of body-worn cameras on citizen-police interactions

We provide experimental evidence that monitoring of the police activity through body-worn cameras reduces use-of-force, handcuffs and arrests, and enhances criminal reporting. Stronger treatment effects occur on events classified ex-ante of low seriousness. Monitoring effects are moderated by officer rank, which is consistent with a career concern motive by junior officers. Overall, results show that the use of body-worn cameras de-escalates conflicts.

Measuring and taxing top incomes and wealth

Few topics attract such intense political debate as top tax rates: in the UK, this has led to two top income tax rate reforms since the financial crisis. Recently, the measurement of top incomes and wealth has also proved controversial, in both the UK and the US. The chapter by Delestre et al. (2022) examines both of these issues. It first studies the distribution of income in the UK, focusing on the income sources and demographics of those at the top, as well as non-taxable sources of income. It then describes the current taxation of top incomes, and suggests some directions for reform. Mirroring this structure, in this commentary we discuss first the measurement of financial inequalities, focusing on top income and wealth shares, and then the scope for policy reforms to tackle some of the issues raised, also focusing on the UK.

Fixing National Insurance: A better way to fund social care

View appendices

What can we learn from the UK's post-1945 economic reforms?

This paper reviews the claim that economic policymakers in the post-Covid UK should learn the lessons of the 1940s. Post-1945 policies relating to delivering full employment, levelling up, upgrading social security, dealing with the public debt legacy, and addressing the productivity puzzle are considered. The paper finds many reasons to criticize 1940s’ policies. Although, superficially, outcomes appear to have been good, a closer look reveals significant failings notably concerning design of the welfare state and supply-side policy for growth. The main lesson from the 1940s is not to repeat the policy errors of those days.

Revenue and distributional modelling for a UK wealth tax

In this paper we model the revenue that could be raised from an annual and a one-off wealth tax of the design recommended by Advani, Chamberlain and Summers (2020b). We examine the distributional effects of the tax, both in terms of wealth and other characteristics. We also estimate the share of taxpayers who would face liquidity constraints in meeting their tax liability. We find that an annual wealth tax charging 0.17% on wealth above £500,000 could generate £10 billion in revenue, before administrative costs. Alternatively, a one-off tax charging 4.8% (effectively 0.95% per year, paid over a five-year period) on wealth above the same threshold, would generate £250 billion in revenue. To put our revenue estimates into context, we present revenue estimates and costings for some commonly-proposed reforms to the existing set of taxes on capital.

Behavioural responses to a wealth tax

In this paper, we review the existing empirical evidence on how individuals respond to the incentives created by a net wealth tax. Variation in the overall magnitude of behavioural responses is substantial: estimates of the elasticity of taxable wealth vary by a factor of 800. We explore three key reasons for this variation: tax design, context, and methodology. We then discuss what is known about the importance of individual margins of response and how these interact with policy choices. Finally, we use our analysis to systematically narrow down and reconcile the range of elasticity estimates. We argue that a well-designed wealth tax would reduce the tax base by 7-17% if levied at a tax rate of 1%

The UK’s wealth distribution and characteristics of high-wealth households

We show that wealth inequality in the UK is high and has increased slightly over the past decade as financial asset prices increased in the wake of the financial crisis. But data deficiencies are a major barrier in understanding the true distribution, composition and size of household wealth. The most comprehensive survey of household wealth in the UK does a good job of capturing the vast majority of the wealth distribution, but that nearly £800 billion of wealth held by the very wealthiest UK households is missing. We also find tentative evidence that survey measures of high-wealth families undervalue their assets – our central estimate of the true value of wealth held by households in the UK is 5% higher than the survey data suggests.

Exploration and exploitation in US technological change

How do firms and inventors move through ‘knowledge space’ as they develop their innovations? We propose a method for tracking patterns of ‘exploration and exploitation’ in patenting behaviour in the US for the period since 1920. Our exploration measure is constructed from the text of patents and involves the use of ‘Bayesian Surprise’ to measure how different current patent-based innovations are from existing portfolios. Our results indicate that there are distinct ‘life-cycle’ patterns to firm and inventor exploration. Furthermore, exploration activity is more geographically concentrated than general patenting, but this concentration is centred outside the main hubs of patenting.

The Cross of Gold: Brazilian treasure and the decline of Portugal

As late as 1750, Portugal had an output per head considerably higher than those of France or Spain. Yet just a century later, Portugal was Western Europe’s poorest country. In this paper we show that the discovery of massive quantities of gold in Brazil over the eighteenth century played a key role for the long-run development of Portugal’s economy. We focus on the economic resource curse: the loss of competitiveness of the tradables sector manifested in the rise of the price of non-traded goods relative to traded imports. Using original price data from archives for four Portuguese regions between 1650 and 1800, we show that a real exchange rate appreciation of about 30 percent occurred during the eighteenth century, which led to a loss of the competitiveness of national industry from which the country did not recover until considerably later.

Job displacement, unemployment benefits and domestic violence

We estimate impacts of male job loss, female job loss, and male unemployment benefits on domestic violence (DV) in Brazil. We merge individual-level employment and welfare registers with different measures of domestic violence: judicial cases brought to criminal courts, the use of public shelters by victims, and mandatory DV notifications by health providers. Leveraging mass layoffs for identification, we first show that both male and female job loss, independently, lead to large and pervasive increases in DV. Using a regression discontinuity design, we then show that access to unemployment benefits does not reduce DV while benefits are being paid, and it leads to higher DV risk once benefits expire. Our findings can be explained by the negative income shock brought by job loss and by increased exposure of victims to perpetrators, as partners tend to spend more time together after displacement. Although unemployment benefits partially offset the income drop following job loss, they reinforce the exposure shock as they increase unemployment duration. Since our results cannot be explained by prominent DV theories, we propose a simple model formalizing these mechanisms.

Reversal of fortune for political incumbents: Evidence from oil shocks

Using a new dataset of 198 national elections across 48 democracies, this paper is the first to systematically examine the effects of oil price shocks on incumbents’ political fortunes in developed oil-importing countries. We find that oil price increases systematically lower the odds of re-election for incumbents and increase the likelihood of changes in the ideology of the incoming government. These shocks are found to operate through lowering consumption growth.

Household income and spending in the United States during the 1918 influenza pandemic

How did the 1918 influenza outbreak, the deadliest pandemic of the twentieth century, affect household income and spending in the United States? Using the 1917–1919 BLS cost of living survey, we compare households in 99 cities observed at different stages of the pandemic. We find a six percent decrease in real income, driven by cities with higher mortality. Men’s wages fell, but more women worked. People spent less on non-durable goods and services, about the same on durables, and more on medicine. Spending varied by region, age, and affluence. Government-imposed non-pharmaceutical interventions had little correlation with consumer behaviour.

The UK’s global economic elite: A sociological analysis using tax data

In recent decades there has been growing academic interest in how the British economic elite may be changing from its old aristocratic and professional bastions, rooted in the English shires, to a more cosmopolitan and global orientation, driven by finance and global capital flows (e.g. Savage et al., 2015; Savage et al., 2017; Webber and Burrows, 2016). Public debate is fuelled by media stereotypes, which can seize on symbolically loaded cases such as Mohammed Al-Fayed’s acquisition of the elite Harrods department store or the purchase of Chelsea FC by Roman Abramovich, often tinged with an atavistic ‘Little Englandism’. Journalist Peter York, whose Sloane Ranger Handbook with Ann Barr inspired much speculation about the reviving fortunes of the English upper crust in the 1980s (Barr and York, 1983), wrote more recently for Prospect Magazine in 2015 of ‘an extraordinary mixture of Russian oligarchs, Middle Easterners, new petrodollar types from Nigeria, Indians, Malaysians, and latterly Chinese […] driving up the prices of London property and driving out all but the richest, most adaptable Sloanes’ (York, 2015).

Electoral competition, accountability and corruption: Theory and evidence from India

In developing countries with weak enforcement institutions, there is implicitly a large reliance on electoral incentives to reduce corruption. However electoral discipline works well only under some conditions. In this paper we study the effect of electoral competition on corruption when uncertainty in elections is high (or accountability is low), as in many developing countries . Our theory focuses on the case of high uncertainty and shows that in this case there is a U-shaped relationship between electoral competition and corruption. We illustrate the predictions of the model with village level data on audit detected irregularities and electoral competition from India.

Can information about jobs improve the effectiveness of vocational training? Experimental evidence from India

Using a randomised experiment, we show that providing better information about prospective jobs to vocational trainees can improve their placement outcomes. The study setting is the vocational training programme DDU-GKY in India. We find that including in the training two information sessions about placement opportunities make trainees 17% more likely to stay in the jobs in which they are placed. We argue that this effect is likely driven by improved selection into training. As a result of the intervention, trainees that are over-optimistic about placement jobs are more likely to drop out before placement.

Remote work and the post-pandemic UK labour market

The ‘forced experimentation’ with remote work since March 2020, brought on by the COVID-19 pandemic, has led to predictions that the UK labour market will feature much higher levels of remote work from now on. As COVID restrictions in the UK are slowly lifted, the key questions are: how much remote work will remain and what will the consequences be for different types of workers? In this briefing, we provide some insights into the future of remote work in the UK based on recent data.

The 15-hour week: Keynes’s prediction revisited

In 1930 Keynes opined that by 2030 people would work only 15 hours per week. As such, this prediction will not be realised. However, expected lifetime hours of leisure and non-market work in the UK rose by 60 per cent between 1931 and 2011, considerably more than Keynes would have expected. This reflects increases in life expectancy at older ages and much longer expected periods of retirement. Leisure in retirement contributes to high life satisfaction for the elderly but building up savings to pay for it is a barrier to working only 15 hours per week.

Race-related research in economics and other social sciences

How does economics compare to other social sciences in its study of issues related to race and ethnicity? We assess this using a corpus of 500,000 academic publications in economics, political science, and sociology. Using an algorithmic approach to classify race-related publications, we document that economics lags far behind the other disciplines in the volume and share of race-related research, despite having higher absolute volumes of research output. Since 1960, there have been 13,000 race-related publications in sociology, 4,000 in political science, and 3,000 in economics. Since around 1970, the share of economics publications that are race-related has hovered just below 2% (although the share is higher in top-5 journals); in political science the share has been around 4% since the mid-1990s, while in sociology it has been above 6% since the 1960s and risen to over 12% in the last decade. Finally, using survey data collected from the Social Science Prediction Platform, we find economists tend to overestimate the amount of race-related research in all disciplines, but especially so in economics.

Do bankruptcy protection levels affect households’ demand for stocks?

This paper examines empirically the effect of the level of personal bankruptcy protection in the US on households’ demand for financial assets. A Chapter 7 bankruptcy allows protecting the home equity up to a certain limit or "exemption". Previous literature shows that such exemption biases investment towards home equity. This paper tests whether it also lowers investment in stocks, which are not protected in bankruptcy. Using an instrumental variable approach, I estimate a lower stock market participation when the home equity is below the exemption, but the result is not robust, and households at higher risk of bankruptcy do not exhibit a stronger response. Moreover, investment in home equity is not higher when the home is fully protected. These findings suggest no substantial portfolio distortions from the level of home equity that is protected in bankruptcy.

The demand for fact-checking

Using a large-scale online experiment with more than 8,000 U.S. respondents, we examine how the demand for a politics newsletter changes when the newsletter content is fact-checked. We first document an overall muted demand for fact-checking when the newsletter features stories from an ideologically aligned source, even though fact-checking increases the perceived accuracy of the newsletter. The average impact of fact-checking masks substantial heterogeneity by ideology: fact-checking reduces demand among respondents with strong ideological views and increases demand among ideologically moderate respondents. Furthermore, fact-checking increases demand among all respondents when the newsletter features stories from an ideologically non-aligned source.

Freedom of the Press? Catholic censorship during the Counter-Reformation

The Protestant Reformation in the early 16th century challenged the monopoly of the Catholic Church. The printing press helped the new movement spread its ideas well beyond the cradle of the Reformation in Luther’s city of Wittenberg. The Catholic Church reacted by issuing indexes of forbidden books which blacklisted not only Protestant authors but all authors whose ideas were considered to be in conflict with Catholic doctrine. We use newly digitized data on the universe of books censored by the Catholic Church during the Counter-Reformation, containing information on titles, authors, printers and printing locations. We classify censored books by topic (religion, sciences, social sciences and arts) and language and record when and where books were indexed. Our results show that Catholic censorship did reduce printing of forbidden authors, as intended, but also negatively impacted on the diffusion of knowledge, and city growth.

The long-run spillover effects of pollution: How exposure to lead affects everyone in the classroom

Children exposed to pollutants like lead are more disruptive and have lower achievement. However, little is known about whether lead-exposed children affect the long-run outcomes of their peers. We estimate these spillover effects using new data on preschool blood lead levels (BLLs) matched to education data for all students in North Carolina public schools. We compare siblings whose school-grade cohorts differ in the proportion of children with elevated BLLs, holding constant school and peers’ demographics. Having more lead-exposed peers is associated with lower high-school graduation and SAT-taking rates and increased suspensions and absences. Peer effects are larger for same-gendered students.

Borders within Europe

Are country borders still an impediment to trade flows within Europe? Using a microlevel survey with 3 million annual shipments of goods, we construct a matrix of bilateral trade for 269 European regions. Take two similar region pairs, one containing regions in different countries and the other containing regions in the same country. The market share of the origin region in the destination region for the international pair is 17.5 percent that of the intranational pair. Across industries, this estimate ranges from 12.3 to 38.9 percent. For post-1910 borders, this estimate is 28.8 percent. The implication is clear: Europe is far from having a single market.

Railways and cities in India

Using a new dataset on city populations in colonial India, we show that the railroad network increased city size in the period 1881 to 1931. Our baseline estimation approach includes fixed effects for city and year, and we construct instrumental variables for railroad proximity based on distance from a least cost path spanning cities that existed prior to the start of railroad construction. Cities that increased market access due to the railroad grew, particularly those cities that were initially small and isolated.

The value of political connections: Evidence from China's Anti-Corruption Campaign

We study the value of the political connections of directors on Chinese boards. We build a new dataset that measures connections of directors to members of the Politburo via past school ties, and find that private firms with politically connected directors in the boardroom get on average about 20% higher subsidies over sales (8.52 million yuan). Connected state-owned enterprises access debt at 10% cheaper cost, which translates into 27.8 million yuan lower interest payment on average. We find that the value of the political connections persisted after the Anti-Corruption Campaign of 2012. It became weaker for the cost of debt in state-owned enterprises, but stronger for subsidies to private firms. We argue that the value of connections in the private sector increased after the Anti-Corruption Campaign because they are a less risky alternative to corruption. We also show that connected firms do not perform better.

Turnout in concurrent elections: Evidence from two quasi-experiments in Italy

We study the effects of different types of concurrent elections using individual-level administrative and survey data from Italy. Exploiting different voting ages for the two Houses of Parliament in a voter-level Regression Discontinuity Design, we find no effect of Senate voting eligibility on voter turnout or information acquisition. We also estimate city-level Differences-in-Differences showing that concurrent high-salience municipal elections increase turnout in lower-salience provincial and European elections, but not vice-versa. These concurrency effects are concentrated in municipalities in the South of Italy, possibly due to weaker political parties and lower levels of social capital.

Information frictions among firms and households

We leverage survey data from Germany, Italy, and the US to document several novel stylized facts about the extent of information frictions among firms and households. First, firms’ expectations about the central bank policy rate, inflation, and aggregate unemployment are more aligned with expert forecasts and less dispersed than households’. Second, there is substantially more heterogeneity in information frictions within households than within firms. Third, consistent with firms having stronger priors, they update their policy rate expectations significantly less compared to households when provided with an expert forecast. Our results have important implications for modelling heterogeneity in macroeconomic models.

Disguising prejudice: Popular rationales as excuses for intolerant expression

We study how popular rationales enable public anti-minority actions. Rationales to oppose minorities genuinely persuade some people. But they also provide “excuses” that may reduce the stigma associated with anti-minority expression, thereby increasing anti-minority behaviour. In a first experiment, participants learn that a previous respondent authorized a donation to an anti-immigrant organization and then make an inference about the respondent’s underlying motivations. Participants informed that their matched respondent learned about a study claiming that immigrants increase crime rates before authorizing the donation see the respondent as less intolerant. In a second experiment, participants learn about that same study and then choose whether to authorize a public donation to the anti-immigrant organization. Participants informed that their exposure to the rationale will be publicly observable are substantially more likely to make the donation than participants who are informed that their exposure will remain private. A final experiment shows that people are more willing to post anti-immigrant content on social media when they can use an anti-immigrant video clip from Fox News as an excuse. Our findings suggest that prominent public figures can lower the social cost of intolerant expression by popularizing rationales, increasing anti-minority expression.

Beliefs about racial discrimination and support for pro-black policies

This paper provides representative evidence on beliefs about racial discrimination and examines whether information causally affects support for pro-black policies. Eliciting quantitative beliefs about the extent of hiring discrimination against blacks, we uncover large disagreement about the extent of racial discrimination with particularly pronounced partisan differences. An information treatment leads to a convergence in beliefs about racial discrimination but does not lead to a similar convergence in support of pro-black policies. The results demonstrate that while providing information can substantially reduce disagreement about the extent of racial discrimination, it is not sufficient to reduce disagreement about pro-black policies.

Disease surveillance, mortality and race: The case of HIV/AIDS in the United States

We demonstrate the importance of disease surveillance on cases and mortality during a pandemic through the example of HIV/AIDS in the United States, where it arrived in some states earlier than others, and had a particularly severe impact on African American communities. The effect remains, particularly for this group, even after the introduction of an effective treatment in 1996.

The Irish economy during the century after Partition

We provide a centennial overview of the Irish economy in the one hundred years following partition and independence. A comparative perspective allows us to distinguish between those aspects of Irish policies and performance that were unique to the country, and those which mirrored developments elsewhere. While Irish performance was typical in the long run, the country under-performed prior to the mid-1980s and overperformed for the rest of the twentieth century. Real growth after 2000 was slow. The mainly chronological narrative highlights the roles of convergence forces, trade and industrial policy, and monetary and fiscal policy. While the focus is mostly on the south of the island, we also survey the Northern Irish experience during this period.

Advantage Magazine – Spring 2021

Historical gender discrimination does not explain comparative Western European development: Evidence from Portugal, 1300 - 1900

Gender discrimination has been pointed out as a determining factor behind the long-run divergence in incomes of Southern vis-à-vis Northwestern Europe. In this paper, we show that there is no evidence that women in Portugal were historically more discriminated against than those of other parts of Western Europe, including England and the Netherlands. We rely on a new dataset of thousands of observations from archival sources which cover six centuries, and we complement it with a qualitative discussion of comparative social norms. Compared with Northwestern Europe, women in Portugal faced similar gender wage gaps, married at similar ages, and did not face more restrictions to labor market participation. Consequently, other factors must be responsible for the Little Divergence of Western European incomes.

The Smoot-Hawley trade war

We document the outbreak of a trade war after the U.S. adopted the Smoot-Hawley tariff in June 1930. U.S. trade partners initially protested the possible implementation of the sweeping tariff legislation, with many eventually choosing to retaliate by increasing their tariffs on imports from the United States. Using a new quarterly dataset on bilateral trade for 99 countries during the interwar period, we show that U.S. exports to countries that protested fell by between 15 and 22 percent, while U.S. exports to retaliators fell by 28-33 percent. Furthermore, using a second new dataset on U.S. exports at the product-level, we find that the most important U.S. exports to retaliating markets were particularly affected, suggesting a possible mechanism whereby the U.S. was targeted despite countries’ MFN obligations. The retaliators’ welfare gains from trade fell by roughly 8-17%.

Do police reduce crime? Evidence from the 1829 introduction of the London Metropolitan Police

Professional police forces are a fundamental part of criminal justice systems today. But how successful are police forces in reducing crime? This can be difficult for policymakers to measure because of the nature of the crime–policing relationship: policing affects crime levels and crime levels affect policing. We study this question by looking at the origins of this modern-day institution: the introduction of the London Metropolitan Police (the Met) in 1829. The Met was the first professional police force tasked with deterring crime. Our research uses historical records to evaluate the causal impact of this new institution on crime. Using newly digitised and geocoded crime and police data, we find evidence of a significant reduction in violent crimes.

Accounting for the Great Divergence: Recent findings from historical national accounting

As a result of recent work on historical national accounting, it is now possible to establish more firmly the timing of the Great Divergence of living standards between Europe and Asia in the eighteenth century. There was a European Little Divergence as Britain and the Netherlands overtook Italy and Spain, and an Asian Little Divergence as Japan overtook China and India. The Great Divergence occurred because Japan grew more slowly than Britain and the Netherlands starting from a lower level, and because of a strong negative growth trend in Qing dynasty China. A growth accounting framework is used to assess the contributions of labour, human and physical capital, land and total factor productivity. In addition to these proximate sources, the roles of institutions and geography are examined as the ultimate sources of the divergent growth patterns.

Welfare cuts and crime: Evidence from the New Poor Law

The New Poor Law reform of 1834 induced dramatic and heterogeneous reductions in welfare spending across English and Welsh counties. Using the reform in a difference-in-differences instrumental variables strategy, we document a robust negative relationship between the generosity of welfare provision and criminal activity. Results are driven by non-violent property crimes and are stronger during months of seasonal agricultural unemployment, indicating that a combination of welfare cuts and precarious work opportunities lowered the opportunity cost of crime for economically vulnerable individuals. We use data on county police forces and individual-level criminal records to rule out alternative mechanisms related to changes in policing and sentencing.

An adaptive targeted field experiment: Job search assistance for refugees in Jordan

We introduce an adaptive targeted treatment assignment methodology for field experiments. Our Tempered Thompson Algorithm balances the goals of maximizing the precision of treatment effect estimates and maximizing the welfare of experimental participants. A hierarchical Bayesian model allows us to adaptively target treatments. We implement our methodology in Jordan, testing policies to help Syrian refugees and local jobseekers to find work. The immediate employment impacts of a small cash grant, information and psychological support are small, but targeting raises employment by 1 percentage-point (20%). After four months, cash has a sizable effect on employment and earnings of Syrians.

Capital and Economic Growth in Britain, 1270-1870: Preliminary findings

Estimates of capital formation and the stock of capital in Britain are provided for the period 1270-1870 and used to analyse economic growth. (1) We chart the growing importance of fixed relative to working capital, the declining importance of land and the growth of net overseas assets. (2) Kaldor’s stylised facts of a rising capital-labour ratio and a stationary capital-output ratio are broadly confirmed, but only if attention is confined to fixed capital. (3) Extensive form growth accounts suggest that output growth was driven largely by factor input growth, while intensive form growth accounts suggest that TFP growth was more important than capital deepening in explaining the growth of output per head. (4) The investment share of GDP increased substantially during the transition from pre-industrial to modern economic growth.

Credit constraints and demand for remedial education: Evidence from Tanzania

We study how credit constraints affect access to a remedial education program for girls. We gave an unconditional cash transfer to randomly selected households, then measured their Willingness To Pay (WTP) for the program. In the control group average WTP was 3,300 Tanzanian Shillings, seven percent of per-capita monthly expenditures. For those identified at baseline as able to borrow, the cash transfer increases WTP by three percent. For those unable to borrow, the cash transfer increases WTP by 27 percent. We conclude that credit constraints limit access to educational programs, and may increase inequality of outcomes.

In vaccines we trust? The effects of the CIA’s vaccine ruse on immunization in Pakistan

In July 2011, the Pakistani public learnt that the CIA had used a vaccination campaign as cover to capture Osama Bin Laden. The Taliban leveraged on this information and launched an anti-vaccine propaganda campaign to discredit vaccines and vaccination workers. We evaluate the effects of these events on immunization by implementing a Difference-in-Differences strategy across cohorts and districts. We find that vaccination rates declined 12 to 20% per standard deviation in support for Islamist parties. These results suggest that information discrediting vaccination campaigns can negatively affect trust in health services and demand for immunization.

Missing incomes in the UK: Evidence and policy implications

Policymakers tend to ‘treasure what is measured’ and overlook phenomena that are not. In an era of increased reliance on administrative data, existing policies also often determine what is measured in the first place. We analyse this two-way interaction between measurement and policy in the context of the investment incomes and capital gains that are missing from the UK’s official income statistics. We show that these ‘missing incomes’ change the picture of economic inequality over the past decade, revealing rising top income shares during the period of austerity. The underestimation of these forms of income in official statistics has diverted attention from tax policies that disproportionately benefit the wealthiest. We urge a renewed focus on how policy affects and is affected by measurement.

Scholars at risk: Academic networks and high-skilled emigration from Nazi Germany

We study the role of professional networks in facilitating emigration of Jewish academics dismissed from their jobs by the Nazi government. We use individual-level exogenous variation in the timing of dismissals to estimate the causal effect of networks. Academics with more ties to early émigrés (emigrated 1933-1934) were more likely to emigrate. Early émigrés functioned as “bridging nodes” that facilitated emigration to their own destination. We also distinguish between three kinds of social networks – family, community, or professional networks and study their relative importance. Lastly, we provide some of the first empirical evidence of decay in social ties over time.

Testing willingness to pay elicitation mechanisms in the field: Evidence from Uganda

Researchers frequently use variants of the Becker-DeGroot-Marschak (BDM) mechanism to elicit willingness to pay (WTP). These variants involve numerous incentive-irrelevant design choices, some of which carry advantages for implementation but may deteriorate participant comprehension or trust in the mechanism, which are well-known problems with the BDM. We highlight three such features and test them in the field in rural Uganda, a relevant population for many recent applications. Comprehension is very high, and 86 percent of participants bid optimally for an induced-value voucher, with little variation across treatments. This gives confidence for similar applications, and suggests the comprehension-expediency trade-off is mild.

A division of laborers: Identity and efficiency in India

Workers’ social identity affects their choice of occupation, and therefore the structure and prosperity of the aggregate economy. We study this phenomenon in a setting where work and identity are particularly intertwined: the Indian caste system. Using a new dataset that combines information on caste, occupation, wages, and historical evidence of subcastes’ traditional occupations, we show that caste members are still greatly overrepresented in their traditional occupations. To quantify the effects of caste-level distortions on aggregate and distributional outcomes, we develop a general equilibrium Roy model of occupational choice. We structurally estimate the model and evaluate counterfactuals in which we remove castes’ ties to their traditional occupations: both through their direct preferences, and also via their parental occupations and social networks. We find that the share of workers employed in their traditional occupation decreases substantially. However, effects on aggregate output and productivity are very small– and in some counterfactuals even negative–because gains from a more efficient human capital allocation are offset by productivity losses from weaker caste networks and reduced learning across generations. Our findings emphasize the importance of caste identity in coordinating workers into occupational networks which enable productivity spillovers.

Political regime and COVID-19 death rate: efficient, biasing or simply different autocracies?

The difference in COVID-19 death rates across political regimes has caught a lot of attention. The "efficient autocracy" view suggests that autocracies may be more efficient at putting in place policies that contain COVID-19 spread. On the other hand, the "biasing autocracy" view underlines that autocracies may be under- reporting their COVID-19 data. We use fixed-effect panel regression methods to discriminate between the two sides of the debate. Our results show that a third view may in fact be prevailing: once pre-determined characteristics of countries are accounted for, COVID-19 death rates equalize across political regimes. The difference in death rate across political regime seems therefore to be primarily due to omitted variable bias

Fatherless: the long term effects of losing a father in the U.S. Civil War

To better understand how parental loss affects children's economic outcomes in the long run, and to better understand the human cost of the U.S. Civil War, we link Union Army records with U.S. Census data. This allows us to compare, when they are adults and participating in the labor market, the sons of soldiers who returned to the sons of those who died. We find that the sons who lost their father in childhood have a lower income and are less likely to have a skilled occupation, but this effect is absent for the sons of the wealthier soldiers, suggesting that family wealth offers some protection against the economic consequences of parental loss.

Measuring national happiness with music

We propose a new measure for national happiness based on the emotional content of a country’s most popular songs. Using machine learning to detect the valence of the UK’s chart-topping song of each year since the 1970s, we find that it reliably predicts the leading survey-based measure of life satisfaction. Moreover, we find that music valence is better able to predict life satisfaction than a recently-proposed measure of happiness based on the valence of words in books (Hills et al., 2019). Our results have implications for the role of music in society, and at the same time validate a new use of music as a measure of public sentiment.

Online salience and charitable giving: Evidence from SMS donations

We explore the link between online attention and charitable donations. Using a unique dataset on phone text donations that includes detailed information on the timing of cash gifts to charities, we link donations to time variation online searches for words that appear in those charities’ mission statements. The results suggest that an increase in the online salience to donors of the activities pursued by different charities affects the number and volume of donations made to those charities and to charities that pursue different goals. We uncover evidence of positive own salience effects and negative cross salience effects on donations.

Away from home and back: Coordinating (remote) workers in 1800 and 2020

This paper examines the future of remote work by drawing parallels between two contexts: The move from home to factory-based production during the Industrial Revolution and the shift to work from home today. Both are characterized by a similar trade-off: the potential productivity advantage of the new working arrangement made possible by technology (mechanization or ICT), versus organizational barriers such as coordinating workers. Using contemporary data, we show that organizational barriers seem to be present today. Without further technological or organizational innovations, remote work may not be here to stay just yet.

Choosing the narrative: the shadow banking crisis in the light of Covid

Could experiencing a health pandemic aid in understanding the nature of financial crisis? It might, for example, help to discriminate between different narratives that claim to do so. In this spirit, two influential accounts of the near-collapse of shadow banking in the US financial crisis of 2008 are analysed: one developed by Mark Gertler and Nobuhiro Kiyotaki and the other presented by the Financial Crisis Inquiry Commission of the US Congress. Using a common two-sector framework, key features of these contrasting accounts of the market for banking services are presented, along with their corresponding diagnoses of what precipitated financial crisis. To see what the experience of Covid might imply about their relative credibility, four aspects of the current pandemic are considered: how it began from a small biological shock; how it gets spread by contagion; the significance of externalities; and how it may end with a vaccine. But the reader is left to form his or her own judgement.

Jesus speaks Korean: Christianity and literacy in colonial Korea

In the mid 19th century, pre-colonial Korea under the Joseon dynasty was increasingly isolated and lagging behind in its economic development. Joseon Korea was forced to sign unequal treaties with foreign powers as a result of which Christian missionaries entered the country and contributed to the establishment of private schools. We show that areas with a larger presence of Christians have higher literacy rates in 1930, during the Japanese colonial period. We also show that a higher number of Protestants is associated with higher female literacy, consistent with a stronger emphasis on female education in Protestant denominations.

Health inequality and the 1918 influenza in South Africa

The 1918 influenza – the Spanish flu – killed an estimated 6% of South Africans. Not all were equally affected. Mortality rates were particularly high in districts with a large share of black and coloured residents. To investigate why this happened, we transcribed 39,482 death certificates from the Cape Province. Using a novel indicator – whether a doctor’s name appears on the death certificate – we argue that the unequal health outcomes were a consequence of unequal access to healthcare. Our results show that the racial inequalities in health outcomes that existed before October 1918 were exacerbated during the pandemic. Access to healthcare, as we expected, worsened for black and coloured residents of the Cape Province. Unexpectedly, however, we found that other inequalities were unchanged, or even reversed, notably age, occupation and location. Living in the city, for instance, became a health hazard rather than a benefit during the pandemic. These surprising results contradict the general assumption that all forms of inequality are exacerbated during a crisis. Our analyses suggest explanations for the widening racial gap in healthcare access during the 1918 pandemic, from both the demand and the supply side. We could find, however, no evidence of racial prejudice. Our findings confirm the importance of taking race into account in studying the effects of the 2020 Covid-19 pandemic or other world crises.

Globalisation and Empire: Market integration and international trade between Canada, the United States and Britain, 1750-1870

Previous work has demonstrated the potential for wheat market integration between the US and the UK before the ‘first era of globalization’ in the second half of the nineteenth century. It was however frequently interrupted by policy and ‘exogenous’ events such as war. This paper adds Canada to this story by looking at trade and price data, as well as contemporary debates. We find that she faced similar barriers to the US, and that membership of the British Empire was therefore not a great benefit. We also describe the limitations she faced accessing the US market, in particular after American independence. Transportation costs do not appear to be the main barrier to the emergence of a globalized economy before around 1850.

Who does and doesn’t pay taxes?

We use administrative tax data from audits of self-assessment tax returns to understand what types individuals are most likely to be non-compliant. Non-compliance is common, with one-third of taxpayers underpaying by some amount, although half of aggregate under-reporting is done by just 2% of taxpayers. Third party reporting reduces non-compliance, while working in a cash-prevalent industry increases it. However, compliance also varies significantly with individual characteristics: non-compliance is higher for men and younger people. These results matter for measuring inequality, for understanding taxpayer behaviour, and for targeting audit resources.

Did railways affect literacy? Evidence from India

We study the effect of railroads, the single largest public investment in colonial India, on human capital. Using district-level data on literacy, we find railroads had positive effects on literacy, in particular on male and English literacy. We employ two identification strategies. First, we exploit synthetic panel variation contained in cohort-specific literacy rates due to differences in the timing of railroad exposure of different cohorts within the same district and census year. We find a one standard deviation increase in railroad exposure raises literacy by 0.29 standard deviations. Second, we use distance from an early railway plan as an instrument for district railway exposure in the cross section and find results of similar magnitude. We show that railroads increased literacy by raising secondary, rather than primary, schooling. Our mediation analysis suggests that non-agricultural income and opportunities for skilled employment are important mechanisms, while agricultural income is not.

State capacity, schooling, and Fascist education: Evidence from the reclamation of the Pontine Marshes

States typically leverage on schooling to transmit desired values to the population. However, indoctrination through schooling typically requires teachers, school buildings and other capabilities. This paper documents that a low school capacity hampered the effort of the Italian fascist regime in transmitting a fascist ideology. I use evidence from a natural experiment of history—the reclamation of the Pontine Marshes. I argue that the reclamation acted as a shock in the regime’s school capacity. The design and construction of new rural villages gave the regime the opportunity to build schools on a large scale, improving the regime’s capability in transmitting a fascist ideology. This was hardly the case in the contiguous, pre-existent area, in the same province of Latina, where enrollment rates were low. I use this variation in schooling before WWII in an instrumental variable analysis. It shows that better educated areas in the province were more supporting of a post-fascist party in the elections freely held in 1948. Further analyses indicate that school capacity is a critical extensive margin of pedagogical reforms in shaping people values.

The Columbian Exchange and conflict in Asia

Difference in difference and event study analyses in a panel of Asian grid cells over nine centuries demonstrate that greater agricultural potential due to New World crops increased violent conflict after 1500. Rising caloric potential in a typical grid cell increased conflict by roughly its mean. The result holds across several New World crops and conflict types. It is largely driven by South Asia, a densely populated, diverse region with several competing historical states. The evidence supports a rapacity effect – increases in the gains from appropriation to Asian and non-Asian belligerents – as a mechanism. Population density, urbanization, and British imperialism significantly mediate the impact of the Columbian Exchange.

Interregional contact and national identity

We study the long-run effects of contact with individuals from other regions on beliefs, preferences and national identity. We combine a natural experiment, the random assignment of male conscripts to different locations throughout Spain, with tailored survey data. Being randomly assigned to complete military service outside of one’s region of residence fosters contact with conscripts from other regions, and increases sympathy towards people from the region of service, measured several decades later. We also observe an increase in identification with Spain for individuals originating from regions with peripheral nationalism. Our evidence suggests that intergroup exposure in early adulthood can have long-lasting effects on individual preferences and national identity.

Tradition and mortality: Evidence from twin infanticide in Africa

Mortality of twins relative to singletons is no greater today among African ethnicities that once practiced twin infanticide. We introduce data on historic twin infanticide and merge it with birth records from 23 African countries. We use the full sample, a border sample of adjacent societies with and without past twin infanticide, and a sample of twins. All three samples provide no evidence that past twin infanticide predicts greater differential twin mortality today. Twin infanticide and negative attitudes towards twins were suppressed by Africans, missionaries, and colonial governments. Where these channels were weak, we find evidence of greater twin mortality today.

Liberte, Egalite, Fraternite... Contamine? Estimating the impact of French municipal elections on COVID-19 spread in France

We investigate the extent to which March 15, 2020 municipal elections contributed to the COVID-19 epidemics in France. We first predict each departement’s own dynamics using information up to the election to calibrate a standard logistic model. We then take advantage of electoral turnout differences between departements to identify the impact of the election on prediction errors in hospitalizations. We report a detrimental effect of the election in locations that were at relatively advanced stages of the epidemics by the time of the election. Estimates suggest that elections accounted for about 15% of all hospitalizations by the end of March.

Slavery and development in nineteenth century Brazil

This article brings new evidence on the legacy of slavery in nineteenth-century Brazil to bear on the history of economic development. Its conclusions contribute to the debate raised by the new history of capitalism about the critical role played by slavery in the industrialisation of the United States. We argue that the new history of capitalism lacks a comparative perspective. Brazil imported more slaves than any other country in the world and slavery lasted longer and was more widespread than in the United States South. Rather than promoting economic growth and development, the evidence shows that slavery held back industrialisation in Brazil. We also discuss the role of slavery on agricultural productivity and show that, as in the United States, the use of violence does not explain increases in the productivity of cotton plantations.

Age-based policy in the context of the Covid-19 pandemic: How common are multigenerational households?

Are general lockdowns an appropriate response to the threat of Covid-19? Recent cost-benefit studies do not favour the case for them. Instead, since the virus practises a form of age discrimination (approximately 90% of coronavirus deaths are older than 65), some analysts have suggested an alternative. It is that younger citizens -- the generation worst affected by lockdowns and the one that will predominantly pay the eventual tax bill for furlough -- should be allowed to return to work to sustain the economy. Lockdown advocates argue that this would be dangerous, because older people would get infected by young workers living in the same home. We explore that claim. We find that 96% of UK workers under age 40 do not live with anyone over 65. In fact, 92% of all UK workers live in a household without anyone over 65 years old – and that holds true for white and BAME workers. Releasing young workers would thus expose only a small fraction of older citizens to intra-household transmission, although we recognize that the absolute number of people infected might eventually become considerable, and some vulnerable citizens could potentially be at risk if they live in large households. In general this paper’s results illustrate the potential value of fine-tuning the lifting of restrictions. Our findings buttress the cost-benefit case for age-based policies.

Learning about the effectiveness of contact tracing from when it failed – a natural experiment

Due to a technical error at Public Health England, at least 15,841 individuals who tested positive for COVID-19 between 20 September and 2 October had not been referred to the national contact tracing system on 3 October. The data glitch created a “natural experiment” that allows us to evaluate the effect of contact tracing.

Does Contact Tracing Work? Quasi-Experimental Evidence from an Excel Error in England

Contact tracing has been a central pillar of the public health response to the COVID-19 pandemic. Yet, contact tracing measures face substantive challenges in practice and well-identified evidence about their effectiveness re-mains scarce. This paper exploits quasi-random variation in COVID-19 con-tact tracing. Between September 25 and October 2, 2020, a total of 15,841COVID-19 cases in England (around 15 to 20% of all cases) were not immediately referred to the contact tracing system due to a data processing error. Case information was truncated from an Excel spreadsheet after the row limit had been reached, which was discovered on October 3. There is substantial variation in the degree to which different parts of England areas were exposed– by chance – to delayed referrals of COVID-19 cases to to the contact tracing system. We show that more affected areas subsequently experienced a drastic rise in new COVID-19 infections and deaths alongside an increase in the positivity rate and the number of test performed, as well as a decline in the performance of the contact tracing system. Conservative estimates suggest that the failure of timely contact tracing due to the data glitch is associated with more than 125,000 additional infections and over 1,500 additional COVID-19-related deaths. Our finding provide strong quasi-experimental evidence for the effectiveness of contact tracing.

Epidemics, inequality and poverty in pre-industrial and early industrial times

Recent research has explored the distributive consequences of major historical epidemics, and the current crisis triggered by Covid-19 prompts us to look at the past for insights about how pandemics can affect inequalities in income, wealth, and health. The fourteenth-century Black Death, which is usually believed to have led to a significant reduction in economic inequality, has attracted the greatest attention. However, the picture becomes much more complex if other epidemics are considered. This article covers the worst epidemics of preindustrial times, from Justinian’s Plague of 540-41 to the last great European plagues of the seventeenth century, as well as the cholera waves of the nineteenth. It shows how the distributive outcomes of lethal epidemics do not only depend upon mortality rates, but are mediated by a range of factors, chief among them the institutional framework in place at the onset of each crisis. It then explores how past epidemics affected poverty, arguing that highly lethal epidemics could reduce its prevalence through two deeply different mechanisms: redistribution towards the poor, or extermination of the poor. It concludes by recalling the historical connection between the progressive weakening and spacing in time of lethal epidemics and improvements in life expectancy, and by discussing how epidemics affected inequality in health and living standards.

Advantage Magazine - Autumn 2020

Subsidizing the spread of COVID19: Evidence from the UK’s Eat-Out-to-Help-Out scheme

This paper documents that a large-scale government subsidy aimed at encouraging people to eat out in restaurants in the wake of the first 2020 COVID19 wave in the United Kingdom has had a large causal impact in accelerating the subsequent second COVID19 wave. The scheme subsidized 50% off the cost of food and non-alcoholic drinks for an unlimited number of visits in participating restaurants on Mondays-Wednesdays from August 3 to August 31,2020. Areas with higher take-up saw both, a notable increase in new COVID19 infection clusters within a week of the scheme starting, and again, a deceleration in infections within two weeks of the program ending. Areas that exhibit notable rainfall during the prime lunch and dinner hours on days the scheme was active record lower infection incidence – a pattern that is also measurable in mobility data – and non-detectable on days during which the discount was not available or for rainfall outside the core lunch and dinner hours. A back of the envelope calculation suggests that the program is accountable for between 8 to 17 percent of all new local infection clusters during that time period.

Decoding India’s low Covid-19 case fatality rate

India’s case fatality rate (CFR) under covid-19 is strikingly low, with a current level of around 1.7%. The world average rate is far higher. Several observers have noted that this difference is at least partly due to India’s younger age distribution. We use age-specific fatality rates from 17 comparison countries, coupled with India’s distribution of covid-19 cases, to “predict" India’s CFR. In most cases, those predictions yield even lower numbers, suggesting that India’s CFR is, if anything, too high rather than too low. We supplement the analysis with a decomposition exercise, and we additionally account for time lags between case incidence and death for a more relevant perspective under a growing pandemic. Our exercise underscores the importance of careful measurement and interpretation of the data, and emphasizes the dangers of a misplaced complacency that could arise from an exclusive concern with aggregate statistics such as the CFR.

Free movement of workers and native demand for tertiary education

We investigate how the introduction of free movement of workers affects enrolment of natives in tertiary education. In a difference-in-differences framework, we exploit a policy change that led to a significant increase in the share of cross-border commuters in local employment in border regions of Switzerland. Our results show a rise in enrolment at Universities of Applied Sciences in affected relative to non-affected regions in the post-reform period but no change in enrolment at traditional universities. Furthermore, we find that enrolment increases in non-STEM fields that build skills less transferable across national borders. This allows for complementaries with foreign workers who are more likely to hold occupations requiring STEM training. Individuals with a labor market oriented education such as vocationally trained respond to the increase in labor market competition because they have employment opportunities and access to tertiary education through Universities of Applied Sciences.

Cultural proximity and the formation of lending relationships

Cultural proximity in credit markets can facilitate the transmission of subtle signals about the firm's credit quality but can also be a source of favourable treatment from lenders. New research shows that cultural proximity reduces information asymmetries by facilitating the screening of loan applications. Using loan data from South Tyrol, a region hosting two different cultural groups, our research finds a large predominance of lending relationships involving banks and firms of the same culture, particularly among small, young, and opaque firms. Loans to same-culture firms are larger, require less collateral, and default less often than loans to different-culture firms. Cultural proximity appears to reduce information asymmetries by providing a source of soft information that complements the one stemming from close or lengthy relationships.

Resource blessing? Oil, risk, and religious communities as social insurance in the U.S. South

Religious communities are important providers of social insurance. We document the development of religious communities in the face of economic volatility associated with natural resource abundance, using variation in major oilfield discoveries in the U.S. South between 1890 and 1990. We find that oil discoveries predict large and persistent increases in church membership. Effects are increasing with oil price volatility and larger for “oil-dependent” counties with small pre-oil populations and manufacturing sectors. Consistent with social insurance, larger religious communities limit spillovers from oil shocks across sectors, smoothing unemployment, while access to credit, private insurance, and public social insurance attenuate effects.

Black-White disparities during an epidemic: life expectancy and lifespan disparity in the US, 1980-2000

Covid-19 has demonstrated again that epidemics can affect minorities more than the population in general. We consider one of the last major epidemics in the United States: HIV/AIDS from ca. 1980-2000. We calculate life expectancy and lifespan disparity (a measure of variance in age at death) for thirty US states, finding noticeable differences both between states and between the black and white communities. Lifespan disparity allows us to examine distributional effects, and, using decomposition methods, we find that for six states lifespan disparity for blacks increased between 1980 and 1990, while life expectancy increased less than for whites. We find that we can attribute most of this to the impact of HIV/AIDS.

Punishing or rallying ‘Round the Flag’? Heterogeneous effects of terrorism in South Tyrol

This paper studies heterogeneous electoral responses following terrorist attacks. I examine a rich panel data set containing detailed information on the geography of terrorism in South Tyrol, a Northernmost and predominantly German-speaking region of Italy, for a period spanning along 35 years. Exploiting the diverse nature of 337 attacks, I find that the Italian-speaking minority reacted to an increase in exposure to terrorist attacks by punishing the government party at the ballot box and supporting an extreme right-wing party. However, when terror prompted casualties, I find that more exposure was conducive of rally-round-the-flag momenta. I interpret these results in light of recent findings in social psychology on heterogeneous emotional reactions induced by terrorist attacks. My results inform the literature as well as the public debate on the diverse implications of terrorism.

Do Europeans care about climate change? An illustration of the importance of data on human feelings

Economists have proposed a variety of sophisticated climate-change interventions. But do our citizens care enough about climate change to enact such policies? This paper provides evidence that suggests they do not. Two kinds of findings are presented. Using data on 40,000 Europeans from the 2016 European Social Survey, the paper shows that only 5% of people say they are extremely worried about climate change. The cooler European countries express particularly low levels of worry. Using data on 30,000 citizens from the 2019 Eurobarometer Surveys, the paper demonstrates that climate change is viewed as a less important problem than parochial issues such as (i) health and social security, (ii) inflation, (iii) unemployment, and (iv) the economic situation. Other results, from regression equations, are provided. This paper’s conclusions seem to have exceptionally serious implications for our unborn great grandchildren -- and imply that economic policy should now focus on how to alter feelings rather than upon the design of complicated theoretical interventions. An analogy with successful anti-tobacco policy is discussed.

Hassles and environmental health screenings: Evidence from lead tests in Illinois

I study the determinants of childhood lead screening using all Illinois birth records (2001- 2014), matched to lead testing records and geocoded housing age data. Housing age measures lead risk, as older houses disproportionally have lead paint. Changes in providers’ availability, inferred from testing data, provide variation in non-monetary costs of testing. Travel costs reduce screening among low- and high-risk households alike. Thus, self-selection based on travel costs does not appear to improve targeting, even though high-risk households are willing to pay $29-389 more than low-risk households for screening. Screening incentives would be cost-effective for reasonable values of lead poisoning externalities.

Importing inequality: Immigration and the Top 1 percent

In this paper we study the contribution of migrants to the rise in UK top incomes. Using administrative data on the universe of UK taxpayers we show migrants are over-represented at the top of the income distribution, with migrants twice as prevalent in the top 0.1% as anywhere in the bottom 97%. These high incomes are predominantly from labour, rather than capital, and migrants are concentrated in only a handful of industries, predominantly finance. Almost all (85%) of the growth in the UK top 1% income share over the past 20 years can be attributed to migration.

Covid-19 across European regions: the role of border controls

Attempts to constrain the spread of Covid-19 included the temporal reintroduction of travel restrictions and border controls within the Schengen area. While such restrictions clearly involve costs, their benefits have been disputed. We use a new set of daily regional data of confirmed Covid19 cases from the respective statistical agencies of 18 Western European countries. Our data starts with calendar week 10 (starting 2nd March 2020) and extends to calendar week 17 (ending 26th April 2020), which allows us to test for treatment effects of border controls. Based on PPML methods and a Bayesian INLA approach we find that border controls had a significant effect to limit the pandemic.

Is there a refugee gap? Evidence from over a century of Danish naturalizations

The “refugee gap” in the economic status of refugees relative to other migrants might be due to the experience of being a refugee, or to government policy, which often denies the right to work during lengthy application processes. In Denmark before the Second World War, however, refugees were not treated differently from other migrants, motivating our use of a database of the universe of Danish naturalizations between 1851 and 1960. We consider labor market performance and find that immigrants leaving conflicts fared no worse than other migrants, conditional on other characteristics, within this relatively homogenous sample of those who attained citizenship. Refugees must be provided with the same rights as other migrants if policy aims to ensure their economic success.

States and wars: China’s long march towards unity and its consequences, 221 BC – 1911 AD

We examine the long-term pattern of state formation and the mythical historical Chinese unity under one single political regime based on the compilation of a large geocoded annual data series of political regimes and incidences of warfare between 221 BC and 1911 AD. By classifying our data sets into two types of regimes - agrarian and nomadic – and three types of warfare– agrarian/nomadic, agrarian/agrarian and internal rebellions – and applying an Autoregressive Distributed Lag (ARDL) model, we find that nomadic-agrarian warfare and internal rebellion strengthens unification but agrarian/agrarian warfare entrenches fragmentation. Our research highlights the combination of China’s precocious ideology of a single unified ruler, environmental circumscription on the easternmost end of Eurasia and persistent agrarian-nomadic warfare as the driving force behind China’s eventual unity. We further discuss the long-run implications of Chinese unity on economic performance in a global context.

Rules of origin and market power

We study how domestic content requirements in Free Trade Areas (FTAs) affect market power and market structure in concentrated intermediate goods markets. We show that content requirements increase oligopolistic markups beyond the level that would obtain under an equivalent import tariff, and we document patterns in Canadian export data and US producer price data that align with the model’s predictions: producers of intermediate goods charge comparatively higher prices when the associated final goods producers are more constrained by FTA origin requirements and by Most Favoured Nation (MFN) tariffs for both intermediate and final non-FTA goods.

Narratives and the economics of the family

We augment Becker’s classic model of the family by assuming that, in addition to caring about consumption, the family wishes to further a subjective story, or narrative, that captures its deeply held values. Our focus is on two stories that in many ways are polar opposites. The first one—the protector narrative—gives rise to a type of traditional family where gender roles are distinct, men and women are pushed towards “separate spheres,” and men are expected to be tough and authoritarian. The second one—the fulfillment narrative—gives rise to a type of modern family where roles are less distinct, family members have greater latitude in their decisions, and marriages are based to a greater extent on romantic love. We derive a rich bundle of behaviors associated with each story, and using survey data, we show that our findings are consistent with a variety of empirical patterns.

Considering the counterfactual: Real wages in the First Industrial Revolution

We investigate a structural model of demographic-economic interactions for England during 1570 to 1850. We estimate that the annual rate of population growth consistent with constant real wages was 0.4 per cent before 1760 but 1.5 per cent thereafter. We find that exogenous shocks increased population growth dramatically in the early decades of the Industrial Revolution. Simulations of our model show that if these demographic shocks had occurred before the Industrial Revolution the impact on real wages would have been catastrophic and that these shocks were largely responsible for very slow growth of real wages during the Industrial Revolution.

British relative economic decline in the aftermath of German unification

From 1871 to 1913, German economic growth was faster than that of the UK. This represented a successful catch-up of the leading European economy but there was still a significant productivity gap at the end of the period. Slower UK growth should be seen as largely unavoidable but there was a serious weakness in the national innovation system. On the whole, the greater openness of the British economy was advantageous and a move to protectionist policies would have been damaging. The expansion of German industrial production and exports only had a small negative impact on UK national income.

How to get to Denmark: an assessment of Denmark as an economic model for developing countries

The social cohesion of Denmark, embodied in its strong tradition of rural cooperation, has often been promoted as a model for successful development. Francis Fukuyama (2011) described the issue facing developing countries as the problem of ‘getting to Denmark’, a metaphor for a society characterised by good governance, the rule of law, and related virtues leading to wealth and prosperity. But can and should developing countries aspire to ‘get to Denmark’? This briefing analyses the economic development of Denmark through history and concludes that the lessons from Denmark have been misunderstood.

Who watches the watchmen? Local news and police behavior in the United States

Does media content influence local institutions? We study this question by looking at how a negative shock to local crime-related news, induced by the acquisition of local TV stations by the Sinclair Broadcast Group, affects U.S. municipal police departments. In particular, we implement a triple differences-in-differences design that exploits the staggered timing of acquisitions 2010-2017, together with cross-sectional variation in whether municipalities are covered by local news at baseline, a proxy for exposure to the shock. First, using a newly collected dataset of 300,000 transcripts of local newscasts, we document that once acquired by Sinclair, TV stations decrease news coverage of local crime. Second, we find that after Sinclair enters a media market, municipalities that were likely to be in the news at baseline experience 8% lower violent crime clearance rates with respect to municipalities that were very rarely in the news in the first place. The main mechanism we propose is that the change in content induces police officers to decrease the effort allocated to clearing violent crimes, due to a decline in the salience of crime as an issue in the public opinion.

Layoffs and productivity at a Bangladeshi sweater factory

Conflicts between management and workers are common and can have significant impacts on productivity. We study how workers in a large Bangladeshi sweater factory responded to management’s decision to lay off about a quarter of the workers following a period of labor unrest. Our main finding is that the mass layoff resulted in a large and persistent reduction in the productivity of surviving workers. Moreover, it is specifically the firing of peers with whom workers had social connections – friends – that matters. We also provide suggestive evidence of deliberate shading of performance by workers in order to punish the factory’s management, and a corresponding deliberate attempt by the factory to win the angry workers back by selectively giving them tasks that are more rewarding. By combining ethnographic and survey data on the socialization process with the factory’s internal records, the paper provides a rare glimpse into the aftermath of an episode of labor unrest. A portrait of the firm emerges as a web of interconnected relational agreements supported by social connections.

Cultural identity and social capital in Italy

Italy became one nation only relatively recently and as such there remains significant regional variation in trust in government and society (so-called “social capital”) as well as in language and diet. In an experiment conducted across three Italian cities we exploit variation in family background generated through internal migration and make use of novel measures of social capital,language and diet to develop a new index of cultural heritage. Our new index predicts social capital, while self-reported identity does not. The missing link between the past and current identity seems to come through grandparents(especially maternal grandmothers) who have a strong role in developing the cultural identity of their grandchildren.

Loose cannons: war veterans and the erosion of democracy in Weimar Germany

I study the adverse political effects of WW1 in Weimar Germany. Using novel data on WW1 veterans and an election panel from 1893-1933, I show that former soldiers are associated with a sizeable, persistent and potentially momentous shift in political preferences from left to right. Contrary to historical accounts, this shift cannot be explained by exposure to violence or other polarising post-war events. Rather, I provide suggestive evidence that war participation made veterans highly receptive to Red Menace fears of a Socialist revolution. This alienated veterans from left-wing parties and drove the majority towards inclusive, right-wing parties using anti-left platforms.

Priests and postmen: historical origins of national identity

How did historical state and church presence help shape country identity? This paper shows that Portuguese municipalities with more postmen and priests in the 19th century have higher voter turnout in any election today. More postmen (priests) in the 19thcentury however, are associated with lower (higher) turnout in local elections when compared to national elections denoting a stronger sense of national identity (local community). These relationships are robust to geographic and socioeconomic characteristics that could potentially affect voter turnout, suggesting the importance of historical persistence.

Populism and the first wave of globalization: evidence from the 1892 US Presidential Election

The reasons for the famous agrarian unrest in the United States between 1870 and 1900 remain debated. We argue that they are, at least in part, consistent with a simple economic explanation. Falling transportation costs allowed for the extension of the frontier, where farmers received the world price minus the transaction costs involved in getting their produce to market. Many perceived these costs to be unfairly large, owing to the perceived market power of rail firms and the discriminatory practices of middlemen, with farmers closer to the frontier most affected. Consistent with this, we find that the protest, as measured by vote shares for the Populists in the 1892 Presidential elections, is negatively related to wheat prices, transportation costs, and rail network density.

Demographic shocks and women’s labor market participation: evidence from the 1918 influenza pandemic in india

How did the 1918 influenza pandemic affect female labor force participation in India over the short run and the medium run? We use an event-study approach at the district level and four waves of decadal census data in order to answer this question. We find that districts most adversely affected by influenza mortality saw a temporary increase in female labor force participation in 1921, an increase that was concentrated in the service sector. By 1931, this increase had been reversed. We find suggestive evidence that distress labor supply by widows and rising wages help account for these results.

Do people value more informative news?

Drawing on representative samples of the U.S. population with more than 15,000 respondents in total, we measure and experimentally vary people’s beliefs about the informativeness of news. Inconsistent with the desire for more information being the dominant motive for people’s news consumption, treated respondents who think that a newspaper is less likely to suppress information reduce their demand for news from this newspaper. Furthermore, treated respondents who think that a news outlet is more likely to make false claims do not reduce their demand for this outlet. These findings strongly suggest that people have other motives to read news that sometimes conflict with their desire for more information. We discuss the implications of our findings for the regulation of media markets.

Incentives, globalization, and redistribution

We offer a new explanation for why taxes have become less progressive in many countries in parallel with an increase in income inequality. When performance based compensation differentials are needed to incentivize effort, redistribution through progressive income taxes becomes less precisely targeted. Taxation reduces after-tax income inequality but undermines incentive contracts, lowering effort and raising pre-tax income differentials. Market integration can widen the spread of project returns and make contract choices more responsive to changes in the level of taxation, resulting in a lower optimum income tax rate even when individuals are not inter-jurisdictionally mobile.

Strategic interdependence in political movements and countermovements

Collective action is the result of the efforts of groups consisting of many individuals. This gives rise to strategic interactions: the decision of an individual to participate in collective action may depend on the efforts of both like-minded and opposing activists. This paper causally studies such strategic interactions in the context of left- and right-wing protests in Germany. In an experiment, we investigated whether randomly varied information on turnout of both like-minded and opposing movements impacts activists’ willingness to protest. In response to information about high turnout of their own group, left-wing activists increased their willingness to protest, consistent with theories of conditional cooperation. In contrast, right-wing activists decreased their willingness to protest, consistent with instrumental accounts and free-riding motives. For both groups, there was no significant reaction to information about turnout of the opposing movement. The results highlight substantial heterogeneity in strategic interactions and motives across the political spectrum.

Measuring UK top incomes

We compare two approaches to measuring UK top income shares—the share of income going to particular subgroups, such as the top 1%. We set out four criteria that an ideal top share series should satisfy: (i) comparability between numerator and denominator; (ii) comparability over time; (iii) international comparability; and (iv) practical sustainability. Our preferred approach meets three of these; by contrast the approach currently used to produce UK fiscal income series meets none of them. Changing to our preferred approach matters quantitatively: the share of income going to the top 1% is 2 percentage points higher, but rising more slowly, than under the alternative.

Beliefs, learning, and personality in the indefinitely repeated prisoner's dilemma

The indefinitely repeated prisoner’s dilemma (IRPD) captures the trade-off between the short-term payoff from exploiting economic partners and the long-term gain from building successful relationships. We aim to understand more about how people form and use beliefs about others in the IRPD. To do so, we elicit beliefs about the supergame strategies chosen by others. We find that initial beliefs match behavior quite well and that most subjects choose strategies that perform well given their beliefs. Motivated by belief clustering, we use beliefs to estimate a level-k model of boundedly rational thinking. We analyze how beliefs and behavior evolve with experience: beliefs become more accurate over time, and we use beliefs to provide new evidence about the mechanism that underlies learning from experience. Finally, we find that a survey measure of trust predicts cooperative behavior and optimism about others’ cooperation, which helps to explain how trust underpins successful economic exchanges.

Does Party Competition Affect Political Activism?

Does party competition affect political activism? This paper studies the decision of party supporters to join political campaigns. We present a framework that incorporates supporters’ instrumental and expressive motives and illustrates that party competition can either increase or decrease party activism. To distinguish between these competing predictions, we implemented a field experiment with a European party during a national election. In a seemingly unrelated party survey, we randomly assigned 1,417 party supporters to true information that the canvassing activity of the main competitor party was exceptionally high. Using unobtrusive, real-time data on party supporters’ canvassing behavior, we find that treated respondents are 30 percent less likely to go canvassing. To investigate the causal mechanism, we leverage additional survey evidence collected two months after the campaign. Consistent with affective accounts of political activism, we show that increased competition lowered party supporters’ political self-efficacy, which plausibly led them to remain inactive.

Informality, Consumption Taxes and Redistribution

Can consumption taxes reduce inequality in developing countries? We combine household expenditure data from 31 countries with theory to shed new light on the redistributive potential and optimal design of consumption taxes. We use the type of store in which purchases occur to proxy for informal (untaxed) consumption. This enables us to characterize the informality Engel curve: we find that the budget share spent in the informal sector steeply declines with income, in all countries. The informal sector thus makes consumption taxes progressive: households in the richest quintile face an effective tax rate that is twice that of the poorest quintile. We extend the standard optimal commodity tax model to allow for informal consumption and calibrate it to the data to study the effects of different tax policies on inequality. Contrary to consensus, we show that consumption taxes are redistributive, lowering inequality by as much as personal income taxes. Once informality is taken into account, commonly used redistributive policies, such as reduced tax rates on necessities, have a limited impact on inequality. In particular, subsidizing food cannot be justified on equity or efficiency grounds in several poor countries.

Measuring the Regional Economic Cost of Brexit: Evidence up to 2019

The United Kingdom (UK) reported record employment levels following its vote to Leave the European Union (EU), leading to many pundits discarding the dire pre-Brexit vote impact assessments as part of “project fear.” This paper studies the cost of the Brexit-vote to date across UK regions finding significant evidence suggesting that the economic costs of the Brexit-vote are both sizeable and far from evenly distributed. Among 382 districts, at least 168 districts appear to be Brexit-vote losers, having lost, on average 8.54 percentage points of output in 2018 compared to their respective synthetic controls. The Brexit-vote costs have increased in districts that: a) supported Leave in 2016; b) have a large manufacturing sector; c) have a large share of low skilled workers. The Brexit- vote induced economic divergence across regions is already exacerbating the regional economic inequalities that the 2016 EU referendum vote made apparent. Indirect evidence further suggests that firms may, amidst the significant (trade) policy uncertainty, have shifted away from capital to labour in the short- term given that Brexit has, to date, not led to changes in market access. The resulting short-term employment- and payroll growth post-2016 is not supported by productivity increases in most parts of the UK. This sets up the possibility for significant labor market adjustments once Brexit becomes a de-facto reality. Further, there is some evidence suggesting that COVID19 may exacerbate the regional economic impact of the Brexit-vote to date.

Synchronised Elections, Voter Behavior and Governance Outcomes: Evidence from India

We examine whether holding national and state elections simultaneously or sequentially affects voter decisions and consequently, electoral and economic outcomes in India. Synchronized elections increase the likelihood of the same political party winning constituencies in both tiers by 21%. It reduces split-ticket voting, increases the salience of party among voters and shifts voters’ priority to state issues, without significantly affecting turnout and winning margin. A model of behaviorally constrained voters with costly information acquisition best explains our results. Finally, synchronization results in insignificant economic gains. Our findings have implications for the design of elections to multiple tiers of government.

Designing Information Provision Experiments

We review methodological questions relevant for the design of information provision experiments. We first provide a literature review of major areas in which information provision experiments are applied. We then outline key measurement challenges and design recommendations that may be of help for practitioners planning to conduct an information experiment. We discuss the measurement of subjective beliefs, including the role of incentives and ways to reduce measurement error. We also discuss the design of the information intervention, as well as the measurement of belief updating. Moreover, we describe ways to mitigate potential experimenter demand effects and numerical anchoring arising from the information treatment. Finally, we discuss typical effect sizes in information experiments.

The determinants of wealth inequality in the Republic of Venice (1400-1800)

This article analyses wealth inequality in the territories of the Republic of Venice in mainland Italy during 1400-1800. The availability of a particularly large database of homogeneous local inequality measurements allows us to produce the most in-depth study of the determinants of inequality at the local level available so far for any preindustrial society. First, we explore the ability of economic development, population and the intensity of regressive taxation to explain overall inequality trends in the long run, arguing for a particularly strong impact of regressive taxation. Then, to explain inequality variation between communities, we introduce a full set of geo-morphological variables. Finally we explore the impact of the terrible 1630 plague, which killed 40% of the inhabitants of this area. Although the plague itself had only a limited egalitarian impact (if any), it was able to determine a structural break in the way in which some key variables affected inequality.

Pay transparency and gender equality

The 2018 UK transparency policy mandates that firms with at least 250 employees publicly disclose gender equality indicators. A difference-in-differences model exploiting variations in this policy across firm size and time shows that greater transparency closes 14 percent of the gender pay gap by reducing men’s wage growth. Additionally, the policy increases transparency in the hiring process, as firms are 10 percent more likely to post wages in their vacancies. Reputation concerns seem to influence employers’ reactions, as firms publishing worse equality indicators obtain lower impression scores in YouGov’s Women’s Rankings. Worse performing firms also improve gender equality the most.

Misinformation during a Pandemic

We study the effects of COVID-19 coverage early in the pandemic by the two most popular cable news shows in the US, both on Fox News, on health outcomes. We document large differences in content between the shows and in cautious behavior among viewers. Through both a selection-on-observables strategy and a novel instrumental variable approach, we find that areas with greater exposure to the show downplaying the threat of COVID-19 experienced a greater number of cases and deaths. We assess magnitudes through an epidemiological model highlighting the role of externalities and provide evidence that misinformation is a key underlying mechanism.

Advantage Magazine: Austerity 10th Anniversary Special

Religion in Economic History: A Survey

This chapter surveys the recent social science literature on religion in economic history, covering both socioeconomic causes and consequences of religion. Following the rapidly growing literature, it focuses on the three main monotheisms—Judaism, Christianity, and Islam—and on the period up to WWII. Works on Judaism address Jewish occupational specialization, human capital, emancipation, and the causes and consequences of Jewish persecution. One set of papers on Christianity studies the role of the Catholic Church in European economic history since the medieval period. Taking advantage of newly digitized data and advanced econometric techniques, the voluminous literature on the Protestant Reformation studies its socioeconomic causes as well as its consequences for human capital, secularization, political change, technology diffusion, and social outcomes. Works on missionaries show that early access to Christian missions still has political, educational, and economic consequences in present-day Africa, Asia, and Latin America. Much of the economics of Islam focuses on the role that Islam and Islamic institutions played in political-economy outcomes and in the “long divergence” between the Middle East and Western Europe. Finally, cross-country analyses seek to understand the broader determinants of religious practice and its various effects across the world. We highlight three general insights that emerge from this literature. First, the monotheistic character of the Abrahamic religions facilitated a close historical interconnection of religion with political power and conflict. Second, human capital often played a leading role in the interconnection between religion and economic history. Third, many socioeconomic factors matter in the historical development of religions.

Pandemics and Protectionism: Evidence from the “Spanish” flu

The impact of COVID-19 on recent tendencies towards international isolationism has been much speculated on but remains to be seen. We suggest that valuable evidence can be gleaned from the “Spanish” flu of 1918-20. It is well-known that the world fell into a protectionist spiral following the First World War, but scholars have almost exclusively ignored the impact of the pandemic. We employ a difference-in-differences strategy on data for Europe and find that excess deaths had a significant impact on trade policy, independent of the war. A one standard deviation increase in excess deaths during the outbreak implied 0.022 percentage points higher tariffs subsequently, corresponding to an increase of one third of a standard deviation in tariffs. Health policy should aim to avoid the experience of the interwar period and consider the international macroeconomic impact of measures (not) taken.

How to keep up well-being during the COVID-19 Pandemic? Advice from the World Well-being Panel

The isolation and social distancing measures many countries have been embracing over the last weeks are having an important impact on individuals’ mental health and wellbeing. In the latest World Wellbeing Panel (WWP), we asked 26 experts about how to maintain well-being during this time. This piece presents the advice from those experts. Although isolation measures are being relaxed, many countries still keep important restrictions on social interaction. The experts conclude that it is important to maintain social interaction (with special emphasis on giving to others), develop strategies to deal with negative thinking, reflect on one’s own life and future, structure the day to include health habits, and face the fear.

Pandemics and asymmetric shocks: Evidence from the history of plague in Europe and the Mediterranean

The history of plague suggests that severe pandemics can have extremely important and potentially permanent asymmetric economic consequences. However, these consequences depend upon the initial conditions and could not be foretold a priori. To support this view, this short article illustrates the ability of major plagues to cause asymmetric shocks. The Black Death might have been at the origin of the Great Divergence between western Europe and East Asia, but also within Europe it had quite heterogeneous consequences. The last great European plagues of the seventeenth century favoured the rise of North Europe to the detriment of the South. Additionally, within Italy, they had a differential impact allowing for the rise of the Sabaudian State and contributing to the decline of the Republic of Venice. The article argues that the implication for today societies facing Covid-19, is that given that the final demographic and economic consequences of this pandemic are impossible to predict, collective answers to the crisis, possibly coordinated by the EU, are highly advisable.

The Vanishing Procyclicality of Labour Productivity

We document two changes in postwar US macroeconomic dynamics: the procyclicality of labour productivity vanished, and the relative volatility of employment rose. We propose an explanation for these changes that is based on reduced hiring frictions due to improvements in information about the quality of job matches and the resulting decline in turnover. We develop a simple model with hiring frictions and variable e§ort to illustrate the mechanisms underlying our explanation. We show that our model qualitatively and quantitatively matches the observed changes in business cycle dynamics.

India's Lockdown: An Interim Report

Our goal is to provide an interim report on the Indian lockdown provoked by the covid19 pandemic. While our main themes — ranging from the philosophy of lockdown to the provision of relief measures — transcend the Indian case, our context is deeply India-specific in several senses that we hope will become clear through the article. A fundamental theme that recurs throughout our writing is the enormous visibility of covid-19 deaths worldwide, now that sensitivities and anxieties regarding the pandemic have been honed to an extreme sharpness. Governments everywhere are propelled to respect this visibility, developing countries perhaps even more so than their developed counterparts. In advanced economies, the cost of achieving this reduction in visible deaths is “merely” a dramatic reduction in overall economic activity, coupled with a farreaching relief package to partly compensate those who bear such losses. But for India, a developing country with great sectoral and occupational vulnerabilities, this dramatic reduction is more than economics: it means lives lost. These lost lives, through violence, starvation, indebtedness and extreme stress, both psychological and physiological, are invisible, in the sense that they are—and will continue to be—diffuse in space, time, cause and category. They will blend into the surrounding landscape; they are not news, though the intrepid statistician or economist will pick them up as the months go by. It is this conjunction of visibility and invisibility that drives the Indian response. The lockdown meets all international standards so far; the relief package none.

How much tax do the rich really pay? New evidence from tax microdata in the UK

This briefing summarises new research on the taxes paid by the UK’s richest individuals, using anonymised data collected from the personal tax returns of everyone who received over £100,000 in total remuneration (taxable income plus taxable capital gains). It shows how tax paid as a share of income or total remuneration varies across individuals.

Evaluating the Sunk Cost Effect

We provide experimental evidence of behaviour consistent with the sunk cost effect. Subjects who earned a lottery via a real-effort task were given an opportunity to switch to a dominant lottery; yet 23% chose to stick with their dominated lottery. The endowment effect accounts for roughly only one third of the effect. Subjects' capacity for cognitive reflection is a significant determinant of sunk cost behaviour. We also find stocks of knowledge or experience (crystallized intelligence) predict sunk cost behaviour, rather than algorithmic thinking (fluid intelligence) or the personality trait of openness. We construct and validate a scale, the “SCE-8”, which encompasses many resources individuals can spend, and offers researchers an efficient way to measure susceptibility to the sunk cost effect.

How are workers searching for jobs during the COVID-19 crisis?

The COVID-19 crisis has increased the number of job seekers, and reduced the number of jobs available. If job seekers continued to search in the same way they did before the crisis, these two facts combined would create more competition for any given job. More competition for jobs means that job seekers will take a longer time to find a job, but also that employers will find it easier to fill their vacancies. The latter is favourable to the labour market: if hiring is easier, employers will react by posting relatively more vacancies.

COVID-19: Six lessons for international trade

This briefing sets out six lessons for international trade in the wake of the COVID19 crisis.

Slow Real Wage Growth during the Industrial Revolution: Productivity Paradox or Pro-Rich Growth?

I examine the implications of technological change for productivity, real wages and factor shares during the industrial revolution using recently available data. This shows that real GDP per worker grew faster than real consumption earnings but labour’s share of national income changed little as real product wages grew at a similar rate to labour productivity in the medium term. The period saw modest TFP growth which limited the growth both of real wages and of labour productivity. Economists looking for an historical example of rapid labour-saving technological progress having a seriously adverse impact on labour’s share must look elsewhere.

Job Search during the COVID-19 Crisis

This paper measures the job-search responses to the COVID-19 pandemic using realtime data on vacancy postings and ad views on Sweden’s largest online job board. First, the labour demand shock in Sweden is as large as in the US, and affects industries and occupations heterogeneously. Second, the scope and direction of search change. Job seekers respond to the shock by searching less intensively and by redirecting their search towards less severely hit occupations, beyond what changes in labour demand would predict. The redirection of job search changes relative hiring costs, and has the potential to amplify labour demand shifts.

Global Behaviours and Perceptions at the Onset of the COVID-19 Pandemic

We conducted a large-scale survey covering 58 countries and over 100,000 respondents between late March and early April 2020 to study beliefs and attitudes towards citizens’ and governments’ responses to the COVID-19 pandemic. Most respondents reacted strongly to the crisis: they report engaging in social distancing and hygiene behaviours, and believe that strong policy measures, such as shop closures and curfews, are necessary. They also believe that their government and their country’s citizens are not doing enough and underestimate the degree to which others in their country support strong behavioural and policy responses to the pandemic. The perception of a weak government and public response is associated with higher levels of worries and depression. Using both cross-country panel data and an event-study, we additionally show that strong government reactions correct misperceptions, and reduce worries and depression. Our findings highlight that policy-makers not only need to consider how their decisions affect the spread of COVID-19, but also how such choices influence the mental health of their population.

Transportation Technology, Individual Mobility and Social Mobilisation

How do reductions in interaction costs shape the diffusion of social movements? In this paper, I use a natural experiment from Swedish history to answer this question. During the thirty-year period 1881-1910, Swedish society underwent two transformative developments: the large-scale roll-out of a national railway network and the nascence of grassroots social movements which came to dominate economic, social and political spheres well into the twentieth century. Using exogenous variation in railway access arising from initial plans for the network, I show that well-connected municipalities were more likely to host a local movement and subsequently saw more rapid membership growth and a greater number of distinct organisations. The mobility of individuals is key: results are driven by passenger arrivals into connected municipalities, not freight arrivals. I implement a market access framework to show that, by reducing least-cost distances between municipalities, railways intensified the influence exerted by neighbouring concentrations of membership, thereby enabling social movement spread.

Winners and Losers from Enclosure: Evidence from Danish Land Inequality 1682- 1895

Institutional changes that increase efficiency regularly raise concerns about their distributional consequences, i.e. who the winners and losers are. We evaluate the distributional consequences of a fundamental transition that all agricultural societies underwent on their way to modernisation: the transition from traditional land rights to an institutional framework of unified and efficient property rights that laid the basis for increased agricultural productivity and population and income growth. For the case of Denmark, where this transition happened over a short period between 1780 and 1810, we show that enclosure of common land and open fields and unification of property rights increased agricultural efficiency, but at the cost of higher inequality in landholdings. This rise in rural inequality was the consequence of population growth, while access to land was effectively restricted. Thus, an almost constant number of family farmers gained from modernisation that allowed them to use the land more efficiently, while the rest of the growing population made up a growing number of smallholders and landless labourers.

Prussia Disaggregated: The Demography of its Universe of Localities in 1871

We provide, for the first time, a detailed and comprehensive overview of the demography of more than 50,000 towns, villages, and manors in 1871 Prussia. We study religion, literacy, fertility, and group segregation by location type (town, village, and manor). We find that Jews live predominantly in towns. Villages and manors are substantially segregated by denomination, whereas towns are less segregated. Yet, we find relatively lower levels of segregation by literacy. Regression analyses with county-fixed effects show that a larger share of Protestants is associated with higher literacy rates across all location types. A larger share of Jews relative to Catholics is not significantly associated with higher literacy in towns, but it is in villages and manors. Finally, a larger share of Jews is associated with lower fertility in towns, which is not explained by differences in literacy.

The Economics of the Second World War: 75 Years On

May 2020 marks the 75th anniversary of Victory in Europe, a defining moment in modern history which signalled the beginning of the end of years of bloody conflict that left a world fragmented. The scale of mobilisation of all sectors of the economy and society had redefined the concept of ‘total war’. This eBook brings together recent research on a range of aspects of the war including the extensive war preparations of the great powers; the conduct of the war (including the management of economic mobilisation, economic warfare, economic exploitation, and the role of economists); and the war’s consequences for demography, inequality, economic recovery and political attitudes. Overall this eBook provides a unique insight into the importance of economics and the sometimes overlooked role that economists played in shaping the war and its outcomes.

Age, death risk, and the design of an exit strategy: A guide for policymakers and for citizens who want to stay alive

Some commentators argue for a fairly general release from COVID-19 lockdown. That has a troubling flaw. It ignores the fatality risks that will then be faced by citizens in midlife and older. This paper provides information on the strong age pattern in the risk of death from three countries (China, Italy and the UK). If politicians want an imminent removal of the lockdown, the safest approach, in our judgment, would be a rolling age-release strategy combined with the current principle of social distancing. But even if that is not the policy adopted, citizens need to be shown graphs of the kind in this paper. Honest guidance ought to be given to those in midlife and beyond. Governments have to allow people to understand their personal risk after any release from lockdown.

Economic Warfare in Twentieth- Century History and strategy

In two world wars, both sides committed substantial resources to economic warfare. Before the event, influential thinkers believed that the threat of blockade (and later of bombing) would deter aggression. When war broke out, they hoped that economic action might bring the war to a close without the need for a conclusive military struggle. Why were they disappointed, and what was the true relationship between economic warfare and combat between military forces? The answer to this question depends on the effects of economic warfare, which can be understood only after considering the adversary’s adaptation. When the full range of adaptations is considered, it becomes clear that economic warfare and combat were usually strategic complements; they acted together and did not substitute for each other. The paper examines this question both in breadth and more narrowly, focusing on the Allied air campaign against Germany in World War II. There are implications for history and policy.

Update on estimating the forecasting COVID-19 outbreak in the UK

In a previous paper I estimated the Richards’ phenological model to forecast the Covid-19 evolution in the UK and in England’s NHS regions using data up to April 8th, 2020. This briefing updates the model, taking into account three important sets of information: first, new data are available; second, the number of tests have been increasing; and third, there was quite a significant revision on how the data on both cases and tests were reported. I also update the data up to April 24th, 2020. The new data shows that, under current lockdown conditions, the UK should reach zero new cases by 8th August.

Indian migrants caught in the lockdown: How many will return? Where will they come from? Where will they return to?

Since March 24th when the lockdown of India was announced, many migrant workers have been without work, and were prevented from going home. Without support from their family and networks back home, they have to rely on government assistance for food and shelter. The plight of migrants gathered in camps, protesting at train stations, or walking hundreds of kilometres, has moved the nation and the world. After May 3rd, once restrictions on mobility are lifted, they are expected to return home. This return migration poses the risk of carrying the virus to rural areas with poor public health provision. In the sectors where they would have been working, labour shortages are feared.

India's Lockdown

This paper Is being regularly updated here https://cepr.org/sites/default/files/policy_insights/PolicyInsight102.pdf

Climate Change and Pandemics: On the Timing of Interventions to Preserve a Global Common

We characterize timing choices in investments towards the conservation of a global common and derive implications for interventions to contain the spread of a contagious disease.

Which jobs are done from home? Evidence from the American Time Use Survey

Which jobs are more likely to be affected by mobility restrictions due to the Covid-19 pandemic? This paper uses American Time Use Survey data to measure the share of the work hours that are spent at home for different job categories. We compute and provide home-working shares by occupation (US census classification SOC and international ISCO classification) and by industry (US census classification NAICS and international ISIC classification).

Estimating and forecasting COVID-19 evolution in the UK and its regions

Understanding and predicting the evolution of outbreaks is crucial for policymakers, as they face the trade-off between limiting social interaction and avoiding a further spread of the disease. Currently the UK is in lockdown and it will likely last until the severity of infections is sufficiently reduced. The length of the restrictions in place clearly has implications on total government budget, businesses' ability to stay afloat, consumer sentiment, etc. In addition, social restrictions tend to make the evolution of the epidemic location specific; therefore, some areas might be able to come out of lockdown before others. Hence, a key question for policymakers is when and where the epidemic will sufficiently slow down.

Capital Gains and UK Inequality: new evidence from tax microdata

This briefing summarises new research on the impact of capital gains – which are excluded from existing income statistics – on measured inequality in the UK.

The case for releasing the young from lockdown: A briefing paper for policymakers

The UK is ‘locked down’ because of coronavirus (COVID-19). No clear exit strategy currently exists. This paper suggests a possible way forward that combines elements from economics and epidemiology. The paper proposes as a policy a ‘release’ from lockdown of the young cohort of UK citizens aged between age 20 and 30 who do not live with parents. The paper calculates that there are approximately 4.2 million UK individuals who fall into this 20-30 age-band and who live outside the original parental home. Of those, 2.6 million work in the private sector, so unless some corrective action is taken they are likely to be extremely harshly affected, financially, when compared to employees in the public sector. The paper argues that a young-workforce release of this kind would lead to substantial economic and societal benefits without enormous health costs to the country. In this way, the nation might begin to move forward in the footsteps of the young. The paper’s key concept could in principle be implemented in other countries.

Capital Gains and UK Inequality

Aggregate taxable capital gains in UK have tripled in past decade. Using confidential administrative data on the universe of UK taxpayers, we show that including gains changes the picture of UK inequality over the past two decades. These taxable gains are largely repackaged income, so their exclusion biases the picture of inequality. Including them changes who is at the top of the distribution, adding more business owners and older people. The share of income plus gains (both pre- and post-tax) going to the top 1% is 3pp higher than for income only, and this gap has been steadily rising.

Attitude towards Immigrants: Evidence from U.S. Congressional Speeches

Immigration and attitudes towards immigration have been key features in economic development and political debate for decades. It can be hard to disentangle true beliefs about immigrants even where we have seemingly strong evidence such as the voting records of politicians. This paper builds an "immigration corpus" consisting of 24,351 U.S. congressional speeches relevant to immigration issues between 1990-2015. The corpus is used to form two distinct measures of attitude towards immigrants - one based on sentiment (or valence) and one based on the concreteness of language. The lexical measures, particularly sentiment, show systematic variation over time and across states in a manner consistent with the history and experiences of immigrants in the USA. The paper also computes a speaker specific measure of sentiment towards immigrants which is found to be a significant positive predictor of voting behaviour with respect to immigration related bills. Applying a Latent Dirichlet Allocation (LDA) topic modelling algorithm provides further insight into how different topics (such as border security or national security) have risen and fallen in importance over time in the face of key events such as 9/11.

Equalizing Incomes in the Future: Why Structural Differences in Social Insurance Matter for Redistribution Preferences

Why is support for income redistribution among the rich higher in some Western European welfare states than in others? The argument I propose builds on structural differences in the social insurance design. Flat-rate systems provide social benefits in equal amounts to everyone in need, while earnings-related systems provide benefits in relation to previous earnings. These differences in the configuration of the welfare state historically go back to Bismarck and Beveridge and have implications for questions of distributive justice and fairness. If individual incomes have fair and unfair components, earnings-related systems maintain both components during periods of economic hardship, while at-rate systems equalize fair and unfair income differences. With a combination of observational and experimental data, I show that average support for redistribution among the better-off is higher in earnings-related systems and participants in a laboratory experiment increase transfer shares in allocation problems which maintain given endowment differences.

Gender Attitudes in the Judiciary: Evidence from U.S. Circuit Courts

Do gender attitudes influence interactions with female judges in U.S. Circuit Courts? In this paper, we propose a novel judge-specific measure of gender attitudes based on use of genderstereotyped language in the judge’s authored opinions. Exploiting quasi-random assignment of judges to cases and conditioning on judges’ characteristics, we validate the measure showing that slanted judges vote more conservatively in gender-related cases. Slant influences interactions with female colleagues: slanted judges are more likely to reverse lower-court decisions if the lower-court judge is a woman than a man, are less likely to assign opinions to female judges, and cite fewer female-authored opinions.

The Separation and Reunification of Germany: Rethinking a Natural Experiment Interpretation of the Enduring Effects of Communism

German separation in 1949 into a communist East and a capitalist West and their reunification in 1990 are commonly described as a natural experiment to study the enduring effects of communism. We show in three steps that the populations in East and West Germany were far from being randomly selected treatment and control groups. First, the later border is already visible in many socio-economic characteristics in pre-World War II data. Second, World War II and the subsequent occupying forces affected East and West differently. Third, a selective fifth of the population fled from East to West Germany before the building of the Wall in 1961. In light of our findings, we propose a more cautious interpretation of the extensive literature on the enduring effects of communist systems on economic outcomes, political preferences, cultural traits, and gender roles.

Migrants and Firms: Evidence from China

How does rural-urban migration shape urban production in developing countries? We use longitudinal data on Chinese manufacturing firms between 2001 and 2006, and exploit exogenous variation in rural-urban migration induced by agricultural price shocks for identification. We find that, when immigration increases, manufacturing production becomes more labor-intensive in the short run. In the longer run, firms innovate less, move away from capital-intensive technologies, and adopt final products that use low-skilled labor more intensively. We develop a model with endogenous technological choice, which rationalizes these findings, and we estimate the effect of migration on factor productivity and factor allocation across firms.

Costs and Benefits of Rural-Urban Migration: Evidence from India

This paper provides new evidence on rural-urban migration decisions in developing countries. Using original survey data from rural India, we show that seasonal migrants prefer to earn 35 percent less on local public works rather than incur the cost of migrating. Structural estimates suggest that the fixed cost of migration is small, and can be entirely explained by travel costs and income risk. In contrast, the flow cost of migration is very high. We argue that higher living costs in the city explain only a small part of the flow cost of migration, and that most of it is non-monetary.

How to Improve Tax Compliance? Evidence from Population-wide Experiments in Belgium

We study the impact of simplification, deterrence and tax morale on tax compliance. We ran five natural field experiments varying the communication of the tax administration with the universe of income taxpayers in Belgium throughout the tax process. A consistent picture emerges across experiments: (i) simplifying communication substantially increases compliance, (ii) deterrence messages have an additional positive effect, (iii) invoking tax morale is not effective, and often backfires. A discontinuity in enforcement intensity, combined with the experimental variation, allows us to compare simplification with standard enforcement measures. We find that simplification is far more cost-effective, allowing for substantial savings on enforcement costs.

Lords and Vassals: Power, Patronage, and the Emergence of Inequality

This paper uses a laboratory experiment to study competitions for power — and the role of patronage in such competitions. We construct and analyze a new game — the “chicken-and-egg game” — in which chickens correspond to positions of power and eggs are the game’s currency. We find that power tends to accumulate,through a “power begets power” dynamic, in the hands of “lords.” Other subjects behave like their vassals in the sense that they take lords’ handouts rather than compete against them. We observe substantial wealth inequality as well as power inequality. There are also striking gender differences in outcomes — particularly in rates of lordship. In a second treatment, where we eliminate patronage by knocking out the ability to transfer eggs, inequality is vastly reduced and the “power begets power” dynamic disappears.

Driving change in the bus market: lessons from London

This paper assesses the nature of bus market failures and considers some solutions, focusing on the larger urban bus markets.

Reshaping Infrastructure: Evidence from the division of Germany

Can governments adjust transportation infrastructure to unexpected economic changes? This paper studies the importance of flexibility in the development of a transport network exploiting the division of Germany. To understand the incentives behind infrastructure construction, I develop a multi-region quantitative trade model with endogenous infrastructure choice and calibrate it to the pre-war German economy. I exploit the division of Germany, an exogenous change in borders, to test the ability of the model to predict highway development before and after the division. Using newly collected data, I document that the West German government considerably reshaped the highway network after the division shock. The reshaping of the network increased aggregate welfare by 1.24% to 2.13%. However, this reshaping was constrained by the part of the network developed before the division. I quantify the cost of path-dependence from these pre-division highway links. The ability to reshape the full network could have increased aggregate welfare by an additional 1.86%.

A New Economic History of Colonial India

A New Economic History of Colonial India provides a new perspective on Indian economic history. Using economic theory and quantitative methods, it shows how the discipline is being redefined and how new scholarship on India is beginning to embrace and make use of concepts from the larger field of global economic history and economics. The book discusses the impact of property rights, the standard of living, the labour market and the aftermath of the Partition. It also addresses how education and work changed, and provides a rethinking of traditional topics including de-industrialization, industrialization, railways, balance of payments, and the East India Company. Written in an accessible way, the contributors – all leading experts in their fields – firmly place Indian history in the context of world history. An up-to-date critical survey and novel resource on Indian Economic History, this book will be useful for undergraduate and postgraduate courses on Economic History, Indian and South Asian Studies, Economics and Comparative and Global History.

Do British wind generators behave strategically in response to the Western Link interconnector?

In Britain, the key source of renewable generation is wind, most abundant on the west coast of Scotland, where there is relatively little demand. For this reason, an interconnector, the Western Link, was built to take electricity closer to demand. When the Link is operating, payments by National Grid to constrain wind farms not to produce will be lower, we may predict, since fewer or less restrictive constraints need be imposed. But the Link has not been working consistently. We empirically estimate the link’s value. Focusing on the three most recent episodes of outage, starting on 4th May 2018 up to 25th September 2019, our essential approach is to treat these outages as a natural experiment using hourly data. Our results reveal that the Link had an important role in costs saved and price constrained and MWh curtailed reductions. We estimate a cost-saving of almost £30m. However, the saving appears to drop over time, so we investigate wind farms’ behavior. We find that wind farms behave strategically since the accuracy of wind forecasting depends on the relevant prices impacting their earnings.

Subsidies and the Dynamics of Selection: Experimental Evidence from Indonesia's National Health

How can developing countries increase health insurance? We experimentally assessed three approaches that simple theory suggests could increase coverage and potentially reduce adverse selection: temporary price subsidies, registration assistance, and information. Temporary subsidies attracted lower-cost enrollees, in part by reducing strategic coverage timing. While subsidies were active, coverage increased more than eightfold, at no higher unit cost to the government; after subsidies ended, coverage remained twice as high, again at no higher cost. However, subsidies are not sufficient to achieve universal coverage: the most intensive intervention – a full one-year subsidy combined with registration assistance – resulted in only 30 percent enrollment.

Secession with Natural Resources

We look at the formation of new Indian states in 2001 to uncover the effects of political secession on the comparative economic performance of natural resource rich and natural resource poor areas. Resource rich constituencies fared comparatively worse within new states that inherited a relatively larger proportion of natural resources. We argue that these patterns reflect how political reorganisation affected the quality of state governance of natural resources. We describe a model of collusion between state politicians and resource rent recipients that can account for the relationships we see in the data between natural resource abundance and post-breakup local outcomes.

Attribution Bias by Gender: Evidence from a Laboratory Experiment

In many settings, economic outcomes depend on the competence and effort of the agents involved, and also on luck. When principals assess agents' performance they can suffer from attribution bias by gender: male agents may be assessed more favorably than female agents because males will be rewarded for good luck, while women are punished for bad luck. We conduct a laboratory experiment to test whether principals judge agents'outcomes differently by gender. Agents perform tasks for the principals and the realized outcomes depend on both the agents' performance and luck. Principals then assess agents'performance and decide what to pay the agents. Our experimental results do not show evidence consistent with attribution bias by gender. While principals' payments and beliefs about agent performance are heavily influenced by realized outcomes, they do not depend on the gender of the agent. We find suggestive evidence that the interaction between the gender of the principal and the agent plays a role. In particular, principals are more generous to agents of the opposite gender.

Fundamental Utilitarianism and Intergenerational Equity with Extinction Discounting

Ramsey famously condemned discounting "future enjoyments" as "ethically indefensible". Suppes enunciated an equity criterion which, when social choice is utilitarian, implies giving equal weight to all individuals' utilities. By contrast, Arrow (1999a,b) accepted, perhaps reluctantly, what he called Koopmans' (1960) "strong argument" implying that no equitable preference ordering exists for a sufficiently unrestricted domain of infinite utility streams. Here we derive an equitable utilitarian objective for a finite population based on a version of the Vickrey-Harsanyi original position, where there is an equal probability of becoming each person. Fora potentially infinite population facing an exogenous stochastic process of extinction, an equitable extinction biased original position requires equal conditional probabilities, given that the individual's generation survives the extinction process. Such a position is well-defined if and only if survival probabilities decline fast enough for the expected total number of individuals who can ever live to be finite. Then, provided that each individual's utility is bounded both above and below, maximizing expected "extinction discounted" total utility | as advocated, inter alia, by the Stern Review on climate change - provides a coherent and dynamically consistent equitable objective, even when the population size of each generation can be chosen.

Searching for Answers: The Impact of Student Access to Wikipedia

Young people across the developing world are gaining access to the internet. Can schools introduce the internet in a way that promotes reading and learning? We provide Wikipedia access to a random subset of secondary school students in Malawian boarding schools. This setting is unique: students otherwise have limited study resources and no internet access. Students used Wikipedia intensively, and found it accessible and trustworthy. They developed a preference for Wikipedia over other online sources, including for information about news events and safe sex. We find a large impact on English final exam scores (.11 standard deviations), especially for low achievers (.21 standard deviations). Students also used Wikipedia to study for Biology, and exam scores increased for low achievers (.17 standard deviations). Our results imply that Wikipedia is a source of simple and engaging reading material, and can improve English language skills. It is also a source of accessible study material that increases study time productivity for low achievers.

Terror and Tourism: The Economic Consequences of Media Coverage

This paper studies the economic effects of news-coverage of violent events. To do so, we combine monthly aggregated and anonymized credit card data on tourism spending from 114 origin countries and 5 tourist destinations (Turkey,Egypt, Tunisia, Israel and Morocco) with a large corpus of more than 446 thousand newspaper articles covering news on the 5 destination countries from a subset of 57 tourist origin countries. We document that violent events in a destination are followed by sharp spikes in negative reporting at origin and contractions in tourist activity. Media coverage of violence has a large independent effect on tourists pending beyond what can be accounted for by controlling for the incidence of violence. We develop a model in which tourist beliefs, actual violence and media reporting are modelled together. This model allows us to quantify the effect of violent events and reporting.

Cognitive skills, strategic sophistication, and life outcomes

We investigate how childhood cognitive skills affect strategic sophistication and adult outcomes. In particular, we emphasize the importance of childhood theory-of-mind as a cognitive skill. We collected experimental data from more than seven hundred children in a variety of strategic interactions. First, we find that theory-of-mind ability and cognitive ability both predict level-k behavior. Second, older children respond to information about the cognitive ability of their opponent, which provides support for the emergence of a sophisticated strategic theory-of-mind. Third, theory-of-mind and age strongly predict whether children respond to intentions in a gift-exchange game, while cognitive ability has no influence, suggesting that different measures of cognitive skill correspond to different cognitive processes in strategic situations that involve understanding intentions. Using the ALSPAC birth-cohort study, we find that childhood theory-of-mind and cognitive ability are both associated with enhanced adult social skills, higher educational participation, better educational attainment, and lower fertility in young adulthood. Finally, we provide evidence that school spending improves theory-of-mind in childhood.

Exchange Rates and Consumer Prices: Evidence from Brexit

This paper studies how the depreciation of sterling following the Brexit referendum affected consumer prices in the United Kingdom. Our identification strategy uses input-output linkages to account for heterogeneity in exposure to import costs across product groups. We show that, after the referendum,inflation increased by more for product groups with higher import shares in consumer expenditure. This effect is driven by both direct consumption of imported goods and the use of imported inputs in domestic production. Our results are consistent with complete pass-through of import costs to consumer prices and imply an aggregate exchange rate pass-through of 0.29. We estimate the Brexit vote increased consumer prices by 2.9 percent, costing the average household £870 per year. The increase in the cost of living is evenly shared across the income distribution, but differs substantially across regions.

Markups, Quality, and Trade Costs

We investigate theoretically and empirically how exporters adjust their markups across destinations depending on bilateral distance, tariffs, and the quality of their exports. Under the assumption that trade costs are both ad valorem and per unit, our model predicts that markups rise with distance and fall with tariffs, but these effects are heterogeneous and are smaller in magnitude for higher quality exports. We find strong support for the predictions of the model using a unique data set of Argentinean firm-level wine exports combined with experts wine ratings as a measure of quality.

Climate and the Economy in India, 1850-2000

This article says that climate shaped the long-term pattern of economic change in India and that the climatically conditioned economic change generated a distinct set of environmental consequences in the region. From the nineteenth century, political and economic processes that made scarce and controlled water resources more accessible to more people, enhanced welfare, enabled more food production and sustained urbanization. The same processes also raised water stress. These propositions carry lessons for comparative economic history and the conduct of discourses on sustainability in the present times.

Housing insecurity, homelessness and populism: Evidence from the UK

Homelessness and precarious living conditions are on the rise across much of the Western world. This paper exploits exogenous variation in the affordability of rents due to a cut that substantially lowered housing benefit – a welfare benefit aimed at helping low income households pay rent. Before April 2011,local housing allowance covered up to the median level of market rents; from April 2011 onwards, only rents lower than the 30th percentile were covered.We exploit that the extent of cuts significantly depend on statistical noise due to estimation of percentiles. We document that the affordability shock caused a significant increase in: evictions; individual bankruptcies; property crimes;share of households living in insecure temporary accommodation; statutory homelessness and actual rough sleeping. The fiscal savings of the cut are much smaller than anticipated. We estimate that for every pound saved by the central government, council spending to meet statutory obligations for homelessness prevention increases by 53 pence. We further document political effects: the housing benefit cut causes lower electoral registration rates and is associated with lower turnout and higher support for Leave in the 2016 EU referendum, most likely driven by its unequal impact on the composition of those that engage with democratic processes.

Erasing Ethnicity? Propaganda, Nation Building and Identity in Rwanda

This paper examines whether propaganda broadcast over radio helped to change inter-ethnic attitudes in post-genocide Rwanda. We exploit variation in exposure to the government’s radio propaganda due to the mountainous topography of Rwanda. Results of lab-in-the-field experiments show that individuals exposed to government propaganda have lower salience of ethnicity, increased inter-ethnic trust and show more willingness to interact face-to-face with members of another ethnic group. Our results suggest that the observed improvement in inter-ethnic behavior is not cosmetic, and reflects a deeper change in inter-ethnic attitudes. The findings provide some of the first quantitative evidence that the salience of ethnic identity can be manipulated by governments.

Expensive Labour and the Industrial Revolution: Evidence from Stable Employment in Rural Areas

In explaining the Industrial Revolution, the so-called high-wage hypothesis argues that mechanisation served to replace expensive labour. Supporting evidence comes from daily wages of urban construction workers and shows that these were higher in northwest Europe than in the south. We argue that casual urban wages overestimate the cost of early-industrial labour. Early factories were rural and thus did not pay an urban wage premium. Moreover, early factories employed stable rather than casual workers and thus did not pay a premium for job insecurity. We present novel premia-free wages paid to stable workers in rural Italy, which we compare to wages paid to similar workers in England. We find that English workers earned only 20 per cent more than their Italian counterparts in 1650, but a staggering 150 per cent more in 1800. Although our empirical evidence shows that the precondition for the high-wage hypothesis is still in place, it is no longer clear – because growing English wages and early industrialisation coincide – whether it was high wages that drove mechanisation or the other way around.

Is There a Link Between Air Pollution and Impaired Memory? Evidence on 34,000 English Citizens

It is known that people feel less happy in areas with higher levels of nitrogen dioxide NO2 (MacKerron and Mourato, 2009). What else might air pollution do to human wellbeing? This paper uses data on a standardized word-recall test that was done in the year 2011 by 34,000 randomly sampled English citizens across 318 geographical areas. We find that human memory is worse in areas where NO2 and PM10 levels are greater. The paper provides both (i) OLS results and (ii) instrumental-variable estimates that exploit the direction of the prevailing westerly wind and levels of population density. Although caution is always advisable on causal interpretation, these results are concerning and are consistent with laboratory studies of rats and other non-human animals. Our estimates suggest that the difference in memory quality between England’s cleanest and most-polluted areas is equivalent to the loss of memory from 10 extra years of ageing.

Artisanal Skills, Watchmaking, and the Industrial Revolution: Prescot and Beyond

The role of skills and human capital during England’s Industrial Revolution is the subject of an old but still ongoing debate. This paper contributes to the debate by assessing the artisanal skills of watchmakers and watch tool makers in southwest Lancashire in the eighteenth century and their links to apprenticeship. The flexibility of the training regime and its evolution are discussed, as is the decline of the industry.

Safety at Sea during the Industrial Revolution

Shipping was central to the rise of the Atlantic economies, but an extremely hazardous activity: in the 1780s, roughly five per cent of British ships sailing in summer for the United States never returned. Against the widespread belief that shipping technology was stagnant before iron steamships, in this paper we demonstrate that between the 1780s and 1820s, a safety revolution occurred that saw shipping losses and insurance rates on oceanic routes almost halved thanks to steady improvements in shipbuilding and navigation. Iron reinforcing led to stronger vessels while navigation improved, not through chronometers which remained too expensive and unreliable for general use, but through radically improved charts, accessible manuals of basic navigational techniques, and improved shore-based navigational aids.

Anarchy in the UK (and Everywhere Else): The Ideological Roots of Populism

In political terms, we are living in the midst of the proverbial 'interesting times'. The election of Donald Trump and the UK's Brexit Referendum in 2016 are being seen as turning points in modern democratic politics. As further evidence, new political forces seem to be at play with fresh citizen movements - ranging from France's 'Yellow Vests' to the UK's 'Extinction Rebellion' - emerging quickly and decisively. Politics appears to be dramatically more polarised, with movements based on populist messages being seen as key agents of this polarisation.

Discrimination in hiring based on potential and realised fertility: A field experiment

The arrival of a child affects women and men differently in terms of labour market outcomes, but it is difficult to separate out the causal impact of discrimination from other factors. This column uses empirical evidence from Germany, Switzerland, and Austria to show that women are most affected in part-time job applications if they signal a ‘risk’ of having young children soon.

Advertising as a major source of human dissatisfaction: Cross-national evidence on one million Europeans

Although the negative impact of conspicuous consumption has been discussed for more than a century, the link between advertising and individual is not well understood. This column uses longitudinal data for 27 countries in Europe linking change in life satisfaction to variation in advertising spend. The results show a large negative correlation that cannot be attributed to the business cycle or individual characteristics.

Tariffs and politics: Evidence from Trump’s trade wars

Tariff retaliation is widely believed to be politically motivated. This column presents evidence that retaliation against the Trump administration’s tariff hikes seems to be systematically targeted against the Republican voter base. China appears to have been able to achieve a high degree of political targeting but likely harmed its own economy by targeting agricultural goods for which the US is a major supplier. The EU, on the other hand, appears to be more successful in navigating the trade-off. It also finds some evidence suggesting that Republican candidates fared worse in the mid-term elections in the US counties most exposed to retaliation.

Austerity caused Brexit

A rich literature has emerged aiming to make sense of the causes behind the Brexit vote, but it has mainly been descriptive. This column uses regional-level data on spending and voting behaviour, as well as individual-level survey data, to argue that the austerity policies in place in the UK since 2010 were an important contributing factor to the vote to Leave. Estimates suggest that the close-run referendum could have resulted in a victory for Remain had it not been for austerity.

Voting with their money: Brexit and outward investment by UK firms

Media reports suggest that some UK firms have started to move production abroad in anticipation of Brexit. Using data on announcements of new foreign investment transactions, this column reports evidence that the Brexit vote has led to a 12% increase in the number of new investments made by UK firms in EU27 countries. At the same time, new investments in the UK from the EU27 have declined by 11%. The results are consistent with the idea that UK firms are offshoring production to the EU27 because they expect Brexit to increase barriers to trade and migration, making the UK a less attractive place to invest and create jobs.

Brexit: Blame it on the banking crisis

Brexit in 2019 and the banking crisis in 2007 to 2009 are usually seen as unrelated events. This column argues that they are in fact closely connected. The austerity policies embarked on in response to the fiscal damage resulting from the banking crisis triggered the protest votes of left-behind voters, which at the margin allowed Leave to win the referendum vote. The implication is that the economic costs of the banking crisis are much larger than is usually supposed.

The economic effects of Brexit: Evidence from the stock market

How did the stock market react to the Brexit referendum of June 2016? This column shows that initial stock price movements on the day after the Leave vote were driven by fears of an economic slowdown in the UK and by a sharp devaluation of the pound. Later movements following two speeches by Theresa May in October 2016 and January 2017 were more closely correlated with potential future changes to tariffs and non-tariff barriers on UK-EU trade. This indicates that these speeches led investors to update their assessment of the likelihood of a hard Brexit.

Currency unions mean more trade, but not for everyone

Currency unions usually go hand in hand with deeper economic integration. But does that automatically mean more international trade? This column shows that since the end of WWII, currency unions have on average been associated with 40% more trade between member countries. The ‘thin’ relationships between countries who do not trade much with each other benefit the most from currency unions, with little in the way of a boost for more established trading relationships.

New eBook: The economics of the Great War: A centennial perspective

November 2018 marks the 100th anniversary of the end of World War I. This column introduces a new VoxEU eBook which takes the opportunity to reflect on recent work that provides a reassessment of the role of economics in the war.

Politics in the Facebook era: How reading political ads on Facebook affects our voting behaviour (…and helped Trump to win the presidential election)

The ways we access news and, with it, the nature of political communication have radically changed since the advent of social media. This column uses a unique dataset that matches individuals to Facebook audiences to examine the extent and intensity of online political campaigns conducted on the site before the 2016 US presidential elections. The social platform had a significant effect in persuading undecided voters to support Trump and in persuading Republican supporters to turn out on election day, but had no effect on Clinton’s side.

Advantage Magazine

The Political Economy of the Prussian Three-class Franchise

Did the Prussian three-class franchise, which politically over-represented the economic elite, affect policy-making? Combining MP-level political orientation, derived from all roll call votes in the Prussian parliament (1867–1903), with constituency characteristics, we analyze how local vote inequality, determined by tax payments, affected policymaking during Prussia’s period of rapid industrialization. Contrary to the predominant view that the franchise system produced a conservative parliament, higher vote inequality is associated with more liberal voting, especially in regions with large-scale industry. We argue that industrialists preferred self-serving liberal policies and were able to coordinate on suitable MPs when vote inequality was high.

The Pre-1914 UK Productivity Slowdown: A Reappraisal

This paper re-examines UK productivity growth in the decades before World War I using a new dataset compiled by Thomas and Dimsdale (2017). We find that the productivity slowdown of the early 20th century was quite modest and does not deserve to be called a climacteric. A more serious slowdown in labour productivity growth occurred in the 1870s. Neither of these episodes should be regarded as a precedent for the current severe deterioration in UK productivity performance. Nor should a late-Victorian productivity slowdown be attributed to the end of the steam age despite the popularity of this belief.

Can Workfare Programs Moderate Conflict? Evidence from India

Can public interventions persistently reduce conflict? Adverse weather shocks, through their impact on incomes, have been identified as robust drivers of conflict in many contexts. An effective social insurance system moderates the impact of adverse shocks on household incomes, and hence, could attenuate the link between these shocks and conflict. This paper shows that a public employment program in India, by providing an alternative source of income through a guarantee of 100 days of employment at minimum wages, effectively provides insurance. This has an indirect pacifying effect. By weakening the link between productivity shocks and incomes, the program uncouples productivity shocks from conflict, leading persistently lower conflict levels.

Education and Polygamy: Evidence from Cameroon

We take advantage of a wave of school constructions in Cameroon after World War II and use variations in school supply at the village level to estimate labor and marriage market returns to education in the 1976 population census. Education increases the likelihood to be in a polygamous union for men and for women, as well as the overall socioeconomic status of the spouse. We argue that education increases polygamy for women because it allows them to marry more educated and richer men, who are more likely to be polygamists. To show this, we estimate a structural model of marriage with polygamy. The positive affinity between a man’s polygamy and a woman’s education is mostly explained by the affinity of education.

Immigration, fear of crime and public spending on security

We explore the relation between immigration, crime and local government spending on security in Italian municipalities. We find that immigration increases the share of public resources devoted to police protection, particularly when migrants are culturally distant from the native population. We uncover a misalignment between perception and reality, as immigration increases fear of future crimes rather than the actual probability of being victim of a crime. We also demonstrate that immigration from culturally distant societies is associated with a deterioration in civic cooperation and interpersonal trust, which can affect perceptions of safety and the demand for police services.

Patronage and Election Fraud: Insights from Russia’s Governors 2000–2012

Theory and empirics suggest that patronage fosters election fraud. But why does fraud vary within autocracies where patronage’s incentives to manipulate should be uniformly high? In this paper, I explore whether information asymmetries can explain this phenomenon. I study the introduction of a patronage system which allowed Russia’s president to discretionarily appoint all 89 regional governors. After December 2004, all national elections were organized by governors facing removal but, crucially, only some were actually patronage-appointed with lower need to signal their qualities. I estimate the effect of the reform’s introduction and its staggered implementation on a new and verified regional fraud indicator for 7 national elections.

How Polarized are Citizens? Measuring Ideology from the Ground-Up

Strong evidence has been emerging that major democracies have become more politically polarized, at least according to measures based on the ideological positions of political elites. We ask: have the general public (`citizens') followed the same pattern? Our approach is based on unsupervised machine learning models as applied to issue- position survey data. This approach firstly indicates that coherent, latent ideologies are strongly apparent in the data, with a number of major, stable types that we label as: Liberal Centrist, Conservative Centrist, Left Anarchist and Right Anarchist. Using this framework, and a resulting measure of `citizen slant', we are then able to decompose the shift in ideological positions across the population over time. Specifically, we find evidence of a `disappearing center' in a range of countries with citizens shifting away from centrist ideologies into anti-establishment `anarchist' ideologies over time. This trend is especially pronounced for the US.

Strategic complexity and the value of thinking

Response times are a simple low-cost indicator of the process of reasoning in strategic games. In this paper, we leverage the dynamic nature of response-time data from repeated strategic interactions to measure the strategic complexity of a situation by how long people think on average when they face that situation (where we categorize situations according to the characteristics of play in the previous round). We find that strategic complexity varies significantly across situations, and we find considerable heterogeneity in how responsive subjects’ thinking times are to complexity. We also study how variation in response times at the individual level across rounds affects strategic behaviour and success. We find that ‘overthinking’ is detrimental to performance: when a subject thinks for longer than she would normally do in a particular situation, she wins less frequently and earns less. The behavioural mechanism that drives the reduction in performance is a tendency to move away from Nash equilibrium behaviour. Overthinking is detrimental even though subjects who think for longer on average tend to be more successful. Finally, cognitive ability and personality have no effect on average response times.

The Sources of British Economic Growth since the Industrial Revolution: Not the Same Old Story

This paper updates the classic growth accounting research of the early 1980s taking account of improved data that has subsequently become available. The picture of long-run growth which results from incorporating many revisions is considerably different. The long-run path of productivity growth is now that of a roller-coaster with twin peaks in the third quarters of the 19th and 20th centuries rather than a U-shape. Productivity growth appears to have been very slow to accelerate in the Industrial Revolution, the notion of an Edwardian climacteric is not persuasive and the current productivity slowdown stands out as unprecedented.

Is the UK Productivity Slowdown Unprecedented?

We estimate trend UK labour productivity growth using a Hodrick-Prescott filter method. We use the results to compare downturns where the economy fell below its pre-existing trend. We find that the current productivity slowdown has resulted in productivity being 19.7% below the pre-2008 trend path in 2018. This is nearly double the previous worst productivity shortfall ten years after the start of a downturn. On this criterion the slowdown is unprecedented in the last 250 years. We conjecture that this reflects a combination of adverse circumstances, namely, a financial crisis, a weakening impact of ICT and impending Brexit.

Taxation and Supplier Networks: Evidence from India

Do tax systems distort firm-to-firm trade? This paper considers the effect of tax policy on supplier networks in a large developing economy, the state of West Bengal in India. Using administrative panel data on firms, including transaction data for 4.8 million supplier-client pairs, we first document substantial segmentation of supply chains between firms paying Value-Added Taxes (VAT) and non-VAT-paying firms. We then develop a model of firms’ sourcing and tax decisions within supply chains to understand the mechanisms through which tax policy interacts with supply networks. The model predicts partial segmentation in equilibrium because of both supply-chain distortions (taxes affect how much firms trade with each other) and strategic complementarities in firms’ tax choices. Finally, we test the model’s predictions using variations over time within-firm and within supplier-client pairs. We find that the tax system distorts firms’ sourcing decisions, and suggestive evidence of strategic complementarities in firms’ tax choices within supplier networks.

News We Like to Share: How News Sharing on Social Networks Influences Voting Outcomes

More voters than ever get political news from their friends on social media platforms. Is this bad for democracy? Using context-neutral laboratory experiments, we find that biased (mis)information shared on social networks affects the quality of collective decisions relatively more than does segregation by political preferences on social media. Two features of subject behaviour underlie this finding: 1) they share news signals selectively, revealing signals favourable to their candidates more often than unfavourable signals; 2) they naively take signals at face value and account for neither the selection in the shared signals nor the differential informativeness of news signals across different sources.

Pre-Colonial Warfare and Long-Run Development in India

We analyze the relationship between pre-colonial warfare and long-run development patterns in India. We construct a new, geocoded database of historical conflicts on the Indian subcontinent, from which we compute measures of local exposure to pre-colonial warfare. We document a positive and significant relationship between pre-colonial conflict exposure and local economic development across India today. The main results are robust to numerous checks, including controls for geographic endowments, initial state capacity, colonial-era institutions, ethnic fractionalization, and colonial and post-colonial conflict, and an instrumental variables strategy that exploits variation in pre-colonial conflict exposure driven by the cost distance to the Khyber Pass. Using rich archival and secondary data, we show that early state-making and fiscal development, greater political stability, and basic public goods investments are channels through which pre-colonial warfare has influenced local economic development.

Economic Growth in Sub-Saharan Africa, 1885-2008

Estimates of GDP per capita are provided on an annual basis for eight Sub-Saharan African economies for the period since 1885. Although the growth experienced in most of SSA since the mid-1990s has had historical precedents, there have also been episodes of negative growth or “shrinking”, so that long run progress has been limited. Despite some heterogeneity across countries, this must be seen as a disappointing performance for the region as a whole, given the possibilities of catch-up growth. Avoiding episodes of shrinking needs to be given a higher priority in understanding the transition to sustained economic growth.

Trade Blocs and Trade Wars during the Interwar Period

What precisely were the causes and consequences of the trade wars in the 1930s? Were there perhaps deeper forces at work in reorienting global trade prior to the outbreak of World War II? And what lessons may this particular historical episode provide for the present day? To answer these questions, we distinguish between long-run secular trends in the period from 1920 to 1939 related to the formation of trade blocs (in particular, the British Commonwealth) and short-run disruptions associated with the trade wars of the 1930s (in particular, large and widespread declines in bilateral trade, the narrowing of trade imbalances, and sharp drops in average traded distances). We argue that the trade wars mainly served to intensify pre-existing efforts towards the formation of trade blocs which dated from at least 1920. More speculatively, we argue that the trade wars of the present day may serve a similar purpose as those in the 1930s, that is, the intensification of China- and US-centric trade blocs.

Uncollected tax revenue - who is underpaying and what we should do about it

Each year, Her Majesty's Revenue and Customs (HMRC), the UK agency responsible for collecting the nation's taxes, releases figures on how much tax is owed but not collected last year. For the last 10 years, this number has been around 6%, which means that £33 billion was not collected in the last year alone.

Electoral Competition and Corruption: Theory and Evidence from India

In developing countries with weak enforcement, there is implicitly a large reliance on re-election incentives to reduce corruption. In this paper we extend existing models of post-election accountability with pure moral hazard to incorporate heterogeneous voters. In contrast to this existing literature, we show that electoral discipline is a weak instrument for improving accountability in a majoritarian voting system. More specifically, our model predicts that not only does corruption increase with competition under some conditions, but that the only type of corruption that is responsive to electoral competition is one where voters lose private benefits from the corruption, while corruption in public goods is not responsive. Consistent with these hypotheses, novel panel data on village level audits of one of India's largest rural public works program suggest a U-shaped relationship between electoral competition and corruption, and responsiveness of corruption only in the private benefits of the program to competition. Our findings highlight the importance of credible penalties and the need for policy interventions that reduce pilferage in the public component of welfare programs, which entail larger welfare losses to citizens.

Sovereign debt: election concerns and the democratic disadvantage

We re-examine the concept of ‘democratic advantage’ in sovereign debt ratings when optimal repayment policies are time-inconsistent. If democratically elected politicians are unable to make credible commitments then default rates are inefficiently high, so democracy potentially confers a credit market disadvantage. Institutions that are shielded from political pressure may ameliorate the disadvantage by adopting a more farsighted perspective. Using a numerical measure of institutional farsightedness obtained from the Global Insight Business Risk and Conditions database, we find that the observed relationship between credit-ratings and democratic status is strongly conditional on farsightedness. With myopic institutions, democracy is associated with worsened credit ratings on average by about 3 investment grades. With farsighted institutions there is, if anything, a democratic advantage.

Human Development in the Age of Globalisation

This paper provides a long run view of human development as a capabilities measure of well-being for the last one-and-a-half centuries on the basis of an augmented historical human development index [AHHDI] that combines achievements in health, education, living standard, plus liberal democracy, and provides an alternative to the UN Human Development Index, HDI. The AHHDI shows substantial gains in world human development since 1870, especially during 1913-1970, but much room for improvement exists. Life expectancy has been the leading force behind its progress, especially until 1970. Human development spread unevenly. The absolute gap between western Europe and its offshoots plus Japan -the OECD- and the Rest of the world deepened over time, though fell in relative terms, with catching-up driven by longevity during the epidemiological transition and by democratization thereafter. This result compares favourably with the growing income gap. Economic growth and human development do not always go hand-in-hand.

Immigrant Communities and Knowledge Spillovers: Danish-Americans and the Development of the Dairy Industry in the United States

Despite the growing literature on the impact of immigration, little is known about the role existing migrant settlements can play for knowledge transmission. We present a case which can illustrate this important mechanism and hypothesize that nineteenth century Danish-American communities helped spread knowledge on modern dairying to rural America. From around 1880, Denmark developed rapidly and by 1890 it was a world-leading dairy producer. Using a difference-in-differences strategy, and data taken from the US census and Danish emigration archives, we find that counties with more Danes in 1880 subsequently both specialized in dairying and used more modern practices.

Family standards of living over the long run, England 1280-1850

We utilise wage series for men, women and children to construct a long-run measure of family welfare in England, 1280-1850. We make adjustment for the participation rates of women and children, the varying number of days supplied to the labour market over time, the changing involvement of married women in paid work, and the evolving occupational structure of the economy. The resultant series is the first to depict the long run material experience of a representative, working family. Our family existed just above bare bones survival prior to the Black Death, but, as attested elsewhere, shortage of labour after the plague brought substantial gains. However, these gains were not unassailable. Restrictions on women’s work and Tudor turmoil pushed the family below the ‘respectable’ level previously achieved. Transformation of the economy from the mid-1600s onwards coincided with improved welfare. While the position of the representative family tracked the trajectory of GDP per capita through the early modern and industrial revolution periods, this was only achieved by shifting contributions from different family members. Our paper provides an account of long run material wellbeing on a more satisfactory basis than historians have achieved hitherto, not focused on men alone nor on marginalised women and children, but on realistically constructed historical families.

Employee referral, social proximity and worker discipline: theory and suggestive evidence from India

We propose a new theory to explain why employers mobilize workplace insiders for the hiring of new staff. In settings with incomplete contracts, we show how workplace insiders can help employers tackle recruit discipline challenges at a lower cost. A key idea is that the employer can use sanctions against the referee to keep the new hire in line. Our model predicts that employers will use existing staff of stature and with accumulated goodwill within the firm as referees, since such staff have a personal stake in their choice of recruit. The model also predicts a strong social tie between the referee and the recruit to ensure that the recruit internalizes the costs to the referee of own misbehavior or underperformance. We use a small, in-depth dataset from India to scrutinize how well the predictions of our theory and of the main rival explanations for referral align with hiring patterns, wage and labor turnover observations. We find suggestive support for our theory and argue that these findings are hard to reconcile with rival referral explanations.

Using Social Connections and Financial Incentives to Solve Coordination Failure: A Quasi-Field Experiment in India’s Manufacturing Sector

Production processes are often organized in teams, yet there is limited evidence on whether and how social connections and financial incentives affect productivity in tasks that require coordination among workers. We simulate assembly line production in a lab-in-the-field experiment in which workers exert real effort in a minimum-effort game in teams whose members are either socially connected or unconnected and are paid according to the group output. We find that group output increases by 18% and coordination improves by 30-39% when workers are socially connected with their co-workers. Connected groups also coordinate better when we introduce a lump sum bonus, suggesting that financial and social incentives can be complementary in this setting. These findings can plausibly be explained by trust between co-workers in socially connected teams.

Voting over a distributed ledger: an interdisciplinary perspective

This work discusses the potential of a blockchain based infrastructure for a decentralised online voting platform. When compared to paper based voting, online voting can vastly increase the speed that votes can be counted, expand the overall accessibility of the election system and decrease the cost of turnout. Yet despite these advantages, online voting for political office is subject to fraud at various levels due to its centralised nature. In this paper, we describe a general architecture of a centralised online voting system and detail which areas of such a system are vulnerable to electoral fraud. We then proceed to introduce the key ideas underlying blockchain technology as a decentralised mechanism that can address these problems. We discuss the advantages and weaknesses of the blockchain technology, the protocols the technology uses and what criteria a good blockchain protocol should satisfy (depending on the voting application). We argue that the decentralisation inherent in the blockchain technology could increase the public’s trust in national elections, as well as eliminate voter impersonation and double voting. We conclude with a discussion regarding how economists and social scientists can collaborate with the blockchain community in a research agenda on the design of efficient blockchain protocols and new voting systems such as liquid democracy.

Did terrorism affect the Brexit vote?

We contribute to the recent research on Brexit and public opinion formation by contending that the determinants of the referendum results should be evaluated against the background of wider public security concerns. Terrorism has long been regarded as a top concern by the British public, more than in any other European country. Terrorist attacks on UK soil raised voters’ awareness of security issues and their saliency in the context of an EU referendum. We find that locations affected by terrorist violence in their proximity exhibit an increase in the share of pro-Remain votes, particularly for more sensational attacks. Using individual-level data, we show that in the aftermath of terrorist attacks, citizens are more likely to reconsider the security risks involved in leaving the EU.

The Dynamic Effects of Tax Audits

Understanding causes of and solutions to non-compliance is important for a tax authority. In this paper we study how and why audits affect reported tax in the years after audit - the dynamic effect - for individual income taxpayers. We exploit data from a random audit program covering more than 53,000 income tax self assessment returns in the UK, combined with data on the population of tax filers between 1999 and 2012. We first document that there is substantial non-compliance in this population. One in three filers underreports the tax owed. Third party information on an income source does not predict whether a taxpayer is non-compliant on that income source, though it does predict the extent of underreporting. Using the random nature of the audits, we provide evidence of dynamic effects. Audits raise reported tax liabilities for at least five years after audit, implying an additional yield 1.5 times the direct revenue raised from the audit. The magnitude of the impact falls over time, and this decline is faster for less autocorrelated income sources. Taking an event study approach, we further show that the change in reporting behaviour comes only from those found to have made errors in their tax report. Finally, using an extension of the Allingham-Sandmo (1972) model, we show that these results are best explained by audits providing the tax authority with information, which then constrains taxpayers' ability to misreport.

The Industrial Revolution in General Equilibrium

This paper explores the authors shared view that a general equilibrium/ trade theory perspective is appropriate to understand what was going on between 1750 and 1850 and how this period fit into the emergence of modern economic growth over thelong run.

Discrimination in Hiring Based on Potential and Realized Fertility: Evidence from a Large-Scale Field Experiment

Due to conventional gender norms, women are more likely to be in charge of childcare than men. From an employer’s perspective, in their fertile age they are also at “risk” of pregnancy. Both factors potentially affect hiring practices of firms. We conduct a largescale correspondence test in Germany, Switzerland, and Austria, sending out approx. 9,000 job applications, varying job candidate’s personal characteristics such as marital status and age of children. We find evidence that, for part-time jobs, married women with older kids, who likely finished their childbearing cycle and have more projectable childcare chores than women with very young kids, are at a significant advantage vis-à-vis other groups of women. At the same time, married, but childless applicants, who have a higher likelihood to become pregnant, are at a disadvantage compared to single, but childless applicants to part-time jobs. Such effects are not present for full-time jobs, presumably, because by applying to these in contrast to part-time jobs, women signal that they have arranged for external childcare.

Mostly Harmless Simulations? Using Monte Carlo Studies for Estimator Selection

We consider two recent suggestions for how to perform an empirically motivated Monte Carlo study to help select a treatment effect estimator under unconfoundedness. We show theoretically that neither is likely to be informative except under restrictive conditions that are unlikely to be satisfied in many contexts. To test empirical relevance, we also apply the approaches to a real-world setting where estimator performance is known. Both approaches are worse than random at selecting estimators which minimise absolute bias. They are better when selecting estimators that minimise mean squared error. However, using a simple bootstrap is at least as good and often better. For now researchers would be best advised to use a range of estimators and compare estimates for robustness.

Trade Protectionism and US Manufacturing Employment

This paper uses a numerical global general equilibrium model to simulate the possible effects of US initiated trade protection measures on US manufacturing employment. The simulation results show that US trade protection measures do not increase but will instead reduce manufacturing employment, and US losses will further increase if trade partners take retaliatory measures. The mechanism is that although the substitution effects between domestic and foreign goods have positive impacts, the substitution effects between manufacturing and service sectors and the retaliatory effects both have negative influences, therefore the whole effect is that the US will lose manufacturing employment.

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Small Talk and Theory of Mind in Strategic Decision-Making

Humans routinely chat with each other about many things like the news, weather or sports. In important decision-making settings, informal communication of this sort (so-called “small talk”) has been largely dismissed by social scientists as wasteful and strategically empty. We provide new evidence that this is far from true: after a 4- minute conversation, subjects developed a sense of the personality of others which in a pre-registered RCT resulted in significantly different behaviour in future interactions. They contributed more in public good games and found it more difficult to out-guess opponents they felt were like themselves. We explain this behaviour, and using textanalysis, measure the direct impact of differences in language: for example, talking more made subjects seem more pro-social, engendering pro-social behaviour in others.

Contracting for Counterintelligence: the KGB and Soviet Informers of the 1960s and 1970s

The informer network was a part of the human capital of the communist police state, which had the property of dissolving the freestanding social capital of ordinary citizens. How was it built, and what was the agency of the informers in the process? A few documents from the archives of the Soviet security police allow us to see good practices as the KGB saw them. They show some of the routes by which informers came to the attention of the KGB, their varied motivations, and their social and psychological strengths and weaknesses. The pivot of the process was a contract for counter-intelligence services. The contract itself was partly written, partly verbal or implied, and highly incomplete. Before the contract, searching and due diligence were required to identify potential recruits. After the contract, to turn a recruit into a productive informer involved a further period of training and monitoring, often extending to renegotiation and further investments by both sides in the capabilities of the informer and the relationship of trust with the handler. Trust and deception were two sides of the informer’s coin.

Tariffs and politics: evidence from Trump’s trade wars

We use the recent trade escalation between the US and its trade partners to study whether retaliatory tariffs are politically targeted. We find comprehensive evidence using individual- and aggregate voting data suggesting that retaliation is carefully targeted to hurt Trump. We develop a simulation approach to construct counterfactual retaliation responses allowing us to both quantify the extent of political targeting, while also studying potential trade-offs. China, appears to put a large weight on achieving maximal political targeting. The EU seems successful in maximizing political targeting, while at the same time minimizing the potential damage to its economy.

Childlessness, Celibacy and Net Fertility in Pre-Industrial England: The Middle-class Evolutionary Advantage

In explaining England’s early industrial development, previous research has highlighted that wealthy pre-industrial elites had more surviving offspring than their poorer counterparts. Thus, entrepreneurial traits spread and helped England grow rich. We contest this view, showing that lower-class reproduction rates were no different from the elites when taking singleness and childlessness into account. Elites married less and were more often childless. Many died without descendants. We find that the middle classes had the highest net reproduction and argue that this advantage was instrumental to England’s economic success because the middle class invested most strongly in human capital.

The Political Economy of Higher Education Finance: How Information and Design Affect Public Preferences for Tuition

Public preferences for charging tuition are important for determining higher education finance. To test whether public support for tuition depends on information and design, we devise several survey experiments in representative samples of the German electorate (N>19,500). The electorate is divided, with a slight plurality opposing tuition. Providing information on the university earnings premium raises support for tuition by 7 percentage points, turning the plurality in favor. The opposition-reducing effect persists two weeks after treatment. Information on fiscal costs and unequal access does not affect public preferences. Designing tuition as deferred income-contingent payments raises support by 16 percentage points, creating a strong majority favoring tuition. The same effect emerges when framed as loan payments. Support decreases with higher tuition levels and increases when targeted at non-EU students.

Innovation and the Patterns of Trade: A Firm-Level Analysis

This paper studies the impact of increased import penetration on a country’s long-term patterns of trade. It shows that foreign competition induces firms to increase their R&D efforts in order to differentiate their products and escape competition. Quality improvements translate into increases in firms’ exports. This effect, however, is heterogeneous across sectors and is driven by sectors’ in which the country has a comparative advantage. On the aggregate, the impact of import competition on innovation and a country’s patterns of trade depends crucially on the distribution of sectoral comparative advantage. We provide evidence of this mechanism using firm-level data on trade and innovation for France and import competition driven by China’s WTO entry.

International Buyers' Sourcing and Suppliers' Markups in Bangladeshi Garments

Large international buyers play a key role in global value chains. We exploit detailed transaction-level data on the usage of material inputs to study how Bangladeshi garment suppliers' markups vary across international buyers. We find substantial dispersion in markups across export orders of a given seller for the same product. Buyer effects explain a significant share of this variation, while destination effects do not. Buyers adopting relational sourcing strategies pay higher markups than non-relational buyers. This pattern holds within seller-product-year combinations, is robust to controlling for the buyer's size, traded volumes, and quality, and, together with larger volumes, implies higher prots for suppliers dealing with relational buyers.

Which way now? Economic policy after a decade of upheaval

Community Origins of Industrial Entrepreneurship in Pre-Independence India

We argue that community networks played an important role in the emergence of Indian entrepreneurship in the early stages of the cotton textile and jute textile industries in the late 19th and early 20th century respectively, overcoming the lack of market institutions and government support. From business registers, we construct a yearly panel dataset of entrepreneurs in these two industries. We nd no evidence that entry is affected by prior trading experience or price shocks in the corresponding upstream sector. Firm directors exhibited a high degree of clustering of entrepreneurs by community. The dynamics of entry is consistent with a model of network-based dynamics.

The direct and spillover effects of a mental health program for disruptive students

A large literature nds that cognitive behavioral therapy programs for disruptive students can reduce their disruptiveness and improve their academic outcomes. However, the literature has mostly considered demonstration programs implemented with signicant researcher involvement, and has not studied the spillover effects on ineligible students. In this paper, we use a randomized controlled trial to estimate the direct and spillover effects of one such program, implemented as a nationwide policy in Chile. The program has no effect on eligible students' disruptiveness and academic outcomes. It increases the disruptiveness of ineligible students. Finally, it increases the segregation between eligible and ineligible students.

Why was the First Industrial Revolution English? Roman Real Wages and the Little Divergence within Europe Reconsidered

We compare early-modern Roman construction wages to Judy Stephenson’s downward-adjusted construction wages for London. We find that Roman workers earned at least as much as their London counterparts in the run-up to the Industrial Revolution, challenging the high-wage-economy explanation for why the Industrial Revolution was English and not Italian. We argue, however, that daily construction wages present a poor testing ground for the high-wage hypothesis, proposing instead that wages are compared among permanent employees in sectors less prone to seasonality and economic fluctuations than construction work.

The Fall in UK Potential Output due to the Financial Crisis: a Much Bigger Estimate

Conventional estimates suggest that the 2007-9 financial crisis reduced UK potential output by 3.8 to 7.5 per cent of GDP. This implied a need for fiscal tightening as the structural budget deficit had increased considerably. The austerity that followed led to the rise of UKIP, the EU referendum and the vote for Brexit. Brexit will reduce potential output by somewhere between 3.9 and 8.7 per cent of GDP. Thus, it can be argued that the total fall in UK potential output due to the banking crisis is approximately double the conventional estimate.

The Financial Alchemy that Failed

With his conception of successive Ages of Capitalism, Anatole Kaletsky provides a canvas broad enough to encompass the banking crisis of 2008 and much more. After briefly outlining the Four Ages he identifies, we focus on the period of the Great Moderation when Inflation Targeting seemed to have solved the problem macroeconomic management, until it ended in spectacular failure. The rapid growth of cross-border banking, with securitized assets funded by wholesale money, evidently posed threats to financial stability that had been ignored by a regime targeting consumer prices. We look at three: the pecuniary externalities exerted by asset price changes on investment banking; information failures leading to an exaggerated banking boom; and the risk of insolvency in the subsequent bank run. The financial system pre-crash was, it seems, flawed by two Fallacies of Composition: by regulation that reckoned making individual banks safe guaranteed systemic stability; and a business model that reckoned securitization ensured liquidity whenever necessary. Finally, we discuss how, in different countries, the law has variously been invoked to handle reckless banking.

Advertising as a Major Source of Human Dissatisfaction: Cross-National Evidence on One Million Europeans

Advertising is ubiquitous in modern life.Yet might it be harmful to the happiness of nations? This paper blends longitudinal data on advertising with large-scale surveys on citizens well-being.The analysis uses information on approximately 1 million randomly sampled European citizens across 27 nations over 3 decades. We show that increases in national advertising expenditure are followed by significant declines in levels of life satisfaction.This finding is robust to adjustments for a range of potential confounders -- including the personal and economic characteristics of individuals, country fixed-effects, year dummies, and business-cycle influences.Further research remains desirable. Nevertheless, our empirical results are some of the first to be consistent with the hypothesis that, perhaps by fostering unending desires, high levels of advertising may depress societal well-being.

Using Goals to Motivate College Students: Theory and Evidence from Field Experiments

Will college students who set goals for themselves work harder and achieve better outcomes? In theory, setting goals can help present-biased students to mitigate their self-control problem. In practice, there is little credible evidence on the causal effects of goal setting for college students. We report the results of two eld experiments that involved almost four thousand college students in total. One experiment asked treated students to set goals for performance in the course; the other asked treated students to set goals for a particular task (completing online practice exams). Task-based goals had robust positive effects on the level of task completion, and task-based goals also increased course performance. We also find that performance-based goals had positive but small effects on course performance. We use a theoretical framework that builds on present bias and loss aversion to interpret our results. Since task-based goal setting is low-cost, scalable and logistically simple, we conclude that our findings have important implications for educational practice and future research.

Wars, Local Political Institutions, and Fiscal Capacity: Evidence from Six Centuries of German History

We study the effect of warfare on the development of state capacity and representative institutions using novel data on cities and territories in the German lands between 1200 and 1750. More specifically, we show that cities with a higher conflict exposure establish more sophisticated tax systems, but also develop larger councils, councils that are more likely to be elected by citizens, and more likely to be independent of other local institutions. These results are consistent with the idea of a trade-off between more efficient taxation and power sharing proposed in earlier work. We make headway on establishing a causal role of wars by using changes to German nobles’ positions within the European nobility network to instrument for conflict.

Austerity, Immigration or Globalisation: Was Brexit predictable?

The UK vote to leave the European Union is widely seen as a watershed moment in UK history and European integration. Why did some areas vote to leave the EU, and others to remain? What lessons can be drawn from the referendum other than the result itself?

Who is NOT voting for Brexit anymore?

Using estimates of support for Leave across UK local authority areas constructed from a comprehensive 20,000 strong survey, we show that both the level and the geographic variation capturing differential degrees of support for Leave have changed significantly since the 2016 EU referendum. A lot of area characteristics, many of which were previously associated with higher levels of support for Leave, are now significant correlates capturing a swing towards Remain. They include, for example, the degree to which local authorities receive transfers from the EU or the extent to which their economies rely on trade with the EU, along with past electoral support for UKIP (and the BNP) and exposure to immigration from Eastern Europe. Lastly, exposure to austerity since 2010 is among the strongest individual correlates weakening the support for Leave. The evidence is consistent with the argument that the small margin of victory of Leave in 2016 was, to a significant extent, carried by protest voters, who used the EU referendum to voice their discontent with domestic social and economic developments, particularly, austerity. Lastly, we present some evidence suggesting that the UK public, even in Leave supporting areas, would be much more willing to make compromises on free movement and aspects of single market membership compared to what appears to be the UK governments negotiation objective.

The introduction of serfdom and labor markets

We provide evidence of how restrictions on labor mobility, such as serfdom and other types of labor coercion, impact labor market outcomes. To do so, we estimate the impact of a large negative shock to labor mobility in the form of the reintroduction of serfdom in Denmark in 1733, which was targeted at limiting the mobility of farmhands. Using a unique data source based on the archives of estates from the eighteenth century, we test whether serfdom affected the wages of farmhands more strongly than other groups in the labor market, and results based on a differences-in-differences approach reveal evidence consistent with a strong negative effect following its introduction. We also investigate whether one mechanism was that boys with rural backgrounds were prevented from taking up apprenticeships in towns, and find suggestive evidence that this was indeed the case. Thus, our results suggest that serfdom was effectively reducing mobility.

The UK’s ‘productivity crisis’: Why weakening the link between education and family background could help solve it

There has been much discussion in recent years about a 'productivity crisis' in the UK. Productivity 'measures how efficiently production inputs, such as labour and capital, are being used in an economy to produce a given level of output. Workers in the UK produce less per hour than workers in many other developed countries - 16% less than the G7 average according to the Office for National Statistics. Why is labour productivity in the UK so much lower than in comparable developed economies with similar access to capital and technology?

Forging Ahead, Falling Behind and Fighting Back: British Economic Growth from the Industrial Revolution to the Financial Crisis

In this new book, Nicholas Crafts develops a new interpretation of the growth performance of the British economy over the long run. The focal point is to understand how the world leader of the early 19th century became an also ran in the recent past. The explanation is based on the role of institutional legacies interacting with badly designed economic policy to undermine productivity growth after World War II. The underlying theme is that ‘history matters’ and that the seeds of relative economic decline during the 20th century were sown much earlier. The book is based on the author’s Macarthur Lectures delivered at the University of Cambridge.

Testing

School systems regularly use student assessments for accountability purposes. But, as highlighted by our conceptual model, different configurations of assessment usage generate performance-conducive incentives of different strengths for different stakeholders in different school environments. We build a dataset of over 2 million students in 59 countries observed over 6 waves in the international PISA student achievement test 2000-2015. Our empirical model exploits the country panel dimension to investigate reforms in assessment systems over time, where identification comes from taking out country and year fixed effects along with a rich set of student, school, and country measures. We find that the expansion of standardized external comparisons, both school-based and student-based, is associated with improvements in student achievement. The effect of school-based comparison is stronger in countries with initially low performance. Similarly, standardized monitoring without external comparison has a positive effect in initially poorly performing countries. By contrast, the introduction of solely internal testing and internal teacher monitoring including inspectorates does not affect student achievement. Our findings point out the pitfalls of overly broad generalizations from specific country testing systems.

Educational Inequality and Public Policy Preferences: Evidence from Representative Survey Experiments

To study how information about educational inequality affects public concerns and policy preferences, we devise survey experiments in representative samples of the German population. Providing information about the extent of educational inequality strongly increases concerns about educational inequality but only slightly affects support for equity-oriented education policies, which is generally high. The small treatment effects are not due to respondents’ failure to connect policies with educational inequality or aversion against government interventions. Support for compulsory preschool is the one policy with a strong positive information treatment effect, which is increased further by informing about policy effectiveness.

Diasporas, Diversity, and Economic Activity: Evidence from 18th-century Berlin

Diversity may either increase economic activity by utilizing complementarities in production or lead to costly conflict over resources. Using citydistrict panel data from 18th-century Berlin, a major center of refuge for persecuted minorities in early modern Europe, we analyze the relationship between changes in diversity and economic activity. Prussian rulers specifically invited groups of skilled immigrants, such as Jews, Huguenots, and Bohemians, to settle in Berlin’s newly-developed city quarters. We find that the resulting ethnic diversity fosters textile production in a much broader range of products than individual ethnicities, arguably reflecting complementarities between groups.

Politics in the Facebook Era Evidence from the 2016 US Presidential Elections

Social media enable politicians to personalize their campaigns and target voters who may be decisive for the outcome of elections. We assess the effects of such political\micro-targeting" by exploiting variation in daily advertising prices on Facebook, collected during the course of the 2016 U.S. presidential campaign. We analyze the variation of prices across political ideologies and propose a measure for the intensity of online political campaigns. Combining this measure with information from the ANES electoral survey, we address two fundamental questions: (i) To what extent did political campaigns use social media to micro-target voters? (ii) How large was the effect, if any, on voters who were heavily exposed to campaigning on social media? We find that online political campaigns targeted on users' gender, geographic location, and political ideology had a signicant effect in persuading undecided voters to support Mr Trump, and in persuading Republican supporters to turn out on polling day. Moreover the effect of micro-targeting on Facebook was strongest among users without university or college-level education.

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The Economic Effects of Brexit - Evidence from the Stock Market

We study stock market reactions to the Brexit referendum on 23 June 2016 in order to assess investors.expectations about the effects of leaving the European Union on the UK economy. Our results suggest that initial stock price movements were driven by fears of a cyclical downturn and by the sterling depreciation following the referendum. We also find tentative evidence that market reactions to two subsequent speeches by Theresa May (her Conservative Party conference and Lancaster House speeches) were more closely correlated with potential changes to tariffs and non-tariff barriers on UK-EU trade, indicating that investors may have updated their expectations in light of the possibility of a hard Brexit. We do not find a correlation between the share of EU migrants in different industries and stock market returns.

World War II and Black economic progress

During the 1940s, a substantial share of Southern Black men moved from low-skilled to much better paying semi-skilled jobs. Using newly digitized military data, I show that counties with higher World War II casualty rates among semi-skilled White soldiers saw an increase in the share of semi-skilled Black workers. These deaths opened new employment opportunities for Black Southerners and, together with learning effects by employers, can explain up to 22.6% of the occupational upgrading at mid-century. I provide evidence that the casualty-induced labour shortages reduced racial barriers to entry, leading to a positive selection of Black workers into semi-skilled employment.

Should We Discount the Welfare of Future Generations? Ramsey and Suppes versus Koopmans and Arrow

Ramsey famously pronounced that discounting “future enjoyments” would be ethically indefensible. Suppes enunciated an equity criterion implying that all individuals’ welfare should be treated equally. By contrast, Arrow (1999a, b) accepted, perhaps rather reluctantly, the logical force of Koopmans’ argument that no satisfactory preference ordering on a sufficiently unrestricted domain of infinite utility streams satisfies equal treatment. In this paper, we first derive an equitable utilitarian objective based on a version of the Vickrey–Harsanyi original position, extended to allow a variable and uncertain population with no finite bound. Following the work of Chichilnisky and others on sustainability, slightly weakening the conditions of Koopmans and co-authors allows intergenerational equity to be satisfied. In fact, assuming that the expected total number of individuals who ever live is finite, and that each individual’s utility is bounded both above and below, there is a coherent equitable objective based on expected total utility. Moreover, it implies the “extinction discounting rule” advocated by, inter alia, the Stern Review on climate change.

The Green Revolution and Infant Mortality in India

We use a difference in differences approach to show that the adoption of High Yielding Varieties (HYV) reduced infant mortality in India. This holds even comparing children of the same mother. Children of mothers whose characteristics predict higher child mortality, rural children, boys, and low-caste children benefit more from HYV adoption. We find no obvious evidence that parental investments respond to HYV adoption. We find little evidence of selection into child bearing in response to HYV adoption.

Productivity takes 'Leave'? The effect of maternity and paternity leave policy on our lives and the economy

Motherhood and professional advancements often conflict, with many sectors demonstrating gender disparities in senior ranks. One explanation for this inequality is the unequal caregiving responsibilities borne by women, particularly early in their children's lives.

Who Voted for Brexit? Individual and Regional Data Combined

Previous analyses of the 2016 Brexit referendum used region-level data or small samples based on polling data. The former might be subject to ecological fallacy and the latter might suffer from small-sample bias. We use individual-level data on thousands of respondents in Understanding Society, the UK’s largest household survey, which includes the EU referendum question. We find that voting Leave is associated with older age, white ethnicity, low educational attainment, infrequent use of smartphones and the internet, receiving benefits, adverse health and low life satisfaction. These results coincide with corresponding patterns at the aggregate level of voting areas. We therefore do not find evidence of ecological fallacy. In addition, we show that prediction accuracy is geographically heterogeneous across UK regions, with strongly pro-Leave and strongly pro-Remain areas easier to predict. We also show that among individuals with similar socioeconomic characteristics, Labour supporters are more likely to support Remain while Conservative supporters are more likely to support Leave.

Security Transitions

How do foreign powers disengage from a conflict? We study this issue by examining the recent, large-scale security transition from international troops to local forces in the ongoing civil conflict in Afghanistan. We construct a new dataset that combines information on this transition process with declassified conflict outcomes and previously unreleased quarterly survey data of residents’ perceptions of local security. Our empirical design leverages the staggered roll-out of the transition, and employs a novel instrumental variables approach to estimate the impact. We find a significant, sharp, and timely decline of insurgent violence in the initial phase – the security transfer to Afghan forces; we find that this is followed by a significant surge in violence in the second phase – the actual physical withdrawal of foreign troops. We argue that this pattern is consistent with a signalling model, in which the insurgents reduce violence strategically to facilitate the foreign military withdrawal to capitalize on the reduced foreign military presence afterwards. Our findings clarify the destabilizing consequences of withdrawal in one of the costliest conflicts in modern history, and yield potentially actionable insights for designing future security transitions.

Measuring costly effort using the slider task

Using real effort to implement costly activities increases the likelihood that the motivations that drive effort provision in real life carry over to the laboratory. However, unobserved differences between subjects in the cost of real effort make quantitative prediction problematic. In this paper we present the slider task, which was designed by us to overcome the drawbacks of real-effort tasks. The slider task allows the researcher to collect precise and repeated observations of effort provision from the same subjects in a short time frame. The resulting high-quality panel data allow sophisticated statistical analysis. We illustrate these advantages in two ways. First, we show how to use panel data from the slider task to improve precision by controlling for persistent unobserved heterogeneity. Second, we show how to estimate effort costs at the subject level by exploiting within-subject variation in incentives across repetitions of the slider task. We also provide z-Tree code and practical guidance to help researchers implement the slider task.

Did Austerity Cause Brexit?

Did austerity cause Brexit? This paper shows that the rise of popular support for the UK Independence Party (UKIP), as the single most important correlate of the subsequent Leave vote in the 2016 European Union (EU) referendum, along with broader measures of political dissatisfaction, are strongly and causally associated with an individual’s or an area’s exposure to austerity since 2010. In addition to exploiting data from the population of all electoral contests in the UK since 2000, I leverage detailed individual level panel data allowing me to exploit within-individual variation in exposure to specific rules-based welfare reforms as well as broader measures of political preferences. The results suggest that the EU referendum could have resulted in a Remain victory had it not been for a range of austerity-induced welfare reforms. These reforms activated existing economic grievances. Further, auxiliary results suggest that the underlying economic grievances have broader origins than what the current literature on Brexit suggests. Up until 2010, the UK’s welfare state evened out growing income differences across the skill divide through transfer payments. This pattern markedly stops from 2010 onwards as austerity started to bite.

Growing up in Ethnic Enclaves: Language Proficiency and Educational Attainment of Immigrant Children

Does a high regional concentration of immigrants of the same ethnicity affect immigrant children’s acquisition of host-country language skills and educational attainment? We exploit the exogenous placement of guest workers from five ethnicities across German regions during the 1960s and 1970s in a model with region and ethnicity fixed effects. Our results indicate that exposure to a higher own-ethnic concentration impairs immigrant children’s host-country language proficiency and increases school dropout. A key mediating factor for this effect is parents’ lower speaking proficiency in the host-country language, whereas inter-ethnic contacts with natives and economic conditions do not play a role.

The Legacy of Forced Assimilation Policies: Entry Barriers in the Labor Market and Anti-German Sentiments in South Tyrol

We study the institutional determinants of ethnic conflict by exploiting a unique historical setting originated from a failed forced assimilation program, the Italianization of South Tyrol. The program imposed entry barriers, for non-Italian speakers, in the labor market for public servants. The specialization of the Italians continued until 1966 when it was put in discussion by the announcement of a reform. After 1966, we document an increase in anti-German sentiments where specialization in the public sector was more pronounced. Our results indicate that deep-rooted inter-ethnic tensions are likely to revive when historically-established economic rents of privileged ethnic groups are threatened.

Gravity and Migration before Railways

Although urban growth historically depended on large inflows of migrants, little is known of the process of migration in the era before railways. Here we use detailed data for Paris on women arrested for prostitution in the 1760s, or registered as prostitutes in the 1830s and 1850s; and of men holding identity cards in the 1790s, to examine patterns of female and male migration. We supplement these with data on all women and men buried in 1833. Migration was highest from areas of high living standards, measured by literacy rates. Distance was a strong deterrent to female migration (reflecting limited employment opportunities) that falls with railways, whereas its considerably lower impact on men barely changes through the nineteenth century.

Cohesive Institutions and Political Violence

Can institutionalized transfers of resource rents be a source of civil conflict? Are cohesive institutions better in managing distributive conflicts? We study these questions exploiting exogenous variation in revenue disbursements to local governments together with new data on local democratic institutions in Nigeria. We make three contributions. First, we document the existence of a strong link between rents and conflict far away from the location of the actual resource. Second, we show that distributive conflict is highly organized involving political militias and concentrated in the extent to which local governments are non-cohesive. Third, we show that democratic practice in form having elected local governments significantly weakens the causal link between rents and political violence. We document that elections (vis-a-vis appointments), by producing more cohesive institutions, vastly limit the extent to which distributional conflict between groups breaks out following shocks to the available rents. Throughout, we confirm these findings using individual level survey data.

Has Eastern European Migration Impacted UK-born Workers?

The 2004 accession of 8 Eastern European countries to the European Union (EU) was accompanied by fears of mass migration. The United Kingdom - unlike many other EU countries - did not opt for temporary restrictions on the EU’s free movement of labour. We document that following EU accession more than 1 million people (ca. 3% of the UK working age population) migrated from Eastern Europe to the UK. We show that they mostly settled in places that had limited prior exposure to immigration. We provide evidence that these areas subsequently saw smaller wage growth at the lower end of the wage distribution and increased pressure on the welfare state, housing and public services. Using novel geographically disaggregated data by country-of-origin, we measure the effects of Eastern European migration on these outcomes for the UK-born and different groups of immigrants. Our results are important in the context of the UK’s Brexit referendum and the ongoing EU withdrawal negotiations in which migration features as a key issue.

Physiological Aging around the World and Economic Growth

As the composition of the world population gradually shifts towards older age groups, it becomes increasingly important to understand the influence of aging on macro- economic outcomes of interest. Until now, however, it has been impossible to separate out the role played by demographics from the pure role of aging at the country level. Drawing on research in the fields of biology and medicine, the present study provides data on physiological aging. Our data shows that, over the last quarter of a century, the average person in the global labor force has not grown older in physiological terms. In an application of our panel dataset, we find evidence that accelerated physiological aging causally reduces labor productivity. Taken together, our analysis suggests that if productivity growth has deaccelerated in recent decades, physiological aging is unlikely to be a contributing force.

Forced Migration and Human Capital: Evidence from Post-WWII Population Transfers

We exploit a unique historical setting to study the long-run effects of forced migration on investment in education. After World War II, the Polish borders were redrawn, resulting in large-scale migration. Poles were forced to move from the Kresy territories in the East (taken over by the USSR) and were resettled mostly to the newly acquired Western Territories, from which Germans were expelled. We combine historical censuses with newly collected survey data to show that, while there were no pre-WWII differences in education, Poles with a family history of forced migration are significantly more educated today. Descendants of forced migrants have on average one extra year of schooling, driven by a higher propensity to finish secondary or higher education. This result holds when we restrict ancestral locations to a subsample around the former Kresy border and include fixed effects for the destination of migrants. As Kresy migrants were of the same ethnicity and religion as other Poles, we bypass confounding factors of other cases of forced migration. We show that labor market competition with natives and selection of migrants are also unlikely to drive our results. Survey evidence suggests that forced migration led to a shift in preferences, away from material possessions and towards investment in a mobile asset – human capital. The effects persist over three generations.

Judge, Jury, and EXEcute file: The Brave New World of Legal Automation

While (the option of) replacing a judge with a robot is still many years away, the technological trends that will lead to this eventuality have been in motion for decades.

Fanning the Flames of Hate: Social Media and Hate Crime

This paper investigates the link between social media and hate crime using Facebook data. We study the case of Germany, where the recently emerged right-wing party Alternative für Deutschland (AfD) has developed a major social media presence. We show that right-wing anti-refugee sentiment on Facebook predicts violent crimes against refugees in otherwise similar municipalities with higher social media usage. To further establish causality, we exploit exogenous variation in major internet and Facebook outages, which fully undo the correlation between social media and hate crime. We further find that the effect decreases with distracting news events; increases with user network interactions; and does not hold for posts unrelated to refugees. Our results suggest that social media can act as a propagation mechanism between online hate speech and real-life violent crime.

On Target? The Incidence of Sanctions Across Listed Firms in Iran

How successful are sanctions at targeting the economic interests of political elites in affected countries? We study the case of Iran, using information on the stock exchange-listed assets of two specific political entities with significant influence over the direction of Iran’s nuclear program. Our identification strategy focuses on the process of negotiations for sanctions removal, examining which interests benefit most from news about diplomatic progress. The results indicate the ‘bluntness’ of sanctions on Iran, but also provide evidence of their effectiveness in generating substantial economic incentives for elite policymakers to negotiate a deal for sanctions relief.

Does Ignorance of Economic Returns and Costs Explain the Educational Aspiration Gap? Evidence from Representative Survey Experiments

The gap in university enrollment by parental education is large and persistent in many countries. In our representative survey, 74 percent of German university graduates, but only 36 percent of those without a university degree favor a university education for their children. The latter are more likely to underestimate returns and overestimate costs of university. Experimental provision of return and cost information significantly increases educational aspirations. However, it does not close the aspiration gap as university graduates respond even more strongly to the information treatment. Persistent effects in a follow-up survey indicate that participants indeed process and remember the information. Differences in economic preference parameters also cannot account for the educational aspiration gap. Our results cast doubt that ignorance of economic returns and costs explains educational inequality in Germany.

The Political Economy of Ideas

We develop a conceptual framework to highlight the role of ideas as a catalyst for policy and institutional change. We make an explicit distinction between ideas and vested interests and show how they feed into each other. In doing so the paper integrates the Keynes-Hayek perspective on the importance of ideas with the currently more fashionable Stigler-Becker (interests only) approach to political economy. We distinguish between two kinds of ideational politics - the battle among different worldviews on the efficacy of policy (worldview politics) versus the politics of victimhood, pride and identity (identity politics). Political entrepreneurs discover identity and policy `memes' (narratives, cues, framing) that shift beliefs about how the world works or a person's belief of who he is (i.e. identity). Our framework identies a complementarity between worldview politics and identity politics and illustrates how they may reinforce each other. In particular, an increase in identity polarization may be associated with a shift in views about how the world works. Furthermore, an increase in income inequality is likely to result in a greater incidence of ideational politics. Finally, we show how ideas may not just constrain, but also 'bite' the interests that helped propagate them in the first instance.

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Strategic Default in the International Coffee Market

This paper studies strategic default on coffee pre-financing agreements. In these common arrangements, mills finance coffee production through loans backed by forward-sales contracts with foreign buyers. We model how strategic default introduces a trade-off between insurance and counterparty risk: relative to indexed contracts, fixed-price contracts insure against price swings but create incentives to default when market conditions change. To test for strategic default, we construct contract-specific measures of unanticipated changes in market conditions by comparing spot prices at maturity with the relevant futures prices at the contracting date. Unanticipated rises in market prices increase defaults on fixed price contracts but not on price-indexed ones. We isolate strategic default by focusing on unanticipated rises at the time of delivery after production decisions are sunk. Estimates suggest that roughly half of the observed defaults are strategic. Strategic defaults are more likely in less valuable relationships which, in turn, tend to sign price-indexed contracts to limit strategic default. A model calibration suggests that strategic default causes 15.8% average losses in output, significant dispersion in the marginal product of capital and sizeable negative externalities on supplying farmers.

The Road Not Taken: Gender Gaps along Paths to Political Power

Using an original survey conducted in India’s largest state, we offer systematic evidence on the gender gaps in a rich set of electoral and non-electoral participation metrics. We find that gender gaps in non-electoral forms of participation (such as involvement in public petitions, interactions with public officials and attendance of village meetings) are larger than those in election-related activities, including political candidacy. The gender gaps in political participation persist even after we account for women’s poorer knowledge of political institutions, self-assessment of leadership skills, literacy rates and asset ownership, as well as constraints on their mobility and voice in household decisions. Using an Oaxaca-Blinder decomposition approach, we find that bringing women’s attributes on par with men would bridge less than half the gender gap. This suggests that external factors, such as the role played by voters, parties or societal groups, may constitute important barriers to women’s political participation. The presence of a woman leader in the village increases women’s propensity to meet with government officials, but is not enough to close the gender gap. Our evidence points to the need to consider a wider set of policy tools beyond quotas to encourage women’s civic and political engagement.

Firm and Market Response to Saving Constraints: Evidence from the Kenyan Dairy Industry

Despite extensive evidence that preferences are often time-inconsistent, there is only scarce field evidence of willingness to pay for commitment. Infrequent payments may naturally provide commitment for lumpy expenses. Multiple experiments in the Kenyan dairy sector show that: i) farmers are willing to incur sizable costs to receive infrequent payments and demand for commitment is an important driver of this preference; ii) poor contract enforcement, however, limits competition among buyers in the supply of infrequent payments; iii) in such a market, the effects of price increases on sales depend on both buyer credibility and payment frequency. Infrequent payments are common in many goods and labour markets, but they may not be competitively offered when contracts are not enforceable.

Why an EU Referendum? Why in 2016?

The outcome of the UK’s Brexit Referendum has been blamed on political factors, such as concerns about sovereignty, and economic factors such as migration, and trade integration. Analyses of the cross-sectional referendum voting pattern cannot explain how anti-EU sentiment built up over time. Since UKIP votes in the 2014 EU Parliament elections are the single most important predictor of the Vote Leave share, understanding the rise of UKIP might help to explain the role of political and economic factors in the build-up of Brexit. This paper presents new stylized facts suggesting that UKIP votes in local, national and European elections picked up dramatically in areas with weak socio-economic fundamentals, but only after 2010, at the expense of the Conservatives, and partly also Labour. The timing suggests that the Government’s austerity measures might have been a crucial trigger that helped to convert economic grievances into UKIP votes, putting increasing pressure on the Conservatives to hold the EU Referendum.

Bargaining over Maternity Pay: Evidence from UK Universities

The generosity of maternity pay has been shown to be an important factor for mothers’ attachment to the labour market. In the UK we can observe that the generosity of maternity leaves across universities varies greatly: some universities top up the statutory maternity pay with longer and better paid leaves, others are either less generous or only entitle academic women to the legal minimum. We want to understand why this is the case. Therefore, this paper examines both theoretically and empirically how higher education employers decide about the generosity of the offered occupational maternity pay. We use a bargaining approach to model the supply and demand side of generous maternity benefits in universities with different characteristics and test the implications with a generalized negative binomial model. We find that universities’ income does not account for this variation while differences in terms of costs and benefits for employers do. Most importantly, our results show that more research intense universities with a higher previous share of female professors provide more generous maternity pay. We offer a range of explanations for these findings.

Exchange Rate Exposure and Firm Dynamics

This paper develops a firm-dynamics model with endogenous currency debt composition to study financing and investment decisions in developing economies. In our model, foreign currency borrowing arises from a trade-off between exposure to currency risk and growth. There is cross-sectional heterogeneity in these decisions in two dimensions. First, there is selection into foreign currency borrowing, as only productive firms employ it. Second, there is heterogeneity in firms’ share of foreign currency loans, driven by their potential growth. We assess econometrically the pattern of foreign currency borrowing using firm-level census data on Hungary, calibrate the model and quantify its aggregate impact.

The Soviet economy: the late 1930s in historical perspective

This paper is draft of the concluding chapter of The industrialisation of Soviet Russia,vol.7:The Soviet economy and the approach of war,1937– 1939, in preparation for publication by Palgrave Macmillan. We consider the development of the Soviet economy over the period of the series, that is, from the launching of the first five-year plan and the collectivisation of agriculture to the outbreak of the Second World War. We review, in turn, the pattern of forced industrialisation, the measurement and mismeasurement of economic progress, the extraordinary militarisation of a mobilised society and economy, the emergence of the Soviet Union as a global military power, and the scope for reforms within the economic system that Stalin created and ruled over.

The importance of frontier knowledge for the generation of ideas

Access to existing knowledge fuels basic scientific progress and is key to the development of new technologies. This column studies how the decline in scientific cooperation that occurred during and after WWI affected science and innovation. The interruption of international knowledge flows led to stark declines in both the volume and quality of scientific production. This points to the merits of opening up access to scientific journals and of discerning what constitutes frontier research.

Economists relaxed about Bitcoin: New CFM-CEPR expert survey on cryptocurrencies, the financial system, and economic policy

Cryptocurrencies have been a staple of news headlines in 2017. The latest Centre for Macroeconomics and CEPR survey suggests that the majority of leading European economists do not believe that these currencies are currently a threat to the stability of the financial system, or will be in the next couple of years. A majority of panel members, however, are in favour of greater regulatory oversight, primarily because of concerns that the anonymity and opacity of cryptocurrencies facilitate tax evasion and other criminal activities.

Moving around: The changing geography of US manufacturing during the 20th century

The geography of industrial production changed dramatically during the 20th century both across and within countries. This column provides new estimates of changes in the spatial concentration of US manufacturing from 1880 to 1997. The average level across all industries fell by more than half over the period. Although creative destruction has had a strong spatial component, almost all industries can be described as significantly spatially concentrated at all times.

The Soviet economy, 1917-1991: Its life and afterlife

Russia’s Soviet era was distinguished not by economic growth or human development, but by the use of the economy to build national power. On the centenary of the Bolshevik revolution of 1917, this column shows that while the education of women and better survival rates of children improved opportunities for many citizens, Soviet Russia was a tough and unequal environment in which to be born, live and grow old. The Soviet economy was designed for the age of mass production and mass armies. That age has gone, but the idea of the Soviet economy lives on, fed by nostalgia and nationalism.

Brexit was a cry of financial pain and not the influence of the old

There has been much debate on the determinants of the vote for Brexit. This column uses newly released data from the Understanding Society study to examine the characteristics of individuals who were for and against Brexit. Unhappiness contributed to the vote to leave the EU, but this was driven by feelings about individual financial situations rather than a general dissatisfaction with life. Brexit does not appear to have been caused by the old – only those under the age of 25 were substantially pro-Remain.

Global risks from rising debt and asset prices: Views of leading economists

The outgoing German finance minister, Wolfgang Schäuble, has recently expressed concerns about the risks posed to the world economy by high levels of debt. This column presents the latest Centre for Macroeconomics and CEPR survey of leading economists, in which a strong majority of respondents agree that an excess of public and private debt together with inflated asset prices mean that the world economy faces heightened risks. A similarly strong majority of the experts also agree that the loose monetary policy of major central banks is responsible for the recent increase in global leverage and asset values.

The midlife low in human beings

Most textbooks in social psychology teach students the idea that happiness and psychological wellbeing are essentially independent of age. Based on data on 1.3 million randomly sampled individuals across a large number of countries, this column argues instead that humans have a fundamental tendency to a midlife low which is apparently substantial and not minor. This puzzling phenomenon seems an important and fundamental one, and its existence should not be ignored.

Unemployment insurance and reservation wages

The generosity of unemployment insurance can influence the time and energy job seekers dedicate to searching for a job, as well as the jobs they are willing to accept. Yet we know little about how unemployment insurance affects the reservation wages of the unemployed. Using new French data, this column shows that increasing unemployment generosity does not affect the reservation wages or the ‘pickiness’ of job seekers.

‘Getting to Denmark’: the Role of Elites for Development

We explore the role of elites for development and in particular for the spread of cooperative creameries in Denmark in the 1880s, which was a major factor behind that country’s rapid economic catch-up. We demonstrate empirically that the location of early proto-modern dairies, so-called hollænderier, introduced onto traditional landed estates as part of the Holstein System of agriculture by landowning elites from the Duchies of Schleswig and Holstein in the eighteenth century, can explain the location of cooperative creameries in 1890, more than a century later, after controlling for other relevant determinants. We interpret this as evidence that areas close to estates which adopted the Holstein System witnessed a gradual spread of modern ideas from the estates to the peasantry. Moreover, we identify a causal relationship by utilizing the nature of the spread of the Holstein System around Denmark, and the distance to the first estate to introduce it, Sofiendal. These results are supported by evidence from a wealth of contemporary sources and are robust to a variety of alternative specifications.

Is Envy Harmful to a Society’s Psychological Health and Wellbeing? A Longitudinal Study of 18,000 Adults

Nearly 100 years ago, the philosopher and mathematician Bertrand Russell warned of the social dangers of widespread envy. One view of modern society is that it is systematically developing a set of institutions -- such as social media and new forms of advertising -- that make people feel inadequate and envious of others. If so, how might that be influencing the psychological health of our citizens? This paper reports the first large-scale longitudinal research into envy and its possible repercussions. The paper studies 18,000 randomly selected individuals over the years 2005, 2009, and 2013. Using measures of SF-36 mental health and psychological well-being, four main conclusions emerge. First, the young are especially susceptible. Levels of envy fall as people grow older. This longitudinal finding is consistent with a cross-sectional pattern noted recently by Nicole E. Henniger and Christine R. Harris, and with the theory of socioemotional regulation suggested by scholars such as Laura L. Carstensen. Second, using fixed-effects equations and prospective analysis, the analysis reveals that envy today is a powerful predictor of worse SF-36 mental health and well-being in the future. A change from the lowest to the highest level of envy, for example, is associated with a worsening of SF-36 mental health by approximately half a standard deviation (p <0.001). Third, no evidence is found for the idea that envy acts as a useful motivator. Greater envy is associated with slower -- not higher -- growth of psychological well-being in the future. Nor is envy a predictor of later economic success. Fourth, the longitudinal decline of envy leaves unaltered a U-shaped age pattern of well-being from age 20 to age 70. These results are consistent with the idea that society should be concerned about institutions that stimulate large-scale envy.

Unhappiness and Pain in Modern America: A Review Essay, and Further Evidence, on Carol Graham’s Happiness for All?

In Happiness for All?, Carol Graham raises disquieting ideas about today’s United States. The challenge she puts forward is an important one. Here we review the intellectual case and offer additional evidence. We conclude broadly on the author’s side. Strikingly, Americans appear to be in greater pain than citizens of other countries, and most subgroups of citizens have downwardly trended happiness levels. There is, however, one bright side to an otherwise dark story. The happiness of black Americans has risen strongly since the 1970s. It is now almost equal to that of white Americans.

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Ignoring Good Advice

We ran an experiment where 1,503 subjects (advisees) completed tasks, and then had the choice to submit either their own score or that of other, high-scoring subjects (advisers). Good advice was ignored: about 25% of the time, advisees chose to submit their own score instead of higher-scoring advisers, reducing their payoff. When the adviser was superior in skill (rather than luck), good advice was ignored more often. When the adviser was relatively highly paid, subjects were less likely to make use of them. We offer an explanation of the data focused on two behavioural forces: envy and the sunk cost fallacy. The role of envy was complex: more envious advisees, as measured using a dispositional envy scale, opted to follow advisers more often in the skill-based task revealing a positive, motivational effect of envy. However, higher adviser remuneration reduced this effect, demonstrating a negative side of envy. Susceptibility to the sunk cost fallacy had a negative impact on the uptake of good advice. This is consistent with the idea that subjects feel resistant to changing their answers when they put in effort to formulate them. We also present findings from a survey of 3,096 UK voters who took part in the national referendum on EU membership, which are consistent with some of our experimental

Do Ration Shop Systems Increase Welfare? Theory and an Application to India

In many developing countries households can purchase limited quantities of goods at a fixed subsidized price through ration shops. This paper asks whether these countries’ characteristics justify the use of such ration shop systems. I find an equity-efficiency trade-off: an efficiency maximizing government will never use ration shops but a welfare-maximizing one might, to redistribute and provide insurance. Welfare gains from introducing ration shops are highest for necessity goods with high price risk. I calibrate the model for India and find that ration shops are indeed welfare-improving for three of the four goods sold through the system today.

Skills, Signals, and Employability: An Experimental Investigation

As skills of labour-market entrants are usually not directly observed by employers, individuals acquire skill signals. To study which signals are valued by employers, we simultaneously and independently randomize a broad range of skill signals on pairs of resumes of fictitious applicants among which we ask a large representative sample of German human-resource managers to choose. We find that signals in all three studied domains – cognitive skills, social skills, and maturity – have a significant effect on being invited for a job interview. Consistent with the relevance, expectedness, and credibility of different signals, the specific signal that is effective in each domain differs between apprenticeship applicants and college graduates. While GPAs and social skills are significant for both genders, males are particularly rewarded for maturity and females for IT and language skills. Older HR managers value school grades less and other signals more, whereas HR managers in larger firms value college grades more.

Cities and the Structure of Social Interactions: Evidence from Mobile Phone Data

Social interactions are considered pivotal to agglomeration economies. We explore a unique dataset on mobile phone calls to examine how distance and population density shape the structure of social interactions. Exploiting an exogenous change in travel times, we find that distance is highly detrimental to interpersonal exchange. We show that, despite distance-related costs, urban residents do not benefit from larger networks when spatial sorting is accounted for. Higher density rather generates a more efficient network in terms of matching and clustering. These differences in network structure capitalize into land prices, corroborating the hypothesis that agglomeration economies operate via network efficiency.

Falling Behind and Catching up: India’s Transition from a Colonial Economy

At midnight of 15th August 1947, India became an independent country. It ended 200 years of colonial rule under the British Empire. It altered the borders of India. Two distinct regions from the Western and the Eastern sides were carved out as a separate political entity of the state of Pakistan.2 Indian independence also led to a major change in the direction of economic policy. From a globalized economy integrated into the British Empire, the next 30 years saw a retreat from policies of free trade and capital flows. The newly independent state embraced the idea of development through industrialization. In an economy, where capital was scarce and entrepreneurship was concentrated in a few communities, the state stepped in to fill the gap. India was not unusual in this. Many parts of the underdeveloped world, both colonies in Asia and independent countries in Latin America moved towards protectionist policies to develop an industrial sector. This was not simply the infant industry argument, which had characterized industrialization in the United States and Europe 19th century. The role of the state in the newly independent countries, in the second half of the 20th century, was developmental and directly interventionist. While the industrialized world in Europe and North America began to rebuild the institutions of free trade after 1945, the underdeveloped world moved in a different direction, where the idea of a “Developmental State” became an intrinsic part of policy making. This paper will take a long run view of Indian economic development. I will start with Mughal India under the emperor Akbar in 1600. This was the high point of economic prosperity measured by average living standards. I will look at the changes in the economy over the next 400 years, first in response to increasing trade with Europe through the global network of European trading companies, then through the formal political rule of the East India Company.

The Impact of Public Employment: Evidence from Bonn

This paper evaluates the impact of public employment on private sector activity using the relocation of the German federal government from Berlin to Bonn in the wake of the Second World War as a source of exogenous variation. To guide our empirical analysis, we develop a simple economic geography model in which public sector employment in a city can crowd out private employment through higher wages and house prices, but also generates potential productivity and amenity spill-overs. We find that relative to a control group of cities, Bonn experiences a substantial increase in public employment. However, this results in only modest increases in private sector employment with each additional public sector job destroying around 0.2 jobs in industries and creating just over one additional job in other parts of the private sector. We show how this finding can be explained by our model and provide several pieces of evidence for the mechanisms emphasised by the model.

To the Victor Belongs the Spoils? Party Membership and Public Sector Employment in Brazil

We analyze how political discretion affects the selection of government workers, using individual-level data on political party membership and matched employer-employee data on the universe of formal workers in Brazil. Exploiting close mayoral races, we find that winning an election leads to an increase of over 40% in the number of members of the winning party working in the municipal bureaucracy. Employment of members of the ruling party increases relatively more in senior positions, but also expands in lower-ranked jobs, suggesting that discretionary appointments are used both to influence policymaking and to reward supporters. We find that party members hired after their party is elected tend be of similar or even higher quality than members of the runner-up party, contrary to common perceptions that political appointees are less qualified. Moreover, the increased public employment of members of the ruling party is long-lasting, extending beyond the end of the mayoral term.

Poverty measurement (in India): Defining group-specific poverty lines or taking preferences into account?

We study absolute income poverty measurement when agents differ in preferences and face different prices. The difficulty arising from price heterogeneity is typically solved using equivalent income, but the choice of the reference price vector remains arbitrary. We provide a way to solve this arbitrariness problem by making the poverty measure consistent with preferences: an agent qualifies as poor if and only if she prefers the poverty line bundle to her current consumption bundle. We then prove that defining group/region specific poverty lines is another way of recovering consistency with preferences, provided one uses the headcount ratio. Comparing the resulting three approaches using Indian data, we find that the different approaches leads to different poverty conclusions. We show that not taking preferences into account leads to severely underestimating urban poverty.

The Changing Returns to Crime: Do Criminals Respond to Prices?

In economic models of crime individuals respond to changes in the potential value of criminal opportunities. We analyse this issue by estimating crime-price elasticities from detailed data on criminal incidents in London between 2002 and 2012. The unique data feature we exploit is a detailed classification of what goods were stolen in reported theft, robbery and burglary incidents. We first consider a panel of consumer goods covering the majority of market goods stolen in the crime incidents and find evidence of significant positive price elasticities. We then study a particular group of crimes that have risen sharply recently as world prices for them have risen, namely commodity related goods (jewellery, fuel and metal crimes), finding sizable elasticities when we instrument local UK prices by exogenous shifts in global commodity prices. Finally, we show that changes in the prices of loot from crime have played a role in explaining recent crime trends.

The Postwar British Productivity Failure

British productivity growth disappointed during the early postwar period. This reflected inadequate investment in equipment and skills but also entailed inefficient use of inputs. Weak management, dysfunctional industrial relations, and badly-designed economic policy were all implicated. The policy framework was partly the result of seeking low unemployment through wage restraint by appeasement of organized labour. A key aspect was weak competition. This exacerbated corporate-governance and industrial-relations problems in the British 'variety of capitalism' which sustained low effort bargains and managerial incompetence. Other varieties of capitalism were better placed to achieve fast growth but were infeasible for Britain given its history.

How Migration Policies Moderate the Diffusion of Terrorism

There is an ongoing debate among practitioners and scholars about the security consequences of transnational migration. Yet, existing work has not yet fully taken into account the policy instruments states have at their disposal to mitigate these, and we lack reliable evidence for the effectiveness of such measures. The following research addresses both shortcomings as we analyse whether and to what extent national migration policies affect the diffusion of terrorism via population movements. Spatial analyses report robust support for a moderating influence of states’ policies: while larger migration populations can be a vehicle for the diffusion of terrorism from one state to another, this only applies to target countries with extremely open controls and lax regulations. This research sheds new light on the security implications of population movements, and it crucially adds to our understanding of governments’ instruments for addressing migration challenges as well as their effectiveness.

The Bank of England, interest rates and the UK economy

The bank of England raised interest rates for the fist time in over 10 years on Thursday 2 November. This decision was unsurprising given that the Bank had signalled its likely intentions well in advance. And yet it doesn't feel like there is a huge amount of strong momentum in the economy that we might associate with rising interest rates. Here I explore five questions regarding the Bank of England's policy.

Points To Save Lives: The Effects of Traffic Enforcement Policies on Road Fatalities

Traffic accidents cause more than one million annual deaths worldwide and yield substantial economic costs to society. This paper studies the effects of a penalty points system (PPS) introduced in Spain in 2006. We find a 20% decrease in cumulative road fatalities in the five years after the reform, compared to a synthetic control group constructed using a weighted average of other European countries. Using estimates of the value of a statistical life, we calculate that the PPS yielded a net economic benefit of €4.6 billion ($6 billion) over this period, equivalent to 0.43% of Spain's GDP.

Happiness and Cooperation

According to existing research across several disciplines (management, psychology, economics and neuroscience), positive mood can have positive effects, engendering more altruistic, open and helpful behaviour, but can also work though a more negative channel by inducing inward-orientation, assertiveness, and reduced use of information. This leaves the impact on cooperation in interactive and strategic situations unclear. We find evidence from 490 participants in a laboratory experiment suggesting that participants in an induced positive mood cooperate less in a repeated Prisoner's Dilemma than participants in a neutral setting. This is robust to the number of repetitions or the inclusion of pre-play communication. In order to understand why positive mood might damage the propensity to cooperate, we conduct a language analysis of the pre-play communication between players. This analysis indicates that subjects in a more positive mood use more inward-oriented and more negative language which supports the negative channel.

Copying informal Institutions: The role of British colonial officers during the decolonization of British Africa

Institutional reforms in developing countries often involve copying institutions from developed countries. Such institutional copying is likely to fail, if formal institutions alone are copied without the informal institutions on which they rest in the originating country. This paper investigates the role of human actors in copying informal institutions. At independence, all British African colonies imported the same institution intended to safeguard the political neutrality of their civil services. While the necessary formal provisions were copied into the constitutions of all African colonies, the extent to which they were put into practice varies. The paper investigates the connection between the variation in the legal practice and the presence of British colonial officers after independence. A natural experiment around compensation payments to British officers explains the variation in the number of officers who remained in service after independence. Interviews with retired officers suggest that the extended presence of British personnel promoted the acceptance of imported British institutions among local colleagues.

Institutional copying in the 20th century: The role of 14,000 British colonial officers

Did individual British officers determine the institutional development of former colonies? The article presents a new research program into institutional reform and economic development based on a newly established dataset of over 14,000 biographical entries of senior colonial officers in 54 British colonies between 1939 and 1966. The rich data permit a new methodological approach towards the question of how institutions are copied into countries with a radical focus on the individual actors involved in the institutional reforms before independence. The article discusses fundamental background information on the British colonial service in the 20th century and presents first preliminary analyses from within the new research agenda.

Was Domar Right? Serfdom and Factor Endowments in Bohemia

Do factor endowments explain serfdom? Domar (1970) conjectured that high land-labour ratios caused serfdom by increasing incentives to coerce labour. But historical evidence is mixed and quantitative analyses are lacking. Using the Acemoglu-Wolitzky (2011) framework and controlling for political economy variables by studying a specific serf society, we analyse 11,349 Bohemian serf villages in 1757. The net effect of higher land-labour ratios was indeed to increase coercion. The effect greatly increased when animal labour was included, and diminished as land-labour ratios rose. Controlling for other variables, factor endowments significantly influenced serfdom. Institutions, we conclude, are shaped partly by economic fundamentals.

The role of lobbying in political decision making

Lobbying and interest groups play a high-profile role in many advanced countries’ political decision making. At the same time, public confidence in political institutions is at an all-time low in many countries with recent referenda and election results a reflection of this sentiment.

Lift and Shift: The Effect of Fundraising Interventions in Charity Space and Time

Fundraising interventions may lift donations and/or shift their composition and timing, making it important to study their effect across charity space and time. We find that major fundraising appeals lift total donations, but surprisingly shift donations to other charities across time. To explain this, we develop a two-period model with two sources of warm glow that relates donation responses to underlying preference parameters. A dynamic framework, combined with rich data, provides opportunities to identify substitutability/complementarity in warm glow. The observed pattern is possible only if the two sources of warm glow are substitutes and warm glow is intertemporally substitutable.

Was Brexit Caused by the Unhappy and the Old?

On 23 June 2016, the United Kingdom voted to leave the European Union (so-called ‘Brexit’). This paper uses newly released information, from the Understanding Society data set, to examine the characteristics of individuals who were for and against Brexit. Two new findings emerge. First, unhappy feelings contributed to Brexit. However, contrary to commonly heard views, the key channel of influence was not through general dissatisfaction with life. It was through a person’s narrow feelings about his or her own financial situation. Second, despite some commentators’ guesses, Brexit was not caused by old people. Only the very young were substantially pro-Remain.

The Sources of Growth in a Technologically Progressive Economy: the United States, 1899-1941

We develop new aggregate and sectoral Total Factor Productivity (TFP) estimates for the United States between 1899 and 1941 through better coverage of sectors and better-measured labour quality, and find TFP-growth was lower than previously thought, broadly based across sectors, and strongly variant intertemporally. We then test and reject three prominent claims. First, the 1930s did not have the highest TFP-growth of the twentieth century. Second, TFP-growth was not predominantly caused by four ‘great inventions'. Third, TFP-growth was not driven indirectly by spill-overs from great inventions such as electricity. Instead, the creative-destruction-friendly American innovation system was the main productivity driver.

A new bargaining perspective on sovereign debt restructuring

Lacking some supra-national, overseeing authority, sovereigns in default typically renegotiate with their creditors. In these negotiations, the owed principal typically receives a ‘haircut’. This column explores whether overburdened sovereign debtors can strategically leverage delay as they bargain with their creditors. Under asymmetric information, a delay in the form of offers that the debtor knows won’t be accepted can work out in the debtor’s favour. The findings suggest that strategic delay can be used to show where restructuring is necessary.

The implications of Brexit for the City

The UK’s membership of the EU has been a key factor behind the City of London’s emergence as a leading global financial centre. This column looks at the implications of Brexit for the City. While it is unlikely that many banks or other financial institutions will simply up and leave in the coming months, their expansion and hiring decisions may lean toward the remaining EU member states for some of their operations. And unless the politicians conducting the Brexit negotiations do their utmost to limit the damage, the loss of passporting rights is likely to have a significant negative impact on the UK financial sector.

Short-term migration, rural workfare programmes, and urban labour markets

Rural policies that affect migration to the cities may have significant impact on urban labour markets. However, there is little empirical evidence on the magnitude of these effects. This column argues that India’s rural employment guarantee – the world’s largest workfare programme – reduces short-term migration from rural areas. At the same time, it increases wages of urban unskilled workers.

Environmental economic history

A global literature has developed that illuminates the reciprocal and dynamic relationship between humans and their environment in other regions across the world. This column, which first appeared as a chapter in a recent Vox eBook, surveys on two topics in the literature: the impact of geographic endowments and the impact of environmental shocks on historical and long-run development.

Electoral accountability and the natural resource curse

The ‘curse’ of natural resources on economic development has been well documented, but there is no consensus on its underlying causes. Exploiting the formation of new Indian states in 2001, this column shows that the effects of state breakup on local economies differ systematically across natural resource rich and resource-poor areas, in line with the spatial distribution of natural resources within states. The relationship between resource abundance and economic outcomes flows, at least in part, through a political channel.

UK industrial strategy: Views of economists on its desirability and prospects for success

A majority of UK-based macroeconomists welcome the government’s new industrial strategy, but doubt that the government can deliver. This column, which presents the results of the latest Centre for Macroeconomics and CEPR survey, shows a large majority of economist think that the UK needs a new regional strategy to tackle inequality across different parts of the country.

The future of central bank independence: Results of the CFM–CEPR Survey

Over the past 30 years, most central banks across the advanced economies have been given the ability to conduct monetary policy independently from interference by fiscal and political authorities. The latest Centre for Macroeconomics and CEPR expert survey invited views on whether this era of central bank independence is drawing to a close, particularly in Europe. Only 31 of the 70 respondents disagreed with the statement that there will be significant changes in the independence of monetary policy in the UK and the Eurozone in the foreseeable future. The survey also reveals that the well-established proposition among economists that a reduction in central bank independence will lead to higher inflation is no longer taken for granted, but maintaining central bank independence remains desirable.

The danger of Germany's current account surpluses: Results of the CFM and CEPR Survey

The October 2016 expert survey of the Centre for Macroeconomics (CFM) and CEPR invited views from a panel of macroeconomists based across Europe on Germany’s trade surplus, its impact on the Eurozone economy, and the appropriate response of German fiscal policy. More than two-thirds of the respondents agree with the proposition that German current account surpluses are a threat to the Eurozone economy. A slightly smaller majority believe that the German government ought to increase public investment in response to the surpluses.

Happiness and wellbeing as objectives of macroeconomic policy: Views of economists

Are quantitative measures of subjective wellbeing reliable enough to provide insights into empirical macroeconomic analysis, and should they influence the objectives of macroeconomic policy? The latest Centre for Macroeconomics and CEPR expert survey finds a reasonable amount of openness to wellbeing measures among European macroeconomists. On balance, though, there remains a strong sense that while these measures merit further research, we are a long way off reaching a point where they are widely accepted and sufficiently reliable for macroeconomic analysis and policymaking.

German Council of Economic Experts’ view of ECB policy: Results of the CFM–CEPR Survey

A recent report by the German Council of Economic Experts argues that the current monetary policy of the ECB is no longer appropriate and is masking structural problems in Eurozone countries. The November 2016 Centre for Macroeconomics and CEPR expert survey invited views on the report. More than three-quarters of respondents disagree that ECB monetary policy should become less accommodating, and respondents also disagree that ECB policy is masking structural reforms. The panel is divided, however, on whether ECB policy is making implementation of structural reforms less likely.

Flexible labour markets, real wages, and economic recoveries: Views of economists

Real hourly wage growth has behaved quite differently across countries over the past ten years. This column describes how the majority view of the latest Centre for Macroeconomics and CEPR expert survey is that low growth of real wages has had a positive impact on European employment rates during the recovery phase of the Great Recession. A strong majority of respondents also agrees that the dire performance of UK real wage growth relative to the big Eurozone economies is in large part due to the UK’s labour market policies, which provide workers with comparatively weak protection.

Brexit: The potential for a financial catastrophe and long-term consequences for the UK financial sector

This week’s UK referendum on EU membership is likely to have both short- and long-term effects on the country’s financial sector. This column, which reports the views of panel members in the monthly Centre for Macroeconomics survey, finds that almost all think that a vote for Brexit would lead to a significant disruption to financial markets and asset prices for several months, putting the Bank of England on high alert. On top of the risk of a financial crisis in the near future, an unusually strong majority agrees that there would be substantial negative long-term consequences. No panel member expects the overall consequences of a Brexit outcome to be beneficial for the UK economy – the first time since this survey began that one side of the argument is supported by none of the respondents.

Brexit and the economics profession: Are academic economists out of touch with voters and politicians?

The outcome of the UK’s referendum on EU membership has prompted much soul-searching in the economics profession, which was nearly unanimous in anticipating negative economic consequences from a vote for Brexit. This column presents the July 2016 Centre for Macroeconomics survey of experts, which asked for views on the role played by economic arguments in the referendum outcome, and whether institutional change is needed in the way that the findings of academic economic research – and the views of the profession as a whole – are communicated. While opinions are divided, many of the respondents who do not advocate institutional change still see considerable problems in the relationship of the academic macroeconomic community with policymakers and the public at large.

Economic models vs ‘techno-optimism’: Predicting medium-term total factor productivity rates in the US

Estimates of trend total factor productivity growth in the US have been significantly reduced, contributing to fears that the slowdown is permanent. This column provides an historical perspective on the relationship between estimated trends in total factor productivity growth and subsequent outcomes. It argues that In the past, trend growth estimates have not been a good guide for future medium-term outcomes, and ‘techno-optimists’ should not be put off by time-series econometrics.

Brexit: Lessons from history

Joining the EU raised the level of UK real GDP significantly. This column suggests that leaving the EU will very probably have a negative effect on UK GDP, but history does not tell us how strong this effect will be. However, history does suggest that the notion that there will be a faster rate of long-run trend growth facilitated by Brexit is not persuasive. The obstacles to better supply-side policy are, as ever, to be found in Westminster not in Brussels.

Brexit: A new industrial strategy and rules on state aid

Depending on the outcome of negotiations, Brexit potentially changes the rules that govern the use of industrial policy. The UK government has in mind risky policy reforms that appear to be incompatible with EU rules on state aid. This column argues that this is an unheralded downside of a hard Brexit.

Growing, shrinking, and long-run economic performance

Most analysis of long-run economic performance abstracts from short-run fluctuations and seeks to explain improved performance through an increase in the rate of growth. Using data on annual rates of change of per capita income reaching back to the 13th century for some countries, this column show that improved long-run performance has actually occurred primarily through a decline in the rate and frequency of shrinking. Structural change, technological change, demographic change and the changing incidence of warfare offer at best a partial explanation; a full understanding requires a consideration of institutional change.

The fundamental factors behind the Brexit vote

In the Brexit referendum on 23 June 2016, the British electorate voted to leave the EU. The vote is widely seen as a watershed moment in British history and European integration. This column asks why some areas vote to leave the EU, and others voted to remain.

Subprime assets and financial crisis: theory, policy and the law

In this paper, we explore three specific aspects of the US subprime crisis, using both theoretical models and the outcome of subsequent legal proceedings. First, the role of pecuniary externalities in amplifying shocks to the quality of MBS held by Investment Banks. Second, the role of adverse selection in the marketing of such assets by Investment Banks; and third the role of financial panic in making shadow banking disaster prone. The relevance of these differing perspectives is attested by the nature of state support and, more especially, the findings of law courts. Janet Yellen has recently argued that the vulnerabilities within the US financial system in the mid-2000s were "numerous and familiar from past financial panics". That the aforementioned threats to stability should be complements and not substitutes is of more than technical interest. It helps to show why the US financial system was so exposed to radical failure.

A Long-Run Perspective on the Spatial Concentration of Manufacturing Industries in the United States

We construct spatially-weighted indices of the geographic concentration of U.S. manufacturing industries during the period 1880 to 1997 using data from the Census of Manufactures and Bureau of Labor Statistics. Several important new results emerge from this exercise. First, we find that average spatial concentration was much lower in the late 20th- than in the late 19th - century and that this was the outcome of a continuing reduction over time. Second, the persistent tendency to greater spatial dispersion was characteristic of most manufacturing industries. Third, even so, economically and statistically significant spatial concentration was pervasive throughout this period.

Antidepressants for Economists and Business-School Researchers: An Introduction and Review

The antidepressant pill is an important modern commodity. Its growing role in the world has been largely ignored by researchers in economics departments and business schools. Scholars may be unaware how many citizens and employees now take these pills. Here we review some of the social-science literature on the topic. We discuss research on the impact of advertising upon antidepressant consumption, the link between antidepressants and the human ‘midlife crisis’, and evidence on how antidepressants are connected to crime, suicide, and financial hardship. We argue that antidepressants will eventually have to be modelled as a new form of consumption that lies in the currently grey area between medicines and consumer goods. This topic demands scholarly and societal attention.

Do Humans Suffer a Psychological Low in Midlife? Two Approaches (With and Without Controls) in Seven Data Sets

Using seven recent data sets, covering 51 countries and 1.3 million randomly sampled people, the paper examines the pattern of psychological well-being from approximately age 20 to age 90. Two conceptual approaches to this issue are possible. Despite what has been argued in the literature, neither is the ‘correct’ one, because they measure different things. One studies raw numbers on well-being and age. This is the descriptive approach. The second studies the patterns in regression equations for well-being (that is, adjusting for other influences). This is the ceteris-paribus analytical approach. The paper applies each to large cross-sections and compares the patterns of life-satisfaction and happiness. Using the first method, there is evidence of a midlife low in five of the seven data sets. Using the second method, all seven data sets produce evidence consistent with a midlife low. The scientific explanation for the approximate U-shape currently remains unknown.

Bismarck's Health Insurance and the Mortality Decline

We investigate the impact on mortality of the world's rst compulsory health insurance, established by Otto von Bismarck, Chancellor of the German Empire, in 1884. Employing a multi-layered empirical setup, we draw on international comparisons and difference-in-differences strategies using Prussian administrative panel data to exploit differences in eligibility for insurance across occupations. All approaches yield a consistent pattern suggesting that Bismarck's Health Insurance generated a significant mortality reduction. The results are largely driven by a decline of deaths from infectious diseases. We present prima facie evidence that diffusion of new hygiene knowledge through physicians was an important channel.

More Giving of More Givers? The Effects of Tax Incentives on Charitable Donations in the UK

This paper estimates the tax-price elasticity of giving using UK administrative tax return data, exploiting variation from a large tax reform. We estimate both the in- tensive and extensive margin elasticity, using a novel instrumental variables strategy. Then, we derive new conditions to evaluate the welfare consequences of changes in the generosity of the subsidy to donations. We find a small intensive-margin elasticity of -0.2 and a substantial extensive-margin elasticity of -0.8, yielding a total elasticity of about -1. These estimates mask considerable heterogeneity: high-income individuals respond more on the intensive margin, while the extensive-margin response is stronger among low-income taxpayers.

Grexit vs. Brexit: International Integration under Endogenous Social Identities

International integration is not driven purely by economic considerations but may also be affected by identity politics. We propose a simple framework to study the effects of identity on integration, allowing identities themselves to be endogenous (a German citizen may identify as German but may also identify as European). We find that contrary to widespread intuitions, a robust union does not require that all members share a common identity. Furthermore, while national identification in the periphery leads to premature breakup, a common identity can sometimes lead to excessively large unions. Finally, a union is more fragile when periphery countries have high ex-ante status, whereas low-status countries are less likely to secede, even when between-country economic differences are large and union policies impose significant hardship. Brexit is more likely than Grexit.

Advantage Magazine

French and British Colonial Legacies in Education: Evidence from the Partition of Cameroon

I use the partition of Cameroon between France and the UK after WWI and its reunification after independence to investigate colonial legacies in education. Using border discontinuity analysis, I find that Cameroonians born in the 1970s are 9 percentage points more likely to have completed high school if they were born in the former British part. French and British Cameroon started diverging after partition, but the British advantage disappeared when the French increased education expenditure in the 1950s. The resurgence of a British advantage is explained by the French legacy of high repetition rates and their detrimental effect on dropout.

Happy voters (or why it's not always the economy, stupid)

The research by Federica Liberini, Michela Redoano and Eugenio Proto challenges the notion, made famous by Democratic party strategist James Carville, that when it comes to voting intention, 'it's the economy, stupid'.

Counting the Soviet Union’s War Dead: Still 26-27 Million

A new estimate of the Soviet population loss in World War II, by Russian historian Igor’ Ivlev, is 42 million. This is 15-16 million more than the previous estimate of 26-27 million. The latter, by Russian demographers Andreev, Darskii, and Khar’kova, has been widely accepted for a quarter of a century. I examine the new estimate, show its place in the Soviet demographic accounts side by side with the old one, contrast their sources and methods, and find that the new figure is without foundation. The previous figure stands. On existing knowledge, the Soviet war dead were 26-27 million.

Linguistic Distance and Market Integration in India

We collect data on grain and salt prices, as well as language, for more than 200 South Asian markets in the 19th and early 20th centuries. Conditional on a rich set of controls and fixed effects, we find that linguistically distant markets are less integrated as measured by the degree of price correlation. While linguistically distant markets exhibit greater genetic distance, greater differences in literacy, and fewer railway connections, these factors are not sufficient statistics for the negative correlation between linguistic distance and market integration. Our results indicate that a one standard deviation increase in linguistic distance predicts a reduction in the price correlation between two markets of 0.121 standard deviations for wheat, 0.167 standard deviations for salt, and 0.088 standard deviations for rice. These differences are substantial relative to other factors such as physical distance that hinder market integration.

Unemployment Insurance and Reservation Wages: Evidence from Administrative Data

Although the reservation wage plays a central role in job search models, empirical evidence on the determinants of reservation wages, including key policy variables such as unemployment insurance (UI), is scarce. In France, unemployed people must declare their reservation wage to the Public Employment Service when they register to claim UI benefits. We take advantage of these rich French administrative data and of a reform of UI rules to estimate the effect of the potential benefit duration (PBD) on reservation wages and on other dimensions of job selectivity, using a difference-in-difference strategy. We cannot reject that the elasticity of the reservation wage with respect to PBD is zero. Our results are precise and we can rule out elasticities larger than 0.006. Furthermore, we do not find any significant effects of PBD on the desired number of hours, duration of labor contract and commuting time/distance. The estimated elasticity of actual benefit duration with respect to PBD of 0.3 is in line with the consensus in the literature. Exploiting a regression discontinuity design as an alternative identification strategy, we find similar results.

Trend TFP Growth in the United States: Forecasts versus Outcomes

We analyse TFP growth in the U.S. business sector using a basic unobserved component model where trend growth follows a random walk and the noise is a first order autoregression. This is fitted using a Kalman-filter methodology. We find that trend TFP growth has declined steadily from 1.5 to 1.0 per cent per year over the last 50 years. Nevertheless, recent trends are not a good guide to actual medium-term TFP growth. This exhibits substantial variations and is quite unpredictable. Techno-optimists should not give best to secular stagnationists simply because recent TFP growth has been weak

How Distributional Conflict over Public Spending Drives Support for Anti-Immigrant Parties

To what extent does immigration drive support for anti-immigrant populist parties and candidates? Previous research has hypothesized the existence of a welfare channel, in which individuals exposed to the potential fiscal costs of immigration, in the form of higher taxes and lower benefits, will be more supportive of anti-immigration parties. But evidence in support of this argument is scant. This paper builds on existing work in two ways. Theoretically, we distinguish between the cash and the in-kind components of public transfers, and argue that the latter are especially prone to generating distributional conflicts. Empirically, we leverage an EU legal directive that resulted in an exogenous increase in the intensity of competition between immigrants and natives over public housing in Austria. Our findings indicate that support for anti-immigrant parties is highly responsive to perceived scarcity resulting from immigrant receipt of in-kind benefits. More broadly, the findings suggest that the confluence of austerity measures and free movement in the EU may explain the far-right’s recent electoral gains beyond its historic voting bloc.

The Soviet Economy, 1917-1991: Its Life and Afterlife

In terms of economic development, Russia before and after the Soviet era was just an average economy. If the Soviet era is distinguished, it was not by economic growth or its contribution to human development, but by the use of the economy to build national power over many decades. In this respect, the Soviet economy was a success. It was also a tough and unequal environment in which to be born, live, and grow old. The Soviet focus on building national capabilities did improve opportunities for many citizens. Most important were the education of women and the increased survival of children. The Soviet economy was designed for the age of mass production and mass armies. That age has gone, but the idea of the Soviet economy lives on, fed by nostalgia and nationalism.

Vocational vs. General Education and Employment over the Life-Cycle: New Evidence from PIAAC

It has been argued that vocational education facilitates the school-to-work transition but reduces later adaptability to changing environments. Using the recent international PIAAC data, we confirm such a trade-off over the life-cycle in a difference-in-differences model that compares employment rates across education type and age. An initial employment advantage of individuals with vocational compared to general education turns into a disadvantage later in life. Results are strongest in apprenticeship countries that provide the highest intensity of industry-based vocational education.

Japan and the Great Divergence, 730-1874

Abstract: Japanese GDP per capita grew at an annual rate of 0.08 per cent between 730 and 1874, but the growth was episodic, with the increase in per capita income concentrated in two periods, 1450-1600 and after 1721, interspersed with periods of stable per capita income. There is a similarity here with the growth pattern of Britain. The first countries to achieve modern economic growth at opposite ends of Eurasia thus shared the experience of an early end to growth reversals. However, Japan started at a lower level than Britain and grew more slowly until the Meiji Restoration.

China, Europe and the Great Divergence: A Study in Historical National Accounting, 980-1850

Abstract: Chinese GDP per capita fluctuated at a high level during the Northern Song and Ming dynasties before trending downwards during the Qing dynasty. China led the world in living standards during the Northern Song dynasty, but had fallen behind Italy by 1300. At this stage, it is possible that parts of China were still on a par with the richest parts of Europe, but by 1750 the gap was too large to be bridged by regional variation within China and the Great Divergence had already begun before the Industrial Revolution.

Growing, Shrinking and Long Run Economic Performance: Historical Perspectives on Economic Development

Using annual data from the thirteenth century to the present, we show that improved long run economic performance has occurred primarily through a decline in the rate and frequency of shrinking, rather than through an increase in the rate of growing. Indeed, as economic performance has improved over time, the short run rate of growing has typically declined rather than increased. Most analysis of the process of economic development has hitherto focused on increasing the rate of growing. Here, we focus on understanding the forces making for a reduction in the rate of shrinking, drawing a distinction between proximate and ultimate factors. The main proximate factors considered are (1) structural change (2) technological change (3) demographic change and (4) the changing incidence of warfare. We conclude with a consideration of institutional change as the key ultimate factor behind the reduction in shrinking.

Firm and Market Response to Saving Constraints: Evidence from the Kenyan Dairy Industry

Failures in saving markets can spill over into other markets: When producers are saving constrained, trustworthy buyers can offer infrequent delayed payments a saving tool and purchase at a lower price, thus departing from standard trade credit logic. This paper develops a model of this interlinkage and tests it in the context of the Kenyan dairy industry. Multiple data sources, experiments, and a calibration exercise support the micro-foundations and predictions of the model concerning: i) producers' demand for infrequent payments; ii) heterogeneity across buyers in the ability to supply low frequency payments; iii) a segmented market equilibrium where buyers compete by providing either liquidity or saving services to producers; iv) low supply response to price increases. We provide additional evidence from other settings, including labuor markets, and discuss policy implications concerning contract enforcement, nancial access, and market structure.

Vertical Integration and Relational Contracts: Evidence from the Costa Rica Coffee Chain

This paper compares integrated firms, long-term relationships and markets, and how they adapt to shocks in the Costa Rican coffee chain. The industry is characterised by significant uncertainty. Supply failures responses to unanticipated increases in reference prices reveal that integration and relationships reduce opportunism. Trade volumes responses to weather-induced increases in supply reveal that relationships provide demand assurance, although less than integration does. This benefit of integration is offset by costs when trading outside of the integrated chain. The evidence supports models in which rms boundaries alter temptations to renege on relational contracts and, consequently, the allocation of resources.

The Paradox of Power: Understanding Fiscal Capacity in Imperial China and Absolutist Regimes

Tax extraction in Qing China was low relative to Western Europe. It is not obvious why: China was much more absolutist and had stronger rights over property and people. Why did the Chinese not convert their absolute power into revenue? We propose a model, supported by historical evidence, which suggests that i) the centre could not ask its tax collecting agents to levy high taxes because it would incentivize agents to overtax the peasantry; ii) the centre could not pay agents high wages in return for high taxes because the centre had no mechanism to commit to refrain from confiscating the agent’s resources in times of crisis. A solution to this problem was to offer agents a low wage and ask for low taxes while allowing agents to take extra, unmonitored taxes from the peasantry. This solution only worked because of China’s weak administrative capacity due its size and poor monitoring technology. This analysis suggests that low investment in administrative capacity can be an optimal solution for an absolutist ruler since it substitutes for a credible commitment to refrain from confiscation. Our study carries implications for state capacity beyond Imperial China.

The Rise of a Financial Revolution in Republican China in 1900-1937: an Institutional Narrative

This paper surveys the phenomenal transformation of banking and finance, public debt and monetary regimes during 1900-1937, a period of great political instability in Chinese history. To understand why sectors which are often most vulnerable to the security of property rights and contract enforcement, have become the vanguard of growth in such an era of uncertainty, I highlight the role of institutions as seen in the form of a business dominated quasi-political structure that grew outside the formal political sphere. This structure rested on the institutional nexus of Western treaty ports (with Shanghai being the most important) and China Maritime Customs service, a relatively autonomous tax bureaucracy. By ensuring the credibility of repayment of government bonds, this financial-fiscal mechanism laid the institutional foundation for the rise of modern Chinese banks, a viable market for public debt and increasing supply of reputable convertible bank notes. My survey sheds new light on some of the most important and controversial issues related to Chinese and global economic history.

Ethnic Discrimination on an Online Marketplace of Vacation Rental

We use data from an online marketplace of vacation rentals (Airbnb) collected in 19 major cities in North America and Europe to measure discrimination against ethnic minority hosts. This market has three interesting features: the existence of a detailed reviewing system, the high frequency of transactions and the panel dimension of the data. Using the fact that ratings provide potential guests with information about the quality of a listing, we build a credible measure of statistical discrimination, following a strategy `a la Altonji and Pierret (2001). Hosts from a minority ethnic group charge 16% less than other hosts in the same cities. Controlling for a rich set of characteristics reduces the ethnic price gap to 3.2%. An additional review increases the daily price more for minority than for majority hosts. Estimating the parameters of a theoretical pricing model, we find that statistical discrimination accounts for most of the price differential: 2.5 percentage points.

Learning about the Enforcement of Conditional Welfare Programs: Evidence from Brazil

We study the implementation of Bolsa Familia, a program that conditions cash transfers to poor families on children’s school attendance. Using unique administrative data, we analyse how beneficiaries respond to the enforcement of conditionality. Making use of random variation in the day on which punishments are received, we find that school attendance increases after families are punished for past noncompliance. Families also respond to penalties experienced by peers: a child’s attendance increases if her own classmates, but also her siblings’ classmates (in other grades or schools), experience enforcement. As the severity of penalties increases with repeated noncompliance, households’ response is larger when peers receive a penalty that the family has not (yet) received. We thus find evidence of spill-over effects and learning about enforcement.

The Political Economy of Program Enforcement: Evidence from Brazil

Do politicians manipulate the enforcement of conditional welfare programs to influence electoral outcomes? We study the Bolsa Familia Program (BFP) in Brazil, which provides a monthly stipend to poor families conditional on school attendance. Repeated failure to comply with this requirement results in increasing penalties. First, we exploit random variation in the timing when beneciaries learn about penalties for noncompliance around the 2008 municipal elections. We find that the vote share of candidates aligned with the President is lower in zip codes where more beneciaries received penalties shortly before (as opposed to shortly after) the elections. Second, we show that politicians strategically manipulate enforcement. Using a regression discontinuity design, we finnd weaker enforcement before elections in municipalities where mayors from the presidential coalition can run for re-election. Finally, we provide evidence that manipulation occurs through misreporting school attendance, particularly in municipalities with a higher fraction of students in schools with politically connected principals.

The logic of costly punishment reversed: Expropriation of free-riders and outsiders

Current literature views the punishment of free-riders as an under-supplied public good, carried out by individuals at a cost to themselves. It need not be so: often, free-riders’ property can be forcibly appropriated by a coordinated group. This power makes punishment profitable, but it can also be abused. It is easier to contain abuses, and focus group punishment on free-riders, in societies where coordinated expropriation is harder. Our theory explains why public goods are undersupplied in heterogenous communities: because groups target minorities instead of free-riders. In our laboratory experiment, outcomes were more efficient when coordination was more difficult, while outgroup members were targeted more than ingroup members, and reacted differently to punishment.

How Information Affects Support for Education Spending: Evidence from Survey Experiments in Germany and the United States

To study whether current spending levels and public knowledge of them contribute to transatlantic differences in policy preferences, we implement parallel survey experiments in Germany and the United States. In both countries, support for increased education spending and teacher salaries falls when respondents receive information about existing levels. Treatment effects vary by prior knowledge in a manner consistent with information effects rather than priming. Support for salary increases is inversely related to salary levels across American states, suggesting that salary differences could explain much of Germans’ lower support for increases. Information about the trade-offs between specific spending categories shifts preferences from class-size reduction towards alternative purposes.

Coping with Change: International Differences in the Returns to Skills

International data from the PIAAC survey allow estimation of comparable labour-market returns to skills for 32 countries. Returns to skills are larger in faster growing economies, consistent with the hypothesis that skills are particularly important for adaptation to economic change.

Understanding Happiness

Secrecy and State Capacity: A Look Behind the Iron Curtain

This paper reviews two decades of research on the political economy of secrecy, based on the records of former Soviet state and party archives. Secrecy was an element of Soviet state capacity, particularly its capacity for decisiveness, free of the pressures and demands for accountability that might have arisen from a better informed citizenry. But secrecy was double-edged. Its uses also incurred substantial costs that weakened the capacity of the Soviet state to direct and decide. The paper details the costs of secrecy associated with “conspirative” government business processes, adverse selection of management personnel, everyday abuses of authority, and an uninformed leadership.

Exposing corruption: Can electoral competition discipline politicians?

In developing countries with weak institutions, there is implicitly a large reliance on elections to instil norms of accountability and reduce corruption. In this paper we show that electoral discipline may be ineffective in reducing corruption when political competition is too high or too low. We first build a simple game theoretic model to capture the effect of electoral competition on corruption. We show that in equilibrium, corruption has a U-shaped relationship with electoral competition. If the election is safe for the incumbent (low competition) or if it is extremely fragile (high competition) then corruption is higher, and for intermediate levels of competition, corruption is lower. We also predict that when there are different types of corruption, then incumbents increase corruption in the components that voters care less about regardless of competition. We test the model's predictions using data gathered on audit findings of leakages from a large public program in Indian villages belonging to the state of Andhra Pradesh during 2006-10 and on elections to the village council headship in 2006. Our results largely confirm the theoretical results that competition has a non-linear effect on corruption, and that the impact of electoral competition varies by whether theft is from the public or private component of the service delivery. Overall, our results suggest that over-reliance on elections to discipline politicians is misplaced.

Let's stay together? Combating discrimination on Airbnb

Airbnb was founded in 2008 and is now a major actor in the accommodation industry. However, the company has faced increasing criticism about the existence of ethnic discrimination on its platform, both on the host and guest sides. This has led Airbnb to react and design an anti-discrimination policy, made public in September 2016.

Unreal Wages?

Existing measures of historical real wages suffer from the fundamental problem that workers’ annual incomes are estimated on the basis of day wages without knowing the length of the working year. We circumvent this problem by presenting a novel wage series of male workers employed on annual contracts. We use evidence of labour market arbitrage to argue that existing real wage estimates are badly off target, because they overestimate the medieval working year but underestimate the industrial one. Our data suggests that modern economic growth began two centuries earlier than hitherto thought and was driven by an ‘Industrious Revolution’.

Did electricity drive Spain’s “most progressive decade”?

Following the growth accounting approach introduced by Oliner & Sichel (2000, 2002) to evaluate the impact of information and communications technologies on the U.S. economy in the 1990s, this paper analyses the impact of electricity on Spanish economic growth in the period 1958-1970. Spain was a follower country that exhibited the benefits of electricity nearly half a century after it had its biggest impact in the U.S. The results confirm that electricity played a significant role in Spain via the three channels identified in the literature for quantifying the contribution of a general purpose technology (GPT): capital deepening, the total factor productivity effect and the spill-over effect. The overall impact is greater than that estimated for other follower countries in the 1920s. The main boost to growth came from improvements in productivity in developments in electric plants electricity and the production of electrical capital goods, not from electricity use. We also find a weaker positive effect of spill-overs in electricity-using industries. The laggard effect of electrification in Spain, in spite of its early start, confirms that a GPT needs time to establish new institutional arrangements and complementary investments in order to display positive linkages deriving from the new technology.

Sovereign Debt: Election Concerns and the Democratic Disadvantage

We examine default decisions under different political systems. If democratically elected politicians are unable to make credible commitments to repay externally held debt, default rates are inefficiently high because politicians internalize voter utility loss from repayment. A politician who is motivated by election concerns is more likely to default in order to avoid voter utility losses, and, since lenders recognize this, interest rates and risk premia rise. Therefore, democracy potentially confers a credit market disadvantage. Institutions that are shielded from political competition, such as independent central banks, may ameliorate the disadvantage by adopting a more farsighted perspective, taking into account how interest rates respond to default risk. Using a numerical measure of institutional farsightedness obtained from the Government Insight Business Risk and Conditions database, we find that the observed relationship between credit-ratings and democratic status is indeed strongly conditional on farsightedness. With myopic institutions, democracy is estimated to cost on average about 2.5 investment grades. With farsighted institutions there is, if anything, a democratic advantage.

Market Potential and Global Growth over the Long Twentieth Century

We examine the evolution of market potential over the long twentieth century from 1900 to 2010. Theoretically, we exploit a structural gravity model to derive a closed-form solution for a widely-used measure of market potential. We are, thus, able to express market potential as a function of directly observable and easily estimable variables. This allows us to consistently compare our measure of market potential both in the cross-section and over time. Empirically, we collect a large data set on aggregate and bilateral trade flows as well as output for 51 countries. We find that market potential exhibits an upward trend across all regions of the world, in particular after World War II. The rise in market potential is also associated with a significant share of global income growth over that period

Does Migration Cause Extreme Voting?

The 2004 accession of 8 Eastern European countries (plus Cyprus and Malta) to the European Union (EU) was overshadowed by feared mass migration of workers from the East due to the EU’s rules on free mobility of labour. While many incumbent EU countries imposed temporary restrictions on labour mobility, the United Kingdom did not impose any such restrictions. We document that following accession at least 1 million people (ca. 3% of the UK working age population) migrated from Eastern Europe to the UK. Places that received large numbers of migrants from Eastern Europe saw a significant increase in anti-European sentiment after 2004, measured by vote shares for the UK Independence Party (UKIP) in elections to the European Parliament. We show that the migration wave depressed wages at the lower end of the wage distribution and contributed to increased pressure on public services and housing.

Who Voted for Brexit? A Comprehensive District-Level Analysis

On 23 June 2016, the British electorate voted to leave the European Union. We analyze vote and turnout shares across 380 local authority areas in the United Kingdom. We find that fundamental characteristics of the voting population were key drivers of the Vote Leave share, in particular their age and education profiles as well as the historical importance of manufacturing employment, low income and high unemployment. Migration was relevant only from Eastern European countries, not from older EU states or non-EU countries. We also find an important role for fiscal cuts being associated with Vote Leave. Our results indicate that modest reductions in fiscal cuts could have swayed the referendum outcome. In contrast, even drastic changes in immigration patterns would probably not have made a difference. We confirm the above findings at the much finer level of wards within cities. Our results cast doubt on the notion that short-term campaigning events had a meaningful influence on the vote.

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Local Union Organization and Lawmaking in the U.S. Congress

While the political power of labour unions is a contentious issue in the social sciences, it is often conceived mainly as a question of aggregate union membership. Going beyond the common focus on numerical strength, we argue that unions’ influence on national law-making has significant roots in their local organization. We delineate and test the hypothesis that the horizontal concentration of union members within electoral districts shapes legislators’ voting behaviour. Drawing on extensive administrative records, we map the membership size and concentration of union locales to districts of the U.S. House of Representatives, 2003-2012. Our new data reveal that concentration clearly cuts across membership size. Consistent with theoretical expectations, both concentration and membership are robustly linked to legislators’ ideology and votes on key issues. Lower membership concentration means more legislative support of union positions. Altogether, we suggest a new perspective on the political power of unions in the twenty- first century.

Tax Revenues, Development, and the Fiscal Cost of Trade Liberalization, 1792-2006

This paper documents the fiscal cost of trade liberalization: the extent to which countries are able to recover the trade tax revenues lost from liberalizing trade by increasing tax revenues from other sources. Using a novel dataset on government revenues over the period 1792-2006 we compare the fiscal impact of trade liberalization in developing countries and in today’s rich countries at earlier stages of development. We find that trade liberalization episodes led to larger and longer-lived decreases in total tax revenues in developing countries since the 1970s than in rich countries in the 19th and early 20th centuries. Half the developing countries in our sample experience a fall in total tax revenues that lasts more than ten years after an episode. Results are similar when we consider government expenditures, suggesting decreases in trade tax revenues negatively affect governments’ capacity to provide public services in many developing countries.

Sex workers, Stigma and Self-Image: Evidence from Kolkata Brothels

This paper studies the link between self-image and behaviour among those who face stigma due to poverty and social exclusion. Using a randomized field experiment with sex workers in Kolkata(India), we examine whether a psychological intervention aimed at mitigating the adverse effects of stigma can induce behaviour change. We find significant improvements in participants’ self-image, as well as their savings and preventive health choices. Additionally, changes in savings and health behaviour persist up to fifteen and 21 months later respectively. Our findings highlight the potential of purely psychological interventions to improve the life choices and outcomes of marginalized groups.

The Determinants Of Well-being Prioritisation Over The Life Cycle

Recently, a novel attempt has been made to estimate priorities for the different aspects of subjective well-being, in order to understand where resources might best be allocated. However, the determinants of, and life cycle trends for prioritisation have yet to be studied. This paper - the first to study these issues - finds no consistent evidence of variation in priorities over the life cycle, unlike the ‘mid-life crisis’ observed for levels. Life satisfaction is the most valued aspect of well-being throughout life. However, people overestimate the value placed by others on happiness. Well-being priorities are strongly influenced by well-being levels, and individual fixed effects such as personality, health level, and smoking frequency. The separation of aspects into cognitive and affective factors may provide additional insight into how individuals generate priorities, and hence inform the optimal targeting of policy.

The Importance of School Systems: Evidence from International Differences in Student Achievement

Students in some countries do far better on international achievement tests than students in other countries. Is this all due to differences in what students bring with them to school – socioeconomic background, cultural factors, and the like? Or do school systems make a difference? This essay argues that differences in features of countries’ school systems, and in particular their institutional structures, account for a substantial part of the cross-country variation in student achievement. It first documents the size and cross-test consistency of international differences in student achievement. Next, it uses the framework of an education production function to provide descriptive analysis of the extent to which different factors of the school system, as well as factors beyond the school system, account for cross-country achievement differences. Finally, it covers research that goes beyond descriptive associations by addressing leading concerns of bias in cross-country analysis. The available evidence suggests that differences in expenditures and class size play a limited role in explaining cross-country achievement differences, but that differences in teacher quality and instruction time do matter. This suggests that what matters is not so much the amount of inputs that school systems are endowed with, but rather how they use them. Correspondingly, international differences in institutional structures of school systems such as external exams, school autonomy, private competition, and tracking have been found to be important sources of international differences in student achievement.

Knowledge Capital and Aggregate Income Differences: Development Accounting for U.S. States

Although many U.S. state policies presume that human capital is important for state economic development, there is little research linking better education to state incomes. We develop detailed measures of skills of workers in each state based on school attainment from census micro data and on cognitive skills from state- and country-of-origin achievement tests. These new measures of knowledge capital permit development accounting analyses calibrated with standard production parameters. We find that differences in knowledge capital account for 20-35 percent of the current variation in per-capita GDP among states, with roughly even contributions by school attainment and cognitive skills. Similar results emerge from growth accounting analyses, emphasizing the importance of appropriately measuring worker skills. These estimates support emphasis on school improvement as a strategy for state economic development.

Cognitive Droughts

This paper tests whether uncertainty about future rainfall affects farmers’ decision-making through cognitive load. Behavioural theories predict that rainfall risk could impose a psychological tax on farmers, leading to material consequences at all times and across all states of nature, even within decisions unrelated to consumption smoothing, and even when negative rainfall shocks do not materialize down the line. Using a novel technology to run lab experiments in the field, we combine survey experiments with recent rainfall shocks to test the effects of rainfall risk on farmers’ cognition, and find that it decreases farmers’ attention, memory and impulse control, and increases their susceptibility to a variety of behavioural biases. Effects are quantitatively important, equivalent to losing 25% of one’s harvest at the end of the rainy season. Evidence that farmer’s cognitive performance is relatively less impaired in tasks involving scarce resources suggests that the effects operate through the mental bandwidth mechanism.

Six Centuries of British Economic Growth: a Time-Series Perspective

This paper provides a time-series analysis of recent annual estimates of real GDP and industrial output covering 1270 to 1913. We show that growth can be regarded as a segmented trend stationary process. On this basis, we find that trend growth of real GDP per person was zero prior to the 1660s but then experienced two significant accelerations, pre- and post-industrial revolution. We also find that the hallmark of the industrial revolution is a substantial increase in the trend rate of growth of industrial output rather than being an episode of difference stationary growth.

Fecundity, Fertility and the Formation of Human Capital

This research explores a fundamental cause of variation in human capital formation across families in the pre-modern period, as well as the mitigating effects of family-level economic prosperity. Exploiting a vast genealogy of English individuals in the17th to the 19th centuries, the study proposes and tests the hypothesis that lower parental reproductive capacity positively affected the socioeconomic achievements of offspring. In particular, the research establishes an effect of reproductive capacity on offspring human capital in the pre-modern era. Using the time interval between the date of marriage and the first birth as a measure of reproductive capacity, the research establishes that children of parents with lower fecundity were more likely to become literate and employed in skilled and high-wealth professions. The analysis finds that parental fecundity significantly affected the number of siblings, indicating that a trade-o↵ between child quantity and quality was present in England during the industrial revolution and supporting leading theories of the origins of modern economic growth. Furthermore, it finds that the effect was weaker for the socioeconomic elite, who could offset the cost of additional children by raising total investment in offspring human capital.

Are bad business practices holding back small firms in developing countries?

Better management practices are associated with better firm performance, and the quality of management practices is also associated with per capita income. This column explores the effect of business practices on small firms in developing countries. The findings indicate that better business practices are correlated with higher productivity, higher firm profits, and higher rates of survival. Poor business practices are holding back small firms in developing countries.

Efficiency and welfare costs of VAT: Evidence from VAT notches

Most countries have a threshold below which businesses do not need to register for value added tax (VAT). This column looks at the costs and efficiency of VAT by analysing behavioural responses of firms to the registration threshold. Voluntary registration appears more likely when the cost of inputs is high or when the proportion of business-to-consumer sales is low. There is bunching around the threshold, and this is more likely when the cost of inputs relative to sales is low or the proportion of business-to-consumer sales is high.

US cities and productivity in the railroad era

The Great Depression is considered one of the darkest times for the US economy, but some argue that the US economy experienced strong productivity growth over the period. This column reassesses this performance using improved measures of total factor productivity that allow for comparisons of productivity growth in the Depression era and in later decades. Contrary to Alvin Hansen’s gloomy prognosis of secular stagnation, the US economy was in a very strong position during the 1930s by today’s standards.

Historical analysis of national subjective wellbeing using millions of digitised books: Introducing the HPS Index

With records of subjective wellbeing going back less than half a century, this column asks if we can know the impact of key past events on the happiness of our ancestors. It presents a new historical index that draws on millions of digitised books in the Google Books corpus of words using sentiment analysis. The index – which goes back to the 1776 US Declaration of Independence, 200 years earlier than any other index of happiness – makes it possible to analyse the historical drivers of happiness in France, Germany, Italy, Spain, the UK and the US.

Estimating border effects in international trade: User beware

Borders impede trade, and a major objective of research in international trade has been to identify by how much. This column argues that bilateral trade data can give a misleading picture. Larger countries have inherently smaller border effects because their data aggregate over more space and economic activity. Trade economists need to think harder about how slicing up the map at the level of countries drives estimates of important policy variables.

The political economy of liberal democracy

There are more democracies in the world than non-democracies, but few of the democracies go beyond electoral competition. This column highlights the contrast between electoral democracies and liberal ones, that is, those that protect civil rights in addition to political and property rights. Liberal democracies are rare because the failure to protect minority rights is a common consequence of the emergence of democracy. They are especially uncommon in the developing world, where decolonisation and identity cleavages sparked social mobilisation.

Cereals, appropriability, and hierarchy

Conventional theory suggests that hierarchy and state institutions emerged due to increased productivity following the Neolithic transition to farming. This column argues that these social developments were a result of an increase in the ability of both robbers and the emergent elite to appropriate crops. Hierarchy and state institutions developed, therefore, only in regions where appropriable cereal crops had sufficient productivity advantage over non-appropriable roots and tubers.

Farewell to the vultures? Argentine debt restructuring and bargaining theory

Shylock’s insistence in ‘The Merchant of Venice’ that his “pound of flesh” be paid as per the contract, regardless of the extreme and grotesque cost to the debtor, is an apt parallel with vulture funds holding out on Argentinian debt pay-outs. This column assesses the Argentinian debt situation and develops an accord that would create a compromise between the extremes on both sides.

The nature and effectiveness of central-bank communication

In addition to setting interest rates, central banks also communicate with the public about economic conditions and future actions. While it has been established that communication can drive expectations, less is known about how it does so. This column attempts to shed light on this question. Applying novel measures to the content of Federal Reserve statements, it shows that forward guidance is a more important driver of market variables than disclosure of information about economic conditions.

The future role of unconventional monetary policy: CFM Survey results

Quantitative easing is called ‘unconventional monetary policy’, but monetary policy could get much more ‘unconventional’. Things like ‘helicopter money’, abolishing currency and negative nominal interest rates have entered the public policy debate. This column reports the views of leading experts on the future role of unconventional monetary policy, and what might be called ‘unconventional unconventional monetary policies’. Opinions are divided. There is a healthy dose of scepticism on the effectiveness of current and future policies, but also many respondents express urgency that central banks should have more policy tools to affect inflation and real activity when the need arises. Ultimately, the experts’ hesitations match those of central banks.

Taxing the foreign profits of multinational firms

Tax avoidance by multinational firms is a complex challenge for national governments and the global tax system. Increasingly, high-income countries have been moving from foreign tax credit systems, to exempting foreign source ,income from domestic taxation. This column investigates how foreign profits should be taxed, taking into account the economic role of capital ownership. Domestic tax rates should ensure optimal allocation between domestic and foreign assets, while the tax base should be set to ensure asset purchases are undistorted. Countries may be forced to change their tax systems in more fundamental ways, however, as the mobility and flexibility of multinational corporations continues to grow.

Onwards and upwards: American productivity growth during the Great Depression

The Great Depression is considered one of the darkest times for the US economy, but some argue that the US economy experienced strong productivity growth over the period. This column reassesses this performance using improved measures of total factor productivity that allow for comparisons of productivity growth in the Depression era and in later decades. Contrary to Alvin Hansen’s gloomy prognosis of secular stagnation, the US economy was in a very strong position during the 1930s by today’s standards.

The prices of higher quality goods respond less to exchange-rate movements

Empirical research finds that import prices do not fully adjust to exchange-rate changes. In other word, there is a limited response of trade to exchange-rate fluctuations. This column argues that part of this pass-through puzzle is explained by quality. Exchange-rate movements are more strongly absorbed into the export prices of higher quality goods. Therefore, the volume of their exports would be less responsive to exchange-rate shocks, leading to an incomplete exchange-rate pass-through.

The UK's new National Living Wage: Likely impact on employment, wages, and prices

A new National Living Wage (NLW) replaces the UK’s National Minimum Wage from April. This column reports the views of leading experts on its likely effects on employment, wages, and prices. A majority of respondents in the monthly Centre for Macroeconomics survey believe that the NLW will not lead to significantly lower employment; similarly, a majority of respondents believe that the NLW will only have a muted effect on wages and prices. The key unknown for many in considering the overall economic impact of the NLW is how quickly the UK economy will grow over the coming years.

The Brexit question will increase financial market volatility

Sterling fell dramatically following the announcement of a date for the UK’s referendum on whether to remain an EU member. This column reports the views of leading experts on whether the possibility of ‘Brexit’ would lead to further volatility in financial markets and the broader economy. There is near unanimity in the monthly Centre for Macroeconomics survey that the Brexit question will increase financial volatility and will pose economic costs in the medium term. Financial volatility can be expected to be especially high if polls remain close. Lack of clarity about the UK’s economic arrangements with the EU following Brexit are the main concern for the medium term.

Market volatility: More likely ‘noise’ than reason for concern

The beginning of 2016 has seen dramatic developments in key markets, including falls in share prices, low oil prices, and a slowdown in some emerging market economies. This column summarises the views expressed on these issues by leading experts in the monthly Centre for Macroeconomics survey. While all recognise the considerable uncertainty in the world economy, fewer than a third fear that these events will have a significant negative impact on the ,UK’s economic recovery. The prevailing argument is that any negative effects of lower foreign demand and market instability will be compensated by the benefits of lower oil prices.

Japan and the Great Divergence, 725 to 1874

Japan was the first Asian nation to achieve modern economic growth. This column discusses new evidence suggesting that Japan’s growth started from a lower level than Britain’s and grew more slowly until the Meiji Restoration. The key to understanding modern economic growth seems to lie in identifying the forces that dampened growth reversals, rather than the forces responsible for growth itself.

Trade and tasks over three decades

Offshoring and global value chains have reshaped global trade patterns. This column describes how the German economy has been exposed to significant offshoring for at least three decades. The authors find an increasing importance of high-end tasks in the country. Organising and consulting activities under deadlines, changing business conditions, and tougher performance standards are an increasingly common reality in German workplaces. Labour market institutions in German trade partners are largely unrelated to the changing content of German imports.

Electoral Accountability And The Natural Resource Curse: Theory And Evidence From India

The literature on the effects of natural resource abundance on economic growth is converging to the view that institutions play a central role. In this paper, we exploit the break up of three of the biggest Indian states, comprising areas with some of the largest endowments of natural resources in the country, to explore how the link between electoral accountability and natural resource abundance can explain differences in outcomes. Our theoretical framework shows that while states inheriting a larger share of natural resources after break up are potentially richer, the spatial distribution of these natural resources within these state can worsen economic outcomes by lowering electoral accountability. We employ a sharp regression discontinuity design to estimate the causal effect of secession and concentrated resources on growth and inequality at the sub-regional level, using data on satellite measurements of night-time lights. Consistent with our theoretical predictions, the economic effect of secession is generally favourable. However, states that inherit a large fraction of mineral rich constituencies experience worse outcomes. This may be accounted for by lower electoral accountability in those areas.

Human Capital Formation during the First Industrial Revolution: Evidence from the Use of Steam Engines

This paper explores the effect of technological change on human capital formation during the early phases of England’s Industrial Revolution. Following the methodology used in Franck and Galor (2016), we consider the adoption of steam engines as an indicator of technical change, examining the correlation between industrialisation and human capital by performing cross-sectional regression analyses using county-level variation in the number of steam engines installed in England by 1800. Using exogenous variation in carboniferous rock strata as an instrument for the regional distribution of steam engines, we find that technological change as captured by steam technology significantly improved the average working skills of the labour force. In particular, places with more steam engines had lower shares of unskilled workers and higher shares of highly-skilled mechanical workmen deemed important by Mokyr (2005) in the Industrial Revolution. Technological change was, however, not conducive to elementary education. Literacy rates and school enrollment rates were not systematically different in places with more steam engines. This diverse response to new technology highlights the ambiguous effects of early industrialisation on the formation of human capital.

Make or Break: The Long Run Consequences of High-Stakes Exams

Political Economy

The Information Value of Central School Exams

The central vs. local nature of high-school exit exam systems can have important repercussions on the labor market. By increasing the informational content of grades, central exams may improve the sorting of students by productivity. To test this, we exploit the unique German setting where students from states with and without central exams work on the same labor market. Our difference-in-difference model estimates whether the earnings difference between individuals with high and low grades differs between central and local exams. We find that the earnings premium for a one standard-deviation increase in high-school grades is indeed 6 percent when obtained on central exams but less than 2 percent when obtained on local exams. Choices of higher-education programs and of occupations do not appear major channels of this result.

Information and Preferences for Public Spending: Evidence from Representative Survey Experiments

The electorates’ lack of information about the extent of public spending may cause misalignments between voters’ preferences and the size of government. We devise a series of representative survey experiments in Germany that randomly provide treatment groups with information on current spending levels. Results show that such information strongly reduces support for public spending in various domains from social security to defence. Data on prior information status on school spending and teacher salaries shows that treatment effects are strongest for those who initially underestimated spending levels, indicating genuine information effects rather than pure priming effects. Information on spending requirements also reduces support for specific education reforms. Preferences on spending across education levels are also malleable to information.

Argentina, Debt Relief, and Vultures What are the lessons for Europe?

Sovereign debt continues to hang over the Eurozone. Debt burdens have limited the fiscal options of member states. Debt and default, actual and feared, have embittered the relations among them. The legacy of Argentina’s 2001 default provides a cautionary tale for the Eurozone. In a final settlement, Argentina’s long-term holdout creditors – so-called vulture funds - have secured full compensation for the bonds they acquired for a fraction of their face value, and more in other charges and penalties.

Measuring Segregation on Small Units: A Partial Identification Analysis

We consider the issue of measuring segregation in a population of small units, considering establishments in our application. Each establishment may have a different probability to hire an individual from the minority group. We define segregation indices as inequality indices on these unobserved, random probabilities. Because these probabilities are measured with error by proportions, standard estimators are inconsistent. We model this problem as a nonparametric binomial mixture. Under this testable assumption and conditions satisfied by standard segregation indices, such indices are partially identified and sharp bounds can be easily obtained by an optimization over a low dimensional space. We also develop bootstrap confidence intervals and a test of the binomial mixture model. Finally, we apply our method to measure the segregation of foreigners in small French firms.

The heterogeneity of ethnic employment gaps

This paper investigates the heterogeneity of ethnic employment gaps using a new single-index based approach. Instead of stratifying our sample by age or education, we study ethnic employment gaps along a continuous measure of employability, the employment probability minority workers would have if their characteristics were priced as in the majority group. We apply this method to French males, comparing those whose parents are North African immigrants and those with native parents. We find that both the raw and the unexplained ethnic employment differentials are larger for low-employability workers than for high-employability ones. We show in a theoretical framework that this heterogeneity can be accounted for by homogeneous underlying mechanisms and is not evidence for, say, heterogeneous discrimination. Finally, we discuss our main empirical findings in the light of simple taste-based vs. statistical discrimination models.

Tax Me, But Spend Wisely? Sources of Public Finance and Government Accountability

Existing evidence suggests that extra grant revenues lead to little improvements in public services in developing countries - but would governments spend tax revenues differently? This paper considers a program that invests in the tax capacity of Brazilian municipalities. Using variations in the timing of program uptake I find that it raises local tax revenues and that the increase in taxes is used to improve both the quantity and quality of municipal education infrastructure. In contrast increases in grants over which municipalities have the same discretion as over taxes have no impact on any measure of local public infrastructure. These results suggest that the way governments are financed matters: governments spend increases in tax revenues more towards expenditures that benefit citizens than increases in grant revenues.

Religion, Division of Labor and Conflict: Anti-Semitism in German Regions over 600 Years

Anti-Semitism continues to be a widespread societal problem rooted deeply in history. Using novel city-level data from Germany for more than 2,000 cities and county-level data, we study the role of economic incentives in shaping the co-existence of Jews, Catholics and Protestants. The Catholic ban on usury gave Jews living in Catholic regions a specific advantage in the moneylending sector. Following the Protestant Reformation (1517), the Jews lost this advantage in regions that became Protestant but not in those regions that remained Catholic. We show that 1) the Protestant Reformation induced a change in the geography of anti-Semitism with persecutions of Jews and anti-Jewish publications becoming more common in Protestant areas relative to Catholic areas; 2) this change was more pronounced in cities where Jews had already established themselves as moneylenders; 3) the Reformation reduced the specialization of Jews in the financial sector in Protestant regions but not in Catholic regions. We interpret these findings as evidence that, following the Protestant Reformation, the Jews living in Protestant regions lost their comparative advantage in lending. This change exposed them to competition with the Christian majority leading, eventually, to an increase in anti-Semitism.

The Growth Effects of EU Membership for the UK: Review of the evidence

This paper reviews the literature on the implications of EU membership for the UK. It concludes that membership has raised UK income levels appreciably and by much more than 1970s’ proponents of EU entry predicted. These positive effects stem from the EU’s success in increasing trade and the impact of stronger competition on UK productivity. The economic benefits of EU membership for the UK have far exceeded the costs of budgetary transfers and regulation. Brexit is risky and its impact would depend heavily on the terms negotiated and the use made of the policy space that it freed up.

The Kyoto Protocol and Beyond: Pareto Improvements to Policies that Mitigate Climate Change

Classical gains from trade results involve comparing a Pareto efficient allocation with a status quo that is typically inefficient. When there is a public good like mitigating climate change, such results apply only if that good happens to be supplied efficiently. Here, however, we consider emissions trade as envisaged in Article 17 of the Kyoto Protocol. Such trade could attain a constrained Pareto efficient allocation in which aggregate emissions are held fixed. Relative to any status quo, we show that with a suitable international distribution of permit rights, international emissions trade allows each nation more consumption while keeping aggregate emissions constant. The Clean Development Mechanism (CDM) envisaged in Article 12 allows additional gains, as do the provisions of the 2015 Paris Agreement that grant credit for carbon removals. Contrary to some claims, the Kyoto Protocol is not “defunct”; instead, retaining its key provisions of emissions trade and the CDM while including credit for carbon removals could make emissions reductions much more affordable.

Advantage Magazine

The Electoral Consequences of Offshoring

How does offshoring affect individual party preferences in multi-party systems? We argue that exposure to offshoring influences individual preferences for those political parties with clear policy positions on issues relevant for individuals with offshorable jobs (left, liberal and center-right parties), but does not affect voting decisions for parties concentrating on other issues (green parties or populist right parties). Examining individual-level data from five waves of the European Social Survey for 18 advanced democracies, we find that these effects vary by skill and exposure. Offshoring increases the preference for parties advocating economic openness among the highly skilled. In contrast, among the low-skilled, those exposed to offshoring are more likely to prefer leftist political parties that champion social protection and redistribution.

Take what you can: property rights, contestability and conflict

Weak property rights are strongly associated with underdevelopment, low state capacity and civil conflict. In economic models of conflict, outbreaks of violence require two things: the prize must be both valuable and contestable. This paper exploits spatial and temporal variation in contestability of land title to explore the relation between (in)secure property rights and conflict in the Brazilian Amazon. Our estimates suggest that, at the local level, assignment of secure property rights eliminates substantively all land related conflict, even without changes in enforcement. Changes in land use are also consistent with reductions in land related conflict.

More than an Urban Legend: The long-term socioeconomic effects of unplanned fertility shocks

This paper exploits a nearly year-long period of power rationing that took place in Colombia in 1992, to shed light on three interrelated questions. First, we show that power shortages can lead to higher fertility, causing mini baby booms. Second, we show that the increase in fertility had not been offset by having fewer children over the following 12 years. Third, we show that the fertility shock caused mothers worse socioeconomic outcomes 12 years later. Taken together, the results suggest that there are significant indirect social costs to poor public infrastructure.

Foundations of the Soviet Command Economy, 1917 to 1941

In a command economy, centralized political priorities take precedence over market equilibrium, and government purchases cannot be refused. This chapter describes the antecedents, origins, evolution, and outcomes of the Soviet command economy from the Bolshevik Revolution to World War II. The Soviet command economy was built in two phases, 1917 to 1920, and 1928 onward, with a ‘breathing space’ between. The present account gives prominence to features of a command economy that, while missing from the first phase, were developed during the breathing space, and then helped to ensure the relative success of the second phase. These were features that assured secrecy, security, and the selection of economic officials for competence and party loyalty. Like any economy in the international system, the command economy had a comparative advantage: the production of economic and military power.

Unlocking Development

The Rules of the Game: What Rules? Which Game?

Douglass North is famous for, among other things, making institutions the centre-piece of studies of political economy. Institutions are, for him, the humanly constructed rules of the game, a game form in the language of game theory. An alternative conceptualization, associated with Schotter (1981) and Calvert (1995), and responsive to concerns articulated by Riker (1980), conceives of North’s game form as part of a more all-encompassing equilibrium of rational human behaviour. Whereas North takes the rules of the game as exogenous and seeks to identify the equilibria that arise when agents, abiding by the rules, bring particular preferences to a situation, what Shepsle (1979) called a structure-induced equilibrium, Schotter and Calvert allow for the possibility of noncompliance with extant rules and, indeed, for moves that alter the game form altogether. In the present paper, these two approaches are developed more fully. Examples drawn from the US Congress are used to exhibit the ways in which rules arise, change endogenously, and are sometimes even violated. Rational, self-governing agents are not, as in North’s formulation, absolutely bound by exogenous constraints, and are often able to reformulate the ways they do their business.

Legislative Bargaining with Endogenous Rules

We study repeated legislative bargaining in an assembly that chooses its bargaining rules endogenously and whose members face an election after each legislative term. An agenda protocol or bargaining rule assigns to each legislator a probability of being recognized to make a policy proposal in the assembly. We predict that the agenda protocol chosen in equilibrium disproportionately favors more senior legislators, granting them greater opportunities to make policy proposals, and it generates an incumbency advantage to all legislators.

The Growth Effects of EU Membership for the UK: a Review of the Evidence

This paper reviews the literature on the implications of EU membership for the UK. It concludes that membership has raised UK income levels appreciably and by much more than 1970s’ proponents of EU entry predicted. These positive effects stem from the EU’s success in increasing trade and the impact of stronger competition on UK productivity. The economic benefits of EU membership for the UK have far exceeded the costs of budgetary transfers and regulation. Brexit is risky and its impact would depend heavily on the terms negotiated and the use made of the policy space that it freed up.

What Are the Headwaters of Formal Savings? Experimental Evidence from Sri Lanka

When households increase their deposits in formal bank savings accounts, what is the source of the money? We combine high-frequency surveys with an experiment in which a Sri Lankan bank used mobile Point-of-Service (POS) terminals to collect deposits directly from households each week. We find that the headwaters of formal savings are in sacrificed leisure time: households work more, with evidence that improved savings options generate an increase in labour effort in both self-employment and the wage market. The results are consistent with a standard neo-classical model of the effect of real interest rate changes on intertemporal labour allocation, and suggest that the labour allocation channel is an important mechanism linking savings opportunities to income.

The Political Geography of the Eurocrisis

Contrary to the expectations from currency unions theory and historical precedent, the EURO area has failed to integrate fiscally in response to the crisis. At the same time, however, significant horizontal transfers towards financial stabilization have taken place. What explains this co-existence of persistent reluctance by domestic leaders in core EU countries to pursue fiscal integration and large scale financial transfers between nations within the union? We analyse responses to the crisis as a result of the geography of income and production. Heterogeneity of constituencies’ redistribution preferences associated with a diverse economic geography accounts for the political constraints on national governments keeping them from furthering fiscal integration. In turn, cross-unit externalities in the form of potential financial risks shift the preferences of citizens potentially exposed to negative side-effects and open up the possibility of efforts towards international insurance/redistribution. The paper presents first an analytical framework to study these two mechanisms. Subsequently, we perform empirical analyses of the determinants of preferences for social insurance/redistribution, fiscal integration, and international redistribution in the aftermath of the Eurocrisis.

Economic and Political Inequality: The Role of Political Mobilization

This paper analyses the relationship between economic and political inequality. Beyond the view that inequality reduces turnout we document a non-linear relationship between them. To explain these patterns we argue that parties' strategies to target and mobilize low income voters reflect the level of economic inequality and development. Under high inequality and low development, clientelism becomes the dominant form of political competition and turnout inequality declines. As societies grow and inequality recedes, clientelism becomes suboptimal and parties turn to mobilize voters around programmatic offerings. As a result, turnout inequality increases. Empirically, we produce two analyses. First, we identify the relationship between political mobilization strategies, inequality and turnout by exploiting the randomized allocation of anti-fraud measures across Brazilian municipalities in the early 2000s. Second, we address the generalizability of our findings by carrying out a cross-national multi-level analysis of the relationship between inequality, strategies for political mobilization, and turnout inequality.

Why Did Socialism Fail? The Role of Factor Inputs Reconsidered

We present revised growth accounts for three socialist economies between 1950 and 1989. Government statistics reported distorted measures for both the rate and trajectory of productivity growth in Czechoslovakia, Hungary, and Poland. Researchers have benefited from revised output data, but continued to use official statistics on capital input, or estimated capital stock from official investment data. Investment levels and rates of capital accumulations were, in fact, much lower than officially claimed and over-reporting worsened over time. Sluggish factor accumulation, specifically declining equipment investment and labour input, contributed much more to the socialist growth failure of the 1980s than previously thought.

Economic Crisis and the Demise of a Popular Contractual Form: Building and Loan Mortgage Contracts in the 1930s

During the housing crisis of the 1930s long delays in the resolution of severely distressed Building and Loan associations led to the rapid diminution of these previously successful and important home mortgage lenders. These delays were caused by a unique contractual structure that created incentives for borrowing members to prolong dissolution and granted them control, along with non-borrowers, over the timing of liquidation. Using a new dataset of New Jersey B&Ls we estimate a voting model of dissolution and find that the probability of B&L liquidation rose 37 percent when the share of non-borrowing members rose above the two-thirds threshold. An average one-year delay in liquidation resulted that imposed costs on non-borrowing members roughly three times the gains borrowing members realized by delaying dissolution. These delays and costs contributed to the quick demise of the B&L and the rapid ascendancy of the modern Savings & Loan industry.

How Successful Was the New Deal? The Microeconomic Impact of New Deal Spending and Lending Policies in the 1930s

The New Deal during the 1930s was arguably the largest peace-time expansion in federal government activity in American history. Until recently there had been very little quantitative testing of the microeconomic impact of the wide variety of New Deal programs. Over the past decade scholars have developed new panel databases for counties, cities, and states and then used panel data methods on them to examine the examine the impact of New Deal spending and lending policies for the major New Deal programs. In most cases the identification of the effect comes from changes across time within the same geographic location after controlling for national shocks to the economy. Many of the studies also use instrumental variable methods to control for endogeneity. The studies find that public works and relief spending had state income multipliers of around one, increased consumption activity, attracted internal migration, reduced crime rates, and lowered several types of mortality. The farm programs typically aided large farm owners but eliminated opportunities for share croppers, tenants, and farm workers. The Home Owners’ Loan Corporation’s purchases and refinancing of troubled mortgages staved off drops in housing prices and home ownership rates at relatively low ex post cost to taxpayers. The Reconstruction Finance Corporation’s loans to banks and railroads appear to have had little positive impact, although the banks were aided when the RFC took ownership stakes.

National Happiness and Genetic Distance: A Cautious Exploration

This paper studies a famous unsolved puzzle in quantitative social science. Why do some nations report such high levels of mental well-being? Denmark, for instance, regularly tops the league table of rich countries’ happiness; Britain and the US enter further down; some nations do unexpectedly poorly. The explanation for the long-observed ranking - one that holds after adjustment for GDP and other socioeconomic variables - is currently unknown. Using data on 131 countries, the paper cautiously explores a new approach. It documents three forms of evidence consistent with the hypothesis that some nations may have a genetic advantage in well-being.

Commercialization and the Decline of Joint Liability Microcredit

Numerous authors point to a decline in joint liability microcredit, rise in individual liability lending. But empirical evidence is lacking, and there have been no rigorous analyses of possible causes. We first show using the well-known MIX Market dataset that there is evidence for a decline. Second, we show theoretically that commercialization-an increase in competition and a shift from non-profit to for-profit lending (both of which are present in the data)–drives lenders to reduce their use of joint liability loan contracts. Third, we test the model’s key predictions, and find support for them in the data.

Effects of EU Regional Policy: 1989-2013

We analyze EU Regional Policy during four programming periods: 1989-1993, 1994-1999, 2000-2006, 2007-2013. When looking at all periods, we focus on the growth, employment and investment effects of Objective 1 treatment status. For the two later periods, we additionally look at the effects of the volume of EU transfers, overall and in sub-categories, on various outcomes. We also analyze whether the concentration of payments across spending categories affects the effectiveness if EU transfers. Finally, we pay attention to the role of EU funding for UK regions given the current debate in the UK.

Spanish Agriculture in the Little Divergence

This paper explores the role of agriculture in Spain’s contribution to the little divergence in Europe. On the basis of tithes, long-run trends in agricultural output are drawn. After a long period of relative stability, output suffered a severe contraction during 1570-1620, followed by stagnation to 1650, and steady expansion thereafter. Output per head shifted from a relatively high to a low path that persisted until the nineteenth century. The decline in agricultural output per head and per worker from a relatively high level contributed to Spain falling behind and, hence, to the Little Divergence in Europe. Output per worker moved along labour force in agriculture over the long run, supporting the depiction of Spain as a frontier economy. Institutional factors, in a context of financial and monetary instability and war, along climatic anomalies, provide explanatory hypotheses that deserve further research.

It's Prices, Stupid: Explaining falling crime in the UK

Crime has fallen across many countries since the early 1990s. A range of explanations have been put forward, including the level of police resources, the incidence of drug epidemics, demographic factors (including the effects of abortion and lead pollution on the crime propensity of different age cohorts), and incarceration rates.

Does greater autonomy among women provide the key to better child nutrition?

We examine the link between a mother’s autonomy - the freedom and ability to think, express, act and make decisions independently - and the nutritional status of her children. We design a novel statistical framework that accounts for cultural and traditional environment, to create a measure of maternal autonomy, a concept that has rarely been examined previously as a factor in children’s nutritional outcomes. Using data from the Third Round of the National Family Health Survey for India, supplemented with our qualitative survey, and accounting for "son preference" by limiting analysis to first-born children under 18 months of age, we document that maternal autonomy has a positive impact on the long-term nutritional status of rural children. We find that one standard deviation increase in maternal autonomy score (i) is associated with a 10 percent reduction (representing 300,000 children) in the prevalence of stunting, and (ii) compensates for half of the estimated average decline in Height-for Age Z- scores Indian children experience in the second six months of life. The findings underscore the importance of women’s empowerment in improving children’s nutrition during the critical first two years of life, a recognized "window of opportunity" for lifelong health and economic benefits.

The Natural Resource Curse Revisited: Theory and Evidence from India

In 2000, three of the largest Indian states, comprising areas with some of the largest endowments of natural resources in the country, were split to create three new states. We exploit the dramatic change that ensued, both in the distribution of resources and in the allocation of political power, to examine the interplay natural resources and politics. We construct a theoretical framework designed to account both direct and indirect effects of the change in natural resource concentration on economic outcomes – the direct effects arising from revenue generation, the indirect ones arising, through a political channel, from an exchange of votes for natural resource rents at the local level. We employ a sharp regression discontinuity design to estimate the causal effect of secession and concentrated resources on growth and inequality outcomes at the sub-regional level. Consistently with our theoretical predictions, we find that, while the economic effect of secession is generally favourable, constituencies rich in resources see a relative worsening of outcomes in both economic activity and inequality.

Religion and the Family: The Case of the Amish

I construct a model of religion as an institution that provides community enforcement of contracts within families. Family altruism implies that family members cannot commit to reporting broken contracts to the community, so the community must monitor contract performance as well as inflicting punishment. The community has less information than family members, and so community monitoring is inefficient. I provide evidence from a study of Amish institutions, including qualitative evidence from sociological accounts and quantitative evidence from a novel dataset covering nearly the entire Amish population of Holmes county, Ohio. I find that 1) Amish households are not unitary, 2) the Amish community helps to support families by inflicting punishments on wayward family members, 3) without the community Amish people have difficulty committing to punishing family members, and 4) Amish community membership strengthens family ties, while otherwise similar religious communities in which there is less need for exchange between family members have rules that weaken family ties. My model has implications for understanding selection into religious practice and the persistence of culture.

Constructing Social Division to Support Cooperation

Many societies are divided into multiple smaller groups. Certain kinds of interaction are more likely to take place within a group than across groups. I model a reputation effect that enforces these divisions. Agents who interact with members of different groups can support lower levels of cooperation with members of their own groups. A hierarchical relationship between groups appears endogenously in equilibrium. Group divisions appear without any external cause, and improvements in formal contracting institutions may cause group divisions to disappear. Qualitative evidence from the anthropological literature is consistent with several predictions of the model.

Business Practices in Small Firms in Developing Countries

Management has a large effect on the productivity of large firms. But does management matter in micro and small firms, where the majority of the labor force in developing countries works? We develop 26 questions that measure business practices in marketing, stock-keeping, record-keeping, and financial planning. These questions have been administered in surveys in Bangladesh, Chile, Ghana, Kenya, Mexico, Nigeria and Sri Lanka. We show that variation in business practices explains as much of the variation in outcomes – sales, profits and labor productivity and TFP – in microenterprises as in larger enterprises. Panel data from three countries indicate that better business practices predict higher survival rates and faster sales growth. The association of business practices with firm outcomes is robust to including numerous measures of the owner’s human capital. We find that owners with higher human capital, children of entrepreneurs, and firms with employees employ better business practices.

Growth or stagnation in pre-industrial Britain? A revealed income growth approach

The extent of growth in pre-industrial Europe in general and in Britain in particular has attracted intense scholarly focus. Growth or Malthusian stagnation? No consensus has evolved. Reconstructions of national income from 1300 and up to the Industrial Revolution come to opposing conclusions and so do econometric studies. Applying Engels’ law, we suggest a new approach in which income growth is revealed by changes in occupational structure. Data needed for this approach are less contested than the wage and output series used in the existing literature. We find that pre-industrial Britain exhibited secular rise in the standard of living.

Fact and Fantasy in Soviet Records: The Documentation of Soviet Party and Secret Police Investigations as Historical Evidence

When we use Soviet documentation of political and secret police investigations to write history, to what extent are we vulnerable to the biases and inventions of the investigators? The problem is framed as one of principal and agent. It is argued that Soviet principals allowed their agents scope to manipulate facts and bias interpretations, not freely, but within strict limits that were laid down from above and varied from time to time. These limits were set by the leader’s “revolutionary insight,” the communist equivalent of what passes in more open societies today as “truthiness.” An understanding of the Soviet truthiness of the particular time is the best guide we have to interpreting the documentary records of that time. Evaluating them in this light, we see that Soviet historical documents are little different from the records of any other time and place.

Economic Cycles in Ancient China

We discuss business cycles in ancient China. Data on Ancient China business cycles are sparse and incomplete and so our discussion is qualitative rather than quantitative. Essentially, ancient debates focused on two types of cycles: long run political or dynastic cycles of many decades, and short run nature induced cycles. Discussion of the latter show strong parallels to Jevons’ conception of sun spot cycles. The former has no clear contemporary analogue, were often deepin impact and of long duration. The discussion of both focused on agricultural economies. Ancient discussion on intervention focused on counter cyclical measures, including stockpiling, and predated Keynes and the discussion in the 1930s by centuries. Also, a strongly held belief emerged that cycles create their own cycles to follow, and that cycles are part of the inevitable economic order, a view consistent with Mitchell’s view of the business cycle in the 1940s. Current debates on how best to respond to the ongoing global financial crisis draw in part on historical precedents, but these are largely limited to the last 150 years for OECD countries and with major focus on the 1990’s. Here we also probe material on Ancient China to see what is relevant.

Measuring Changes in the Bilateral Technology Gaps between China, India and the U.S. 1979 - 2008

Popular literature suggests a rapid narrowing of the technology gap between China and the U.S. based on large percentage increases in Chinese patent applications, and equally large increases in college registrants and completed PhDs (especially in sciences) in China in recent years. Little literature attempts to measure the technology gap directly using estimates of country aggregate technologies. This gap is usually thought to be smaller than differences in GDP per capita since the later reflect both differing factor endowments and technology parameters. This paper assesses changes in China’s technology gaps both with the U.S. and India between 1979 and 2008, comparing the technology level of these economies using a CES production framework in which the technology gap is reflected in the change of technology parameters. Our measure is related to but differs from the Malmquist index. We determine the parameter values for country technology by using calibration procedures. Our calculations suggest that the technology gap between China and the U.S. is significantly larger than that between India and the U.S. for the period before 2008. The pairwise gaps between the U.S. and China, and the U.S. and India remain large while narrowing at a slower rate than GDP per worker. Although China has a higher growth rate of total factor productivity than India over the period, the bilateral technology gap between China and India is still in India’s favor. India had higher income per worker than China in the 1970’s, and China’s much more rapid physical and human capital accumulation has allowed China to move ahead, but a bilateral technology gap remains.

Is Secular Stagnation the Future of the Eurozone?

Recovery from the financial crisis remains very sluggish in the Euro Area. Fears are growing that growth prospects in Europe over the medium term are significantly worse than anyone would have thought before the crisis. The concept of ‘secular stagnation’, which dates back to the 1930s, has been revived and was recently the topic of a recent e-book (Teulings and Baldwin, 2014). Indeed, relative to pre-crisis levels, real GDP in the Eurozone countries is similar to that of the hapless economies that remained in the gold standard to the bitter end (the ‘gold bloc’) rather than that of those who left gold early and experienced a strong recovery by the mid-1930s (the ‘sterling bloc’).

Opportunities and challenges in fostering growth in the EU

This week's CAGE Podium saw the Warwick Econ and CAGE team composed of Professors Crafts, Troeger and Becker present their research findings to a Brussels audience. Attendants included high-rank officials from various Directorates of the EU Commission as well as members from national representations in Brussels. The discussion was moderated by Richard Tuffs, the Director of the European Regions Research and Innovation Network. The panel discussion after the policy presentations was composed of the three speakers as well as MEP Malcolm Harbour (Chairman of the Internal Market and Consumer Protection Committee), Mr Vasco Cal (Economic Adviser, Bureau of European Policy Advisers (BEPA), European Commission), Mr Olivier Debande (Senior Economist - European Investment Bank), and Mr Daniel Mouque (Evaluation and European Semester Unit, DG for Regional and Urban Policy, European Commission).

Designing A Central Bank For The 21st Century Eurozone

The ongoing financial crisis in the Eurozone has focused attention on designing central banking institutions that promote sustainable economic growth, high employment, stable public finances, and financial stability. However, debates over the direction of monetary policy and responses to sovereign debt and banking crises point to the challenges of balancing national interests with pan European or Eurozone objectives. Recent research on institutional design sheds new light on these trade-offs and provides lessons for how European monetary policymaking and bank supervision might look in the twenty-first century.

Insights into Enterprise in Developing Countries

A majority of the world’s population makes their living from small businesses in developing countries. But sustained growth is associated with creation of stable jobs in larger firms. From this perspective, the role of enterprise is central to the future of emerging economies. Economic growth and poverty elimination cannot take place without developing enterprise capabilities in poor countries.

Causes and Consequences of the Protestant Reformation

The Protestant Reformation is one of the defining events of the last millennium. Nearly 500 years after the Reformation, its causes and consequences have seen a renewed interest in the social sciences. Research in economics, sociology, and political science increasingly uses detailed individual-level, city-level, and regional-level data to identify drivers of the adoption of the Reformation, its diffusion pattern, and its socioeconomic consequences. This survey takes stock of the research so far, tries to point out what we know and what we do not know, and which are the most promising areas for future research.

On the Comparative Advantage of U.S. Manufacturing: Evidence from the Shale Gas Revolution

This paper provides the first empirical evidence of the newly found comparative advantage of the United States manufacturing sector following the so-called shale gas revolution. The revolution has led to (very) large and persistent differences in the price of natural gas between the United States and the rest of the world owing to the physics of natural gas. Results show that U.S. manufacturing exports have grown by about 6 percent on account of their energy intensity since the onset of the shale revolution. We also document that the U.S. shale revolution is operating both at the intensive and extensive margins.

Shocking language: Understanding the macroeconomic effects of central bank communication

We explore how the multi-dimensional aspects of information released by the FOMC has effects on both market and real economic variables. Using tools from computational linguistics, we measure the information released by the FOMC on the state of economic conditions, as well as the guidance the FOMC provides about future monetary policy decisions. Employing these measures within a FAVAR framework, we find that shocks to forward guidance are more important than the FOMC communication of current economic conditions in terms of their effects on market and real variables. Nonetheless, neither communication has particularly strong effects on real economic variables.

The Skills Gap: Is It a Myth?

Concern is growing in advanced economies, and in particular in the UK, about the skills gap: the growing gulf between the skills workers possess today and the skills businesses say they need. The concerns are often focused on shortages of workers with skills in subjects such as science, technology, engineering and maths (STEM), but increasingly also on ‘soft skills’ like problem solving, team working and communication. However, are we right to believe that the problem is one of insufficient supply of skills?

A Vision of the Growth Process in a Technologically Progressive Economy: the United States, 1899-1941.

We develop new aggregate and sectoral Total Factor Productivity (TFP) estimates for the United States between 1899 and 1941 through better coverage of sectors and better measured labour quality, and show TFP-growth was lower than previously thought, broadly based across sectors, strongly variant intertemporally, and consistent with many diverse sources of innovation. We then test and reject three prominent claims. First, the 1930s did not have the highest TFP-growth of the twentieth century. Second, TFP-growth was not predominantly caused by four leading sectors. Third, TFP-growth was not caused by a ‘yeast process’ originating in a dominant technology such as electricity.

Challenges of Change: An Experiment Training Women to Manage in the Bangladeshi Garment Sector

Large private firms are still relatively rare in low-income countries, and we know little about how entry-level managers in these firms are selected. We examine a context in which nearly 80 percent of production line workers are female, but 95 percent of supervisors are male. We evaluate the effectiveness of female supervisors by implementing a training program for selected production line workers. Prior to the training, we find that workers at all level of the factory believe males are more effective supervisors than females. Careful skills diagnostics indicate that those perceptions do not always match reality. When the trainees are deployed in supervisory roles, production line workers initially judge females to be significantly less effective, and there is some evidence that the lines on which they work underperform. But after around four months of exposure, both perceptions and performance of female supervisors catch up to those of males. We document evidence that the exposure to female supervisors changes the expectations of male production workers with regard to promotion and expected tenure in the factory.

Higher Intelligence Groups Have Higher Cooperation Rates in the Repeated Prisoner's Dilemma

Intelligence affects the social outcomes of groups. A systematic study of the link is provided in an experiment where two groups of subjects with different levels of intelligence, but otherwise similar, play a repeated prisoner's dilemma. Initial cooperation rates are similar, but increase in the groups with higher intelligence to reach almost full cooperation, while they decline in the groups with lower intelligence. Cooperation of higher intelligence subjects is payo sensitive and not automatic: in a treatment with lower continuation probability there is no difference between different intelligence groups.

On The Origins of Gender Human Capital Gaps: Short and Long Term Consequences of Teachers Stereotypical Biases

In this paper, we estimate the effect of primary school teachers’ gender biases on boys’ and girls’ academic achievements during middle and high school and on the choice of advanced level courses in math and sciences during high school. For identification, we rely on the random assignments of teachers and students to classes in primary schools. Our results suggest that teachers’ biases favouring boys have an asymmetric effect by gender-positive effect on boys’ achievements and negative effect on girls’. Such gender biases also impact students’ enrolment in advanced level math courses in high school—boys positively and girls negatively. These results suggest that teachers’ biased behaviour at early stage of schooling have long run implications for occupational choices and earnings at adulthood, because enrolment in advanced courses in math and science in high school is a prerequisite for post-secondary schooling in engineering, computer science and so on. This impact is heterogeneous, being larger for children from families where the father is more educated than the mother and larger on girls from low socioeconomic background.

Optimal Taxation under Regional Inequality

Combining an intensive labour supply margin with an extensive, productivity-enhancing migration margin, we determine how regional inequality and labor mobility shape optimal redistribution. We propose the use of delayed optimal-control techniques to obtain optimal tax formulae with location-dependent productivity and two-dimensional heterogeneity. Our baseline simulations using the productivity differences between large metropolitan and other regions in the US indicate that productivity-increasing internal migration can constitute a quantitatively important constraint on redistribution. Allowing for regionally differentiated taxation with location-dependent productivity, we find that marginal tax rates in high (low) productivity regions should be corrected downwards (upwards) relative to a no-migration benchmark.

The Dynamics of Comparative Advantage

This paper characterizes the dynamic empirical properties of country export capabilities in order to inform modelling of the long-run behaviour of comparative advantage. The starting point for our analysis is two strong empirical regularities in international trade that have previously been studied incompletely and in isolation to one another. The literature has noted a tendency for countries to concentrate exports in a few sectors. We show that this concentration arises from a heavy-tailed distribution of industry export capabilities that is approximately log normal and whose shape is stable across countries, sectors, and time. Likewise, previous research has detected a tendency for mean reversion in national industry productivities. We establish that mean reversion in export capability, rather than indicative of convergence in productivities or degeneracy in comparative advantage, is instead consistent with a well behaved stochastic growth process that delivers a stationary distribution of country export advantage. In literature on the growth of cities and firms, economists have used stochastic processes to study the determinants of the long-run size distributions. Our contribution is to develop an analogous empirical framework for identifying the parameters that govern the stationary distribution of export capability. The main result of this analysis is that a generalized gamma distribution, which nests many commonly studied distributions, provides a tight fit of the data but log normality offers a reasonable approximation. Importantly, the stochastic process that generates log normality can be estimated in its discretized form by simple linear regression. Log linearity allows for an extension of our approach to multivariate diffusions, in which one can permit innovations to productivity to be transmitted intersectorally and internationally, as in recent models of trade and growth.

World War II: Won by American Planes and Ships, or by the Poor Bloody Russian Infantry?

This short paper reviews a new book about World War II. In most such books, what is new is not usually important, and what is important is not new. This one is an exception. How the War Was Won: Air-Sea Power and Allied Victory in World War II, by Phillips Payson O'Brien, sets out a new perspective on the war. An established view is that World War II was decided on the Eastern front, where multi-million armies struggled for supremacy on land and millions died. According to O’Brien, this neglects the fact that the preponderance of the Allied productive effort was devoted to building ships and planes for an air-sea battle that was fought to a limited extent in the East and with much higher intensity across the Western and Pacific theatres. The Allies’ air-sea power framed the outcomes of the great land campaigns by preventing Germany and Japan from fully realizing their economic potentials for war. Finding much to be said for this reinterpretation, I reconsider the true significance of the Eastern front.

On plague in a time of Ebola

Ebola and plague share several characteristics, even though the second and third plague epidemics dwarfed the 2014-15 Ebola outbreak in terms of mortality. This essay reviews the mortality due to the two diseases and their lethality; the spatial and socioeconomic dimensions of plague mortality; the role of public action in containing the two diseases; and their economic impact.

Happiness and productivity: Understanding the happy-productive worker

Behavioural Economics and Wellbeing

Quality and the Great Trade Collapse

We explore whether the global financial crisis has had heterogeneous effects on traded goods differentiated by quality. Combining a dataset of Argentinean firm-level destination-specific wine exports with quality ratings, we show that higher quality exports grew faster before the crisis, but this trend reversed during the recession. Quantitatively, the effect is large: up to nine percentage points difference in trade performance can be explained by the quality composition of exports. This flight from quality was triggered by a fall in aggregate demand, was more acute when households could substitute imports by domestic alternatives, and was stronger for smaller firms’ exports.

Roots of the Industrial Revolution

We analyse factors explaining the very different patterns of industrialisation across the 42 counties of England between 1760 and 1830. Against the widespread view that high wages and cheap coal drove industrialization, we find that industrialisation was restricted to low wage areas, while energy availability (coal or water) had little impact. Instead we find that industrialization can largely be explained by two related factors related to the human capability of the labour force. Instead of being composed of landless labourers, successful industrialisers had large numbers of small farms, which are associated with better nutrition and height. Secondly, industrialising counties had a high density of population relative to agricultural land, indicating extensive rural industrial activity: counties that were already reliant on small scale industry, with the technical and entrepreneurial skills this generated, experienced the strongest industrial growth. Looking at 1830s France we find that the strongest predictor of industrialisation again is quality of workers shown by height of the population, although market access and availability of water power were also important there.

If You Do Not Change Your Behaviour : Managing Threats to State Security in Lithuania under Soviet Rule

In Soviet Lithuania (and elsewhere) from the 1950s to the 1980s, the KGB applied a form of "zero-tolerance" policing, or profilaktika, to incipient threats to state security. Petty deviation from socio-political norms was regarded as a person's first step towards more serious state crimes, and as a bad example for others. As long as petty violators could be classed as confused or misled rather than motivated by anti-Soviet conviction, their mistakes would be corrected by a KGB warning or "preventive discussion." Successful prevention avoided the costly removal of the subject from society. This represented a complete contrast to the Stalin years, when prevention relied largely on eliminating the subject from society. Preventive discussions were widely practised in many different circumstances. KGB internal evaluations concluded that these discussions were extremely effective in preventing further violations. This was the front line of the Soviet police state; it was perhaps the largest programme for personally targeted behaviour modification anywhere in the world at that time outside the education sector. It was also a front line of the Cold War because the foreign adversary was seen as the most important source of misleading or confusing influence. My work in progress aims to understand the origins and operation of profilaktika, including how and to whom it was applied, how it worked on the individual subject, and its wider influence on the Soviet Union’s social and political order.

The Armington Assumption and the Size of Optimal Tariffs

There has been commentary on the seeming success of the world trading system responding to the large shock of the 2008 financial crisis without an outbreak of retaliatory market closing. The threat of large retaliatory tariffs and fears of a 1930s style downturn in trade have been associated with numerical trade modelling which project post retaliation optimal tariffs in excesses of 100%. In the relevant numerical modelling it is common to use the Armington assumption of product heterogeneity by country. Here we argue and show by numerical calculation that the widespread use of this assumption gives a large upward bias to optimal tariffs, both first step and post retaliation, relative to alternative homogenous good models used in trade theory.

Under the Radar: The Effects of Monitoring Firms on Tax Compliance

This paper analyses the effects on tax compliance of monitoring the information trails generated by firms’ activities. We exploit quasi-experimental variation generated by a Large Taxpayers Unit (LTU) in Spain, which monitors firms with more than 6 million euros in reported revenue. Firms strategically bunch below this threshold in order to avoid stricter tax enforcement. This response is stronger in sectors where transactions leave more paper trail, implying that monitoring effort and the traceability of information reported by firms are complements. We calculate that there would be substantial welfare gains from extending stricter tax monitoring to smaller businesses.

QE and the Bank Lending Channel

We test whether quantitative easing (QE), in addition to boosting aggregate demand and inflation via portfolio rebalancing channels, operated through a bank lending channel (BLC) in the UK. Using Bank of England data together with an instrumental variables approach, we find no evidence of a traditional BLC associated with QE. We show, in a simple framework, that the traditional BLC is diminished if the bank receives ` flighty' deposits (deposits that are likely to quickly leave the bank). We show that QE gave rise to such flighty deposits which may explain why we find no evidence of a BLC.

Social Networks and Labour productivity: A survey of recent theory and evidence

In this paper we survey some of the more recent theoretical and empirical literature on social networks and labour productivity. We discuss the use of referrals in recruitment of workers and the possible mechanisms underlying their use as well as ex-post e.ects on productivity from having connected workers in the firm and the channels for these effects. We also suggest some open questions for further research.

The first stages of the mortality transition in England: a perspective from evolutionary biology

This paper examines the origins of the Mortality Revolution from an evolutionary point of view, in terms of the trade-offs between virulence and disease transmission. For diseases that are transmitted person-to-person and cannot persist outside a host then there is evidence of strong selective pressure against high host lethality. However for pathogens which don’t depend on their human host for transmission or can persist outside a human host (including plague, typhus, smallpox and malaria) then the conflict between virulence and dispersal is reduced. Importantly, the properties that permitted these diseases to be so lethal also made it easier for relatively weak interventions to break the chain of disease transmission. The early control of these major diseases was associated with large reductions in mortality, but also shifted the distribution of causes of death towards the less virulent diseases of the extremes of age and of poverty.

The Welfare Cost Of Antimicrobial Resistance - Tuberculosis As An Illustrative Example

The recent increase in antimicrobial resistance has received concern from the government and media. The twentieth century history of tuberculosis in England and Wales presented here shows that some of the more extreme apocalyptic scenarios are unlikely. The paper shows that preventive medicine can play a major role; that the threat should reduce the use of antimicrobials; and the scope for government to intervene with sound public health policies. The paper also estimates the value of twentieth century health gains associated with eliminating tuberculosis in England and Wales to be worth at least $127 billion, which provides a warning about the potential gains that could be lost without initiatives to prevent antimicrobial resistance.

The political economy of liberal democracy

We distinguish between three sets of rights – property rights, political rights, and civil rights – and provide a taxonomy of political regimes. The distinctive nature of liberal democracy is that it protects civil rights (equality before the law for minorities) in addition to the other two. Democratic transitions are typically the product of a settlement between the elite (who care mostly about property rights) and the majority (who care mostly about political rights). Such settlements rarely produce liberal democracy, as the minority has neither the resources nor the numbers to make a contribution at the bargaining table. We develop a formal model to sharpen the contrast between electoral and liberal democracies and highlight circumstances under which liberal democracy can emerge. We discuss informally the difference between social mobilizations sparked by industrialization and decolonization. Since the latter revolve around identity cleavages rather than class cleavages, they are less conducive to liberal politics.

Social Mobility among Christian Africans: Evidence from Ugandan Marriage Registers, 1895-2011

We use marriage registers from colonial and post-colonial Uganda to investigate long-term trends in social mobility among Christian Africans, finding a stark contrast to the pessimistic view that colonialism retarded Africa. Colonial influences in Uganda brought much greater and more equal opportunities for social advancement than in pre-colonial times. The colonial labour market was the main ladder for upward mobility, and the mission society helped provide the education and social reference needed to climb it. We find no "buffer-zone" preventing sons of blue-collar descent from entering into white-collar work. The patterns continued throughout the post-colonial era despite political turmoil.

Cereals, Appropriability and Hierarchy

We propose that the development of social hierarchy following the Neolithic Revolution was an outcome of the ability of the emergent elite to appropriate cereal crops from farmers and not a result of land productivity, as argued by conventional theory. We argue that cereals are easier to appropriate than roots and tubers, and that regional differences in the suitability of land for different crops explain therefore differences in the formation of hierarchy and states. A simple model illustrates our main theoretical argument. Our empirical investigation shows that land suitability for cereals relative to suitability for tubers explains the formation of hierarchical institutions and states, whereas land productivity does not.

Doorstep banking in rural Sri Lanka increases customer savings...and income

Recent findings in development economics indicate that microloans are likely to perform best when accompanied by financial education, insurance, and savings products. This column presents evidence from a natural experiment in Sri Lanka, which involved door-to-door collection services among rural households. The evidence suggests that the programme increased both savings and income. In order to build up savings in the initial period, participants increased the hours worked. The treatment also triggered exit from self-employment. Financial service innovation can, therefore, have a major effect on the incentives to exit poverty.

Happiness and voting

Retrospective voting – voting for incumbents if one’s situation has improved under the politician’s watch – is a well-established pattern. This column shows that this pattern also applies when ‘improvement’ is measured by a subjective measure of well-being. Among the stark results discussed is the finding that newly widowed women are 10% less likely to be pro-incumbent than the control group.

GDP and life satisfaction: New evidence

The link between higher national income and higher national life satisfaction is critical to economic policymaking. This column presents new evidence that the connection is hump-shaped. There is a clear, positive relation in the poorer nations and regions, but it flattens out at around 30,000–$35,000, and then turns negative.

The midlife crisis in humans and other apes

Humans tend to go through midlife crises regardless of context. So too, it appears, do apes. This column draws on recent research showing apes’ midlives to be, like humans’, dogged by the same pattern of unhappiness.

High home ownership as a driver of high unemployment

Unemployment is once again the bane of the US and Europe. This column highlights an intriguing association between home ownership and high unemployment using US state-level data. Given the heavy subsidisation of and rise in home ownership, this association merits more attention from economists.

Money makes people right-wing and inegalitarian

Rich people typically lean right politically. Are they motivated by deeply moral views or self-interest? This column argues that money makes you right-wing. It shows that lottery winners in the UK are more likely to switch their allegiance from left to right.

Uncertainty and the Great Trade Collapse: New evidence

The recent global crisis hit output, but the decline in international trade was twice as big. Standard models of trade fail to account for the severity of the event. This column proposes a new model that argues the great trade collapse was due to uncertainty. The uncertainty lead firms to postpone orders. As a result, trade declined substantially more than production. Data from the US for the past 50 years show quantitatively large effects of uncertainty shocks on the trade.

TTIP: Is free trade coming to the north Atlantic?

The negotiations for the Transatlantic Trade and Investment Partnership are about a year old and making only slow progress. This column argues that TTIP is a long-run project that will probably take several years to complete. Despite its significance to global trade, without support from the top echelons of government it might falter.

Saving the euro: self-fulfilling crisis and the 'Draghi put'

Like banks, indebted governments can be vulnerable to self-fulfilling financial crises. This column applies this insight to the Eurozone sovereign debt crisis, and explains why the ECB’s Outright Monetary Transactions policy reduced sovereign bond spreads in the Eurozone.

To exit the Great Recession, central banks must adapt their policies and models

During the Great Moderation, inflation targeting with some form of Taylor rule became the norm at central banks. This column argues that the Global Crisis called for a new approach, and that the divergence in macroeconomic performance since then between the US and the UK on the one hand, and the Eurozone on the other, is partly attributable to monetary policy differences. The ECB’s model of the economy worked well during the Great Moderation, but is ill suited to understanding the Great Recession.

Outright Monetary Transactions sterilised?

'Sterilisation' – where purchases of assets by a central bank are offset by withdrawals – may help the ECB to control inflation. This column discusses how the ECB’s current approach may be fraught with danger, however. In a world where sovereign default risk is perceived to be likely, the ECB’s only real hope is that its approach makes a Eurozone default impossible.

Could Obama buy Ohio votes?

With the US presidential election turning on a handful of swing states, suspicion arises that an incumbent could ‘buy’ the election by shifting the federal government’s state-level spending to critical states. This column reports ongoing research that suggests this is not likely to be the case. Voters do not seem to reward presidents for more federal spending on private contracts in a given state. As such, it does not seem that Obama could buy votes in swing states such as Ohio using his power as the incumbent.

Mark Carney and first impressions in monetary policy

Markets will be perusing the new Bank of England Governor’s comments for hints on his hawkishness. This column presents evidence showing that Monetary Policy Committee members tend to become more dovish as they become more experienced (i.e. after having participated in 18 or more meetings), with this tendency most marked in members with dovish preferences.

Central bank transparency and committee deliberation

Central bank transparency is essential to democratic accountability. Central bankers often limit it – fearing its stifling effect on frank debate. Yet transparency may induce monetary policy committee members to be better prepared. This column discusses evidence showing that the ‘better prepared’ effect is important empirically. Exploiting a natural experiment in the Fed Open Market Committee in 1993 – and using computational linguistics tools to measure the impact of transparency on deliberation – the research shows that the net effect is a more informative deliberation process.

Costing secrecy

Democracy often seems bureaucratic with high ‘transaction costs’, while autocracies seem to get things done at lower cost. This column discusses historical research that refutes this. It finds empirical support from Soviet archives for a political security/usability trade-off. Regimes that are secure from public scrutiny tend to be more costly to operate.

Four myths about the Great War of 1914-1918

The Great War offers lessons for today. But this column argues from recent research that many so-called lessons are misunderstood. Secretive, authoritarian regimes become dangerous when they fear the future. Deterrence matters. Other aspects also demand re-evaluation.

Escaping liquidity traps: Lessons from the UK's 1930s escape

The UK escaped a liquidity trap in the 1930s and enjoyed a strong economic recovery. This column argues that what drove this recovery was ‘unconventional’ monetary policy implemented not by the Bank of England but by the Treasury. Thus, Neville Chamberlain was an early proponent of 'Abenomics'. This raises the question: is inflation targeting by an independent central bank appropriate at a time of very low nominal-interest rates?

Competing successfully in a globalising world: Lessons from Lancashire

Europeans worry about competition from low-wage economies. This column looks at the basis of the success of the 19th-century Lancashire cotton industry faced with a similar situation. The message is that the productivity benefits of a successful agglomeration can underpin both high wages and competitive advantage in world trade. Policymakers can support such agglomerations by easing land-use restrictions, promoting investments in transport, and providing local public goods.

The Eurozone: If only it were the 1930s

This column argues that the legacy of public debt resulting from the crisis in the Eurozone is a serious threat. Both the size of the problem and the options to address it make life much more difficult for policymakers than was the case in the late 1930s after the collapse of the gold standard. For some countries, a ‘subservient’ central bank might be preferable to the ECB.

Walking wounded: The British economy in the aftermath of World War I

It is well-known that World War I was expensive for Britain. The indirect economic costs were also huge. This column argues that the adverse implications of the Great War for post-war unemployment and trade – together with the legacy of a greatly increased national debt – significantly reduced the level of real GDP throughout the 1920s. A ballpark calculation suggests the loss of GDP during this period roughly doubled the total costs of the war to Britain.

The prices of higher quality goods respond less to exchange-rate movements

Empirical research finds that import prices do not fully adjust to exchangerate changes. In other words, there is a limited response of trade to exchangerate fluctuations. This column argues that part of this pass-through puzzle is explained by quality. Exchange-rate movements are more strongly absorbed into the export prices of higher quality goods. Therefore, the volume of their exports would be less responsive to exchange-rate shocks, leading to an incomplete exchange-rate pass-through.

Accounting for the great divergence

The economic divergence we observe today was existent even a thousand years ago. Thanks to recent work on historical data, we can now trace the economic development of different countries centuries back in the past. This column discusses the roots of the Great Divergence between European and Asian economies. The column argues that divergence is due to the differential impact of shocks that hit economies with different structural features.

World War I: Why the Allies won

In the massive circumstances of total war, economic factors play the deciding role. Historians emphasise size in explaining the outcome of WWI, but this column argues that quality mattered as well as quantity. Developed countries mobilised resources in disproportion to their economic size – the level of development acted as a multiplier. With their large peasant sectors, the Central Powers could not maintain agricultural output as wartime mobilisation redirected resources from farming. The resulting urban famine undermined the supply chain behind the war effort.

Do entrepreneurs matter?

Standard microeconomics ignores personalities, but business studies stress the importance of entrepreneurs. This column presents evidence that shows that personalities are important. Looking into the death of a firm’s founder during the first ten years of a company’s existence, the data suggest that entrepreneurs matter – they are the ‘glue’ that holds a business together.

Regional transfers in Europe: Do we need fewer of them or different ones?

The EU encourages regional cohesion through transfers for structural changes and development. This column presents new research suggesting that some poorer countries don’t benefit as well as we might expect. This is likely to be because of worse technological and institutional absorptive capacity. Structural transfers need reform, and policymakers would do well to focus on recipients’ absorptive capacity.

Can India grow faster? Answers from history

The Indian economy is growing at a respectable rate. IMF and the World Bank predict that Gross Domestic Product (GDP) will grow at 7.5-8 per cent in 2016, which is good news for Indians and for the world. Yet many people believe that the country can do better and change the lives of its citizens more rapidly than at present. Can India grow faster? I answer that India can, if Indians sort out their troubled relationship with the idea of globalisation.

The Challenge of Antimicrobial Resistance: Lessons from the Past for the Present and the Future

Concerns about the threat posed by antimicrobial resistance (AMR) are rising. There have been warnings of a retreat to ‘a health system not dissimilar to the early 19th century’ and of ‘a bleak post-antibiotic future, in which infectious diseases once again reign supreme’.

Institutional Corruption? The revolving door in American and British politics

Public confidence in political institutions in the US and the UK is currently at a striking low with a number of surveys showing falling levels of approval for key political institutions. A major current in public attitudes towards politics is a disapproval of the personal financial conduct of politicians.

The Political Economy of Risk and Ideology

This paper argues for the central role of risk aversion in shaping political ideology.We develop a political economy model to establish this link and provide empirical evidence in support of our argument. Our model distinguishes the effects of risk aversion from unemployment risk and our evidence sheds light on debates over explanations for the welfare state. We show that risk aversion is an important determinant of political-economic attitudes and is at least as important as, if not more so, an individual’s position in the income distribution.

Historical Analysis of National Subjective Wellbeing using Millions of Digitized Books

In addition to improving quality of life, higher subjective wellbeing leads to fewer health problems, higher productivity, and better incomes. For these reasons subjective wellbeing has become a key focal issue among scientific researchers and governments. Yet no scientific investigator knows how happy humans were in previous centuries. Here we show that a new method based on quantitative analysis of digitized text from millions of books published over the past 200 years captures reliable trends in historical subjective wellbeing across four nations. This method uses psychological valence norms for thousands of words to compute the relative proportion of positive and negative language, indicating relative happiness during national and international wars, financial crises, and in comparison to historical trends in longevity and GDP. We validate our method using Eurobarometer survey data from the 1970s onwards and in comparison with economic, medical, and political events since 1820 and also use a set of words with stable historical meanings to support our findings. Finally we show that our results are robust to the use of diverse corpora (including text derived from newspapers) and different word norms.

Agglomeration Externalities and Productivity Growth: U.S. Cities in the Railroad Era, 1880-1930

We investigate the role of industrial structure in labour productivity growth in U.S. cities between 1880 and 1930 using a new dataset constructed from the Census of Manufactures. We find that increases in specialization were associated with faster productivity growth but that diversity only had positive effects on productivity performance in large cities. We interpret our results as providing strong support for the importance of Marshallian externalities. Industrial specialization increased considerably in U.S. cities in the early 20th century, probably as a result of improved transportation, and we estimate that this resulted in significant gains in labour productivity.

Ancestry, Language and Culture

We explore the interrelationships between various measures of cultural distance. We first discuss measures of genetic distance, used in the recent economics literature to capture the degree of relatedness between countries. We next describe several classes of measures of linguistic, religious, and cultural distances. We introduce new measures of cultural distance based on differences in average answers to questions from the World Values Survey. Using a simple theoretical model we hypothesize that ancestral distance, measured by genetic distance, is positively correlated with linguistic, religious, and cultural distance. An empirical exploration of these correlations shows this to be the case. This empirical evidence is consistent with the view that genetic distance is a summary statistic for a wide array of cultural traits transmitted intergenerationally.

'Cast back into the dark ages of medicine'? The challenge of antimicrobial resistance

Antimicrobial resistance (AMR) is currently the focus of much media attention and policy discussion. A historical perspective on AMR suggests that although the challenge of AMR is real, the doomsday tone of most commentary is unwarranted. That is partly because most of the gains in life expectancy now deemed under threat preceded the antibiotics revolution. A combination of public health measures, rising living standards, and new medical knowledge all played their part in this. Even if AMR increases, the continuing effect of these factors and of new public health measures can limit the negative consequences. Moreover, recent developments suggest that the supply pipeline of new drugs is not quite as dry as usually claimed. The problem for now is not so much MRSA or malaria but carbapenem‐resistant gram‐negative bacteria, which pose an urgent threat and on which public funding for research on effective new therapies should concentrate.

Economic Development In Africa And Europe : Reciprocal Comparisons

Recent advances in historical national accounting have allowed for global comparisons of GDP per capita across space and time. Critics have argued that GDP per capita fails to capture adequately the effects of new technology on living standards, and have developed alternative measures such as the human development index (HDI). Whilst recognising that this provides an appropriate measure for assessing levels of welfare, we argue that GDP per capita remains a more appropriate measure for assessing development potential, encompassing production as well as consumption. Twentieth-century Africa and pre-industrial Europe are used to show how such data can guide reciprocal comparisons to provide insights into the process of development on both continents.

How Did Japan Catch-up on The West? A Sectoral Analysis Of Anglo-Japanese Productivity Differences, 1885-2000

Although Japanese economic growth after the Meiji Restoration is often characterised as a gradual process of trend acceleration, comparison with the United States suggests that catching-up only really started after 1950, due to the unusually dynamic performance of the US economy before 1950. A comparison with the United Kingdom, still the world productivity leader in 1868, reveals an earlier period of Japanese catching up between the 1890s and the 1920s, with a pause between the 1920s and the 1940s. Furthermore, this earlier process of catching up was driven by the dynamic productivity performance of Japanese manufacturing, which is also obscured by a comparison with the United States. Japan overtook the UK as a major exporter of manufactured goods not simply by catching-up in labour productivity terms, but by holding the growth of real wages below the growth of labour productivity so as to enjoy a unit labour cost advantage. Accounting for levels differences in labour productivity between Japan and the United Kingdom reveals an important role for capital in the catching-up process, casting doubt on the characterisation of Japan as following a distinctive Asian path of labour intensive industrialisation.

Japan and the Great Divergence, 725-1874

Japanese GDP per capita grew at an annual rate of 0.04 per cent between 725 and 1874, but the growth was episodic, with the increase in per capita income concentrated in three periods, 1150-1280, 1450-1600 and after 1730, interspersed with periods of stable per capita income. There is a similarity here with the growth pattern of Britain. The first countries to achieve modern economic growth at opposite ends of Eurasia thus shared the experience of an early end to growth reversals. However, Japan started at a lower level than Britain and grew more slowly until the Meiji Restoration.

Human capital and long run economic growth: Evidence from the stock of human capital in England, 1300-1900

Did human capital contribute to economic growth in England? In this paper the stock of total years of schooling present in the population between 1300 and 1900 is quantified. The stock incorporates extensive source material on literacy rates, the number of primary and secondary schools and enrolment figures. The trends in the data suggest that, whilst human capital facilitated pre-industrial economic development, it had no role to play during the Industrial Revolution itself: there was a strong decline in educational attainment between ca. 1750 and 1830. A time series analysis has been carried out that confirms this conclusion.

Risk, Recession, and Declining Popular Demand for the Welfare State

How do individual preferences over welfare spending respond to economic hard times? In this paper we reconcile two prominent, opposing expectations : that recessions lead to a `hunkering down' such that individuals become less favourable to taxation and expenditure; and that downturns, being associated with increases in risk, should lead to increased demand for government expenditure. We present a simple formal model rooted in the risk/insurance literature, to demonstrate that these two intuitions both capture important effects. While the labour market risk literature correctly predicts that individual-level insecurity increases support for welfare expenditure, our model shows that it also predicts that poor macroeconomic performance has the opposite effect. The government budget constraint links the two levels, and we demonstrate that concern about budget balance is the mechanism driving declines in support for tax-and-spend. We test our argument using British individual-level panel data from before and during the Great Recession, and use Eurobarometer data from 32 countries to probe our de cit-based mechanism. The evidence is supportive of our claims on both counts.

Asymmetric Information and Imperfect Competition in Lending Markets

We measure the consequences of asymmetric information and imperfect competition in the Italian lending market. We show that banks’ optimal price response to an increase in adverse selection varies with competition. Exploiting matched data on loans and defaults, we estimate models of demand for credit, loan use, pricing, and firm default. We find evidence of adverse selection and evaluate its importance. While indeed prices rise in competitive markets and decline in concentrated ones, the former effect dominates, suggesting that while market power can mitigate the adverse effects of asymmetric information, mainstream concerns about its effects survive with imperfect competition.

Does Market Size Matter for Charities?

We analyse implications of market size on market structure in the not-for-profit sector. We show that, while a standard model of oligopolistic competition between for-profits predicts a positive relationship between market size and firm size, an analogous model of not-for-profit competition predicts no such correlation. We then interrogate these predictions empirically by focusing on five charitable markets for local public goods. These findings both reject the applicability of the classic theories of oligopolistic competition between for-profit firms to the not-for-profit case and fail to reject the simple model proposed here.

Is Secular Stagnation the Future for Europe?

There are at least two distinct (but related) concepts of ‘secular stagnation’. One concerns a possible long-run term trend growth failure and the other a permanent liquidity trap. In the context of poor productivity performance, both are legitimate fears for European economies although technological pessimism is misguided and scope for catch-up is still considerable. In each respect, however, policy responses that have worked in the past are available to address the problem. If European economies were to submit to either type of secular stagnation, it would be a result of policy failure rather than because it is inevitable.

Why are heterogenous communities inefficient? Theory, history and an experiment

We examine why heterogenous communities may fail to provide public goods. Current work characterizes sanctioning free-riders as an under-supplied public good. We argue that often free-riders can be punished by the coordinated action of a group. This punishment can be profitable, and need not be undersupplied. But the power to expropriate defectors can also be used to expropriate outgroups. Heterogenous societies may be inefficient because minorities, rather than free-riders, are expropriated. Even if this is not so, groups’ different beliefs about the reasons for expropriation may make the threat of punishment less effective at preventing free-riding. We illustrate our theory with evidence from California mining camps, contemporary India, and US schools. In a public goods experiment using minimal groups and a profitable punishment institution, outgroups were more likely to be punished, and reacted differently to punishment than ingroup members.

Virtually No Effect? Different Uses of Classroom Computers and their Effect on Student Achievement

Most studies find little to no effect of classroom computers on student achievement. We suggest that this null effect may combine positive effects of computer uses without equivalently effective alternative traditional teaching practices and negative effects of uses that substitute more effective teaching practices. Our correlated random effects models exploit within-student between-subject variation in different computer uses in the international TIMSS test. We find positive effects of using computers to look up information and negative effects of using computers to practice skills, resulting in overall null effects. Effects are larger for high-SES students and mostly confined to developed countries.

Human Capital Formation from Occupations: The Deskilling Hypothesis Revisited

We use HISCLASS to code the occupational titles of over 30,000 English male workers according to the skill-content of their work. We then track the evolution of the sampled working skills across three centuries of English history, from 1550 to 1850. We observe a modest rise in the share of ‘high-quality workmen’ deemed necessary by Mokyr and others to facilitate the Industrial Revolution, including machine erectors and operators. But we also find remarkable growth in the share of unskilled workers, rising from 20% in the late sixteenth century to nearly 40% in the early nineteenth century, caused mainly by falling shares of semi-skilled, blue-collar workers. Close inspection of the occupational structures within the main sectors of production suggest that deskilling occurred in agriculture and industry alike, prompted by land concentration in agriculture and workshop-to-factory changes in industry.

The Political Economy of European Integration

This paper discusses the process of European institutional integration from a political economy perspective, linking the long-standing political debate on the nature of the European project to the recent economic literature on political integration and disintegration. First, we introduce the fundamental trade-off between economies of scale associated with larger political unions and the costs from sharing public goods and policies among more heterogeneous populations, and examine the implications of the trade-off for European integration. Second, we describe the two main political theories of European integration - intergovernmentalism and functionalism - and argue that both theories capture important aspects of European integration, but that neither view provides a complete and realistic interpretation of the process. Finally, we critically discuss the successes and limitations of the actual process of European institutional integration, from its beginnings after World War II to the current crisis.

Adam Smith, Watch Prices, and the Industrial Revolution

Although largely absent from modern accounts of the Industrial Revolution, watches were the first mass produced consumer durable, and were Adam Smith’s pre-eminent example of technological progress. In fact, Smith makes the notable claim that watch prices may have fallen by up to 95 per cent over the preceding century; a claim that this paper attempts to evaluate. We look at changes in the reported value of over 3,200 stolen watches from records of criminal trials in the Old Bailey court in London from 1685 to 1810. Before allowing for quality improvements we find that the real price of watches in nearly all categories falls steadily by 1.3 per cent per year, equivalent to a fall of 75 per cent over a century, a rate considerably above the growth rate of average labour productivity in British industry in the early nineteenth century.

West European Economic Integration since 1950: Implications for Trade and Income

This paper provides a survey of the implications of post-war European economic integration for trade and income. A particular focus is the impact on the United Kingdom. The literature clearly points to large effects of the EU on trade but is more ambivalent about EFTA. Conventional econometric models suggest that this extra trade meant that the level of income in 2000 in EU countries was about 9 per cent larger. Comparisons of the ex-post income gains of EU membership for the United Kingdom with ex-ante predictions show that the outcome was far better than optimists expected in the 1970s.

In the shadow of the Gulag: worker discipline under Stalin

Forthcoming in Journal of Comparative Economics, available at: //authors.elsevier.com/sd/article/S0147596715000207An ‘efficiency wage’ model developed for Western economies is reinterpreted in the context of Stalin’s Russia, with imprisonment – not unemployment – acting as a ‘worker discipline device’. The threat of imprisonment allows the state to pay a lower wage outside the Gulag than otherwise, thereby raising the “surplus” left over for investment: this externality provides a reason for coercion over and above the direct productivity of those in custody.Just how credible the threat of imprisonment was under Stalin is documented using archival data now available; but the enormous scale of random imprisonment involved is, we argue, attributable not to economic factors but to Stalin’s insecurity in the absence of a legitimate process for succession.We develop a model of demand and supply for industrial labour in such a command economy. To get more resources for investment or war, the state depresses the level of real wages; to avoid incentive problems in the wider economy, the harshness of prison conditions can be intensified. This is the logic of coercion we analyse.

The Danish Agricultural Revolution in an Energy Perspective: A Case of Development with Few Domestic Energy Sources

We examine the case of Denmark - a country which historically had next to no domestic energy resources - for which we present new historical energy accounts for the years 1800-1913. We demonstrate that Denmark’s take off at the end of the nineteenth century was relatively energy dependent. We relate this to her well-known agricultural transformation and development through the dairy industry, and thus complement the literature which argues that expensive energy hindered industrialization, by arguing that similar obstacles would have precluded other countries from a more agriculture-based growth. The Danish cooperative creameries, which spread throughout the country over the last two decades of the nineteenth century, were dependent on coal. Although Denmark had next to no domestic coal deposits, we demonstrate that her geography allowed cheap availability throughout the country through imports. On top of this we emphasize that another important source of energy was imported feed for the cows.

Contracts and cooperation: The relative failure of the Irish dairy industry in the late nineteenth century reconsidered

Why did the establishment of cooperative creameries in late nineteenth century Ireland fail to halt the relative decline of her dairy industry compared to other emerging producers? This paper compares the Irish experience with that of the market leader, Denmark, and shows how each adopted the cooperative organisational form, but highlights that an important difference was institutional: specifically regarding the enforcement of vertically binding contracts, which are considered to be of vital importance for the successful operation of cooperatives. We argue that this failure, combined with a strong proprietary sector which was opposed to cooperation, reinforced the already difficult conditions for dairying in Ireland due to poor social capital.

The wages of women in England,1260-1850

This paper presents two wage series for unskilled English women workers from 1260 to 1850, the first based on daily wages and the second on the remuneration per day implied in annual service contracts. These two series are compared and the series for women’s daily wages is also compared with evidence for men, revealing interesting trends in the gender gap. These comparisons inform several recent debates: first whether or not “the golden age of the English peasantry” included women; and, second whether or not protoindustrialization and early industrialization provided women with greater opportunities. Our contributions to these debates have implications for wider analyses of growth and wellbeing. For example, historians have argued that the rise in wages that followed the Black Death enticed female servants to delay marriage so contributing to a European Marriage Pattern, a demographic regime believed to enable modern economic growth. However, our findings suggest that servants did not benefit much in the post-plague era and so offers little in support of a ‘girl-powered’ economic breakthrough in England. Similarly, historians have hypothesized that high wages in the eighteenth century explain the labour-saving technological changes which kick-started the industrial revolution and, recently, that women shared in these high wages. Again our findings suggest a less rosy scenario with women who were unable to commit to full-time work losing ground relative to men and to their less constrained peers; such women fell increasingly adrift from any High Wage Economy.

Industrialization: Why Britain Got There First

This paper provides an introductory overview of the British Industrial Revolution. The dimensions of growth are discussed as well as notable recent explanations for Britain’s primacy. Obstacles to faster growth are considered as well as advantages that were conducive to stronger TFP growth. In this context, reasons for the long delay before steam power had any significant impact on productivity are highlighted. Some implications of Britain’s early start to modern economic growth for subsequent economic performance are noted. The paper concludes that precocious British industrialization is much easier to explain than the timing of the acceleration of technological progress.

Identifying gazelles: expert panels vs. surveys as a means to identify firms with rapid growth potential

Abstract: We conduct a business plan competition to determine whether survey instruments or panel judges are able to predict which participating firms will grow fastest. Participants were required to submit a simple six- to eight-page business plan and then defend that plan before a panel of three or four judges. We surveyed the pool of applicants shortly after they applied, and then one and two years after the business plan competition. We use the follow-up surveys to construct a measure of enterprise growth, and use the baseline surveys and panel scores to construct measures of the potential for growth of the enterprise. We find that a measure of ability correlates quite strongly with future growth, but that the panel scores add to predictive power even after controlling for the measure of ability and other variables from the survey. The survey questions appear to have more power to explain the variance in growth. Participants presenting before the panel were give a chance to win customized management training. Fourteen months after the training, we find no positive effect of the training on growth of the business.

What Generates Growth in Microenterprises? Experimental Evidence on Capital, Labor and Training

Previous research shows that capital injections lead to higher profits in microenterprises, but to little sustained growth. We conduct an experiment which provides overlapping treatments designed to provide capital, incentives to hire new employees and management training. Working with a sample of 1,525 Sri Lankan enterprises with two or fewer paid employees at baseline, we find that the treatments have largely temporary effects, suggesting that while they may speed convergence to a steady state, they do not appear to put firms on a different growth path. Wage incentives lead to higher levels of employment, but not to higher profits, suggesting that the typical firm does not face constraints to hiring which result in the marginal product of labor exceeding the market wage rate. We use data from surveys of wage workers and SME owners conducted at the same time as the baseline survey to estimate characteristics associated with entrepreneurial ability. We find that highability firms, if anything, benefit less from the treatments. The results are consistent with the view of the world illuminated by Lucas‟ 1978 model of firm size distribution.

Tropical Lending: International Prices, Strategic Default and Credit Constraints among Coffee Washing Stations

We use detailed contract level data on a portfolio of 197 coffee washing stations in 18 countries to identify the sources and consequences of credit markets imperfections. Due to moral hazard, default rates increase following unanticipated increases in world coffee prices just before (but not just after) the maturity date of the contract. Strategic default is deterred by relationships with the lender and foreign buyers: the value of informal enforcement amounts to 50% of the value of the sale contract for repaying borrowers. A RDD shows that firms are credit constrained. Additional loans are used to increase input purchases from farmers rather than substituting other sources of credit. Prices paid to farmers increase implying the existence of contractual externalities along the supply chain.

Income Inequality, Redistribution and their Effect on Inequality in Longevity

Objectives: We examined the effects of market income inequality (income inequality before taxes and transfers) and income redistribution via taxes and transfers on inequality in longevity. Methods: Life tables were used to compute Gini coefficients of longevity inequality for all individuals and for individuals that survived at least to the age of ten. Longevity inequality was regressed on market income inequality and income redistribution controlling for a range of potential confounders in a cross-sectional time-series sample of up to 29 predominantly Western developed countries and up to 37 years. Results: Income inequality before taxes and transfers had a positive effect on inequality in the number of years lived, while income redistribution (the difference between market income inequality and income inequality after taxes and transfers have been accounted for) had a negative effect on longevity inequality. Conclusions: Governments can reduce inequality in the number of years lived not only via public health policies, but also via their influence on market income inequality and the redistribution of incomes from the relatively rich to the relatively poor.

Ready for Revolution? The English Economy before 1800

Sustained economic growth in England can be traced back to the early seventeenth century. That earlier growth, albeit modest, both generated and was sustained by a demographic regime that entailed relatively high wages, and by an increasing endowment of human capital in the form of a relatively adaptable and skilled labour force. Healthier and savvier English workers were better equipped to profit from the technological possibilities available to them, and to build on them. Technological change and economic growth stemmed from such human capital rather than Boserupian forces. They were the product of England’s resource endowment and its institutions.

Energy Subsidies and Policy Commitment in Political Equilibrium

Because energy subsidies affect incentives to invest in energy-saving equipment and technologies, they entail a classic investment hold-up problem: once investment has taken place, policymakers will tend to overuse them, which will in turn depress investment by forward-looking agents. Reforming energy subsidies thus requires overcoming a policy commitment problem. In this paper we show that, even when commitment is feasible in principle, it may fail to materialize in a political equilibrium due to politicians’ re-election incentives. In particular, it will be those politicians who are comparatively less favourable to energy subsidies who may fail to commit to phase them out.

Modelling Heaped Duration Data: An Application to Neonatal Mortality

In 2005, the Indian Government launched a conditional cash-incentive program to encourage institutional delivery. This paper studies the effects of the program on neonatal mortality using district-level household survey data. We model mortality using survival analysis, paying special attention to the substantial heaping present in the data. The main objective of this paper is to provide a set of sufficient conditions for identification and consistent estimation of the baseline hazard accounting for heaping and unobserved heterogeneity. Our identification strategy requires neither administrative data nor multiple measurements, but a correctly reported duration and the presence of some at segments in the baseline hazard which includes this correctly reported duration point. We establish the asymptotic properties of the maximum likelihood estimator and provide a simple procedure to test whether the policy had (uniformly) reduced mortality. While our empirical findings do not confirm the latter, they do indicate that accounting for heaping matters for the estimation of the baseline hazard.

Overcoming moral hazard with social networks in the workplace: An experimental approach

The use of social networks in the workplace has been documented by many authors, although the reasons for their widespread prevalence are less well known. In this paper we present evidence based on a combined field-laboratory experiment that social networks are used by employers to reduce worker moral hazard. The worker chooses an effort level given a fixed wage under different settings of social proximity. Social proximity is captured using actual Facebook friendship information revealed anonymously to subjects once they have been recruited. Since employers themselves do not have access to social connections, they delegate the decision to referrers who can select among workers with different degrees of social proximity to themselves. We show that employers choose referrals over anonymous hiring about 80% of the time. In keeping with our predictions, referrers also choose workers with a greater social proximity to themselves and workers who are closer to referrers indeed pay back more to the referrer. The advantage of the lab setting is that we can isolate moral hazard and directed altruism as the main driving forces for these results.

Did Science Cause the Industrial Revolution?

Productivity Growth during the British Industrial Revolution: Revisionism Revisited

This paper re-examines output and productivity growth during the British industrial revolution in the light of recent research. Revised estimates are presented which incorporate new findings on the structure of employment, in particular, that the level of industrialization in the mid-18th century is now known to be considerably higher than was assumed in earlier work. This implies that industrial labour productivity growth was faster than believed by authors of the 1980s but still slower than earlier writers claimed. It is shown that in most important respects the Crafts-Harley view of macroeconomic growth remains basically intact.

Market Integration, Wage Concentration, and the Cost and Volume of Traded Machines

We investigate the theoretical relationship between wage concentration and international market integration. Access to imported varieties lowers the cost of intermediate inputs ("machines") used to carry out production tasks, causing workers with different comparative abilities to be sorted across a narrower range of tasks and raising the concentration of earnings. The accompanying shift in input use further expands the range of traded varieties, which further lowers the cost of machines. Effects on the volume of intermediate goods trade and the number of varieties produced are mutually reinforcing, resulting in a multiplier effect of market integration on wage concentration.

Mismeasuring Long Run Growth: The Bias from Spliced National Accounts

Comparisons of economic performance over space and time largely depend on how statistical evidence from national accounts and historical estimates are spliced. To allow for changes in relative prices, GDP benchmark years in national accounts are periodically replaced with new and more recent ones. Thus, a homogeneous long-run GDP series requires linking different temporal segments of national accounts. The choice of the splicing procedure may result in substantial differences in GDP levels and growth, particularly as an economy undergoes deep structural transformation. An inadequate splicing may result in a serious bias in the measurement of GDP levels and growth rates. Alternative splicing solutions are discussed in this paper for the particular case of Spain, a fast growing country in the second half of the twentieth century. It is concluded that the usual linking procedure, retropolation, has serious flows as it tends to bias GDP levels upwards and, consequently, to underestimate growth rates, especially for developing countries experiencing structural change. An alternative interpolation procedure is proposed.

Are Donors Afraid of Charities’ Core Costs? Scale Economies in Non-profit Provision and Charity Selection

We study contestability in non-profit markets where non-commercial providers supply a homogeneous collective good or service through increasing-returns-to-scale technologies. Unlike in the case of for-profit markets, in the non-profit case the absence of price-based sales contracts between providers and donors means that fixed costs are directly relevant to donors, and that they can translate into an entry barrier, protecting the position of an inefficient incumbent; or that, conversely, they can make it possible for inefficient newcomers to contest the position of a more efficient incumbent. Evidence from laboratory experiments show that fixed cost driven trade-offs between payoff dominance and perceived risk can lead to inefficient selection.

Food Comes First, Then Morals: Redistribution Preferences, Altruism and Group Heterogeneity in Western Europe

Altruism is an important omitted variable in much of the Political Economy literature. While material self-interest is the base of most approaches to redistribution (first affecting preferences and then politics and policy), there is a paucity of research on inequality aversion. I propose that other-regarding concerns influence redistribution preferences and that: (1) they matter most to those in less material need and (2) they are conditional on the identity of the poor. Altruism is a luxury good most relevant to the rich, and it is most influential when the recipients of benefits are similar to those financing them. Using data from the European Social Survey from 2002 to 2010, I will show that group homogeneity magnifies (or limits) the importance of altruism for the rich. In making these distinctions between the poor and the rich, the arguments in this paper challenge some influential approaches to the politics of inequality.

Reducing High Public Debt Ratios: Lessons from UK Experience

This paper examines contrasting experiences of the United Kingdom in addressing high public debt to GDP ratios following major wars. A clear message is that interest rate/growth rate differentials were more important than primary budget surpluses for the different outcomes. The debt to GDP ratio fell very rapidly under financial repression following World War II but remained stubbornly high despite large budget surpluses with price deflation after World War I. Implications for policymakers today are that averting price deflation is a high priority and that supply-side policies that raise growth could play an important part in debt reduction.

Technology in Colonial India: Three Discourses

The historiography of the development and diffusion of technology in the modern world has grown as a collection of discourses, which differ in points of emphasis. The three common points of emphasis are state intervention, cultural makeup of societies, and economic calculations. The disjointedness characterizes the literature on colonial India (1857-1947) as well, complicated further by the need to understand the role that British colonial rule played in these processes. The present survey discusses, compares, and evaluates the diverse narratives.

Tolerating defiance? Local average treatment effects without monotonicity

We know that instrumental variable (IV) estimates a causal effect if the instrument satisfies a monotonicity condition. When this condition is not satisfied, we only know that IV estimates the difference between the effect of the treatment in two groups. This difference could be a very misleading measure of the treatment effect: it could be negative, even when the effect is positive in both groups. There are a large number of studies in which monotonicity is implausible. One might then question whether we should trust their estimates. I show that IV estimates a causal effect under a much weaker condition than monotonicity. I outline three criteria applied researchers can use to assess whether this condition is applicable in their studies. When this weaker condition is applicable, they can credibly interpret their estimates as causal effects. When it is not, they should interpret their results with caution.

National Happiness and Genetic Distance: A Cautious Exploration

This paper examines a famous puzzle in social science. Why do some nations report such high happiness? Denmark, for instance, regularly tops the league table of rich nations’ well-being; Great Britain and the US enter further down; France and Italy do relatively poorly. Yet the explanation for this ranking -- one that holds even after adjustment for GDP and socio-economic and cultural variables -- remains unknown. We explore a new avenue. Using data on 131 countries, we cautiously document a range of evidence consistent with the hypothesis that certain nations may have a genetic advantage in well-being.

The Wind of Change: Maritime Technology, Trade and Economic Development

The 1870-1913 period marked the birth of the first era of trade globalization. How did this tremendous increase in trade affect economic development? This work isolates a causality channel by exploiting the fact that the steamship produced an asymmetric change in trade distances among countries. Before the invention of the steamship, trade routes depended on wind patterns. The introduction of the steamship in the shipping industry reduced shipping costs and time in a disproportionate manner across countries and trade routes. Using this source of variation and a completely novel set of data on shipping times, trade, and development that spans the great majority of the world between 1850 and 1900, I find that 1) the adoption of the steamship was the major reason for the firrst wave of trade globalization, 2) only a small number of countries that were characterized by more inclusive institutions benefited from globalization, and 3) globalization exerted a negative effect on both urbanization rates and economic development in most other countries.

Online fundraising - the perfect ask?

Online platforms provide an opportunity for individuals to fundraise for their favourite charities and charitable causes. In recent years, individual charity fundraising through these platforms has become a mass activity. Using JustGiving, the UK’s biggest charity fundraising platform, 21 million people have raised £1.5 billion for over 13,000 charities and causes since the website was set up in 2001.Recent figures suggest that online donations are still a relatively small part of overall giving; an estimated 7% of the total dollar amount given in the US and used by 7% of UK donors. But online and text giving are growing at a faster rate than total donations, indicating that this share will grow. In this paper, we present insights on individual fundraising from micro-econometric analysis of JustGiving data. The analysis exploits a number of different data sub-samples. The largest comprises 416,313 fundraisers who were active JustGiving users at the time of an online survey that ran from October 2010 – April 2011. We also analyse data on 10,597 fundraisers who ran in the 2010 London marathon and from a sample of 39,238 fundraisers who had linked their fundraising pages to their Facebook page. Details on all these samples are given in the Appendix. The focus of the analysis is what determines fundraising success. The "perfect ask" in the title of the paper suggests that there may be a winning formula that could easily be replicated. In practice, much of the power of individual fundraising comes from its very personal – and idiosyncratic – nature, but there may nevertheless be some useful lessons to be learned from studying how fundraisers and donors behave. A "typical" fundraising page (the median) has 14 donations and raises £245. But, as shown in Table 1, there is substantial variation in the number of donations and the amounts raised. The top 10% of pages raise £1,343 or more; the bottom 10% manage less than £38. In this paper, we show that at least some of this variation can be linked to specific factors having to do with the individual’s fundraising strategy (for example, the type of event they do and whether or not they set a fundraising target). We also show that social interactions are crucially important – whether between the fundraiser and donors or between donors. Individual fundraising is a uniquely personal and interactive form of fundraising, introducing new social dynamics into fundraising.

Relational Warm Glow and Giving in Social Groups

We study charitable giving within social groups. Exploiting a unique dataset, we establish three key relationships between social group size and fundraising outcomes:(i) a positive relationship between group size and the total number of donations; (ii) anegative relationship between group size and the amount given by each donor; (iii) no relationship between group size and the total amount raised by the fundraiser. We rule out classic free-riding to explain these relationships since the number of social group members is only a subset of total contributors. Instead, the findings are consistent with the notion that giving in social groups is motivated by "relational" warm glow.

The Great Depression of the 1930s: Lessons for Today

Understanding the Great Depression has never been more relevant than in today's economic crisis. This edited collection provides an authoritative introduction to the Great Depression as it affected the advanced countries in the 1930s. The contributions are by acknowledged experts in the field and cover in detail the experiences of Britain, Germany, and, the United States, while also seeing the depression as an international disaster. The crisis entailed the collapse of the international monetary system, sovereign default, and banking crises in many countries in the context of the most severe downturn in western economic history. The responses included protectionism, regulation, fiscal and monetary stimulus, and the New Deal. The relevance to current problems facing Europe and the United States is apparent.

The Cambridge Economic History of Modern Europe Volumes 1 & 2

Unlike existing textbooks on the economic history of modern Europe, which offer a country-by-country approach, The Cambridge Economic History of Modern Europe rethinks Europe's economic history since 1700 as unified and pan-European, with material organised by topic rather than by country. The first volume is centred on the transition to modern economic growth, which first occurred in Britain before spreading to other parts of western Europe by 1870, whilst the second tracks Europe's economic history through three major phases since 1870. Each chapter is written by an international team of authors who cover the three major regions of northern Europe, southern Europe, and central and eastern Europe. The two volumes together provide a comprehensive and accessible introduction to the key themes in modern economic history from trade, urbanisation, economic growth and business cycles to sectoral developments, and population and living standards.

The Power of Political Voice: How Women in Politics Can Help Tackle Gender Crime

Crimes against women are a persistent and even a growing problem in many developing countries. In India, research suggests that having female political representatives can be an effective tool to empower women in the battle against gender crime.

Human Development as Positive Freedom: A World View since 1870

In this paper Professor Leandro Prados de la Escosura argues that substantial gains in world human development have been achieved since 1870, but research shows that the main improvement actually occurred between World War I and 1970. Despite initial successes in lifting human development, the socialist experiments of the 20th century failed to sustain momentum and then (with the exception of Cuba) stagnated and fell behind prior to the socialist model's ultimate demise. Since 1970, while most OECD countries have experienced a second (later life) health transition, all developing regions have fallen behind in this dimension.

Saving the Euro: A Pyrrhic Victory?

The euro has survived a lengthy recession and an ominous legacy of public debt, but the fundamental flaws in its original design have not been corrected. Fiscal consolidation alone seems inadequate to address the fiscal sustainability problems of highly-indebted economies in the euro area. The author of the Chatham House-CAGE Briefing Paper Saving the Euro: A Pyrrhic Victory? will argue that the crisis has inflicted significant damage to future growth prospects in the eurozone, both through the debt legacy it has created and in terms of the impetus it has given to detrimental supply-side policies.

The Danger of High Home Ownership: Greater Unemployment

'The evidence is that high home ownership weakens the vitality of the labour market and slowly grinds out greater rates of joblessness' Although encouraging home ownership has been a major policy objective for Western governments in recent decades, Professors Blanchflower and Oswald argue that evidence from the United States strongly suggests that high home ownership is a major reason for the high unemployment rates of the industrialized nations in the post-war era.

Fiscal Federalism in the UK: How Free is Local Government?

Looking at the effects of party control and performance management schemes on local government and its behaviour, Professor Lockwood’s work shows that in spite of the many constraints on local government in England and Wales, party control does appear to matter for expenditure, taxes, and local public employment. Focusing on performance management schemes, such as the Comprehensive Performance Assessment (CPA), the author will also argue that such schemes have increased local government spending and taxation but generally have failed to improve efficiency in the use of resources. A roundtable discussion will follow.

The Design of Pro-Poor Policies: How to Make Them More Effective

A key policy concern in emerging-market economies is the appropriate design of policy interventions to alleviate chronic poverty. Largely missing from conventional analyses of poverty traps are the psychological mechanisms through which the experience of poverty forms the beliefs, values and aspirations of the poor Pro-poor policies tend to focus on relaxing external constraints that may perpetuate poverty traps, such as lack of credit or insecure property rights, but internal constraints such as learned helplessness, pessimistic beliefs and an external locus of control are also important These internal constraints are endogenous because they adapt to the experience of chronic poverty. Over time, however, they become an independent source of disadvantage for poor persons in their own right Pro-poor policies aimed at raising aspirations will alleviate poverty more effectively than those that address external constraints alone The ‘Dream Building’ sessions pioneered by the Durbar Foundation to empower a marginalised, stigmatized community of sex workers in Kolkata provides suggestive evidence of the potential impact of interventions in raising aspirations.

Registering for Growth: Tax and the Informal Sector in Developing Countries

Low- and lower-middle-income countries typically have a large informal sector, very high self-employment rates and low levels of tax collection. A recent project in Sri Lanka to induce small firms in the informal sector to register did little to change the trajectory of most, but registration did help some firms generate rapid growth – an outcome with important policy implications. For governments in developing countries, getting firms to register should not be simply a cost-benefit calculation involving a trade-off between enforcement costs and tax collection. Registration can also improve the attitude of small business owners towards the state and, more importantly, help stimulate economic growth. The tendency of small firms to remain in the informal sector may have an even more pervasive detrimental impact on growth than one might expect. Their informal status usually allows them to avoid taxes by keeping costs and revenues off the books. However, the lack of information arising from production costs, and the basic accounting systems on which they rely, mean many costly errors in pricing can be made, resulting in considerable lost business. Focusing on avoiding taxes in the informal sector can often distract firms’ attention away from important growth opportunities. Although taxes may discourage some economic activity, the problem in low-income countries is typically lack of capacity and under-enforcement, rather than over-taxation.

Soaring Dragon, Stumbling Bear: China's Rise in a New Context

The speakers will argue that in a historic reversal of fortunes, China has overtaken the territory of the former Soviet Union in GDP per capita. China’s model of rapid economic development offers powerful lessons for economies in transition, but they need to be seen in the country’s historical and political context. The conditions that enabled China’s success may not apply elsewhere and were not in evidence in the parallel case of the Soviet Union. China’s exceptional size and long history of regionally decentralized authoritarianism (RDA) provided perhaps the unique circumstances for this favourable outcome. The authors stress that the key to sustained economic development is continuous policy reform. Whilst China’s existing economic model has encouraged this in the past, current risks of the continuity of China’s economic modernization include two traps: complacency an conflict. As the country moves towards middle-income status there is the danger that its leaders will cease to pursue reforms that are in the national interest and will acquiesce to the private interests of bureaucratic or corporate incumbents.

Africa's Growth Prospects in a European Mirror: A Historical Perspective

The relatively rapid growth rates achieved by many African countries in the last decade have raised hopes that the continent is finally on a path to economic convergence with Asia and Latin America, but history suggests that such optimism could be misplaced. Previous periods of rapid growth across Africa have often been followed by phases of economic decline which have erased many of the gains countries have achieved in per capita income. The continent's transition to modern economic growth will thus require a break in the boom-and-bust pattern which has characterized its economic performance during much of the 20th century. European experience since the Middle Ages suggests that the pattern of growth based on increasing demand for export staples, followed by economic reversals, has often resulted in limited overall gains in per capita income. This pattern was only broken following the introduction of significant institutional change. Placing Africa's recent economic performance in a wider historical perspective highlights the fact that the continent's level of per capita income is comparable to pre-industrial Europe and that the institutional changes needed to ensure sustained economic growth have yet to take place. Growth reversals remain a serious threat to Africa's future prosperity, and therefore it is incumbent on policy-makers to focus a great deal more on the introduction of measures that can encourage the development of a robust civil society.

Tax Competition and the Myth of the 'Race-to-the-Bottom': Why Governments Still Tax Capital

The majority of OECD countries have only experienced minor effects of capital market integration and capital tax competition since the mid-1980s. There have undoubtedly been some winners, mainly capital owners in larger liberal market economies, and some losers, especially large continental European welfare states. Not only have the dire predictions of the early doom theories not materialized; they have failed. Therefore, there is much to be gained in making the key assumptions underlying traditional tax competition models much more realistic, particularly in terms of predicting the impact of globalization on Western democracies. Tax competition affects countries differently and does not lead to a ‘race to the bottom’ since capital remains incompletely mobile. The competitiveness of a country determines fiscal adjustment strategies by others. Cutting capital taxes, therefore, will not necessarily generate more capital inflows. Tax competition and taxation have broader implications for the fiscal responses of countries to globalization and their redistribution efforts. Given that tax competition affects countries differently, governments will choose diverse strategies to cope with these international pressures. Competition will more negatively affect income inequality in countries that predominantly redistribute via the tax system than in those that historically set up a welfare state by redistributing via social transfers.

EU Structural Funds: Do They Lead to More Growth?

In this policy paper, Professor Sascha Becker argues that the EU transfer system, while currently yielding a certain amount of additional growth in some recipient regions, requires a degree of conditionality in order to deliver targeted results. In assessing the effectiveness of the EU's Regional Policy, the paper focuses on the Convergence Objective (formerly Objective 1) which suggests that, on average, it is successful at fostering growth in recipient regions, but that those with low levels of education and poor governance fail to make good use of EU transfers. For EU Structural Funds as a whole, a point is reached where returns begin to decline and additional funds do not lead to higher growth. Professor Becker argues that, in the future, EU transfers to regions should not exceed maximum desirable levels if inefficiency and misuse are to be avoided.

International Migration, Politics and Culture: the Case for Greater Labour Mobility

A policy shift to liberalise global labour markets could be a key tool for development and poverty reduction. Given the significant benefits globally, economists and policy-makers should devote more attention than at present to the practicalities of relaxing barriers to international labour mobility. The potential gains from the globalisation of labour could dwarf those from foreign aid or even the liberalisation of trade and capital flows across borders. For example, a decision by developed countries to liberalise immigration restrictions by a mere 3% could result in an estimated output gain of more than $150 billion. Although immigration policy is always controversial, the absence of serious debate in international circles is not due entirely to the distributional impact of labour migration, but in large part to the perceived threat to national identity and culture in destination countries. While permanent migration would yield relatively larger economic gains, temporary labour migration programmes, targeted to specific sectors and more modest in scope, could be the answer and would be far more acceptable and politically sustainable in countries where citizens perceive migrants as a threat to culture and national identity.

Saving the Eurozone: Is a 'Real' Marshall Plan the Answer?

‘Saving the Eurozone: Is a ‘Real’ Marshall Plan the Answer?’ by Nicholas Crafts, argues that the rationale for a new Marshall Plan would be both to reduce the chances of a chaotic break-up of the eurozone and to allow more time to prepare for this eventuality – while at the same time working to improve the medium term economic performance of the euro periphery. The objective of a Marshall Plan for crisis-hit countries in the euro periphery of southern Europe would be to underpin European economic integration and the survival of the eurozone by raising productivity growth. This would entail increased but not massive transfers of funds. However, this is not appreciated by most economists today, let alone the politicians who argue for such a plan. What was the original Marshall Plan and how did it work in practice?

The economic legacy of Mrs Thatcher

The death of Lady Thatcher makes it opportune to consider the difference that her governments made to the UK's economic performance. This column is an ‘economic obituary’.

Returning to growth in the UK: Policy lessons from history

A return to growth is urgently needed in the UK. Recovery from severe recessions was achieved in the 1930s and the 1980s in the presence of fiscal consolidation. This column examines the lessons from those experiences for today’s policymakers.

Do falling trade costs benefit all countries equally?

Trade barriers such as transportation costs and tariffs reduce international trade. But when these trade barriers come down, do they increase international trade equally among countries? This column presents evidence from OECD countries that trade costs have a differential impact depending on the trade intensity of the countries involved. When they already trade a lot, country pairs hardly benefit. But bilateral trade grows faster when the initial trade relationship was thin.

Russia's national income in war and revolution, 1913 to 1928

At the start of the 1920s, Russia’s economy suffered the greatest economic catastrophe of a turbulent 20th century. This column argues that measuring this experience yields lessons for the relationship between state capacity, government policies, and economic development.

Trade and global climate-policy

In terms of new emissions reductions, little materialised at the climate-change negotiations in Durban in November. This column argues that trade policy could widen the range of jointly beneficial potential outcomes and in this sense be a potential facilitator of an agreed global climate regime. Moreover, trade provides a mechanism for achieving an internalisation outcome for the global externality that climate change represents.

The contribution of Chinese FDI to Africa's growth

In the three years before the global crisis, the average GDP growth in sub- Saharan Africa was around 6%. This period also saw significant Chinese foreign direct investment flowing into the continent. This column uses growth-accounting methods to assess what portion of this growth can be attributed to Chinese FDI. Although for some countries and years the effects were negligible, some countries saw total GDP growth from 2002 to 2009 increase by 0.5 percentage points due to Chinese FDI alone.

Making globalisation work for workers

As job losses continue to haunt the headlines, people are left asking if long- term unemployment is to be one of the so-called benefits from globalisation. This column reports on a conference aimed at understanding how globalisation can be made to work for workers.

When markets freeze: Tobin's q and QE

Just what on earth is going on in the global economy? Rather than get caught up in the hysteria, this column says the answers are best found by looking through the pages of history and dusting down some old textbooks.

The ins and outs of UK unemployment

Labour-market policy can try to make it easier to get hired or harder to get fired. This column asks which of these approaches policymakers should prioritise. Focusing on the UK, it finds that while job-finding rates could be improved, policies aimed at reducing the amount of job losses during a recession play an equally important role despite being less in vogue.

Competition cured the "British disease"

Britain’s relative economic decline throughout the 20th century—the so-called “British disease”—was a national embarrassment that only went away in the 1980s. This column presents new research showing that competition provided the cure. Only when Britain returned to a regime of competition and openness similar to that which had prevailed before World War I did productivity growth resume.

The Habsburg Empire and the long half-life of economic institutions

How the long-gone Habsburg Empire is still visible in Eastern European bureaucracies today.

Studying abroad and international labour market mobility

Is the ERASMUS scheme—where European students study for a year in a foreign country—just an excuse for a holiday or does it have some economic value? This column analyses how studying abroad affects labour-market mobility using the exposure to ERASMUS as an exogenous source of variation in studying abroad. It finds that studying abroad increases an individual's probability of working in a foreign country by about 15 percentage points.

Civil conflicts hurt firms - by displacing workers

As unrest continues in the Arab countries, many are asking about the economic costs. While the macro effect of civil conflicts is widely studied, little is known of the micro effects. This column presents evidence from the short-term violence following the 2007 election in Kenya. It finds that firms providing cut flowers to Western markets saw a significant rise in costs, largely due to the displacement of workers.

An historical perspective on the Great Recession

What started as a subprime crisis in the US soon spread to a global crisis resulting in what some have called the Great Recession. This column argues that economists spectacularly failed to take the prevention of financial crises seriously. But since then, economists have heeded the lessons from past crises and have helped avoid the worst.

A recession to remember: Lessons from the US, 1937 - 1938

The global crisis has been frequently compared to the Great Depression. The recession of 1937 has been less widely discussed. This column asks what lessons it can teach today’s policymakers. Its key message is that while fiscal consolidation should not be postponed, the exit strategy needs to focus on providing monetary support for aggregate demand as fiscal stimulus is withdrawn.

China and antidumping

Over the last decade, China has been the target of more antidumping measures than any country in the world. This column examines the impacts and argues that China should be paying more attention to measures that come from its main trading partners.

Corruption as a barrier to entry

Conventional wisdom says that corruption hurts the economy because it taxes investment and weakens public services. This column presents evidence from interviews with CEOs in Brazil. It argues that corruption acts as a barrier to entry, with potential entrants put off by the uncertainty over what bribes to pay and when to pay them.

Global imbalances: are we measuring the right thing?

As the debate over global imbalances develops, this column asks whether the discussion is based on faulty data. Using data from the US, Japan, Germany, and the Czech Republic, it argues that not taking due account of foreign affiliate sales leads to a warped view of trade in goods and services.

"Happiness economics" in reverse: Does happiness affect productivity?

Happiness economics typically looks at how macro-level variables such as economic growth affect happiness. This column turns such thinking on its head and asks whether a rise in happiness might change behaviour at the micro-level, looking specifically at productivity. Experiments suggest that happiness raises productivity by increasing workers' effort. Economists may need to take the emotional state of economic agents seriously.

Monetary theory from a Chinese historical perspective

While many commentators focus on China’s future, this column draws economic theory insights from its past. It argues that Chinese monetary theory preceded Western thought and influenced the likes of Adam Smith and Karl Marx. Moreover, it says the Eastern emphasis on the pursuit of wisdom, as opposed to knowledge, has a role to play in today’s economic debate.

Long-run effects of the Spanish Inquisition

Using a newly collected dataset on inquisitorial activity for seven regions, fourteen provinces and 947 municipalities, I analyse the long-term economic consequences of the Spanish Inquisition (1478-1834). I show that inquisitorial activity is negatively associated to regional and provincial economic growth (an increase of a thousand inquisitorial trials is associated with 3% to 5% lower urbanization rates). At the municipal level, I find that municipalities affected by the Inquisition experienced an annual population growth rate 0.11% lower than their counterparts. This result is robust when controlling for alternative explanatory factors, such as pre-existent religiosity and proxies for trade activity. I explore three channels through which the Inquisition may have had an impact on economic outcomes. While inquisitorial activity is not linked to levels of trust or social polarization, I find it is negatively associated with the adoption of new technologies and the creation of municipal centres of cultural transmission.

Individual and Societal Wisdom: Explaining the Paradox of Human Aging and High Well-Being

Objective: Although human aging is characterized by loss of fertility and progressive decline in physical abilities, later life is associated with better psychological health and well-being. Furthermore, there has been an unprecedented increase in average lifespan over the past century without corresponding extensions of fertile and healthy age spans. We propose a possible explanation for these paradoxical phenomena. Method: We reviewed the relevant literature on aging, well-being, and wisdom. Results: An increase in specific components of individual wisdom in later life may make up for the loss of fertility as well as declining physical health. However, current data on the relationship between aging and individual wisdom are not consistent, and do not explain increased longevity in the general population during the past century. We propose that greater societal wisdom (including compassion) may account for the notable increase in average lifespan over the last century. Data in older adults with serious mental illnesses are limited, but suggest that many of them too experience improved psychosocial functioning, although their longevity has not yet increased, suggesting persistent stigma against mental illness and inadequate societal compassion. Conclusions: Research should focus on the reasons for discrepant findings related to age-associated changes in different components of individual wisdom; also, more work is needed on the construct of societal wisdom. Studies of wisdom and well-being are warranted in older people with serious mental illnesses, along with campaigns to enhance societal compassion for these disenfranchised individuals. Finally, effective interventions to enhance wisdom need to be developed and tested.

Cooperation and Personality

Cooperating behavior may be fostered by personality traits reflecting either favorable inclination to others or willingness to comply with norms and rules. We test the relative importance of these two factors in an experiment where subjects provide real mental effort in two treatments with identical task, differing only by whether others' payment is affected. If the first hypothesis is true, subjects reporting high Agreeableness score should put more effort; if the second is true, reporting higher Conscientiousness should predict more effort. We find experimental support for the second hypothesis but not for the first, as subjects reporting high Altruism do not behave consistently with this statement.

Habemus Papam? Polarization and Conflict in the Papal States

We study the effect of divisions within the elite on the probability of internal conflict in the Papal States between 1295 and 1846. We assemble a new database using information on cardinals that participated in conclaves during this period, and construct measures of polarization and fractionalization based on the cardinals’ places of birth. The deaths of popes and cardinals provide plausible exogenous variation in the timing of the conclave and the composition of the College of Cardinals, which we exploit to analyse the causal effect of a divided conclave on conflict. We find that an increase of one standard deviation in our measure of polarization raised the likelihood of internal conflict by between 2 and 3 percent in a given year and by up to 15 percent in a given papacy. The effect is largest in the initial years after the conclave, to gradually vanish over time. Cardinals’ influence on the politics of the Papal States decreased after reforms introduced between 1586 and 1588. Our measure of religious productivity, however, is negatively and significantly linked to polarization in the post-reform period. These reforms were successful in shifting the effect of divisions among the elite of one of the largest and oldest organizations from violent conflict to religious matters.

Myths of the Great War

We review some “myths” of the Great War of 1914 to 1918: that the war broke out inadvertently, that the western front saw needless slaughter, that the Allies used the food weapon to strangle Germany, and that the peace treaty that ended the war caused the rise of Hitler and the still greater war that followed.

Longitudinal Evidence for a Midlife Nadir in Human Well-being: Results from Four Data Sets

There is a large amount of cross-sectional evidence for a midlife low in the life cycle of human happiness and well-bein (a ‘U shape’). Yet no genuinely longitudinal inquiry has uncovered evidence for a U-shaped pattern. Thus some researchers believe the U is a statistical artefact. We re-examine this fundamental cross-disciplinary question. We suggest a new test. Drawing on four data sets, and only within-person changes in well-being, we document powerful support for a U-shape in unadjusted longitudinal data without the need for regression equations. The paper’s methodological contribution is to exploit the first-derivative properties of a well-being equation.

Education Promoted Secularization

Why did substantial parts of Europe abandon the institutionalized churches around 1900? Empirical studies using modern data mostly contradict the traditional view that education was a leading source of the seismic social phenomenon of secularization. We construct a unique panel dataset of advanced-school enrolment and Protestant church attendance in German cities between 1890 and 1930. Our cross-sectional estimates replicate a positive association. By contrast, in panel models where fixed effects account for time-invariant unobserved heterogeneity, education – but not income or urbanization – is negatively related to church attendance. In panel models with lagged explanatory variables, educational expansion precedes reduced church attendance.

Does Money Make People Right-Wing and Inegalitarian? A Longitudinal Study of Lottery Winners

The causes of people’s political attitudes are largely unknown. We study this issue by exploiting longitudinal data on lottery winners. Comparing people before and after a lottery windfall, we show that winners tend to switch towards support for a right-wing political party and to become less egalitarian. The larger the win, the more people tilt to the right. This relationship is robust to (i) different ways of defining right-wing, (ii) a variety of estimation methods, and (iii) methods that condition on the person previously having voted left. It is strongest for males. Our findings are consistent with the view that voting is driven partly by human self-interest. Money apparently makes people more right-wing.

Fuzzy Changes-in-Changes

The changes-in-changes model extends the widely used difference-in-differences to situations where outcomes may evolve heterogeneously. Contrary to difference-in-differences, this model is invariant to the scaling of the outcome. This paper develops an instrumental variable changes-in-changes model, to allow for situations in which perfect control and treatment groups cannot be denied, so that some units may be treated in the control group, while some units may remain untreated in the treatment group. This is the case for instance with repeated cross sections, if the treatment is not tied to a strict rule. Under a mild strengthening of the changes-in-changes model, treatment effects in a population of compliers are point identified when the treatment rate does not change in the control group, and partially identified otherwise. Simple plug-in estimators of treatment effects are proposed. We show that they are asymptotically normal, and that the bootstrap is valid. Finally, we use our results to reanalyse findings in Field (2007) and Dufflo (2001).

Overcoming Moral Hazard with Social Networks in the Worksplace: An Experimental Approach

The use of social networks in the workplace has been documented by many authors, although the reasons for their widespread prevalence are less well known. In this paper we present evidence based on a lab experiment that suggests quite strongly that social networks are used by employers to reduce worker moral hazard. We capture moral hazard with a dictator game between the referrer and worker. The worker chooses how much to return under different settings of social proximity. Social proximity is captured using Facebook friendship information gleaned anonymously from subjects once they have been recruited. Since employers themselves do not have access to social connections, they delegate the decision to referrers who can select among workers with different degrees of social proximity to themselves. We show that employers choose referrals over anonymous hiring relatively more when they know that the referrer has access to friends, and are willing to delegate more often when the social proximity between referrer and worker is potentially higher. In keeping with this expectation, referrers also choose workers with a greater social proximity to themselves and workers who are closer to referrers indeed pay back more to the referrer. The advantage of the lab setting is that we can isolate directed altruism as the only reason for these results.

Human well-being and in-work benefits: A randomized controlled trial

Many politicians believe they can intervene in the economy to improve people’s lives. But can they? In a social experiment carried out in the United Kingdom, extensive in-work support was randomly assigned among 16,000 disadvantaged people. We follow a sub-sample of 3,500 single parents for 5 ensuing years. The results reveal a remarkable, and troubling, finding. Long after eligibility had ceased, the treated individuals had substantially lower psychological well-being, worried more about money, and were increasingly prone to debt. Thus helping people apparently hurt them. We discuss a behavioural framework consistent with our findings and reflect on implications for policy.

The Evolution of Bank Supervision: Evidence from U.S. States

We use a novel data set spanning 1820-1910 to examine the origins of bank supervision and assess factors leading to the creation of formal bank supervisory institutions across U.S. states. We show that it took more than a century for the widespread adoption of independent supervisory institutions tasked with maintaining the safety and soundness of banks. State legislatures initially pursued cheaper regulatory alternatives, such as double liability laws; however, banking distress at the state level as well as the structural shift from note-issuing to deposit-taking commercial banks propelled policymakers to adopt costly and permanent supervisory institutions.

Export or Merge? Proximity vs. Concentration in Product Space

This paper proposes a proximity-concentration trade-off in product space as a determinant of horizontal foreign direct investment (FDI). Firms that enter a foreign market by exporting are able to capture consumer surplus from introducing a differentiated product with characteristics that the incumbent cannot match. In relatively globalized product space, in contrast, consumers perceive an entrant’s difference to existing products as less pronounced, so a consumer’s virtual distance costs in product space are lower and a merger with an incumbent (horizontal FDI) offers pricing power that allows the entrant to extract consumer rent. Lower physical trade costs of shipping make Bertrand price competition fiercer in differentiated product space and can provide an additional incentive for a merger. A basic product space model with a linear Hotelling setup can therefore explain why FDI has become more frequent in recent periods in the presence of falling trade costs. Cross-border merger and acquisitions data support the model’s prediction that horizontal FDI grows relatively faster than exports in differentiated goods industries, compared to homogeneous-goods industries.

Industrial Policy for the Medium to Long-term

This report reviews the market failure and systems failure rationales for industrial policy and assesses the evidence on part experience of industrial policy in the UK. In the light of this, it reviews options for reshaping the design and delivery of industrial policy towards UK manufacturing. These options are intended to encourage a medium- to long-term perspective across government departments and to integrate science, innovation and industrial policy.

Does the Unemployment Benefit Institution affect the Productivity of Workers? Evidence from a Field Experiment

We investigate whether and how the type of unemployment benefit institution affects productivity. We designed a field experiment to compare workers' productivity under a welfare system, where the unemployed receive an unconditional monetary transfer, with their productivity under a workfare system, where the transfer is received conditional on the unemployed spending some time on ancillary activities. First, we find that having an unemployment benefit institution, regardless of whether it makes transfers conditional or unconditional, increases workers' productivity. Second, we find that productivity is higher under Welfare than under Workfare. Becoming unemployed under Welfare comes at the psychological cost of a drop in self-esteem, presumably due to the shame or stigma associated with receiving an unconditional unemployment benefit. We document the empirical relevance of precisely this channel. The differences we observe in productivity suggest that this psychological cost acts as an extra nonmonetary incentive for workers under Welfare to put a higher effort in their work.

Unfree Labour: Did Indenture Reduce Labour Supply to Tea Plantations in Assam?

Migration to tea plantations in Assam in the 19th century used indentured contracts. These contracts differed by conditions of harshness. Migration under the Special Act gained notoriety by giving tea planter the right of private arrest. Using a new set of migration by types of contract, the paper assesses if harsh terms of indenture discouraged labour flows. We find that regions using the harsh contract saw lower response to rise in the price of tea. Disaggregating by types of recruiter, we find that the response to market recruitment was high in all regions, but response to recruitment using community networks is statistically insignificant, suggesting that informational asymmetries may be an explanation for continuing migration despite concerns raised by the nationalist movement, social reformers and policy makers.

Occupational Structure in the Czech Lands Under the Second Serfdom

A shift in occupational structure towards non-agricultural activities is widely viewed as a key component of European economic growth during the early modern ‘Little Divergence’. Yet little is known about this process in those parts of eastern-central Europe that experienced the early modern ‘second serfdom’, the massive increase in the institutional powers of landlords over the rural population. We analyse non-agricultural occupations under the second serfdom using data on 6,983 Bohemian villages in 1654. Bohemia resembled other eastern-central, Nordic and southern European economies in having a lower percentage of non-agricultural activities than western Europe. But Bohemian serfs engaged in a wide array of industrial and commercial activities whose intensity varied significantly with village characteristics. Non-agricultural activity showed a significant positive relationship with village size, pastoral agriculture, sub-peasant social strata, Jews, freemen, female household heads, and village mills, and a significant negative relationship with arable agriculture and urban agglomerations. Non-agricultural activity was also positively associated with landlord presence in the village, although the relationship turned negative at higher values and landlord presence reversed the positive effects of female headship and mills. Under the second serfdom, landlords encouraged serf activities from which they could extort rents, while stifling others which threatened their interests.

Landownership Concentration and the Expansion of Education

This paper studies the effect of landownership concentration on school enrolment for nineteenth century Prussia. Prussia is an interesting laboratory given its decentralized educational system and the presence of heterogeneous agricultural institutions. We find that landownership concentration, a proxy for the institution of serfdom, has a negative effect on schooling. This effect diminishes substantially towards the end of the century. Causality of this relationship is confirmed by introducing soil texture to identify exogenous farm-size variation. Panel estimates further rule out unobserved heterogeneity. We present several robustness checks which shed some light on possible mechanisms.

Malthus in the Bedroom: Birth Spacing as a Preventive Check

The role of demography in long-run economic growth has been subject to increasing attention. This paper questions the received wisdom that marital birth control was absent before the nineteenth century. Using an extensive individual-level dataset covering 270,000 births from 80,000 families we show that higher national and sector-specific real wages reduced spacing between births in England over more than three centuries, from 1540-1850. This effect is present among both poor and rich families and is robust to a wide range of control variables accounting for external factors influencing a couple’s fertility such as malnutrition, climate shocks and the disease environment.

Critical Junctures: Independence Movements and Democracy in Africa

We show that current levels of democracy in Africa are linked to the nature of its independence movements. Using different measures of political regimes and historical data on anti-colonial movements, we find that countries that experienced rural insurgencies tend to have autocratic regimes, while those that faced urban protests tend to have more democratic institutions. We provide evidence for causality in this relationship by using rough terrain as an instrument for rural insurgency, and by performing a sensitivity analysis. Finally, the evidence suggests that the adoption of rural insurgency perpetuated the use of violence as a form of conflict resolution.

Africa’s Growth Prospects in a European mirror: a Historical Perspective

Drawing on recent quantitative research on Europe reaching back to the medieval period, and noting a relationship between the quality of institutions and economic growth, this paper offers a reassessment of Africa’s growth prospects. Periods of positive growth driven by trade, followed by growth reversals which wiped out the gains of the previous boom, characterized pre-modern Europe as well as twentieth century Africa. Since per capita incomes in much of sub-Saharan Africa are currently at the level of medieval Europe, which did not make the breakthrough to modern economic growth until the nineteenth century, we caution against too optimistic a reading of Africa’s recent growth experience. Without the institutional changes necessary to facilitate structural change, growth reversals continue to pose a serious threat to African prosperity. Only if growth continues after a downturn in Africa’s terms of trade can we be sure that the corner has been turned.

How much do children really cost? Maternity benefits and career opportunities of women in academia

Motherhood and professional achievements appear as conflicting goals even for academic women. This project explores this tension by focusing on a set of provisions on parental and maternity leaves across 165 higher education institutions in the UK. Generous maternity provisions generate countervailing incentives for female academics. On the one hand, advantageous policies can foster women’s productivity in terms of research outcomes allowing them to take time out of work without income and career break concerns. On the other hand, women can exploit generous provisions without generating returnable results for the academic institution. We argue that adverse selection problems lead universities to differentiate among academic staff by offering two different types of maternity provisions (more vs less generous maternity leaves) in order to "test" women’s commitment and research ability before offering permanent contracts. Our results support this this line of argumentation. We also find that generous maternity leaves and childcare provisions positively affect the number of women at research and professorship levels.

Counter-Intelligence in a Command Economy

We provide the first thick description of the KGB’s counter-intelligence function in the Soviet command economy. Based on documentation from Lithuania, the paper considers KGB goals and resources in relation to the supervision of science, industry, and transport; the screening of business personnel; the management of economic emergencies; and the design of economic reforms. In contrast to a western market regulator, the role of the KGB was to enforce secrecy, monopoly, and discrimination. As in the western market context, regulation could give rise to perverse incentives with unintended consequences. Most important of these may have been adverse selection in the market for talent. There is no evidence that the KGB was interested in the costs of its regulation or in mitigating the negative consequences.

Happy Voters

In this paper we investigate whether or not recent initiatives taken by governments and international organizations to come up with indicators of Subjective Well Being (SWB) to inform policy makers go in the same direction as citizens expectations on what policy makers should do. We test retrospective voting hypotheses by using standard measures of SWB as a proxy for utility instead of the commonly used indicators of economic and financial circumstances. Using the British Household Panel Survey Data we find that citizens who are satisfied with their life are more likely to cast their vote in favour of the ruling party, even taking into account ideological preferences. We show that SWB influences voting decision even when the event affecting the SWB is beyond the government's control, like the spouse death.

Reagan's Innovation Dividend? Technological Impacts of the 1980s US Defense Build-Up

US government spending since World War II has been characterized by large investments in defence related goods, services and R&D. In turn, this means that the Department of Defence (DoD) has had a large role in funding corporate innovation in the US. This paper looks at the impact of military procurement spending on corporate innovation among publicly traded firms for the period 1966-2003. The study utilizes a major database of detailed, historical procurement contracts for all Department of Defence (DoD) prime contracts since 1966. Product-level spending shifts – chiefly centred around the Reagan defence build-up of the 1980s – are used as a source of exogenous variation in firm-level procurement receipts. Estimates indicate that defence procurement has a positive absolute impact on patenting and R&D investment, with an elasticity of approximately 0.07 across both measures of innovation. In terms of magnitudes, the contribution of defence procurement to innovation peaked during the early Reagan build-up, accounting for 11.4% of the total change in patenting intensity and 6.5% for R&D. This compares to a defence sector share in output of around 4%. The later defence cutbacks under Bush Senior and Clinton then curbed the growth in technological intensity by around 2%.

Asymmetric Information and Imperfect Competition in the Loan Market

We measure the consequences of asymmetric information in the Italian market for small business lines of credit. Exploiting detailed, proprietary data on a random sample of Italian firms, the population of medium and large Italian banks, individual lines of credit between them, and subsequent individual defaults, we estimate models of demand for credit, loan pricing, loan use, and firm default based on the seminal work of Stiglitz and Weiss (1981) to measure the extent and consequences of asymmetric information in this market. While our data include a measure of observable credit risk comparable to that available to a bank during the application process, we allow firms to have private information about the underlying riskiness of their project. This riskiness influences banks’ pricing of loans as higher interest rates attract a riskier pool of borrowers, increasing aggregate default probabilities. Data on default, loan size, demand, and pricing separately identify the distribution of private riskiness from heterogeneous firm disutility from paying interest. Preliminary results suggest evidence of asymmetric information, separately identifying adverse selection and moral hazard. We use our results to quantify the impact of asymmetric information on pricing and welfare, and the role imperfect competition plays in mediating these effects.

Do Happier Britons Have More Income? First-Order Stochastic Dominance Relations

Using British Household Panel Survey data, for subjects not reporting the highest permitted satisfaction level, we show that the conditional income distribution given a higher reported level of life satisfaction first-order stochastically dominates the corresponding conditional distribution given any lower satisfaction level. Subjects reporting the highest satisfaction level, however, have an income distribution dominated by distributions for some less satisfied individuals. Interestingly, this "top anomaly" is undetectable by standard ordered probit analysis. An alternative binary probit model for reporting maximal satisfaction suggests a possible explanation: more educated subjects not only tend to have higher income, but are also less likely to report maximal satisfaction.

Quality, Trade, and Exchange Rate Pass-Through

This paper investigates the heterogeneous response of exporters to real exchange rate fluctuations due to product quality. We combine a unique data set of highly disaggregated Argentinean firm-level wine export values and volumes between 2002 and 2009 with experts wine ratings as a measure of quality. In response to a real depreciation, we find that firms significantly increase more their mark-ups and less their export volumes for higher quality products, but only when exporting to high income destination countries. These results remain robust to different measures of quality, samples, specifications and to the potential endogeneity of quality. To motivate our Findings we extend the model of Corsetti and Dedola (2005) with local distribution costs and allow firms to export multiple products with heterogeneous levels of quality. The model shows that the elasticity of demand perceived by exporters decreases with a real depreciation and with quality, leading to more pricing-to-market and to a smaller response of export volumes to a real depreciation for higher quality goods. Overall our results help to explain the low exchange rate pass-through that is typically observed in aggregate data.

Discovering Chinese Economic History from Footnotes: the Living Tale of a Private Merchant Archive (1800-1850)

This article recounts our unique encounter –through the last seven years of our research - with the Tong Taisheng (统泰升) merchant account books in the Ninjing county of Northern China in 1800-1850. By tracing the personal history of the original owner or donor, we address a large historiographical and epistemological issue behind the current Great Divergence debate on why Industrial Revolution occurred in England but not in China. Our article showcases how the development of political ideology and academic discipline in the modern era impacts our understanding of historical statistics and realities of the early modern era, a critical issue largely neglected in the current Great Divergence debate.

Productivity and the Welfare of Nations

We show that the welfare of a country's infinitely-lived representative consumer is summarized, to a first order, by total factor productivity (TFP) and by the capital stock per capita. These variables suffice to calculate welfare changes within a country, as well as welfare differences across countries. The result holds regardless of the type of production technology and the degree of product market competition. It applies to open economies as well, if TFP is constructed using domestic absorption, instead of gross domestic product, as the measure of output. Welfare relevant TFP needs to be constructed with prices and quantities as perceived by consumers, not firms. Thus, factor shares need to be calculated using after-tax wages and rental rates, and will typically sum to less than one. These results are used to calculate welfare gaps and growth rates in a sample of advanced countries with high-quality data on output, hours worked, and capital. We also present evidence for a broader sample that includes both advanced and developing countries.

The Long-Run Effects of the Scramble for Africa

We examine the long-run consequences of the scramble for Africa among European powers in the late 19th century and uncover the following empirical regularities. First, utilizing information on the spatial distribution of African ethnicities before colonization, we show that apart from the land mass and water area of an ethnicity’s historical homeland, no other geographic, economic, and historical trait, including proxies of pre-colonial conflict, predicts partitioning by the national borders. Second, we exploit a detailed geo-referenced database that records various types of conflict across African regions and show that civil conflict is concentrated in the historical homeland of partitioned ethnicities. We also document that violence against civilians (child soldiering, village burning, abductions, rapes) and territorial changes between rebel groups, militias, and government forces are more prevalent in the homelands of split groups. These results are robust to a rich set of local controls, the inclusion of country fixed effects and ethnic-family fixed effects. The uncovered evidence brings in the foreground the violent repercussions of an important aspect of European colonization, that of ethnic partitioning.

What Happens When a Woman Wins an Election? Evidence from Close Races in Brazil

This paper analyses the effect of the gender of local policymakers on policy outcomes. Analysing a rich dataset from Brazilian municipalities and using a regression discontinuity design, we find that municipalities ruled by female mayors have better health outcomes, receive more federal discretionary transfers, and have lower corruption. Additionally, male mayors hire more temporary public employees than their female counter-parts when they are allowed to run for re-election, and when municipal elections are approaching. These findings suggest that male mayors may promote more political patronage than female mayors and that men and women may respond differently to local election incentives.

Accounting for the Great Divergence

This paper “accounts” for the Great Divergence between Europe and Asia in two ways. In the sense of measurement: (1) the traditional view, in which the Great Divergence had late medieval origins and was already well under way during the early modern period, is confirmed (2) However, revisionists are correct to point to regional variation within both continents (3) There was a Little Divergence within Europe, with a reversal of fortunes between the North Sea Area and Mediterranean Europe. (4) There was a Little Divergence within Asia, with Japan overtaking China and India. However, Japan started at a lower level of per capita income than the North Sea Area and grew at a slower rate, so continued to fall behind until after the Meiji Restoration of 1868. Any explanation needs to be able to account for the Little Divergences within Europe and Asia as well as the Great Divergence between the two continents. The divergences arose from the differential impact of shocks hitting economies with different structural features. The structural factors include: (1) The large share of pastoral farming in agriculture which helped to put the North Sea Area on the path to high-value-added, capital-intensive, non-human-energy intensive production. (2) Late marriage in the North Sea Area, which lowered fertility and encouraged human capital formation (3) Labour supply, with an industrious revolution helping to explain the Little Divergences within both Asia and Europe (4) Institutions, with the role of the state helping to explain the success of the North Sea Area. The two key shocks were (1) The Black Death, which led to a permanent per capita income gain in the North Sea Area, but not in the rest of Eurasia (2) The new trade routes which opened up from Europe to Asia and the Americas around 1500.

Fiscal consolidation: Dr Pangloss meets Mr Keynes

A simple dynamic framework is used to show how consolidation plans that are robust and effective at capacity output can be undermined by demand failure. If the market panics and interest rates rise, the process can indeed become dynamically unstable. Tightening fiscal policy to reassure financial markets can lead to a low level “consolidation trap”, however. Better that the Central Bank acts to keep interest rates low; and that fiscal consolidation efforts be state contingent – allowing room for economic stabilisation. The pro-cyclicality of fiscal policy could also be reduced if, as Shiller has argued, debt amortization were state contingent, being indexed to GDP.

Why Blame?

We provide experimental evidence that subjects blame others based on events they are not responsible for. In our experiment an agent chooses between a lottery and a safe asset; payment from the chosen option goes to a principal who then decides how much to allocate between the agent and a third party. We observe widespread blame: regardless of their choice, agents are blamed by principals for the outcome of the lottery, an event they are not responsible for. We provide an explanation of this apparently irrational behaviour with a delegated-expertise principal-agent model, the subjects’ salient perturbation of the environment.

German Energy Market Fallout from the Japanese Earthquake

The German response to the Fukushima nuclear power plant incident was possibly the most significant change of policy towards nuclear power outside Japan, leading to a sudden and very significant shift in the underlying power generation structure in Germany. This provides a very useful natural experiment on the impact of changing proportions of conventional fuel inputs to power production, helping us to see how changed proportions in future as a result of policy moves in favour of renewables are likely to impact. We find through exploration of a conventional demand- supply framework that despite the swift, significant change, the main impact was a relatively modest increase in prices occasioned by a shift of the supply curve; there were no appreciable quantity effects on the market, such as power outages, despite some views that the impacts would be significant.

Walk the Line: Conflict, State Capacity and the Political Dynamics of Reform

This paper develops a dynamic framework to analyze the political sustainability of economic reforms in developing countries. First, we demonstrate that economic reforms that are proceeding successfully may run into a political impasse, with the reform’s initial success having a negative impact on its political sustainability. Second, we demonstrate that greater state capacity, to make compensatory transfers to those adversely a.ected by reform, need not always help the political sustainability of reform, but can also hinder it. Finally, we argue that in ethnically divided societies, economic reform may be completed not despite ethnic conflict, but because of it.

Ethnic Inequality

This study explores the consequences and origins of between-ethnicity economic inequality both across and within countries. First, combining satellite images of night-time luminosity with the historical homelands of ethnolinguistic groups we construct measures of ethnic inequality for a large sample of countries and show that the latter is strongly inversely related to comparative development. Second, differences in geographic endowments across ethnic homelands explain a sizable portion of ethnic inequality contributing to its persistence over time. Third, exploiting across-district within-African countries variation using individual-level data on ethnic identification and well-being from the Afro-barometer Surveys we find that between ethnic-group inequality is systematically linked to regional under-development. In this sample we also explore the channels linking ethnic inequality to (under) development, finding that ethnic inequality maps to political inequality, heightened perceptions of discrimination and undersupply of public goods.

National Institutions and Subnational Development in Africa

We investigate the role of national institutions on subnational African development in a novel framework that accounts both for local geography and cultural-genetic traits. We exploit the fact that the political boundaries in the eve of African independence partitioned more than two hundred ethnic groups across adjacent countries subjecting similar cultures, residing in homogeneous geographic areas, to different formal institutions. Using both a matching-type and a spatial regression discontinuity approach we show that differences in countrywide institutional structures across the national border do not explain within-ethnicity differences in economic performance, as captured by satellite images of light density. The average non-effect of national institutions on ethnic development masks considerable heterogeneity partially driven by the diminishing role of national institutions in areas further from the capital cities.

Twentieth Century Growth

This paper surveys the experience of economic growth in the 20th century with a focus on technological change at the frontier together with issues related to success and failure in catch-up growth. A detailed account of growth performance based on historical national accounts data is given and is accompanied by a review of growth accounting evidence on the sources of economic growth. The key features of our analysis of divergence in growth outcomes are an emphasis on the importance of ‘directed’ technical change, of institutional quality, and of geography. We provide brief case studies of the experience of individual countries to illustrate these points.

Believing in Oneself: Can Psychological Training Overcome the Effects of Social Exclusion?

This paper examines whether psychological empowerment can mitigate mental constraints that impede efforts to overcome the effects of social exclusion. Using a randomized control trial, we study a training program specifically designed to reduce stigma and build selfefficacy among poor and marginalized sex workers in Kolkata, India. We find positive and significant impacts of the training on self-reported measures of efficacy, happiness and self-esteem in the treatment group, both relative to the control group as well as baseline measures. We also find higher effort towards improving future outcomes as measured by the participants’ savings choices and health-seeking behaviour, relative to the control group. These findings highlight the need to account for psychological factors in the design of antipoverty programmes.

The Economics of Coercion and Conflict: an Introduction

This chapter introduces the author’s selected papers on the economics of coercion and conflict. It defines coercion and conflict and relates them. In conflict, adversaries make costly investments in the means of coercion. The application of coercion does not remove choice but limits it to options that leave the victim worse off than before. Coercion and conflict are always political, but a number of key concepts from economics can help us understand them. These include rational choice, strategic interaction, increasing and diminishing returns, scale and state capacity, surplus extraction, and Type I errors. The chapter concludes that the economist’s toolkit, although not complete, is useful.

How Responsive is Investment in Schooling to Changes in Redistributive Policies and in Returns?

This paper uses an unusual pay reform to test the responsiveness of investment in schooling to changes in redistribution schemes that increase the rate of return to education. We exploit an episode where different Israeli kibbutzim shifted from equal sharing to productivity-based wages in different years and find that students in kibbutzim that reformed earlier invested more in high school education. This effect is stronger for males and is largely driven by students whose parents have lower levels of education. We also show that, in the long run, students in kibbutzim that reformed earlier were more likely to complete post-high school academic colleges. Our findings support the prediction that education is highly responsive to changes in the redistribution policy, especially for students from weaker backgrounds.

Long-Term Barriers to Economic Development

What obstacles prevent the most productive technologies from spreading to less developed economies from the world’s technological frontier? In this paper, we seek to shed light on this question by quantifying the geographic and human barriers to the transmission of technologies. We argue that the intergenerational transmission of human traits, particularly culturally transmitted traits, has led to divergence between populations over the course of history. In turn, this divergence has introduced barriers to the diffusion of technologies across societies. We provide measures of historical and genealogical distances between populations, and document how such distances, relative to the world’s technological frontier, act as barriers to the diffusion of development and of specific innovations. We provide an interpretation of these results in the context of an emerging literature seeking to understand variation in economic development as the result of factors rooted deep in history.

The Location of the UK Cotton Textiles Industry in 1838:

We examine the geography of cotton textiles in Britain in 1838 to test claims about why the industry came to be so heavily concentrated in Lancashire. Our analysis considers both first and second nature aspects of geography including the availability of water power, humidity, coal prices, market access and sunk costs. We show that some of these characteristics have substantial explanatory power. Moreover, we exploit the change from water to steam power to show that the persistent effect of first nature characteristics on industry location can be explained by a combination of sunk costs and agglomeration effects.

Efficiency, Distortions and Factor Utilization

In this paper, we analyse the International Great Depression in the US and Western Europe using the business cycle accounting method a la Chari, Kehoe and McGrattan (CKM 2007). We extend the business cycle accounting model by incorporating endogenous factor utilization which turns out to be an important transmission mechanism of the disturbances in the economy. Our main findings are that in the U.S. labour wedges account for roughly half of the drop in output while efficiency and investment wedges each account for a quarter of it during the 1929-1933 period while in Western Europe labour wedges account for more than one-third of the output drop and e¢ ciency, government and investment wedges are responsible for the remaining during the 1929-1932 period. Our findings are consistent with several strands of existing descriptive and empirical literature on the International Great Depression.

Gibrat’s Law and the British Industrial Revolution

This paper examines Gibrat's law in England and Wales between 1801 and 1911 using a unique data set covering the entire settlement size distribution. We find that Gibrat's law broadly holds even in the face of population doubling every fifty years, an industrial and transport revolution, and the absence of zoning laws to constrain growth. The result is strongest for the later period, and in counties most affected by the industrial revolution. The exception were villages in areas bypassed by the industrial revolution. We argue that agglomeration externalities balanced urban disamenities such as commuting costs and poor living conditions to ensure steady growth of many places, rather than exceptional growth of few.

Living Standards and Plague in London

We use individual records of 920,000 burials and 630,000 baptisms to reconstruct the spatial and temporal patterns of birth and death in London from 1560 to 1665, a period dominated by recurrent plague. The plagues of 1563, 1603, 1625, and 1665 appear of roughly equal magnitude, with deaths running at five to six times their usual rate, but the impact on wealthier central parishes falls markedly through time. Tracking the weekly spread of plague before 1665 we find a consistent pattern of elevated mortality spreading from the same northern suburbs. Looking at the seasonal pattern of mortality, we find that the characteristic autumn spike associated with plague continued into the early 1700s. Given that individual cases of plague and typhus are frequently indistinguishable, claims that plague suddenly vanished after 1665 should be treated with caution. Natural increase improved as smaller plagues disappeared after 1590, but fewer than half of those born survived childhood.

Eurozone Sovereign Debt Restructuring: promising legal prospects?

The Eurozone debt crisis has stimulated lively debate on mechanisms for sovereign debt restructuring. The immediate threat of exit and the breakup of the currency union may have abated; but the problem of dealing with significant debt overhang remains. After considering two broad approaches - institutional versus contractual – we look at a hybrid solution that combines the best of both. In addition to debt contracts with Collective Action Clauses, this includes a key amendment to the Treaty establishing the European Stability Mechanism, together with innovative state-contingent contracts and a Special Purpose Vehicle to market them.

Cooperation and Personality

Cooperating and trusting behaviour may be explained by preferences over social outcomes (people care about others, are unselfish and helpful), or attitudes to work and social responsibilities (plans have to be carried out, norms have to be followed). If the first hypothesis is true, Agreeableness, reporting stated empathy for others, should matter most; if the second, higher score in traits expressing attitude to work, intrinsic motivation (Conscientiousness) should be correlated with cooperating behaviour and trust. We find experimental support for the second hypothesis when subjects provide real mental effort in two treatments with identical task, differing by whether others' payment is affected.

What Does the 1930s' Experience Tell Us about the Future of the Eurozone?

If the Eurozone follows the precedent of the 1930s, it will not survive. The attractions of escaping from the gold standard then were massive and they point to a strategy of devalue and default for today’s crisis countries. A fully-federal Europe with a banking union and a fiscal union is the best solution to this problem but is politically infeasible. However, it may be possible to underpin the Euro by a ‘Bretton-Woods compromise’ that accepts a retreat from some aspects of deep economic integration since exit entails new risks of financial crisis that were not present eighty years ago.

What Is European Integration Really About?

Europe’s monetary union is part of a broader process of integration that started in the aftermath of World War II. In this “political guide for economists” we look at the creation of the euro within the bigger picture of European integration. How and why were European institutions established? What are the goals and determinants of European Integration? What is European integration really about? We address these questions from a political-economy perspective, building on ideas and results from the economic literature on the formation of states and political unions. Specifically, we look at the motivations, assumptions, and limitations of the European strategy, initiated by Jean Monnet and his collaborators, of partially integrating policy functions in a few areas, with the expectation that more integration will follow in other areas, in a sort of chain reactions towards an “ever-closer union.” The euro with its current problems is a child of that strategy and its limits.

War and Relatedness

We examine the empirical relationship between the occurrence of inter-state conflicts and the degree of relatedness between countries, measured by genetic distance. We find that populations that are genetically closer are more prone to go to war with each other, even after controlling for numerous measures of geographic distance and other factors that affect conflict, including measures of trade and democracy. These findings are consistent with a framework in which conflict over rival and excludable goods (such as territory and resources) is more likely among populations that share more similar preferences, and inherit such preferences with variation from their ancestors.

A Western Reversal Since the Neolithic? The Long-Run Impact of Early Agriculture

While it is widely believed that regions which experienced a transition to Neolithic agriculture early also become institutionally and economically more advanced, many indicators suggest that within the Western agricultural core (including Europe, North Africa, the Middle East, and Southwest Asia), communities that adopted agriculture early in fact have weaker institutions and poorly functioning economies today. In the current paper, we attempt to integrate both of these trends in a coherent historical framework. Our main argument is that countries that made the transition early also tended to develop autocratic societies with social inequality and pervasive rent seeking, whereas later adopters were more likely to have egalitarian societies with stronger private property rights. These different institutional trajectories implied a gradual shift of dominance from the early civilizations towards regions in the periphery. We document this relative reversal within the Western core by showing a robust negative correlation between years since transition to agriculture and contemporary levels of income and institutional development, on both the national and the regional level. Our results further indicate that the reversal had become manifest already before the era of European colonization.

A Culture Based Theory of Fiscal Union

If voters of different countries adhere to different and deeply rooted cultural norms, the country leaders may find it impossible to agree on effcient policies especially in hard times. The conformity constraint -political leaders’ unwillingness or impossibility to depart from these norms - has resulted in lack of timely intervention which has amplfied an initially manageable debt crisis for some European countries to the point of threatening the Euro as a single currency. We show the conditions under which the introduction of a fiscal union can be obtained with consensus and be beneficial. Perhaps counterintuitively, cultural diversity makes a fiscal union even more desirable. Some general lessons can also be drawn on the interaction of cultural evolution and institutional choice.

Pre-Reformation Roots of the Protestant Ethic

We hypothesize that cultural appreciation of hard work and thrift, the Protestant ethic according to Max Weber, had a pre-Reformation origin. The proximate source of these values was, according to the proposed theory, the Catholic Order of Cistercians. In support, we first document an impact from the Order on growth within the epi-center of the industrial revolution; English counties that were more exposed to Cistercian monasteries experienced faster productivity growth from the 13th century onwards. Consistent with a cultural influence, this impact is also found after the monasteries were dissolved in the 1530s. Second, we find that the values emphasized by Weber are relatively more pervasive in European regions where Cistercian monasteries were located historically, and that the legacy of the Cistercians can be detected in present-day employment rates across European sub-regions.

Estimating Bayesian Decision Problems with Heterogeneous Priors

In many areas of economics there is a growing interest in how expertise and preferences drive individual and group decision making under uncertainty. Increasingly, we wish to estimate such models to quantify which of these drive decision making. In this paper we propose a new channel through which we can empirically identify expertise and preference parameters by using variation in decisions over heterogeneous priors. Relative to existing estimation approaches, our "Prior Based Identification" extends the possible environments which can be estimated, and also substantially improves the accuracy and precision of estimates in those environments which can be estimated using existing methods.

The Invisible Hand and the Banking Trade: Seigniorage, Risk-shifting and more

The classic Diamond-Dybvig model of banking assumes perfect competition and abstracts from issues of moral hazard, hardly appropriate when considering modern UK banking. We therefore modify the classic model to incorporate franchise values due to market power; and risk-taking by banks with limited liability. We go further to show how the capacity of franchise values to mitigate risk taking may be undermined by the bailout option; with explicit analytical results provided for the case of extreme risk-aversion. After a brief discussion of how this may impact on the distribution of income, we outline the ways in which the Vickers Report seeks to remedy these problems.

Motivating knowledge agents: Can incentive pay overcome social distance?

This paper studies the interaction of incentive pay and social distance in the dissemination of information. We analyse theoretically as well as empirically the effect of incentive pay when agents have pro-social objectives, but also preferences over dealing with one social group relative to another. In a randomised field experiment undertaken across 151 villages in South India, local agents were hired to spread information about a public health insurance programme. Relative to at pay, incentive pay improves knowledge transmission to households that are socially distant from the agent, but not to households similar to the agent.

Searching for Irving Fisher

There is a long-standing debate as to whether the Fisher effect operated during the classical gold standard period. We break new ground on this question by developing a market-based measure of inflation expectations during the gold standard. We derive a measure of silver-gold inflation expectations using the interest-rate differential between Austrian silver and gold perpetuity bonds. Our use of the silver-gold interest rate differential is motivated by the fact that both gold and silver served as numeraires in the pre-WWI period, so that a change in the price of either precious metal would impact the prices of all goods and services. The empirical evidence suggests that silver-gold inflation expectations exhibited significant persistence at the weekly, monthly, and annual frequencies. Further, we find that there is a one-to-one relationship between silver-gold inflation expectations and the interest rate on Austrian perpetuity bonds that were denominated in paper currency. The analysis suggests the operation of a Fisher effect during the classical gold standard period.

Capital controls and Recovery from the financial Crisis of the 1930s

We examine the first widespread use of capital controls in response to a global or regional financial crisis. In particular, we analyze whether capital controls mitigated capital flight in the 1930s and assess their causal effects on macroeconomic recovery from the Great Depression. We find evidence that they stemmed gold outflows in the year following their imposition; however, time-shifted, difference-indifferences (DD) estimates of industrial production, prices, and exports suggest that exchange controls did not accelerate macroeconomic recovery relative to countries that went off gold and floated. Countries imposing capital controls also appear to perform similar to the gold bloc countries once the latter group of countries finally abandoned gold. Time series regressions further demonstrate that countries imposing capital controls refrained from fully utilizing their newly acquired monetary policy autonomy. Even so, capital controls remained in place as instruments for manipulating trade flows and for preserving foreign exchange for the repayment of external debt.

Institution Building and Political Accountability

The paper examines the role of policy intervention in engendering institutional change. We show that first order changes in the political structure (e.g. introduction of democracy) may be undermined by local political interests and result in persistence in institutions and the (poor) quality of governance. The paper identifies two effects of development policy as a tool for institutional change. One, by increasing political accountability, it may encourage nascent democratic governments to invest in good institutions – the incentive effect. However, we show that it also increases the incentive of the rentier elite to tighten their grip on political institutions – the political control effect. Which of these dominate determine the overall impact on institutional quality. Under some conditions, by getting the elite to align their economic interests with that of the majority, development policy can lead to democratic consolidation and economic improvement. However if elite entrenchment is pervasive, then comprehensive change may require more coercive means.

Pay Growth, Fairness and Job Satisfaction: Implication for Nominal and Real Wage Rigidity

Theories of wage rigidity often rely on a positive relationship between pay changes and utility, arising from concern for fairness or gift exchange. Supportive evidence has emerged from laboratory experiments, but the link has not yet been established with field data. This paper contributes a first step, using representative British data. Workers care about the level and the growth of earnings. Below-median wage increases lead to an insult effect except when similar workers have real wage reductions or firm production is falling. Nominal pay cuts appear insulting even when the firm is doing badly

China and India: Reforms and the Response: How Differently have the Economies Behaved

The relative performance of China and India is compared using two different methods and they provide a very different picture of their relative performance. We compare the average absolute values of indictors for the decade of the 1980s, 1990s and the 2000s. We use indicators such as the current account balance (CAB), exports of goods and services (XGS), foreign direct investment inflow (FDI), gross domestic savings, gross fixed capital formation (GFCF), aid, private capital inflows (PrK) and workers’ remittances, all as a percentage of GDP. We also look at the growth rate of per capita GDP, exports of goods and services and of gross fixed capital formation. Using a two tailed- test we find that China does better than India for most of these indicators. For instance, China has a higher growth rate of per capita income, XGS and GFCF as also a higher share of XGS, GFCF etc in GDP than does India. We also find that China usually has a lower CV, namely a more stable performance. But over the three decades the CV falls in India so it is approaching that in China, namely the two economies are becoming more similar. We also compare the dynamic performance of the two economies since their reforms. We form index numbers for the indicators. So for example, we from an index number for share of exports in GDP with year 1 of reform in China being 100, i.e. the index for the share in 1979 is 100. Year 2 would be the index number for 1980, namely the value of the share in 1980 with the share in 1979 being 100, etc. In the case of India year 1 would be 1992 once the reforms started, year 2 would be 1993 and so on, so the index would have 1992 as the base year. We find that the indices behave very similarly in the two economies for many of the indicators, namely the pattern of change in China after 1979 is the same as in India after 1992.

The 1991 Reforms, Indian Economic Growth

This paper analyses the effects of the reforms initiated in India following the balance of payments (BOP) crisis of 1991 on economic performance. We do not find persuasive the contention of many analysts that growth accelerated after the mid-1980s when reforms were initiated. Nor does statistical analysis support the contention that reforms in the mid-1980s resulted in a growth acceleration. We show that there is an accelerating rate of growth of GDP after the mid 1970s and it is difficult to relate this gradual acceleration to specific policy changes. The changed policies in the 1980s did not mean a basic change in the policy framework. Furthermore, since corporate investment as a share of GDP did not increase in the 1980s it is difficult to identify the mechanism by which the more pro-business policies of the government were translated to higher growth as claimed by Rodrik and Subramaniam (2005).We show that increasing exports of goods, non-factor services, and labour services, through remittances, played an important role in growth in India. Furthermore, the share of exports of goods and services grew as rapidly in India as in China, so that it cannot be said that growth in India was based more on domestic demand. The increased value of exports of manufactures was important as their value grew from about 16 percent of the manufacturing sector’s value added in the early 1980s to about 60 percent currently. Also, there is no significant difference between the growth rates of value-added in the manufacturing and services sectors except for the period of the Ninth Plan (1997-2001).We find that most of 12 economic indicators show improved performance in the decade 2001-10 compared to the earlier decade 1981-1990. The better performance consisted both in the level and lower variability. Furthermore, we find that the reforms had a gradual effect; the change in the period 1992-2000 was smaller and statistically less significant. We also find that the differences with East Asia and particularly China depend on the basis of the comparison. We compare changes in performance since the reforms, which started in China in 1979 and in India in 1991. Such a comparison shows more similarities than differences. We finally examine social progress. We find that South Asia lags behind other regions in making progress towards the Millennium Development Goals (MDGs) and India lags behind other South Asian countries. The responsiveness of the improvement in the MDGs to increases in per capita income is usually low in Asia and particularly in India.

Reversals of Fortune? A Long-term Perspective on Global Economic Prospects

Estimating Bayesian Decision Problems with Heterogenous Priors

In many areas of economics there is a growing interest in how expertise and preferences drive individual and group decision making under uncertainty. Increasingly, we wish to estimate such models to quantify which of these drive decision making. In this paper we propose a new channel through which we can empirically identify expertise and preference parameters by using variation in decisions over heterogeneous priors. Relative to existing estimation approaches, our "Prior-Based Identification" extends the possible environments which can be estimated, and also substantially improves the accuracy and precision of estimates in those environments which can be estimated using existing methods.

Political Competition, Tax Salience and Accountability: Theory and Some Evidence from Italy

This paper argues that high political competition does not necessarily induce policy makers to perform better as previous research has shown. We develop a political economy model and we show that when political competition is tight, and elected politicians can rely on more tax instruments, they will substitute salient taxes with less salient ones, which are not necessarily preferable. These predictions are largely confirmed using a dataset on Italian municipal elections and taxes.

Genetic Diversity and the Origins of Cultural Fragmentation

Despite the importance attributed to the effects of diversity on the stability and prosperity of nations, the origins of the uneven distribution of ethnic and cultural fragmentation across countries have been underexplored. Building on the role of deeply-rooted biogeographical forces in comparative development, this research empirically demonstrates that genetic diversity, predominantly determined during the prehistoric “out of Africa” migration of humans, is an underlying cause of various existing manifestations of ethnolinguistic heterogeneity. Further exploration of this uncharted territory may revolutionize the understanding of the effects of deeply-rooted factors on economic development and the composition of human capital across the globe.

Wholesale Funding, Coordination, and Credit Risk

We use the global games approach to study key factors affecting the credit risk associated with roll-over of bank debt. When creditors are heterogenous, these include the extent of short-term borrowing and capital market liquidity for repo financing. Specifically, in a model with a large institutional creditor and a continuum of small creditors independently making their roll-over decisions based on private information, we find that increasing the proportion of short-term debt and/or decreasing market liquidity reduces the willingness of creditors to roll over. This raises credit risk in equilibrium. The presence of a large creditor does not always reduce credit risk, however, unless it is better informed.

Market Structure and Borrower Welfare in Micro Finance

Motivated by recent controversies surrounding the role of commercial lenders in microfinance, we analyze borrower welfare under different market structures, considering a benevolent non-profit lender, a for-profit monopolist, and a competitive credit market. To understand the magnitude of the effects analysed, we simulate the model with parameters estimated from the MIX Market database. Our results suggest that market power can have severe implications for borrower welfare, while despite possible information frictions competition typically delivers similar borrower welfare to non-profit lending. In addition, for-profit lenders are less likely to use joint liability than non-profits.

Can Market Failure Cause Political Failure?

We study how inefficiencies of market failure may be further amplified by political choices made by interest groups created in the inefficient market. We take an occupational choice framework, where agents are endowed heterogeneously with wealth and talent. In our model, market failure due to unobservability of talent endogenously creates a class structure that affects voting on institutional reform. In contrast to the world without market failure where the electorate unanimously vote in favour of surplus maximising institutional reform, we find that the preferences of these classes are often aligned in ways that creates a tension between surplus maximising and politically feasible institutional reforms.

Land Acquisition and Compensation in Singur: What Really Happened?

This paper reports results of a household survey in Singur, West Bengal concerning compensation offered by the state government to owners of land acquired to make way for a car factory. While on average compensations o.ered were close to the reported market valuations of land, owners of high grade multi-cropped (Sona) lands were undercompensated, which balanced over-compensation of low grade mono-cropped (Sali) lands. This occurred owing to misclassification of most Sona land as Sali land in the official land records. Under-compensation relative to market values significantly raised the chance of compensation offers being rejected by owners. There is considerable evidence of the role of financial considerations in rejection decisions. Land acquisition significantly reduced incomes of owner cultivator and tenant households, despite their efforts to increase incomes from other sources. Agricultural workers were more adversely affected relative to non-agricultural workers, while the average impact on workers as a whole was insignificant. Adverse wealth effects associated with under-compensation significantly lowered household accumulation of consumer durables, while effects on other assets were not perceptible. Most households expressed preferences for non-cash forms of compensation, with diverse preferences across different forms of non-cash compensation depending on occupation and time preferences.

Contractual Structure in Agriculture with Endogenous Matching

We analyse optimal contractual forms and equilibrium matching in a double-sided moral hazard model of sharecropping similar to Eswaran and Kotwal (1985). We show that, with endogenous matching, the presence of moral hazard can reverse the matching pattern relative to the first best, and that even if sharecropping is optimal for an exogenously given pair of agent skills, it may not be observed in equilibrium with endogenous matching. The economy with endogenous matching features less sharecropping compared to an economy with agent skills drawn at random from the same distribution. This suggests that studies of agency costs in sharecropping may underestimate their extent if focusing only on the intensive margin and ignoring the extensive margin.

War and Inquisition: Repression in Early Modern Spain

The Spanish Inquisition (1478-1834) lasted for more than three centuries and conducted more than 100,000 trials. Why would the Spanish Crown adopt this type of repressive institution? What were the actual motives of its activity? This paper explores the role of the Spanish Inquisition as a repressive tool of the Spanish Crown. When the Crown had to move military resources abroad to fight a war, the likelihood of an internal revolt against the Crown increased. To minimize the threat of rebellion, the Crown would use the Inquisition to increase repression (trials) in Spain. In a theoretical framework, I show that while the Inquisition would conduct more trials the higher the intensity of the wars fought abroad, it would however decrease its level of repression (trials) if the likelihood of an internal revolt were large enough. This behavior indicates an inverse-U relationship between inquisitorial and war intensity. To test this prediction, I assemble time series data for seven Spanish inquisitorial districts on annual trials of the Inquisition and wars conducted by the Spanish Crown between 1478 and 1808. I show that there is an inverse-U relationship between wars and inquisitorial activity. My results are robust to the inclusion of data on the severity of the weather (droughts) and to adjustments for spillover e.ects from districts other than the main district under analysis. Moreover, using a new database of 35,000 trials of the Inquisition, I show that religious persecution was especially significant during early stages of the Inquisition, while repressive motives better explain its behavior in later periods.

Does "Skin in the Game" Reduce Risk Taking? Leverage, Liability and the Long-Run Consequences of New Deal Financial Reforms

We examine how the Banking Acts of the 1933 and 1935 and related New Deal legislation influenced risk taking in the financial sector of the U.S. economy. Our analysis focuses on contingent liability of bank owners for losses incurred by their firms and how the elimination of this liability influenced leverage and lending by commercial banks. Using a new panel data set that compares balance sheets of state and national banks, we find contingent liability reduced risk taking, particularly when coupled with rules requiring banks to join the Federal Deposit Insurance Corporation. Leverage ratios are higher in states with limited liability for bank owners. Banks in states with contingent liability converted each dollar of capital into fewer loans, and thus could sustain larger loan losses (as a fraction of their portfolio) than banks in limited liability states. The New Deal replaced a regime of contingent liability with stricter balance sheet regulation and increased capital requirements, shifting the onus of risk management from banks to state and federal regulators. By separating investment banks from commercial banks, the Glass-Steagall Act left investment banks to manage their own leverage, a feature of financial regulation that, in part, depended on their partnership structure.

From Divergence to Convergence: Re-evaluating the History Behind China’s Economic Boom

China’s long-term economic dynamics pose a formidable challenge to economic historians. The Qing Empire (1644-1911), the world’s largest national economy before 1800, experienced a tripling of population during the 17th and 18th centuries with no signs of diminishing per capita income. While the timing remains in dispute, a vast gap emerged between newly rich industrial nations and China’s lagging economy in the wake of the Industrial Revolution. Only with an unprecedented growth spurt beginning in the late 1970s did this great divergence separating China from the global leaders substantially diminish, allowing China to regain its former standing among the world’s largest economies. This essay develops an integrated framework for understanding that entire history, including both the divergence and the recent convergent trend. We explain how deeply embedded political and economic institutions that contributed to a long process of extensive growth before 1800 subsequently prevented China from capturing the benefits associated with the Industrial Revolution. During the 20th century, the gradual erosion of these historic constraints and of new obstacles erected by socialist planning eventually opened the door to China’s current boom. Our analysis links China’s recent development to important elements of its past, while using recent success to provide fresh perspectives on the critical obstacles undermining earlier modernization efforts, and their eventual removal.

What are we learning from business training and entrepreneurship evaluations

Business training programs are a popular policy option to try to improve the performance of enterprises around the world. The last few years have seen rapid growth in the number of evaluations of these programs in developing countries. We undertake a critical review of these studies with the goal of synthesizing the emerging lessons and understanding the limitations of the existing research and the areas in which more work is needed. We find that there is substantial heterogeneity in the length, content, and types of firms participating in the training programs evaluated. Many evaluations suffer from low statistical power, measure impacts only within a year of training, and experience problems with survey attrition and measurement of firm profits and revenues. Over these short time horizons, there are relatively modest impacts of training on survivorship of existing firms, but stronger evidence that training programs help prospective owners launch new businesses more quickly. Most studies find that existing firm owners implement some of the practices taught in training, but the magnitudes of these improvements in practices are often relatively modest. Few studies find significant impacts on profits or sales, although a couple of the studies with more statistical power have done so. Some studies have also found benefits to microfinance organizations of offering training. To date there is little evidence to help guide policymakers as to whether any impacts found come from trained firms competing away sales from other businesses versus through productivity improvements, and little evidence to guide the development of the provision of training at market prices. We conclude by summarizing some directions and key questions for future studies.

A Theory of Cooperation through Social Division, with Evidence from Nepal

Informal, kin-based groups play an important role in developing country economies. I point out two facts: communities are divided into smaller groups, and many groups prohibit interactions with outsiders. These facts are rationalized in a model in which division of the community into non-interacting groups allows agents to support higher levels of cooperation. Group segregation is sustained in equilibrium through a reputation-effect. I test the empirical implication that there should be less cooperation between members of groups that make up a larger percentage of their communities. I discuss implications for underinvestment in education, misallocation of resources, and institutional change.

Unfavorable Land Endowment, Cooperation, and Reversal of Fortune

This research advances the hypothesis that reversal of fortunes in the process of economic development can be traced to the effect of natural land productivity on the desirable level of cooperation in the agricultural sector. In early stages of development, unfavourable land endowment enhanced the economic incentive for cooperation in the creation of agricultural infrastructure that could mitigate the adverse effect of the natural environment. Nevertheless, despite the beneficial effects of cooperation on the intensive margin of agriculture, low land productivity countries lagged behind during the agricultural stage of development. However, as cooperation, and its persistent effect on social capital, have become increasingly important in the process of industrialization, the transition from agriculture to industry among unfavorable land endowment economies was expedited, permitting those economies that lagged behind in the agricultural stage of development, to overtake the high land productivity economies in the industrial stage of development. Exploiting exogenous sources of variations in land productivity across countries the research further explores the testable predictions of the theory. It establishes that: (i) reversal of fortunes in the process of development can be traced to variation in natural land productivity across countries. Economies characterized by favourable land endowment dominated the world economy in the agricultural stage of development but were overtaken in the process of industrialization; (ii) lower level of land productivity in the past is associated with higher levels of contemporary social capital; (iii) cooperation, as reflected by agricultural infrastructure, emerged primarily in places were land was not highly productive and collective action could have diminished the adverse effects of the environment and enhance agricultural output.

The Economic and Demographic Transition

We propose a unified growth theory to investigate the mechanics generating the economic and demographic transition, and the role of mortality differences for comparative development. The framework can replicate the quantitative patterns in historical time series data and in contemporaneous cross-country panel data, including the bi-modal distribution of the endogenous variables across countries. The results suggest that differences in extrinsic mortality might explain a substantial part of the observed differences in the timing of the take-off across countries and the worldwide density distribution of the main variables of interest.

Geography and Intra-National Home Bias: U.S. Domestic Trade in 1949 and 2007

This paper examines home bias in U.S. domestic trade in 1949 and 2007. We use a unique data set of 1949 carload waybill statistics produced by the Interstate Commerce Commission, and 2007 Commodity Flow Survey data. The results show that home bias was considerably smaller in 1949 than in 2007 and that home bias in 1949 was even negative for several commodities. We argue that the difference between the geographical distribution of the manufacturing activities in 1949 and that of 2007 is an important factor explaining the differences in the magnitudes of home-bias estimates in those years.

Discrimination or Social Networks? Industrial Investment in Colonial India

Industrial investment in Colonial India was segregated by the export oriented industries, such as tea and jute that relied on British firms and the import substituting cotton textile industry that was dominated by Indian firms. The literature emphasizes discrimination against Indian capital. Instead informational factors played an important role. British entrepreneurs knew the export markets and the Indian entrepreneurs were familiar with the local markets. The divergent flows of entrepreneurship can be explained by the comparative advantage enjoyed by social groups in information and the role of social networks in determining entry and creating separate spheres of industrial investment.

Not the Opium of the People: Income and Secularization in a Panel of Prussian Counties

The interplay between religion and the economy has occupied social scientists for long. We construct a unique panel of income and Protestant church attendance for six waves of up to 175 Prussian counties spanning 1886-1911. The data reveal a marked decline in church attendance coinciding with increasing income. The cross-section also shows a negative association between income and church attendance. But the association disappears in panel analyses, including first-differenced models of the 1886-1911 change, panel models with county and time fixed effects, and panel Granger-causality tests. The results cast doubt on causal interpretations of the religion economy nexus in Prussian secularization.

Do entrepreneurs matter?

In the large literature on firm performance, economists have given little attention to entrepreneurs. We use deaths of more than 500 entrepreneurs as a source of exogenous variation, and ask whether this variation can explain shifts in firm performance. Using longitudinal data, we find large and sustained effects of entrepreneurs at all levels of the performance distribution. Entrepreneurs strongly affect firm growth patterns of both very young firms and for firms that have begun to mature. We do not find significant differences between small and larger firms, family and non-family firms, nor between firms located in urban and rural areas, but we do find stronger effects for founders with high human capital. Overall, the results suggest that an often overlooked factor –individual entrepreneurs –plays a large role in affecting firm performance.

Happiness and Productivity

Some firms say they care about the happiness and ‘well-being’ of their employees. But are such claims hype? Or might they be scientific good sense? This study provides evidence that happiness makes people more productive. First, we examine fundamental real-world shocks (bereavement and family illness) imposed by Nature. We show that lower happiness is associated with lower productivity. Second, within the laboratory, we design two randomized controlled trials. Some individuals are deliberately made happier, while those in a control group are not. The treated individuals have 10-12% greater productivity than those in the control group. These complementary kinds of evidence, with their different strengths and weaknesses, point to a consistent pattern. They suggest that happiness raises human performance.

Characterizing Behavioral Decisions with Choice Data

This paper provides an axiomatic characterization of choices in a setting where a decision-maker may not fully internalize all the consequences of her choices on herself. Such a departure from rationality, it turns out, is common across a variety of positive behavioural models and admits the standard rational choice model as a special case. We show that choice data satisfying (a) Sen’s axioms and fully characterize behavioural decisions, and (b) Sen’s axiom and fully characterize standard decision-making. In addition, we show that (a) it is possible to identify a minimal and a maximal set of psychological states using choice data alone, and (b) under specific choice scenarios, "revealed mistakes" can be inferred directly from choice data.

Fiscal Policy in a Depressed Economy: Was There a 'Free Lunch' in 1930s' Britain?

We report estimates of the fiscal multiplier for interwar Britain based on quarterly data and time-series econometrics. We find that the government-expenditure multiplier was in the range 0.3 to 0.9 even during the period that interest rates were at the lower bound. The scope for a ‘Keynesian solution’ to recession was much less than is generally supposed. In the later 1930s but not before Britain’s exit from the gold standard, there was a ‘fiscal free lunch’ in that deficit-financed government spending would have improved public finances enough to pay for the interest on the extra debt.

The Untold Standards of Living Story: The GDP value of Twentieth Century Health Improvements in Developed Economies

Economists are aware that conventional measures of national income do not capture everything that is important to individuals. In particular, the value of huge improvements in health over the twentieth century has gone uncalculated. Usher (1980) and Nordhaus (2002) have emphasised the virtues of including mortality improvements in some form of extended national income measure. This paper therefore sets out a methodology that can be used to calculate the value of mortality and morbidity improvements. The results indicate that health improvements in developed economies have been worth at least $1 trillion. As such not accounting for historical health gains leads to a significant underestimate of improvements in standards of living and economic development.

UK Defence News, 1920-1938: Estimates Based on Contemporary Sources

This paper employs the concept of ‘defence news’ proposed by Ramey (2009) to develop a time series of shocks to UK defence spending in the interwar period at a quarterly frequency. ‘Defence news’ is the present value of changes to defence spending plans. Information on this is taken from contemporary sources, in particular, The Economist. The estimates in this paper can be used as an input to assessing the size of the fiscal multiplier in interwar Britain as in Crafts and Mills (2012).

Rearmament to the Rescue? New Estimates of the Impact of 'Keynesian' Policies in 1930s' Britain

We report estimates of the fiscal multiplier for interwar Britain based on quarterly data, time-series econometrics, and ‘defence news’. We find that the government expenditure multiplier was in the range 0.5 to 0.8, much lower than previous estimates. The scope for a Keynesian solution to recession was much lower than is generally supposed. We do find that rearmament gave a substantial boost to real GDP after 1935 but this was because the private sector responded to news of massive future defence spending and does not imply that the multiplier effect of temporary public works programs would have been large.

Fiscal Interactions Among European Countries: Does the EU Matter?

This paper provides a simple theoretical model of capital tax competition between countries that differ in spatial location, and where cross-border investment costs are proportional to distance (a gravity model). We model EU membership as a reduction in ‘distance’ between countries. Precise predictions about reaction functions’ intercepts and slopes are derived. In particular we find that joining the Union lowers tax reaction function’s intercept and that all countries react more to member countries than they do to non-members. These predictions are largely confirmed using a panel data set of statutory corporate tax rates on Western European countries.

International Trade without CES: Estimating Translog Gravity

This paper derives a micro-founded gravity equation based on a translog demand system that allows for flexible substitution patterns across goods. In contrast to the standard CES-based gravity equation, translog gravity generates an endogenous trade cost elasticity. Trade is more sensitive to trade costs if the exporting country only provides a small share of the destination country’s imports. As a result, trade costs have a heterogeneous impact across country pairs, with some trade flows predicted to be zero. I test the translog gravity equation and find empirical evidence that is in many ways consistent with its predictions.

Estimating the influence of life satisfaction and positive affect on later income using sibling fixed-effects

The question of whether there is a connection between income and psychological well-being is a long-studied issue across the social, psychological, and behavioural sciences. Much research has found that richer people tend to be happier. However, relatively little attention has been paid to whether happier individuals perform better financially in the first place. This possibility of reverse causality is arguably understudied. Using data from a large US representative panel we show that adolescents and young adults who report higher life satisfaction or positive affect grow up to earn significantly higher levels of income later in life. We focus on earnings approximately one decade after the person’s well-being is measured; we exploit the availability of sibling clusters to introduce family fixed-effects; we account for the human capacity to imagine later socio-economic outcomes and to anticipate the resulting feelings in current wellbeing. The study’s results are robust to the inclusion of controls such as education, IQ, physical health, height, self-esteem, and later happiness. We consider how psychological well-being may influence income. Sobel-Goodman mediation tests reveal direct and indirect effects that carry the influence from happiness to income. Significant mediating pathways include a higher probability of obtaining a college degree, getting hired and promoted, having higher degrees of optimism and extraversion, and less neuroticism.

Reciprocity towards groups: a laboratory experiment on the causes

Field studies of conflict report cycles of mutual revenge between groups, often linked to perceptions of intergroup injustice. We test the hypothesis that people are predisposed to reciprocate against groups. In a computerized laboratory experiment, subjects who were harmed by a partner’s uncooperative action reacted by harming other members of the partner’s group. This group reciprocity was only observed when one group was seen to be unfairly advantaged. Our results support a behavioural mechanism leading from perceived injustice to intergroup conflict. We discuss the relevance of group reciprocity to economic and political phenomena including conflict, discrimination and team competition.

Business Training and Female Enterprise Start-up, Growth, and Dynamics: Experimental evidence from Sri Lanka

We conduct a randomized experiment among women in urban Sri Lanka to measure the impact of the most commonly used business training course in developing countries, the Start-and-Improve Your Business (SIYB) program. We work with two representative groups of women: a random sample of women operating subsistence enterprises and a random sample of women who are out of the labour force but interested in starting a business. We track impacts of two treatments – training only and training plus a cash grant – over two years with four follow-up surveys and find that the short- and medium-term impacts differ. For women already in business, training alone leads to some changes in business practices but has no impact on business profits, sales or capital stock. In contrast the combination of training and a grant leads to large and significant improvements in business profitability in the first eight months, but this impact dissipates in the second year. For women interested in starting enterprises, we find that business training speeds up entry but leads to no increase in net business ownership by our final survey round. Both profitability and business practices of the new entrants are increased by training, suggesting training may be more effective for new owners than for existing businesses. We also find that the two treatments have selection effects, leading to entrants being less analytically skilled and poorer.

Offshoring and the Onshore Composition of Tasks and Skills

We analyse the relationship between offshoring and the onshore workforce composition in German multinational enterprises (MNEs), using plant data that allow us to discern tasks, occupations, and workforce skills. Offshoring is associated with a statistically significant shift towards more non-routine and more interactive tasks, and with a shift towards highly educated workers. The shift towards highly educated workers is in excess of what is implied by changes in either the task or the occupational composition. Offshoring to low-income countries—with the exception of Central and Eastern European countries—is associated with stronger onshore responses. We find offshoring to predict between 10 and 15 percent of observed changes in wage-bill shares of highly educated workers and measures of non-routine and interactive tasks.

iPEHD - The ifo Prussian Economic History Database

This paper provides a documentation of the ifo Prussian Economic History Database (iPEHD), a county-level database covering a rich collection of variables for 19th -century Prussia. The Royal Prussian Statistical Office collected these data in several censuses over the years 1816-1901, with much county-level information surviving in archives. These data provide a unique source for microregional empirical research in economic history, enabling analyses of the importance of such factors as education, religion, fertility, and many others for Prussian economic development in the 19th century. The service of iPEHD is to provide the data in a digitized and structured way.

Expanding School Resources and Increasing Time on Task: Effects of a Policy Experiment in Israel on Student Academic Achievement and Behavior

In this paper, I examine how student academic achievements and behaviour were affected by a school finance policy experiment undertaken in elementary schools in Israel. Begun in 2004, the funding formula changed from a budget set per class to a budget set per student, with more weight given to students from lower socioeconomic and lower educational backgrounds. The experiment altered teaching budgets, the length of the school week, and the allocation of time devoted to core subjects. The results suggest that spending more money and spending more time at school and on key tasks all lead to increasing academic achievements with no behavioural costs. I find that the overall budget per class has positive and significant effects on students' average test scores and that this effect is symmetric and identical for schools that gained or lost resources due to the funding reform. Separate estimations of the effect of increasing the length of the school week and the subject-specific instructional time per week also show positive and significant effects on math, science, and English test scores. However, no cross effects of additional instructional time across subjects emerge, suggesting that the effect of overall weekly school instruction time on test scores reflects only the effect of additional instructional time in these particular subjects. As a robustness check of the validity of the identification strategy, I also use an alternative method that exploits variation in the instruction time of different subjects. Remarkably, this alternative identification strategy yields almost identical results to the results obtained based on the school funding reform. Additional results suggest that the effect on test scores is similar for boys and girls but it is much larger for pupils from low socioeconomic backgrounds and it is also more pronounced in schools populated with students from homogenous socioeconomic backgrounds. The evidence also shows that a longer school week increases the time that students spend on homework without reducing social and school satisfaction and without increasing school violence.

A Reassessment of the Relationship Between GDP and Life Satisfaction

Determining the relation between life satisfaction and aggregate income at country level has been problematic, because cross-country and times-series analysis generally give different conclusions. Here we analyse this relation without imposing any polynomial structure to the estimated model and eliminating potentially confounding country-specific factors. We show the existence of a bliss point in the interval between 26,000$ and 30,000$ (2005 in PPP) in relationship between individual life satisfaction and GDP. An almost identical result is found when the relationship between aggregate income of Western European regions and life satisfaction of their residents is analysed: in this case, data suggest a bliss point between 30,000$ and 33,000$. In both samples, we find first evidence of a decreasing level of life satisfaction after the bliss points. Therefore, the analysis overall shows the existence of a hump-shaped pattern between GDP and life satisfaction. We discuss possible explanations of the hump-shaped pattern linked to external effects of the aggregate income on life satisfaction due, for example, to habit formation and income comparison and present an econometric test of this potential explanation based on some recent findings of the ve-factor personality theory.

Everyone Wants a Chance: Initial Positions and Fairness in Ultimatum Games

Fairness emerges as a relevant factor in redistributive preferences in surveys and experiments. We study experimentally the impact of varying the probability with which players are assigned to initial positions in Ultimatum Games (UGs). In the baseline case players have equal opportunities of being assigned the proposer position –arguably the more advantaged one in UGs. Chances become increasingly unequal across three treatments. We also manipulate the inter-temporal allocation of opportunities over rounds. We find that: (1) The more initial chances are distributed unequally, the lower the acceptance rates of a given offer; consequently, offers increase; (2) Being assigned a mere 1% chance of occupying the proposer role compared to none, significantly increases acceptance rates and decreases offers; (3) Players accept even extreme amounts of unequal chances within each round in exchange for overall equality of opportunities across rounds. Procedural fairness–both static and dynamic - has clear relevance for individuals.

Communism and Economic Modernization

The paper examines the range of national experiences of communist rule in terms of the aspiration to ‘overtake and outstrip the advanced countries economically’. It reviews the causal beliefs of the rulers, the rise and fall of their economies (or, in the case of China, its continued rise), the core institutions of communist rule and their evolution, and other outcomes. The process of overcoming a development lag so as to approach the global technological frontier has required continual institutional change and policy reform in the face of resistance from established interests. So far, China is the only country where communist rule has been able to meet this requirement, enabled by a new deal with political and economic stakeholders. The paper places the “China Deal” on a spectrum previously limited to the Soviet Big and Little Deals.

Creating Competitive Advantage: Policy Lessons from History

This paper reviews selected aspects of the history of UK supply-side policy in terms of their productivity implications. An important change after the 1970s which improved productivity performance was the adoption of policies to end protectionism and strengthen competition. A review of horizontal industrial policies shows weaknesses in education, infrastructure, taxation and, especially, land-use planning but, on the positive side, a regulatory stance conducive to the rapid adoption of ICT. A big implication is that any return to a more active industrial policy should be designed to minimize adverse effects on competition.

Employee referral, social proximity and worker discipline

We study ex-post hiring risks in low income countries with limited legal and regulatory frameworks. In our theory of employee referral, the new recruit internalises the rewards and punishments of the in-house referee meted out by the hiring rm. This social mechanism makes it cheaper for the rm to induce worker discipline. The degree of internalization depends on the unobserved strength of the endogenous social tie between the referee and the recruit. When the referee's utility is increasing in the strength of ties, referee workplace incentives do not matter and referee and employer incentives are aligned: in this case industries and jobs with high costs of opportunism and where dense kinship networks can match the skill requirements of employers will have clusters of close family and friends. This no longer applies if the referee's utility is decreasing in the strength of ties: referrals are then more costly for rms and require higher referee wages. We illustrate how these insights add to our understanding of South-Asian labour markets.

Absorptive Capacity and the Growth and Investment Effects of Regional Transfers: A Regression Discontinuity Design with Heterogeneous Treatment Effects

Researchers often estimate average treatment effects of programs without investigating heterogeneity across units. Yet, individuals, rms, regions, or countries vary in their ability, e.g., to utilize transfers. We analyse Objective 1 Structural Funds transfers of the European Commission to regions of EU member states below a certain income level by way of a regression discontinuity design with systematically heterogeneous treatment effects. Only about 30% and 21% of the regions - those with sufficient human capital and good-enough institutions - are able to turn transfers into faster per-capita income growth and per-capita investment. In general, the variance of the treatment effect is much bigger than its mean.

Productivity and Growth in UK Industries: An Intangible Investment Approach

This paper tries to calculate some facts for the “knowledge economy”. Building on the work of Corrado, Hulten and Sichel (CHS, 2005,9), using new data sets and a new micro survey, we (1) document UK intangible investment and (2) see how it contributes to economic growth. Regarding investment in knowledge/intangibles, we find (a) this is now greater than tangible investment at, in 2008, £141bn and £104bn respectively; (b) that R&D is about 11% of total intangible investment, software 15%, design 17%, and training and organizational capital 22%; (d) the most intangible-intensive industry is manufacturing (intangible investment is 20% of value added) and (e) treating intangible expenditure as investment raises market sector value added growth in the 1990s due to the ICT investment boom, but slightly reduces it in the 2000s. Regarding the contribution to growth, for 2000-08, (a) intangible capital deepening accounts for 23% of labour productivity growth, against computer hardware (12%) and TFP (40%); (b) adding intangibles to growth accounting lowers TFP growth by about 15% (c) capitalising R&D adds 0.03% to input growth and reduces lnTFP by 0.03% and (d) manufacturing accounts for just over 40% of intangible capital deepening plus TFP.

Incumbent Effects and Partisan Alignment in Local Elections: a Regression Discontinuity Analysis Using Italian Data

This paper provides a simple model to explain effect of political alignment between different tiers of government on policy choices and election outcomes. We derive precise predictions that, as long as voters attribute most of the credit for providing public goods to the local government: (i) aligned municipalities receive more grants, set lower taxes and provide more public goods, (ii) that the probability that the local incumbent is re-elected is higher in aligned municipalities compared to not aligned ones. Our empirical strategy to identify the alignment effects is built upon the fact that being or not aligned changes discontinuously at 50% of the vote share of local parties. This allows us to use sharp regression discontinuity design. Our theoretical predictions are largely confirmed using a new dataset on Italian public finance and electoral data at the central and local level.

Life Satisfaction, Household Income and Personality Traits

We show that personality traits mediate the e ect of income on Life Satisfaction. The effect is strong in the case of Neuroticism, which measures the sensitivity to threat and punishment, in both the British Household Panel Survey and the German Socioeconomic Panel. Neuroticism increases the usually observed concavity of the relationship: Individuals with higher Neuroticism score enjoy income more than those with lower score if they are poorer and enjoy income less if they are richer. When the interaction between income and neuroticism is introduced, income does not have significant effect on his own. To interpret the results, we present a simple model where we assume that (i) Life Satisfaction is dependent from the gap between aspired and realized income, and this is modulated by Neuroticism and (ii) income increases in aspirations with a slope less than unity, so that the gap between aspired and realized income increase with aspirations. From the estimation of this model we argue that poorer tend to overshoot in their aspiration, while rich tend to under-shoot. The estimation of the model also shows substantial effect of traits on income.

Strategic Budgeteering and Debt Allocation

This paper analyses how opportunistic governments choose between alternative fiscal policies in order to increases their chances of re-election. To increase the provision of public goods shortly before elections – and thus, to generate a fiscal political business cycles – governments may either increase deficits or redistribute governmental resources from long-term efficient sources to short-term efficient public programs. We argue that incumbents who face highly competed elections principally have an incentive to spend more on public goods even though these investments are not efficient in the long term. In principal, they would do so by increasing the deficits (with re-balancing the budget after the election). However, our model demonstrates that incumbents would even electioneer at the cost of long-term investments if the extent of fiscal transparency does not allow them to finance the provision of public goods with higher deficits. In other words, if elections are close and voters may observe the governmental deficit, then governments tend to increase the provision of public goods – and consequently, their electoral prospects – by a redistribution of budget resources from long-term efficient investment to a short-term provision of public goods. We test the predictions with new data on the composition of government consumption for 17 OECD countries over 35 years. The preliminary findings suggest that governments indeed reshuffle resources from long-term efficient investment to short-term public goods before elections especially if elections are contested.

De Facto Capital Mobility, Equality, and Tax Policy in Open Economies

This paper attempts at giving theoretical and empirical answers to the remaining puzzles in the literature on tax competition: the persistently high tax rates on mobile capital and the large variation in domestic tax systems. I argue that governments face a political trilemma, in which they cannot maintain the politically optimal level of public good provision, reduce capital taxes to competitive levels and implement a political support-maximizing mix of tax rates on capital and labour simultaneously. In particular, while legal restriction on capital flows have been eliminated by virtually all OECD countries, de facto capital mobility falls short of being perfect. Limits to full capital mobility result from ownership structures: the higher the concentration of capital, the higher the de facto mobility of capital and the lower the equilibrium tax rate. Second, the demand for the provision of public goods further constraints governments’ choices of the capital tax rate. If revenue from taxation of mobile factors declines, politicians cannot necessarily cut back spending without losing political support. Policy makers, accordingly, do not face a simple optimization problem when deciding on capital taxation. Rather, they have to choose a tax system which allows them to supply an appropriate level of public goods. Policy makers finally face a trade-off resulting from the redistributive conflict between capital-owners and workers. This conflict does not resemble a mere zero-sum game, because lower levels of capital taxation are likely to improve aggregate welfare, but the decision on capital taxation also cannot be analysed in isolation from the distributive effects of reducing taxes on mobile factors. This political logic of tax competition generates important predictions which are tested empirically for 23 OECD countries over 30 years within a spatial econometrics framework.

Tax Competition and Income Inequality: Why did the Welfare State Survive

Contrary to the belief of many, tax competition did not undermine the foundations of the welfare state and did not even abolish the taxation of capital. Instead, tax competition caused governments to shift the tax burden from capital to labour, thereby increasing income inequality in liberal market economies that traditionally redistribute income by relatively high effective capital taxes and relatively low effective labour taxes. In contrast, income inequality did increase little or not at all in social welfare states that dominantly use social security transfers to redistribute income. Governments in social welfare states found it easy to maintain high social expenditures because they increasingly taxed labour, which is relatively immobile, to finance social security transfers. We test the predictions of this theory using a simultaneous equation approach that accounts for the endogeneity of tax policies, fiscal policies, and deficits.

Monetary Policy Flexibility in floating Exchange Rate Regimes: Currency Denomination and Import Shares

This paper argues that the degree of monetary flexibility a government enjoys does not only depend on the implemented monetary institutions such as exchange rate arrangements and central bank independence but also on the economic and financial relationships with key currency areas. I develop a formal theoretical framework explaining the degree of monetary independence in open economies under flexible exchange rate regimes by trading relations and financial integration. The model suggests that a) higher import shares from the key currency area increase the imported inflation when monetary authorities try to offset an exogenous shock by cutting back the interest rate while the base country does not encounter a similar shock, and b) the more cross border assets of a country are denominated in the base currency the higher the exchange rate effects of interest rate differences to the interest rate of the key currency area. The presented empirical evidence largely supports the theoretical predictions.

India and The Great Divergence: An Anglo-Indian Comparison of GDP per capita, 1600-1871

This paper provides estimates of Indian GDP constructed from the output side for the pre-1871 period, and combines them with population estimates to track changes in living standards . Indian per capita GDP declined steadily during the seventeenth and eighteenth centuries before stabilising during the nineteenth century. As British living standards increased from the mid-seventeenth century, India fell increasingly behind. Whereas in 1600, Indian per capita GDP was over 60 per cent of the British level, by 1871 it had fallen to less than 15 per cent. As well as placing the origins of the Great Divergence firmly in the early modern period, the estimates suggest a relatively prosperous India at the height of the Mughal Empire, with living standards well above bare bones subsistence.

Railroads and Micro-regional Growth in Prussia

We study the effect of railroad access on urban population growth. Using GIS techniques, we match triennial population data for roughly 1000 cities in nineteenth-century Prussia to georeferenced maps of the German railroad network. We find positive short- and long-term effects of having a station on urban growth for different periods during 1840-1871. Causal effects of (potentially endogenous) railroad access on city growth are identified using instrumental-variable and fixed-effects estimation techniques. Our instrument identifies exogenous variation in railroad access by constructing straight-line corridors between terminal stations. Counterfactual models using pre-railroad growth yield no evidence in support of the hypothesis that railroads appeared as a consequence of a previous growth spurt.

Whither Capitalism? Financial Externalities and Crisis

As with global warming, so with financial crises – externalities have a lot to answer for. We look at three of them. First the financial accelerator due to 'fire sales' of collateral assets - - a form of pecuniary externality that leads to liquidity being undervalued. Second the 'risk-shifting' behaviour of highly-levered financial institutions who keep the upside of risky investment while passing the downside to others thanks to limited liability. Finally, the network externality where the structure of the financial industry helps propagate shocks around the system unless this is checked by some form of circuit breaker , or 'ring-fence'. The contrast between crisis-induced Great Recession and its aftermath of slow growth in the West and the rapid - and (so far) sustained - growth in the East suggests that successful economic progress may depend on how well these externalities are managed.

Bombs, Brains, and Science: The Role of Human and Physical Capital for the Creation of Scientific Knowledge

This paper analyses the effects of human capital (HC) and physical capital (PC) for the productivity of science departments. To address the endogeneity of input choices I use two extensive but temporary shocks to the HC and PC of science departments. As HC shock I use the dismissal of mostly Jewish scientists in Nazi Germany. As PC shock I use the destruction of facilities by Allied bombings during WWII. In the short run, a 10 percent to HC lowered departmental productivity by about 0.21sd. A 10 percent shock to PC lowered departmental productivity by about 0.05sd in the short run. While the HC shock persisted until the end of my sample period (1980), departments experiencing a PC shock recovered very quickly (by 1961). Additional results show that the dismissal 'star scientists' was particularly detrimental, and that a fall in the quality of hires was an important mechanism for the persistence of the HC shock.

Smithian Growth Through Creative Organisation

We consider a model in which appropriate organization fosters innovation, but because of contractibility problems, this benefit cannot be internalized. The organizational design element we focus on is the division of labor, which as Adam Smith argued, facilitates invention by observers of the production process. However, entrepreneurs choose its level only to facilitate monitoring their workers. Whether there is innovation depends on the interaction of the markets for labour and for inventions. A high level of specialization is chosen when the wage share is low. But low wage shares arise only when there are few entrepreneurs, which limits the market for innovations therefore and discourages inventive activity. When there are many entrepreneurs, the innovation market is large, but the rate of invention is low because there is little specialization. Rapid technological progress therefore requires a balance between these opposing effects, which occurs with a moderate relative scarcity of entrepreneurs and workers. In a dynamic version of the model in which a credit constraint limits entry into entrepreneurship, this relative scarcity depends on the wealth distribution, which evolves endogenously. There is an inverted-U relation between growth rates driven by innovation and the level of inequality. Institutional improvements have ambiguous effects on growth. In light of the model, we offer a reassessment of the mechanism by which organizational innovations such as the factory may have spawned the industrial revolution.

Prudent Banks and Creative Mimics: Can we tell the difference?

The recent financial crisis has forced a rethink of banking regulation and supervision and the role of financial innovation. We develop a model where prudent banks may signal their type through high capital ratios. Capital regulation may ensure separation in equilibrium but deposit insurance will tend to increase the level of capital required. If supervision detects risky behaviour ex ante then it is complementary to capital regulation. However, financial innovation may erode supervisors' ability to detect risk and capital levels should then be higher. But regulators may not be aware their capacities have been undermined. We argue for a four-prong policy response with higher bank capital ratios, enhanced supervision, limits to the use of complex financial instruments and Coco's. Our results may support the institutional arrangements proposed recently in the UK.

Self-Centred Beliefs: An Empirical Approach

We perform an experiment designed to assess the accuracy of beliefs about distributions. The beliefs relate to behavior (mobile phone purchasing decisions, hypothetical restaurant choices), attitudes (happiness, politics) and observable characteristics (height, weight) and are typically formed through real world experiences. We find a powerful and ubiquitous bias in perceptions that is "self-centered" in the sense that an individual's beliefs about the population distribution changes with their own position in the distribution. In particular, those at extremes tend to perceive themselves as closer to the middle of the distribution than is the case. We discuss possible explanations for this bias.

Russia's Home Front, 1914-1922: The Economy

This paper describes the main trends of the Russian economy through the Great War (1914 to 1917), Civil War (1918 to 1921), and post-war famine (1921 to 1922) for the general reader. During its Great War mobilization the Russian economy declined, but no more than other continental economies under similar pressures. In contrast, the Civil War inflicted the greatest economic trauma that Russians suffered in the course of the twentieth century. The paper identifies the main shocks in each period evaluates the relative contributions of circumstances and policy, and sums up their historical significance.

Borrowing from thy neighbour: a European perspective on sovereign debt

European capital markets show increasing concern about the extent of sovereign debts and their sustainability. Here we explore some insights that the Overlapping Generations (OLG) framework has to offer on such issues. The OLG framework implies, for example, that there is a limit to the amount of debt that may be sustained in a closed economy - with high debt raising interest rates and crowding out capital formation. But capital market integration with less indebted partners allows for a fall in interest rates as a result of borrowing from one's neighbour. Indeed we find that - in equilibrium - most of the debt of a high indebted country will be transferred to partner countries. Rather like ECB discount policy, our formal analysis is conducted without taking sovereign default risk properly into account, however. We go on to discuss three possible sources of default risk - creditor panic, exogenous interest rate shocks and "over-borrowing" - and we emphasize the need for comparative statics to be complemented by disequilibrium dynamics.

A Three-Stage Experimental Test of Revealed Preference

A powerful test of Varian's (1982) generalised axiom of revealed preference (GARP) with two goods requires the consumer's budget line to pass through two demand vectors revealed as chosen given other budget sets. In an experiment using this idea, each of 41 student subjects faced a series of 16 successive grouped portfolio selection problems. Each group of selection problems had up to three stages, where later budget sets depended on that subject's choices at earlier stages in the same group. Only 49% of subjects' choices were observed to satisfy GARP exactly, even by our relatively generous non-parametric test.

Western Europe’s Growth Prospects: an Historical Perspective

This paper surveys the recent history of Western European growth. It concludes that this experience has been disappointing and that further reforms are desirable in many countries. The requirement for reform comes both from achieving 'close-to-frontier' status and from the opportunities provided by the new technological era. The paper goes on to consider the effects that the current crisis may have on medium-term growth rates. The lesson from the 1930s is that, if the current crisis leads to a similarly bad downturn, the policy reaction in terms of greater state intervention will not be conducive to improved growth prospects.

Too much of a good thing? On the growth effects of the EU's regional policy

The European Union (EU) provides grants to disadvantaged regions of member states from two pools, the Structural Funds and the Cohesion Fund. The main goal of the associated transfers is to facilitate convergence of poor regions (in terms of per-capita income) to the EU average. We use data at the NUTS3 level from the last two EU budgetary periods (1994-99 and 2000-06) and generalized propensity score estimation to analyse to which extent the goal of fostering growth in the target regions was achieved with the funds provided and whether or not more transfers generated stronger growth effects. We find that, overall, EU transfers enable faster growth in the recipient regions as intended, but we estimate that in 36% of the recipient regions the transfer intensity exceeds the aggregate efficiency maximizing level and in 18% of the regions a reduction of transfers would not even reduce their growth. We conclude that some reallocation of the funds across target regions would lead to higher aggregate growth in the EU and could generate even faster convergence than the current scheme does.

Globalization and the (Mis)Governance of Nations

We analyse whether or not the globalization of capital, 'disciplines' governments and improves governance. We demonstrate that globalization affects governance, by increasing a country's vulnerability to sudden capital flight. This increased threat of capital flight can discipline governments and improve governance and welfare by placing countries in a 'golden straitjacket'. However, globalization may also 'overdiscipline' governments - resulting in a perverse impact on governmental incentives that catalyses (mis)governance. Accordingly, the paper suggests a novel (and qualified) role for capital controls. Finally, we provide some suggestive evidence consistent with the predictions from our theoretical framework.

Liquidity when it matters: QE and Tobin’s q

When financial markets freeze in fear, borrowing costs for solvent governments may fall towards zero in a flight to quality – but credit-worthy private borrowers can be starved of external funding. In Kiyotaki and Moore (2008), where liquidity crisis is captured by the effective rationing of private credit, tightening credit constraints have direct effects on investment. If prices are sticky, the effects on aggregate demand can be pronounced – as reported by FRBNY for the US economy using a calibrated DSGE-style framework modified to include such frictions. In such an environment, two factors stand out. First the recycling of credit flows by central banks can dramatically ease credit-rationing faced by private investors: this is the rationale for Quantitative Easing. Second, revenue-neutral fiscal transfers aimed at would-be investors can have similar effects. We show these features in a stripped-down macro model of inter-temporal optimisation subject to credit constraints

Mediation and Peace

This paper applies mechanism design to conflict resolution. We determine when and how unmediated communication and mediation reduce the ex ante probability of conflict in a game with asymmetric information. Mediation improves upon unmediated communication when the intensity of conflict is high, or when asymmetric information is significant. The mediator improves upon unmediated communication by not precisely reporting information to conflicting parties, and precisely, by not revealing to a player with probability one that the opponent is weak. Arbitrators who can enforce settlements are no more effective than mediators who only make non-binding recommendations.

When bigger isn’t better: bailouts and bank behaviour

Lending retail deposits to SMEs and household borrowers may be the traditional role of commercial banks: but banking in Britain has been transformed by increasing consolidation and by the lure of high returns available from wholesale Investment activities. With appropriate changes to the baseline model of commercial banking in Allen and Gale (2007), we show how market power enables banks to collect 'seigniorage'; and how 'tail risk' investment allows losses to be shifted onto the taxpayer. In principle, the high franchise values associated with market power assist regulatory capital requirements to check risk-taking. But when big banks act strategically, bailout expectations can undermine these disciplining devices: and the taxpayer ends up 'on the hook' - as in the recent crisis. That structural change is needed to prevent a repeat seems clear from the Vickers report, which proposes to protect the taxpayer by a 'ring fence' separating commercial and investment banking

How Should Financial Intermediation Services be Taxed?

This paper considers the optimal taxation of savings intermediation and payment services in a dynamic general equilibrium setting, when the government can also use consumption and income taxes. When payment services are used in strict proportion to final consumption, and the cost of intermediation services is fixed and the same across firms, the optimal taxes are generally indeterminate. But, when firms differ exogenously in the cost of intermediation services, the tax on savings intermediation should be zero. Also, when household time and payment services are substitutes in transactions, the optimal tax rate on payment services is determined by the returns to scale in the conditional demand for payment services, and is generally different to the optimal rate on consumption goods. In particular, with constant returns to scale, payment services should be untaxed. These results can be understood as applications of the Diamond-Mirrlees production efficiency theorem. Finally, as an extension, we endogenize intermediation, in the form of monitoring, and show that it may be oversupplied in equilibrium when banks have monopoly power, justifying a Pigouvian tax in this case.

Mine, Yours or Ours? The Efficiency of Household Investment Decisions: An Experimental Approach

We conduct an experiment to measure the relative importance of key factors that influence the efficiency of household investment decisions. We find that, both for men and women, their spouse's access to information does not affect efficiency. However, they are willing to sacrifice much efficiency for greater personal control over household income. Intriguingly, even when spouses' control over household income is exogenously assigned, inefficiency persists: As a wife's assigned share increased, husbands undercut their own income to reduce hers. This self-destructive and spiteful behaviour is best explained by non-economic factors such as identity, seldom emphasized in the mainstream household economic models.

The Power of Political Voice: Women's Political Representation and Crime in India

Using state-level variation in the timing of political reforms, we find that an increase in female representation in local government induces a large and significant rise in documented crimes against women in India. Our evidence suggests that this increase is good news, as it is driven primarily by greater reporting rather than greater incidence of such crimes. In contrast, we find no increase in crimes against men or gender-neutral crimes. We also examine the effectiveness of alternative forms of political representation: large scale membership of women in local councils affects crime against them more than their presence in higher level leadership positions.

A Sectoral Analysis of Italy's Development: 1861-2010

Italy‘s economic growth over its 150 years of unified history did not occur at a steady pace nor was it balanced across sectors . Relying on an entirely new input (labour and capital) database by us built and presented in the Appendix, together with new Banca d‘Italia estimates of GDP by sector, this paper evaluates the different labour productivity growth trends within the Italian economy's sectors, as well as the contribution of structural change to productivity growth. Italy‘s performance is then set in an international context: a comparison of sectoral labour productivity growth rates and levels within a selected sample of countries (UK, US, Germany, Japan, India) allows us to better time, quantify and gauge the causes of Italy's catching-up process and subsequent more recent slowdown. Finally, the paper analyses the proximate sources of Italy's growth, relative to the other countries, in a standard growth accounting framework, in an attempt also to disentangle the contribution of both total factor productivity growth and capital deepening to the country's labour productivity dynamics.

The Golden Age and the Second Globalization in Italy

After the Golden Age, Italy experienced increasing difficulties in adjusting its economy to the changing external context and to the requirements for sustaining catch-up growth at a higher level of economic development. The adjustment issue is common to advanced countries but the difficulties experienced in Italy look particularly severe. Cushioned by inflation and devaluation, growth remained relatively high in the 1970s. In the subsequent decade, in spite of improved conditions for addressing macroeconomic disequilibria structural adjustments were neglected. Major supply side reforms were eventually implemented in the aftermath of the 1992 crisis. Nevertheless, in the second half of the decade growth fell below the EU average. These necessary reforms fell however short of what was required. Participation in EMU did not help as far as the improvement of growth prospects was concerned. In the last section some of the economic and meta-economic factors explaining the ineffectiveness of the reform process are briefly explored.

Capitalism at War

The nineteenth century witnessed the triumph of capitalism; the twentieth century saw the bloodiest wars in history. Is there a connection? The paper reviews the literature and evidence. It considers first whether capitalism has lowered the cost of war; then, whether capitalism has shown a preference for war. Both questions are considered comparatively. Neither question receives a clear cut answer, but to simplify: Yes; No.

Accounting for Secrets

The Soviet state counted people, resources – and secret papers. The need to account for secrets was a transaction cost of autocratic government. This paper finds archival evidence of significant costs, multiplied by secrecy’s recursive aspect: the system of accounting for secrets was also secret and so had to account for itself. The evidence suggests that most Soviet officials complied most of the time. Numerous instances also imply that careless handling could take root and spread locally until higher authorities intervened. The paper uses the case of a small regional bureaucracy, the Lithuania KGB, to estimate the aggregate costs of handling secret paperwork. Over the period from 1954 to 1982, accounting for secrets makes up around one third of this organization’s archived records. This figure is surprisingly large, and is the main new fact contributed by the paper. There is much time variation, some of it not easily explained.

Economic History Matters

This paper considers the future of economic history in the context of its relationship with economics. It is argued that there are strong synergies between the two disciplines and that awareness of the economic past is an important resource for today’s economists. Examples are given that illustrate these points. It is clear that the past has useful economics but the potential value of economic history to economics will only be realized if economic historians are fluent in economics and organize the presentation of their research findings with a view to addressing questions that matter from a policy perspective.

Multi-Trait Matching and Intergenerational Mobility: A Cinderella Story

Empirical studies of intergenerational social mobility have found that women are more mobile than men. To explain this finding, we describe a model of multi-trait matching and inheritance, in which individuals’ attractiveness in the marriage market depends on their market and non-market characteristics. We show that the observed gender differences in social mobility can arise if market characteristics are relatively more important in determining marriage outcomes for men than for women and are more persistent across generations than non-market characteristics. Paradoxically, the female advantage in social mobility may be due to their adverse treatment in the labour market. A reduction in gender discrimination in the labour market leads to an increase in homogamy in the marriage market, lowering social mobility for both genders.

Recent developments in the theory of very long run growth: A historical appraisal

This paper offers a historical appraisal of recent developments in the theory of very long run growth, focusing on two main areas: (1) linkages between wages, population and human capital and (2) interactions between institutions, markets and technology. Historians as well as economists have recently begun to break away from the traditional practice of using different methods to analyse the world before and after the industrial revolution. However, tensions remain between the theoretical and historical literatures, particularly over the unit of analysis (the world or particular countries) and the role of historical contingency.

False Consensus in Economic Agents

In an incentivized experiment we identify a powerful and ubiquitous bias: individuals regard their own characteristics and choices as more common than is the case. We establish this "false consensus" bias in terms of happiness, political stance, mobile phone brand and on the attitude to deference in a hypothetical restaurant choice, and show that it is not limited to the distribution of hard to observe characteristics and choices but also to weight and height. We also show that the bias is not driven by the fact that the tallest, happiest, most left/right-wing, etc. are more salient.

Is Anonymity the Missing Link Between Commercial and Industrial Revolution?

The Industrial Revolution is often characterized as the culmination of a process of commercialisation; however, the precise nature of such a link remains unclear. This paper models and analyses one such link: the impact of a higher degree of anonymity of market transactions on relative factor prices. Commercialisation raises wages as impersonal labour market transactions replace personalized customary relations. This leads, in equilibrium, to higher real wages to prevent shirking. To the extent that capital and labour are (imperfect) substitutes, the resulting shift in relative factor prices leads to the adoption of a more capital-intensive production technology which, in turn, results in a faster rate of technological progress via enhanced learning by doing. We provide evidence using European historical data consistent our results.

Reputation and Cooperation in Defence

Surprisingly high levels of within-group cooperation are observed in conflict situations. Experiments confirm that external threats lead to higher cooperation. The psychological literature suggests proximate explanations in the form of group processes, but does not explain how these processes can evolve and persist. We provide an ultimate explanation, in which cooperation is a rational response to an external threat. We introduce a model in which groups vary in their willingness to help each other against external attackers. Attackers infer cooperativeness of groups from members’ behaviour under attack, and may be deterred by a group that bands together against an initial attack. Then, even self-interested individuals may defend each other when threatened in order to deter future attacks. We argue that a group’s reputation is a public good with a natural weakest-link structure. We extend the model to cooperative and altruistic behaviour in general.

Reciprocity towards Groups

People exhibit group reciprocity when they retaliate, not against a person who harmed them, but against another person in that person's group. We tested for group reciprocity in laboratory experiments. Subjects played a Prisoner's Dilemma with partners from different groups. They then allocated money between themselves and other participants. In punishment games, subjects whose partner had defected punished participants from the partner's group more, compared to their punishment of participants from a third group. In dictator-style games, subjects did not exhibit group reciprocity. We examine possible correlates of group reciprocity, including group identification and cooperativeness.

How to Waste a Crisis: Budget Cuts and Public Service Reform

In the aftermath of the financial crisis, governments have proposed saving money by reforming public services. This paper argues that tight budget constraints make reform harder. Governments are uncertain which departments are effective. Normally, effective departments can be identified by increasing their budget, since they can use the increase to produce more than ineffective departments. When budgets must be cut, however, ineffective departments can mimic effective ones by reducing their output. Budget cuts thus harm both short-run productive efficiency, and long-run allocative efficiency. These predictions are confirmed in a panel of US libraries. Low marginal productivity libraries reduce output by more than expected in response to a budget cut, and budget setters respond less to observed short-run output elasticity after cutback years.

When is capital enough to get female microenterprises growing? Evidence from a randomized experiment in Ghana

Standard models of investment predict that credit-constrained firms should grow rapidly when given additional capital, and that how this capital is provided should not affect decisions to invest in the business or consume the capital. We randomly gave cash and in-kind grants to male- and female-owned microenterprises in urban Ghana. Our findings cast doubt on the ability of capital alone to stimulate the growth of female microenterprises. First, while the average treatment effects of the in-kind grants are large and positive for both males and females, the gain in profits is almost zero for women with initial profits below the median, suggesting that capital alone is not enough to grow subsistence enterprises owned by women. Second, for women we strongly reject equality of the cash and in-kind grants; only in-kind grants lead to growth in business profits. The results for men also suggest a lower impact of cash, but differences between cash and in-kind grants are less robust. The difference in the effects of cash and in-kind grants is associated more with a lack of self-control than with external pressure. As a result, the manner in which funding is provided affects microenterprise growth.

The Marshall Plan: A Reality Check

This paper surveys the literature on the Marshall Plan which was designed to help the reconstruction of Europe after World War II. A basic description of how the Marshall Plan was implemented is provided but the focal point is a consideration of the impact of American aid on European growth. It is concluded that the direct effects were positive but modest. The indirect effects working through induced policy changes may have been larger. If so, the Marshall Plan may be thought of as a successful structural adjustment program of the kind advocated by believers in the Washington Consensus.

Private Provision of Public Goods and Information Diffusion in Social Groups

We describe a model of fundraising in social groups, where private information about quality of provision is transmitted by social proximity. Individuals engage in voluntary provision of a pure collective good that is consumed by both neighbours and non-neighbours. We show that, unlike in the case of private goods, better informed individuals face positive incentives to incur a cost to share information with their neighbours. These incentives are stronger, and provision of the pure public good greater, the smaller are individuals’ social neighbourhoods.

Secrecy, Fear and Transaction Costs: The Business of Soviet Forced Labour in the Early Cold War

This paper is about the costs of doing business under a harsh, secretive dictator. In 1949 the Cold War was picking up momentum. The Soviet state had entered its most secretive phase. The official rationale of secrecy was defense against external enemies. One of the Gulag’s most important secrets was the location of its labour camps, scattered across the length and depth of the Soviet Union. As this secret was guarded more and more closely, the camps began to drop out of the Soviet economic universe, losing the ability to share necessary information and do business with civilian persons and institutions without disclosing a state secret: their own location. For some months in 1949 and 1950, the Gulag’s camp chiefs and central administrators struggled with this dilemma and failed to resolve it. This episode teaches us about the costs of Soviet secrecy and raises basic questions about how secrecy was calibrated.

Empowering Women: Inheritance Rights and Female Education in India

This paper examines the impact of women's property inheritance rights on their education. Using exogenous variation created by state level reforms to the inheritance law in India, I find that mean educational attainment of women who were of primary school-going age at the time of reform increased by 0.5 years in reforming relative to non-reforming states. The impact is present only for women in landowning and "Hindu" households, with no concomitant impact on men. I also provide suggestive evidence on the underlying mechanism that in order to prevent fragmentation of household property, parents compensate daughters by investing in their education.

Scale Economies in Nonprofit Provision, Technology Adoption and Entry

We study competition between non-profit providers that supply a collective service through increasing-returns-to-scale technologies under conditions of free entry. When providers adopt a not-for-profit mission, the absence of a residual claimant can impede entry, protecting the position of an inefficient incumbent. Moreover, when providers supply goods that are at least partly public in nature, they may be unable to sustain the adoption of more efficient technologies that feature fixed costs, because buyers (private donors) face individual incentives to divert donations towards charities that adopt inferior, lower-fixed-cost technologies. These incentives may give rise to a technological race to the bottom, where non-profit providers forgo opportunities to exploit scale economies. In these situations, government grants in support of core costs can have a non-neutral effect on entry, technology adoption, and industry performance.

AntiDepressants and Age

Antidepressants as a commodity have been remarkably little-studied by economists. This study shows in new data for 27 European countries that 8% of people (and 10% of those middle-aged) take antidepressants each year. The probability of antidepressant use is greatest among those who are middle-aged, female, unemployed, poorly educated, and divorced or separated. A hill-shaped age pattern is found. The adjusted probability of using antidepressants reaches a peak -- approximately doubling -- in people's late 40s. This finding is consistent with, and provides a new and independent form of corroboration of, recent claims in the research literature that human well-being follows a U-shape through life.

The Persistence of Political Partisanship: Evidence from 9/11

This paper empirically examines whether the act of deciding to support a political party can impact partisan leanings years later. We use the discontinuity in the probability of being registered to vote around the 18th birthday to look at the impact of registration after the 9/11/01 attacks on party of registration. We first show that 9/11 increased Republican registration by approximately 2%. Surprisingly, these differences in registration patterns fully persist over the two year period from 2006 to 2008, even for a group of registrants who moved and changed their registration address. We find full persistence for those registered in zip codes within two miles of a four year university, suggesting that persistence is unlikely to be explained by lack of easy access to or inability to process information. Instead, we suggest an interpretation of our findings based upon either cognitive or social biases.

British Relative Economic Decline Revisited

This paper examines the role of competition in productivity performance in Britain over the period from the late-nineteenth to the early twenty-first century. A detailed review of the evidence suggests that the weakness of competition from the 1930s to the 1970s undermined productivity growth but since the 1970s stronger competition has been a key ingredient in ending relative economic decline. The productivity implications of the retreat from competition resulted in large part from inter actions with idiosyncratic British institutional structures in terms of corporate governance and industrial relations. This account extends familiar insights from cliometrics both analytically and chronologically.

Does Parental Education Affect Fertility? Evidence from Pre-Demographic Transition Prussia

While women’s employment opportunities, relative wages, and the child quantity‐quality trade‐off have been studied as factors underlying historical fertility limitation, the role of parental education has received little attention. We combine Prussian county data from three censuses—1816, 1849, and 1867—to estimate the relationship between women’s education and their fertility before the demographic transition. Despite controlling for several demand and supply factors, we find a negative residual effect of women’s education on fertility. Instrumental‐variable estimates, using exogenous variation in women's education driven by differences in landownership inequality, suggest that the effect of women’s education on fertility is causal.

The Empire Is Dead, Long Live the Empire! Long-Run Persistence of Trust and Corruption in the Bureaucracy

Do empires affect attitudes towards the state long after their demise? We hypothesize that the Habsburg Empire with its localized and well-respected administration increased citizens’ trust in local public services. In several Eastern European countries, communities on both sides of the long-gone Habsburg border have been sharing common formal institutions for a century now. Identifying from individuals living within a restricted band around the former border, we find that historical Habsburg affiliation increases current trust and reduces corruption in courts and police. Falsification tests of spuriously moved borders, geographic and pre-existing differences, and interpersonal trust corroborate a genuine Habsburg effect.

International Happiness

This paper describes the findings from a new, and intrinsically interdisciplinary, literature on happiness and human well-being. The paper focuses on international evidence. We report the patterns in modern data; we discuss what has been persuasively established and what has not; we suggest paths for future research. Looking ahead, our instinct is that this social-science research avenue will gradually merge with a related literature -- from the medical, epidemiological, and biological sciences -- on biomarkers and health. Nevertheless, we expect that intellectual convergence to happen slowly.

The Frequency of Wars

Wars are increasingly frequent, and the trend has been steadily upward since 1870. The main tradition of Western political and philosophical thought suggests that extensive economic globalization and democratization over this period should have reduced appetites for war far below their current level. This view is clearly incomplete: at best, confounding factors are at work. Here, we explore the capacity to wage war. Most fundamentally, the growing number of sovereign states has been closely associated with the spread of democracy and increasing commercial openness, as well as the number of bilateral conflicts. Trade and democracy are traditionally thought of as goods, both in themselves, and because they reduce the willingness to go to war, conditional on the national capacity to do so. But the same factors may also have been increasing the capacity for war, and so its frequency.

Behavioural Decisions and Policy

We study the public policy implications of a model in which agents do not fully internalize all the consequences of their actions. Such a model unifies seemingly disconnected models with behavioural agents. We evaluate the scope of paternalistic and libertarian-paternalistic policies in the light of our model, and propose an alternative type of approach, called soft-libertarian, which guides the decision makers in the internalisation of all the consequences of their actions. Psychotherapy is one example of a soft-libertarian policy. Moreover, we show that in our behavioural framework, policies that increase the set of opportunities or provide more information to the agent may not longer be individual welfare improving.

Openness, protectionism and Britain's productivity performance over the long run

We explore the links between openness and economic performance in Britain between 1870 and 1999. The key findings are: (1) As a result of the openness of the British economy, agriculture was unusually small in nineteenth century Britain, allowing resources to be deployed in the higher value added industrial and service sectors. This benefit of openness is rarely considered alongside the costs to British industry of retaining open markets when tariffs were being raised against British exports. (2) Many writers criticise the cosmopolitan service sector for neglecting domestic industry. However, this ignores the importance of the outward orientation of services for service sector productivity, and the growing importance of services for productivity performance overall. (3) The trend of British industrial performance was not improved by protection when it was applied in the 1930s, despite the claims of the tariff reformers. Furthermore, protective attempts to avoid de-industrialisation after World War II had an adverse effect on productivity performance in industry and in the aggregate economy.

British Economic Growth: 1270 - 1870

We provide annual estimates of GDP for England between 1270 and 1700 and for Great Britain between 1700 and 1870, constructed from the output side. The GDP data are combined with population estimates to calculate GDP per capita. We find English per capita income growth of 0.20 per cent per annum between 1270 and 1700, although growth was episodic, with the strongest growth during the Black Death crisis of the fourteenth century and in the second half of the seventeenth century. For the period 1700-1870, we find British per capita income growth of 0.48 per cent, broadly in line with the widely accepted Crafts/Harley estimates. This modest trend growth in per capita income since 1270 suggests that, working back from the present, living standards in the late medieval period were well above “bare bones subsistence”. This can be reconciled with modest levels of kilocalorie consumption per head because of the very large share of pastoral production in agriculture.

Forging Success: Soviet Managers and Accounting Fraud, 1943 to 1962

Attempting to satisfy their political masters in a target-driven culture, Soviet managers had to optimize on many margins simultaneously. One of these was the margin of truthfulness. False accounting for the value of production was apparently widespread in some branches of the economy and at some periods of time. A feature of accounting fraud was that cases commonly involved the aggravating element of conspiracy. The paper provides new evidence on the nature and extent of accounting fraud; the scale and optimal size of conspiratorial networks; the authorities’ willingness to penalize it and the political and social factors that secured leniency; and inefficiency in the socialist market where managers competed for political credit.

Trade Booms, Trade Busts and Trade Costs

What has driven trade booms and trade busts in the past and present? We derive a micro-founded measure of trade frictions from leading trade theories and use it to gauge the importance of bilateral trade costs in determining international trade flows. We construct a new balanced sample of bilateral trade flows for 130 country pairs across the Americas, Asia, Europe, and Oceania for the period from 1870 to 2000 and demonstrate an overriding role for declining trade costs in the pre-World War I trade boom. In contrast, for the post-World War II trade boom we identify changes in output as the dominant force. Finally, the entirety of the interwar trade bust is explained by increases in trade costs.

International Trade without CES: Estimating Translog Gravity

This paper derives a micro-founded gravity equation in general equilibrium based on a trans-log demand system that allows for endogenous mark-ups and substitution patterns across goods. In contrast to standard CES-based gravity equations, trade is more sensitive to trade costs if the exporting country only provides a small share of the destination country’s imports. As a result, trade costs have a heterogeneous impact across country pairs, with some trade flows predicted to be zero. I test the trans-log gravity equation and find strong empirical support in its favour.

Trade and Synchronization in a Multi-Country Economy

Substantial evidence suggests that countries with stronger trade linkages have more synchronized business cycles. The standard international business cycle framework cannot replicate this finding, uncovering the trade co-movement puzzle. We show that under certain macro-level conditions but irrespective of the micro-level assumptions concerning trade the puzzle arises because trade fails to substantially increase the correlation between each country's import penetration ratio and the trade partner's technology shock. Within a large class of trade models, there are three channels through which bilateral trade may increase business cycle synchronization. Specifically, increased bilateral trade may (i) raise the correlation between each country's technology shocks, (ii) raise the correlation between each country's share of expenditure on domestic goods, and (iii) raise the response of the domestic import penetration ratio to foreign technology shocks. Empirical evidence strongly supports the first and second channels. We show that the trade-comovement puzzle can be resolved if productivity shocks are more correlated between country-pairs that trade more.

Decisions with Endogenous Frames

We develop a model of decision-making with endogenous frames and contrast the normative implications of our model to those of choice theoretic models in which observed choices are determined by exogenous frames or ancillary conditions. We argue that, frames, though they may be taken as given by the decision-maker at the point when choices are made, matter for both welfare and policy purposes .

Does strengthening Collective Action Clauses (CACs) help?

Does improving creditor coordination by strengthening CACs lead to efficiency gains in the functioning of sovereign bond markets? We address this question in a model featuring both debtor moral hazard and creditor coordination under incomplete information. Conditional on default, we characterize the interim efficient CAC threshold and show that strengthening CACs away from unanimity results in interim welfare gains. However, once the impact of strengthening CACs on debtor's incentives are taken into account, we demonstrate the robust possibility of a conflict between ex ante and interim efficiency. We calibrate our model to quantify such a welfare trade-off and discuss the policy implications of our results.

Great War, Civil War, and Recovery: Russia’s National Income, 1913 to 1928

The last remaining gap in the national accounts of Russia and the USSR in the twentieth century, 1913 to 1928, includes the Great War, the Civil War, and post-war recovery. Filling this gap, we find that the Russian economy did somewhat better in the Great War than was previously thought; in the Civil War it did correspondingly worse; war losses persisted into peacetime, and were not fully restored under the New Economic Policy. We compare this experience across regions and over time. The Great War and Civil War produced the deepest economic trauma of Russia’s troubled twentieth century.

Liquidity, moral hazard and bank crises

Bank crises, by interrupting liquidity provision, have been viewed as resulting in welfare losses. In a model of banking with moral hazard, we show that second best bank contracts that improve on autarky ex ante require costly crises to occur with positive probability at the interim stage. When bank payoffs are partially appropriable, either directly via imposition of fines or indirectly by the use of bank equity as a collateral, we argue that an appropriately designed ex-ante regime of policy intervention involving conditional monitoring can prevent bank crises.

Interstate Competition and Political Stability

Previous theories of globalization have examined factor mobility’s effect on the political conflict between social classes. But factor mobility also increases competition between state rulers in providing services for citizens. I ask how this interstate competition affects the process of political change. In a simple model, interstate competition substitutes for democracy, by forcing rulers to invest in public goods so as to avoid capital and labour leaving the country. As a result, citizens are less willing to struggle for democracy, and rulers are less willing to oppose it, when interstate competition is strong. Therefore, there is less conflict over the level of democracy. The theory is tested on a post-war panel of countries, using neighbouring countries’ financial openness as a proxy for factor mobility. As the theory predicts, states experience fewer changes in their level of democracy when their neighbours are financially open

Explaining Institutional Change: Why Elected Politicians Implement Direct Democracy

Why did representative politicians introduce direct democratic reforms, thus binding their own hands? This paper presents a formal model in which (1) voters are uncertain about their representative’s preferences; (2) direct and representative elections are substitute methods for voters to control outcomes. Some politicians benefit from the introduction of direct democracy, since they are more likely to survive representative elections. Historical evidence from the introduction of the initiative, referendum and recall in America supports the theory, which also explains two puzzling empirical results: legislators are trusted less, but re-elected more, in US states with direct democracy.

Traveling Agents: Political Change and Bureaucratic

We develop a framework to empirically examine how politicians with electoral pressures control bureaucrats with career concerns as well as the consequences for bureaucrats' career investments. Unique micro-level data on Indian bureaucrats support our key predictions. Politicians use frequent reassignments (transfers) across posts of varying importance to control bureaucrats. High-skilled bureaucrats face less frequent political transfers and lower variability in the importance of their posts. We find evidence of two alternative paths to career success: officers of higher initial ability are more likely to invest in skill, but caste affinity to the politician's party base also helps secure important positions.

Lessons from the 1930s Great Depression

This paper provides a survey of the Great Depression comprising both a narrative account and a detailed review of the empirical evidence focusing especially on the experience of the United States. We examine the reasons for and flawed resolution of the American banking crisis as well as the conduct of fiscal and monetary policy. We also consider the pivotal role of the gold standard in the international transmission of the slump and leaving gold as a route to recovery. Policy lessons from the Great Depression for today are discussed as are some implications for macroeconomics.

Poverty and aspirations failure

We develop a model of internal constraints to show that a greater degree of initial disadvantage results in a higher likelihood of low aspirations and low achievement. Our model and results are supported by evidence from anthropology, sociology and social psychology. Our analysis suggests that internal constraints are a key ingredient in perpetuating poverty traps. We show that a poor person will choose to restrict her cognitive window (the set of other individuals who are her role models) and study the conditions under which a role model could alter her aspirations and achievement. We show how endogenously chosen cognitive windows interact with the initial distribution of status to determine whether or not a society is connected, and hence the transmission of aspirations across individuals in that society. Our work provides a normative justification for programs that aim at empowering disadvantaged individuals by directly shocking their aspirations.

English Economic Growth, 1270-1700

We provide annual estimates of GDP for England over the period 1270-1700, constructed from the output side. The GDP data are combined with population estimates to calculate GDP per capita. Sectoral price data and estimates of nominal GDP are also provided. We find per capita income growth of 0.20 per cent per annum, although growth was episodic, with the strongest growth after the Black Death and in the second half of the seventeenth century. Living standards in the late medieval period were well above “bare bones subsistence”, although levels of kilocalorie consumption per head were modest because of the very large share of pastoral production in agriculture.

British Economic Growth and the Business Cycle, 1700-1870: Annual Estimates

This paper provides the first annual GDP series for Great Britain over the period 1700-1870. The series is constructed in real terms from the output side, using volume indicators and value added weights. Sectoral estimates are provided for agriculture, industry and services, and for a number of sub-sectors. Estimates of nominal GDP are also provided, based on a benchmark for 1841 and projected back to 1700 and forward to 1870 using the real output series and sectoral price indices. The new data are used to provide a consistent account of economic growth and the business cycle. The results are broadly consistent with the long run path of real output suggested by Crafts and Harley, although growth rates for sub-periods differ, largely as a result of changes in the growth of agriculture. Nominal GDP increased more rapidly than suggested by Lindert and Williamson during the eighteenth century, and more slowly than suggested by Deane and Cole during the first half of the nineteenth century, as a result of differences in the price indices. We also refine the business cycle chronologies of Ashton and Gayer, Rostow and Schwartz.

Workers Without Borders: On Culture and The Politics of Migration

This paper examines the role of cultural factors in driving the politics, size and nature (temporary versus permanent migration) of migration policy. We show that there exists a broad political failure that results in inefficiently high barriers restricting the import of temporary foreign workers and also admitting an inefficiently large number of permanent migrants. Strikingly, we show that countries that are poor at cultural assimilation are better positioned to take advantage of temporary foreign worker programs than more culturally diverse and tolerant countries. Furthermore, relaxing restrictions in the mobility of migrant workers across employers has the potential to raise host country welfare even though it increases migrant wages and lowers individual firms' profits. We also demonstrate the existence of multiple equilibria: some countries have mostly temporary migration programs and see a low degree of cultural assimilation by migrants, while other countries rely more on permanent migrants and see much more assimilation.

Roll out the Red Carpet and They Will Come: Investment Promotion and FDI Inflows

As red tape in host countries and information asymmetries constitute a significant obstacle to investment flows across international borders, an important policy question is: what can aspiring FDI destinations do to reduce such barriers? This study uses newly collected data on 124 countries to examine the effects of investment promotion on inflows of US FDI. We test whether sectors explicitly targeted by investment promotion agencies in their efforts to attract FDI receive more investment in the post-targeting period, relative to the pre-targeting period and non-targeted sectors. The results of our analysis are consistent with investment promotion leading to higher FDI flows to countries in which red tape and information asymmetries are likely to be severe. The data suggest that investment promotion works in developing countries but not in industrialised economies.

Transport Cost and Endogenous Quality Choice

This paper examines how the quality of exports depends on relative country size and its remoteness. Specific transportation cost is the key variable in our analysis as it gives rise to the Alchian-Allen effect. In the model, we allow for endogenous quality choice by a producer serving many international locations. Higher quality comes at higher marginal cost of production, but can be delivered at the same absolute, and thus proportionally lower, transportation cost to a given destination. Our model complements the well documented demand-side response to the distribution of transportation costs (known as the Alchian-Allen effect) by the supply side response. We show that, ceteris paribus, equilibrium quality decreases in the domestic country size and increases in remoteness from foreign markets. This happens because a larger portion of the demand is affected by the Alchian-Allen effect for smaller countries’ producers, and the Alchian-Allen effect is stronger for remote countries. We confirm our predictions empirically on a detailed product level dataset of all exporters worldwide into a sample of Latin American importers.

What Constrains Africa's Exports?

This paper examines the effects of transit, documentation, and ports and customs delays on Africa’s exports. The authors find that transit delays have the most economically and statically significant effect on exports. A one-day reduction in inland travel times leads to a 7 percent increase in exports. Put another way, a one-day reduction in inland travel times translates to a 1.5 percentage point decrease in all importing-country tariffs. By contrast, longer delays in the other areas have a far smaller impact on trade. The analysis controls for the possibility that greater trade leads to shorter delays in three ways. First, it examines the effect of trade times on exports of new products. Second, it evaluates the effect of delays in a transit country on the exports of landlocked countries. Third, it examines whether delays affect time- sensitive goods relatively more. The authors show that large transit delays are relatively more harmful because of high within-country variation.

Specialisation: Pro and Anti-Globalizing 1990-2002

Specialization alters the incidence of trade costs to buyers and sellers, with pro-and anti-globalizing effects on 76 countries from 1990-2002. The structural gravity model yields measures of Constructed Home Bias and the Total Factor Productivity effect of changing incidence. A bit more than half the world's countries experience declining constructed home bias and rising real output while the remainder of countries experience rising home bias and falling real output. The effects are big for the outliers. A novel test of the structural gravity model restrictions shows it comes very close in an economic sense.

Supply Capacity, Vertical Specialisation and Trade Costs: The Implications for Aggregate US Trade Flow Equations

This paper re-examines aggregate and disaggregate import and export demand functions for the United States over the 1975q1-2010q1 period. This re-examination is warranted because (1) income elasticities are too high to be warranted by standard theories, and (2) remain high even when it is assumed that supply factors are important. These findings suggest that the standard models omit important factors. An empirical investigation indicates that the rising importance of vertical specialization combined with changing tariff rates and transportation costs explains some of results. Accounting for these factors yields more plausible estimates of income elasticities.

The Elasticity of Trade: Estimates & Evidence

Quantitative results from a large class of structural gravity models of international trade depend critically on a single parameter governing the elasticity of trade with respect to trade frictions. We provide a new method to estimate this elasticity and illustrate the merits of our approach relative to the estimation strategy of Eaton and Kortum (2002). We employ this method on data for 123 developed and developing countries for the year 2004 using new disaggregate price and trade flow data. Our benchmark estimate for all countries is approximately 4.5, nearly 50 percent lower than the alternative estimation strategy would suggest. This difference implies a doubling of the measured welfare costs of autarky across a large class of widely used trade models.

The Growth of Bilateralism

One of the most notable international economic events over the past 20 years has been the proliferation of bilateral free trade agreements (FTAs). Bilateral agreements account for 80 percent of all agreements notified to the WTO, 94 percent of those signed or under negotiation, and currently 100 percent of those at the proposal stage. Some have argued that the growth of bilateralism is attributable to governments having pursued a policy of "competitive liberalisation" - implementing bilateral FTAs to offset potential trade diversion caused by FTAs of "third-country-pairs" - but the growth of bilateralism can also be attributed potentially to "tariff complementarity" - the incentive for FTA members to reduce their external tariffs on non-members. Guided by new comparative statics from the numerical general equilibrium monopolistic competition model of FTA economic determinants in Baier and Bergstrand (2004), we augment their parsimonious logit (and probit) model of the economic determinants of bilateral FTAs to incorporate theory-motivated indexes to examine the influence of existing memberships on subsequent FTA formations. The model can predict correctly 90 percent of the bilateral FTAs within five years of their formation, while still predicting "No-FTA" correctly in 90 percent of the observations when no FTA exists, using a sample of over 350,000 observations for pairings of 146 countries from 1960-2005. Even imposing the higher correct prediction rate of "No- FTA" of 97 percent in Baier and Bergstrand (2004), the parsimonious model still predicts correctly 75 percent of these rare FTA events; only 3 percent of the observations reflect a country-pair having an FTA in any year. The results suggest that - while evidence supports that "competitive liberalisation" is a force for bilateralism - the effect on the likelihood a pair of countries forming an FTA of the pair's own FTAs with other countries (i.e., tariff complementarity) is likely just as important as the effect of third-country-pairs' FTAs (i.e., competitive liberalisation) for the growth of bilateralism.

The Dynamic Effects of Currency Union on Trade

A currency union’s ability to increase international trade is one of the most debated questions in international macroeconomics. This paper studies the dynamics of these trade effects over time. First, empirical work with data from the European Monetary Union finds that the extensive margin of trade (entry of new firms or goods) responds several years ahead of overall trade volume and actual implementation of the monetary union. This implies a fall at the intensive margin (previously traded goods) in the run-up to EMU. A dynamic stochastic general equilibrium model of trade studies the announcement of a future monetary union as a news shock lowering future trade costs, and finds that the early entry of new firms in anticipation is explainable as a rational forward-looking response under certain conditions. Required elements are sunk costs of exporting and ex-ante heterogeneity among firms. The findings help identify which types of trading frictions are reduced by adopting a currency union. Findings also indicate that a significant fraction of the welfare gains from a monetary union are based upon expectations for the future, so that continued gains depend upon long-term credibility of the union.

Explaining the First Industrial Revolution: Two Views

This review essay looks at the recent books on the British Industrial Revolution by Robert Allen and Joel Mokyr. Both writers seek to explain Britain’s primacy. This paper offers a critical but sympathetic account of the main arguments of the two authors considering both the economic logic and the empirical validity of their rival claims. In each case, the ideas are promising but the evidence base seems in need of further support. It may be that eventually these explanations for British economic leadership at the turn of the nineteenth century are recognized as complementary rather than competing.

Unilateral measures and emissions mitigation

Do unilateral measures to cut emissions provide an adequate foundation for global climate change negotiations from a post-Copenhagen perspective? We document the extent and variety for unilateral measures. In a formal model, we examine the conditions under which global learning, by building on the positive spill-overs generated by unilateral measures, delivers cumulative emissions reduction over time. Using our results, we analyse the key features of a global policy regime builds on unilateral measures to accelerate convergence to a low carbon world.

The Leader as Catalyst: On Mass Movements and the Mechanics of Institutional Change

Why are some leaders able to rally mass support and successfully catalyse revolutionary change while others fail? We argue that the key to understanding a leader's effectiveness lies in dissecting the symbiotic relationship between the leader and his committed activist-followers. Good leaders attract committed activist-followers. In turn, these followers have a bottom-up role in empowering the leader by rallying support from the broader populace, resulting in a mass movement. This two-way leader-follower interaction can endogenously give rise to threshold effects: ‘small’ differences in leader ability have a dramatic impact on the prospects for change. Therefore, while underlying structural conditions and institutions are important, there is an independent first-order role for individual agency in bringing about institutional change and development. We show that for a leader ‘it is better to be feared than loved’. An ambitious, self-serving leader attracts activist followers who fear bad institutional change and hope to insulate themselves by becoming loyal followers. Indeed by empowering such a self-serving leader, these followers make him a more effective agent of (both good and bad) institutional change.

Indian GDP, 1600-1871: Some Preliminary Estimates and a Comparison with Britain

This paper provides estimates of Indian GDP constructed from the output side for the period 1600-1871, and combines them with population estimates to track changes in living standards. Indian per capita GDP declined steadily. As British living standards increased from the mid-seventeenth century, India fell increasingly behind. Whereas in 1650, Indian per capita GDP was more than 80 per cent of the British level, by 1871 it had fallen to less than 15 per cent. As well as placing the origins of the Great Divergence firmly in the early modern period, these estimates suggest a relatively prosperous India at the height of the Mughal Empire, with living standards well above bare bones subsistence.

Behavioural Decision and Welfare

If decision-makers (DMs) do not always do what is in their best interest, what do choices reveal about welfare? This paper shows how observed choices can reveal whether the DM is acting in her own best interest. We study a framework that relaxes rationality in a way that is common across a variety of seemingly disconnected positive behavioural models and admits the standard rational choice model as a special case. We model a behavioural DM (boundedly rational) who, in contrast to a standard DM (rational), does not fully internalize all the consequences of her own actions on herself. We provide an axiomatic characterization of choice correspondences consistent with behavioural and standard DMs, propose a choice experiment to infer the divergence between choice and welfare, state an existence result for incomplete preferences and show that the choices of behavioural DMs are, typically, sub-optimal.

Uneven Growth: A Framework for Research in Development Economics

The textbook paradigm of economy-wide development rests on the premise of "balanced growth"; that is, on the presumption that all sectors will grow in unison over time as a country gets richer. This view has served us reasonably well in some circumstances, but is not particularly useful for accounts of modern (under) development. In many developing countries, economic growth has been fundamentally uneven: software development, the outsourcing of services, sectoral technological change, quick compositional shifts between agriculture and other sectors, the rise of particular exports, "special" economic zones, and so on. This paper will discuss both the sources of uneven growth, and its implications, with greater emphasis on the latter. The paper will argue that much of the distributional issues, or the reactions to globalization that we see in modern developing societies can be viewed as reactions to a growth process that is fundamentally uneven and is indeed perceived as such.

Making Sense of the Manufacturing Belt: Determinants of the US Industrial Location, 1880-1920

This paper investigates the ability of the new economic geography to explain the persistence of the manufacturing belt in the United States around the turn of the 20th century using a model which subsumes both market-potential and factor-endowment arguments. The results show that market potential was central to the existence of the manufacturing belt, that it mattered more than factor endowments, and that its impact came through interactions both with scale economies and with linkage effects. Natural advantage played a role in industrial location but only through agricultural inputs which were important for a small subset of manufacturing.

The Price of Elasticity of Charitable Giving: Does the Form of Tax Relief Matter?

This paper uses a survey-based approach to test alternative methods of channelling tax relief to donors – as a tax rebate for the donor or as a matched payment to the receiving charity. On accounting grounds these two are equivalent but, in line with earlier experimental studies, we find that gross donations are significantly more responsive to a match change than to a rebate change. We show that the difference can largely be explained by t he fact that a majority of donors do not adjust their nominal donations in response to a change in subsidy. This evidence adds to the growing empirical literature suggesting that consumers may not react to tax changes. In the case of tax subsidies for donations, this has implications for policy design – for the UK a match-based system is likely to be more effective at increasing money going to charities.

Rational Inattention to Subsidies for Charitable Contributions

Evidence shows that individuals do not always take tax attributes into account when making their choices. We focus on tax relief for charitable contributions. Although rational donors should view a match and a rebate of the same value as being equivalent, survey evidence shows that nominal donations are more likely to adjust in response to a change in the rebate than to a corresponding change in the match. We argue that these patterns are consistent with the predictions of a model of rational inattention, whereby a majority of individuals choose to process rebate changes while forgoing to process match changes.

The Contribution of New Technology to Economic Growth: Lessons from Economic History

Technological change is central to the study of economic history. Strong and sustained technological progress is the key characteristic of modern economic growth that distinguished the post-Industrial-Revolution world from earlier times and is the fundamental force which has raised living standards over the last 250 years. As Paul Romer said, "Our knowledge of economic history, of what production looked like 100 year ago, and of current events convinces us beyond any doubt that discovery, invention, and innovation are of overwhelming importance in economic growth" (1993, p. 562).