This week from CEPR: 26 May

Thursday, May 26, 2022

Highlights from some of the latest research reports published in the Centre for Economic Policy Research (CEPR) network’s long-running series of discussion papers, as well as some other recent CEPR publications.

Also, links to some of the latest columns on Vox, the Centre’s policy portal, which provides ‘research-based policy analysis and commentary from leading economists’.

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    Marco Alfano, Joseph-Simon Goerlach
    CEPR DP No. 17322 | 22 May 2022

    Terrorists use violence strategically to spread fear and disruption beyond the violent act itself, using the media as a vehicle for this disruption. A new CEPR study by Marco Alfano and Joseph-Simon Goerlach examines how terrorism alters the demand for education through perceived risks and returns by relating terrorist attacks to media signal coverage and schooling in Kenya. Exploiting geographical and temporal variation in wireless signal coverage and attacks, the authors show that: 

    • Media reporting on terrorist acts reduces school enrolment even after controlling for attacks carried out, a relation that is observed only for households with access to this information.
    • Media exposure further heightens self-reported fears and safety concerns; media also prevents the effects of terrorism from decaying with distance from an attack.
    • The resulting effect on education choices may have lasting effects on longer-term economic development and life-time earnings potential of Kenyan children. 
    • Households experiencing terrorism thus form beliefs about risks and returns to education, and households with media access significantly over-estimate fatality risks.

    The results show that the ever-increasing interconnectedness through media can lead to inefficient over-responses, which, in turn, decrease educational attainments. The authors caution against sensationalism and stress the benefits of moderate and facts-oriented reporting of terrorist events.


    THE UK PRODUCTIVITY "PUZZLE" IN AN INTERNATIONAL COMPARATIVE PERSPECTIVE
    John Fernald, Robert Inklaar
    CEPR DP No. 17321 | 21 May 2022

    The UK's slow productivity growth since 2007 has been referred to as a "puzzle", as if it were a particularly UK-specific challenge. In a new CEPR paper, John Fernald and Robert Inklaar highlight how the United States and northern Europe also experienced very similar slowdowns. The authors shows that: 

    • The common slowdown in productivity growth was a slowdown in total factor productivity (TFP) growth; with little evidence that capital deepening was an important independent factor. 
    • From a conditional-convergence perspective, most of the UK slowdown follows from the slowdown at the U.S. frontier. 
    • From the mid-1980s to 2007, the UK's relative productivity level moved closer to the level of the U.S. and northern Europe, driven by essentially complete convergence in market services TFP. 
    • In contrast, manufacturing lost ground relative to the U.S. frontier prior to 2007, and remains far below the frontier. 

    The relative ground lost after 2007 is modest-cumulating to about 4 percentage points-and is largely attributable to somewhat unfavorable industry weights and industry-specific issues in mining, rather than a systematic UK competitiveness problem.

    Figure: Trend TFP growth in the UK, Northern Europe, and U.S.



    RUSSIAN INVASION TESTS EU ECONOMIC RESILIENCE

    Maarten Verwey, Laura Bardone, Kristian Orsini
    20 May 2022

    Russia’s invasion of Ukraine has led the European Commission to revise its EU growth outlook downwards, and the forecast for inflation upwards. Writing at VoxEU, Maarten Verwey, Laura Bardone and Kristian Orsini show that by exerting further upward pressures on commodity prices, causing renewed supply disruptions and increasing uncertainty, the war is exacerbating pre-existing headwinds to growth, which were previously expected to subside. 

    Nevertheless, the economy is expected to keep expanding, and inflation is set to gradually decline towards, though remain above, 2% throughout the forecast horizon. Should further disruptions in energy markets occur, the economy would not escape stagflation. 

     

    ENERGY SANCTIONS: Views of leading economists 

    Romesh Vaitilingam  
    21 May 2022

     

    Nearly three-quarters of experts at the IGM Forum at Chicago Booth consider that high tariffs imposed by the European Union on imports of Russian natural gas would be an effective measure to reduce the flow of revenues to Russia while limiting disruption to supplies to Europe. Several panellists suggest the significance of the elasticities of demand for and supply of Russian gas, as well as the mechanisms by which prices are set.


    IS A BAN OF RUSSIAN OIL FEASIBLE? Views of leading economists

    Marina Feliciano, Ethan Ilzetzki, Borui Niklas Zhu 
    24 May 2022

    The April 2022 CfM survey of European economists assessed the effects of an embargo on Russian gas on the German and EU economies. Among the findings: 

    • An embargo on Russian gas would cut one to three percentage points from German GDP growth in 2022-3, if the German government offsets the costs with well-targeted fiscal policy. 
    • Estimates increase if the German government were to take no offsetting action. 
    • Additionally, a large majority thinks that the EU could weather such a ban with costs in the one to three percentage point range, even absent offsetting fiscal or monetary measures.
     

    RISING FOOD PRICES COULD FUEL CONFLICT IN AFRICA

    Eoin McGuirk, Marshall Burke  
    26 May 2022

    A study by Eoin McGuirk and Marshall Burke argues that the impact of the Ukraine-Russia war on food commodity prices may shape the distribution of violent conflict in Africa. The authors predict an overall increase in inter-group conflict, yet this encompasses large spatial variation across countries, with the top agricultural producers exhibiting a decrease in conflict due to higher wages. Estimates suggest that rising prices will also contribute to the higher likelihood of ‘output conflict’ – smaller-scale riots, demonstrations and/or civilian violence in both food-producing and food-consuming areas.


    AN EU GAS-PURCHASING CARTEL FRAMEWORK

    Peter Cramton, François Lévêque, Axel Ockenfels, Steven Stoft  
    26 May 2022

    On 25 March, the 27 EU nations decided to “pool [their] purchasing power” for the “voluntary common purchase of gas”. In short, they decided to form a buyers’ cartel. So far, difficulties have been identified, but what is needed is a systematic design effort addressing those difficulties. Writing at VoxEU, Peter Cramton, François Lévêque, Axel Ockenfels and Steven Stoft propose a simple, but fairly comprehensive framework for an EU gas-purchasing cartel. 



    MORTGAGE PAYMENT HOLIDAYS INSTRUMENTAL IN SUPPORTING UK HOUSEHOLDS DURING PANDEMIC

    Bruno Albuquerque, Alexandra Varadi    
    23 May 2022

    A study by Bruno Albuquerque and Alexandra Varadi finds that mortgage payment holidays, introduced in the UK in March 2020, supported consumption during the Covid pandemic for more financially vulnerable households, while more financially stable households on a payment holiday increased their savings instead. These results suggests that payment holidays may have been instrumental in supporting household balance-sheets following the negative aggregate shock triggered by Covid-19. 

     

    SOARING GLOBAL COMMODITY PRICES OF CEREAL GRAINS INCREASE THE RISK OF CONFLIC IN RURAL AFRICA 

    David Ubilava, Justin V. Hastings, Kadir Atalay    
    22 May 2022

    A study by David Ubilava, Justin Hastings and Kadir Atalay shows that surges in agricultural commodity prices pose an elevated risk of violence and social unrest in African rural areas. The research finds that attacks on civilians increase during the harvest season and dissipate as the year progresses. Current soaring global commodity prices of cereal grains could increase the risk of conflict not only in urban areas but also in rural areas of low- and middle-income countries


    THIRTY YEARS AFTER GERMAN REUNIFICATION, LABOUR PRODUCTIVITY AND WAGES REMAIN ABOUT 25% LOWER IN EAST GERMANY

    Rüdiger Bachmann, Christian Bayer, Heiko Stüber, Felix Wellschmied     
    24 May 2022

    Why do differences in labour market outcomes between East and West Germany persist, 30 years after reunification? Writing at VoxEU, Rüdiger Bachmann, Christian Bayer, Heiko Stüber and Felix Wellschmied use high-quality administrative data from Germany to show that East German plants face a steeper size–wage curve than West German ones, invest less in marketing, remain smaller, and, on average, pay lower wages. 


    COULD FOREIGN WORK PERMITS DRIVE HUMAN SMUGGLERS OUT OF BUSINESS? 

    The current restrictive migration policies in industrialised countries are not efficient. They ignore the labour market needs for low-skilled foreign workers and favour human smuggling. Writing at VoxEU, Emmanuelle Auriol, Alice Mesnard and Tiffanie Perrault examine whether temporary foreign work permits could help reduce human smuggling and control economic migration. The authors find that carefully designed temporary visa schemes can be effective if the wage differentials between origin and destination countries are not too large, but enforcing sanctions against illegal employment of undocumented workers in destination countries could offer a more promising tool to fight human smuggling. 


    PRESSURES ON LONG-TERM CARE HEALTH SYSTEM UNSUSTAINABLE

    Rainer Kotschy, David Bloom    
    25 May 2022

    Writing at VoxEU, Rainer Kotschy and David Bloom show that existing healthcare structures are not designed to meet our long-term care needs and are ill-equipped for the looming surge in demand caused by rapidly ageing societies. The authors argue that to avoid shortages in the workforce, the long-term care industry should endeavour to improve working conditions while also recruiting workers from a larger pool. Investing in disability prevention and rehabilitation are also promising avenues to absorb pressure from growing long-term care needs. 


    ‘INCLUSIVE’ INSTITUTIONS DRIVE INNOVATION 

    Alexander Donges, Jean-Marie Meier, Rui Silva    
    20 May 2022

    A study by Alexander Donges, Jean-Marie Meier and Rui Silva finds that ‘inclusive institutions’, which promote equal access to economic opportunities, are a first-order determinant of innovation. Historical data reveals that geographical regions with more inclusive institutions produce more than twice as much innovation (proxied with patents per capita) as regions with worse institutions. ‘Extractive institutions’, where access to economic opportunities is not offered to all citizens, usually operating under authoritarian regimes, stifles innovation and future economic growth.



    THE EFFECT OF CONFLICT ON EDUCATION

    Michele Di Maio and Tilman Brück interviewed by Tim Phillips, 24 May 2022

    The war in Ukraine is destroying the educational opportunities of young people. Research from a conflict in the Middle East tells us about the likely scale and persistence of the loss.




    THE FOOD CRISIS HAS NO RESPECT FOR BORDERS

    Guido Porto and Bob Rijkers interviewed by Tim Phillips, 20 May 2022

    This week António Guterres, secretary-general of the UN, warned that the war in Ukraine would tip tens of millions into food insecurity. Guido Porto and Bob Rijkers tell Tim Phillips about who suffers and how much from food price inflation.