The aggregate and distributional effects of financial globalisation (VOX)

Free trade has contributed to a ‘great convergence’ of emerging market countries toward incomes in industrialised nations in recent decades. It is less clear whether free mobility of capital across national boundaries has conferred similar benefits. This column presents evidence suggesting that the gains in average incomes have been – at best – small, while increases in income inequality and the decline in the labour share of income have been significant. Financial globalisation thus poses far more difficult equity-efficiency trade-offs than free trade and should be at the centre of debates about how to make globalisation inclusive.

Davide Furceri, Prakash Loungani, Jonathan D. Ostry

Systemic consequences of outsourcing to the cloud (VOX)

Financial institutions are increasingly outsourcing information technology to the cloud, motivated by efficiency, security, and cost. This column argues that the consequence is likely to be short- and medium-term stability at the cost of the increased likelihood of catastrophic systemic events. Cloud providers are systemically important and should be regulated as such.

Jon Danielsson, Robert Macrae

The China Shock and employment in Portuguese firms: The role of labour market regulations (VOX)

China’s rise as an export powerhouse has affected labour markets across the Western world, but the effects appear to differ dramatically across countries. This column evaluates the impact of rising Chinese exports on Portuguese employment, finding that labour market effects are shaped by indirect competition and labour market regulation.

Lee Branstetter, Brian Kovak, Jackie Mauro, Ana Venâncio

Chile’s insurgency and the end of neoliberalism (VOX)

In a few decades, Chile experienced dramatic economic growth and the fastest reduction of inequality in the region. Yet, many Chilean citizens feel that inequality has greatly increased. Such feelings of ‘malestar’ triggered the violent social unrest of October 2019. This paper explains this seeming paradox by differentiating ‘vertical’ (income) inequality from ‘horizontal’ (social) inequality. It argues that the neoliberalism that created Chile’s economic growth is no longer effective and that Chile may be headed towards adopting a welfare state model.

Sebastian Edwards

Business dynamism in Turkey (VOX)

Numerous empirical studies have shown a decrease in business dynamism in the US and other high-income countries in the last decades. This column investigates the case of the Turkish manufacturing sector. Results indicate that business dynamism in the sector has declined since 2012. Market concentration and exit rates have risen, and new business creation, the labour share in output and economic activities of young firms have fallen. Using an endogenous growth framework, it argues that the inability of follower firms to credibly challenge market leaders is a likely reason, brought on by a lack of access to finance.

Ufuk Akcigit, Yusuf Emre Akgündüz, Seyit Mümin Cilasun, Elif Ozcan-Tok, Fatih Yılmaz

Dynamic social interactions and health risk behaviour (VOX)

Smoking and alcohol use are widespread among adolescents in the US and are linked to negative socioeconomic effects.While existing research has separately looked at the dynamic choice and the social interactions that shape adolescent risky behaviours, this column considers both components in a dynamic social interactions model. Looking at alcohol and smoking use in a school environment, it finds that addiction and peer effects are more than twice as important as the effect of individual preferences in shaping risky behaviour and that students take into account the amount of time they have left in the school system.

Tiziano Arduini, Alberto Bisin, Onur Ozgur, Eleonora Patacchini

Trump’s trade war cost Republicans congressional seats in the 2018 midterm elections (VOX)

Emily Blanchard, Chad Bown, Davin Chor

Don’t blame Brussels if you don’t benefit from EU Cohesion Policy!

Despite the European Commission’s claims that its Cohesion Policy has had a positive impact on beneficiary regions, some member states argue that it is not fit for purpose and have called for a renationalisation of the policy. This column suggests that while there have been some positive effects on regional growth and jobs across the EU as a whole, these have been concentrated in the beneficiary regions of Germany and the UK, and structural problems in the South of Europe remain largely untouched. This uneven distribution of regional impacts along national lines suggests that individual member states have significant responsibilities for the local success (or failure) of the policy.

Riccardo Crescenzi, Mara Giua

Marriage, fertility, and the cultural integration of immigrants in Italy (VOX)

As migration to Western countries has steadily increased, conversations addressing the issue have stalled somewhere between vaguely well-meaning integration objectives and restrictive closed-borders policies. This column moves the conversation forward by examining specific migrant communities in Italy. Using the language spoken at home as a proxy for cultural-ethnic transmission, it finds that higher rates of marriage between immigrants and the native population encourage a higher acceptance of minority cultures, which in turn allows immigrants to better maintain their distinctive cultural traits.

Alberto Bisin, Giulia Tura

The real effects of money supply shocks: Evidence from maritime disasters in the Spanish Empire (VOX)

During the early 16th to 19th centuries, Spain received large amounts of monetary silver from its colonies in America. Vagaries of the sea thus affected Spain’s money supply. This column investigates the effects of money supply shocks on the economy using the case of maritime disasters in the Spanish Empire. It finds that a one-percentage-point reduction in the money growth rate caused a 1.3% drop in real output that persisted for several years. Analysing monetary transmission channels, it shows that price rigidities and credit frictions account for most of this non-neutrality result.

Adam Brzezinski, Yao Chen, Nuno Palma, Felix Ward