Most Read: This Month

Face-to-face interactions are critical for the cross-fertilisation of ideas. Yet, the share of geographically distributed teams in scientific research has steadily risen since the 1960s and accelerated with the ICT revolution of the 1990s. This column explores how the rise of remote collaboration has shaped disruptive discoveries in science between 1961 and 2020. Remote collaboration negatively impacted breakthrough discoveries, but the effect reversed after 2010, likely due to improvements in technologies that support effective remote collaboration at distance. 

Richard Posner argued that legalising assisted suicide may have the counter-intuitive effect of reducing unassisted and possibly even total suicide rates. This column examines the empirical evidence for this idea using data from ten US states that implemented an assisted suicide law up to the end of 2019. In contrast to Posner’s hypothesis, the real-world data suggest that assisted suicide laws lead to a substantial increase in total suicide rates and, if anything, are associated with an increase even in unassisted suicides. This effect is most pronounced amongst women.

The war in Ukraine has suddenly increased geopolitical risks. This column argues that firms will respond to the shock by reassessing security-related risks, leading to changes in the structure of supply chains. But given the capital in place, the cost of searching for alternatives, and factors such as wage differentials across countries, this process is likely to be gradual rather than sudden and will affect different sectors and products differently. It will not result in a reversal of globalisation, unless it is supported by pronounced government intervention.

A high dependence on agriculture has left rural households in sub-Saharan Africa particularly vulnerable to the adverse effects of climate change. This column combines a multi-country panel dataset with precipitation records to re-examine the growing season in five sub-Saharan African countries, and the impact of frequent and extreme drought on a household’s decision to migrate. While the effects of recent weather shocks were modest, the cumulative impact of persistent exposure to drought over several years led to a significant increase in the probability of migrating.

The Russian invasion of Ukraine is disrupting global supplies of essential commodities, pushing prices higher, slowing trade, and driving down incomes. This column argues that developing countries that are large agricultural and energy importers are being hit hardest. While some commodity exporters might be able to step up exports to benefit from increasing global prices, they could experience a restructuring of their trade patterns, resulting in a lower integration into global value chains. Consumers across the world are worse off, with the poorest being impacted the most adversely.

A large part of the world operates under oligarchic and authoritarian regimes, where access to economic opportunities is not offered to all citizens. This column discusses the impact of such ‘extractive institutions’ in stifling innovation and future economic growth. Using novel hand-collected data, it documents that ‘inclusive institutions’, which promote equal access to economic opportunities, are a first-order determinant of innovation. Geographical regions with more inclusive institutions are able to produce more than twice as much innovation (proxied with patents per capita) as regions with worse institutions.

Governments around the world enacted unprecedented measures to support firms impacted by the Covid-19 pandemic. This column focuses on Italy to examine the extent to which these measures ended up also benefitting non-viable but still active firms. The authors find that ‘zombie firms’ were less likely than healthy firms to access public support measures in the form of either grants, debt moratoria, or government-guaranteed loans, suggesting that these measures did not contribute to a zombification of the economy.  

Whether economic sanctions against Russia have real effects has been increasingly called into question. This column suggests that changes in e-commerce can demonstrate whether and how the 2022 Western sanctions contributed to de-linking Russia from the West. An analysis of trends in cross-border international online retail based on digitally recorded daily transactions data from 2,288 international and Russian companies shows substantial declines in Russia’s e-commerce transactions. About five weeks after the war started, revenues from e-commerce imports to Russia had fallen by half, with no signs of compensation by Russian retailers in the sample studied.

Trade in goods has rebounded quickly from the pandemic, while trade in services has not. This column finds that the pandemic broke the old trade patterns and that lockdowns had unintended international spillovers. Although global value chains have adapted, ongoing supply disruptions and the risk of future adverse shocks point to the need for more resilient value chains. The authors argue that in contrast to those calling for reshoring, a better way to build resilience is to diversify away from domestic sourcing of inputs and make it easier for producers to substitute between inputs supplied by different countries.

The economic landscape has changed dramatically since the European fiscal rules were designed some 30 years ago. This column contributes to the debate on reform by proposing a two-tier fiscal framework combining an expenditure rule that accounts for the ECB’s inflation objective with a lower speed of adjustment under the Stability and Growth Pact’s debt rule. Counter-cyclicality may be improved by automatic modulation of adjustment requirements, creating fiscal space when domestic inflation is low and constraining more when inflation is above target. The link to the debt anchor ensures a gradual phasing-in of debt reduction in the aftermath of COVID-19.

Ukraine and Russia play an outsized role in global markets for key crops. Disruption to food prices and supplies arising from the conflict is being felt thousands of miles away, and not only in net food-importing countries. This column shows that governments are exacerbating matters through unilateral resort to export curbs. Bans on wheat exports alone are responsible for a 7 percentage point increase in world wheat prices (roughly one-sixth of the observed price surge) and risk igniting a multiplier effect. Assurances of adequate food supply must be provided by other suppliers.

Should tech firms be allowed to own banks? This question is part of a broader debate on whether non-financial companies can affiliate with banks. This column explores the merits of permitting tech firms to operate a licensed bank and outlines their state of play and regulatory environment in seven jurisdictions. It also proposes policy options to help mitigate their perceived risks, as some banking authorities look to tech firms to expand financial access and improve consumer outcomes.

The rise of global value chains has led to a greater use of input-output tables to study international linkages. This column analyses cost-push inflation using world input-output tables. In the light of the recent surge in commodity prices, it explores which countries are most vulnerable to energy cost-push inflation and documents the large exposure of Eastern and central European economies to a rise in Russian hydrocarbon prices. Input-output tables are used to document the heterogeneous reactions of consumer prices to exchange rate variations across countries, reflecting differences in foreign product content of consumption and intermediate products.

Innovations in private money creation, such as stablecoins, can be economically useful because they improve efficiency in the payments system. However, if these currencies are not fully ‘stable’, uncertainty over their value may be a source of transactions friction that have real costs. The column discusses how the National Banking Act of 1864 in the US provides a natural experiment for evaluating the effects of stabilising the value of private money. The act introduced a new type of private money that was fully stable for the first time. Gaining access to the stable money generated growth in economic sectors that were sensitive to transaction costs. 

It is not only countries but also sub-national jurisdictions such as states that compete for high-income taxpayers. In recent decades, both tax competition as well as attempts to keep aggressive tax practices at bay have intensified. This column uses Swiss data on local tax changes to show that lower income taxes for high-income taxpayers do attract top earners. Nonetheless, the net effect on tax revenue is not necessarily positive. The associated mechanical tax revenue losses that arise from lowering the tax rates may be so large that such tax cuts do not pay for themselves.

The question of whether firms are able to adapt to a changing climate is central to understanding the long-run economic effects of climate change. This column presents evidence from Italy showing that high temperatures affect firm demography by reducing the entry of newborn firms in the market and increasing business closures, while relocation to colder areas plays a minor role. Balance sheet data reveal a dichotomy between large firms, which successfully adapt improving their profitability, and smaller ones for which negative temperature spillovers become entrenched.

Web-based job platforms that match employers and workers around the world to trade tasks which are delivered online are becoming increasingly popular. This column uses a new dataset from one of the largest job platforms to examine remote wages across locations and offshorability of work. Remote wages are more equalised than local wages across countries, but wage gaps across locations are still large. Outside the US, local-currency remote wages are strongly affected by fluctuations in the dollar exchange rate. Whether a job is performed remotely is an imperfect proxy for whether a job can be easily offshored. 

Concerns about international trade have grown, as recent studies document a negative effect of Chinese import competition on US labour markets. This column provides a new framework to explain this observation, which relies on the presence of downward nominal wage rigidity in US labour markets. The increased competition from China improves US terms of trade, but nominal wage frictions prevent the labour market from adjusting, so that both employment and labour force participation fall in the short run. The welfare implications vary substantially across states, but the favourable terms-of-trade shock drives a positive overall effect.

The literature on assortative mating has largely focused on whether children of wealthy parents tend to marry children of similarly wealthy parents. Using data from Norway, this column shows that people tend to match based on their own pre-marriage wealth, not their parent’s wealth, and that individuals also match based on their personal returns to wealth. Among wealthy couples, the partner with the highest pre-marriage return tends to manage the household’s assets, allowing the households to grow their assets even faster over time and boosting wealth concentration. 

Although a key determinant of poverty in Africa is the under-provision of public services, the preference for lower taxation and fewer public goods remains widespread. This column proposes a new explanation for why African tax revenues are so low. Rather than rely on standard arguments about accountability and governance, the author uncovers deep-seated ideas about the nature of the state and its threat to the autonomy of society. Historically, social contracts in Africa rarely featured taxation. Building fiscal systems is therefore not simply a technical or human resources problem, but a political one.

Russia’s invasion of Ukraine has stoked tensions between Western democracies and Russia, presenting the risk of an explicit conflictual situation. This column explores the bargaining advantages of democratically elected leaders relative to autocratic ones. The typically shorter terms in office of democratic leaders and greater accountability to their populations contributes to a greater aversion to armed conflict, as does the freer flow of information and typically greater aversion to military casualties. This lends insight to Western democracies’ refrainment from direct involvement in the Ukraine war.

The April 2022 CfM survey asked members of its European panel to assess the effects of an embargo on Russian gas on the German and EU economies. The majority of panellists assesses that 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.

Participation in global value chains is commonly seen as an important driver of productivity growth. This column uses Japanese firm-level data to estimate the productivity-enhancing impacts of participation. On average, firms that form part of global value chains are found to exhibit higher productivity than non-participating firms. In addition, longer participation strengthens the productivity-enhancing effects. Policymakers should support firms by protecting intellectual property rights, ensuring competition, and lowering costs and risks associated with global value chain participation. 

A large literature explores the implications of the introduction of robots into the workplace for the labour market, yet few studies exist which measure robot quality over time.  This column uses data from the Japan Robot Association and the Bank of Japan to document a significant decline in the improvement in robot quality in Japan in the last decade. The differences in the growth rates of robot quality between the 2000s and 2010s are large, at around -3 percentage points per year.