The IMF’s Financial Catch 22: Global Banker or Lender of Last Resort?

August 2020

Stephen B. Kaplan (George Washington University), Sujeong Shim (University of Wisconsin-Madison)

IIEP working paper 2020-18

Abstract: The International Monetary Fund (IMF) has dual institutional roles: a steward of international financial stability and a global banker safeguarding the resources of its sovereign shareholders. But, how does the IMF behave when its balance sheet becomes exposed to higher-than-usual credit risk, creating a financial catch-22? We expect the IMF varies its lending behavior, based on the nature of sovereign credit crises. When there is high contagion risk, the IMF aims to preserve global financial stability as a lender of last resort by extending large loans, notwithstanding its balance sheet strains. The IMF employs policy conditionality to hedge its lending risk, but prioritizes alleviating global market turmoil over program compliance. When market contagion is contained, however, the IMF is more likely to act as a traditional banker, suspending programs for non- compliance. Ironically, given its tendency to forgive non-compliance as a lender of last resort, our theoretical framework suggests that the Fund intensifies its moral hazard problem.

We test our theoretical priors by conducting a comparative case study analysis of IMF decision-making over time for two of its largest borrowers: Argentina and Greece. Leveraging volumes of hundred-paged minutes from IMF executive board
meeting archives and extensive field research interviews, we illustrate the lending stances of IMF directors evolve in response to changes in global contagion risk. By examining the IMF’s own institutional agency under high financial risk, this study offers new insights for the study of international political economy and international organizations.

JEL Codes

Key Words: IMF; lender of last resort; financial crises, institutional financial risk; contagion risk; Argentina; Greece

Epidemics, inequality and poverty in preindustrial and early industrial times

August 2020

Guido Alfani (Bocconi University, Dondena Centre, IGIER, and Stone Center for Research on Socio-Economic Inequaltiy)

IIEP working paper 2020-16

Abstract: *This paper is part of a Symposium organized by Dr. Remi Jedwab of the George Washington University that will appear in the Journal of Economic Literature.* 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.

 

JEL Codes: D31, D63, I14, I30, J11, N30, N33

Key Words: epidemics; inequality; poverty

The 1918 Influenza Pandemic and its Lessons for COVID-19

August 2020

Brian Beach (Vanderbilt University and NBER), Karen Clay (Carnegie Mellon University and NBER), Martin Saavedra (Oberlin College)

IIEP working paper 2020-15

Abstract: *This paper is part of a Symposium organized by Dr. Remi Jedwab of the George Washington University that will appear in the Journal of Economic Literature.* This article reviews the global health and economic consequences of the 1918 infuenza pandemic, with a particular focus on topics that have seen a renewed interest because of COVID-19. We begin by providing an overview of key contextual and epidemiological details as well as the data that are available to researchers. We then examine the effects on mortality, fertility, and the economy in the short and medium run. The role of nonpharmaceutical interventions in shaping those outcomes is discussed throughout. We then examine longer-lasting health consequences and their impact on human capital accumulation and socioeconomic status. Throughout the paper we highlight important areas for future work.

 

JEL Codes: I10, N0, J10, J24

Key Words: Pandemics; 1918 Influenza; COVID-19; epidemics

The Economic Impact of the Black Death

June 2020

Remi Jedwab (George Washington University), Noel D. Johnson (George Mason University), Mark Koyama (George Mason University)

IIEP working paper 2020-14

Abstract: *This paper is part of a Symposium organized by Dr. Remi Jedwab of the George Washington University that will appear in the Journal of Economic Literature.* The Black Death was the largest demographic shock in European history. We review the evidence for the origins, spread, and mortality of the disease. We document that it was a plausibly exogenous shock to the European economy and trace out its aggregate and local impacts in both the short-run and the long-run. The initial effect of the plague was highly disruptive. Wages and per capita income rose. But, in the long-run, this rise was only sustained in some parts of Europe. The other indirect long-run effects of the Black Death are associated with the growth of Europe relative to the rest of the world, especially Asia and the Middle East (the Great Divergence), a shift in the economic geography of Europe towards the Northwest (the Little Divergence), the demise of serfdom in Western Europe, a decline in the authority of religious institutions, and the emergence of stronger states. Finally, avenues for future research are laid out.

 

JEL Codes: N00, N13, I15, I14, J11, O10, O43

Key Words: Pandemics; Black Death; Institutions; Cities; Urbanization; Malthusian Theory; Demography; Long-Run Growth; Middle Ages; Europe; Asia;

Pandemics, Poverty, and Social Cohesion: Lessons from the Past and Possible Solutions for COVID-19

June 2020

Remi Jedwab (George Washington University), Amjad M. Khan (The World Bank),Richard Damania (The World Bank), Jason Russ (The World Bank), Esha D. Zaveri (The World Bank)

IIEP working paper 2020-13

Abstract: Since COVID-19 broke out, there has been renewed interest in understanding the economic and social dynamics of historical and more recent pandemics and epidemics, from the plagues of Antiquity to modern-day outbreaks like Ebola. These events can have significant impacts on the interplay between poverty and social cohesion, i.e. how different groups in society interact and cooperate to survive and prosper. To that effect, this survey paper provides an overview of how social responses to past pandemics and epidemics were determined by the epidemiological and non-epidemiological characteristics of these outbreaks, with a particular focus on the scapegoating and persecution of minority groups, including migrants. More precisely, we discuss existing theories as well as historical and quantitative studies, and highlight the cases and contexts where pandemics may lead to milder or more severe forms of scapegoating. Finally, we conclude with a summary of priorities for future research on pandemics and social cohesion and discuss the possible effects and policy implications of COVID-19.

 

JEL Codes: O15, O18, I15, I19, J61, J71

Key Words: COVID-19; Pandemics; Epidemics; Disasters; Social Cohesion; Stigmatization; Minority Persecution; Conflict; Poverty; Migration; Social Capital; Trust

A tale of two wage subsidies: The American and Australian fiscal responses to COVID-19

July 2020

Steven Hamilton (George Washington University)

IIEP working paper 2020-12

Abstract: Australia suppressed the virus with swift and strong public health measures including stringent border controls. As of July 2020, the virus continues to spread uncontrolled across the US, resulting in the most recorded cases and deaths of any country. Both countries instituted widespread lock-downs and similarly generous fiscal support, yet Australia has experienced a far milder recession, highlighting the critical role of public health measures in protecting the economy. The role of broad cash stimulus necessarily has been more limited than in an ordinary recession, justifying the use of wage subsidies that encourage businesses to retain workers. The Australian wage subsidy, delivered via the tax authority, was better targeted, more generous, more accessible, but slower to deliver liquidity than the American wage subsidy delivered via private banks. The experience highlights the critical need for significant investments in IRS infrastructure to better prepare for future crises.

 

JEL Codes:

Key Words

Women at Work in the Pre-Civil War United States: An Analysis of Unreported Family Workers

June 2020

Barry R. Chiswick (George Washington University) and RaeAnn Halenda Robinson (George Washington University)

IIEP working paper 2020-11

Abstract: Rates of labor force participation in the US in the second half of the nineteenth century among free women were exceedingly (and implausibly) low, about 11 percent. This is due, in part, to social perceptions of working women, cultural and societal expectations of female’s role, and lack of accurate or thorough enumeration by Census officials. This paper develops an augmented free female labor force participation rate for 1860. It is calculated by identifying free women (age 16 and older) who were likely providing informal and unenumerated labor for market production in support of a family business, that is, unreported family workers. These individuals are identified as not having a reported occupation, but are likely to be working on the basis of the self-employment occupation of other relatives in their households. Family workers are classified into three categories: farm, merchant, and craft. The inclusion of this category of workers more than triples the free female labor force participation rate in the 1860 Census, from 16 percent to 56 percent, which is comparable to today’s rate (57 percent in 2018).

 

JEL Codes: N31, J16, J21, J82

Key Words: Women, Labor Force Participation, Occupational Attainment, Unpaid Workers, Unreported Family Workers, 1860 Census

Long-Run Effects of Incentivizing Work After Childbirth

May 2020

Elira Kuka (George Washington University, IZA, and NBER) and Na’ama Shenhav (Dartmouth College and NBER)

IIEP working paper 2020-10

Abstract: This paper uses a panel of SSA earnings linked to the CPS to estimate the impact of increasing post-childbirth work incentives on mothers’ long-run career trajectories. We implement a novel research design that exploits variation in the timing of the 1993 reform of the Earned Income Tax Credit (EITC) around a woman’s first birth and in eligibility for the credit. We find that single mothers exposed to the expansion immediately after a first birth (“early-exposed”) have 3 to 4 p.p. higher employment in the 5 years after a first birth than single mothers exposed 3 to 6 years after a first birth (“late-exposed”). Ten to nineteen years after a first birth, early-exposed mothers have the same employment and hours as late-exposed mothers, but have accrued 0.5 to 0.6 more years of work experience and have 6 percent higher earnings. Incorporating long-run effects on EITC benefits and earnings increases the implied marginal value of public funds (MVPF) of the expansion. Our results suggest that there are steep returns to work incentives at childbirth that accumulate over the life-cycle.

 

JEL Codes: J16, J31, H2

Key Words: child penalty, EITC

Medieval Cities Through the Lens of Urban Economic Theories

May 2020

Remi Jedwab (George Washington University), Noel D. Johnson (George Mason University), and Mark Koyama (George Mason University)

IIEP working paper 2020-9

Abstract: We draw on theories and empirical findings from urban economics to explore and explain patterns of city growth in the Middle Ages (c. 800-1500 CE). We discuss how agricultural development and physical geography determined the location and size of cities during the medieval period. We also consider the relative importance of economies of scale, agglomeration, and human capital spillovers in medieval cities and discuss how their growth was limited by disamenities and constraints on mobility. We discuss how medieval cities responded to shocks such as the Black Death and describe how institutions became increasingly important in determining their trajectories. Avenues for future research are also laid out.

 

JEL Codes: R11; R12; R19; N9; N93; N95

Key Words: Medieval Era; City Growth; Urbanization; Food Surplus Hypothesis; Agglomeration Effects; Labor Mobility; Pandemics; Institutions; Europe; Asia

A Plurilateral “Single Data Area” Is the Solution to Canada’s Data Trilemma

September 2019

Susan A. Aaronson and Patrick Leblond

IIEP working paper 2020-8

Summary: With its relatively small population, Canada faces a challenge in terms of the amount of high-quality data that it can generate to support a successful data-driven economy. As a result, Canada needs to allow data to flow freely across its borders. However, it also has to provide a high-trust data environment if it wants individuals, firms and government to participate actively in such an economy. As such, Canada (and other countries) faces what can be called the data trilemma, whereby it is not possible to have simultaneously data that flows freely across borders, a high-trust data environment and a national data protection regime; one of these three objectives has to give so that only two are effectively possible at the same time.

To resolve the data trilemma, Canada should work with its key economic partners — namely the European Union, Japan and the United States — to develop a single data area that would be managed by an international data standards board. The envisioned single data area would allow for all types of personal and non-personal data to flow freely across borders while ensuring that individuals, consumers, workers, firms and governments are protected from potential harm arising from activities such as the collection, processing, use, storage or purchase/sale of data. If Canada and its economic partners share similar norms and standards for regulating data, then allowing data to flow freely across borders with these countries no longer risks undermining trust, which is crucial to a successful data-driven economy.

America’s uneven approach to AI and its consequences

April 2020

Susan A. Aaronson

IIEP working paper 2020-7

Introduction Excerpt: The world’s oceans are in trouble. Global warming is causing sea levels to rise and reducing the supply of food in the oceans. The ecological balance of the ocean has been disturbed by invasive species and cholera. Many pesticides and nutrients used in agriculture end up in the coastal waters, resulting in oxygen depletion that kills marine plants and shellfish. Meanwhile the supply of fish is declining due to overfishing. Yet to flourish, humankind requires healthy oceans; the oceans generate half of the oxygen we breathe, and, at any given moment, they contain more than 97% of the world’s water. Oceans provide at least a sixth of the animal protein people eat. Living oceans absorb carbon dioxide from the atmosphere and reduce climate change impacts. Many civil society groups (NGOs) are trying to protect this shared resource. As example, OceanMind uses satellite data and artificial intelligence (AI) to analyze the movements of vessels and compare their activities to historical patterns. The NGO can thus identify damaging behavior such as overfishing

Data Governance, AI, and Trade: Asia as a Case Study

April 2020

IIEP working paper 2020-6

Introduction Excerpt: The arc of history seems to be bending again towards the dynamic nations of Asia (Gordon: 2008). The countries and territories of the Asia Pacific region are both a locus for trade and a source of technology fueled growth. In 2017, Asia recorded the highest growth in merchandise trade volume in 2017 for both exports and imports (WTO: 2018, 32). UNCTAD reports that exports of digitally deliverable services increased substantially across all regions during the period 2005– 2018, with a compound annual growth rate ranging between 6 and 12 per cent (table III.1). Growth was the highest in developing countries, especially in Asia (UNCTAD: 2019, 66).

Artificial intelligence (AI) is already a leading source of growth for many Asian countries. The AI market in the Asia Pacific was estimated at around US $450 million in 2017 and is expected to grow at a compounded annual growth rate of 46.9% by 2022 (Ghasemi: 2018). Several analysts believe Asia’s AI growth will soon overtake the US (Lee: 2018; Ghasemi: 2018)

Data Is Dangerous: Comparing the Risks That the United States, Canada and Germany See in Data Troves

April 2020

Susan A. Aaronson

IIEP working paper 2020-5

Summary: Citizens of the United States, Canada and Germany know that the online world is simultaneously a wondrous and dangerous place. They have seen details about their activities, education, financial status and beliefs stolen, misused and manipulated. This paper attempts to examine why stores of personal data (data troves) held by private firms became a national security problem in the United States and compares the US response to that of Canada and Germany. Citizens in all three countries rely on many of the same data-driven services and give personal information to many of the same companies. German and Canadian policy makers and scholars have also warned of potential national security spillovers of large data troves. However, the three nations have defined and addressed the problem differently. US policy makers see a problem in the ownership and use of personal data (what and how) instead of in America’s own failure to adequately govern personal data. The United States has not adopted a strong national law for protecting personal data, although national security officials have repeatedly warned of the importance of doing so. Instead, the United States has banned certain apps and adopted investment reviews of foreign firms that want to acquire firms with large troves of personal data. Meanwhile, Canada and Germany see a different national security risk. They find the problem is where and how data is stored and processed. Canadian and German officials are determined to ensure that Canadian and German laws apply to Canadian and German personal and/or government data when it is stored on the cloud (often on US cloud service providers). The case studies illuminate a governance gap: personal data troves held by governments and firms can present a multitude of security risks. However, policy makers have put forward nationalistic solutions that do not reflect the global nature of the risk.

The Value of Reputation in Trade: Evidence from Alibaba

March 2020

Maggie X. Chen and Min Wu

IIEP working paper 2020-4

Abstract: We examine the role of an online reputation mechanism in international trade by exploring T-shirt exports on Alibaba. Exploiting rich transaction data and features of search and rating algorithms, we show that exporters displaying a superior reputation perform significantly better than peers with nearly identical true ratings and observables and the value of reputation rises with the level of information friction and the specificity of information. We develop a dynamic reputation model with heterogeneous cross-country information friction to quantify the effect of the reputation mechanism and find a 20-percent increase in aggregate exports fueled by a market reallocation towards superstars.

JEL Codes: F1, D8

Key Words: reputation, information, superstar, and Alibaba

Human Capital Accumulation at Work: Estimates for the World and Implications for Development

February 2020

Remi Jedwab, Asif Islam, Paul Romer, and Robert Samaniego

IIEP working paper 2020-3

Abstract: In this paper, we: (i) study wage-experience profiles and obtain measures of returns to potential work experience using data from about 24 million individuals in 1,084 household surveys and census samples across 145 countries; (ii) show that returns to work experience are strongly correlated with economic development – workers in developed countries appear to accumulate twice more human capital at work than workers in developing countries; and (iii) use a simple accounting framework to find that the contribution of work experience to human capital accumulation and economic development might be as important as the contribution of education itself.

JEL: O11; O12; O15; O47; E24; J11; J31

Keywords: Returns to Work Experience; Returns to Education; Human Capital Accumulation; Economic Development; Labor Markets; Development Accounting

The Financial Center Leverage Cycle: Does it Spread Around the World?

February 2020

Graciela Laura Kaminsky, Leandro Medina, Shiyi Wang

IIEP working paper 2020-2

Abstract: With a novel database, we examine the evolution of capital flows to the periphery since the collapse of the Bretton Woods System in the early 1970s. We decompose capital flows into global, regional, and idiosyncratic factors. In contrast to previous findings, which mostly use data from the 2000s, we find that booms and busts in capital flows are mainly explained by regional factors and not the global factor. We then ask, what drives these regional factors. Is it the leverage cycle in the financial center? What triggers the leverage cycle in the financial center? Is it a change in global investors’ risk appetite? Or, is it a change in the demand for capital in the periphery? We link leverage in the financial center to regional capital flows and the cost of borrowing in international capital markets to answer these questions. Our estimations indicate that regional capital flows are driven by supply shocks. Interestingly, we find that the leverage in the financial center has a time-varying behavior, with a movement away from lending to the emerging periphery in the 1970s to the 1990s towards lending to the advanced periphery in the 2000s.

Keywords: International Borrowing Cycles. Global and Regional Factors. Push and Pull Factors of Capital Flows. Financial Center Leverage Cycles.

JEL Codes: F30, F34, F65

 

 

 

Mismatch in Online Job Search

February 2020

Tara M. Sinclair and Martha E. Gimbel

IIEP working paper 2020-1

Abstract: Labor market mismatch is an important measure of the health of the economy but is notoriously hard to measure since it requires information on both employer needs and job seeker characteristics. In this paper we use data from a large online job search website which has detailed information on both sides of the labor market. Mismatch is measured as the dissimilarity between the distribution of job seekers across a set of predefined categories and the distribution of job vacancies across the same categories. We produce time series measures of mismatch for the US and a set of English-speaking countries from January of 2014 through December of 2019. We find that title-level mismatch is substantial, with about 33% of the labor force needing to change job titles for the US to have zero mismatch in 2019, but that it declined from 40% in 2014 as the labor market has tightened. Furthermore, over the same time period, the mix of job opportunities has shifted substantially, but in a way that has made the overall distribution of jobs more similar to the distribution of job seekers. We interpret this finding as evidence that mismatch between job seekers and employers eased due to jobs coming back in the slow recovery after the Great Recession.

JEL Codes: E24, J11, J21, J24, J40, J62

Keywords: Job search, vacancies, employment, unemployment

Numerological Preferences, Timing of Births and the Long-term Effect on Schooling

October 2019

Cheng Huang, Xiaojing Ma, Shiying Zhang, Qingguo Zhao

IIEP working paper 2019-16

Abstract: Cultural beliefs may affect demographic behaviors. According to traditional Chinese astrology, babies born on auspicious days will have good luck in their lifetime, whereas those born on inauspicious days will have bad luck. Using administrative data from birth certificates in Guangdong, China, we provide empirical evidence on the short-term effects of such numerological preferences. We find that approximately 3.9% extra births occur on auspicious days and 1.4% of births are avoided on inauspicious days. Additionally, there is a higher male/female sex ratio for births on auspicious days. Since such manipulation of the birthdate is typically performed through scheduled C-sections, C-section births increase significantly on auspicious days. Moreover, we use a second dataset to examine the long-term effect of numerological preferences and find that people born on auspicious days are more likely to attend college.

Keywords: Numerological preferences. Birthdate . Timed births. Chinese astrology

JEL: I21 . Z10 .J13 . D19

Search for Yield in Large International Corporate Bonds: Investor Behavior and Firm Responses

November 2019

Tomas Williams, Charles W. Calomiris, Mauricio Larrain, Sergio L. Schmukler

IIEP working paper 2019-15

Abstract: Emerging market corporations have significantly increased their borrowing in international markets since 2008. We show that this increase was driven by large denomination bond issuances, most of them with face value of exactly US$500 million. Large issuances are eligible for inclusion in important international market indexes. These bonds appeal to institutional investors because they are more liquid and facilitate targeting market benchmarks. We find that the rewards of issuing index-eligible bonds rose drastically after 2008. Emerging market firms were able to cut their cost of funds by more than 76 basis points by issuing bonds with a face value equal to or greater than US$500 million relative to smaller bonds. Firms contemplating whether to take advantage of this cost saving faced a tradeoff after 2008: they could benefit from the lower yields associated with large, indexeligible bonds, but they paid the potential cost of having to hoard low-yielding cash assets if their investment opportunities were less than US$500 million. Because of the post-2008 “size yield discount,” many companies issued index-eligible bonds, while substantially increasing their cash holdings. We present evidence suggesting that these post-2008 behaviors reflected a search for yield by institutional investors into higher-risk securities. These patterns are not apparent in the issuance of investment grade bonds by firms in developed economies.

JEL Classification Codes: F21, F23, F32, F36, F65, G11, G15, G31

Keywords: benchmark indexes, bond issuance, corporate financing, emerging markets,
institutional investors

Emerging Trade Battlefield with China: Export Competition and Firms’ Coping Strategies

October 2019

Yao Pan, Katariina Nilsson Hakkala

IIEP working paper 2019-14

Abstract: This paper analyzes how intensified Chinese export competition affects the exports and product ranges of Western firms. Using a novel identification strategy that exploits changes in Chinese export policies, we find that Chinese export competition reduces aggregate product level exports of Finland. Firm-level analysis using administrative data further shows that Chinese competition leads to substantial price cuts to retain market shares, especially for homogeneous products. In addition, we also discover that firms respond to the increased level of Chinese export competition by dropping their marginal products. Taken together, these results highlight the importance of export competition with China for developed countries.

Keywords: Trade Flows, Export Competition, Firm-level, Product Mix, China

JEL Classification: F14, F61, L25

Cities of Workers, Children or Seniors? Age Structure and Economic Growth in a Global Cross-Section of Cities

August 2019

Remi Jedwab, Daniel Pereira, and Mark Roberts

IIEP working paper 2019-13

Abstract: A large literature documents the positive influence of a city’s skill structure on its rate of economic growth. By contrast, the effect of a city’s age structure on its economic growth has been a hitherto largely neglected area of research. We hypothesize that cities with more working-age adults are likely to grow faster than cities with more children or seniors and set out the potential channels through which such differential growth may occur. Using data from a variety of historical and contemporary sources, we show that there exists marked variation in the age structure of the world’s largest cities, both across cities and over time. We then study how age structure affects economic growth for a global cross-section of mega-cities. Using various identification strategies, we find that mega-cities with higher dependency ratios – i.e. with more children and/or seniors per working-age adult – grow significantly slower. Such effects are particularly pronounced for cities with high shares of children. This result appears to be mainly driven by the direct negative effects of a higher dependency ratio on the size of the working-age population and the indirect effects on work hours and productivity for working age adults within a city.

JEL: R10; R11; R19; J11; J13; J14; O11; N30

Keywords: Urbanization; Cities; Age Structure; Dependency Ratios; Children; Ageing; Demographic Cycles; Agglomeration Effects; Human Capital; Growth; Development

Divorce among European and Mexican Immigrants in the U.S

August 2019

Barry Chiswick and Christina Houseworth

IIEP working paper 2019-12

Abstract: This paper analyzes the status of being currently divorced among European and Mexican immigrants in the U.S., among themselves and in comparison to the native born of the same ancestries. The data are for males and females age 18 to 55, who married only once, in the 2010-2014 American Community Surveys.

Among immigrants, better job opportunities, measured by educational attainment, English proficiency and a longer duration in the U.S. are associated with a higher probability of being divorced. Those who married prior to migration and who first married at an older age are less likely to be divorced. Those who live in states with a higher divorce rate are more likely to be divorced. Thus, currently being divorced among immigrants is more likely for those who are better positioned in the labor market, less closely connected to their ethnic origins, and among Mexican immigrants who live in an environment in which divorce is more prevalent.

Key Words: Marriage, Divorce, Minorities, Immigrants, Gender, Human Capital

JEL Codes: J12, J15, J16, J24

How Should We Measure City Size? Theory and Evidence Within and Across Rich and Poor Countries

August 2019

Remi Jedwab, Prakash Loungani, and Anthony Yezer

IIEP working paper 2019-11

Abstract: It is obvious that holding city population constant, differences in cities across the world are enormous. Urban giants in poor countries are not large using measures such as land area, interior space or value of output. These differences are easily reconciled mathematically as population is the product of land area, structure space per unit land (i.e., heights), and population per unit interior space (i.e., crowding). The first two are far larger in the cities of developed countries while the latter is larger for the cities of developing countries. In order to study sources of diversity among cities with similar population, we construct a version of the standard urban model (SUM) that yields the prediction that the elasticity of city size with respect to income could be similar within both developing countries and developed countries. However, differences in income and urban technology can explain the physical differences between the cities of developed countries and developing countries. Second, using a variety of newly merged data sets, the predictions of the SUM for similarities and differences of cities in developed and developing countries are tested. The findings suggest that population is a sufficient statistic to characterize city differences among cities within the same country, not across countries.

JEL Codes: R13; R14; R31; R41; R42; O18; O2; O33

Keywords: Urbanization; Cities; Urban Giants; Population; Standard Urban Model; Measurement; Urban Technology; Building Heights; Sprawl; Housing; Transportation

The Economics of Missionary Expansion: Evidence from Africa and Implications for Development

May 2019

Remi Jedwab, Felix Meier zu Selhausen, and Alexander Moradi

IIEP Working Paper 2019-10

Abstract: How did Christianity expand in sub-Saharan Africa to become the continent’s dominant religion? Using annual panel data on all Christian missions from 1751 to 1932 in Ghana, as well as cross-sectional data on missions for 43 sub-Saharan African countries in 1900 and 1924, we shed light on the spatial dynamics and determinants of this religious diffusion process. Missions expanded into healthier, safer, more accessible, and more developed areas, privileging these locations first. Results are confirmed for selected factors using various identification strategies. This pattern has implications for extensive literature using missions established during colonial times as a source of variation to study the long-term economic effects of religion, human capital and culture. Our results provide a less favorable account of the impact of Christian missions on modern African economic development. We also highlight the risks of omission and endogenous measurement error biases when using historical data and events for identification.

JEL Codes: N3, N37, N95, Z12, O12, O15

Keywords: Economics of Religion; Religious Diffusion; Path Dependence; Economic Development; Compression of History; Measurement; Christianity; Africa

Economic and Political Factors in Infrastructure Investment: Evidence from Railroads and Roads in Africa 1960–2015

September 2017

Remi Jedwab and Adam Storeygard

IIEP Working Paper 2019-9

Abstract: Transport investment has played an important role in the economic development of many countries. Starting from a low base, African countries have recently initiated several massive transportation infrastructure projects. However, surprisingly little is known about the current levels, past evolution, and correlates of transportation infrastructure in Africa. In this paper, we introduce a new data set on the evolution of the stocks of railroads (1862-2015) and multiple types of roads (1960-2015) for 43 sub-Saharan African countries. First, we compare our estimates with those from other available data sets, such as the World Development Indicators. Second, we document the aggregate evolution of transportation investments over the past century in Africa. We confirm that railroads were a “colonial” transportation technology, whereas paved roads were a “post-colonial” technology. We also highlight how investment patterns have followed economic patterns. Third, we report conditional correlations between 5-year infrastructure growth and several geographic, economic and political factors during the period 1960-2015. We find strong correlations between transportation investments and economic development as well as more political factors including pre-colonial centralization, ethnic fractionalization, European settlement, natural resource dependence, and democracy. This suggests that non-economic factors may have a significant role in the ability of countries to invest in these public goods.

JEL Codes: O11; O18; O20; H54; R11; R12; R40; N77

Keywords: Transportation Infrastructure; Public Investment; Railroads; Roads; Paved Roads; Africa; Growth; Institutions; Comparative Development; History

The Average and Heterogeneous Effects of Transportation Investments: Evidence from sub-Saharan Africa 1960-2010

March 2019

Remi Jedwab and Adam Storeygard

IIEP Working Paper 2019-8

Abstract: Previous work on transportation investments has focused on average impacts in high- and middle-income countries. We estimate average and heterogeneous effects in a poor continent, Africa, using roads and cities data spanning 50 years in 39 countries. Using changes in market access due to distant road construction as a source of exogenous variation, we estimate an 30-year elasticity of city population with respect to market access of 0.06–0.18. Our results suggest that this elasticity is stronger for small and remote cities, and weaker in politically favored and agriculturally suitable areas. Access to foreign cities matters little.

JEL Codes: R11; R12; R4; O18; O20; F15; F16

Keywords: Transportation Infrastructure; Paved Roads; Urbanization; Cities; Africa; Market Access; Trade Costs; Highways; Internal Migration; Heterogeneity

Boom-Bust Capital Flow Cycles

May 2019

Graciela Laura Kaminsky

IIEP Working Paper 2019-7

Abstract: This paper examines the new trends in research on capital flows fueled by the 2007-2009 Global Crisis. Previous studies on capital flows focused on current-account imbalances and net capital flows. The Global Crisis changed that. The onset of this crisis was preceded by a dramatic increase in gross financial flows while net capital flows remained mostly subdued. The attention in academia zoomed in on gross inflows and outflows with special attention to cross border banking flows before the crisis erupted and the shift towards corporate bond issuance in its aftermath. The boom and bust in capital flows around the Global Crisis also stimulated a new area of research: capturing the “global factor.” This research adopts two different approaches. The traditional literature on the push-pull factors, which before the crisis was mostly focused on monetary policy in the financial center as the “push factor,” started to explore what other factors contribute to the comovement of capital flows as well as to amplify the role of monetary policy in the financial center on capital flows to the periphery. This new research focuses on global banks’ leverage, risk appetite, and global uncertainty. Since the “global factor” is not known, a second branch of the literature has captured this factor indirectly using dynamic common factors extracted from actual capital flows or movements in asset prices.

Keywords: The Global Crisis, Capital flow cycles, global banks, “push” and “pull” factors, corporate borrowing, global factors, dynamic latent factor models.

JEL Codes: F30, F34, F65

 

Drug Money and Bank Lending: The Unintended Consequences of Anti-Money Laundering

March 2019

Tomas Williams, Pablo Slutzky, and Mauricio Villamizar-Villegas

IIEP Working Paper 2019-5

Abstract: We explore the unintended consequences of anti-money laundering (AML) policies. For identification, we exploit the implementation of the SARLAFT system in Colombia in 2008, aimed at controlling the flow of money from drug trafficking into the financial system. We find that bank deposits in municipalities with high drug trafficking activity decline after the implementation of the new AML policy. More importantly, this negative liquidity shock has consequences for credit in municipalities with little or nil drug trafficking. Banks that source their deposits from areas with high drug trafficking activity cut lending relative to banks that source their deposits from other areas. We show that this credit shortfall negatively impacted the real economy. Using a proprietary database containing data on bank-firm credit relationships, we show that small firms that rely on credit from affected banks experience a negative shock to investment, sales, size, and profitability. Additionally, we observe a reduction in employment in small firms. Our results suggest that the implementation of the AML policy had a negative effect on the real economy.

JEL Classification: K42, G18, G21

Keywords: money laundering; organized crime; financial system; bank lending; liquidity; economic growth

Agricultural extension, intra-household allocation and malaria

March 2019

Yao Pan and Saurabh Singhal

IIEP Working Paper 2019-4

Abstract: Can agricultural development programs improve health-related outcomes? We exploit a spatial discontinuity in the coverage of a large-scale agricultural extension program in Uganda to causally identify its effects on malaria. We find that eligibility for the program reduced the proportion of household members with malaria by 8.9 percentage points, with children and pregnant women experiencing substantial improvements. An examination of the underlying mechanisms indicates that an increase in income and the resulting increase in the ownership and usage of bednets may have played a role. Taken together, these results signify the importance of financial constraints in investments for malaria prevention and the potential role that agricultural development can play in easing it.

Keywords: Malaria, Intra-household Allocation, Agricultural Extension, Regression Discontinuity, Uganda

JEL Classification: I15, I12, D13, O12, Q16.

Do Constraints on Women Worsen Child Deprivations? Framework, Measurement, and Evidence from India

March 2019

Stephen C. Smith, Alberto Posso and Lucia Ferrone

IIEP Working Paper 2019-2

Abstract: This paper provides a framework for analyzing constraints that apply specifically to women, which theory suggests may have negative impacts on child outcomes (as well as on women). We classify women’s constraints into four dimensions: (i) domestic physical and psychological abuse, (ii) low influence on household decisions, (iii) restrictions on mobility, and (iv) limited information access. Each of these constraints are in principle determined within households. We test the impact of women’s constraints on child outcomes using nationally representative household Demographic and Health Survey data from India, including 53,030 mothers and 113,708 children, collected in 2015-16. Outcomes are measured as multidimensional deprivations, utilizing UNICEF’s Multidimensional Overlapping Deprivation Analysis index, incorporating deficiencies in children’s access to water, sanitation, housing, healthcare, nutrition, education and information. Our preferred specification follows Lewbel, constructing internal heteroskedasticity-based instruments; and we present an array of additional econometric strategies and robustness checks. We find that children of women who are subjected to domestic abuse, have low influence in decision making, and limited freedom of mobility are more likely to be deprived. Specifically, our causal analysis uncovers a robust impact of women experiencing constraints in emotional abuse, restrictions on the use of household earnings, and freedom of movement to access health facilities, on child deprivation. We conclude that societal changes that relax constraints on women may have potential complementary benefits for their children. We recommend that analyses showing welfare gains of relaxing constraints on women account for potential additional intra-household benefits, examining other channels through which they operate.

JEL Classifications: I15, I25 I32, O15

Key Words: child deprivations, MODA, child health, child nutrition, education, bargaining, empowerment, domestic abuse, mobility restrictions, information access, gendered constraints, multidimensional measurement, Lewbel estimation, instrumental variables, matching

Works Councils and Workplace Health Promotion in Germany

February 2019

Stephen C. Smith, Uwe Jirjahn and Jens Mohrenweiser

IIEP Working Paper 2019-1

Abstract: From a theoretical viewpoint, there can be market failures resulting in an underprovision of occupational health and safety. Works councils may help mitigate these failures. Using establishment data from Germany, our empirical analysis confirms that the incidence of a works council is significantly associated with an increased likelihood that the establishment provides more workplace health promotion than required by law. This result also holds in a recursive bivariate probit regression accounting for the possible endogeneity of works council incidence. Furthermore, analyzing potentially moderating factors such as collective bargaining coverage, industry, type of ownership, multiestablishment status and product market competition, we find a positive association between works councils and workplace health promotion for the various types of establishments examined. Finally, we go beyond the mere incidence of workplace health promotion and show that works councils are positively associated with a series of different measures of workplace health promotion.

JEL Classification: I18, J28, J50, J81.

Keywords: Non-union employee representation, works council, occupational health and safety, workplace health promotion.

A mHealth Voice Messaging Intervention to Improve Infant and Young Child Feeding Practices in Senegal

February 2019

Shauna Downs, Jessica Fanzo, Jozefina Kalaj, Joachim Sackey, and Stephen C. Smith

IIEP Working Paper 2019-6

Abstract: Mobile health (mHealth) interventions have the potential to improve infant and young child feeding (IYCF) practices; however, gaps in the literature remain regarding their design, implementation and effectiveness. The aims of this study were to: design a mHealth voice messaging intervention delivered to mothers and fathers targeting IYCF practices and examine its implementation and impact in households with children 6-23 months in three rural villages in Senegal. We conducted focus groups (n=6) to inform the intervention development. We then conducted a pilot study (n=47 households) to examine the impact of the intervention on IYCF practices of children 6-23 months. Voice messages were sent to the children’s mothers and fathers over a period of four weeks (2 messages/week; 8 messages in total), and 24-hour dietary recalls and food frequency questionnaires (FFQs) were conducted before and immediately after the implementation of the mHealth intervention to examine its impact on IYCF practices. Overall, 3 of the 8 behaviors increased and one decreased. There was a significant increase in the number of children that consumed fish (60% vs 94%; p=0.008) as measured by the 24-hour recall after the completion of the intervention. We also found significantly higher frequency of egg (p=0.026), fish (p=0.004) and thick porridge (p=0.002) consumption in the previous 7-days measured by the FFQ. Our findings suggest that voice messaging IYCF interventions in Senegal have the potential to improve IYCF behaviors among young children in the short term. Future research should entail scaling-up the intervention and examining its sustainability over the long-term.

JEL Classification: I15, O15; Q12

Keywords: Infant and young child feeding, mHealth, behavior change communication, nutrition, horticulture, farming groups

Pandemics, Places, and Populations: Evidence from the Black Death

February 2019

Remi Jedwab, Noel D. Johnson, and Mark Koyama

IIEP Working Paper 2019-3

Abstract: The Black Death killed 40% of Europe’s population between 1347-1352, making it one of the largest shocks in the history of mankind. Despite its historical importance, little is known about its spatial effects and the effects of pandemics more generally. Using a novel dataset that provides information on spatial variation in Plague mortality at the city level, as well as various identification strategies, we explore the short-run and long-run impacts of the Black Death on city growth. On average, cities recovered their pre-Plague populations within two centuries. In addition, aggregate convergence masked heterogeneity in urban recovery. We show that both of these facts are consistent with a Malthusian model in which population returns to high-mortality locations endowed with more rural and urban fixed factors of production. Land suitability and natural and historical trade networks played a vital role in urban recovery. Our study highlights the role played by pandemics in determining both the sizes and placements of populations.

JEL: R11; R12; O11; O47; J11; N00; N13

Keywords: Pandemics; Black Death; Mortality; Path Dependence; Cities; Urbanization; Malthusian Theory; Migration; Growth; Europe

What Are We Talking about When We Talk about Digital Protectionism?

December 2018

Susan Ariel Aaronson

IIEP Working Paper 2018-13

Abstract: For almost a decade, executives, scholars, and trade diplomats have argued that filtering, censorship, localization requirements, and domestic regulations are distorting the cross-border information flows that underpin the internet. Herein I use process tracing to examine the state and implications of digital protectionism. I make five points: First, I note that digital protectionism differs from protectionism of goods and other services. Information is intangible, highly tradable, and some information is a public good. Secondly, I argue that it will not be easy to set international rules to limit digital protectionism without shared norms and definitions. Thirdly, the US, EU, and Canada have labeled other countries policies’ protectionist, yet their arguments and actions sometimes appear hypocritical. Fourth, I discuss the challenge of Chinese failure to follow key internet governance norms. China allegedly has used a wide range of cyber strategies, including distributed denial of service (DDoS) attacks (bombarding a web site with service requests) to censor information flows and impede online market access beyond its borders. WTO members have yet to discuss this issue and the threat it poses to trade norms and rules. Finally, I note that digital protectionism may be self-defeating. I then draw conclusions and make policy recommendations.

Data is Different: Why the World Needs a New Approach to Governing Cross-border Data Flows

November 2018

Susan Ariel Aaronson

IIEP Working Paper 2018-10

Executive Summary: Companies, governments and individuals are using data to create new services such as apps, artificial intelligence (AI) and the Internet of Things (IoT). These data-driven services rely on large pools of data and a relatively unhindered flow of data across borders (few market access or governance barriers). The current approach to governing cross-border data flows through trade agreements has not led to binding, universal or interoperable rules governing the use of data. Trade diplomats first established principles to govern cross-border data flows, and then drafted e-commerce language in free trade agreements (FTAs), rather than through the World Trade Organization (WTO), the most international trade agreement. Data-driven services will require a different domestic and international regulatory environment than that developed to facilitate e-commerce. Most countries with significant datadriven firms are in the process of debating how to regulate these services and the data that underpins them. But many developing countries are not able to participate in that debate. Policy makers must devise a more effective approach to regulating trade in data for four reasons: the unique nature of data as an item exchanged across borders; the sheer volume of data exchanged; the fact that much of the data exchanged across borders is personal data; and the fact that although data could be a significant source of growth, many developing countries are unprepared to participate in this new data-driven economy and to build new data-driven services. This paper begins with an overview and then describes how trade in data is different from trade in goods or services. It then examines analogies used to describe data as an input, which can help us understand how data could be regulated. Next, the paper discusses how trade policy makers are regulating trade in data and how these efforts have created a patchwork. Finally, it suggests an alternative approach.

Is There a Kuznets Curve for Intra-City Earnings Inequality?

November 2018

Haixiao Wu

IIEP Working Paper 2018-9

Abstract: Many papers have found a positive relation between income inequality and city size in the US and other countries. This literature has assumed that the relation is linear. Tests performed here find that it is concave, resembling the classic Kuznets curve. A theoretical model based on the Income Elasticity Hypothesis (IEH), explains that inequality is a concave function of housing prices that tend to increase with city size. Further tests confirm the concavity of the relation between Gini and housing costs that is predicted by the IEH. Although for most cities, inequality still rises with housing costs, if housing costs continue to grow in large cities, inequality should eventually fall, resembling the Kuznets Curve at the country level

Private Sector Policymaking

October 2018

David Szakonyi

IIEP Working Paper 2018-8

Abstract: Many papers have found a positive relation between income inequality and city size in the US and other countries. This literature has assumed that the relation is linear. Tests performed here find that it is concave, resembling the classic Kuznets curve. A theoretical model based on the Income Elasticity Hypothesis (IEH), explains that inequality is a concave function of housing prices that tend to increase with city size. Further tests confirm the concavity of the relation between Gini and housing costs that is predicted by the IEH. Although for most cities, inequality still rises with housing costs, if housing costs continue to grow in large cities, inequality should eventually fall, resembling the Kuznets Curve at the country level

Development Economics Meets the Challenges of Lagging U.S. Areas Applications to Education, Health and Nutrition, Behavior, and Infrastructure

September 2018

Stephen C. Smith

IIEP Working Paper 2018-7

Abstract: This chapter examines the development economics evidence base for insights into policy reforms that would benefit struggling areas in the United States. My focus is on improving education, physical and mental health, infrastructure, and institutions. First, consistent with findings on education policy effectiveness, I propose raising the legal minimum dropout age (prospectively to 19), providing better information about the benefits of completing high school, supporting targeted paraprofessional tutoring, and providing family financial incentives for attending school and graduating from high school. Second, to improve health outcomes in struggling areas, the focus is using and building on existing effective health and nutrition programs and services, identifying ways to include more families who are eligible for but not participating in these programs. Moreover, the recent development and behavioral economics evidence base has extended our understanding of the psychological, cognitive, and economic behavioral lives of the poor; the literature highlights the ways that poverty can impede cognitive functioning, with implications for policies to uplift lagging U.S. areas. Third, a review of evidence on the benefits of improving lagging rural and urban area transportation infrastructure points to the likely benefits of improved connectivity for lagging U.S. areas: reversing the legacy of past discriminatory policies, encouraging sector-based clusters, and extending access to high-speed internet. Finally, the chapter highlights the relevance of some cross-cutting themes in development economics, including the high returns to reliable household microdata and the importance of improving institutions to enable more inclusive, substantial, and lasting progress.

How ETFs Amplify the Global Financial Cycle in Emerging Markets

January 2018

Updated: September 2018

Tomas Williams, Nathan Converse, and Eduardo Levy-Yeyati.

IIEP Working Paper 2018-1

Abstract: Since the early 2000s exchange-traded funds (ETFs) have grown to become an important investment vehicle worldwide. In this paper, we study how their growth affects the sensitivity of international capital flows to the global financial cycle. We combine comprehensive fundlevel data on investor flows with a novel identification strategy that controls for unobservable time-varying economic conditions at the investment destination. For dedicated emerging market funds, we find that the sensitivity of investor flows to global financial conditions for equity (bond) ETFs is 2.5 (2.25) times higher than for equity (bond) mutual funds. In turn, we show that in countries where ETFs hold a larger share of financial assets, total cross-border equity flows and prices are significantly more sensitive to global financial conditions. We conclude that the growing role of ETFs as a channel for international capital flows amplifies the incidence of the global financial cycle in emerging markets.

JEL Classification: F32, G11, G15, G23

Keywords: exchange-traded funds; mutual funds; global financial cycle; global risk; push and pull factors; capital flows; emerging markets

An Examination of the Link between Urban Planning Policies and the High Cost of Housing and Labor

September 2018

Anthony Yezer, William Larson, Weihua Zhao 

IIEP Working Paper 2018-6

Abstract: Past research has established positive empirical relation between city-level land use regulations and housing costs. One interpretation of these findings is that building restrictions raise the cost of producing housing. Alternatively, these price effects could reflect greater willingness to pay for quality urban design. Disentangling and identifying cost versus amenity factors empirically is an unresolved challenge. This paper presents an alternative to empirical tests, relying instead on the predictions of neoclassical urban theory. Simulations of an open city model demonstrate that theoretical predictions differ substantially from those obtained from empirical testing in two main ways. First, restrictions on land use and housing density influence the price level but not the elasticity of housing supply. Second, the effects of land use restrictions on average house prices are ambiguous and depend on the precise location of the planning restriction. Furthermore, the model generates direct estimates of effects on wages and demonstrates that transportation impediments are more consequential for housing prices than land use restrictions. This indicates a potentially fruitful path for future empirical work, and the possibility of omitted variable bias if transportation impediments are correlated with land use regulation.

JEL Codes: R30, R31, R38

Keywords: monocentric city model, price gradient, zoning, standard urban model

Modelling Economic Development: The Lewis Model Updated

September 2018

Carmel Chiswick 

IIEP Working Paper 2018-5

Abstract: This analysis updates the dual-economy model of economic development suggested by W. Arthur Lewis in 1954. The updated aggregate model incorporates advances since then in modern labor economics and the findings of empirical studies of LDC economies and it removes Lewis’ implicit assumption that capital-formation is costless to the host LDC country. Specifying investment in human capital for both sectors refocuses attention on workers’ well-being as the ultimate measure of development. Specifying the cost of capital formation permits the distinction between earnings that recover investment costs and the “surplus” available to workers for consumption. Policy implications include resolution of tradeoffs between “trickle-down” vs. “grass roots” development policies.

Keywords: Economic development, growth, human capital, dual-economy model

Do Fed Forecast Errors Matter?

August 2018

Tara Sinclair, Pao-Lin Tien, & Edward N. Gamber 

IIEP Working Paper 2016-14

Abstract: In order to make forward-looking policy decisions, the Fed relies on imperfect forecasts of future macroeconomic conditions. If the Fed’s forecasts are rational, then the difference between the actual outcome and the Fed’s forecast can be treated as an exogenous shock. We investigate the effect of the Fed’s forecast errors on output and price movements under the assumption that the Fed intends to implement policy through a forward-looking Taylor rule with perfect foresight. Our results suggest that although the absolute magnitude of the Fed’s forecast error shock is large, the impact of the shock on the macroeconomy is reassuringly small.

Keywords: Federal Reserve, Taylor rule, forecast evaluation, monetary policy shocks

JEL Classification: E32; E31; E52; E58

Data Minefield: How AI is Prodding Governments to Rethink Trade in Data

April 2018

Susan Ariel Aaronson

IIEP Working Paper 2018-11

Key Points: No nation alone can regulate artificial intelligence (AI) because it is built on crossborder data flows; countries are just beginning to figure out how best to use and to protect various types of data that are used in AI, whether proprietary, personal, public or metadata; countries could alter comparative advantage in data through various approaches to regulating data — for example, requiring companies to pay for personal data; and Canada should carefully monitor and integrate its domestic regulatory and trade strategies related to data utilized in AI.

Opening Up Argentina to the World: Some Strategic Observations

May 2018

Danny Leipziger

IIEP Working Paper 2018-4

Introduction: Argentina is at a decisive point with respect to economic policy, and nowhere is this more apparent than in its external outlook. Exports have never been the main economic driver for economic growth, although, at times, due to domestic issues, they have played an incredibly important role. The Macri Administration has rightly identified trade and investment policies as crucial stepping-stones in the rebuilding of the economy and the repositioning of Argentina to be a competitive international player. Major domestic reforms in the areas of tax and pensions, as well as prudent macro-policies to both gradually reduce fiscal deficits and inflation, will be prerequisites for sustained positive results. These efforts need to be complemented by microeconomic reforms to improve the productivity and efficiency of the economy. This note aims to examine how Argentina, as a late mover into the global economy and as an economy that has experienced serious prior setbacks, can now position itself in a world that that requires the utmost in efficiency and innovation, and in which distance is an increasingly less important constraint to economic activity. We take as given the fact that Argentina has been somewhat isolated from global value chains, that it has not benefited as much as it should have from regional trade agreements, and that it now faces an international economy that is both less robust in terms of commercial trade and also more open to disruptive forces. In other words, Argentina faces internal as well as external obstacles in its announced desire to better integrate into the world economy

Migration and Online Job Search: A Gravity Model Approach

April 2018

Tara Sinclair and Mariano Mamertino

IIEP Working Paper 2018-3

Abstract: Most studies of migration focus on realized migration. Data on realized migration take substantial time to collect and are available to researchers and policymakers only at a significant delay. In this study we consider a new potential data source in the form of tracking the patterns of online job seekers actively searching for a job in a country other than their current home. The advance of internet job search allows job seekers to explore international employment options before making a decision to move. We characterize job seeker interest across national borders by looking at user behavior on a major job search website. We investigate the determinants of cross-border job search using a standard gravity model and find that both the determinants and the relative importance of the determinants for job search are strikingly similar to those for past realized migration. This suggests both that job seekers are likely to act on their international job search and that these data may be useful for predicting future migration patterns. We use our results to explore the labor market mobility implications of a country, such as the UK, leaving the EU and find that leaving the EU may have international immigration impacts similar to increasing the distance between the leaver and the other EU countries by over one third.

JEL Codes: J6, J4, F22, O15

Keywords: international migration, labor mobility, online labor markets, European Union, Brexit

The Rise of Patient Capital: The Political Economy of Chinese Global Finance

July 2018

Stephen Kaplan

IIEP Working Paper 2018-2

Abstract: As the United States has retreated from its lead role in globalization – first because of the 2008 financial crisis, and now under President Donald Trump’s leadership – China has become a major global financial player. China, as the world’s largest saver, has rapidly expanded its cross-border lending since the crisis, more than doubling its overseas banking presence. What are the implications? I contend that China’s state-led capitalism is an important form of patient capital, characterized by a longerterm horizon. While technically classified as mobile capital, its higher risk tolerance and geopolitical shrewdness make state-owned capital less likely to swiftly exit debtor countries. Compared to traditional mobile capital, debtor governments thus gain more policy freedom, particularly during hard times when Western creditors might otherwise impose austerity and other onerous policy conditions. Employing an originally constructed dataset, the China Global Financial Index, I conduct an econometric test across 15 Latin American countries from 1990-2015. I find that left governments are more likely to borrow from China. However, notwithstanding this initial creditor choice, Chinese state-to-state lending then uniformly leads to higher budget deficits. It endows governments with more fiscal space to intervene in their economies by reducing their reliance on conditionality-linked Western financing. These results suggest that Chinese financing could be a development opportunity, but only if governments invest wisely. Otherwise, by lending without policy conditions, China may be encouraging developing country governments to spend without bounds, sowing the seeds for future debt problems.

Can Differences Deceive? The Case of “Foreclosure Externalities”

July 2017

Anthony Yezer and Yishen Liu

IIEP Working Paper 2017-29

Abstract: Foreclosure externalities, in which recent foreclosures proximate to a housing unit depress its sales price, are well accepted in the literature. These papers use a geographic differencing strategy to eliminate the problem of selection into treatment. They also assume that the partial and total derivatives of the outcome (house value) with respect to the treatment (foreclosure) are constant and equal. This paper relaxes these assumptions producing very different results. These findings likely generalize to a larger body of research where differencing often in the form of regression discontinuity, propensity score matching, or synthetic controls is used to achieve identification while assuming total and partial derivatives of the outcome with respect to the treatment are constant and equal.

JEL: R23, R30, R31.

Keywords: Foreclosure; Specification error; Loan-to-value ratio; Externalities.

Unilateral and Multilateral Sanctions: A Network Approach

November 2017

Sumit Joshi and Ahmed Saber Mahmud 

IIEP Working Paper 2017-28 

Abstract: The extensive literature on efficacy of sanctions has been mainly focused on a dyadic interaction between sender and target. In contrast, this paper examines sanctions when the sender and target are embedded in a network of linkages to other agents and each agent’s utility is a function of the size of the agent’s component. Efficacy of sanctions is then a function of two factors: the network structure binding the sender and target, and the concavity/convexity of utility in the component size. We consider both unilateral sanctions and multilateral sanctions. We demonstrate how the network architecture, together with the specification of utility, qualifies and sometimes reverses the main tenets of the dyadic approach. We add to the recent work on identifying network architectures that sustain cooperation via the threat of exclusion by showing that the utility specification matters. Thus the same network can be efficacious for sanctions if utility is convex in component size but not if it is concave.

JEL: C72, D74, D85

Keywords: Unilateral sanctions, Multilateral sanction,  Sender, Target, Networks, Spanning trees, Cutsets

Network Formation with Multigraphs and Strategic Complementarities

November 2017

Sumit Joshi, Ahmed Saber Mahmud and Sudipta Sarangi

IIEP Working Paper 2017-27

Abstract: Economic agents are typically connected to others in multiple network relationships, and the architecture of one network could be shaped by connections in other networks. This paper examines the formation of one network when connections in a second network are inherited under two scenarios: (i) the inherited network is asymmetric allowing for a wide range of graphs called nested split graphs, and (ii) the inherited network is a symmetric type of network belonging to a subclass of regular graphs. Both the inherited and endogenously formed networks are interdependent because the respective actions in each are (weak) strategic complements. This property is su¢ cient to show that those who inherit high centrality will continue to have high centrality. Additionally, the network formed by the agents induces a coarser partition than the inherited network, suggesting the possibility of being able to improve network centrality, but only in a limited manner. Thus, our analysis explains preferential attachment and why inequality is often entrenched in society, how asymmetries in one network may be magnified or diminished in another, and what determines the identity of players occupying the various vertices of asymmetric equilibrium networks.

JEL: C72, D85

Keywords: Network formation, multigraphs, strategic complementarities, Katz-Bonacich centrality, nested split graphs.

Migration Networks and Location Decisions: Evidence from U.S. Mass Migration

September 2017

Bryan Stuart and Evan Taylor 

IIEP Working Paper 2017-26

Abstract: This paper examines the effects of birth town migration networks on location decisions. We study over one million long-run location decisions made during two landmark migration episodes by African Americans from the U.S. South and whites from the Great Plains. We develop a new method to estimate the strength of migration networks for each receiving and sending location. Our estimates imply that when one randomly chosen African American moves from a birth town to a destination county, then 1.9 additional black migrants make the same move on average. For white migrants from the Great Plains, the average is only 0.4. Networks were particularly important in connecting black migrants with attractive employment opportunities and played a larger role in less costly moves.

JEL: J61, N32, O15, R23, Z13

Keywords: migration networks, location decisions, social interactions, Great Migration

The Long-Run Effects of Recessions on Education and Income

August 2017

Bryan Stuart

IIEP Working Paper 2017-25

Abstract: This paper examines the long-run effects of the 1980-1982 recession on education and income. Using confidential Census data, I estimate difference-in-differences regressions that exploit variation across counties in recession severity and across cohorts in age at the time of the recession. For individuals age 0-10 in 1979, a 10 percent decrease in earnings per capita in their county of birth reduces four-year college degree attainment by 9 percent and income in adulthood by 3 percent. Simple calculations suggest that, in aggregate, the 1980-1982 recession led to 1-3 million fewer college graduates and $64-$145 billion less earned income per year.

JEL Classification Codes: E32, I20, I30, J13, J24

Keywords: human capital, education, income, recessions

The Effect of Social Connectedness on Crime: Evidence from the Great Migration

August 2017

Bryan Stuart and Evan Taylor

IIEP Working Paper 2017-24

Abstract: This paper estimates the effect of social connectedness on crime across U.S. cities from 1960- 2009. Migration networks among African Americans from the South generated variation across destinations in the concentration of migrants from the same birth town. Using this novel source of variation, we find that social connectedness considerably reduces murders, robberies, assaults, burglaries, larcenies, and motor vehicle thefts, with a one standard deviation increase in social connectedness reducing murders by 13 percent and motor vehicle thefts by 9 percent. Our results appear to be driven by stronger relationships among older generations reducing crime committed by youth.

JEL Classification Codes: K42, N32, R23, Z13

Keywords: crime, social connectedness, Great Migration

Governance Spillovers of Labour Provisions in Free Trade Agreements

by Susan Ariel Aaronson (George Washington University)

IIEP Working Paper 2017-2

Most people know that governments such as the US, EU, and Canada use labour rights provisions in trade agreements to improve labour rights. They believe that policymakers in the developing world will be willing to improve labour rights governance with the incentive of the trade agreement. But in this paper, Aaronson argues that these provisions have broader and equally important spillover effects upon governance. These provisions:

  • empower workers and other citizens;
  • facilitate a feedback loop between the developing country government and its citizens on a broad range of issues affecting trade;
  • promote wage and income equality, which is conducive to development, social stability and democracy;
  • help policy-makers to better integrate labour rights with other public policies (such as fiscal policy, anti-corruption policies, or criminal laws); and
  • can help citizens and policy-makers gradually improve governance, increase productivity and advance social cohesion in the community.

Aaronson used a comparative case study approach, examining both the language and studies of the effects of the provisions. For example, she finds that since 2005, U.S. agreements have included provisions in the labour rights chapter related to procedural guarantees and public awareness. The provisions require parties to encourage public participation in the development of labour rights policies. They also require that all persons have “appropriate access to tribunals”, that the “proceedings are fair, equitable, and transparent … open to the public”, give all parties the right to seek review, and educate their public about the law. Taken in sum, these provisions could empower workers (on the demand side of labour rights) through rules on public awareness, public participation, and due process rights. The EU and Canada have begun to adopt similar policies.

Aaronson provides several examples of improved governance. In Guatemala, policymakers learned to coordinate labour rights and fiscal policy so that companies could not get subsidies or avoid taxes if they were found to violate labor rights. Mexican officials learned to protect the rights of Mexican guest workers in the U.S. In 2013, with help from U.S. and Mexican civil society groups, guest workers came together to form the Sinaloa Temporary Workers’ Coalition to defend the rights of guest workers in Mexico and abroad. In 2014, the group complained to the Mexican Ministry of Labor regarding recruitment fees. The Ministry investigated and found 27 violations of the law, resulting in fines. In this example, Mexicans held their government accountable for violations of the law at home.

Aaronson notes that no one has yet done a study as to whether these provisions and consultative bodies actually empower workers. Nonetheless, in a 2016 study of trade and labour rights, the ILO noted that “the impact of labor provisions depends crucially on, first, the extent to which they involve stakeholders, notably social partners such as unions and NGOs.” Workers who are aware of their rights and able to challenge executives and government officials’ decisions are empowered. Over time, empowered workers can promote greater income equality through improved productivity and better share in profits through wage increases. Some analysts argue that this process can advance development, social cohesion and democracy, and can ensure that more people meet their potential. Moreover, these provisions may help to legitimize trade agreements and help them to gain a base of public support.

Redefining Protectionism: The New Challenge in the Digital Age

by Susan Ariel Aaronson (George Washington University)

IIEP Working Paper 2016-30

Twenty-first century protectionism is a slippery concept. With the introduction of digital trade, it is important for scholars and policymakers to rethink how they define, measure, and address protectionism. This is most clear in the United States where attitudes towards digital trade and digital protectionism have been murky at best.

While the digital is important to all countries, it is particularly important to the United States, where digital trade represents nearly 55 percent of U.S. service exports and has generated an annual trade surplus of over $150 billion. In a principal effort to limit digital protectionism and maintain an open internet for the advancement of the free flow of information, the United States made the move to create binding rules to govern trade in the Trans-Pacific Partnership and was the first country to call out digital protectionism in other nations. Policymakers now understand that information, whether it is created or altered within their county, is an asset. Therefore, measures that restrict content, limit the flow of data, or impose standards that keep out foreign competition could threaten the generativity of the internet as a whole.

However, many governments disagree with the scope and breadth of U.S. claims about digital protectionism. For example, Canadian and Australian policymakers are determined to protect the privacy of their citizens’ health records and require such information to be stored on local servers to an extent that tends to outpace U.S. standards. Adding to the confusion, U.S. arguments against digital protectionism are often inconsistent. For example, in a 2013 report on foreign trade barriers, U.S. officials complained about Japan’s uneven, and Vietnam’s unclear, approach to consumer privacy. At the same time, the United States has argued that China’s failure to enforce its privacy laws is harmful to digital trade.

Despite the importance of digital trade and digital protectionism, the United States has not thought out its stance on questions like: Is a policy truly protectionist? How harmful are these policies to U.S. interests? Are trade sanctions an appropriate response, and which agency should be responsible for making these decisions? As digital trade takes up a bigger portion of the global economy, policymakers and companies will need clarity. Given the stakes, it is important that the United States takes a leading role in defining digital protectionism.

Negative Shocks and Mass Persecutions: Evidence from the Black Death

March 2017

by Remi Jedwab (George Washington University), Mark Koyama (George Mason University) & Noel Johnson (George Mason University)

IIEP Working Paper 2017-4

The authors of this paper examine the Black Death persecutions committed against the Jewish people to demonstrate the factors that determine when a minority group will face persecution. A theoretical framework is developed that predicts that there is an increased probability that minorities are scapegoated and persecuted when negative shocks occur. However, if the shocks become more severe, the probability of persecution may decrease when economic complementarities exist between the majority and minority groups. To accomplish this, the authors gathered data on a city-level on Black Death mortality and Jewish persecution. An aggregate level showed that scapegoating led to an increase in the baseline probability of persecution. On the city-level, high plague mortality rates did not align with increased persecutions. Persecutions were found to be more likely in cities with a history of antisemitism and less likely in locations where Jews were featured in important economic roles.

The Black Death had wide-ranging social effects, and historians and economists often look to the Black Death as a direct cause of scapegoating and persecution of Jewish communities. The authors contradict this view using city-level Black Death mortality rates and Jewish persecution, demonstrating that the higher the mortality in a city, the less likely persecution would occur. This was accentuated in cities where Jews played important economic roles. They show that, while the Black Death shock was the initial impetus for antisemitic persecution in Europe, it was mainly patterns of differences in economic standing between minority and majority groups that explain local variation in persecution.

Their work contributes to several literatures, such as recent work on the economics of mass killings. They also add to literature on the relationship between shocks and the persecution of minorities, which emphasizes the role played by economic complementarities between groups, and literature on antisemitism. Their study provides a unique perspective, as well, as the Black Death provides a very well suited setting to examine the causes of mass killings.

In their framework, negative shocks can increase both the incentive to persecute a minority and to raise that minority’s economic value. The authors conclude that the decision to persecute the minority is dependent upon how the intensity of the shock interacts with the benefit one gains from persecution and the economic benefits gained from the presence of the minority. While their research suggested there are underlying biases against minorities, it also demonstrated that complementary economic activities between minority groups and majority groups could reduce inter-group aggression.

How Sustainable Are Benefits from Extension for Smallholder Farmers? Evidence from a Randomised Phase-Out of the BRAC Program in Uganda

January 2017

by Stephen C. Smith (George Washington University), Vida Bobić (George Washington University), Ram Fishman (Tel Aviv University), & Munshi Sulaiman (Save the Children)

IIEP Working Paper 2017-1

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