Ricardo's threads | Nothing contributes so much to the prosperity and happiness of a country as high profits

The Russia-Ukraine war, European financial integration, and crises

07/29/2022 Voxeu Analysis

Russia’s invasion of Ukraine added another one to a series of crises affecting Europe over the last decade and a half. This column finds that fragmentation of euro area financial markets has been relatively limited, as policymakers have benefitted from reforms after and experiences with past crises, European countries and authorities reacted with quite some unity, and direct financial exposures to Russia and Ukraine are relatively small.

River pollution: Combating cross-border externalities

07/28/2022 Voxeu Analysis

In order to improve the water quality of the downstream stretch of the Xin’an River, in 2011 China implemented the Ecological Compensation Initiative, a pioneering policy establishing side payments between upstream and downstream provinces. This column shows that the initiative mitigates cross-border externalities by sharply reducing water pollutant emissions by upstream firms and also induces firms to relocate to neighbouring cities. The findings highlight the potential for bilateral compensation for ecosystem services to reduce pollution.

Variability in the impacts of COVID-19 on student achievement

07/28/2022 Voxeu Analysis

There is robust evidence that children lost ground academically as a consequence of the pandemic, but less research into how the effects varied by school district and household demographics. Using test data from 2.1 million students across the US, this column finds that remote instruction was a primary driver of widening achievement gaps by race and poverty. The authors argue that low-income districts that taught remotely in 2020-21 will need to spend nearly all of their federal aid on academic recovery to help students recover from pandemic-related achievement losses.

Neighbourhoods won’t be improved by banning the unemployed

07/27/2022 Voxeu Analysis

Recently, a range of countries have introduced laws prohibiting disadvantaged individuals from moving into public housing in specific areas, for example because they are unemployed or have too low an income, in an attempt to avoid the formation of ghettos and unwanted spatial disparities in the standards of living. This column studies one such law in the Netherlands and finds that it has not been effective in attracting households with higher income levels to targeted neighbourhoods.

Large firms react more strongly to macro shocks, and it matters

07/27/2022 Voxeu Analysis

It is important to understand the micro drivers of the economy’s reaction to large macro shocks. This column uses French firm-level data from 1993-2020 to study the contribution of the largest exporters to aggregate export fluctuations. The authors find that top exporters explained over 40% of aggregate fluctuations and drove the export collapses during the Global Crisis and the pandemic. Moreover, the 2020 collapse of French exports was driven by the higher sensitivity of large firms to demand shocks rather than disruptions to global value chains.

Distracted donors and political violence

07/27/2022 Voxeu Analysis

When aid donors are distracted by domestic concerns, do aid recipients take advantage to suppress political opposition? Data from Africa suggest that they do, Dominic Rohner tells Tim Phillips.

The long-run labour market effects of the Canada–US Free Trade Agreement

07/26/2022 Voxeu Analysis

Increased import competition has been found to depress labour market outcomes, leading to pessimism that classic gains from trade are worth the accompanying labour market disruptions. This column examines the effect of the 1989 Canada-US Free Trade Agreement. While Canadian workers suffered short-run displacement and earnings losses in response to increased import competition, long-run labour market outcomes, such as years worked and cumulative earnings, were largely unaffected.

Parsing disagreement about future short-term interest rates

07/26/2022 Voxeu Analysis

Disagreement over future nominal interest rates is currently high, creating challenges for central banks. This column argues that the real neutral rate of interest has a slow-moving, long-run component as well as a short-run component. The long-run ‘natural rate’ is determined by demographic characteristics and income inequality, while the short-run ‘neutral rate’ can be affected by transitory economic shocks. In the current environment, the distinction might be important to explain part of the disagreement about future nominal short-term interest rates.

Measuring Ukraine’s private consumption during the war

07/25/2022 Voxeu Analysis

As Russia’s invasion continues to ravage many parts of Ukraine, the flow of official statistical data has been erratic. This column outlines an alternative approach to measuring private consumption during war times, using aggregated bank micro-level data. Commercial banks have mostly remained operational during the war. Moreover, the electronic payment system has functioned unceasingly throughout the war period, providing stability of bank payments.

Ruble payments: Shielding the ruble from financial sanctions

07/25/2022 Voxeu Analysis

There has been much debate over the intentions behind Russia’s March 2022 Presential Decree requiring gas importers to settle gas payments in rubles. This column argues that the scheme is intended to protect the Moscow Stock Exchange from financial sanctions. The decree requires not only that gas payments are settled in rubles, but also that the rubles are obtained on the exchange, making it indispensable to the transactions. This prevents the exchange being placed under sanctions without gas supplies being cut off.

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