NEWSLETTER | ISSUE ELEVEN | SUMMER 2015

INSIDE | CAGE announces Growing the new advisory board

| Analysing the public health Globalisation challenges of antimicrobial resistance Research Initiative | Assessing whether ‘secular stagnation’ With a £3.5 million award from the Economic and Social is Europe’s future Research Council, CAGE expands its agenda to take on a wider array of issues on the world’s economic and political stages.

We created CAGE to undertake research to improve living standards, raise that would lead to better insights about productivity, maintain international how and why different countries achieve competitiveness, and facilitate economic success in a world that is the economic well-being of their more and more globally connected. citizens. We will continue to hone our distinctive approach, in using historical In the five years since our founding perspectives to understand current amid the worst economic downturn events. the world has experienced since the Great Depression, the world continues Our new funding allows us to tackle to face economic challenges that signal a new research theme with particular a need for CAGE’s signature approach. resonance for our times: assessing Nicholas Crafts, a in Fear of ‘secular stagnation’ haunts the implications of globalisation Department at the the Eurozone. Wage growth has been for policymaking and for economic , is the mediocre, and the gap between high- and political outcomes in Western director of CAGE. Prof. Crafts is and low-wage earners is expanding. democracies. And, a new partnership widely recognised for his scholarly Real risks and uncertainties loom over allows us to expand our outreach. work in , which matters as varied as monetary policy, The Social Market Foundation, the provides insights that inform current unsustainable public finance practices independent public policy think tank, policy debates. The 2014 Queen’s and emerging geopolitical tensions. In provides us with a research partner Birthday Honours List named Prof. short, the globalised economy remains and a conduit to the worlds of media, Crafts a Commander of the Order a puzzle that economists have yet to politics and policy. of the British Empire (CBE) for his solve, and CAGE can help to illuminate. With these resources and this services to economic policy. He is Thus, our research will continue to partnership, our researchers are poised also a Fellow of the British Academy, take on issues about how countries to take on the demanding questions of an honour recognising scholarly can succeed in achieving objectives our challenging economic times. distinction.

cage newsletter | go.warwick.ac.uk/cage | 1 events A new CAGE Research Theme Over the past few decades, which governments and citizens in governments and citizens have had to developed countries face. Theme Four adapt to the new rules of a globalised will also contribute to the key research world. Against this backdrop, CAGE’s challenge of ‘Succeeding in the Global new Theme Four focuses on the Economy’. By shedding light from effects of market integration and different scholarly perspectives on internationalisation on Western the question how policymakers in democracies. Western democracies can adapt to Methodologically this theme offers a challenges posed by international political economy view on theoretical market integration, Theme Four will questions and uses the empirical generate policy-relevant evidence able apparatus of quantitative comparative to inform economic policymaking. and international political economy. New research will address the From this perspective Theme Four following questions: will strengthen the interdisciplinary approach within CAGE by integrating • Will globalisation produce a race scholarly work from political economy to the bottom that undermines and quantitative political science. European Economies? Vera Troeger, professor of More generally, Theme Four • Which variety of capitalism will quantitative political economy, is contributes to and builds on the cope best with the challenges of the Theme Four Leader at CAGE. existing CAGE research programme globalisation? surrounding the unifying focal theme She also serves as editor in chief of ‘managing change’. Particularly, • How are preferences about of ‘Political Science Research and Theme Four focuses on the changes market integration, redistribution Methods (PSRM)’, the Journal of and challenges of globalisation and and the welfare state affected by the European Political Science international market integration globalisation? Association (EPSA).

Frances Cairncross leads new CAGE advisory board Twelve individuals with academic and policy expertise comprise the new CAGE Advisory Board. The group chair is economist, journalist and academic Frances Cairncross. She chairs the executive committee of the Institute for Fiscal Studies, and is a Senior Fellow at the School of Public Policy at the University of California Los Angeles, and Chair of Court at Heriot-Watt University, Edinburgh. She will be leading an Advisory Board whose members are:

• Nicholas Crafts, CAGE Director, • Simon Swain, Pro Vice-Chancellor • Stevan Lee, Senior Economist and Professor, Economics Department, (Arts and Social Sciences), The Team Leader, Growth Research at The University of Warwick University of Warwick the Department for International • Sascha Becker, CAGE Research • Stephen Roper, Director, Enterprise Development Director, Professor, Economics Research Centre, Warwick Business • Nigel Miller, Senior Economist, Department, The University of School, The University of Warwick Economic Growth Analysis, Warwick • Sheilagh Ogilvie, Professor Department for Business, • Mark Harrison, CAGE Impact of Economic History, Faculty Innovation and Skills Director, Professor, Economics of Economics, University of • Jim Reid, Managing Director, Head Department, The of Global Fundamental Credit Warwick • Liam Halligan, The Sunday Telegraph Strategy Deutsche Bank • Peter Elias, Professor, Institute Columnist, Broadcaster, and for Employment Research, The formerly the Chief Economist at University of Warwick Prosperity Capital Management.

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Global Perspectives Cormac Ó Gráda The Global Perspectives series is a new collaboration between the Social Market Foundation and CAGE. Cormac Ó Gráda from the University College Dublin delivered his public lecture, ‘Cast Back into the Dark Ages of Medicine? The Challenge of Antimicrobial Resistance’ on 28th April. It is the second in the Global Perspectives series.

Professor Cormac Ó Gráda, Highlights from his briefing: economics professor at the University The ‘pipeline’ of new drugs is not as dry as is usually claimed in the media, of College Dublin, presented a briefing showing that, as of December 2014, 37 new antibiotics were listed as being paper, ‘Cast Back into the Dark ‘under development’ in the United States alone. Ages of Medicine? The Challenge of With the virtual eradication of most infectious diseases, life expectancy in Antimicrobial Resistance’, analysing the UK and other high-income countries has doubled in the last century. the challenges to global public health in The gains in poor countries have been smaller, but are still significant. controlling infectious diseases as the Most of the increase in life expectancy preceded the antibiotics revolution. effectiveness of long-used antibiotics wanes. The paper is the second in Public health measures have been essential to controlling infectious the Global Perspectives series, the diseases. Even if AMR increases, the effect of existing and new public collaboration between the Social Market health measures will limit the negative consequences. Foundation and CAGE. The challenge of tackling antimicrobial resistance requires a focus on Prof. Ó Gráda said that the challenge both the supply of antimicrobials (the ‘pipeline’) and the demand for them of antimicrobial resistance needs to be (consumption). set in historical context: though real, it There is considerable scope for reducing consumption and thereby the is unlikely to mean a return to ‘the dark spread of resistance. Public health initiatives and health education can ages of medicine’. usefully reinforce measures to restrain consumption.

This celebration of the social sciences takes place across the UK - via public debates, conferences, workshops, interactive seminars, film screenings, virtual exhibitions and much more. 2015 is the 30th year that the ESRC has held the Festival of Social Science and each year the Festival grows from strength to strength. This year is particularly special as it will mark the ESRC’s 50th Anniversary. See the ESRC website for details. We will be supporting this year’s Festival by organising two events at the University of Warwick. On 10 November Looking ahead: CAGE researchers will present a showcase of their work to sixth formers who are interested in studying economics at 7 - 14 November 2015 university. And on 12 November CAGE researcher Dr Anandi Mani will give a public lecture on her research into poverty, development and wellbeing.

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Welcome... CAGE extends a warm welcome to its Congratulations... new visitors, including post-doctoral students and visiting researchers. Frances Cairncross, the chair of the CAGE Advisory Board, was named as a Dame of the British Natasha Postel-Vinay is a visiting post- Empire (DBE) in the 2015 Queen’s Birthday Honours doctoral economic history fellow at CAGE. She list. She was awarded the honour for services to received her PhD from the London School of education and in recognition of a very successful career Economics and Political Science. Her research has as a leading British economist, journalist and academic. analysed the causes of bank failures during the Great Depression in Chicago, which had the highest urban rate of bank failures. She also researches the role of Mariela Dal Borgo CAGE PhD student has completed her PhD and deposit insurance in credit and leverage growth in accepted a position as economic/financial researcher developing economies. for the Bank of Mexico in the Directorate of Financial Stability in Mexico City. Her research interests lie in John Wallis, an economics professor from the applied microeconomics and labour economics, with University of Maryland, is a visiting researcher at an emphasis on household finance. Her dissertation CAGE. Prof. Wallis has been a Research Associate focuses on household savings and portfolio choice. In at the National Bureau of Economic Research since it, she examines the effect of bankruptcy protection 1989. He is an economic historian who specialises on households’ investments in risky assets. Another in the public finance of American governments, recent research project examines the differences in constitutional development and, more generally, on saving behaviour across ethnic and racial groups in the the institutional development of governments and United States. economies

Jordi Vidal-Robert, post-doctoral economic Nicholas Zammit, a faculty member in the history fellow at CAGE, has accepted a position as Economics Department at Cambridge University Lecturer of Economics, Department of Economics, and a former CAGE PhD student, returns in the University of Sydney. His work focuses on historical autumn as a senior teaching fellow in the Economics institutions and their long-run effects and legacy on Department at the University of Warwick and economic growth, current economic, cultural and research associate on CAGE. His research looks at political outcomes. the economic growth of ‘Settler Economies’ (Canada, Australia, New Zealand, Argentina & South Africa) in a comparative context. Areas of interest include Roland Rathelot the rise of manufacturing, changes in trade policy CAGE research associate and an assistant professor and international relations, the influence of foreign in the Economics Department at The University of technology and capital flows, the significance of Warwick, has been appointed as an external expert ‘staple’ resource exports and their linkages into on the Cross-Government Trial Advice Panel for the industry and services. What Works Team of the Cabinet Office. His research expertise includes the evaluation of labour market policy, unemployment insurance, ethnic differentials on who joined Ali Moghaddasi Kelishomi, the labour market, and residential segregation. the Economics Department at The University of Warwick as a teaching fellow, will take up the position of CAGE post-doctoral from August. Daniel Sgroi He received his PhD from the University of Essex. CAGE theme leader and associate professor in the His work has examined new business start-ups Economics Department at The University of Warwick, and the business cycle, labour market dynamics, has received a commendation in the Warwick Awards self-employment in developing countries, and the for Teaching Excellence (WATE) 2015. The awards housing market. He will be working with Daniel Sgroi, recognise and celebrate excellence in teaching and associate professor in the Economics Department at support for learning at The University of Warwick. The University of Warwick and CAGE theme leader.

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CAGE co-hosts vacation school in Venice Competitive Advantage in the Digital Economy (CADE) is an exclusive three-day Vacation School that brings together academics and practitioners to discuss the current and future challenges surrounding the issues of New Business Models in the Digital Economy, Big Data and Personalisation. It was held from 28th to 30th May in Venice.

For the second year, CAGE and two partners served CADE was co-sponsored by CAGE; the Warwick as co-hosts of Competitive Advantage in the Digital Manufacturing Group (WMG);and New Economic Economy (CADE), a three-day vacation school. Models in the Digital Economy (NEMODE) Research The topic of this year’s school was: ‘Personal Data Councils UK (RCUK)-funded ‘Network-Plus’ Economy and New Business Models’. Thought Initiative coordinated by the University of Surrey. leaders from a variety of sciences including Speakers included: Rafael Cepeda marketing, service systems, computer science, (InterDigital); Phil Godsiff (Surrey); James economics, and business administration shared Goulding (Nottingham); Weisi Guo (Warwick their opinions about the impact of technology Engineering);Roger Maull (Surrey); Irene Ng on the way businesses operate, with particular (WMG); Glenn Parry (UWE); Ganna Pogrebna reference to personal data economy and connected (WMG);); Andi Smart (Exeter); Susan Wakeshaw data at the Palazzo Pesaro-Papafava in Venice. (WMG); Peter Ward (WMG); and Thomas Weber CADE brought together academics and (École Polytechnique Fédérale de Lausanne). practitioners from a wide variety of destinations, The school included a challenge for early career including Austria, Denmark, , France, researchers. This year’s challenge was to deliver a Germany, Northern Ireland, Spain and Switzerland. (digital) solution with the relevant business model Thought leaders from a variety of sciences for a specific city. The city of Venice (Italy) wanted including Marketing, Service Systems, Computer to increase tourist mobility, the city of Murcia Science, Economics, and Business Administration (Spain) looked for ways to make use of its newly shared their opinions about the impact of built but troubled airport, and the town of Catia La technology on the way businesses operate, with Mar (Venezuela) looked for way to establish a new particular reference to personal data economy and art museum. Three teams competed in this year’s connected data. challenge with each team working on solutions The event was organised by CAGE research for Venice, Murcia, and Catia, respectively. The associates Ganna Pogrebna, associate professor in competition proved stiff, but the professional the Warwick Manufacturing Group; and Kimberley committee judged the winners to be the team Scharf, professor in the Economics Department at composed of: Ramona Statache (University The University of Warwick. of Nottingham), Tatiana Styliari (University of Nottingham), David Reynolds (WMG), and Viktor Avlonitis (Copenhagen Business School). The victors all received books as rewards.

Winners of the Early Researchers challenge

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CAGE workshops and seminars offer insight into the research frontier on a wide variety of topics. Recent presentations from the Work in Progress workshops and Applied Micro Early Stage (AMES) seminars can be found on the CAGE website. Recent events include:

• ‘Reducing High Public Debt Ratios: • ‘Estimating Individual Choice • ‘Can Land Redistribution Reduce Lessons from the UK Experience’ Model and Identifying Herding Inequality in the Long-Run? The presented by Nicholas Crafts. in Auctions’ presented by Olga Case of Land-Reform in Chile’ Wojciechowska. presented by Nicolás Lillo. • ‘The Political Fallout of the Chernobyl Disaster - Evidence from • ‘Local Export Spillovers in an • ‘Social Ties between Co-workers German Elections and the GSOEP’ Emerging Economy’ presented by and Learning on the Job: Evidence presented by Christoph Koenig. Jorge Chavez. from Bangladeshi Garment Factories’ presented by Andreas • ‘Why Are There Too Few Female • ‘Misallocation and the Bamboo Menzel. Engineers? The Role of Teachers’ Network: How Chinese Firms Stereotypes presented by Rigissa Benefit from Their Network in the • ‘Business Practices in Small Firms Megalokonomou (joint paper with United States’ presented by Anna in Developing Countries’ presented Victor Lavy). Baiardi and Christina Ammon. by Christopher Woodruff. • ‘Payment Methods in Peruvian • ‘Local Export Spillovers in an Export Transactions’ by Jorge Emerging Economy’ presented by Chavez. Jorge Chavez

New book on British Economic Growth Stephen Broadberry, a theme leader for CAGE and economics professor at the London School of Economics and Political Science, launched his book, ‘British Economic Growth 1270-1870’, at the British Academy on 15th May.

‘British Economic Growth’ provides how the transition to modern a definitive new account of economic growth built on the Britain’s economic evolution from earlier foundations. Their work finds a backwater of Europe in 1270 to evidence of a persistent upward the hub of the global economy in trend in GDP per capita, which 1870. Broadberry leads a group doubled between 1270 and 1700. of researchers who are the first Featuring comprehensive estimates to reconstruct Britain’s national of population, land use, agricultural Published by Cambridge University accounts back to the 13th century. production, industrial and service- Press, the book is co-authored Thus, they are able to demonstrate sector production and GDP per with Bruce Campbell of Queen’s the path to the Industrial Revolution capita, as well as analysis of their University Belfast; Alexander Klein, from a quantitative perspective. implications, the book is an essential of the University of Kent, Canterbury; Contrary to traditional views reference for anyone interested in Mark Overton, of the University of of the earlier period as one of British economic history and the Exeter; and Bas van Leeuwen, of the Malthusian stagnation, they reveal origins of modern economic growth. University of Warwick

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CAGE hosts Policy Debate, Brussels International Trade Research Day Researchers in the forefront of Secular the field attended the event, held on 22nd May in the new Warwick Business School facilities on the Stagnation 17th floor of The Shard in London. The CAGE Policy Debate was Researchers from the UK, China held on 25th March in Brussels. and Canada discussed their latest work on trade, and related fields, in CAGE Director Nicholas Crafts presented a keynote speech, ‘Is Secular seminars at the CAGE International Stagnation the future of the Eurozone?’. The briefing was followed by Trade Research Day at The Shard in a lively debate and a networking cocktail reception. The event included London. More than 40 researchers senior figures from the European Commission, the European Parliament from the UK and other European and the European Investment Bank. countries, and also from China’s University of International Business Prof. Crafts presented information about two distinct but related and Economics, attended the concepts of ‘secular stagnation’ and their potential effects on Europe’s event. economy. The first concept concerns the possible long-run trend growth failure, and the other concerns a permanent liquidity trap. Top scholars presented A future of ‘secular stagnation’ where economic growth is always six research papers. painfully slow is widely perceived to be a plausible nightmare scenario Speakers included: for Europe, but it is not an inevitable one, Prof. Crafts said. Economic history shows how to prevent secular stagnation but these lessons are Swati Dhingra (LSE) not being heeded or perhaps cannot be applied in Europe today Keith Head Additional analysis of the issue is available through Prof. Crafts’ working (University of British Columbia) paper, ‘Is Secular Stagnation the Future for Europe?’ (CAGE working Gianmarco Ottaviano (LSE) paper no. 225), available via the CAGE website. Henry Overman (LSE) Highlights from his keynote speech: Davide Suverato (Munich) • Short-term secular stagnation involves the need to employ Holger Breinlich (Essex) negative real interest rates to raise demand. The policy antidote when nominal interest rates cannot be further reduced is to raise inflationary expectations. Though the ways to do this are well Topics included: known, the design of the Eurozone precludes their use. The Euro Product Mix and Firm Productivity Area is almost uniquely ill -equipped to use policy stimulus to Responses to Trade Competition escape from a liquidity trap, and so the region finds it difficult to Skill Scarcity, Wages, and Export escape from the doldrums. Performance • In long-term secular stagnation, growth is suppressed by a failure Brands in Motion: to create or use technological innovations. Technological progress Estimating Multinational Frictions in is likely to be quite rapid over the next 20 years - especially the Car Industry through the computerisation of employment which will provide investment opportunities as well as productivity growth if its The Effects of Spatially Targeted diffusion is not impeded. The real challenge for Europe will be to Enterprise Initiatives: Evidence adjust to the job losses that this will entail. from UK LEGI • European countries still have considerable scope to grow through Swimming Upstream: Inputs and reducing productivity gaps and catching up the United States. Product Adoption in India. For many European economies, supply side reforms could significantly improve growth performance if they were politically The event was organised by CAGE acceptable. research associates and Warwick • Secular stagnation is not foreordained. If either variety prevails in faculty Natalie Chen, Guillermo the Eurozone, it will be a result of policy failures. Noguera and Dennis Novy.

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Why Are You Picking on Me? From the CAGE Blog The Problem of Fairness in The CAGE blog carries news and discussion of CAGE research on Divided Societies long-run growth and development, the influence of beliefs and Authors: David Hugh-Jones, of the cultures, political economy, and economic policy. University of East Anglia, and Carlo Recent features, available at: blogs.warwick.ac.uk/cage/ include: Perroni, a professor in the Economics Department at The University of Warwick Does Market Size Matter Also for Charities? and a CAGE internal associate. No.244 Authors: Kimberley Scharf, professor in the Economics Department at The The provision of public goods is essential University of Warwick and CAGE research associate, and her co-author Janne to a well-functioning community. Public Tukiainen of the Vatt Institute for Economic Research. No. 226 goods begin with basic things like security, justice, and roads. Everyone When economists look at profit-making show that when organisations such as benefits from these, but sometimes firms, a common expectation is that, as charities pursue other goals than profit, it is hard to make sure that everyone market size increases, the number of there is no reason to expect their size to contributes fairly. In a well-established firms in the market can be expected to grow as the market size increases. conventional view, the state can force increase, but less than in proportion so The paper confirms this insight by looking people to contribute. Self-governing that firm size increases too. at five charitable markets for local public communities, which lack an external This matters to the consumer because goods in Canada. They find that the state, must find other ways to sanction size is double-edged. Larger firms can main effect of increasing market size is free-riders, and this is hard because economise on overhead costs and so an increasing number of charities, with individuals will also shirk the hassle of sell to the consumer at a lower price, so no increase in average size. Rather, the punishing others’ bad behaviour. So, the consumer gains. But larger firms also market grows by the formation of new these communities face a ‘second-order, have more market power. This creates charities, keeping their average size small. free-riding problem’. the risk for society that larger firms will But larger charities, like larger firms, The authors argue that this may be raise prices and make more profits at the have the potential to be more efficient by a misdiagnosis. The coercive power consumer’s expense. economising on overheads. The risk for to prevent bad behaviour can also be How do things change when we turn to society is not that non-profit organisations abused for personal gain; real problems the not-for-profit sector? The authors look will become too large, but that they will of self-governance are about reining at the effects of market size on market tend to remain too small, with most or all in powerful majorities, as much as structure in the not-for-profit sector. They revenues eaten up by overhead costs. sanctioning wayward individuals. In reaching their conclusions, the Do Classroom Computers Enhance Student Achievement? authors examine case studies from the Gold Rush, US schools, and Indian Authors: Oliver Falck and Constantin Mange, with the Ifo Center for Industrial society. They also report results of an Organisation and New Technologies, and Ludger Woessmann, a CAGE associate, experiment in which participants were professor of Economics at the University of Munich, and director of the Ifo Center for assigned to a dominant group or an the Economics of Education at the Ifo Institute. No. 223 outgroup; when required to pay for public Most studies find little or no effect that case, adding computers would distract goods, the outgroup members were of classroom computers on student from the task and reduce achievements. disproportionately likely to be punished, achievement. However, Woessman and and in some cases, they refused to Woessman and his co-authors investigate co-authors suggest, this lack of effect increase their contributions in response the maths and science achievements might arise because of two underlying to punishment. in 2011 of over 150,000 eighth-grade effects, one positive and one negative, A pessimistic interpretation of the results students in 30 countries and nearly that offset each other. Computers should is that as our society becomes more 250,000 fourth-grade students in 53 have a positive effect on learning if varied by national and ethnic origin, it will countries. They find that classroom they enable students to do some things be harder to solve political problems of computers have a positive effect when better than before, such as search for government spending and taxation. An they are used to look up information and knowledge. They should negatively optimistic lesson is that these problems a negative effect when they are used to affect learning if they are introduced into can be eased by the transparent practise skills. These effects are larger for activities that are already done with high administration of justice, so that developed countries and for students of efficiency without computers, such as everyone pays taxes or fines according to higher social and economic status. teaching basic skills and procedures; in clear, consistently applied rules.

Department of Economics University of Warwick, Coventry CV4 7AL CAGE Newsletter Editor: Tracy Evans Tel: +44 (0) 24 7615 1176 CAGE Newsletter is published every 4 months. Fax: +44 (0) 24 7652 3032 If you would like to be added to our mailing list please email: Email: [email protected] [email protected] Web: go.warwick.ac.uk/cage Twitter @cage_warwick Designed by WarwickDesign www.designatwarwick.com

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