Monthly Archives: September 2017

Kent Workshop on Networks in Economics

On Friday 29 September, the School of Economics hosted a workshop on the economics of networks. Organised by Nizar Allouch and Bansi Malde, the workshop brought together leading researchers working on both theoretical and empirical topics within this area. The speakers were Sanjeev Goyal (Cambridge), Yann Bramoullé (Aix-Marseille School of Economics), Gabrielle Demange (EHESS and Paris School of Economics), Cynthia Kinnan (Northwestern), Friederike Mengel (Essex) and Julien Labonne (Oxford).

Overall, the workshop was a success, with around 40 attendees from the School, and from other UK universities including Warwick, Queen Mary, Oxford, East Anglia, Bristol, Leicester, Essex and Middlesex Business School. 

See the programme of the workshop here.

Thank you to Nizar Allouch and Bansi Malde for organising the workshop.

Dr Zaki Wahhaj

Expert comment: Female Rohingya refugees at risk of forced marriage

Dr Zaki Wahhaj from the School of Economics discusses the risk that young female Rohingya refugees are at increased risk of forced marriage as a result of their plight.

‘In recent weeks the plight of Rohingya refugees who have arrived in Bangladesh to escape violence in the Rakhine province of Myanmar has received wide coverage in the international news media. The United Nations has documented graphic accounts of sexual violence against Rohingya women and girls by Myanmar security forces.

‘Nearly half of the 400,000 Rohingya refugees who have arrived in Bangladesh are children and, according to the Unicef, over 1,200 “unaccompanied children are at particular risk for human trafficking, sexual abuse, child labor and child marriage.

‘The Rohingya refugees are in a part of the world where a family’s sense of ‘honour’ is often tied to the perceived ‘purity’ of their daughters and brides. And, in a political conflict, this cultural belief can be turned into a weapon to be used against the adversary.

‘Even in normal times, arranged marriages for adolescent girls is widely prevalent in South Asia used as a means to protect them against ‘sexual dishonour’, but families experiencing distress (particularly due to natural disasters) are even more prone to marry off young daughters to reduce their economic burden.

‘Therefore, the Rohingya children who have recently arrived in Bangladesh, even those accompanied by their families, face a high risk of early marriage. Recent research has documented that it has adverse life-changing consequences for the girls who experience it.  Ongoing interventions in Bangladesh suggests that a possible solution to minimizing these risk is the creation of safe spaces for adolescent girls within the refugee camps, providing education and training under the supervision of aid agencies.’

-ENDS-

Article by Dan Worth, University of Kent Press Office

Dr Maria Garcia-Alonso

Expert comment: Brexit could affect global efforts to control arms trade

Dr Maria Garcia-Alonso, a senior lecturer in economics, comments in response to Michael Fallon’s statements that the UK will “spread its wings across the world” with defence and arms exports post-Brexit.

‘As the arms trade is exempted from agreements to limit exports subsidies, governments are free to promote their arms exports in a variety of ways. While the government has to wait to negotiate other trade agreements until Brexit comes into effect, it remains free to promote arms trade deals around the world.

‘In a world where countries are free to subsidise exports, there are increased incentives to set laxer controls over the technologies they export and their target recipients. Each individual country looking after its own interest and thinking “if I don’t sell someone else will” leads to a worse result for all countries involved. A way out of this situation is credible coordination among exporter countries. Some of the UK main competitors in the arms trade are also EU countries with whom the UK agreed an arms export control regime.

‘The Arms Trade Treaty  was the first international agreement aimed to control conventional arms proliferation by encouraging groups of exporting countries to coordinate their exports decisions and avoid undercutting each other. Brexit casts a long shadow over this only incipient effort to resolve a difficult coordination problem.

‘Failure to find a way to protect this aspect of security in the Brexit negotiations will likely lead to a more uncertain world.’

-ENDS-

Article by Dan Worth, University of Kent Press Office

Dr Maria Garcia-Alonso

Economic consequences of non-export control

Dr Maria Garcia-Alonso was a guest lecturer at the Third EU Summer University on Strategic Trade Control and Non-Proliferation in Alpbach, Austria from 9-16 August. The event was part of the EU Partner-to-Partner Export Control Programme for dual use goods (https://export-control.jrc.ec.europa.eu/). The European Union is a long-standing provider of capacity-building activities aimed at the overall strengthening of export controls worldwide.

In her lecture entitled ‘Economic consequences of non-export control’, Maria highlighted the different objectives of the parties involved in the trading of arms and dual use goods, and illustrated the need for effective and credible international co-ordination. She also described some interesting trends regarding the changing nature of trade in these goods and the challenges involved when regulating in a changing technological and security environment.

Overall, the event explored examples of current international developments and helped to understand emerging issues for strategic export controls such as additive manufacturing, synthetic genomics and drones. In particular, new geopolitical challenges, the current difficult security situation in various regions of the world as well as challenges in enhancing the global governance of export controls on dual use items were touched upon or discussed in greater detail during the sessions. The concerns posed by the present situation in the Democratic People’s Republic of Korea were discussed. In this regard, a further fine-tuning of export control modalities was deemed as necessary for deterring or halting the various sources of WMD proliferation.

 

 

Allocative efficiency of UK firms during the Great Recession

by Florian Gerth, discussion paper KDPE 1714, September 2017.

Non-technical summary:

Research shows that financial crises are accompanied by severe and long-lasting drops in TFP. The most recent Global Financial Crisis does not seem to be any different from this pattern. On the contrary, Gerth and Otsu (2017) find significant correlations between financial variables and long-lasting drops in aggregate productivity measures for a myriad of European countries. This finding matches a branch of structural models that saw their advent in the aftermath of the financial crisis that began by the end of 2007. Even though each of these models chooses different measures to indicate financial distress in the economy, the mechanism how a financial shocks propagates is uniform. That is, through resource misallocation. This study therefore tries to empirically determine whether these models are valid to explain the behaviour of the UK economy during the last 8 years. In order to do this, the paper relies on the FAME dataset. This is a micro-level dataset that contains more than 9 million firms within the UK.

The first technique to quantitatively assess the effect of within-industry resource misallocation on aggregate TFP, the methodology developed by Hsieh and Klenow (2009) is used. The authors build a standard model of monopolistic competition extended by generic tax rates which formally shows that frictions distorting the MRP of capital and/or labour lead to the misallocation of production factors and ultimately lower aggregate TFP. The second methodology is the productivity decomposition technique by Olley and Pakes (1996). Compared to the former model whereby misallocation is determined through the dispersion of firm-level MRPs within an industry, Olley and Pakes assume misallocation once high-productivity firms posses less relative market share than low-productivity firms.

The results are surprising. That is, while the manufacturing sector recovers three periods after the beginning of the crisis, the service sector drives the severe and long-lasting drop in aggregate TFP in the UK from 2008 to 2014. Therefore, analysing only the manufacturing sector leads to spurious results. Second, resource misallocation does not account for the drop in sectoral TFP of any of these sectors and therefore fails to explain the drop in aggregate productivity. Third, the drop in aggregate TFP is due to low-productivity firms entering and high-productivity leaving the sample.

Observing turnover for the manufacturing and the service sector highlights the fourth finding. That is, the pattern of firm dynamics in and out of the sample is the same for both sectors. And last, the financial sector, as part of the service sector, drives productivity levels and firm dynamics of the service sector. These findings conclude that structural models that rely on the static misallocation mechanism of firms within industries to explain low-levels of TFP fail to represent the behaviour of the UK economy during the Great Recession in the UK.

You can download the complete paper here.

Firm Dynamics, Dynamic Reallocation, Variable Markups and Productivity Behaviour

by Anthony Savagar, discussion paper KDPE 1713, August 2017.

Non-technical summary:

Traditionally macroeconomists assume that the number of firms in an economy adjusts instantaneously to arbitrage profits. This assumption ignores ‘slow’ fluctuations in firm entry and exit over the business cycle. This paper develops a model of firm dynamics in the macroeconomy with sunk costs that cause firms to respond slowly to economic shocks, hence entry and exit decisions are non-instantaneous. The resulting firm adjustment towards zero profit causes endogenous fluctuations in profits, competition and business allocation that helps to explain business cycle productivity dynamics.

The paper studies how firm entry determines macroeconomic productivity through division of resources and competitive pressure on markups. Recent research examines the importance of firm entry for macroeconomic productivity, but the arguments focus on instantaneous firm entry. I argue that this overlooks the changing allocation of business as firms adjust intertemporally. My contribution is to combine this dynamic firm entry with endogenous markups (markups determined by competition). The result is a new trade-off: an exiter reduces industry competition which reduces incumbents’ productivity, but exit reallocates business to incumbents who improve productivity through better returns to scale (vice-versa for entry which raises competition, but steals business reducing scale). The mechanism helps to clarify productivity puzzles. It explains that economic shocks cause exacerbated productivity responses that weaken as firms adjust, and entry/exit effects on competition prevent reversion to previous long-run outcomes.

The main finding is that firm competition from entry ameliorates short-run productivity volatility but in the long run productivity effects persist because of structural changes to competition.

You can download the complete paper here.

Sophia Davidova awarded fellowship of EAAE

On Friday 1 September, Sophia Davidova, a Professor in European Agricultural Policy from the School of Economics, became a Fellow of the European Association of Agricultural Economists (EAAE).

Professor Sophia Davidova has been a longstanding member of the EAAE, first becoming a member of the Board in 1996 and serving on it for nine years. She has also been on the steering committee of EuroChoices for six years and has been a valuable support for the journal through her reviews of articles.

To celebrate Sophia’s numerous and valuable contributions to the field of agricultural economics, she was awarded Fellowship of the EAAE. The School of Economics would like to congratulate her on this fantastic achievement.