The Unassuming Economist

From a VOX post by Sebastian Edwards:

“In a few decades, Chile experienced dramatic economic growth and the fastest reduction of inequality in the region. Yet, many Chilean citizens feel that inequality has greatly increased. Such feelings of ‘malestar’ triggered the violent social unrest of October 2019. This paper explains this seeming paradox by differentiating ‘vertical’ (income) inequality from ‘horizontal’ (social) inequality. It argues that the neoliberalism that created Chile’s economic growth is no longer effective and that Chile may be headed towards adopting a welfare state model.

The October 2019 social explosion in Chile took everyone by surprise. The scale of protests and the violence of demonstrators had no precedent. Millions of people marched demanding change. Protesters embraced all sort of causes but one demand united them: they were against inequality and privilege. The police responded with force and were accused of multiple human rights violations.

For a long time, economists praised Chile’s market-oriented reforms. Moreover, Chile’s political system and institutions were ranked highly by think tanks such as Freedom House (2019). However, many analysts pointed out that inequality was Chile’s Achilles heel (Edwards 2010). Its Gini coefficient is one of the highest in the OECD although it has declined rapidly; during the last two decades, there has been significant progress in social conditions.

Chile went from being the poorest country in a sample of Latin American countries (jointly with Peru) to having the highest GDP per capita in the region (Figure 1). In 2016, Chile’s Gini was equal to the median in the region (Figure 2). Chile is among the countries that reduced inequality the fastest since 2000: the Gini declined from 56 to 46 between 2000 and 2016 (Figure 3). Other indicators of social progress, such as the Human Development Index,¹ rank Chile in the first place in Latin America.’

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From a VOX post by Davide Furceri, Prakash Loungani, and Jonathan D. Ostry:

“Free trade has contributed to a ‘great convergence’ of emerging market countries toward incomes in industrialised nations in recent decades. It is less clear whether free mobility of capital across national boundaries has conferred similar benefits. This column presents evidence suggesting that the gains in average incomes have been – at best – small, while increases in income inequality and the decline in the labour share of income have been significant. Financial globalisation thus poses far more difficult equity-efficiency trade-offs than free trade and should be at the centre of debates about how to make globalisation inclusive.

Even some staunch defenders of international trade have long been sceptical of the benefits of financial globalisation (e.g. Bhagwati 1998). Rodrik (1998) famously wrote that letting capital flow freely across the world would leave economies “hostage to the whims and fancies of two dozen or so thirty-somethings in London, Frankfurt and New York”. Arteta et al. (2001) concluded that any evidence of a positive impact of capital account liberalisation on growth is “decidedly fragile”, a finding that has largely held up in the literature that has followed.

Our recent work takes a fresh look at the effects of policies to liberalise international capital flows for a group of nearly 150 countries over the period 1970-2015 (Furceri et al. 2019). There are two novel aspects of our work.

• First, we look at the impact on both average (or aggregate) income as well as the distribution of income. While the potential for international trade to generate ‘winners and losers’ has long been recognised – and has been the source of much recent debate – financial globalisation has tended to go scot free of similar scrutiny.

• Second, we use industry-level data to identify some of the causal mechanisms through which financial globalisation has aggregate and distributional impacts.”

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From a paper by BMC Public Health:

“Background: Previous research shows that parental unemployment is associated with low life satisfaction in adolescents. It is unclear whether this translates to an association between national unemployment and adolescent life satisfaction, and whether such a contextual association is entirely explained by parental unemployment, or if it changes as a function thereof. For adults, associations have been shown between unemployment and mental health, including that national unemployment can affect mental health and life satisfaction of both the employed and the unemployed, but to different degrees. The aim of this paper is to analyse how national unemployment levels are related to adolescent life satisfaction, across countries as well as over time within a country, and to what extent and in what ways such an association depends on whether the individual’s own parents are unemployed or not.

Methods: Repeated cross-sectional data on adolescents’ (aged 11, 13 and 15 years, n = 386,402) life satisfaction and parental unemployment were collected in the Health Behaviour in School-aged Children (HBSC) survey, in 27 countries and 74 country-years, across 2001/02, 2005/06 and 2009/10 survey cycles. We linked this data to national harmonised unemployment rates provided by OECD and tested their associations using multilevel linear regression, including interaction terms between national and parental unemployment.

Results: Higher national unemployment rates were related to lower adolescent life satisfaction, cross-sectionally between countries but not over time within countries. The verified association was significant for adolescents with and without unemployed parents, but stronger so in adolescents with unemployed fathers or both parents unemployed. Having an unemployed father, mother och both parents was in itself related to lower life satisfaction.

Conclusion: Living in a country with higher national unemployment seems to be related to lower adolescent life satisfaction, whether parents are unemployed or not, although stronger among adolescents where the father or both parents are unemployed. However, variation in unemployment over the years did not show an association with adolescent life satisfaction.”

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