The Unassuming Economist

From a paper by M. Shabri Abd. Majid, F. Faisal, Heru Fahlevi, Maulidar Agustina, A. Azhari, Y. Yahya & Z. Zulkifli:

“Micro, small, and medium enterprises (MSMEs) are widely recognized as key drivers of entrepreneurship and inclusive growth; however, their effectiveness in reducing poverty depends more on the quality of productivity improvements than on the expansion of firm numbers alone. This study investigates how entrepreneurial productivity, measured by total factor productivity (TFP) and its components—efficiency change and technological progress—affects poverty both directly and through the sequential roles of human development (HDI) and economic growth. Using 2,070 panel observations from six sectors across 23 districts in Aceh, Indonesia (2010–2024), productivity is estimated through the Malmquist Index within a Data Envelopment Analysis (DEA) framework. Direct, single, and sequential mediation effects are examined using the Baron and Kenny approach and estimated via Estimated Generalized Least Squares (EGLS) with Seemingly Unrelated Regression (SUR) adjustments. The findings reveal heterogeneous effects across productivity components, highlighting asymmetric transmission mechanisms in which different dimensions of productivity influence poverty through distinct pathways. Increases in TFP and technological progress are associated with reductions in poverty (β ≈ 0.135–0.311), whereas efficiency change is linked to higher poverty levels (β ≈ − 0.117 to − 0.226), reflecting short-term adjustment costs from structural changes. Economic growth emerges as the primary transmission channel, while HDI does not exert a direct effect but significantly strengthens the impact of productivity when it precedes growth in the causal sequence. The strongest poverty reduction occurs when productivity first improves human development and subsequently stimulates economic expansion. Technological progress exhibits mixed effects depending on the mediation pathway, indicating uneven distributional outcomes. Overall, the results suggest that productivity gains do not automatically lead to inclusive welfare improvements. Policy efforts should therefore prioritize innovation-driven and stable productivity growth while mitigating the adverse social effects of abrupt efficiency adjustments. This study contributes by demonstrating that different dimensions of entrepreneurial productivity generate distinct development outcomes and by proposing a sequential mediation framework that explains why some productivity gains alleviate poverty while others intensify it.”

From a VoxEU post by Pablo García Guzmán, Anton Grahed, Beata Javorcik, and Helena Schweiger:

“The pursuit of export-led growth through manufacturing has become increasingly difficult in the face of growing global competition. A shift towards service export-led growth offers new opportunities, but it also demands investments in human capital, infrastructure, and institutional capacity. This second column in a three-part series explores the emerging service export model, its potential for growth, and the policy strategies needed for countries in the EBRD regions to successfully navigate this transition.”

From a paper by Hao-Chang Yang, Gen-Fu Feng, and Xia Chen:

“This study uses unbalanced panel data from 43 developed and emerging market economies from 1985 to 2021 to examine the different effects of geopolitical risks on cross border capital flows. The findings reveal the following: First, developed economies are largely insulated from geopolitical shocks and exhibit a statistically significant risk aversion effect only in the low tail of the capital flow distribution, primarily preventing severe capital outflows during turbulent periods. Second, emerging and developing economies experience sharp declines in FDI and significant increases in FPI when geopolitical risks rise, reflecting speculative hot money seeking risk premiums rather than fundamentals driven capital. Third, a structural break analysis reveals that the 2008 financial crisis shifted global capital logics, causing mature economies to lose their immunity to FDI withdrawals while emerging markets increasingly attract FDI through supply chain restructuring. Fourth, heterogeneity analysis shows that higher FinTech penetration in emerging markets unexpectedly increases the negative effect of geopolitical risks on FDI by lowering withdrawal costs, whereas capital account restrictions mitigate these declines. These findings underscore how geopolitical fragmentation reshapes the composition of global finance, suppressing productive capital and fueling speculative volatility.”

From a paper by Sam Peltzman:

“I document a sudden, sharp and historically unprecedented decline in self-reported happiness in the US population. It occurred during 2020, the year of the Covid pandemic, and mainly persists through 2024. This happiness crash spread across nearly all typical demographics and geographies. The happiest groups pre-Covid (e.g., whites, high income, well-educated and politically/ideologically right-leaning) tend to show the largest happiness reductions. The glaring exception is marital status, which has consistently been an important marker for happiness. The already wide happiness premium for marriage has, if anything, become slightly wider. With both married and unmarried reporting large declines in happiness the country has become segregated: slightly over half-the married adults-remain happy on balance; the unmarried, nearly half, are now distinctly unhappy. I also show that across a number of aspects of personal and social capital post-Covid deterioration is the norm, including a collapse of belief in the fairness of others and of trust in the US Supreme Court.”

From a paper by Giuseppe Pio Dachille, Antonio Dalla Zuanna, Monica Paiella, and Eliana Viviano:

“We quantify how the employment expansion accompanying Italy’s post-pandemic recovery mitigated the distributional consequences of the contemporaneous surge in prices, which disproportionately affected households at the bottom of the expenditure distribution. Using linked administrative employment records and household survey and expenditure data, we examine labour income dynamics, employment transitions, differential inflation exposure, and the redistributive role of the tax–benefit system for Italian households without pension or self-employment income over 2018–2023. Despite elevated inflation, households in the lowest expenditure quintile experienced gains in real labour income, whereas those higher in the distribution did not. The decline in inequality is driven primarily by employment entry among previously non-employed household members, while adjustments among continuously employed workers played a limited role. Extensive-margin gains reflect stronger demand for low-skilled labour rather than differential labour-supply responses to inflation. Microsimulations indicate that fiscal measures cushioned disposable incomes at the bottom but did not alter the central role of employment growth in shaping distributional outcomes.”