FMG

Firms in emerging markets fall to COVID-19

Economists associate the mass distress of firms during recessions with Joseph Schumpeter’s creative destruction theory, which says that during downturns small, less efficient, younger firms are the ones to exit the market. Their exit allows for more efficient firms to expand, lifting overall productivity. In a global pandemic like COVID, however, this theory may be on less certain grounds, […]

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    Less red tape, more local entrepreneurship and foreign direct investment: the path to recovery

Less red tape, more local entrepreneurship and foreign direct investment: the path to recovery

Fiscal crises such as the one spurred by the COVID-19 pandemic motivate regulatory reform, which in turn can speed up the economic recovery. Past evidence suggests that this acceleration takes place through two main channels: new local entrepreneurship and increased foreign direct investment (FDI).

Entrepreneurship is critical for the continued dynamism of the modern economy, as forcefully argued by Austrian […]

COVID-19: an opportunity to digitise property transactions

Private property rights facilitate greater access to credit. Using data on Russian businesses, a recent study finds that private land rights increase access to external financing by 40 per cent and promote larger investment by as much as 60 per cent.

When property rights are not secure, fear of expropriation may drive entrepreneurs to delay or rescind investment decisions. Researchers […]

Regulatory reforms: the silver lining after COVID-19

Governments resort to regulatory reform in difficult times, when their fiscal balances deteriorate. The COVID-19 crisis has already resulted in large fiscal deficits for 2020. These deficits are likely to worsen by the end of the year as social distancing rules stay into effect for a further period. Few firms can survive a protracted lockdown or collapsed revenues due […]

Why the UK needs a fund to support angel-backed startups

The Future Fund is the UK’s flagship programme aiming to support startups that are affected by Covid-19. The demand for the Fund has been staggering; on its first day of operation, the applications amounted to almost twice the capital committed (£250M) by the government. While the significant uptake may be construed as an indication of the fund’s success, questions […]

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    How governments can ease the entry of ‘recovery entrepreneurs’

How governments can ease the entry of ‘recovery entrepreneurs’

The focus of Covid-19 economic responses so far has been on assisting existing businesses and their employees with weathering the crisis. In particular, the priority of governments has rightly been on saving existing jobs. Little is done yet to help new companies and employment opportunities emerge. Yet we know from Joseph Schumpeter that crises are a period of creative […]

How long can firms survive in the Covid-19 crisis?

In the Covid-19 crisis, many businesses are rapidly running out of cash. In our earlier blog we reported that in the United States half of small firms – those with less than 500 employees – have cash reserves for less than a month. Restaurants, for example, have only 16 days of cash on hand.

Firms in rich countries are not […]

How to restart the economy after Covid-19

The Covid-19 crisis has brought many sectors of the global economy to a halt. Firms in these sectors have no revenues while the lockdown is in place, yet they still pay salaries, rents, and debt interest. These expenditures are often deferred – including through government-sponsored programs – but rarely waived. The hiatus increases financial pressure on the firms, as […]

Introducing the Brexit readiness score

If you believe Prime Minister Theresa May the United Kingdom will be ready to exit the European Union in April 2019. If you believe UK businesses Britain is falling behind in its preparations. The next round of Brexit negotiations, and the first since the summer recess, was delayed by a week to September 25, 2017, suggesting that businesses may […]

Why do bankers earn so much more than other professionals?

Are bankers overpaid? Do they have special qualities that make them deserve to earn more than other professionals? In this video interview, LSE professor Ulf Axelson explores why pay is so high on Wall Street relative to normal jobs.

Here is part of his answer: “(It’s) due to a combination of two characteristics of many of the types of jobs you have […]

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    Data on electricity demand shows a slowdown in manufacturing post-Brexit

Data on electricity demand shows a slowdown in manufacturing post-Brexit

Like many others we were frustrated about the absence of both reliable and (almost) real-time economic indicators about the true state of the economy post-Brexit. Survey data was plentifully available, but often contradicted itself, and appeared to be heavily biased towards the political leaning of the sponsor. Hence, we decided to look for a truly independent and reliable indicator, […]

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    What Donald Trump could do to ‘make America great again’ without destroying free trade

What Donald Trump could do to ‘make America great again’ without destroying free trade

US flag, by unsplash.com, under a CC0 licence
For nearly two years, unsettling comments by US presidential candidates rattled international investors. The prospect of US trade wars with China and Mexico hit global markets, already weakened by the surprising result of the Brexit referendum. The elections ended, but the financial community still cannot breathe a sigh of relief.

In order to calm […]

Low volatility makes a financial crisis more likely

Received wisdom maintains that financial market volatility has a direct impact on the likelihood of a financial crisis. Perhaps the best expression of this is Hyman Minsky’s (1992) hypothesis that economic agents observing low financial risk are induced to increase risk-taking, which in turn may lead to a crisis. This is the foundation of his famous statement that ‘stability […]

Is Europe spending too much?

The eurozone crisis, the rise of nationalist parties across Europe and the Brexit vote have all pointed to significant vulnerabilities in the European social model. Europe is home to only 8 per cent of the world’s population, yet it produces 50 per cent of global social payments (public pensions, healthcare benefits, maternity leave and associated benefits, public education and […]

How demography influences monetary policy

There are three main longer term factors that determine how our economy performs. These are:

Population trends (demography);
Technical know-how (innovations);
How we manage ourselves (governance and education).

There is debate whether innovation is currently slowing or accelerating, and governance questions are always with us. But this blog is primarily about demography, and its influence on monetary policy, largely taken from a joint paper  […]