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Annual Review of Economics - Volume 15, 2023
Volume 15, 2023
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Global Risk, Non-Bank Financial Intermediation, and Emerging Market Vulnerabilities
Vol. 15 (2023), pp. 549–572More LessOver the last two decades, the unprecedented increase in non-bank financial intermediation, particularly the rise of open-end mutual funds and exchange-traded funds, accounts for nearly half of the external financing flows to emerging markets, exceeding cross-border lending by global banks. Evidence suggests that investment fund flows enhance risk sharing across borders and provide emerging markets access to more diverse forms of financing. However, a growing body of evidence also indicates that investment funds are inherently more vulnerable to liquidity and redemption risks during periods of global financial market stress, increasing the volatility of capital flows to emerging markets. Benchmark-driven investments, namely passive funds, appear particularly sensitive to global risk shocks, such as tightening US dollar funding conditions, compared to their active fund counterparts. The procyclicality of investment fund flows to emerging markets during times of global stress poses financial stability concerns, with implications for the role of macroprudential policy.
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Competition and the Industrial Challenge for the Digital Age
Vol. 15 (2023), pp. 573–605More LessTech giants' dominance does not confront us with an unpalatable choice between laissez-faire and populist interventions. This article takes stock of available knowledge, considers desirable adaptations of regulation in the digital age, and draws some conclusions for policy reform.
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Local Projections for Applied Economics
Vol. 15 (2023), pp. 607–631More LessThe dynamic causal effect of an intervention on an outcome is of paramount interest to applied macro- and microeconomics research. However, this question has been generally approached differently by the two literatures. In making the transition from traditional time series methods to applied microeconometrics, local projections can serve as a natural bridge. Local projections can translate the familiar language of vector autoregressions and impulse responses into the language of potential outcomes and treatment effects. There are gains to be made by both literatures from greater integration of well-established methods in each. This review shows how to make these connections and points to potential areas of further research.
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Gender Differences in Negotiation: Can Interventions Reduce the Gap?
Vol. 15 (2023), pp. 633–657More LessGender differences in negotiation are seen as contributing to the persistent gender gaps in labor market outcomes. We review the literature on interventions aiming to mute differences in negotiation and assess their effectiveness in reducing the gender pay gap. We present research on initiatives that aspire to increase how often and how women negotiate, as well as institutional changes that ban negotiations, ban requests for employee salary history, and improve wage transparency. Along with reviewing evidence on the effectiveness of these initiatives, we point to unintended consequences that warrant caution at implementation. The review makes clear that initial efforts to push women to negotiate more like men have shifted to alter instead the conditions of the negotiation. This shift results not only from wanting to consider policies that “fix the institutions” rather than “fixing the women,” but also from evidence that these interventions are more successful in securing pay equity.
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Text Algorithms in Economics
Vol. 15 (2023), pp. 659–688More LessThis article provides an overview of the methods used for algorithmic text analysis in economics, with a focus on three key contributions. First, we introduce methods for representing documents as high-dimensional count vectors over vocabulary terms, for representing words as vectors, and for representing word sequences as embedding vectors. Second, we define four core empirical tasks that encompass most text-as-data research in economics and enumerate the various approaches that have been taken so far to accomplish these tasks. Finally, we flag limitations in the current literature, with a focus on the challenge of validating algorithmic output.
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The Portfolio of Economic Policies Needed to Fight Climate Change
Vol. 15 (2023), pp. 689–722More LessClimate change poses an existential threat. Theoretical and empirical research suggest that carbon pricing and green R&D support are the right tools, but their implementation can be improved. Other policies, such as standards, bans, and targeted subsidies, also all have a role to play, but they have often been incoherent, and their implementation is delicate.
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The Economics of Tropical Deforestation
Vol. 15 (2023), pp. 723–754More LessTwo factors have elevated recent academic and policy interest in tropical deforestation: first, the realization that it is a major contributor to climate change; and second, a revolution in satellite-based measurement that has revealed that it is proceeding at a rapid rate. We begin by reviewing the methodological advances that have enabled measurement of forest loss at a fine spatial resolution across the globe. We then develop a simple benchmark model of deforestation based on classic models of natural resource extraction. Extending this approach to incorporate features that characterize deforestation in developing countries—pressure for land use change, significant local and global externalities, weak property rights, and political economy constraints—provides us with a framework for reviewing the fast-growing empirical literature on the economics of deforestation in the tropics. This combination of theory and empirics provides insights not only into the economic drivers and impacts of tropical deforestation but also into policies that may affect its progression. We conclude by identifying areas where more work is needed in this important body of research.
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Biodiversity: A Conversation with Sir Partha Dasgupta
Vol. 15 (2023), pp. 755–773More LessThis conversation with Sir Partha Dasgupta, moderated by Annual Review of Economics Editorial Commitee Member Tim Besley, focuses on biodiversity and its implications for economic thought and policy. A video of this interview is available online at https://www.annualreviews.org/r/partha_dasgupta_interview.
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