Debt Overhang

Jointly with Martin Brown of St Gallen University, we have written a new World Bank working paper “Debt Overhang in Emerging Europe?“.  (This is a background paper for a forthcoming World Bank report “Golden Growth: Restoring the Lustre of the European Economic Model.”)

While the main focus is on emerging Europe, there is also a fair amount of comparative data for the Euro area periphery; in addition, there is an extensive literature review on debt overhang issues.

Summary: This paper assesses the extent to which debt overhang poses a constraint to economic activity in Emerging Europe, as the region emerges from the recent financial and economic crisis. At the macroeconomic level, it finds that the external imbalance problem for Emerging Europe has been in most cases more one of flows (high current account deficits in the pre-crisis years) rather than large stocks of external debt. A high reliance on equity funding means that net external debt is far lower than net external liabilities. Domestic balance sheets have expanded quite rapidly but sector liabilities remain relatively low compared with advanced economies. With the important exception of Hungary, public debt levels also remain relatively low in Emerging Europe. At the microeconomic level, the potential for debt overhang in the corporate sector is limited to a few countries: Latvia, Lithuania, Estonia, and Slovenia. Due to the low incidence of household debt, hardly any country, except Estonia, seems to face a threat of debt overhang in the household sector. The strong increase in non-performing loans compared with pre-crisis bank profitability suggests that debt overhang in the banking sector is a threat in Ukraine, Latvia, Lithuania, Hungary, Georgia, and Albania. Financial integration of Emerging Europe seems to have contributed to the transmission of the crisis to the region. At the same time, this integration is helping the region in managing the crisis by concerted actions of the major players.

Planes, Trains and Automobiles

I do not have time to fully develop this point but there have been several media reports in recent times on the adverse impact of Ireland’s improved road network on the demand for inter-city air travel and train travel within Ireland.  These reports focus on the negative impact on the suppliers of air and train travel and the requests for increased public funding to upgrade air and train networks to compete.  However, the more direct public-interest interpretation is that part of the payoff to the major investment in the road network is that fewer resources need to be absorbed by providing air and train links where the road network now dominates. (If it turns out that environmentally-optimal road pricing would call for more trains and planes, that is a valid argument. But to justify extra investment just on the basis of losing market share to the road network is not a strong argument in itself.)

An instructive fictional guide for the young economist

Readers may be interested in this new novel.  (Amazon link is here.)

Ireland’s economists in the world

I’ve taught myself the black art of web-scraping.

There are many rankings of economists and economics departments. IDEAS/RePEc uses a reasonable method and is kept up to date. It also provides rankings by and of countries. Ireland is now ranked 33rd in the world. Ireland’s economists are thus about as good as its soccer players (ranked 31st).

It wasn’t always thus. IDEAS/RePEc has published country rankings since 2005. Ireland’s position has steadily improved over time, as can be seen from this graph. As a number of economists are planning to emigrate, that trend may reverse.

World Bank: The Impact of Economics Blogs

This new World Bank Policy Research working paper looks at the impact of economics blogs

Summary: There is a proliferation of economics blogs, with increasing numbers of economists attracting large numbers of readers, yet little is known about the impact of this new medium. Using a variety of experimental and non-experimental techniques, this study quantifies some of their effects. First, links from blogs cause a striking increase in the number of abstract views and downloads of economics papers. Second, blogging raises the profile of the blogger (and his or her institution) and boosts their reputation above economists with similar publication records. Finally, a blog can transform attitudes about some of the topics it covers.