Studies in this week’s Hutchins Roundup find that US manufacturing firms most exposed to trade with China experienced a larger reduction in patenting, credit market distortions have larger and more persistent adverse effects when they occur during a recession, and more.
David Autor of MIT and co-authors conclude that firms in industries that have seen larger increases in import penetration from China experienced larger reductions in patenting. This phenomenon is not a result of the exhaustion of technological opportunities or rising non-disclosure of innovations but is a result of firms reducing their operations in multiple areas including R&D, they find. This suggests that US manufacturing firms, when faced with intensifying competition, make cuts across their companies instead of innovating their way out.
Using data covering 1973-2015, Regis Barnichon of the San Francisco Fed, Christian Matthes of the Richmond Fed, and Alexander Ziegenbein of Universitat Pompeu Fabra find that negative shocks to credit supply have large and persistent adverse effects on output, but positive shocks have no significant benefit unless the shock takes place during a recession. They also find that credit market distortions have larger and more persistent adverse effects during recessions, when firms have little net worth and are more sensitive to credit shortages, than during expansions.
Some health-care services, such as sleep studies and advanced imaging, are believed to be of low value and overused. Using claims data for four public companies in Oregon during 2008-2013, Jonathan Gruber of MIT and co-authors find that an increase in co-payments and co-insurance for these services significantly reduced their utilization, compared to beneficiaries who did not face increased cost-sharing for the services. In particular, for the low-value services considered in the study, the tendency to use them declined by 12% overall.
Chart of the week: Changes in utilization and the mix of health-care goods and services were the primary driver of growth in per capita national health expenditures last year
Note: Growth in the residual use and intensity of health-care goods and services reflects changes in utilization, such as the quantity of goods and services purchased, as well as changes in the mix (intensity) of those goods and services. It is measured as growth in nominal expenditures minus the effects of population growth, changes in the age and sex mix of the population, and medical price growth. Because it is a residual, it also includes any potential measurement errors.
Quote of the week: “For seven years, in the face of severe headwinds to growth, monetary policy has been the only game in town,” says Governor of the Bank of England Mark Carney.
“In sum, the macro-financial record of the ‘only game in town’ is clear. It is not just that mass unemployment and debt deflation have been avoided… All major income groups have seen their income and wealth rise. Monetary policy has offset all of the headwinds to growth arising from private deleveraging, fiscal consolidation and subdued world growth. People haven’t been made poorer; rather across major income and wealth categories, they are better off, and at the margin, surprisingly, income inequality has fallen a bit. Why, then, doesn’t it feel like the good old days? Because anxiety about the future has increased, because productivity hasn’t recovered, and, as a consequence of the latter, because real wages are below where they were a decade ago – something that no-one alive today has experienced before. The underlying reasons for the 16% shortfall of the UK’s productive capacity, relative to trend, are poorly understood.
What is clear is that the influence of monetary policy on productivity is limited. It can only stabilize demand around the economy’s potential; it cannot increase it. Boosting the determinants of long-run prosperity is the job of government’s structural, or supply-side policies. These government policies influence the economy’s investment in education and skills; its capacity for research and development; the quality of its core institutions, such as the rule of law; the effectiveness of its regulatory environment; the flexibility of its labor market; the intensity of competition; and its openness to trade and investment.”
We are all in new territory given the U.S. abdication of leadership on trade liberalization and the Trump's administration [sic] hostility to the multilateral trading system. In rescuing the TPP and finalizing the Free Trade Agreement with the European Union, Japan has delivered mega trade agreements that carry a very different meaning from when the negotiations started. They make a stand in favor of open markets, tariff elimination exercises, and codification of rules at a time when there is grave concern over the direction of the two largest economies in the world.