In this paper, we study the effects of economic integration with democratic partners on democracy. We assemble a large country-level panel dataset from 1960 to 2015, and exploit improvements in air, relative to sea, transportation to derive a time-varying instrument for economic integration. We find that economic integration with democracies increases countries’ democracy scores, whereas the impact of economic integration with non-democracies is muted. Results are stronger when democratic partners have a longer history of democracy, grow faster, spend more on public goods, are culturally closer, and export higher quality goods. The effects we document are driven by imports, rather than exports, and by integration with democratic partners that account for a larger share of a country’s trade in institutionally intensive, cultural, and consumer goods, as well as in goods that involve more face-to-face interactions and entail higher levels of bilateral trust. These patterns are consistent with economic integration favoring the transmission of democracy by signaling the (actual or perceived) desirability of democratic institutions. Alternative mechanisms—including human capital accumulation and economic growth—cannot, alone, explain our findings.

Public debt ratios in Europe increased significantly in response to the pandemic and energy shocks and have remained higher than before the pandemic in most countries. Going forward, the projected public debt trajectories are broadly flat overall in advanced Europe but have a rising profile in emerging Europe. Government financing needs are still elevated, and the unwinding of quantitative easing by major central banks adds to financing pressures. Moreover, there are important medium- to long-term spending pressures from defense, climate transition, and aging, which are not fully reflected in the projected baseline trajectories. Against this backdrop, the risk that debts will not stabilize in the medium term has increased. Debt stabilization will hinge critically on achieving ambitious fiscal consolidation and sustained growth. Facing these elevated risks, policymakers need to implement carefully-calibrated fiscal adjustments that ensure debt sustainability while supporting growth. They could target debt stabilization over a longer, 10-year, horizon—while adhering to credible fiscal rules such as the reformed EU Economic Governance Framework—but with a high probability to reassure markets that debts will indeed be tamed.

Asia and the Pacific’s green transition will have far-reaching implications for the global economy. Over the past decades, the region has become the engine of global economic growth. With relatively heavy reliance on coal and high energy intensity, the region has recently become the largest contributor to growth in global GHG emissions, accounting for nearly 40 percent of the total emissions in 2020. Achieving net zero by 2050 requires an energy transition at an unprecedented scale and speed, even as the region must ensure energy security and affordability. The region must also address its vulnerability to climate change as it comprises many countries highly exposed to climate hazards increasing in severity and frequency with global warming. If managed well, the green transformation in Asia and the Pacific will create opportunities for economies not only in the region, but also around the world for inclusive and sustainable growth. The global economy is still far from achieving net zero by 2050, and the Asia and the Pacific region must play its part to deliver on mitigation and adaptation goals. Understanding Asia’s perspectives on the constraints and issues with climate ambitions, climate policy actions, and constraints is central for devising climate strategies to meet climate goals. To this end, this chapter draws on novel surveys of country authorities and public in the region to distill climate ambitions and challenges faced and identify sources of major gaps in achieving mitigation and adaptation goals. Measures to help close the gaps are drawn from policy discussions with country authorities in bilateral surveillance and related studies.

Building public support for climate mitigation is a key prerequisite to making meaningful strides toward decarbonization and achieving net-zero emissions. Using nationally representative, individual-level surveys for 28 countries, this paper identifies the current levels and drivers of support for climate mitigation policies. Controlling for individual characteristics, we find that pre-existing beliefs about policy efficacy, perceived costs and co-benefits (e.g., cleaner air), and the degree of policy progressivity are important drivers of support for carbon pricing policies. The knowledge gap about climate mitigation policies can be large, but randomized information experiments show that support increases (decreases) after individuals are introduced to new information on the benefits (potential costs) of such policies.

Building public support for climate mitigation is a key prerequisite to making meaningful strides toward implementing climate mitigation policies and achieving decarbonization. Using nationally representative individual-level surveys for 28 countries, this note sheds light on the individual characteristics and beliefs associated with climate risk perceptions and preferences for climate policies. Preexisting beliefs regarding policy efficacy, costs and benefits, and progressivity are important drivers of support for carbon pricing. Public acceptability of carbon pricing increases if revenues are used to address distibributional concern or to subsidize green infrastructure and low-carbon technologies. Information experiments highlight the importance of improving support for policies with salient information on policy efficacy and co-benefits. The surveys suggest that securing cooperation among countries could induce greater political support for climate action.

This paper examines the potential persistent effects (scarring) of the COVID‐19 pandemic on the economy and the channels through which they may occur. Our findings from a broad set of historical recessions confirm that recessions are associated with persistent output losses and that the greatest scarring has occurred following financial crises. The amount of scarring following pandemic and epidemic recessions in the sample is in between that of typical recessions and financial crises. Results on the channels show that the productivity channel is important, as all types of recessions have been followed by persistent losses to total factor productivity.

We examine the spillovers from sectoral shocks across sectors, countries, and over time. Using a large cross-country sample from 1995 to 2014 with detailed sectoral information, we show that supply and demand shocks propagate upstream and downstream in the production and distribution network, both domestically and abroad. We estimate substantial domestic sectoral spillovers in our global sample, and find foreign spillovers to be sizeable as well. We document a persistent effect of negative shocks, especially supply shocks coming from the same sector, on a sector’s share in aggregate gross value added in a country. We also illustrate our results by quantifying the significant role spillovers played in amplifying the sectoral shocks associated with the COVID-19 pandemic. Our findings have implications for the design of policies with a sectoral dimension, such as the allocation of sector-specific public investment.

How will an aging population affect fiscal policy and government debt? To answer this question, I develop a dynamic model with voting on fiscal policy, entitlements for the elderly, and defaultable sovereign debt. Contrary to existing results derived under risk-free debt, I show that the demographic shift leads to a decline in government debt. The reason is that sovereign default risk increases as the population ages. The consequent rise in interest rates reduces the government’s incentive to borrow and ensures that debt remains sustainable, though at the cost of recurrent tax hikes and severe cuts to entitlements. An international lending facility that allows the government to borrow at a low fix rate eventually exacerbates the welfare costs of population aging. In contrast, increasing the minimum retirement age improves the welfare of future generations. 

Sovereign debt spreads are very responsive to political uncertainty. We rationalize this empirical observation in a model where creditors learn the hidden propensity to honor debt obligations from government actions over time. We assume alternation in power of two types of government facing different costs of default on debt. Market participants do not know which type they are facing in each period. They form beliefs about it, which are updated according to observed fiscal policy decisions and political transition probabilities. We derive the conditions for the existence of pooling and separating equilibria on default and borrowing choices. As lenders beliefs about facing a government with low default costs strengthen, sovereign spreads increase, causing a contraction in public borrowing and spending. A version of our model calibrated to the Italian economy shows that the asymmetric information amplifies the increase in the level and the volatility of spreads stemming from political turnover, with negative implications for welfare.