Kiel Institute for the World Economy

We construct currency portfolios based on the premise that exchange rates gradually converge toward their equilibrium levels, yielding three key findings. First, this convergence can be leveraged to build profitable portfolios. Second, the slow rate of convergence over shorter horizons aligns with the sustained profitability of carry trade strategies, where investors borrow in low-yield currencies and invest in high-yield ones. Third, incorporating the predictive insights of equilibrium exchange rates can boost the performance of carry trade strategies.

Although research on the impact of foreign direct investment and low-carbon development in target nations has received attention, studies exploring the influence mechanisms of foreign direct investment on low-carbon development from the perspectives of environmental regulation and human capital, as well as the linear and especially nonlinear relationships between these variables, remain scarce. Rooted in the “pollution paradise” hypothesis, the “pollution halo” hypothesis, and the Porter hypothesis, this paper aims to verify the positive impact of foreign direct investment on low-carbon development in China’s manufacturing sector and the positive moderating roles of environmental regulation and human capital in this process, while further analyzing the threshold characteristics of these moderating effects. Based on panel data from 30 provinces in China from 2003 to 2022 and using fixed effects and threshold effects models, this study finds that: First, foreign direct investment promotes low-carbon development in China’s manufacturing sector, and so can environmental regulation and human capital. Second, as the intensity of environmental regulation intensifies, the promoting effect of foreign direct investment on low-carbon development in China’s manufacturing sector diminishes. Third, foreign direct investment significantly promotes low-carbon development in China’s manufacturing sector only when the level of human capital reaches a certain threshold. In the context of global consensus on low-carbon development, this study provides valuable insights for policymakers and stakeholders in developing countries seeking to balance economic growth with low-carbon development.

This paper uses recent global data on book production to study their impacts on economic growth. Books are key inputs in human capital formation and knowledge flows/continuity, which impact economic growth. Our results, using data from nearly 100 nations over 2018–2021, show that books positively contribute to economic growth. This is true whether total books deposited in recognized repositories are used or when they are normalized by population. E-books are also shown to complement the effects of conventional books. The positive growth dividends over a period that encompasses the recent pandemic are insightful. In other results, internet access (and the degree of globalization) has complementary growth effects. Finally, the effects of some of the growth influences are shown to vary across the least- and most-growing nations.

This paper evaluates (i) the transmission of global uncertainty shocks to the expectations of professionals and disagreement among them and (ii) the relevance of policy choices in open economies in the context of the impossible trinity. Relying on a large set of survey data covering a wide range of expected macroeconomic outcomes for 33 countries, we establish evidence for an expectation channel of global uncertainty shocks. Global uncertainty exerts significant and adverse effects on expectations over domestic macroeconomic outcomes across the board and also frequently spills over to disagreement over these outcomes, increasing domestic uncertainty. Finally, we identify nonlinear relationships between the policy choices in an open economy and the transmission of uncertainty shocks. Policy choices affect the expected downswing in GDP in the aftermath of uncertainty shocks, the expected response of monetary policy, and the exchange rate and disagreement over future macroeconomic outcomes.

Price incentives for reducing fossil fuel related carbon emissions are an important component of effective and efficient climate policy. Current incentives stem from a mixture of energy taxes and carbon pricing (incentivizing less emissions) and diverse support measures for fossil fuels (incentivizing more emissions). We develop a net carbon price indicator that complements existing subsidy and carbon pricing indicators. It can be calculated on different aggregation levels and compared across countries. We calculate the different components and our aggregate indicator for the year 2018 and for eight countries including the worlds’ six largest emitters. Our analysis reveals large differences in net carbon prices across countries and across sectors within countries. We argue that the sectoral differences can inform about adequate national policy reforms while the aggregate national indicator can be useful for international negotiations about comparable national efforts.

Brand managers increasingly add altruistic product attributes, such as fair trade or charitable donations, to their products to account for consumers’ increasing expectations of altruistic brand behavior. Despite the extensive amount of altruistic product attributes in today’s markets, it is unclear how these attributes affect consumer decision-making in different contexts. This paper particularly examines the influence of altruistic product attributes on the compromise effect. Through five experimental studies, we provide pioneering evidence that consumers face general difficulty in accepting trade-offs involving altruistic attributes and that altruistic attributes change the compromise effect substantially. While the well-established compromise effect, predicting a preference for middle options (compromises) over extreme options, holds for trade-offs between utilitarian attributes, it diminishes for altruistic trade-offs. Moreover, the trade-offs between utilitarian and altruistic attributes reverse the compromise effect, i.e., leading to a preference for extreme options. We also demonstrate that impression management moderates this effect.

The new generation of laser-based solid-state lighting (SSL) white light sources requires new material systems capable of withstanding, diffusing, and converting high intensity laser light. State-of-the-art systems use a blue light emitting diode or laser diode in combination with color conversion materials, such as yellow emitting Ce-doped phosphors or red and green emitting quantum dots (QD), to produce white light. However, for laser-based high-brightness illumination thermal management and uniform light diffusion are still major challenges in the quest to convert a highly focused laser beam into an efficient lighting solution. Here, we present a material system consisting of a highly open porous (> 99%) framework structure of hollow SiO2 microtubes. This framework structure enables efficient and uniform light distribution as well as ensuring good thermal management even at high laser powers of up to 5 W, while drastically reducing the speckle contrast. By further functionalizing the microtubes with halide perovskite QDs (SiO2@CsPbBr3 as model system) color conversion from UV to visible light is achieved. By depositing an ultrathin (~ 5.5 nm) film of poly(ethylene glycol dimethyl acrylate) (pEGDMA) via initiated chemical vapor deposition (iCVD), the luminescent stability of the QDs against moisture is enhanced. The demonstrated hybrid material system paves the way for the design of advanced and functional laser light diffusers and converters that can meet the challenges associated with laser-based SSL applications. Graphical Abstract

Improving our understanding of future ocean carbon uptake requires a nuanced understanding of the value of the annual ocean sink. Here, we combine an abatement cost-based approach and a climate damage-based approach to assess the value of the annual ocean sink. The former shows that the aggregate cost of national climate policies could increase by up to USD 80 billion if the ocean carbon sink weakens by 10 percent. As a complementary perspective, the damage-based approach shows that the annual ocean carbon sink contributes between USD 300 billion and USD 2,332 billion to countries’ inclusive wealth. Despite the conceptual appeal of the damage-based approach for its potential insights into regional wealth redistribution, uncertainties in national social cost of carbon estimates make it less reliable than the abatement cost-based approach, which in turn provides more reliable estimates for a fiscal cost assessment of improved monitoring services of the ocean carbon sink.

Using detailed global trade and novel Multi-Region Input–Output data, this paper examines the East African Community’s (EAC) global and regional integration through trade, global, and regional value chains (GVCs and RVCs). With surgical attention to detail, the first part of the paper dissects key patterns and trends of EAC members’ participation in global and regional trade and production networks at the aggregate, bilateral, sectoral, and bilateral-sectoral levels. The second part then provides causal reduced-form evidence for the economic benefits of EAC integration through trade, GVCs, and RVCs at the sector level. Findings imply that the region is moderately integrated into GVCs and RCVs but shows no overall trend towards greater integration. Regional integration is advancing in agriculture and food processing, and Kenya is becoming a more dominant regional supplier of manufactures. Integration through trade and GVCs positively affects economic development in the region, particularly deeper forward GVC linkages in manufacturing. Deepening regional trade and forward linkages yields additional economic benefits vis-a-vis global linkages.

This study examines the dynamic relationship between China’s COVID-19 containment policies and public sentiment, focusing on the significant lockdowns in Wuhan and Shanghai. We employed natural language processing (NLP) on Weibo text data to uncover how people’s emotions towards these containment measures changed over time and space. Our analysis reveals a critical evolution in public sentiment, transitioning from initial support to growing dissatisfaction, highlighting the impact of ‘pandemic fatigue’ and the socio-economic factors influencing these shifts. This study contributes to understanding the complex interplay between public health strategies and societal reactions, providing practical insights into the spatial variations of sentiment across different demographic and socio-economic groups. By elucidating the causal effects of containment policies on public sentiment and the subsequent rise in public skepticism, our research offers valuable lessons for policymakers in tailoring communication and interventions to mitigate negative public perceptions and foster compliance during health crises.

Trust is key for economic and social development. But why do we trust others? We study the motives behind trust in strangers using an experimental trust game played by 7236 participants, in six samples representative of the general populations of Germany, Italy, Japan, Luxembourg, the UK and the USA. We examine the broadest range of potential determinants of trustor sending to date, including risk tolerance, preferences for redistribution, and conformity. We find that even though self‐interest, indicated by expected returns, is relevant for trustor behaviour, the most important correlate of sending is participants' altruism or fairness concerns, as measured by giving in a dictator game. We also find that in our large and representative sample, behaviour in the trust game and responses in a trust survey are significantly correlated, and that similar correlates—altruism in particular—are relevant for both.

In engineering materials, surface anisotropy is known in certain textured patterns that appear during the manufacturing process. In biology, there are numerous examples of mechanical systems which combine anisotropic surfaces with the motion, elicited due to some actuation using muscles or stimuli-responsive materials, such as highly ordered cellulose fiber arrays of plant seeds. The systems supplemented by the muscles are rather fast actuators, because of the relatively high speed of muscle contraction, whereas the latter ones are very slow, because they generate actuation depending on the daily changes in the environmental air humidity. If the substrate has ordered surface profile, one can expect certain statistical order of potential trajectories (depending on the order of the spatial distribution of the surface asperities). If not, the expected trajectories can be statistically rather random. The same presumably holds true for the artificial miniature robots that use actuation in combination with frictional anisotropy. In order to prove this hypothesis, we developed numerical model helping us to study abovementioned cases of locomotion in 2D space on an uneven terrain. We show that at extremely long times, these systems tends to behave according to the rules of ballistic diffusion. Physically, it means that their motion tends to be associated with the “channels” of the patterned substrate. Such a motion is more or less the same as it should be in the uniform space. Such asymptotic behavior is specific for the motion in model regular potential and would be impossible on more realistic (and complex) fractal reliefs. However, one can expect that in any kind of the potential with certain symmetry (hexagonal or rhombic, for example), where it is still possible to find the ways, the motion along fixed direction during long (or even almost infinite) time intervals is possible.

We compare public perceptions of restoring different ecosystems to increase CO 2 uptake in Germany, through focus groups and a general population survey. Among focus group participants forests were highly popular, peatlands evoked negative associations, and seagrass was largely unknown. Nevertheless, the restoration of all ecosystems was viewed positively. We contrast these reactions to those of survey respondents who had not received additional information on restoration. They voiced narrower, less diverse opinions centering around afforestation. Further, focus group participants preferred expert-led restoration decisions, citing low trust in politicians’ technical competence. Contrary to common policy recommendations, also beyond the German context, participants did not emphasize the need of citizen participation and were not strongly concerned about land use conflicts or compensation of affected user groups. The results imply that the public underestimates the political complexity of negotiation processes in ecosystem governance, which are becoming increasingly relevant in the international policy landscape.

Using data on a large sample of nations, this research studies the effects of campaign finance reforms on corruption, including bans on contributions by trade unions and corporations. The focus on campaign finance bans in presidential versus parliamentary democracies is a unique aspect. We find that, while bans on campaign donations to political parties and candidates by trade unions are effective in reducing corruption, their efficacy varies across presidential and parliamentary democracies. Specifically, bans on campaign contributions to political candidates and parties reduce corruption in presidential democracies, but they are ineffective in parliamentary democracies. Campaign contribution bans on corporations are largely ineffective. When a broader measure of institutional quality/enforcement is considered, its effectiveness dominates the effects of individual bans. Some of these findings are unique and suggest that policymakers considering combating corruption should take into account the form of democracy, the type of campaign finance ban, and the nation’s overall institutional quality.

Bioenergy with carbon capture and storage (BECCS) is considered as a future key technology to provide baseload electricity, heat, pulp, paper, and biofuels, while also enabling atmospheric carbon dioxide removal (CDR). Sweden seeks to lead the way in bringing this technology up to scale, introducing a EUR 3.6 billion reverse auction scheme to facilitate market entry of companies producing BECCS. We explore instrument design preferences among politicians, regulators, and prospective BECCS operators to identify trade-offs and explore feasible policy design. Based on 35 interviews with experts in the latent BECCS sector in Sweden, we identify under which circumstances prospective operators would be willing to place bids and discuss how actor preferences both align with and challenge auction theory. The analysis concludes that at least four dilemmas need attention. These concerns how to: (1) balance the state’s demand for BECCS to be implemented already in 2030 against the prospective BECCS operators’ fear of the winner’s curse, i.e., a fear of bidding for a contract that turns out to be too costly to implement; (2) allocate contracts at the margin of the auctioneer’s demand for BECCS without driving up costs; (3) design compliance mechanism to achieve effectiveness without undermining efficiency, and; 4) integrate the auction with the voluntary carbon market—if at all—in a manner that safeguards the environmental integrity of the auctions.