Competitive Advantage in the Global Economy (CAGE)

CAGE will aim to build on initial success while offering some important innovations. The overarching theme will continue to be 'succeeding in the global economy' and the Centre will be organised into research themes each with an 'organizing question': Theme 1: What Explains Comparative Long-Run Growth Performance?; Theme 2: How do Culture and Institutions Help to Explain Development and Divergence in a Globalizing World?; Theme 3: How Can the Measurement of Wellbeing be Improved and What are the Implications for Policy?; Theme 4: What are the Implications of Globalization and Global Crises for Policymaking and for Economic and Political Outcomes in Western Democracies?
During phase 1, research in Theme 1 made excellent progress in establishing a detailed quantitative picture of the dimensions of long-run economic growth over the last 800 years in Europe and Asia and the analysis will now be extended to cover Africa, and move from measuring real GDP per capita to accounting for the sources of growth in terms of factor inputs and their productivity. Research will also analyse the reasons for success and failure over the long-run at a more fundamental level with investigations covering pre-industrial to post-industrial times looking at the roles of geography, institutions, trade costs, and human capital and knowledge as well as economic policy. Some of this will be forward-looking considering reforms that may be need to sustain catch-up growth in the BRICs and in post-crisis Europe. Theme 2 will continue to examine the political economy of institutional change and to investigate other aspects of supply-side policy relevant to enterprise performance in developing countries. Research will now be expanded and slightly re-orientated to address the role of trust and, in particular, to consider how trust can be nurtured. This will enable further investigation into why reform programmes such as those based on Washington-Consensus principles have not worked well besides permitting insights into the roots of underdevelopment. Theme 3 will further develop the evidence base for its innovative approach to the analysis of poverty with a programme of field experiments and will continue to augment the evidence base on the determinants of wellbeing and the policy implications thereof. It will elaborate the ways in which poverty via cognitive impairment leads to unfortunate decision-making, to examining implications of adaptation to well-being shocks and to the role that cognitive biases and genetics play in wellbeing outcomes. Theme 4 will build on the work begun after the appointment of a Professor of Quantitative Political Science as a key investment to further the work of CAGE. This research has examined the implications of tax competition for capital mobility and viability of welfare state policies in OECD countries as globalization has intensified. The research highlights differing exposure to globalization threats. During phase 2, research on these issues will be deepened and extended using formal analysis and econometrics to investigate issues which are deeply political in that they involve contentious policy choices and are conditioned by political institutions. The topics to be studied include the implications of globalization and economic crises for voter preferences and for redistribution and welfare spending in different types of advanced economy, and much more detailed investigation of the dimensions of the responses available to co-ordinated and liberal market economies.
In conclusion, the distinctive feature of CAGE is that it crosses divides within economics broadly defined and explores issues traditionally regarded as at the boundaries of economics. CAGE research and policy advice is sensitive to context and based on an empirical approach that does not arbitrarily impose the priors of neoclassical economics. Finally, CAGE is able to bring an informed historical perspective to current policy issues.

CAGE research is intended to benefit society through deeper knowledge and understanding of the complex causal chains that contribute to economic growth and performance in different contexts. Because policy interventions can change economic outcomes, contributors to national and international policy are important beneficiaries of our work including the UK executive (e.g. Treasury, BIS, and DFID) and legislature (esp. parliamentary committees), the European Commission and Parliament, and international organizations (e.g. World Bank). CAGE will seek to raise public awareness of its research, recognising that public opinion informs policy and that aspects of CAGE's research relate to everyday life.
Future CAGE research is structured around four themes and potential benefits are inherent in the questions that organize each theme.
Theme 1 focuses on measurement and determinants of long-run comparative performance. In every country policymakers have faced specific natural and institutional constraints. CAGE's research will offer new insight into the historical conditions and policies under which sustainable growth has emerged. History suggests that not all growth is sustainable. Unsustainable growth spurts sometimes resulted from policy interventions that failed to manage underlying constraints. A potential impact of CAGE research will be new explanations of success or failure of past policy interventions. An aspect of CAGE research with potential for immediate impact relates to the sustainability and regulation of financial sector development.
Theme 2 examines the role of culture and institutions in explaining development and divergence across the world. At the boundary between economics and politics, trust and ideas will be a specific focus. The research can inform policymakers about how interventions may affect trade and cooperation, not only directly, but by enhancing or damaging trust in society. Good ideas relax constraints and move the political transformation frontier outward, just as technological innovations relax resource constraints. CAGE aims to achieve immediate impact by contributing to good ideas; relevant projects include incentive schemes in firms and climate change policy design. There is potential long-range impact from understanding the role of ideas in decisions that decide how societies evolve (such as how trust affects ethnic integration, trade, and international policy coordination).
Theme 3 focuses on wellbeing and its implications for policy. Economic policy interventions are founded on outcomes which can be measured. CAGE research will look for empirical validation of wellbeing measures that have the potential to influence economic policy. When policy makers set goals they must also consider voter beliefs on interventions that affect personal and social wellbeing. Here CAGE research can influence public policy directly, by informing policy makers, and at a distance by informing public opinion. Other possible impacts arise from research on how subjective well-being affects productivity in work settings, and whether financial aid in anti-poverty programmes is complemented by raising aspirations.
Theme 4 looks at the implications of globalization for policy in western democracies. Public policy is heavily influenced by policymakers' beliefs on how policies affect fairness in society, interacting with their perceptions of what voters want. While globalization is sometimes seen as a "golden straitjacket" on politics, CAGE research aims to identify the policy space available to governments in globalized (but otherwise different) countries. To what extent are policy makers free to choose among good and bad policies for welfare and trade? CAGE research can directly improve policy makers' understanding of the games they play with voters and the economy. A long range impact will arise if voter opinion can also become better informed.