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Measuring Prosperity in Regions of the UK
Julian Gough, World Economics, September 2020
This article provides updated estimates of prosperity in regions of the United Kingdom using two measures - GDP per head and Gross Disposable Household Income per head in 2017. Official nominal data on these two measures is deflated by two approximate regional price indices to yield "real" estimates, allowing for differences in price levels between the regions. In "real" terms, on both measures, London is the most prosperous region by a considerable margin, while Wales and the North East of England are the poorest regions. These "real" estimates give a clear picture of the challenge facing the Government in "levelling up" the performance of the UK regions and the locations where government assistance is most needed.
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Enterprise Size Classification in Africa: A Tale of Two Definitions
Eugene Bempong Nyantakyi, World Economics, September 2020
Comparing enterprise size across countries is a key challenge in international development—SME definitions used in international development are often criticised as ineffective and a source of mistargeting of international development resources in the private sector. This study applies the International Finance Corporation definition of small and medium-sized enterprises (SME), commonly used in international development, and that proposed by Gibson and Van der Vaart (GV) (2008) to a set of enterprises in Africa to determine whether the two definitions capture similar underlying firms and enterprise attributes that practitioners would like to think of as worthy of international development support. The article finds a significant overlap: enterprises classified as SMEs simultaneously by both definitions. Indeed, 57% of firms in the sample qualify as SMEs under the two definitions. SMEs under the GV definition (but not the other) appear to face significant constraints in obtaining access to finance compared to those under the IFC definition (but not the other), and perform poorly in creating jobs relative to those under the IFC definition.
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What Shipping Can Tell Us About Europe’s Efforts to Face the Risk of COVID-19-Induced ‘Japanification’
Theodore Pelagidis & Hercules Haralambides, World Economics, September 2020
Shipping leads the ‘dance’ on the way up and if this is indeed true, the post-COVID-19 economic recovery should not be long, if one is to judge from the relative prosperity of containerised shipping as of Q2, 2020. Most EU member states may face a new risk ahead: ‘Japanification’, an unwillingness to increase household spending and often business expenditure/demand, along with the inability of monetary policy to balance savings and investments. When things get better, and the COVID-19 infection curve flattens close to zero, European leaders will have to come up with new ideas on the rebirth of the European dream, if they want to prevent a new round of authoritarianism and populism throughout Europe.
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The Impact of the Bonus Culture on the UK Economy
Andrew Smithers, World Economics, September 2020
The decline in UK tangible investment since 2000 has led to a sharp decline in labour productivity and the trend growth rate of the UK economy. A similar decline in the USA was caused by the perverse incentives of the bonus culture, but due to poorer statistics the connection between the bonus culture and investment is less easy to demonstrate for the UK than for the USA. More than 100% of the fall in UK investment is attributable to private non-financial companies (PNFCs). The factors that could possibly explain this weakness are: (i) low return on equity (RoE), (ii) weak labour supply, (iii) a perceived need to reduce leverage, (iv) a rise in monopoly power, (v) low expectations and (vi) a rise in the hurdle rate due to the bonus culture. I show that while other explanations are not necessarily impossible they are highly unlikely; a rise in the hurdle rate, i.e. the required return on equity, is thus the only credible one. Even before the COVID-19 crisis raising the trend growth rate of the UK was by far its most important economic issue. The policy challenge is therefore to reverse the damage done by the bonus culture. I suggest that the most likely way to achieve this is through introducing a tax credit for tangible investment.
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Modern Political Economy and Colonialism: The Case of Bolivia
Michael Chibba, World Economics, September 2020
The November 2019 coup d’état in Bolivia, orchestrated by the armed forces, brought an abrupt end to President Evo Morales’s modern approach to governance and development. The coup also brought a return to colonialism or neo-colonialism. However, the elections slated for October 18, 2020, may very well restore democracy in Bolivia. In political economy, only under conditions of convergence are politics and economics fundamentally inseparable, mutually interdependent and not dichotomous. Divergence means that the opposite of convergence holds true. Colonialism had been both the dominant ideology and the governing development paradigm in Bolivia for most of the last two centuries. The long-standing status quo changed in 2005 when Morales came to power and introduced a modern (plurinational) perspective to political economy and development. His governing development paradigm included, inter alia, indigenous rights, which were thrust to prominence, to make up for years of neglect of indigenous populations. And along with this, initiatives that advanced progress, development (economic, social and political) and equality, became the new norm. While the past year saw a deterioration of democracy in Bolivia, the upcoming elections hold promise of returning Morales’s party into power and the restoration of his true legacy, which is otherwise disparaged and misrepresented by the interim government. In this article, economic and political data and analysis – especially in tabular or narrative form – provide a powerful medium to make my case.
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Evaluating Demographic Paths in the Long Run: Output per Capita and Intergenerational Income Distribution
Ross Guest, World Economics, September 2020
This article is motivated by potential changes to fertility and migration patterns that may result from major global economic and/or health crises such as the COVID-19 global pandemic. The focus is on the long-term effects of changes to fertility and migration on both discounted national output per capita and intergenerational income distribution. Simulations are based on United Nations population projections, applied to 15 countries. Lower fertility and lower immigration are generally positive for discounted output per capita and raise the lifetime incomes of smaller cohorts. While lower immigration also raises the lifetime incomes of smaller cohorts, it has a lower impact on discounted output per capita.
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Mitigating Economic Losses of Fraud: Data Analytics Perspective
Nitin Singh, World Economics, September 2020
Economic loss caused by fraud has become a subject of concern for countries globally. Digital world also provides data and these can be leveraged to detect and prevent fraud while also applying forensic analytics to recover the loss. Although gathering and collating data from various sources poses a challenge, the benefits outweigh the costs. Data analytics, if implemented correctly, may detect fraud and prevent a potential economic loss. The article discusses challenges, solutions and technologies for implementing a data-driven approach.
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Funding Economic Development and the Role of National Development Banks: The Case of Cyprus
Helen Kavvadia & Savvakis C. Savvides, World Economics, September 2020
Prior to its privatisation in 2008, the Cyprus Development Bank played an important role in the economic development of Cyprus, intermediating international finance from multilateral development banks. This function was subsequently undertaken by commercial banks, which are currently limited by balance-sheet fatigue, however, and lack necessary elements for successfully executing this role. Our analysis shows a current void of institutional capacity in funding growth-bearing projects. Proceeding in a normative way, we recommend reinstalling a development finance agency that will tackle the issues by swapping equity for debt relief.
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Structural Reform, IMF Conditionality and the ‘Goldilocks Problem’
Graham Bird, World Economics, September 2020
Recent empirical research suggests that structural reform has a significant positive effect on future economic growth. Following the proliferation of structural conditionality in IMF programmes in the 1980s and 1990s, the ‘streamlining’ initiative begun in the early 2000s envisaged a more parsimonious approach designed to increase ‘ownership’ and improve programme implementation. However, there is a potential ‘Goldilocks problem’. While structural conditionality can be too ‘hard’, it can also be too ‘soft’. When is it just right? Empirical evidence on the political economy of structural reform may provide clues to how IMF conditionality could be designed to strengthen its impact on economic growth.
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Monetary and Fiscal Policy Coordination During Fiscal Dominance Regimes
Vighneswara Swamy, World Economics, September 2020
This study empirically examines the interaction between monetary and fiscal policy by using vector auto regressions (VAR) and a vector error-correction model (VECM) and explores the need for coordination. • We also analyse a Stackelberg interaction model with government leadership to know the strategic interaction between monetary and fiscal policy. The findings show that an unexpected increase in the monetary policy effect: (i) has a contractionary impact on economic growth; (ii) leads to a gradual decline in inflation; (iii) tightens liquidity conditions; and (iv) leads to a rise in bond yields. On the other hand, an unexpected increase in the fiscal policy effect: (i) has a positive effect on GDP growth; (ii) prompts an initial decline, then a gradual rise in inflation levels; (iii) leads to falling bond yields. Monetary policy is found to be more responsive to fiscal policy effects. The results imply that there is a greater need for effective coordination between monetary and fiscal policy as a sufficient condition to achieve economic stability.
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Will the Current Money Growth Acceleration Increase Inflation?: An Analysis of the US Situation
Tim Congdon, World Economics, June 2020
The coronavirus pandemic has not only come as a profound shock to the major economies, but also exposed tensions between leading schools of thought. Uncertainty has arisen about the medium- and long-term consequences of the policy responses to COVID-19. Will the pandemic, and the consequent major upheaval in economic policy, lead to deflation or more inflation? This article—which is intended above all as a contribution to the emerging deflation vs. inflation debate—begins by discussing official policy in recent months. It then states a position in the tradition of the quantity theory of money and develops the argument that inflation will rise significantly in the aftermath of the pandemic.
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Shedding Light on the Shadow Economy: A Global Database and the Interaction with the Official One
Leandro Medina & Friedrich Schneider, World Economics, June 2020
The shadow or informal economy covers all economic activities which are hidden from official authorities for monetary, regulatory and institutional reasons. Although widely used, multiple indicator-multiple cause (MIMIC) models have been criticised, and we develop a modified model and database covering 157 countries over the years 1991 to 2017. We tested our model using satellite data on nocturnal light intensity as a proxy for the size of countries’ economies, and compared our results with the figures of 23 countries’ national statistical offices, finding stable and similar results. The average over all countries and over the whole period is 30.9% of GDP. The shadow economy is large in some regions (Latin America and sub-Saharan Africa) and there is sizeable heterogeneity within regions. On average, from 1991 to 2017 the shadow economy declined by 6.8%. In the short term the shadow economy has a negative impact on the official one and in the long term it has a positive effect.
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Measuring EU-Wide Inequality
Michael Dauderstädt, World Economics, June 2020
EU-wide inequality is higher than official figures by Eurostat suggest. With a Gini coefficient of 0.35 and a quintile ratio of 8.4 in 2018 (5.8 at purchasing power parity), it reaches the level of US inequality. This is a major driver of migration and relocation of production within the European Union (EU), both of which have led to a rise of nativist votes and Brexit. Relative inequality has been declining owing to catch-up growth of the poorer economies in central and eastern Europe, while within-country inequality has remained stable or increased. However, absolute inequality is likely not to decline for many years.
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Is the European Union Failing the Viability Tests?
Andreas V Georgiou, World Economics, June 2020
A union of states is there for various reasons but a fundamental one is to provide public goods that cannot be provided optimally by actions at the level of individual states. Such union-level public goods would be, for example, defence of the union against aggression by other states from outside it, protection against infectious diseases spreading in the union, regulation of massive population flows into the union, and safeguarding of financial and macroeconomic stability of the union. These kinds of goods are characterised by two important qualities so that they can be classified as public goods at the level of a union of states: ‘nonrivalness’ and ‘nonexcludability’. These concepts have been elementary concepts of economics since the work of the renowned economist Paul Samuelson in the 1950s.
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CPI in the Time of Coronavirus
Kam Yu, World Economics, June 2020
The spread of the COVID-19 around the world started in January 2020. Many countries implemented an activity lockdown after the World Health Organization announced pandemic status. Businesses have been ordered by governments to impose severe restrictions on their activities and transactions. Office workers shift their work home, schools are closed, and many factories are shut down. Just before economic lockdown and social distancing policies were announced, total consumer expenditures ?rst spiked, owing to panic buying, and then collapsed after about two weeks. These large ?uctuations in shares of relative expenditure have a profound impact on data collection and calculation of official statistics. This short article focuses on the consumer price index (CPI).
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Hyperinflation in the General Government: German-Occupied Poland During World War II
Steve H. Hanke, Nicholas Krus & Joanna Gawlik, World Economics, June 2020
Newly discovered primary data reveals two previously undiscovered episodes of hyperinflation. They occurred in German-occupied Poland from late 1939 to early 1945. Nazi-occupied Poland, a territory then referred to as the General Government, experienced monthly inflation rates of 71.4% in January 1940 and 54.4% in August 1944. Inclusion of the 1940 and 1944 Polish cases of hyperinflation brings the total number of episodes of hyperinflation documented in the Hanke-Krus World Hyperinflation Table to 60. With these newly discovered cases, Poland has experienced more episodes of hyperinflation—four—than any other country in the world.
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Global Finance and Effectiveness of Macro-Policies
Biagio Bossone, World Economics, June 2020
The Portfolio Theory of Inflation (PTI) incorporates a global perspective on the analysis of macro policy effectiveness. According to the PTI, in open and internationally highly financially integrated economies: The intertemporal budget constraint (IBC) of governments is endogenous to global investment choices: it is more flexible for credible countries and tighter for less credible ones, and the IBC of highly credible countries becomes even more flexible at times of global crisis. Macro-policies are effective in credible economies and less effective (and potentially inflationary) in non-credible economies (with flatter Phillips curves being observed in credible countries and becoming even flatter in times of global crisis). Governments can reap no advantage from redenominating their debt or increasing the share of their debt held by residents and monetary financing of public deficits is effective as an anti-recessionary, short-term stopgap, but it is not sustainable as a policy to sustain full employment in the longer run.
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Can Money Turn Bad News into Good News?
Jan Libich, World Economics, June 2020
Over the past two decades, monetary policy has been used in unprecedented ways for macroeconomic and financial sector stabilization. This article argues that monetary policy, especially the unconventional measures (quantitative easing) implemented in the post-2008 period, has likely contributed to major financial imbalances (asset bubbles). Markets started responding to bad news about the economy’s fundamentals by stock price increases as if it was good news: in anticipation that loose monetary measures (injections of liquidity) would continue. This has important policy implications for the debate whether/how monetary and macroprudential policies should address asset price developments, very relevant during the current COVID-19 pandemic.
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Quant Bust 2020
Zura Kakushadze, World Economics, June 2020
We explain in a nontechnical fashion why dollar-neutral quant trading strategies (e.g. statistical arbitrage) suffered substantial losses (drawdowns) during the COVID-19 market sell-off. We discuss: (i) why such strategies work during “normal” times; (ii) the market regimes when they work best; and (iii) their limitations and why they “break” during extreme market events. An accompanying appendix (with a link to freely accessible source code) includes back-tests for various strategies, which put flesh on and illustrate the discussion in the main text.
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Brazil at a Crossroads: Political Economy, the Coronavirus, and Democracy
Michael Chibba, World Economics, June 2020
The comprehensive impact of the coronavirus has prompted Brazil’s political economy to take shape in a manner which is exposing actions that are not founded on good governance but rather on shenanigans, political manoeuvring and the promotion of personal agendas. This is placing its presidency under stress and Brazil’s young democracy is in peril. At the local and regional levels, democracy, governance and political economy are mired in corruption and crime. Using World Bank data, it is illustrated that perhaps only under Lula’s Presidency (2003–10) was multifaceted progress in development achieved.
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The Epidemiology of Economic and Financial Crises
Graham Bird & Eric Pentecost, World Economics, June 2020
The COVID-19 crisis dramatically illustrates how viruses can rapidly spread across the globe with devastating effects. Increasing trade integration during the ‘first wave’ of globalisation provided a conduit through which economic disturbances could be transmitted between countries. The ‘second wave’ of globalisation involving closer international financial integration has created the potential for much more virulent transmission. This article analyses how the evolution of globalisation has affected the epidemiology of economic and financial crises, and takes the Eurozone crisis as a case study of cross-country contagion. The policy problems associated with the changing nature of transmission are also investigated.
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Mimicking a Buffer Fund for the Eurozone
Paul van den Noord, World Economics, June 2020
Eurozone fiscal buffer fund could be set up to finance transfers to countries triggered by the cyclical movements in their unemployment rate. Countries would contribute a fixed share of their GDP to the fund in good times. The receipts from the fund are found to significantly mitigate the fiscal contractions during downturns and thus help bolster the stability of the Eurozone economy by counteracting the pro-cyclicality of fiscal policies. To quantify the extent of macroeconomic stabilisation thus achieved, estimates for the ‘fiscal multipliers’ are superimposed on the assumed change in fiscal policies. It suggests that a Eurozone buffer fund would have significant stabilisation properties. The computations are carried out using two databases – the European Commission's AMECO database and the OECD Economic Outlook database -- by way of a robustness check.
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Can Pandemic Bonds Deliver on Their Promise?
Giovanna Maria Dora Dore, World Economics, June 2020
Epidemics are an unpredictable, though, recurrent feature of human history. With seven major outbreaks over the past twenty years, epidemics and pandemics are on the rise, and happening more frequently and closer to one another than before. Lack of funding makes developing countries especially vulnerable to epidemics. In 2017, the World Bank launched pandemic bonds to raise funding that can be deployed rapidly in the case of a pandemic. Coming 106 days after the World Health Organization declared COVID-19 a pandemic, the bonds’ payout may be only minimally helpful to some of the poorest countries’ efforts to fight the outbreak, and leave the impression that the bonds delivered too little too late. Pandemic bonds remain an important financial tool and, with some restructuring, could fill a crucial gap in global health security, while at the same time continuing to engage with capital markets for the benefit of the poor.
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Measuring Happiness Among Egypt’s Youth
Heba Farida Ahmed Fathy El-laithy, Dina Magdy Armanious & Hadir Farag Abo Elazm, World Economics, June 2020
This article aims to assess happiness among young people aged 18–29 years in 2009 and 2014, using a multidimensional Happiness Index among Youth (HIY), based on the Survey of Young People in Egypt (SYPE). Uncertainty and sensitivity analysis are applied to examine the robustness and efficiency of the index. A multinomial model is used to study the main determinants of happiness among young people. The main results of the study are that young men are happier than young women. The educational level of the head of household has a positive, significant effect on happiness.
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Macroeconomic Impact of Eurozone Debt Crisis on India: Sensitivity Analysis Using Measures of Dependency
Vighneswara Swamy, World Economics, June 2020
The eurozone represents a significant market for emerging markets like India; hence, any stagnation or a downturn in the eurozone leaves a dent in their export growth. Sensitivity analysis using measures of direct and indirect export dependency through international production networks and other economies suggests that the eurozone crisis impacted through the trade channel. As the impact of the eurozone debt crisis was significantly negative, the levels of dependence on the USA and China continued to be stable without experiencing any sharp deviations. It is desirable for India to diversify its export markets and to further strengthen domestic institutions and policies to reduce the impact of such crises and shocks.
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Indian Rupee on the Back-Foot Against the British Pound: A Critical Analysis
Suraj E. Sudhakar, Akshika Jain & K.P. Nitha, World Economics, June 2020
In foreign exchange (forex) markets the Indian rupee has fallen against the British pound over a long period, for various reasons. India is the fastest-growing large economy in the world, with a rising middle class that makes it increasingly attractive to British exporters. So, the UK–India trade relationship influences currency movements. This study focuses on the impact of the UK–India trade relationship, other macroeconomic variables such as foreign direct investment (outflow and inflow), real interest rates, gross domestic product, foreign exchange reserves and how the external debts of India affect the rupee. Investors, arbitrageurs, traders, exporters and importers in the forex market like to know the impact of the most significant macroeconomic variables on currency.
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Migrant Workers: Business and Employment Opportunities in Kashmir Valley
Aijaz Ahmad Turrey, World Economics, June 2020
This article covers immigrants to the Valley of Kashmir who coma from almost all Indian states despite conflict in the Valley. The Valley is entirely rural in character, having high unemployment but offering jobs and business opportunities to huge number of immigrants. Immigrants are working in a number of industries and have started their own businesses, providing competition with local businesses. This study is the first of its kind to use census data for reference and covering all the districts of the Valley.
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Self-Help Groups and Women’s Empowerment
Santu Samanta, World Economics, June 2020
This article considers the working and growth of Self-Help Groups and their impact in empowering women in India. We study the activities of Self-Help Groups and identify the employment and livelihood skills of women in these groups. The study covers the operating system and capital structure of the Self-Help Groups and evaluates their financial positions. Taking into consideration the socioeconomic backgrounds of the members of these groups we identify the reasons women join them. Finally, the article identifies problems related to Self-Help Groups at different levels and analyses and evaluates the challenges they face.
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Major Problems Persist with UK Price Inflation Data
World Economics, March 2020
The Economics Affairs Committee of the House of Lords has published a damning report on the measurement of inflation statistics in the UK. The House of Lords Report number 246 Measuring Inflation accuses the UK Statistics Authority of being at risk of a “breach of its statutory duties on the publication of statistics, by refusing to correct an error that it openly admits exists in the Retail Prices Index (RPI).” The UK Statistics Authority has a duty to "promote and safeguard the quality of official statistics".
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Global Population Data Quality Ratings
World Economics, March 2020
The accuracy of population data varies widely across countries. The most comprehensive data on the number of people living in a territory and their demographic profile, a vital component for public sector economic and social planning and also for private sector needs, is usually available from the result of a census.
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The Alarming Problems Caused By Misleading Trade Data
World Economics, March 2020
The fact that world exports do not match world imports indicates that there are serious problems with official trade statistics. Far too few economists and politicians will try to understand the murky reality behind these increasingly unreliable data.
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The Debate Over the Depreciation of Intangible Capital
Andrew Smithers, World Economics, March 2020
Spending on intellectual property (IP) is classed in national income accounts (NIA) as investment and represents a proportion of total investment as measured. It is, however, rapidly depreciated so that it has only a minor impact on gross domestic product (GDP). Some economists argue that the amount of such spending is being understated and the depreciation rate overstated. If these claims were correct, they would result in large increases in the measured levels of gross and net output and reduce the share taken by labour incomes. If correct the resulting changes would also be important for economic theories. Current data show that the labour share of output is mean-reverting, thus supporting the Cobb-Douglas production function, and that q’s mean reversion results from changes in share prices. The suggested revisions to the data would undermine both. These claims require an increase in profits after depreciation in the NIA. However, they cannot be correct because independently generated data on equity returns to shareholders show that profits are already overstated. Profits need to be reduced rather than increased. The change made to NIA in 2013, by the inclusion of IP expenditure as investment, has led to widespread misunderstanding about the economy and should be reconsidered.
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Measuring Modern Business Investment: A Case Study for Germany
Michael Grömling, World Economics, March 2020
An extended concept for intangible investment does not lead to additional investment momentum in the case of Germany. This corresponds to experiences with former extension of investments in national accounts. Also, growth in real GDP and the related labour productivity dynamics are not higher when a broader definition of investment in the form of intangibles is applied. Even if the investment processes are defined beyond the measurement concept for intangibles established by Corrado, Hulten and Sichel, there are no fundamentally different findings for German investment dynamics based on a special company survey. However, these findings should not be misunderstood as suggesting there is no need for action in terms of statistical measurement. Extended concepts and estimates signal for Germany considerable level effects of a more broadly defined investment concept.
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Climate Change and Economic Policy
Julian Gough, World Economics, March 2020
Analysis of data for the last two decades showed global temperatures on a plateau and little correlation of global temperatures with the concentration of carbon dioxide in the atmosphere. The so-called ‘consensus’ theory of climate change is currently failing to predict correctly and is oversimplistic. Based on a flawed theory, economic policies pursued by the EU and UK to achieve zero net carbon emissions by 2050 will have little impact on global temperatures. These policies will do considerable damage to national economies resulting in lower economic growth, distorting the allocation of resources, raising energy prices, reducing consumer choice and posing a major threat to stability of electricity supplies.
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Tackling the Double Injustice: How Citizens Evaluate Climate and Welfare Policies
Max Koch & Martin Fritz, World Economics, March 2020
Ambitious climate policies have distributional consequences. These require countervailing social policies to keep climate targets acceptable for the electorate. This article analyses data from the European Social Survey as to whether attitudes in relation to climate and welfare policies converge or diverge. It distinguishes four types of social-ecological attitudes: ‘Synergy’ or support for both kinds of policies; ‘Green crowding-out’ where support for climate policies is not accompanied by approval of welfare; ‘Red crowding-out’ where support for welfare coincides with a rejection of climate policies; Rejection of both types of policies. There are clear differences at country level. While synergy between both kinds of attitudes is most widespread in countries with an already established welfare state, the pattern of red crowding-out predominates in countries having an economy with high fossil-dependence. At individual level, persons expressing synergy for climate and welfare policies are well educated, young, with left-wing political beliefs and live in households with above-average incomes. Individuals who reject both kinds of policies are older, less educated, live in households with below-average incomes and politically orient to the right.
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Cryptocurrency Challenges Sovereign Currency
George C. Georgiou, World Economics, March 2020
All national and international monetary structures have evolved to assist in the creation and management of sovereign fiat currencies. This sovereign currency status quo was suddenly upended with the arrival of the first cryptocurrency, Bitcoin, in 2008 which introduced a peer-to-peer digital fiat currency without the need of a central banking system, through a trustless, fungible and tamper-resistant distributed accounting system known as blockchain. The response to the threat posed by cryptocurrency has ranged from declaring it illegal, attempting to regulate it, ignoring it, treating it as a commodity and/or like any other financial asset and regulating it as such; or more recently seriously considering state-backed digital currency. Presently the assessment appears to be that of ‘co-existence’ with central banks providing national/sovereign currency, primarily digital currency, and cryptocurrency vying with gold as a back-up or ‘insurance’ against the perils of a sovereign fiat currency.
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New Theory of the Business Environment: Comprehensive and multidimensional with political economy at its core
Michael Chibba, World Economics, March 2020
Political economy is a core factor in the business environment, where either convergence or divergence are essential characteristics. This paper outlines, with a formula, illustrations and five country ratings, a new theory of the business environment that is comprehensive, and also offers a modicum of a quantitative dimension, expressed in terms of metrics and data.
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Fiscal Federalism: Data Analytics Perspective
Nitin Singh, World Economics, March 2020
Goods and service tax (GST) is a value-added tax which is levied on goods and services sold and consumed domestically within a country. Although GST is paid by customers it is remitted to the government by the businesses selling the goods and services. The implementation of GST in India is a relatively new development that has impacted on fiscal transfers. The Fifteenth Finance Commission of India is currently deliberating on its terms of reference to determine fiscal transfers from the centre to state governments for the period 2020/1 to 2024/5. The GST Network (GSTN) has been established to provide information technology infrastructure to taxpayers, central and state governments, dealers and all stakeholders. Evidently, there are substantial opportunities to leverage data emanating from GSTN. In such a context, the role of data analytics becomes prominent in monitoring tax administration, mitigating tax evasion, leveraging digitisation and designing fiscal federal policy. The implications presented in this article are relevant to any country having a federal structure that has implemented GST in some form or another.
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Greek Economy: Between Optimism and Substandard Growth
Theodore Pelagidis, World Economics, March 2020
Is Greece’s economy back to normal after the victory of liberal-conservatives in last summer’s elections? The Greek economy is certainly out of the doldrums but structural problems are still in place. The economy desperately needs foreign capital inflows, the most challenging bet for the new Prime Minister K. Mitsotakis. What do statistical data tell us about 2020 economic prospects? What will be the effect of covid-19 on the economy?
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Coronavirus: The Case for Digital Money?
Zura Kakushadze & Jim Kyung-Soo Liew , World Economics, March 2020
We discuss the advantages of adopting government-issued digital currencies and a supranational digital iCurrency. This will get rid of paper money, a ubiquitous medium for spreading germs, as highlighted by the recent coronavirus outbreak. We set forth three policy recommendations for adapting mobile devices as new digital wallets, regulatory oversight of sovereign digital currencies, and a supranational digital iCurrency. We also argue that the USA should reevaluate its “exorbitant privilege and exorbitant duty” in light of the financial meltdown from the coronavirus outbreak.
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The Impact of Income and Unemployment on Suicide in Scandinavian Countries
Balash Babayeva, World Economics, March 2020
This article experimentally investigates how economic factors in Scandinavian countries affected the suicide rates between 1991 and 2010. Notwithstanding factors affecting suicide in Scandinavian countries have been studied, there are no studies on the relationship between suicide, income and unemployment. Although Scandinavian countries have among the highest welfare levels in the world, suicide rates are quite high. Empirical results indicate that suicide is related to a number of economic factors like GDP per capita and unemployment. This study finds a negative relationship between GDP and suicide and a linear relationship between unemployment and suicide. Unemployment’s encouragement of negativity increases suicidal tendencies, at the same time as declining income has similar psychological effects.
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The Socioeconomic Plight of Carpet Weavers of Kashmir
Tariq Ahmad Lone, Tariq Ahmad Bhat & Parveez Ahmad Lone, World Economics, March 2020
Weaving is a method of textile production in which two distinct sets of yarns or threads are interlaced at right angles to form a fabric or cloth. Kashmir handicraft products have earned worldwide fame for their attractive designs, functional utility and high-quality craftsmanship. In the absence of other manufacturing industries in the state, handicrafts have remained a key economic activity from time immemorial and engage approximately 374,000 artisans. Crafts like shawls, crewel work, namdha, chain stitch, wood carving, papier maché, costume jewellery, kani shawls and the carpets hold a significant share in the overall production and exports of the state. Carpet weaving is an essential craft, both at national and state levels, in its overall contribution to employment and revenue.
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How to Increase your Countries GDP
World Economics Research Programme
World Economics, December 2019
There are three ways to increase the real Gross Domestic Product (GDP) of any country. First, by producing more goods and services in a given time frame. This is not easy. Second, by fiddling the figures, a method often adopted by politicians of all kinds, as the economist John Kay illustrated in an article in the Financial Times titled: “Politicians will always succumb to the need to bend data“ (and this in relation to the UK!) There are many ways to do this, and it’s the easiest, cheapest and quickest method. There are only two downsides. First you may be found out. Second, “bending “or otherwise fiddling GDP data may lead to the adoption of seriously erroneous policy decisions. It’s all too easy to believe your own lies... A third method, and the one on which this paper will focus is to measure the output already produced more accurately. Usually but not universally this produces a significant increase in GDP, with many beneficial effects. This method is also relatively easy (no rocket science involved), and cheap (and can easily pay for itself in reduced debt servicing charges). Furthermore, unlike actually producing more goods and services, it doesn’t contribute to global warming.
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Global Trade Data
World Economics, December 2019
There are serious problems with official trade statistics since according to the IMF in 2016 the world imported US$339 billion more than it exported. The Ricardian concept of comparative advantage in final goods is no longer fully relevant to explain trade between countries and the solution is to operate a paradigm shift in the packaging and interpretation of trade data. The accuracy and reliability of data is affected by a number of key biases separate from data quality issues and misreporting. The main problems are trade data asymmetries; the Rotterdam Effect and the impact of global value chains. Until this happens international trade statistics will be used as evidence of global trade imbalances and form the basis of potentially misguided policies aimed at their correction.
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Global Population Data Accuracy Ratings
World Economics Research Programme
World Economics, December 2019
The accuracy of population data varies widely across countries. The most comprehensive data on the number of people living in a territory and their demographic profile, a vital component for public sector economic and social planning and also for private sector needs, is only available from the result of a census. National statistics offices produce only estimates of total population numbers and the demographic breakdown for the intervening years. The accuracy of these estimates depends on the coverage of the last census and the elapsed time since the census, the data and assumptions about births, deaths and net migration and a host of other factors related to the capacity of the national statistical office and its ability to carry out its functions unimpaired by political interference. There are a number of problems which limit the accuracy of these between census population estimates. Unfortunately, national censuses require a large amount of resources to carry out and often vary in accuracy even for developed countries. In many developing countries there are large gaps in terms of the years between holding a census. This means that population estimates made become less and less accurate as time elapses.
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Central Banking and Climate Change: A Policy Revolution Under Way
Stuart P.M. Mackintosh, World Economics, December 2019
A central bank revolution on climate change policy parallel to the 2015 Paris Agreement on steps to limit global temperature increases in this century may be under way, to achieve the essential collective carbon neutrality goals. In 2015 Mark Carney, governor of the Bank of England, warned of a series of climate change-related risks to the financial sector which could result from the process of adjustment towards a lower-carbon economy. A new organisation, the Network for the Greening of the Financial System (NGFS), was announced by eight central banks and supervisors in December 2017, growing to 46 by September 2019. The world’s central banks can and should set incentives to penalise carbon polluters and support the transition to a carbon-neutral economy. Empirical evidence demonstrates changing incentives are effective in changing investment behaviours.
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Thrown Away Thrice: The global second-hand clothes trade expires on the beaches of Africa
Lionel Stanbrook, World Economics, December 2019
Thousands of garment-making businesses throughout West Africa have been destroyed over the past few generations by his shabby international exploitation which was been hand in glove with the elimination of traditional garment-making businesses by aggressive European, US, and Chinese clothes manufacturing in factories located in Africa over the same period. The grim result is that Africans have fewer choices in domestically made clothes now than twenty, thirty, or even fifty years ago. Even the famous waxed cloth pagnes (kaftans or bou-bous) which seem quintessentially West African, are very largely imported from Europe (the largest production company is the Dutch VLISCO) although there remain important pockets of original African textile production, although unfortunately with products that are beyond the economic means of ordinary Africans. The shabby value chain in second-hand clothes starts in glitzy shopping malls in the most developed countries, with excessive and unnecessary purchases of clothes by consumers hungry for a new look.
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The Cause of Disinflation
Jang C. Jin, World Economics, December 2019
An empirical model estimates the effects of central bank independence and increasing globalisation on recent disinflation. The model that includes the globalisation measure is found to fit the data better than the one with central bank independence alone. Using pooled sample periods gives further information on recent disinflation that was largely caused by globalisation, and partly by central bank independence. The results suggest that many industrialised countries, including the United States, benefited from globalisation lowering inflation rates during the late twentieth century.
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Resurrecting Industrial Policy as Development Policy based on Korean Experiences
Sung-Hee Jwa & Sung-Kyu Lee, World Economics, December 2019
The purpose of this paper is to demonstrate that the key economic policy paradigm of the Park Chung-hee administration in Korea was based on a ‘heavy-chemical industrialisation policy’, not ‘export-led growth policy’ as insisted by mainstream economics academia. It also aims to suggest a new theory of industrial policy based on both the General Theory of Economic Development and Korea’s experiences of successful industrial policies. A pro-market industrial policy is a prerequisite for a country’s economic leap forward, and this is evident in Korea’s experiences of successful industrial policies. It is suggested that the market, the corporation and the government need to complement each other in order to contribute to a leapfrogging economic development, and the government should carry out ‘industrial policies by promoting the corporate growth through the principle of economic discrimination based on reward and penalty’, thereby reinforcing the market’s discrimination function. In Korea’s experience, the economies based on the principle of economic discrimination achieved success while those based on egalitarianism and the ideology of economic democratisation ended in failure or achieved only minor success. Therefore, the presented theory of industrial policy based on the principle of economic discrimination advocated by the General Theory of Economic Development is consistent with Korea’s past experiences with industrial policies.
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Exchange Rate Policy in Emerging Economics: Should Floating Be Clean or Dirty?
Graham Bird, World Economics, December 2019
In the period since the global economic and financial crisis in 2008/09, emerging economies have encountered both surges and reversals of international capital. Rising interest rates and economic growth in the USA may in the future lead to them facing further relatively sharp capital reversals. To what extent should they allow such capital reversals to affect their exchange rates; should they opt for free (clean) floating or managed (dirty) floating? They have not all opted for the same exchange rate regime. In an era of high international capital mobility, exchange rate policy in emerging economies becomes more complicated than it used to be, and depends on a wide range of factors upon which there is considerable uncertainty. This article provides a systematic review of the issues involved.
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Measuring the Effects of Regional Trade Agreements in South Africa: A Comprehensive Review
Kore Marc Guei, World Economics, December 2019
There is strong evidence that regional trade agreements in force have caused South Africa to increase its aggregate trade with less efficient member countries at the expense of the more efficient ones. Using disaggregated data the European Union Free Trade Agreement has produced mixed results. Trade in goods classified as beverages/tobacco and manufactured goods (machinery and transport equipment, and miscellaneous manufactured articles) have been diverted from more efficient countries outside the regional trade agreements to less efficient member countries. This article finds evidence of trade expansion only for chemical products. The Southern Africa Development Community (SADC) has diverted trade from more efficient to less efficient member countries in all commodities. Regional trade agreements in South Africa (SADC and the European Union Free Trade Agreement) increase trade with less efficient partners by approximately 4% and 6%, respectively.
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Zura Kakushadze & Willie Yu, World Economics, December 2019
We discuss the idea of a purely algorithmic universal world iCurrency in light of recent developments, including Libra. We analyze the Libra proposal, including the stability and volatility aspects, and discuss various issues to be addressed. For example, one cannot expect a cryptocurrency such as Libra to trade in a narrow band without a robust monetary policy. A technical appendix (available online) provides a detailed mathematical description of the (crypto) FX rate dynamics in target zones.
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Combining Growth and Gender Diagnostics for the Benefit of Both
Elena Ianchovichina & Danny Leipziger, World Economics, December 2019
Women’s economic empowerment is not a new issue, but it continues to challenge both governments and development assistance agencies. Progress in closing the gender gap in labor force participation has stalled despite closing the gender gap in education. One reason for this may be that gender advocates and growth devotees are not pursuing both agendas simultaneously when there is a huge space for them to collaborate effectively. Gender-enhanced growth diagnostics offers a ‘win-win’ solution to this problem. It identifies distortions that constrain both economic growth and female labor force participation and can therefore point to efficient welfare-enhancing interventions that close gender gaps. Applied to Turkey, this approach reprioritizes the constraints to economic growth and inclusion.
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Does Phillips Curve Really Exist in India?
Tariq Ahmad Bhat, Tariq Ahmad Bhat, Tariq Ahmad Lone & Towseef Mohi ud Din, World Economics, December 2019
The hypothetical trade-off relationship between inflation and unemployment rate known as the Phillips Curve. It plays an important role in the decision-making process, to stabilise the economy and to target these variables to keep them as low as possible. This study analyses the empirical relationship between unemployment and the inflation rate in order to predict the trade-off between these two variables and to estimate its existence in the context of Indian economy over the period of 1991 to 2017. It finds both short and long run causal relationship between unemployment and inflation rate in India.
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