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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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iCurrency?
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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