The World Economy: Over Half a Century of Near Continuous Growth
, World Economics, March 2018
The World Economy has grown for 57 out of the past 58 years, only the great recession of 2009 saw an interruption in over half a century of continuous growth. Over the whole of the last 5 decades, annual real GDP growth has averaged 3.2%, and 1.6% in per capita terms. Global Real GDP split by continent illustrates that the share of the world’s GDP in the Asian region grew considerably faster than all other continents, from 16.8% in 1960 to 47.0% in 2017. The wealth of Europe and the Americas remains considerably higher compared with Asian and African continents.
Building a New Testable Model to Estimate Total Factor Productivity
, World Economics, June 2017
A new model to measure Total Factor Productivity free from the flaws which exist in previous models; appropriate data are used to test it. The model distinguishes between the contributions made to investment and growth by changes in technology and other non-technology variables. A key constituent of non-technology variables is the equity hurdle rate; since 2000 this has dramatically changed and thereby stifled investment and productivity. Reform of current management bonus arrangements is found to be essential to obviate the risk of economic stagnation.
Data on Indicators of Governance: Handle with Care
, World Economics, June 2016
This article provides a select review of data used as indicators of governance. Despite the popularity and considerable success of the existing body of governance indicators in putting the spotlight on governance inadequacies in developing countries, they are fraught with a whole host of statistical and measurement issues. It argues that these indicators should be applied with caution, keeping their shortcomings in mind.
How Fast Will China Grow Towards 2030: And what about the US?
, World Economics, June 2016
Historical data for the last fifty years shows that there is a surprisingly strong correlation between the growth rate of a nation’s GDP per person and its income level. The growth rate declines linearly with income, and this relationship can be used to estimate the future growth rate of a nation’s economy. Using the same method it is also possible to forecast the share of GDP in agriculture, industry, and services – and to demonstrate the continuing decline of the share in industry as a nation get very rich. This article concludes with a discussion of the likely impact of robotisation and greening on GDP growth.
Deflation? What Deflation? Statistical Origins of Japan’s Declining Price Levels
, World Economics, June 2015
Although Japan’s CPI is often criticized for potential upward bias, it deals with improvements in the quality of individual goods in ways that make the statistical inflation rate much lower than actual price changes. Moreover, the quantitative importance of this effect has risen progressively since the early 2000s due to increased weights of technology-intensive electronic products and changes in the method of adjusting their prices for quality improvement. Once this artificial effect is taken into account, it becomes questionable that Japan’s recent deflation has been so serious as to justify the adventurous monetary policy currently implemented by its central bank.
Industrial Rebalancing is Already Here, But Can it Continue?
, World Economics, June 2013
In mid-2012, as China’s economy decelerated, growth in electricity production – traditionally a good proxy for the health of industry – diverged strongly on the downside from official measures of industrial value added. While many analysts interpreted this incongruence as a sign of official data manipulation, detailed output and electricity consumption data tell a different story. Variation in Chinese electricity production since 2008 has been close to an exact function of output growth in a handful of heavy industrial sectors including metals, cement and chemicals, rather than industry as a whole. The underperformance of these electricity-intensive, but relatively low value-added sectors in Q2 and Q3 2012 largely explains the divergence between electricity output and industrial growth that confounded analysts last year. Moreover, the declining profitability of electricity-intensive sectors relative to consumer goods is an initial indication of ‘rebalancing’ in the Chinese industrial economy, which may herald changing data patterns in the future.
Currency Valuation and Purchasing Power Parity
Jamal Ibrahim Haidar
, World Economics, September 2011
This paper aims to highlight key limitations of The Economist magazine’s Big Mac Index (BMI). The Economist markets the BMI as a tool to determine valuation of currencies. This paper shows that the BMI is a misleading measure of currency valuation for economies whose markets are structurally different from the benchmark currency countries.
Clearing the Fog: How useful are short-term economic indicators?
& James Ashley
, World Economics, June 2010
Official statistical agencies produce a number of data series that are more timely and of higher frequency than the published estimates of GDP growth. There are also numerous private-sector measures and surveys that provide a running commentary on economic developments. In this article we assess the extent to which the major economic indicators in the UK, US and euro area can be used to reduce uncertainty about the prevailing pace of economic growth. We find that, whatever timely indicators are used, uncertainty about GDP growth in the current quarter and in the recent past remains high, but that the most consistent stand-alone indicator of contemporaneous activity is industrial production. However, the low share of industry in the economic output of ‘industrialised’ economies means that sole reliance on IP as an indicator in predominantly services-based economies is unsatisfactory. We are, therefore, drawn towards the conclusion that more timely indicators of services activity – both in the form of official data and business surveys – would be helpful.
Economic Forecasts: Too smooth by far?
& Jair Rodriguez
, World Economics, June 2008
Will the US and other economies slip into recessions this year? Which economies will decouple from a global slowdown? The authors suggest that the excessive caution shown by private sector forecasters limits the usefulness of their forecasts in answering these questions. Using growth forecasts for 14 major economies from 1990 onwards, they demonstrate that revisions made to forecast are extremely smooth. An implication of this smoothness is that forecasters do not call a recession until fairly late in the year in which the recession occurs. They are also slow to absorb news about developments outside their own economies, limiting the ability of the growth forecasts to predict the extent of decoupling.
"There Will Be Growth in the Spring": How credible are forecasts of recovery?
, World Economics, March 2002
Forecasters are currently echoing Chauncey Gardner’s words that “There will be
growth in the spring”. Or certainly by the summer. Are such forecasts credible?
Yes. This article presents evidence that private sector forecasters have done a
reasonably good job of forecasting recoveries in industrialised countries over the 1990s. Since recessions in these countries have tended to last under a year,
forecasting a recovery in the following year has turned out to be a pretty good
bet. However, a few recessions do end up lasting longer than a year: when that
happens, the evidence suggests that forecasters are caught flat-footed.
How Clear is the Crystal Ball?: Reflections on the accuracy of growth forecasts
, World Economics, March 2001
Two salie nt features of growth forecasts are discussed. First, recessions generally arrive before the forecast. Slowdowns are predicted but forecasters are unable or unwilling to call recessions. Second, private sector forecasts tend to be similar to those of official agencies. Some tips for forecast users are provided.
Demographic Risk in Industrial Societies: Independent population forecasts for the G-7 countries
Sylvester J. Schieber
& Paul S. Hewitt
, World Economics, December 2000
There is a growing awareness of the aging of populations around the world and the implications for national retirement programs. In most cases, estimates of population aging are based on fixed assumptions about fertility, improvements in life expectancy, and immigration. In most countries, however, these factors have varied considerably in recent decades. In this analysis, the authors use population projections in the G-7 countries that capture historical patterns of fertility, longevity, and immigration and variability in those patterns over time. They find that many developed countries may be underestimating the extent of population aging they are facing and the policy changes necessary to deal with it.