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Using Price-Adjusted Income Data to Measure Regional Income Inequality Across the UK
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Julian Gough, World Economics, March 2018
Data for gross disposable household income for each region of the UK are published annually by the Office for National Statistics. The latest provisional data available are for the year 2015. The annual data for household income are in nominal terms only—i.e. they do not allow for differences in prices between regions of the UK, which distorts the results. A reliable deflator to correct the nominal data for differences in inter-regional price levels was derived from the regular survey of prices for calculating the Retail Prices Index, augmented by a special survey of prices of goods and services. When allowing for price level variations between nominal and real household income in different regions the greatest impact is on London. In real terms, household incomes in London are 6% lower than in nominal terms, amounting to a reduction of about £12.4 billion.
Measuring the Success of Industrial Policy in Australia
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Andrew Marks, World Economics, December 2016
Industry policy in the context of trade liberalization has played a critical reinforcing role in re-orienting production in the Australian manufacturing sector from the domestic to international market. In the textile, clothing, footwear and motor vehicle industries this has promoted sustainable output and employment growth. This policy has also been instrumental in improving the structure of manufacturing exports from simple to elaborately transformed manufacturing products. The niche capital and knowledge intensive nature of elaborately transformed manufacturing products is of particular importance because they exhibit a comparative advantage in international markets. This has helped to offset the competitive advantage provided by industry policy in stimulating manufacturing exports in the countries of the South East Asian region which constitute Australia’s major export markets. Pressure is also being applied on other countries to implement industrial policy in order to remain competitive on the international market and in particular in this rapidly growing region of the world.
The Data Quality Index
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World Economics
World Economics, June 2017
GDP data is important used to apportion funds from international organisations, to influence rating agency decisions and much more, but official data is totally inadequate for the demands made of it. The notion of GDP data is flawed conceptually, but there are also severe methodological issues that need to be addressed prior to making international comparisons and assessing data reliability. World Economics has created an interactive Data Quality Index for users of economic data which considers five readily measurable factors that influence data reliability across countries. The Data Quality Index ranks 154 countries based on an equal weighting of the five factors, but users can adjust the importance of each to their data needs.
Are Estimates of the Economic Contribution of Financial Services Reliable
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Brian Sturgess, World Economics, March 2017
The methods used to estimate the contribution of financial services to national income are seriously flawed. Banking sector output in the UK was estimated to have increased in 2008 while the financial services sector was collapsing. The relative contribution of service activities in GDP is not easy to measure, but there are many problems in measuring financial services in general and the output of banks in particular. National income accounting standards, used to estimate the output of financial intermediation companies such as banks, rely on flawed indirect measurements based on interest rate spreads. Furthermore, many services are provided at no charge so price indexes cannot be meaningfully created. The main method used, Financial Intermediation Services Indirectly Measured (FISIM), is arbitrary and fails to measure the quality of banking assets and risk. Over the period 2003–7, one study found that aggregate risk-adjusted output would have been only 60% of officially estimated output across the Euro area.
The Digital Revolution – New Challenges for National Accounting?
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Michael Grömling, World Economics, March 2016
The digital revolution has changed many industries, but measuring these changes from a national accounting perspective causes problems. Generally, in the transition periods during the introduction of new technologies, marked setbacks in the estimation of productivity growth are possible. Whereas new private goods are partly invisible in the national accounts because of measurement lags due to outdated accounting standards, more often only their negative substitution effects turn up in GDP measures. If this causes a market phenomenon it should be reflected initially in a weaker market production and productivity. In order to capture new private digital goods and their welfare effects a separate documentation of their introduction in a ‘satellite account’ is recommended.
The Poverty of Statistics: Military Power, Defence Expenditure and Strategic Balance
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Jan Ludvík, World Economics, March 2015
Military expenditure and the number of service personnel are the two features most commonly used to compare national military power. The question remains, however, to what extent these reflect the real-world situation. This study aims to provide an answer by using economic and military data about conflicts between great powers over the last 160 years. Correlations of War data are employed to show that the relationship between pre-war military expenditure and army size on the one hand and outcomes of war on the other, is blurry to say the least. States with higher military expenditure prevailed in only six of the nine conflicts between great powers examined in this research. Only four of the nine were won by the state with the larger peacetime army. Using the case of the Franco-Prussian War, this work illustrates that even the superiority of both mentioned variables cannot ward off a crushing defeat, let alone ensure victory. A nation’s military power stems from its ability to adapt effectively to the realities of modern warfare. This is what neither high military expenditure nor sheer soldier numbers can guarantee.
Measuring Employment in Developing Countries
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Nomaan Majid, World Economics, September 2014
This paper is concerned with measuring categories of employment that have an economy-wide meaning in the developing world. Employment has always had two interconnected sides, output and income, and these two dimensions of employment operate under very different conditions in advanced and developing economies. A developing economy is divided into two parts, organised and unorganised in respect of labour. A large amount of surplus labour exists in the unorganised part creating underemployment that manifests itself in a range of forms of employed labour. In this situation the headcount of the employed overestimates economy-wide employment; and the headcount of the unemployed seriously underestimates economy-wide unemployment.
Data Manipulation of Inflation Statistics Artificially Raises Real GDP
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Christopher Balding, World Economics, June 2014
Baseline Chinese economic data are unreliable. Taking published National Bureau of Statistics China data, three problems appear. First, base data on housing price inflation are manipulated. Second, the NBSC misclassifies most Chinese households as private housing occupants. Third, the NSBC applies a straight 80/20 urban/rural private housing weighting. To correct for these manipulative practices, I use third party and related NBSC data to correct the change in consumer prices in China between 2000 and 2011. I find that using conservative assumptions about price increases, the annual CPI in China should be adjusted upwards by approximately 1%. This reduces real Chinese GDP by 8–12% or more than $1 trillion in PPP terms.
Poor Economic Statistics Fuel China’s Low Consumption Myth
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Jun Zhang & Tian Zhu, World Economics, June 2013
The generally held belief that China’s consumption is too low is a myth based on inadequate theory, a misreading of official statistics and the use of market exchange rates for making international comparisons. Chinese official statistics underestimate consumption expenditure on housing, they omit consumption paid for as benefits by the corporate sector, and there are a number of problems with the household expenditure surveys employed. An adjustment for statistical issues suggests that the rate of consumption is 60–65% of GDP, not the 48% based on the widely quoted official statistics figures, and is quite similar to the level experienced by other East Asian economies.
Agricultural Statistics
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Morten Jerven, World Economics, March 2013
In developing economies the data on agricultural production are weak. Because these data are assembled using competing methods and assumptions, the final series are subject to political pressure, particularly when the government is subsidizing agricultural inputs. This paper draws on debates on the effect of crop data subsidies in Malawi. The recent agricultural census (2006/2007) indicates a maize output of 2.1 million tonnes, compared to the previously widely circulated figures of 3.4 million tonnes. The paper suggests that ‘data’ are themselves a product of agricultural policies.
Global Value Chains, International Trade Statistics and Policymaking in a Flattening World
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Alejandro Jara & Hubert Escaith, World Economics, December 2012
The raise of global production networks since the 1980s changed the way we understand international trade and has profound repercussions on development policies and the conduct of global governance. New comparative advantages allow large developing countries to leap-frog through their industrialization process while smaller economies without large internal market or mining resources are now able to build an industrial base. Offshoring also gave the possibility to firms from industrialised countries to remain competitive in front of fast-expanding firms from emerging countries. But in the process, the relative demand for low and medium skilled workers in industrialised countries contracted, and this employment and income effect became a political issue and fuelled demand for protectionism. Unfortunately, the debate lacks accurate data as traditional statistics give only a blurred picture of what is known as ‘trade in tasks’. Before revising the trade and governance implications, the article calls for a new measurement of international trade based on its value-added content in order to have a better understanding of the actual issues.
Editorial: Official Trade Data: Still Fit for Purpose?
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Brian Sturgess
World Economics, December 2012
There is no summary available for this paper.
The Power of Price Indexes
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Raymond Cheung and Mike Waterson
World Economics, March 2011
Price indexes are the most important of all economic indicators simply because they are the tool used to calculate the real size, speed and direction of all forms of economic activity. Price indexes are compiled almost everywhere, but with major differences in method and sampling procedures. Some methods and procedures have led to significant errors. Even in the case of a country as advanced as Japan, critics have calculated that imperfections in method have led to a rate of price inflation around 1.8% per year above the level a true cost of living index would have shown. Further research undertaken by World Economics has attempted to make estimates for changes in discounting and promotional practices at the retail level. The conclusion is that, in reality, the overestimation of price changes by the Japanese CPI in recent years may well have been in excess of 2% per annum, and could have been significantly more. Different CPI assumptions change economic growth estimates dramatically. Using World Economics estimates, adding in a minimum figure for marketing and retail changes seen in recent years suggests, contrary to official data, that Japanese consumption growth exceeded that of the US.
Greek Economic Statistics: A Decade of Deceit
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Brian Sturgess, World Economics, June 2010
This paper looks at the recent problems in official Greek economic data on public finances, whose reliability has been impaired by inappropriate accounting methods, the application of poor statistical methods and deliberate misreporting. Data on deficits and debt have been misleading from before Greece’s eurozone entry, but despite a regular supply of public information about the problems, the rating agencies did not respond by downgrading Greek public debt until it was too late. These agencies reacted to, rather than leading, market tends that were already under way. The issue casts doubt on the fitness for purpose of the European Statistical System where the powers of Eurostat, the statistics arm of the European Commission have been inadequate to effectively monitor the fiscal status of eurozone countries. These powers, at present limited by the principle of subsidiarity to administering a Code of Practice, must be strengthened closer to approximating a power of audit.
Maddison and Wu: ‘Measuring China’s Economic Performance’
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Yuri Dikhanov & Eric V. Swanson, World Economics, March 2010
Angus Maddison and Harry Wu (2008) claim that, in 2003, China’s GDP was 73% of that of the United States on a purchasing power parity (PPP) basis. Rejecting the results of the 2005 International Comparison Program (ICP), they construct their own PPP using a 1986 GDP estimate for China (Ren & Chen 1995) which they adjust upwards, and then extrapolate to 2003 using their revised growth rates for China, which they adjust downwards. This note examines the validity of their adjustments and assumptions, and finds them to be inconsistent with recommendations both from the perspective of index number theory and recommended national accounting practices. The 2005 PPP estimates from the ICP, which Maddison and Wu reject, produce a more plausible estimate of the size of China’s economy relative to that of the US (43% in 2005).
Measuring China’s Economic Performance
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Andreas (Andy) Jobst & Harry X. Wu, World Economics, June 2008
China is the world’s fastest growing economy and is also the second largest. However, the official estimates of the Chinese National Bureau of Statistics exaggerate GDP growth and need adjustment to conform to international norms as set out in the 1993 System of National Accounts (SNA). This paper presents and discusses the necessary adjustments. The two major contributions are new volume indices for the industrial sector and for "non-material" services. Finally, in order to measure the level of Chinese GDP in internationally comparable terms, the authors use a measure of purchasing power parity (PPP) instead of the exchange rate.
Some Proposed Methodological Developments for the UK Retail Prices Index
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Mick Silver, World Economics, March 2003
The Retail Prices Index (RPI) is one of the UK’s most important macroeconomic indicators, as well as being used for indexation/adjustments for inflation to wages and benefits. This paper argues that the dynamic changes in product markets and consumers’ responses to price changes need to be incorporated into the RPI if it is to effectively measure changes in the cost of living. The quite positive and innovative work undertaken by the Office for National Statistics (ONS) is acknowledged. However, the basis of the RPI, in measuring the price changes of a matched, fixed basket of goods, is considered inappropriate to modern markets. Some proposals are made.
Owner-occupiers and the Price Index
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Ralph Turvey, World Economics, September 2000
The treatment of owner-occupied dwellings in Consumer Price Indexes varies between countries and is the subject of continuing controversy. Ralph Turvey explains the alternative possible treatments and reasons for disagreement.

Displaying: 1-18 of 18