World Economics

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The NTV Model for Total Factor Productivity
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Andrew Smithers, World Economics, June 2019
The consensus model for total factor productivity is unsatisfactory; the alternative, non-technology variables (‘NTV’) model resolves the objections to it and should therefore be preferred by economists. The key objections to the consensus model are that it is untestable, its assumption about corporate behaviour is falsified when tested and, for the accounting framework to function, the labour/capital ratio has to be as flexible on old capital as it is on new: an assumption which seems most unlikely. The differences in the results are non-trivial and the NTV model has positive implications for economic policy by showing how they could be changed to boost growth. NTV comprises all the variables, other than changes in labour and technology, that determine the level of investment and the capital stock. Changes in NTV are the net impact on the incentive to invest resulting from changes in the individual constituents, which are profit margins, the cost of equity, the cost of debt, leverage, corporation tax and the hurdle rate, which is the minimum expected return on equity needed to make new investment worthwhile in the opinion of management. The consensus model assumes that investment is partly determined by changes in the cost of capital while ignoring the impact of changes in the cost of equity and debt and in leverage. I show that this assumption is unjustified and why it is preferable to use NTV.
Deflation? What Deflation? Statistical Origins of Japan’s Declining Price Levels
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Masanaga Kumakura, 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.
Measuring Information Technology and Productivity in the New Economy
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Kevin J. Stiroh , World Economics, March 2002
The growing importance of information technology raises significant challenges for statisticians and economists. The US national accounts now incorporate sophisticated measurement tools to capture the rapid rates of technological change and dramatic improvements in the performance/price ratio of many hightech assets like computer hardware, software, and telecommunications goods. These data have been incorporated into traditional sources of growth analyses to identify the impact of information technology on the US economy. The emerging consensus is that information technology played a key role in the post-1995 revival of US productivity growth.
Poles Apart
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Paul Gregg, Kirstine Hansen & Jonathan Wadsworth, World Economics, June 2000
Analysis of labour market performance using individual level data can reach radically different conclusions to those provided by a household-based analysis, using the same source of information. In Britain and other OECD countries the number of households without access to earned income has grown despite rising employment rates. Built around a comparison of the actual jobless rate in households with that which would occur if work were randomly distributed, the authors show that work is becoming increasingly polarised in many countries. Changing household structure can only account for a minority of the rise in workless households, so that labour market failure is the dominant explanation. Polarisation of work will have important welfare and budgetary consequences for any country.
False Perspective: The UNDP View of the World
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David Henderson, World Economics, March 2000
Despite some searching and unanswered criticisms of its treatment of statistical evidence, the UNDP Human Development Report has become established as a widely-quoted and influential survey of the world scene. The 1999 Report, reviewed here, focuses on ‘globalization’. This is described as a dominant influence on the recent economic fortunes of developing countries in particular, and as a primary cause of continuing poverty and growing inequality in the world. The author argues that the Report provides neither argument nor evidence in support of this thesis; that it takes no account of other factors that have strongly influenced economic performance; that its main prescription for the world, of reforms in ‘global governance’, is largely beside the point; and that its whole approach is crudely anti-liberal. The author concludes by placing the Report, as also the economists who have aligned themselves with it, in the wider context of anti-liberalism today.

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