Counting the Costs of Political Violence in Bahrain
Author: , December 2014
The relationship between economic and political stability remains under-researched. This paper looks at the sources and types of data necessary to measure the true economic cost of political instability and violence from the disturbances across the Arab world which occurred in 2011, but which have continued to rumble on in many Middle Eastern countries. The impact of violence on the economy is analysed from the perspective of the Kingdom of Bahrain, which is a tolerant Gulf state with an open economy and which has been steadily diversifying away from an over-reliance on oil extraction. The point of this paper is to demonstrate how economic stability and national prosperity may be endangered by political movements.
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How Wealthy are the Chinese?This paper looks at the available data about the number of high and ultra-high net worth individuals in China in order to assess the potential for Family Offices in the country. It also considers the possible investment preferences of the Chinese outside China as external capital controls become liberalized. The paper surveys the current state of knowledge published in Rich Lists and investment bank reports and finds that their predictions are contradictory. The paper concludes that there remains much uncertainty about the number, location and asset holdings of the wealthy individuals and families existing in China.
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Employment in IndiaThe growth of employment has become a matter of grave concern in India for the past two decades. This paper – based on the unit-level data of the 61st and 66th quinquennial rounds on employment and unemployment released by the National Sample Survey Organisation (NSSO) in 2005 and 2010, respectively – pinpoints some of the emerging issues and dynamics in various segments of the Indian labour market. It finds that, notwithstanding India’s average annual growth of more than 8% and compound annual population growth of 1.4% between 2004/05 and 2009/10, the workforce grew at a snail’s pace, hovering around 0.03% per annum. What is striking is that, considering the workforce by sex, about 21 million female workers, approximately equivalent to the population of Australia, were out of the workforce between 2004/05 and 2009/10. Interestingly, segregating the workforce by rural–urban sector, it would seem that, contrary to a quantum leap of 13 million in the rural male workforce, the rural female workforce recorded a decline of 19 million during the same period, of which scheduled tribe, scheduled caste and other backward class combined to add up to a significant proportion. Interestingly, a precipitous increase in the number of females attending educational institutions and domestic duties accounted for a large-scale decline in the female workforce. The findings presented in this paper point to the need for a concerted effort to mitigate widening gender disparity and shrinkage of the female work participation rate in India.
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Measuring Natural CapitalThe purpose of this paper is to highlight the importance of establishing a system of natural capital accounting. Natural capital is integral to the economy and yet it is routinely taken for granted because the goods and services it provides are generally freely available. The consequence is that without prices, these resources are not being allocated efficiently within the economy and opportunities for significant gains in well-being and the possibility of long-term future growth are being lost. Recent works by the World Bank and the Inclusive Wealth Report have provided a wealth accounting framework, which gives more emphasis to environmental assets; however, due to data and methodological limitations, they inevitably failed to capture all assets of natural capital as defined by the Natural Capital Committee’s (NCC) State of Natural Capital Report.
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Applying Reputation Data to Enhance Investment PerformanceThe fact that corporate reputations deliver tangible shareholder value has been recognised by managers for some time. More recently, techniques have emerged that allow them to measure just how much value reputation delivers and identify the driving factors in order to structure communications and corporate messaging accordingly. While these techniques are having a marked affect on how companies are managing their reputation assets their use also has implications for investors. This paper uses reputation data to analyse the share price performance of companies identified as over- or under-valued. Evidence is found that where reputations are such that they suggest the companies are under-valued, that over time their market capitalizations grow at a greater rate than those whose reputations suggest over-valuation. This implies company reputation can be a powerful leading edge indicator to estimate investor returns and thus contribute to fund management.
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The Economic Future of EuropeWhat does the economic future hold for Europe? In the aftermath of the 2008 crisis, four macroeconomic threats have been subject to heated debates by economists and politicians. Some fear that Europe may face (1) secular stagnation, (2) sovereign defaults, (3) excessively high (or low) inflation and (4) collapse of the common currency euro. This paper discusses the relevance and potential drivers of these four threats. Importantly, it highlights the relationships between them, offering an analogy between the European economy and an overweight patient suffering from diabetes. The discussion implies that Europe needs long-term austerity but short-term stimulus, precisely the opposite of what most European countries have done since 2010. In particular, the paper stresses the need for conceptual reforms of public finances that take into account the ageing population trend, especially the pay-as-you-go financed pension and health care schemes. It is argued that such reforms would not only decrease the risk of costly sovereign defaults, but also reduce uncertainty in the economy, stimulate economic activity, and thus minimise the risk of a secular stagnation and a deflationary trap in the aftermath of the 2008 crisis. In addition, they would decrease the likelihood of excessive inflation further down the track caused by unpleasant monetarist arithmetic, as well as reduce the danger of a euro breakup. This scenario parallels an overweight patient adopting a suitable diet that helps him reduce his weight, blood pressure and insulin dependence – alleviating the risk of premature death.
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The Endless Business of Reforming the IMFIn this article I review Joseph P. Joyce’s thought-provoking book The IMF and global financial crises: Phoenix rising?” (Cambridge University Press, 2012). The book is a comprehensive yet concise appraisal of the IMF’s history of successes and failures in preventing crises, and in dealing with their consequences. The review is an opportunity for expressing some thoughts of my own on the subject, picking on Joyce’s reflection on how to reform the IMF, considering the needs of today’s global economy. The review discusses the role of the IMF’s largest shareholding countries in steering the institution’s strategic direction and action, as well the intellectual capture by the economic paradigm that has long prevailed in the highly financially developed world.
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Measuring Employment in Developing CountriesThis 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.
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Measuring the Asia-Pacific RegionThe Asia-Pacific region covers the countries around the Pacific Rim, South East Asia, the Indian Sub-Continent and Oceania. It contains three of the world’s largest economies outside the US: China, India and Japan. The quality of economic statistics varies widely across the region mainly because of differences in the resources available to national statistical offices in the large number of poorer countries. There are other data problems affecting inter-country comparisons: the use of old standards of national income accounting; the degree to which shadow and informal economies are under-recorded; and the use of outdated base years for the calculation of real GDP. On top of these issues is the continuing question about the extent to which China’s economic data is subject to political manipulation.
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Measuring Multidimensional Vulnerability in IndiaThis paper examines the relationship between multidimensional poverty and multidimensional vulnerability. Unlike poverty, which describes the status of a household at a point of time, vulnerability captures the likelihood of a household falling into poverty, given the current status of the household. The paper has used data from the India Human Development Survey, 2005, employing a multidimensional measure both at the all-India level and the state level. The results indicate the superiority of the multidimensional measure over the one-dimensional income measure because policy can be pointed towards addressing the dimension of poverty that is lacking and that is the cause of some states’ vulnerability to poverty.
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On the Role of MDBs in Developing Islamic FinanceThis paper analyses the main determinants of the diffusion and growth of the Islamic finance services industry (IFSI) globally. The boom in oil prices, producing surpluses in resource-rich countries with Muslim majorities and a preference towards investing in Shari’ah-compliant assets, boosted demand for Islamic financial services. The recent global financial crises and the Euro crises diverted attention to the need for more risk-averse vehicles for investment with asset backing both a prevalent feature of Islamic finance. Finally, the Arab Spring magnified the demand for Islamic financial services. However, the industry’s development, global diffusion and growth are challenged by many factors. Most importantly in the Shariah-compliant domain there is a lack of globally accepted standards for regulation and risk management, particularly for capital adequacy. The paper concludes that multilateral development banks (MDBs) can take a leading role in fostering the necessary global knowledge base and sharing global best practices to facilitate Islamic finance in achieving more efficient solutions to fighting poverty and boosting shared prosperity.
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The Global Financial and Economic Crisis, and the Creation of the Financial Stability BoardThe 2007-2008 global financial and economic crisis precipitated a significant shift in the financial regulatory worldview (or paradigm) of political and central bank leaders from leading advanced and emerging states. With a common consensus on the required financial reforms, these actors moved swiftly to create a new organization. The Financial Stability Board (FSB) now stands at the centre of the global regulatory architecture, but it remains obscure, opaque, and closed to most external observers. The FSB needs to change as it matures to reflect its key role in global financial reform efforts.
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Macroeconomic Policy in Open EconomiesThe dilemma facing policymakers is how to combine the instruments they have available in the form of fiscal, monetary and exchange rate policy to achieve the targets of internal and external balance. Shortly before the global economic and financial crisis in 2008 most economies appeared to be close to internal balance, but many of them deviated from external balance either in the form of large current account deficits or surpluses. In the aftermath of the crisis and for most advanced economies there was a sharp departure from internal balance, and policymakers in these countries faced a daunting challenge to restore it. The challenge was much less severe for many emerging economies. This article examines whether the analytical framework devised by Meade, Mundell and Fleming in the 1950s and 1960s provides a suitable basis for describing and evaluating the options open to them. It also uses this framework to examine and briefly assess the strategies pursued by the US, China and Greece, and to explain why economists continue to disagree on what policies are appropriate.
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The Greek Economic Crisis - is the Euro to Blame?The euro has been at the centre of reporting and discussion on Greece’s economic crisis. This article analyses the build-up, outbreak and development of the crisis in Greece, with the aim to answer whether the crisis can be traced to the country’s entrance into the Eurozone. By identifying a few of the underlying causes of the crisis, the article concludes that Greece’s crisis cannot be blamed on membership of the EMU. Nor is the financial meltdown and global recession of 2007–2008 to blame. Even without the euro, it is likely that Greece would have found itself in an economic crisis.
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What Were the Causes of the Great Recession?Two ways of thinking about the causation of the Great Recession are contrasted: the ‘mainstream approach’ and the ‘monetary interpretation’. According to the mainstream approach, the Great Recession was due to the potential insolvency of the banking system and the correct antidote was tighter regulation. The paper proposes an alternative ‘monetary interpretation’, arguing that the macroeconomic trajectory of the major G7 economies in the Great Recession is readily understood by means of the monetary theory of the determination of national income. The main cause of the Great Recession is seen as a collapse in the annual growth rate of broad money from double-digit annual rates in the years before mid-2008 to virtually zero in the following three years. Further, the dominant reason for the money growth collapse was the abrupt and comprehensive tightening of bank regulation in late 2008. In particular, the raising of regulatory capital/asset ratios was a shock that intensified the downturn.
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The Link Between Money and Nominal SpendingThe recent financial crisis has reignited interest in the role of money and credit in driving economic activity. This article takes a broad overview of the historical data available for assessing the link between money, credit and activity, using the quantity theory of money as an organising framework. The article shows that when trying to apply this theory to historical data, a complicated interaction between money and nominal spending emerges. And a deeper understanding of the forces driving money demand and supply is required to interpret the information contained in money about the level of activity and inflation.
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Reserve Creation and Reserve Pooling in the International Monetary SystemThe paper reviews the arrangements for meeting additional post-crisis demand for international liquidity. It distinguishes between reserve creation and reserve pooling as a basis for multilateral liquidity facilities; reserve pooling arrangements carry the risk that, in a general crisis, all the members will want to draw at the same time. We analyse the recently agreed enlargement of the International Monetary Fund from this perspective, and conclude that the IMF will carry much more liquidity risk after its enlargement than it has done in the past.
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When Money MattersThe severe financial crisis that grips Spain has multiple causes. One has been the massive and continued expansion of the money supply since Spain’s accession to the Eurozone, and the non-negligible effects of this expansion on asset prices as well as on the structure of the economy. We analyse the main hypotheses underlying the mainstream macroeconomic models used in recent years to explain inflation and its relation to money. We then apply an ‘unobserved component model’ to test for the cyclical relation between money growth, inflation, asset (stock and real estate) prices and real GDP in Spain from 1998 to 2013. Based on the Spanish experience, our main finding is that, even though the money supply has become endogenous within the monetary strategy developed by the US Federal Reserve and the European Central Bank in recent times, the broad money supply and asset prices have shared the same cyclical component in the latest business cycle (1998–2013).
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Data Manipulation of Inflation Statistics Artificially Raises Real GDPBaseline 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.
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Measuring Argentina’s GDP GrowthThe main purpose of this paper is to report on the results of an exhaustive reworking of Argentina’s output growth by industry realized by the ARKLEMS+LAND Argentina Productivity and Competitiveness Project. The aim was to reproduce a GDP time series since 1993 using traditional Argentinean national accounting methodology in order to check economic growth against official statistics produced after political intervention in the work of the National Statistics institute since 2007. The reproduced ARKLEMS GDP series closely approximates to official GDP between 1993 and 2007 at macro and industry level. But after 2007, Official series showed a higher growth than ARKLEMS reproducible (29.4% Official GDP vs. 15.9% ARKLEMS GDP for 2007–2012). However, the gap between the series is not related to the use of biased CPI deflators, but it is due to the abandoning of traditional methodology followed by Argentinean national accounts prior to its intervention. The paper shows that Argentina’s recent growth episode of 2002–2012 was similar to the previous positive growth cycle period of 1990–1998. Argentina was not the growth champion of the Latin America region during the later period, but it has one of the highest rates of volatility of GDP across Latin America. Argentine official GDP data has been subject to the so-called ‘Pandora’s Box’ effect as a result of the political intervention in the production of official statistics.
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Measuring Latin AmericaThis paper reviews the quality of official national accounting data investigated for 17 Latin American countries. Chile, which became an OECD member in 2010, stands out as a producer of the most reliable economic data and can be compared favourably with the USA and many European countries. The most significant data problems are the use of old standards of national income accounting, the use of outdated base years and the degree to which the shadow economy is underrecorded. In Argentina there is the additional problem that official published economic data has been subject to much interference in order to downplay inflation while reporting higher real national income and lower poverty data. A simple exercise is undertaken to estimate what the size of Latin American GDP might be if most countries updated their base years to 2012.
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Flowing Together or Flowing ApartAt a time when international institutions and governments rethink the structure of development financing, the analysis of the relationship between different capital flows becomes significant. Given the relevance assigned by international institutions to the potential complementarities between foreign direct investment (FDI) and official development assistance (ODA), our study examines the relation between these flows for two countries that have attracted large amounts of the former: Argentina and Brazil. We analyse ODA and FDI time-series by donors and sectors, paying special attention to ODA allocated to economic infrastructure. In light of the frequent turbulences experienced by international financial markets, we also study the volatility of both flows, as well as the relation between FDI and ODA shocks. With the exception of Japanese flows to Brazil, we find no systematic relation between FDI and ODA flows even when the main foreign direct investors are also the main donors.
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How to Reduce Carbon Emissions EquitablySo far international negotiations designed to reduce carbon emissions have come up against the clash of views as to the equitable way of sharing out the ‘burden’ among countries. In this article we show that the main criteria that have been discussed, including ‘historical responsibility’, ability to pay, demographic and ‘needs’, are all subject to statistical difficulties as well as ethical objections, particularly the historical responsibility criterion. Any equitable compromise between the different possible criteria needs to take account of these obstacles to their being made operational.
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Singapore’s Temasek HoldingsThis paper examines shifts in Temasek Holding’s (Singapore’s sovereign wealth fund) investment and risk management strategies since the 2008–09 global financial crisis (GFC), as well as the risks it has faced in recent years. Our findings reveal that the shift in Temasek’s investment strategy has been made in response to a combination of the GFC, rising political and sovereign credit risks, as well as the desire to move away from playing a custodial role to Singapore’s government-linked companies (GLCs). We note that, apart from capitalising on lower global prices to expand its portfolio as well as minimising its exposure to the financial services industry immediately after the GFC, other changes have been part of a continued trajectory of a broader shift in investment strategy that commenced in the early 2000s, with a redirection of the geographical distribution of its portfolio from Singapore and OECD countries to Asia (excluding Japan). Furthermore, as a sovereign wealth fund, Temasek has had to deal with increasing political and sovereign credit risks in recent years. To mitigate these political risks, Temasek has pledged that it will cease seeking controlling interests in foreign companies, will increase the use of local partners and will consider the ‘emotional sentiments’ that its acquisitions may arouse in host countries. The elevated sovereign credit risks in the Eurozone and the United States have rendered Temasek more cautious in investing in those regions and, where it has invested, it has focused on the energy and natural resource sectors, which are relatively more insulated from sovereign credit risks.
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New Data on Global Differences in Family OfficesA family office is not a specifically-defined institution per se. Rather, the family office is a broad concept to cover all financial needs of one or more wealthy families. While in the United States the first family offices were established in the nineteenth century, interest in the family office concept has recently been growing in emerging markets around the globe due to the increasing number of ultra-wealthy individuals and families in those regions. Nowadays, family offices are set up all over the world. This fact inevitably leads to the question: Are there regional differences among the structures of family offices, their services, their investment strategies, and their operational costs?
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