Trade Data: Use with Care 
Politicians focus on trade deficits and surpluses between countries and threaten trade wars and retaliatory actions, but the conventional international trade statistics used by many commentators are inaccurate. World exports and imports do not balance, but asymmetries are also found in the balance of trade statistics between countries and regions and these discrepancies can be very large in emerging markets. The ‘Rotterdam effect’ distorts the measurement of trade flows and balances where goods are recorded as imports into one country, which subsequently re-exports them to third countries without taking note of the country of origin. The Apple ‘Made in China’ question, or the existence of global value chains where much trade is in intermediate inputs, indicates that conventional trade statistics involve double-counting and misallocated trade balances.
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India and China: Tracking their WTO Journeys with Trade DataTrade data are used to examine the roles played by India and China in the World Trade Organization (WTO) and the implications for their share of global trade. India was a founding members of the WTO whereas China joined in 2001 after much deliberation, negotiation and caution. India has been one of the Organization’s most active members, a key negotiator for the developing world during Uruguay and a main source of obstacles in the Doha rounds of trade liberalisation. India contributes about 2.3% to world trade and is a services trade powerhouse, while China controls 11% of world trade as the world’s factory and as an emergent technology giant.
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Using Indian Data to Measure the Impact of the Eurozone Debt Crisis Through the Financial ChannelEconomic data for the period 2000 to 2013 shows that the sovereign debt crisis in the Eurozone had a macroeconomic impact on India by transmission through financial channels. Capital flows into India slowed down significantly due to the crisis: net external loans availed by banks stood at US$2.7 billion in the third quarter (Q3) of 2012–13 as against outflows of US$87 billion in Q3 of 2011–12. The number and quantity of Euro issues by Indian firms declined from INR159.6 billion (with 18 issues) in 2009–10 to only INR10.3 billion (with 5 issues) in 2012–13 and portfolio investments into India fell significantly. One significant lesson from the Euro debt crises is that the Indian financial system is relatively more open than that of the Chinese.
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Will ‘America First’ Trump International Cooperation and Coordination? Seventy years of American leadership of the international system has ended abruptly shaking the foundations of the post-World War II international architecture. The International Monetary Fund and the World Bank, twin pillars of the post-World War II system, will be adversely impacted by an America First policy since the US has the largest share of votes, the loudest voice, and greatest influence in both institutions. The WTO dispute settlement system needs a minimum of four judges to function, but the U.S. Administration may opt to stymie the operation of this key pillar in global free trade with wilful neglect. It remains essential, therefore, that the Financial Stability Board created in 2009 is not impacted by the Trump Administration’s sceptical view of international regulatory coordination.
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The Globalisation of Corporate Governance and Implications for African Corporates in a Changing Regulatory LandscapeAdopting global corporate governance standards remains a challenge for most corporates in developed and developing economies, but shareholder capitalism is probably set on an irreversible growth path. The growing number of African corporate entities abiding by global corporate governance standards, despite the regulatory costs associated with compliance, is a positive development. The short-term costs in trade finance, financial intermediation and banks’ balance sheets are outweighed by the long-term benefits of adopting global corporate governance standards. Improving compliance requires better data and in Africa an initiative led by the African Export-Import Bank aims to provide centralised single sources of the primary data required to conduct customer due diligence checks on African counterparties.
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Measuring GDP in Fragile StatesGross Domestic Product (GDP) is central to measuring economic performance and productivity, and monitoring fiscal and monetary policies, as well as changes in poverty and shared prosperity. Compiling GDP in accordance with internationally agreed definitions and rules is a complex and data-intensive task, but it is especially challenging in fragile countries. Data are often lacking, of poor quality, or out of date. Much economic activity takes place outside the formal economy, and measuring real growth is more difficult for countries facing armed conflict or natural disasters. But fragile states need accurate measures of GDP, because their economic losses are commonly evaluated in terms of GDP prior to the design and implementation of any mitigation policies.
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Analysis of Revisions in Indian GDP DataThis paper studies constant price growth estimates of India’s annual GDP data in order to understand the revision policy adopted by the Central Statistics Office. The use of high-frequency indicators to prepare initial estimates overstates the growth of the economy, although at the aggregate level the difference between initial estimates and final revisions is low. At the sectoral level the extent of revision for almost all sectors is large and the magnitude and direction of the revision is unpredictable. The Central Statistical Office must address issues in data quality and revisions by (i) adopting a comprehensive revision policy, (ii) supplying information and data on high frequency indicators and (iii) adopting revision metrics to assess the quality of estimates.
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The Economic Impact of Italian Market ReformsItaly’s labour market is highly segmented by gender and age with high labour costs, high rates of self-employment and undeclared work, high minimum wages, strong dismissal constraints and uneven job opportunities between Northern and Southern regions. Italy has experienced three decades of reforms aimed at liberalising its labour market, boosting competitiveness and introducing flexibility to address low productivity and weak employment dynamics. The 2014 Jobs Act is Italy’s latest market labour reforms aimed at rationalising employment protection legislation, improving the effectiveness of social protection and boosting female and youth participation in the labour force. Labour market data for the first 18 months of the implementation of the Jobs Act point to positive upward trends for both employment and job creation as well as to a decrease in unemployment.
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Measuring the Share of Labour in GDPThere is a view that increasing inequalities in advanced economies are responsible for growth problems and political polarisation. A new impetus has been injected into the analysis of macroeconomic income distribution since if capital’s share is rising this has implications for the personal distribution of income. An international comparison of data from advanced countries does not reveal any widespread or consistent decrease in labour’s share for the past quarter of a century. No pattern is discernible and a number of statistical limitations and data issues need to be taken into account when interpreting the functional distribution of income.
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Measuring the Impact of the Internet on RetailingThe internet has radically changed the purchasing of goods and services leading to a rapid expansion of online retailers and a decline of many traditional shops on the high street. The UK is the leading nation in Europe in terms of online sales, after a remarkable change in consumers’ spending patterns, with a value of £67bn in 2017, 18% of total retail sales. Economists have neglected retailing as a subject area, perhaps reflecting the complexity of its operations, but it is possible to construct a model of retailing by adapting the conventional marginal theory of the firm. Online retailing has benefits—the ability to view, compare and choose products at competitive prices on screen, pay online with fast home delivery—and costs—the disappearance of small local shops with after-sales service.
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On Measuring HyperinflationVenezuela now exhibits the 57th historic episode of hyperinflation as measured in the Hanke–Krus World Hyperinflation Table. Entry to the hyperinflation dataset depends on three qualifying criteria: inflation rates greater than 50% per month; the persistence of this rate for at least 30 consecutive days; and full documentation so that inflation estimates are replicable. This paper measures Venezuela’s hyperinflation by transforming changes in the US dollar–Venezuelan bolivar exchange rate into implied inflation rates using the purchasing power parity doctrine. The purchasing power parity method is accurate during periods of hyperinflation. Venezuela’s hyperinflation peaked with a monthly inflation rate of 219.7% on 30 November 2016.
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Measuring Income Inequality and InsufficiencyIncome inequality is normally illustrated by the Lorenz curve and measured by the Gini coefficient and other variant measures. Standard estimates exclude what is left of income when expenditure is subtracted and some groups have income insufficiency, income sufficiency or a surfeit of income—income sufficiency. This paper presents an income insufficiency index (Uiix) using the technique employed by Lorenz to calculate regions of surplus and the area of deficits, dividing them to create a new ratio. The new index is compared with standard measures of inequality using income to add more welfare substance using historical data from the Philippines from 1961 to 2012.
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How Accurate Are the National Balance Sheets for China?The accuracy of data on China’s national balance sheets has attracted much less attention than that of the Gross Domestic Product reports. China’s Bureau of National Statistics has not released official national balance sheets, but two Chinese research teams have produced estimates for recent years. A detailed analysis of these reports by the author reveals varying degrees of discrepancies for the whole Chinese economy and its components, and for different types of assets and liabilities. The System of National Accounts was claimed by researchers as a common framework, but non-standard classifications and disclosures of assets and liabilities from diverse data sources mean that many issues must be resolved before China’s wealth can be measured accurately.
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Flow of Funds AccountsThis study uses historic flow of funds data in India and examines the movements of funds across financial and non-financial sectors of the economy. The study develops a new theoretical framework to map the multidimensional nexus across macro-economic aggregates and to integrate the NIP and FOF accounts. The financial system has witnessed discernible deepening - increased preferences of households for financial assets - and widening -availability of a wide spectrum of financial services and instruments with varying degrees of returns, risks and liquidity. The household sector is the only surplus sector in the domestic economy and it uses its financial saving surplus to finance the resource deficits of the private corporate business and government sectors. The banking sector played a dominant role in the allocation of resources in India as compared to other financial institutions.
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The Unstoppable Economic Rise of AsiaThe Asia-Pacific region is set to remain the world’s economic powerhouse in terms of economic growth for the next few decades. In value terms, Asian GDP increased between 1970 and 2015 from $4.63 trillion to $45.39 trillion in constant prices, an increase well above the rise in population growth, raising millions out of poverty. If current trends continue World Economics predicts that the share of the Asia-Pacific region in world GDP will have risen to 63.5% by 2050 with Europe declining to 12.1%, the Americas at 18.9% and Africa rising marginally to reach 5.5%. Slowing growth in China will not halt the Asian growth story as conditions for expansion exist across South Asia, particularly in India.
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Estimating the Impact of Foreign Trade on GDP Growth in SwedenThis paper uses historic economic data to review Swedish foreign trade and industrial policy over the period 1800–2000. The long-term causal relationships between imports, exports and economic growth are examined. The results show that there exists a long-term relationship between imports, exports and growth and that the causality is bidirectional between the variables, implying a feedback effect. The findings indicate there was no productivity gap between Sweden and the rest of the world; the country did not violate its international budget constraint; growth- and export-promoting policies were successful; and intra-industry trade had a significant role in shaping Sweden’s exports and imports.
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Making Data Measurement Errors Transparent: The Case of the IMFIn 1950 Morgenstern pointed out that absolute precision and certainty are impossible in economic observations, but estimates are often hampered by a substantial degree of measurement error. Unlike the natural sciences, economists in general do not report measurement errors for the key concepts such as prices, value or production that it seeks to define, measure and explain. For most macroeconomic concepts two approaches are available: the Implicit Minimal Measurement Error and the Maximum Ratio. Studying different vintages of the IMF World Economic Outlook data base it was found that the estimates on average have an implicit minimal measurement error of 4.3% and maximum ratio of 17.9%. An agenda is proposed for removing disincentives (creating incentives) for stakeholders (academics, data collectors and producers) since reporting measurement error will result in better research, better policy and ultimately better data.
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Beyond the Shadow Economy Money laundering is illegal world-wide and constitutes a significant economic inefficiency. Current anti-money laundering and combating the financing (AML/CFT) efforts are primarily driven by the threat of terrorism and drug-trafficking, but the majority of illicit money flows is due to fraud. This paper assesses the costs and benefits of controls on the efficiency of the financial system in modern advanced economies and the less developed economies of the world. The significant costs imposed on financial institutions, increasing levels of regulation and the minuscule illicit money flows intercepted has resulted in moral hazard and significant conflicts of interest.
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What Makes Maddison RightThe ‘Great Divergence debate’ in economic history relates to the question of when China fell behind the levels of well-being in Western Europe. A recent paper published in this journal argues that existing historical data cannot answer this question and criticizes estimates of Angus Maddison of GDP per capita based on limited evidence. The authors believe, in contrast, that critiques, assessments and summaries on the state of the Great Divergence debate even if flawed are in the original spirit of the Maddison research. Maddison’s work is less about right or wrong than about trying to achieve better or best estimates by overcoming the current constraint on data and methodologies over time.
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New Estimates of Regional GDP in the UKReal GDP is estimated by applying a price-level estimate or deflator to nominal GDP, but GDP levels in the UK’s 12 inhabited regions are only reported at nominal prices with no allowance for differences in regional prices. A purchasing power parity (PPP) rate for the £ in each region, measuring how much a typical bundle of goods and services would cost, is required to create an accurate index to apply to nominal GDP in order to get real regional values. A solution lies in creating an expenditure-based, weighted, regional price index for consumers’ expenditure, government spending, investment and exports, to adjust nominal data to real price levels. Using imperfect public data, creating an expenditure-based index makes a significant difference to the size of each regional economy and to GDP per capita. In real terms, the London economy shrinks by 12%, the South-East contracts by 2% and all other regions increase in size.
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Why Maddison was WrongMuch academic debate in Western and Chinese universities has engaged in testing the hypothesis that standards of living in China did not fall behind those of the populations of the national economies of Western Europe until late in the eighteenth century Unfortunately, the data for China accessible in secondary sources do not provide historical runs of estimates either for GDP or for total population, let alone for any purchasing-power-parity rates of exchange estimates. Angus Maddison used short-cut methods to circumvent these difficulties, but a platoon of distinguished economists have found his methods and estimates to be conceptually and statistically unacceptable as historical evidence. The data currently available for China are and may well remain too fragmentary, ambiguous and insecure to sustain a Kuznetsian perception for investigation into the historical origins of the Great Divergence.
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Double Deflation Casts Doubt on Existing GDP DataIncreasingly, national income statisticians, the specialists involved in producing real national income figures, and the users of those figures are living in a parallel universe. Most countries use an outdated and inaccurate method to estimate real Gross Domestic Product (GDP) by using what is termed single deflation. Best practice suggests using double deflation: one price index to deflate the prices of goods produced and another to deflate the value of intermediate goods used up in production. A recent study comparing single deflation calculations with double deflation official growth estimates for eight countries showed that, for some years, single deflation figures deviated up- or downwards from the official estimates by as much as 3–4 percentage points.
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Building a New Testable Model to Estimate Total Factor ProductivityA 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.
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Assessing the G20’s Mutual Assessment Process: A MAP but Little DirectionAfter the global economic and financial crisis, the G20 has tried to orchestrate an internationally coordinated approach to economic recovery. In late 2009, the Mutual Assessment Process (MAP) was introduced to minimize risk by reducing global economic imbalances and encouraging economic growth. To implement MAP, the G20 attempted to oversee macro-economic policy at the global level with the International Monetary Fund collecting data and providing technical assistance. Later experience suggests that, in the absence of a global economic crisis, the MAP will continue to lose direction and relevance and is unlikely to become a modality for close international macro-economic coordination.
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Measuring the Elusive Middle Class and Estimating its Role in Economic Development and DemocracyThe middle class has a special role in economic, political, and social thought, but social scientists seem unable to agree on how to define or measure it. This article stems from an ongoing Johns Hopkins University project on populist and autocratic attitudes worldwide analysing World Values Survey (WVS) data to see what they reveal about the middle class–democratization nexus. Estimates suggest that between 1.4 and 2 billion people are middle class worldwide, with the largest shares found in North America (338 million), Europe (664 million), and Asia (525 million). Data from 4 consecutive rounds of the WVS for a panel of 30 countries from 1995 to 2015 do not support the theory that rising incomes are associated with increasingly open forms of political discourse and citizens’ stronger political attitudes and participation.
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How to Reconcile Democracy, the State and the Global MarketNation states were the vehicle for market capitalism, but global market capitalism has freed itself from regulations imposed by nation states. A trilemma between democracy, the state and the market became an irreconcilable one, and gathered momentum. The post-War period has shown it is impossible to have a fixed exchange rate, free capital movement and sovereign monetary policy all working at the same time. To reconcile the trilemma, development banks need to cooperate or merge to finance transcontinental infrastructure projects to push up growth and employment and the World Trade Organization (WTO) should include a norm whereby countries joining it adopt the same exchange-rate regime (be it fixed or flexible). Without a deep reform in the global architecture, disequilibria, both economic and social, will continue to worsen, and conflicts will arise – only another ‘great depression’ will shock the international economy to induce the necessary international cooperation and joint action.
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Problem or Solution: Data on Sub-National Debt for Infrastructural Development in NigeriaNigeria has witnessed a substantial rise in sub-national debt at the state level in an economy characterised by infrastructural decay and macro-economic imbalance. The mismanagement of sub-national debt in Nigeria has culminated in the inability of most states to meet their daily obligations. Secondary data sourced from the Central Bank of Nigeria and the Debt Management Office shows that external indebtedness of the states grew from US$2 billion to US$3.4 billion between 2010 and 2015, a rise of 68.4%. Sub-national debt has been identified as a conduit for embezzlement. A more sustainable approach to infrastructure financing should be the adoption of a public-private partnership (PPP) approach.
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The Data Quality Index Author: 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.
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Neglect Private Debt at the Economy’s Peril?The role of private debt as a cause of financial crises and prolonged recessions is often neglected. In Cyprus policy concern has focused on government debt despite the problem of a rapid growth of private debt and its wasteful use. Private debt in Cyprus stands at over 350% of GDP, but the European Commission’s policy of austerity and encouraging the redeployment of private assets through bankruptcy is based on a misdiagnosis of the problem. Studies of the importance of private debt and balance sheet recessions following financial crises conclude that policy-imposed austerity can only worsen and delay economic recovery. In Cyprus there is scope to raise productive government expenditures through using European Union funds, by raising revenue from the large base of unpaid taxes and by taxing the large shadow economy estimated at over 25% of GDP.
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Are Estimates of the Economic Contribution of Financial Services ReliableThe 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.
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Measuring the Performance of Fiscal Reforms: The Case of the GCCPublic spending has raised the welfare of citizens in the Gulf Cooperation Countries (GCC) significantly over the period 1960–2015, particularly as measured in raised average life expectancy and lowered infant mortality rates. Fiscal policy in oil-producing countries is pro-cyclical, producing sharp fluctuations in the business cycle, but reliance on oil revenue provides challenges for future improvements in development. For the first time in decades all the GCC economies are going through major economic reforms aimed at increasing efficiency while enhancing the economic welfare of the residents. GCC countries are reforming subsidies, particularly for energy, diversifying tax revenues by introducing value-added taxes and privatizing state enterprises in the provision of electricity and water.
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Defending DevelopmentThe need to define development has witnessed many attempts to condense a country’s economic deprivation into a single figure. In order to target poor citizens, it is important to classify those who are ‘non-poor’ by a poverty statistic. Crucial steps in the creation and evaluation of a poverty index in the 1980s were the World Bank’s ‘Dollar a Day’ measure (now USD1.25 a day), the creation of the Human Development Index (HDI) in 1990 and the Inequality Adjusted HDI created in 2005 as a distribution-sensitive average of the HDI. In 2010, a fundamentally different method of measuring poverty – the Multidimensional Poverty Index (MPI) – was created, which identifies numerous deprivations at the individual and household level in education, health and living standards. Unfortunately, the MPI has many flaws, including mixing stock and flow variables, a lack of data particularly, for health and education, the absence of variables and the neglect of gender, moreover it suffers from international comparability problems.
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Measuring the Impact of Agricultural Finance on Rural Inequality: Evidence from EgyptEvidence suggests that financial development and improved access to credit not only accelerates economic growth, but also reduces household poverty and income inequality. Using Egyptian household survey data evidence it is found that a 1% increase in agricultural wages causes poverty to decline by 6.6%. Agricultural wage increases lead to the largest decrease in overall income inequality where a 1% increase in income from agriculture wages will cause overall inequality to fall by 0.049 percentage points: equivalent to a fall in the Gini coefficient by 18.8%. A regression analysis shows that receiving formal loans increases non-agricultural net revenues by 2.94 times whereas credit increases a household’s agriculture revenues by 2.08 times.
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The Impact of Minimum Wage LegislationMinimum wage policies are powerful political tools, but the economic effects are unlikely to be in the interests of society as a whole. Wages should be left to the free operation of market forces. Minimum wage rate policies are only effective in low-wage industries: the hotel sector labour market is used to develop the theory of minimum wages under different competitive conditions. The theoretical impact of a government-imposed minimum wage on the firms in an industry depends upon different competitive conditions in product and labour markets, but in most cases the number of firms falls as does the long-term demand for labour. In the UK, the Office of Budget Responsibility estimates that the National Living Wage will cut the total demand for labour hours by 0.4%, a reduction of 4 million hours of work a week causing 60,000 redundancies as a result of increased wage costs.
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Sovereign Wealth Fund Investment in Economic Transformation: Toward an Institutional FrameworkThe prospect of prolonged lower hydrocarbon and commodity prices has forced many countries to reconsider both fiscal policy and sovereign wealth fund asset allocation to address possible liquidity needs. In order to analyze the diversity and effectiveness of public investment vehicles it is necessary to recognize that a sovereign wealth fund is a genre of state investment. As a type of state investor sovereign wealth funds sit within an institutional continuum that includes many other bodies, such as national development banks. Well-functioning operating and governance models have evolved among large-scale private equity investors and components of these are suited to government application.
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The Environmental Kuznets CurveThe Kuznets curve is an income inequality measure used in development studies which predicts an inverse-U shape with inequality first rising with industrialisation and then declining, as more and more workers join the high-productivity sectors of the economy. Criticism of the Kuznets curve has focused on the validity of the data it was hypothesised upon as well as its econometric techniques. Kuznets’s work was based on time-series data for just three countries: the United States, the United Kingdom and two states in Germany. Kuznets used the historical shift from agriculture to industry to presume that inequality grew in both the UK and the USA before his time-series data started, although he had no data to confirm this. Later studies using relevant, up-to-date data have found that the Kuznets curve might not be strictly true for a specific country, but that it may hold true for a cross-section of countries, at a specific point in time.
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