Governments Manipulate Data
Governments widely manipulate official economic and social data—but the public tends to disregard this fact. There is extensive empirical evidence that governments extensively manipulate official data. National statistical offices should be independent of their government to fight such manipulation, and alternative data producers should be supported. The public should be aware of data that government find difficult to control, such as those on the black market or light intensity captured by satellites as an indicator of income level.
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Was the Impact of COVID on UK GDP Real or Statistical?The COVID-19 pandemic, and measures to fight it such as lockdowns, took a significant toll on economic activity around the world. In many instances, declines in GDP were the steepest on record, with the UK standing out among advanced economies. However, the extent of the downturn reflected not just the impact of the pandemic, but also the way that economic activity is measured. In particular, different countries adopt different approaches to measuring real government spending and output, and those differences had a significant impact during the pandemic. This article describes those broad differences in approach, and illustrates what UK activity estimates could have looked like if ONS estimates had followed the approach used for other European economies. Far from being the hardest hit of the five major European economies, the UK would actually have fared better than most under alternative measurement practices for GDP. This highlights the importance of how statistics are calculated, particularly for important economic data series, and cautions against just taking them as given.
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Rules of Origin as Trade BarriersOn 2 July 2021 the Kingdom of Saudi Arabia clarified, and by so doing fundamentally changed, the rules determining when goods can be said to be a national product originating from within Gulf Cooperation Council (GCC) countries. In other words, it changed its rules of origin (RoO) on GCC-manufactured goods. For an item to qualify as a national product originating from within the GCC, a minimum of 40% must be added to the item’s value during production carried out within the GCC; and there must also be a minimum of 25% local workforce in the manufacturing company. Saudi Arabia is a member of both the World Trade Organization (WTO) and the GCC and thus has legal obligations pertaining to RoO under the WTO’s multilateral trading system as well as the regional trading system of the GCC. This article analyses Saudi Arabia’s legal obligations under the WTO and GCC frameworks.
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The Belt and Road Initiative in an Era of the COVID-19 PandemicThe Belt and Road Initiative (BRI), as launched by China since 2013, is the country’s massive signature infrastructure programme, also called One Belt One Road (OBOR) (in Chinese ????). Through the BRI, China has constructed or is constructing about 2,000 infrastructure projects, including roads, railways, seaports and many more, not just only within China but in the three continents of Asia, Europe, and Africa. How did the COVID-19 pandemic affect the BRI? While China has not been able to maintain the same level of investment in 2020 as in 2019 and the previous years, the BRI investment programme is still on track and could develop into a V-shaped investment outlook in the coming years.
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De-Carbonising the World EconomyGlobal temperatures for most of the first two decades of the twenty-first century remained on plateau, showing little response to the 13% rise in the concentration of carbon dioxide in the atmosphere. De-carbonising the world economy, by reducing the burning of fossil fuels, is based on a flawed scientific theory and will have little effect on global temperatures. Climate change policies based on state control of vast sections of the economy, through regulation, green taxation and subsidies, will destroy the free working of market forces and result in a gross misallocation of resources. The overall effect of climate change policies will be to needlessly reduce output, increase prices, impoverish consumers, reduce employment and increase government debt.
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Analysing the Dynamic Relationship Between Foreign Direct Investment and Trade BalanceThe purpose of this article is to examine the dynamic relationship between FDI and the trade balance in Jordan, by using time series data over the period 1975–2020. In it we used two main variables – Jordan’s trade balance (TB) and foreign direct investment net inflows (FDI) – and two sub-variables – Jordan’s official exchange rate (ER) and the taxes Jordan levies on international trade (T). The results show a long-term relationship between these four variables in Jordan. The results also confirm that there is a negative long-term relationship between FDI, T and TB and a positive long-term relationship between ER and TB. In the short term, the findings confirm that no dynamic short-term relationship exists between FDI and TB. However, there is a significant and negative short-term relationship between T and TB and a significant positive short-term relationship between ER and TB.
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ESG: The Unsustainable Investment Opportunity…?Corporate prowess in environmental, social and governance (ESG) has little or no merit as an indicator of superior economic returns. The evidence is considerable, pursuit of performance creates cost to the firm and is a constraint to investment opportunity. ESG measurement is critical but it must be designed to be and rooted in the economic benefit delivered. Superficial research that fails to answer the question ‘but financially speaking, so what?’ will only speak to the converted and do little to promote the cause. ESG measurement systems need to step up. Inconsistencies between the current crop of corporate indicators is obfuscating what is an already confusing picture. If ESG is to become embedded in corporate behaviour it needs to be managed with the same discipline and professionalism as deployed in other critical functions. Well-meaning advocates making fundamentally empty claims will not provide the heft that is required.
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Making the AfCFTA Work for ‘The Africa We Want’The African Continental Free Trade Agreement (AfCFTA) has been touted as an economic and globalisation game changer because it has the potential to transform African economies and significantly raise Africa’s share of global trade to position the region as an increasingly dynamic force in the international arena. However, to realise this potential African countries must actively carry out complementary structural and policy reforms to foster long-term peace and security, address supply-side constraints and mitigate AfCFTA’s short-term fiscal adjustment costs to set the project on a successful implementation path for a win–win continental trade-integration outcome. This article reviews the potential development impact the AfCFTA and provides a comprehensive analysis of reforms and programmes required to ensure the agreement’s successful implementation.
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The Case of Andreas Georgiou: A Travesty of JusticeAfter facing prosecution for a decade Andreas Georgiou, former President of Greece’s statistical agency (ELSTAT), is now liable to pay damages for defamation to those who produced the infamous ‘Greek statistics’!
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How Do Broad Money and the Stock Market Interact in Times of Crisis and of Calm?The relationship between the components of the US M2 money stock and the US stock market, represented by the Wilshire Index, between 1980 and early 2021 is considered. Consistent with retail money funds (RMFs) acting as a ‘gateway’ for portfolio adjustment, the results indicate the stock market having a particularly strong influence on RMF behaviour during periods of economic and financial crisis, including since the economic effects of the COVID-19 pandemic took hold. The analysis also shows developments in the M1 stock having a very large influence on M2 deposits behaviour since September 2008 (the month of the Lehman Brothers collapse). This may be attributable to a preference among the public for more liquid forms of money in an era of low interest risk and sudden episodes of financial instability. These results point to the public’s desire to hold liquid assets at times of financial uncertainty and low interest rates having a substantial effect on US money developments.
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GDP and GPI Concepts Are ComplementaryThis article explores the relationship between GDP and the genuine progress indicator (GPI) and examines the possibility of reconciling the two measures. GDP is not an indicator of well-being: to address the welfare perspective, the measure of economic welfare (MEW) was constructed by revising GNP and further developed to create GPI (and the index of sustainable economic welfare —ISEW). GDP finds great wage-earning differentials; while GPI is substantially affected by unpaid work, not only by the magnitude of this factor but by its quality implications. We suggest moderate reforms and policies for the improvement of GDP, which would also have the effect of improving GPI. Both concepts are complementary and separate for practical purposes: GDP is used to formulate government policy and GPI measures what has been achieved from a viewpoint of welfare.
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Would a Patent Waiver for COVID-19 Vaccines Help Achieving Vaccine Equity?The COVID-19 pandemic reignited a long-running debate about whether pharmaceutical companies should waive intellectual property (IP) rights for the greater good. Activists, and low- and middle-income countries contend that WTO rules on intellectual property limit developing countries’ access to life-saving pharmaceuticals, and are calling for waivers through formal policy proposals, editorials in scientific publications and op-eds in mainstream media. Pharmaceutical companies, health experts and high-income countries argue that low manufacturing capacity, rather than patents, is the impediment to global vaccination efforts. Even if the patents were waived, in fact, low- and middle-income countries would be unable to manufacture vaccines without the technical expertise of the inventors, or access to critical ingredients that are already in short supply. International engagement over IP protections, manufacturing and distribution will be more beneficial as components of broader commitments to speed vaccine deployment in the near term and build a lasting cooperative framework for pandemic and emerging infectious diseases in the long run
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Household Consumption and Income InequalityThis article seeks to explore the extent to which household consumption causes income inequality and addresses the questions: (i) is there a linear relationship between household consumption expenditure and income inequality? (ii) what is the causal relationship between household consumption and income inequality? and (iii) does household consumption impact differently on rural and urban income inequalities? The results provide evidence of rising consumption inequality causing rise in income inequality. The causality tests show the presence of a unidirectional causality flowing from household consumption to income inequality. The findings provide insights that macroeconomic policymakers can use to manoeuvre household consumption expenditure using appropriate policy instruments.
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Japan: Investment and GrowthThe Japanese economy has been growing at less than 1% over the past 20 years. This is a marked fall from its previous trend. This decline cannot be explained by any weakness in business investment, which is little changed as a percentage of GDP. I show that the explanation lies in the fall in tangible investment, the decline in which has been often overlooked as it has been offset by a rise in the share of total business investment taken by intangibles. The trend growth of economies depends on the speed at which the value of the produced capital stock rises. As intangible assets depreciate much more rapidly than tangibles, growth depends on the value of tangible assets. The level of net tangible investment thus determines trend growth. The fall in the trend rate of Japanese growth is thus due to the fall in tangible business investment. This mirrors the similar slowdown seen in the USA.
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USA–India FTAFree Trade Agreements have gained momentum in a world with a flailing multilateral system of negotiations. The increased might of China has also pushed the global North including the EU and the USA to fall back on increasing direct trade linkages with the global South to counterbalance Chinese comparative advantages. India has emerged as the main contender for considering FTAs, particularly to counterbalance China. India also needs these FTAs for strategic reasons, such as growth, technology transfer and for geostrategic purposes. India and the USA have a broad agreement on the need for a FTA; however, some points of divergence remain. For the USA, stricter protection of intellectual property rights and more freedom for US tech firms are the major demands. India, on the other hand, is firm on more regulation for e-commerce firms and local data storage rules and demands greater access to US agricultural markets. While both countries have strategic reasons to become a closer trade partner, domestic lobbies or perceptions of national interest hold back the negotiators of both sides.
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The Convergence of Business and Economics PrinciplesHow did Starbucks grow from its origins as a purveyor of roasted coffee beans to its ubiquitous presence, in a few decades, as the leading global coffee chain? What are the business and economics principles of its phenomenal growth? The firm’s rise rests on the mantra and guiding belief that doing good is good for business, as this promotes trust (an emerging economic concept) in the Starbucks brand. Drawing from practice-based observations made over many years, and accompanying analysis, we sketch the ten pillars of Starbucks’s impressive success. Finally, this article delineates the linkages to behavioural economics.
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Corporation TaxCorporation tax is a tax on investment. Current plans to increase the rate in the UK and the USA will, if implemented, severely damage their economies. That such self-destructive folly has met little opposition and is seldom even debated results from the weakness of current consensus economic theory—the neoclassical synthesis. The impact of corporation tax cannot be assessed without a command of financial economics. Except in the form of a few aprioristic and demonstrably false assumptions, finance is absent from the consensus model and this is widely accepted as its major fault. If implemented without offsetting policy measures, a rise in corporation tax will exacerbate two major economic problems. It will retard the already poor rate at which labour productivity and output grow and it will amplify the structural ex ante net investment deficit of the private sector. In the UK tax credits for tangible investment are planned for the next two years. The damage from a rise in corporation tax could be more than offset if these were made permanent and, in the USA, if similar credits were introduced.
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Neutral Interest Rate: A Statistical EstimationMonetary space is a measure of how close or far away current monetary policy is from the level of neutrality, the condition at which policy is neither restrictive nor expansive. The estimate of monetary space provides a useful metric for policymakers to calibrate monetary conditions at any time and throughout the business cycle, since it shows the degree of restriction or stimulation present in current monetary conditions. Since monetary stance depends on both the price and the quantity of money, the monetary space is more limited in countries with single mandate than in those with dual mandate. In this article we present a statistical approach to estimating the stance and space of monetary policy based on the price of money. Mexico is presented as a study case.
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The Euro as a Dysfunctional MarriageThis article examines the functioning of the euro area with emphasis on the desirability of its further enlargement. This is based on theoretic research regarding optimal currency areas, empirical studies on the euro area in the past 20+ years, as well as historical experiences of two monetary unions in Europe in the late nineteenth and early twentieth centuries. The discussion highlights a number of problems in the euro area’s design and documents the damage caused—especially in the periphery (southern) countries. Consequently, the analysis implies that it would be too risky for the seven countries on the accession list (Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania and Sweden) to adopt the euro at this point. It is also argued that in most of these countries voters do not seem to be sufficiently informed to adequately assess all the pros and cons of euro accession. The article concludes by outlining structural reforms that could in principle alleviate the euro area’s key problems, and potentially make its enlargement desirable in the future.
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The Emerging Dynamics of Informal EmploymentInformal employment accounts for a significant proportion of the workforce in less-developed economies, particularly India, and has grown steadily in the past two decades. Using unit-level data from three consecutive employment and unemployment surveys conducted by the National Sample Survey Office (NSSO) in 2004–5, 2011–12 and 2018–19 (PLFS), we investigate the emerging dynamics of formal and informal employment in Maharashtra, India. This article highlights: a significant increase in the share of women performing unpaid domestic work; uneven distribution of the status of employment in rural and urban Maharashtra; the burgeoning size of the working poor, who earn barely enough wages to obtain a decent living; and inadequate coverage of formal employment in the economy. From a policy perspective, we argue that the state should aim at restructuring employment status and labour laws by infusing more skill to trigger an upward spiral of higher productivity, which will catapult the economy to a desirable trajectory, as well as facilitate and foster inclusive growth.
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Impact of Lockdown on Informal WorkersThe recent pandemic, COVID-19, is not merely a health crisis. It has had a devasting impact on the economy and society as a whole. Lockdowns imposed as a result have temporarily ceased economic activities. It has severely disrupted supply and demand chains in the economy, resulting in unemployment and per capita income loss. Informal workers are the people most vulnerable to these economic disruptions, due to the nature of their work. This article aims at understanding the impact of lockdown on informal workers, in terms of their income, working hours, demand for their goods and services and consumption patterns. Finally, it gives necessary policy recommendations.
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The Empirics of Borrower Transaction Costs in Models of Financial Intermediation for the PoorThis study explores the determinants of borrower transaction costs of the models of financial intermediation for the poor while they avail of finance from the institutional and informal sources in India. The loan size is an essential determinant of borrower transaction costs of the bank lending model. Though the loan size and age of the borrower are key determinants in the SHG lending model, the relationship is direct and not inverse as in the case of the bank lending model. The study shows that the distance from the borrower's household to the financial intermediary (spatial element) exerts a significant effect on the borrower transaction costs. This underscores the importance of the expansion of the networks of the financial institutions as well as imbibing modern information technology for reducing such distance between the borrower and the financial intermediary for lowering transaction costs. The borrowers with a higher level of education and being of an older age are found to experience reduced transaction costs. Though the age of the borrower is one of the determinants of the borrower transaction costs in the SHG lending model, the relationship is direct and not inverse as in the case of the bank lending model.
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Is Industrial Structure Moving from Manufacturing towards the Service Sector?Research findings suggest that the service sector’s growth, exports and gross fixed capital formation are having statistically significant favourable impact on GDP growth in six selected economies—India, China, the Republic of Korea, Japan, the USA, the United Kingdom—and in the world as a whole. The results obtained indicate that if the service and manufacturing sectors, exports and GFCF grow by 1%, growth of economies via GDP growth is accelerated by 0.6806% and 0.006461%, 0.0819% and 0.0245%, on average, respectively among the six selected economies (and the world as a whole), signifying that, although the contribution of the manufacturing sector is minimal, this sector is still essential. The estimates show increasingly robust impacts of exports, net investment in fixed assets and equipment and dominance of the service sectors to the GDP growth rates in the six economies examined. A cross-country analysis of panel data over a period of 29 years, from 1990 to 2018, for the same six countries and the world as a whole, using a random-effects model, finds that the stimulating force of economic growth has moved undeniably and steadily from the manufacturing sector towards the service sector due to the growing importance of the service sector observed in each of the six countries under our consideration over the period surveyed.
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Robert Mundell, 1932–2021Mundell pioneered the theory that serves as the basis for the design and implementation of economic policies in open economies. The launch of the euro was based on his work on “optimum currency areas”, and the late-twentieth century US economic boom was based on his theories about the optimum policy mix and the supply-side economics adopted by the Reagan administration. He always advocated fixed exchange rates and, by extension, the common European currency, believing that monetary independence is both unnecessary and undesirable. In a debate with Milton Friedman, he argued that exchange rate flexibility is no substitute for price flexibility: Even in the best circumstances, the adjustment process works by raising prices and undermining monetary stability. Mundell argued that monetary and fiscal policies should not target the same objective (full employment): one should target price stability (tight monetary policy) and the other growth (expansionary fiscal policy). Mundell’s theories are included in all economics textbooks. His colleagues have described him as “the brightest mind in our profession.” His contribution to economic theory and policymaking was recognized with the award of the Nobel Prize in economics in 1999.
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China’s State-Owned Enterprises and Competitive NeutralityThe growing size of Chinese state-owned enterprises (SOEs) and closer global linkages mean whether China can achieve competitive neutrality in creating a level-playing field is key for the world. Our results support the view that China’s competitive environment is poor with conditions tending to favour SOEs with lower interest burden and tax rates in most sectors. The lack of competitive neutrality in China has significant consequences for global firms at home, especially as Chinese firms operating in the ICT, industrial and auto sectors earn a relatively high proportion of their revenue overseas but operate in a subsidised environment in their domestic market. A working measure of competitive neutrality applied in China could help level the playing field for foreign companies in China and even be introduced in a potential reform of the World Trade Organization.
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Modern Monetary Theory and the Policy Response to COVID-19The COVID-19 pandemic has raised questions about the design of fiscal and monetary policy to assist economic recovery. Modern monetary theory (MMT) strongly argues in favour of substantial and fairly persistent fiscal expansion, claiming that there is neither a near-term capacity constraint, nor a financial one. MMT is, however, not particularly ‘modern’. Many of the basic ideas that it promulgates can be found in fairly standard neo-Keynesian analysis. Advocates of MMT unwisely downplay the potential problems associated with inflation, financial instability and the balance of payments. They also are too dismissive of central bank independence, which has played an important role in anchoring inflationary expectations. To argue in favour of fiscal and monetary expansion in the particular circumstances of the COVID-19 pandemic does not involve endorsing the full MMT approach to macroeconomic policy.
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Is Monetary Policy Aging?This article proposes a framework to quantify the magnitude of monetary stimulus offered during a recession. We estimate that, over the past 30 years, the Federal Open Market Committee (FOMC) offered larger incentives and for a longer duration during a recession than in the past cycle. Furthermore, each recession drained the FOMC’s resources and left the Committee with ‘less ammunition’ to fight the next recession. Therefore, our work suggests that monetary policy is aging. To de-age monetary policy, we propose 4% as a long-term target for the nominal FFR. Some of the major benefits of our proposed framework include: helping market participants gauge magnitude of accommodation; anchoring market participants’ expectations; reduce time spent at the zero lower bound; lessen dependence on balance sheet expansion; ensure that the real federal funds target rate will be positive when the FOMC meets its interest rate and inflation targets.
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Bitcoin, Tesla and GameStop Bubbles as a Flight to Focal PointsThis article discusses the current bull runs in many assets such as Bitcoin, Big Tech and the meme stocks, concluding that they are very likely bubbles (well above their fundamental value). We then highlight a unique set of circumstances due to which the duration, magnitude, and subsequent correction of this market exuberance may be very different from previous bubble episodes. These circumstances have led to an ever-growing amount of global liquidity chasing a small number of widely-known assets that have played the role of Schelling’s ‘focal points’. In combination with extremely low (even negative) returns on conventional safe assets, the usual ‘flight to safety’ has been (partly) superseded by a ‘flight to focal points’.
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Estimating the Effects of some Uncommon Free Trade Agreements on India’s Exports, Imports and Trade VolumeThis study endeavours to examine the impact of Free Trade Agreements on the trade volume of India with Japan, Sri Lanka, Nepal and ASEAN countries. These countries were selected given their level of development and importance in total trade of India. The study evaluates three FTA's which involve developing-developed, developing-developing and developing-least developed countries. The time-series data has been used, and variables are in log-linear form. To achieve the objectives of the study, Threshold Autoregressive model (TAR) has been applied for pre-post agreement analysis. The study finds after the agreement's trade has enhanced between participating countries.
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Bank Resolution and Crisis Preparedness in Unprecedented TimesThis article looks into the challenges ahead for deposit insurers and underscores the urgency of testing contingency planning and crisis management frameworks at national and system-wide levels, and the importance of communication, cooperation and coordination at home and abroad. Financial safety-net authorities should put the necessary crisis management frameworks in place to maximise the benefits of the international standards developed in response to the global financial crisis. Deposit insurers and resolution authorities should plan for dealing with an orderly resolution of failing banks before the pandemic measures are lifted. Deposit insurers and other safety-net participants need to strengthen their supervisory and crisis management frameworks and address any weaknesses identified. Developing a communications strategy should be an essential part of crisis management frameworks. Cooperation and coordination at home and abroad remains the key issue to be addressed for many jurisdictions.
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COVID-19 and Adoption of Digital Payments in IndiaThe objective of this research is to explore the impact of COVID-19 on digital transactions in India and related research issues. From results of a paired sample t test, it has been observed that COVID-19 had significant impact on use of digital payments. Challenges such as low rate of financial inclusion, issues with network congestion and internet connectivity, and cultural preference for cash are preventing people from moving over to digital payment platform. The results of this study may help stakeholders in devising strategies that encourage wider adoption of digital payments.
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Multidimensional Deprivation in EgyptThis paper aims at constructing an MPI for Egypt tailored to its deprivation aspects, and at monitoring simultaneous deprivations that adversely affect Egyptian people and poor. It adds the employment and social insurance dimension, which is generally the sole means of production owned by poor and deprived people. Results show that multidimensional headcount ratio is 33.3 percent in 2018, which is higher in rural than urban areas, for female-headed households than male-headed households, and for households with less educated heads. Egyptians are mostly deprived in the education dimension.
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Democracy, Economy, and Politics in Latin AmericaFrom economic and political perspectives, freedom is the central concept in democracy. The economic and political background, and evidence from Bolivia and Brazil, show that democracy was briefly tested in Bolivia, but in Brazil it continues to face profound challenges. The 2019 military-led coup d’état in Bolivia temporarily suspended democracy in that nation. But the 2020 elections reinstated democracy and, with it, economic and political freedoms were restored. Its economy is back on track to be robust, but currently faces limitations due to the coronavirus. In Brazil, the situation is different. While it also has a nascent democracy, its current president is mired in controversy and turmoil due to unpopular and undemocratic economic and other policies that do not tackle key weaknesses in the economy but rather promote a personal and ideological agenda. Lessons to be learned, as highlighted in the conclusion, are drawn from analysis of both recent developments and the status quo in these two Latin American countries.
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