US-China economics: an update

The situation is changing, apparently. China's current account surplus seems to be declining of late...

1980-2010

2010:Q1-2011:Q3

And the Chinese yuan seems to be appreciating...

Economists at the Peterson Institute for International Economics indicate:

China is still judged undervalued by about 3 percent ... Thus, whereas a year ago we estimated that the renminbi needed to rise 16 percent in real effective terms and 28.5 percent bilaterally against the dollar (in a general realignment to FEERs), the corresponding estimates now are 2.8 and 7.7 percent, respectively. It is entirely possible that future appreciation will bring [China's trade] surplus down to less than 3 percent of GDP. But China still has fast productivity growth in the tradable goods industries, which implies that a process of continuing appreciation is essential to maintain its current account balance at a reasonable level.

How to choose between graphing styles

The graph above (source here) clearly tells the story, pointing out exactly at which point the tide has turned. It is no doubt superior to the two alternatives below.

Featured paper of the day: Why trade matters after all

"Why trade matters after all" (Ossa)

I show that accounting for cross-industry variation in trade elasticities greatly magnifies the estimated gains from trade. The main idea is as simple as it is general: While imports in the average industry do not matter too much, imports in some industries are critical to the functioning of the economy, so that a complete shutdown of international trade is very costly overall.

Illustrating networks

One day I hope to write an article on the economics of social networks and network games. But I've realized that the math is utterly complicated, and will require several dozens of hours to even just understand, much less write a paper on. So in the meantime, I'm sharing nice, simplified illustrations of social networks. 

Micro lecture of the day

Nobel laureate Gerard Debreu on general equilibrium, c. 1987.

Online textbook of the day

Forecasting: Principles and Practice
by Hyndman and Athanasopoulos

Investment-driven growth is the way to go

From The Economist:

OUTSIDE China, people tend to assume that the country's impressive economic growth is due to exports. As the chart below, drawn from our special report on China's economy, shows, this notion has always been exaggerated and is now plain false. China grows thanks to high levels of investment—far higher than those seen in previous Asian miracles such as South Korea and Japan. The corollary of this is low levels of private consumption. Some argue that this must lead to imbalances that one day will send China's economy off a cliff. We disagree....

It is investment, not exports, that leads China’s economy. Spending on plant, machinery, buildings and infrastructure accounted for about 48% of China’s GDP in 2011. Household consumption, supposedly the sole end and purpose of economic activity, accounts for only about a third of GDP. It is like the small farthing wheel bringing up the rear. 

A disproportionate share of China’s investment is made by state-owned enterprises and, in recent years, by infrastructure ventures under the control of provincial or municipal authorities but not on their balance sheets. This investment has often been clumsy. In the 1880s, according to Stevens, China showed a “scrupulous respect for individual rights and the economy of the soil”. The road he pedalled took many wearisome twists and turns to avoid impinging on any private property or fertile plot....

China’s cities have grown faster in area than in population. This rapid urbanisation is a big part of the country’s economic success. But it has come at a heavy price in depleted natural resources, a damaged environment and scrupulously disrespected property rights.

This is why I worry, like many others, on the Philippines' consumption-driven growth path.

Comparing IPOs

From Flowing Data:

The New York Times does it again with this succinct look at tech IPOs. It begins with looking at everything through the lens of when Google's IPO in 2004, which, at the time, was considered huge. The next screen adds Facebook to the mix which dwarfs everything prior. It continues on to show the first day of trading pop and where things landed long term (3 years post-IPO). 

It's a very interesting view of IPOs and could actually be a good financial analysis tool with a few more features.

Removing section numbering in LaTeX

Just add this line on your document's preamble:

\setcounter{secnumdepth}{-1}

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*For more help, refer to the LaTeX Wikibook or download the iPhone/iPad app called LaTeX Help.

Coasean podcast of the day

Russ Roberts of EconTalk.org interviews no other than Ronald Coase, age 101. Here. An excerpt:

Roberts: “[D]id you have contact with Keynes and Hayek, two great economists of that era in England?”
Coase: “Yes. I was very friendly with Hayek. I liked him, and he liked me. But we didn’t have great contact. He tended to deal with these big questions, and I’m always interested in how the actual system operates. Therefore, in much smaller matters than Hayek.”  

Roberts: “And how about Keynes? Did you know Keynes?”
Coase: “I can tell you – I was helping when Britain was trying to get a loan from the United States immediately after the war, and I was talking to one of Keynes’s assistants. And Keynes came in the room and walked over to us and the man I was talking to us said, ‘This is Coase, who is helping us with the statistics. I don’t think you know him.’ And Keynes said, ‘No, I don’t.’ And walked off. And that’s my life with Keynes. ”

Replacing old elites with the new

On their (promotional) blog, Daron Acemoglu and James Robinson, authors of Why Nations Fail, recently featured the impacts of the 1952 Bolivian Revolution on Bolivian inequality, trying to explain why Bolivia remains poor. During the revolution, the political party Movimiento Nacionalista Revolucionario (MNR) overthrew the exploitative colonial institutions, leading to lower inequality in the next few years. However, not long after, inequality rose to pre-revolution levels just before the 1970s (as shown below).

Experts suggest that this occurred because the MNR, touting to be champions of the Bolivians, actually internalized the broken ways of the past and simply established themselves as the new elite. Land was managed and allocated by the MNR, but in the process the locals had to resort to the old patron-client relations which they were brought up with. The figure below shows that the simple agragian structure of the past was supplanted by a more complex hierarchy that was still characterized by strong influences of clientism and patronage. 

So instead of transforming Bolivian society into an inclusive one, society regressed to the ways of the old. A clear example of how institutions (comprising rules, habits, and customs), once established and maintained for long times, can be hard to break in an instant.

Summations in LaTeX

To type out the following expression in LaTeX:

Simply type:

\sum_{k=1}^{n} k^2 = frac{1}{2}n(n+1) \text{.}

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*For more help, refer to the LaTeX Wikibook or download the iPhone/iPad app called LaTeX Help.

Featured paper of the day: Private returns to public office

"Private returns to public office" (Fisman, Schulz, Vig)

We study the wealth accumulation of Indian parliamentarians using public disclosures required of all candidates since 2003. Annual asset growth of winners is on average 3 to 6 percentage points higher than runners-up. By performing a within-constituency comparison where both runner-up and winner run in consecutive elections, and by looking at the subsample of very close elections, we rule out a range of alternative explanations for differential earnings of politicians and a relevant control group. The "winner's premium" comes from parliamentarians holding positions in the Council of Ministers, with asset returns 13 to 29 percentage points higher than non-winners. The benefit of winning is also concentrated among incumbents, because of low asset growth for incumbent non-winners.

MDG overshooting

From the Daily Chart, one of the greatest development stories of late:

CHILD mortality in Africa has plummeted, belying the continent’s “hopeless” reputation. The chart below shows the change over the most recent five years in the number of deaths of children under five per 1,000 live births. It does so in 20 countries which have had demographic and health surveys (detailed surveys of living standards) since 2005. Sixteen of the 20 have seen falls, but the more impressive finding is the size of the decline in 12: more than the 4.4% annual fall needed for the world to achieve its millennium development goal of cutting by two-thirds the child-mortality rate between 1990 and 2015. The top performers, Senegal and Rwanda, now have rates the same as India. It took India 25 years to reduce its rate from around 120 child deaths per 1,000 births to 72 now. It took Rwanda and Senegal only about five years.

It's time to come out

I've been fighting it for too long now. At long last the time has come to reveal a side of me that has been yearning to shout out and express itself for the longest time. That is...

my being a diehard econ nerd.

I know, I know. To those who know me, this fact is pretty much self-evident. But now I've decided to up the ante and create this blog that will be filled copiously with nothing but hardcore economics. And when I say hardcore, I mean the latest working papers, macroeconomic trends, statistical software code, policy news, etc. This blog will be my venue to geek out, no holds barred.

As for the lighter econ stuff, I will occasionally post some here, but most will be directed to my other blog. By and large I will reserve this blog for the research side of economics. And in this process of overdue self-expression, I hope that this blog will incidentally be a useful resource for fellow econ geeks out there, who I know also exist.

And are just biding their time...