Latest on the Big Mac Index

Meme of the day: Skeptical African kid

I just can't help it; it's becoming popular nowadays:

Government bonds since 1860

Spain has a big problem: future prospects are dim, so investors need a lot more yield to compensate for their bonds' long exposure. From The Economist:

ALTHOUGH government bonds are usually regarded as a “safe asset”, they have been highly volatile over the long term. Spanish yields may just have reached a high for the euro-area period, over 7.5% on July 24th, but they have been higher in the past—during the revolutionary period of the 1870s, the loss of colonies like Cuba and the Philippines in the 1890s, the civil war of the 1930s and, of course, the inflationary period of the 1970s. During the latter era all bond yields rose sharply, creating a fantastic buying opportunity in the early 1980s. For the last 30 years, the trend in American and German bond yields has been relentlessly downward, creating the current historic lows. No doubt some of the buyers of German and American bonds are Italian and Spanish investors fleeing their domestic markets. While such yields look a terrible bargain by historic standards, it is worth noting that low American yields persisted for a long time in the late 1940s and early 1950s before inflation started to take its toll.

Graph and link bonanza

Notable things from across the econ blogosphere:

1. Share of women in the Olympics roster:

2. Mapping the world's couch potatoes:

They found that 31% of adults do not get enough physical activity—defined as 30 minutes of moderate exercise five days a week, or 20 minutes of vigorous exercise three days a week, or some combination of the two. Women tend to get less exercise—34% are inactive, compared with 28% of men—but there are exceptions.... These figures are worrying. According to another paper in the Lancet, insufficient activity has about the same effect on life expectancy as smoking.

3. Computing and robotics stats (see link for the graphs).

4. The new economics of privacy (from Digitopoly):

“It has become cheap and easy to pry into the lives of others at the same time that protecting our own lives has become time-consuming and expensive. A look at two companies — one that sells your data and another that protects it — shows the business and policy lessons of this new reality.”

5. What are the "high-touch" professions?

There are two broad shifts that account for much of this decline: globalization and computerization. From T-shirts to toys, manufacturing jobs have migrated to low-wage countries like Vietnam, Bangladesh, and of course China. Meanwhile, many of the tasks that might have been done by middle-income Americans employed as bookkeepers or middle managers have been replaced by spreadsheets and data algorithms.

6. Cellphones as the single most effective tool for socioeconomic empowerment:

An amazing story of how a new technology has revolutionized the world and empowered individuals and transformed lives, especially in the developing countries. The simple cell phone has probably done more to reduce poverty globally and promote economic growth around the planet than all of the efforts of the World Bank.

7. A proxy for measuring "uncertainty":

 

8. The Gender Inequality Index (GII):

9. The latest on the debate about income tax progressivity:

Greg Mankiw: "That is, the middle class, having long been a net contributor to the funding of government, is now a net recipient of government largess.... I recognize that part of this change is attributable to temporary measures to deal with the deep recession. But it is noteworthy nonetheless, as other deep recessions, such as that in 1982, did not produce a similar policy response." 

Gary Becker: "I conclude that even with considerable uncertainty about how much higher taxes on higher-income individuals would reduce their work effort and their investments, the expected gain from raising these taxes is likely to be negative. The trend toward lower marginal tax rates during the past 50 years was perhaps mainly the result of interest group pressure from higher income individuals, but it also receives support from a benefit-cost analysis of the expected effects of tax increases on behavior."

10. Inequality and family structure (from Economix; this deserves a separate post soon):

An interesting pattern over the last four decades is that inequality has grown much faster for households with children than it has for households over all — an indication that changes in family structure (as opposed to wages and employment alone) have increased inequality.

 

The article shows how single parenthood has grown in the middle income third. The data, from Mr. Western and Ms. Shollenberger, can also be analyzed by fourths, as it is below.  

While the decline of two-parent families is most striking in the bottom quarter, that is a familiar story and had largely occurred by 1990. Much of the recent growth has occurred in the second-lowest quarter, sometimes called the working class. In that group, the share of households with children headed by unmarried parents has soared to nearly 40 percent and the growth has continued in recent years.... 

Changes in family structure may explain anywhere from 15 to 40 percent of the increased inequality in recent decades. Readers may wonder why there is such a broad range of estimates. It depends on the time period examined, the income rungs examined, and assumptions about how much the absent parent might have brought into the household. 

There is a lot of research showing that single parenthood puts children at a higher risk of experiencing poverty. But there is not much that examines its long-term effects on a child’s chances of moving up the income ladder.

Connecting dots in Excel

To fill in gaps in your data, just replace the empty cells with the following formula:

=NA()

And surprise, dots will be connected. No need for interpolation. This is particularly useful for making yield curves in Excel. Source of photo here.

Firefighters vs. fire: some statistics

Funny:

Electronics and growth

Particularly pertinent for the Philippines. From The Economist:

THE electronics industry accounts for two-fifths of manufacturing output in Asia, according to calculations by HSBC. So when electronics grows quickly, Asia's GDP tends to speed up too, to the tune of almost 0.2 percentage points for each full-point increase in the electronics sector. Unfortunately this correlation also applies when things slow down (see left-hand chart). And recent signs are that Asia’s electronics industry is doing just that: HSBC’s lead indicator, which gives a rough two-month preview of future production, has slowed sharply in recent months, in contrast to the latest available output figures. One bright side, given the economic woes of Europe and America, is that Asian manufacturing is no longer as closely tied to Western markets as it was. Three of the five components that comprise HSBC's lead indicator measure conditions within Asia. So when the next rebound occurs, it is likely to be home-grown.

Seasonal adjustment

Some economic trends (such as unemployment and consumption of certain goods) take on a seasonal component; i.e., the trends consistently go up or down every year in a cycle. Hence, to remove such contamination and examine the true underlying trend, such trends must be reported only after executing seasonal adjustment (overview here, in-depth guide to the actual process here).

Examples of trends that need to be seasonally adjusted, from this post on the Conversable Economist:

Datagasm: World Bank links up to Stata!

From the World Bank site:

Stata is a statistical computing package widely used in the business and academic worlds. We use it at the World Bank and it’s great to see a new version of the wbopendata module that gives Stata users direct access to much of the data on data.worldbank.org... 

It’s important to have convenient access to the best data available. The wbopendata module connects to the World Bank Open Data API and provides direct access to the latest version of the Bank’s data though the Stata interface – there’s no unnecessary downloading or management of data needed.
The new version of wbopendata lets you:

• Access 1,000 new indicators, bringing the total up from 4,200 to 5,300 time series.

• Access the metadata of the downloaded series: including indicator definitions, the organization and/or agency responsible for its collection, and links to available supporting information.

• Easily link the indicators downloaded to maps from within Stata.

• Access data in three Stata-supported languages: English, Spanish or French

The wbopendata module lets you connect to information from over 256 and regions since 1960, the accessible datasets include:

• World Development Indicators

• Global Development Finance

• The African Development Indicators

• Doing Business

• Education Statistics

• Enterprise Surveys

• Gender Statistics

• Health Nutrition and Population Statistics

• Millennium Development Goals

• Worldwide Governance Indicators

To begin, just type in Stata: 

ssc install wbopendata

Further instructions can be found here. Cannot wait to try it out!

Do anti-poverty programs raise marginal tax rates?

Yes, according to this US study. Subject to caveats:

we calculate the effective average marginal tax rate if this household increases its income from $10,000 to $40,000. That is, how much of the additional $30,000 of earnings is lost to government through direct taxes or loss of benefits? The average marginal tax rate in the first bar of Table 3, 29 percent, is based simply on federal and state direct taxes, including Social Security and the EITC. The rate rises appreciably as the family enrolls in additional transfer programs in bars 2 and 3. For a family enrolled in all the more universal non-wait-listed programs like SNAP, Medicaid, and SCHIP, the average effective marginal tax rate could be 55 percent. Enrolling the family in additional waitlisted programs, like housing assistance and TANF, ratchets the rate up above 80 percent....

Featured paper of the day: Projection bias

"Projection bias in the car and housing markets" (Busse, et al.)

Projection bias is the tendency to overpredict the degree to which one’s future tastes will resemble one’s current tastes. We test for evidence of projection bias in two of the largest and most important consumer markets – the car and housing markets. Using data for more than forty million vehicle transactions and four million housing purchases, we explore the impact of the weather on purchasing decisions. We find that the choice to purchase a convertible, a 4-wheel drive, or a vehicle that is black in color is highly dependent on the weather at the time of purchase in a way that is inconsistent with classical utility theory. Similarly, we find that the hedonic value that a swimming pool and that central air add to a house is higher when the house goes under contract in the summertime compared to the wintertime.

Graph of the day: Mining and prosperity

Point in case: Inner Mongolia and its supply of germanium. 

Unintended consequences, illustrated

Source:

In August 2010, an abuse-deterrent formulation of the widely abused prescription opioid OxyContin was introduced. The intent was to make OxyContin more difficult to solubilize or crush, thus discouraging abuse through injection and inhalation. We examined the effect of the abuse-deterrent formulation on the abuse of OxyContin and other opioids.

Of all opioids used to “get high in the past 30 days at least once," OxyContin fell from 47.4% of respondents to 30.0%, whereas heroin use nearly doubled.

Our data show that an abuse-deterrent formulation successfully reduced abuse of a specific drug but also generated an unanticipated outcome: replacement of the abuse-deterrent formulation with alternative opioid medications and heroin, a drug that may pose a much greater overall risk to public health than OxyContin. Thus, abuse-deterrent formulations may not be the “magic bullets” that many hoped they would be in solving the growing problem of opioid abuse. 

Intergenerational economic mobility

Recently this topic has interested me a lot. I wonder how many studies have looked into this aspect in the Philippines. These figures from Economix are particularly instructive:

1) In terms of income, absolute mobility looks good...

...but relative mobility is less so. If there were perfect mobility, each of the components per column in the figure below would assume the same size. However, a disproportionate amount of the poorest children stay poor as adults (in the same way a lot of the rich remain rich in adulthood).

2) As for wealth, much fewer are able to exceed their parents' wealth in absolute terms...

...and relative mobility is just as bad as with income.

"Pew’s calculations are all based on the Panel Study of Income Dynamics, or P.S.I.D., a longitudinal data set that has followed families from 1968 to the present. The wealth numbers in particular are based on parents’ wealth in 1984 versus the mean of their children’s wealth as measured in 2001, 2003, 2005, 2007 and 2009."

Contributions of Anna Schwartz

Eminent female economists are dying these days!

David Romer:

But to truly honor Anna, what you need to do is to go back to your university or wherever you work after the conference is over, and do work that’s so damn good that it changes the way we think about basic questions in macroeconomics, and that’s so damn careful and thorough that fifty years from now, it’s still the first place that people look when they want to learn about an issue that your work addresses. 

And, you’ll keep doing that work for decades. To put Anna’s research longevity in perspective, if you’re currently finishing your second year in graduate school, you’re probably about the same age that Anna was when she published her first paper. To match Anna’s research longevity, you’ll need to stay actively involved in important research until about 2080.

From City Journal:

Anna Schwartz must be the oldest active revolutionary on earth. Born in 1915 in New York, she can still be found nearly every day at her office in the National Bureau of Economic Research on Fifth Avenue, where she has been tirelessly gathering data since 1941. And as her experience proves, data can transform the world. During the 1960s, with Milton Friedman, she wrote A Monetary History of the United States, a book that forever changed our knowledge of economics and the way that governments operate. Schwartz put ten years of detective work into the project, which helped found the monetarist theory of economics. “Not only by gathering new data but by coming up with new ways to measure information, we were able to demonstrate the link between the quantity of money generated by the banks, inflation, and the business cycle,” she explains. 

Milton Friedman (himself!):

I have thought a great deal about what, if anything, I could say on the occasion of this conference that I have not already said, and there isn’t much. So I thought I would talk a bit about the problems of collaboration. That is a subject on which Anna and I both have a great deal of experience. We have collaborated with one another for over thirty years. It has been a remarkable experience, certainly on my part. During those thirty years, I do not recall any kind of personal acrimony or altercation, even though we had many differences of opinion about individual items. From my point of view, it was an almost perfect example of collaboration. Anna did all the work and I got a lot of the credit. How much more can you ask than that? That led me to think about the more general topic of collaboration, which I think is interesting, in part, because I have been very much impressed that the extent of collaboration, the number of papers in professional journals which are signed by two or three or four persons, is very sharply on the increase. I do not know why that is happening. I wish that one of you would construct a theory of the determinants of collaboration Historically, collaboration is a very rare thing in economics, especially in economic theory.... 

It has been a real joy and pleasure to collaborate with Anna over these years, because I always knew that everything she did was going to be done right. It was going to be precise, it was going to be accurate, it was going to be thoughtful. Moreover, both of us were prepared to change our views or to change what we had done or written if the other provided evidence that we were wrong or that there was a better way. In general, collaboration is a very intimate kind of thing. It only works if people have real confidence in one another, and respect one another’s integrity and one another’s competence. I certainly can say that I have been very fortunate indeed in that respect...

Contributions of Elinor Ostrom

From today's op-ed by Prof. Emmanuel de Dios:

Before Ostrom, economists were wont to divide goods casually between “private goods” and “public goods”, depending on whether goods were consumed privately, or “collectively” by groups (or even the entire society). This pat dichotomy fit into a policy mind-set that assigned the provision of goods to either markets or the state: hence, Coke and rice should be left to the market’s purview, while national defence, roads and bridges are best provided by government.

Ostrom’s great service was to show that many cases actually fell between the cracks, and that many goods and services could not be efficiently provided or managed either by government or by markets. Just think of the problems of Laguna de Ba-i, of the country’s forest cover, or of Manila’s esteros. On the other hand, there are many examples of collectively consumed goods that are provided privately, from toll expressways, to cable TV, to country clubs. In short, counter-examples abound that constantly tested the rule....

Ostrom noted that markets were good at providing private goods (subtractable and exclusive), while governments were probably best suited to providing truly public goods, i.e., non-subtractable and non-exclusive goods. Examples are defence against foreign invasion, or warding off planet-threatening asteroids, urban roads, and, yes, street-lighting. The biggest problems are presented, however, by goods that are both subtractable and non-exclusive, for which Ostrom popularised the term “common-pool resources”....

Two factors are relevant. The first is population size (hello again, RH bill!).... The second, subtler factor is institutions. Ostrom—who unlike many Nobel economists actually bothered with fieldwork—noted that many traditional communities were able to manage common-pool resource problems by thrashing out rules to govern their use. She adverts to numerous historical and contemporary experiences of communally determined fishing rights and irrigation systems, including the sanjeras of Ilocos and of the Ifugao rice terraces. Part of the awkward problems of development, however, is the inevitable erosion of the homogeneity and cultural integrity of traditional communities. This process erodes the traditional rules that formerly governed and restricted the use of the commons and it frequently leads instead to the free-for-all promoted by impersonal and individualistic systems. Say good-bye to exclusiveness and hello to open access.

While the rule of broader impersonal law is gradually supposed to supplant traditional rules, this process is not straightforward and typically stalls when the state is fiscally weak and politically challenged. Population growth and modernisation meanwhile have eroded traditional resource-management systems without providing an effective alternative. The result is an awkward institutional middle-income country trap, where the old traditional rules have faded but new laws have not taken root or are only weakly enforced. Ostrom’s work raises important and difficult questions for governments and peoples of developing countries. It presents them the challenge of developing institutions and organisations to adequately address problems of common-pool resources in a contemporary setting. 

Can the state, if only properly equipped and provisioned, still serve as such an institution? Or, taking a cue from the past, must new organisations of lower order than the state but larger than individuals play that role? How can public action be mobilised for local goals in a modernising context based on the spread of anonymous exchange and impersonal relations? What is the future role, if any, for culture and social solidarity? Are there creative ways of fostering cooperation between smaller organisations and the state in resolving common-pool problems, between formal law and informal norms and customs?

Econometrics tips of the day

1. Stata's predict command (from Econometrics by Simulation):

* Stata's predict command is an extremely useful command for many purposes.
* In this post we will go through how it works. And manually program in long hand some of the things it does.
* First let's start with OLS
* Imagine the underlying population model Y = g(x1, x2)
* Now imagine an estimator Y = f(x1, x2)
* What most estimations do is they take the Y and the xs and estimate some variant of f.
* In the linear case Y = b0 + b1x1 + b2x2 + u
* Most estimation commands attempt to estimate b0, b1, and b2. Which is great!
* But after estiamting b0, b1, and b2 what we may ask,
* "How does u look? Does it look normal, thus justifying the use of OLS?"
* We may also ask, "How does the estimated y look? This is often not particularly interesting since it is purely linear but often 'yhat' the predicted y is used in post estimation techniques."

2. Local vs. global approximations: 

Approximating unknown (continuously differentiable) functions by using a Taylor (MacLaurin) series expansion is common-place in econometrics. However, do you ever pause to recall that such approximations are only locally valid - that is, valid only in a neighbourhood of the (possibly vector) point about which the approximation is made? 

Unlike some other types of approximations - such as Fourier approximations - they are not globally valid.

Data is vs. data are

The debate continues...

From The Guardian:

It's like agenda, a Latin plural that is now almost universally used as a singular. Technically the singular is datum/agendum, but we feel it sounds increasingly hyper-correct, old-fashioned and pompous to say "the data are".

From The Economist:

We have a strong urge to just have language behave, but regular readers of this column know that, as the original Johnson knew, it just won't. He famously said that "to enchain syllables, and to lash the wind, are equally the undertakings of pride". Less well known, but perhaps more to the point, he pointed to the unruliness of language as the sign of a healthy culture constantly enriching itself....

From The WSJ:

We suspect that the plural will continue to dominate in our prose.

Addendum: From the Economist, a more data-driven approach to the controversy.

Addendum 2: From Nathan Yau.

I say data is. The plural version sounds weird to me.

Probit vs. logit

Repost from Econometrics by Simulation:

* This is a comparison of how well the logit does relative to the probit when the data is generated from the assumptions underlying the probit.

* First let's generate data that is consistent with the probit assumptions

clear
set seed 101
set obs 1000

* x is the explanatory variable
gen x = rnormal()*(1/2)^(1/2)

* u is the error
gen u = rnormal()*(1/2)^(1/2)

* y is the unobservable structural y
gen y = x + u

* In order to do a probit correctly the underlying distribution has to be standard normal (which is not a restriction so long as you remember when generating values.)

* This is why rnormal*(1/2)^(1/2) -> var(y)=var(x+u)=(1/2)*1+(1/2)*1=1
sum y
* Pretty close to 1 in the sample

* y_prob is the probability of observing a 1 given
gen y_prob = normal(y)

* y is the actual binary draws
gen y_observed = rbinomial(1,y_prob)

* now let's try estimating probit first
probit y_observed x
  * Save the estimated coefficient to a local macro
  local coef_probit = _b[x]

* let's predict the probabilities
predict y_probit
  label var y_probit "Probit fitted values"

* Now let's estimate the logit
logit y_observed x
* Save the logit to a local macro
local coef_logit = _b[x]

* predict the probabilities from the logit
predict y_logit
  label var y_logit "Logit fitted values"

* We can see that both the probit and the logit are almost identical
two (line y_logit x, sort) (line y_probit x, sort)

di "It is a somewhat well known property that probits and logits are in practice almost linearly equivalent."
di "The ratio of probit to logit is: `=`coef_probit'/`coef_logit''"

reg y_probit y_logit
* Check out that R-squared!

* So what does all of this practically mean?

* Feel free to switch between probit and logit whenever you want.  The choice should not generally significantly affect your estimates.

* Note: for mathematical reasons sometimes it is easier using one over the other.

* Finally, if you want to recover the original coefficient on x the best thing to do is to take the average partial effect (APE)

probit y_observed x

di (1/2)^(1/2)

test x==.70710678
* The probit results get fairly close but we reject the null

Islamic law and economic development

Source:

Islamic nations in the Middle East on the whole have underperformed their counterparts in the West. Asian nations that were poorer than the Arab world at the beginning of the Cold War have overtaken the Middle East. And promising experiments with democracy have been few and far between... 

The question of why is a contentious one. Has the Islamic world been held back by its treatment at the hands of history? Or could the roots of the problem lie in its shared religion—in the Koran, and Islamic belief itself? 

A provocative new answer is emerging from the work of Timur Kuran, a Turkish-American economist at Duke University and one of the most influential thinkers about how, exactly, Islam shapes societies. In a growing body of work, Kuran argues that the blame for the Islamic world’s economic stagnation and democracy deficit lies with a distinct set of institutions that Islamic law created over centuries. The way traditional Islamic law handled finance, inheritance, and incorporation, he argues, held back both economic and political development. These practices aren’t inherent in the religion—they emerged long after the establishment of Islam, and have partly receded from use in the modern era. But they left a profound legacy in many societies where Islam held sway. 

Islamic partnerships and inheritance law limited the ability of merchants to pool capital and build competitive enterprises with long life spans. Islam’s emphasis on fairness and a division of assets among children had the unfortunate effect of preventing large-scale businesses from taking root. Meanwhile, the primary vehicle for organizing institutions—the Islamic trust—placed severe limits on the development of civic institutions such as universities, guilds, and charities. Over time, the result was a stagnant economy and an enfeebled civil society with no way to challenge the established political order.

On CCTVs and crime

Tonight's episode of Bawal ang Pasaway brought into light fundamental issues regarding public policy and unintended consequences. The issue revolves around the increasing use of CCTVs in metropolitan areas in the Philippines, and the proposed law requiring private CCTV owners to submit their footages to help investigations of crimes. Here are some of the specific issues:

Do CCTVs deter crime? To be sure, evidence is mixed around the world. Also, it may depend on the context: e.g., how will CCTVs in Tondo compare with CCTVs in Forbes Park? But the specific question posed by Mareng Winnie was whether CCTVs can effectively deter crime when the death penalty cannot. Winnie Castelo went on to say things about criminal psychology, human behavior, but all the same failed to reach a possible answer to this: while the threat of execution via the death row is distant and highly uncertain, the threat of being caught on CCTV is much more immediate, tangible, and certain.   Human psychology would suggest that people value present risks more than distant risks, so there may be basis for the deterrence theory.

Will the proposed law ensure the protection of the right to privacy? This is of course a legal and philosophical issue, boiling down to whether private rights weigh more than what is (abominably) called the "common welfare" or "public welfare". A more practical issue may be the unintended consequence of the law on the very decision of private entities/individuals to install CCTVs. That is, given the danger of legal sanction if one refuses to submit CCTV footage, there may be a disincentive to expand the use of CCTVs, if at all, in favor of other deterrent security measures (e.g., improved lighting). This is a valid concern that necessitates empirical investigation before any wild guess/conjecture may be legitimately spewed out in public interviews.

Is extensive or widespread use of CCTVs optimal? This is related to the question of whether aspiring for zero crime is optimal. Obviously, it isn't, mainly for two reasons. First, costs are likely skyrocket faster than the rise in benefits after some point. Second, installing cameras in every nook and corner will result in a perverse equilibrium, one characterized by fundamental changes in the behavior and strategy of criminal elements. They will surely find a way to go around CCTVs, either by aiming to remove CCTVs in the routes they will use in executing a crime, or lobbying for the decreased use of CCTVs...name it, they'll think of it. As always, human behavior is endogenously determined, and will only adapt to the attendant exogenous parameters.

Red flag: NSO's 2003 Master Sample

The sad fact is that the samples of Philippine household surveys (such as the FIES, LFS, APIS, NDHS) before and after 2003 are non-comparable. This is because of the reconstruction of NSO's master sample in 2003 owing to the results of the 2000 Census of Population and Housing (here is a brochure; here is a detailed paper). Thus, be careful when choosing your sample years especially when you intend to follow/trace households over time.

There goes Ford

Today's op-ed by Prof. Sicat:

Ford Motor Co. recently announced that it will close its manufacturing plant in Sta. Rosa, Laguna at the end of the year. This comes at a time when signs are looking up for the Philippine economy’s near term future. 

It is a business decision, the announcement says. It is part of a restructuring decision of the whole Ford Motor Co. international operations... 

Ford’s Philippine presence is even smaller and marginal. From the viewpoint of the entire Ford Motor Co., it is essentially a footloose operation that headquarters could cut off easily The plant has an employment of only 450 workers... 

Any investment closure by a name brand which has salutary advertising impact for the country invites questions about the investment climate. Even in a time of improving expectations, it is an event not to be ignored. 

Philippine policy-makers who want to strengthen the inflow of investments in manufacturing and industry should heed lessons that our neighbors offer to us. The problem has been structural for the Philippines for decades. To them, their experience has been a breeze in getting foreign FDI to come in. We have to make headway in reforming the policy problems. 

When it began to industrialize, Thailand had very liberal encouragement for foreign direct investments. We were actually ahead of Thailand, nay, ahead of any major country in ASEAN in the promotion of industrialization. We were confident but we stuck to our policies of qualified entry of foreign investments because of the constitutional restrictions... 

Another way of saying this is that they devised national policies that were simpler, leveling the playing field for all investors so that foreign investors were almost on the same footing as those for their own nationals. Foreign investors found it easier to set up businesses. 

The result was continuous influx of FDIs. That cumulation of FDIs over time created a large base of manufacturing operations in industry over a wide area of the economy. When big industrial investors came into the country, supplier companies of those large foreign companies followed suit. 

As the manufacturing industries deepened, the domestic supply chain in industry became more diversified. This is one reason why the export industries from industry have been able to have a larger impact on domestic economic procession.

Human capital growth in the US

Already plateauing? Naturally, many are worried about its implications on long-run growth. Source: 

Featured development papers of the day

"Investment, institutions, and governance in Asia" (de Dios, Ducanes)

We investigate the extent to which the investment slowdown in many Asian countries since the Asian Financial Crisis is attributable to changes in governance institutions. In the process we test the more general hypothesis that different aspects of governance will become relevant constraints to investment and growth at differing levels of countries’ development. This hypothesis is validated and explains a standing paradox that finds certain governance aspects – notably voice and accountability and control of corruption – do not apparently figure as explanations in the average growth record. We show that in fact they do, though only at certain levels of development.

Funnily enough, I think the empirical strategy for their paper was inspired by the one in my thesis, namely quantile regression. I remember Dean de Dios asking me about it last year in the ISIP office, during the time they were writing this, and whether there was a way to choose quantiles of interest endogenously. So happens they wanted to explore the effect of institutions on Asean countries based on ex ante hypotheses (i.e., certain institutions affected certain countries more).

**********

"What has really happened to poverty in the Philippines? New measures, evidence, and policy implications" (Balisacan)

That poverty is a multidimensional phenomenon is no longer debatable. What remains a contentious issue is whether the various dimensions of individual deprivation should be aggregated--and how these are to be aggregated--into a summary measure of poverty.This study employs the Alkire-Foster aggregation methodology, which preserves the "dashboard" of dimensions of poverty, to systematically assess the magnitude, intensity, and sources of multidimensional poverty over the past two decades and across subpopulation groups in the Philippines. It finds that what is generally known about the country's performance in poverty reduction in recent years, as seen in income measures of poverty, is quite different from what the lens of multidimensional poverty measures reveal. While income-based poverty remained largely unaffected by economic growth during the past decade, multidimensional poverty did actually decline. This finding is robust to sources of nationally-representative household survey data and to assumptions about the poverty cutoff. From a policy perspective,this result reinforces the view that nothing less than economic growth, even in the short term, is required to reduce poverty (broadly interpreted to include individual deprivations beyond income). Moreover, the diversity of both deprivation intensity and magnitude of poverty across geographic areas and sectors of the Philippine society is enormous, suggesting that, beyond growth, much needs to be done to make development more inclusive.

Particularly instructive for students of development, especially with its focus on the multidimensionality of poverty, as well as its comparison and assessment of existing household level datasets and the available variables related to poverty and deprivation. A related paper is "Why does poverty persist in the Philippines? Facts, fancies, and policies" (Balisacan).

**********
"Poverty, vulnerability and family size: evidence from the Philippines" (Orbeta Jr.)

This paper shows how large family size can be an important contributor to household poverty. It presents results from recent research by the author using nationally representative household survey data that demonstrate clearly how large family size can contribute to poverty and vulnerability through its impact on household savings, labor supply, and parental earnings and education of children. The paper is the most systematic attempt to date to show the links between family size and poverty in the Philippines using household survey data. The clear implication of the results is that, in the case of the Philippines, an active population policy aimed at restricting family size could have an important impact on poverty reduction.

What I think is a landmark study on the relationship between family size and different aspects of poverty and human development, presenting a strong case for a comprehensive family planning program in the country. It also showcases the powers and limits of the APIS dataset, and emphasizes the usefulness of cross-tabulations as a complement to typical regression analysis.

Pigovian taxes, illustrated

From the BBC:

Australia introduces controversial carbon tax 

Australia has introduced its highly controversial carbon tax, after years of bitter political wrangling. 

The law forces the country's 500 worst-polluting firms to pay a AU$23 (£15; $24) levy for every tonne of greenhouse gases they produce. 

The government says the tax is needed to meet climate-change obligations of Australia - the highest emitter per-head in the developed world. 

But the opposition calls it a "toxic tax", which will cost jobs. 

The opposition also argues that the tax will raise the cost of living, promising to repeal the legislation if it wins the next election, due in 2013. 

Environmentalists have broadly backed the scheme, but there have been large public protests against it.