Showing posts with label GDP. Show all posts
Showing posts with label GDP. Show all posts

Jun 9, 2014

GDP: A Brief but Affectionate History


I read GDP: A Brief but Affectionate History by Diane Coyle for four reasons: (1); (2) to see if the book can be used as a textbook in a principles of macroeconomics class; (3) of course, to learn more about GDP and economic growth; and (4) to learn writing from an inspiring economics communicator. 

Arnold Kling rightly says that economic history can be used to teach macroeconomics more effectively. GDP presents a historical narrative of the evolution of GDP, which started as a result of war, and soon became the main macroeconomic indicator. So, yes, with a few explanations to clarify concepts, one can use the book in an introductory class on macroeconomics. 

The Gross Domestic Product has been criticised frequently. Critics argue, among other things, that GDP is not a good measure of social welfare, that it does not include the informal economy, and that it does not deal well with innovation. Those criticisms are justifiable and spot-on, but as Diane Coyle argues, in spite of its many handicaps the GDP is still a useful tool to measure economic performance. From the beginning GDP was not seen as a measure of social welfare, but of income and production. Of course, we need other indicators to measure welfare, but as far as income and production goes, the GDP is still useful. That does not mean that it is perfect, not at all. In fact, it needs serious modifications. 

I like Diane's writing style a lot. I follow her blog closely. However, I can not tell exactly what is so attractive about her writing. She explains her ideas and arguments with an almost optimal level of complexity, no more, no less. You can look at the way she describes GNP in the book. She could have given a long explanation but instead she just tells what is sufficient for understanding the main ideas in the book. The most important characteristic, I think, is that she asks big questions. At the end of the book she argues that, under the current digital and online economy, and everything that they imply we need a new definition of "the economy." That is a metaphysical claim of a mainly "physical" social science. So she makes one think big and not many writers can do that. 

Of course I am making huge simplifications of sharply elaborated arguments. 

Tyler Cowen said nice things about the book. 

May 16, 2014

Discipline drives turnarounds


From this paper by Anusha Chari & Peter Blair Henry. A draft is here. 

According to the authors, what is behind this graph, and specially behind the gap in GDP growth between advanced and developing (and emerging) economies, is trade liberalisation and fiscal discipline. 
Measured by the number of protectionist measures imposed since November 2008, France, Germany, Italy, and the United Kingdom are all on the list of the world’s top 10 most protectionist countries (Evenett, 2013). p. 4
Korea is a historical example of the benefits of reductions of obstacles to trade. 

The article makes the interesting point that the stock market tells when austerity measures are good in the long term, and illustrates the idea in the context of Brazil in 1994, where austerity measures were well received in the stock market that showed large, abnormal, returns.

Mar 5, 2014

Institutions, Productivity, and the Shadow Economy

This is an interesting paper by Axel Dreher, Pierre-Guillaume Méon, & Friedrich Schneider: 
This paper assesses the relationship between institutions output, and productivity when official output is corrected for the size of the shadow economy. Our results confirm the usual positive impact of institutional quality on official output and total factor productivity, and its negative impact on the size of the underground economy. However, once output is corrected for the shadow economy, the relationship between institutions and output becomes weaker. The impact of institutions on total (“corrected”) factor productivity becomes insignificant. Differences in corrected output must then be attributed to differences in factor endowments. These results survive several tests for robustness. 
They explain:
The main rationale behind our results is that weak institutions not lead only to less factor accumulation, but also encourage participation in the shadow economy. The observed negative correlation between weak institutions and official output is therefore driven both by a reduction in production and a switch from the formal to the informal sector. Using official output to estimate the relationship between institutions and output implies that the production of countries with weaker institutions will be underestimated, thereby inflating the observed relationship. As a result, when shadow output is added to official output the correlation weakens. Using official output figures to compute TFP leads to the same bias. Thus, correcting official figures for the shadow economy also weakens the relationship between institutions and TFP, or even goes as far as removing it altogether. The essence of our results suggests that part of the observed relationships reported in the previous literature is not due to a reduction of output, but instead due to a switch from the formal to the informal sector. (p. 138). 
And the paper comes at a time when there seems to be a revival of discussions about GDP as an important statistic of the economy. 

Sep 18, 2012

A link GDP-IQ?

Lynn and Vanhanen (2012) have convincingly established that national IQs correlate positively with GDP, education, and many other social and economic factors. The direction of causality remains debatable. The present study re-examines data from military psychological assessments of the German federal army that show strong IQ gains of 0.5 IQ point per annum for East German conscripts in the 1990s, after the reunification of the country. An analysis of IQ, GDP, and educational gains in 16 German federal states between 1990 and 1998 shows that IQ gains had a .89 correlation with GDP gains and a .78 correlation with educational gains. The short time frame excludes significant effects of biological or genetic factors on IQ gains. These observations suggest a causal direction from GDP and education to IQ.
Source. Alas, I did not find the paper online.