Measuring economic ill-being using objective and subjective indicators: evidence for the Philippines

The mismatch between a country’s macroeconomic performance and the people’s economic well-being represents the overall economic ill-being in a society. This mismatch is measurable using objective indicators such as the inflation rate and the joblessness rate as well as subjective indicators such as personal evaluations on the inflation and joblessness rates. That is, the inflation rate shows the affordability of goods and services; and the subjective evaluation indicates whether people see the goods and services as affordable or not. In addition, the joblessness rate indicates the portion of the labor force that does not enjoy gainful employment; and the subjective evaluation indicates whether people see themselves as jobless or not. The results for the Philippines show a high-level of overall economic ill-being especially in the decade covering 2005 to 2014. This finding unveils a different scene from what the mainstream discourses are portraying as the current state of the Philippine society.     

Economic policy uncertainty and economic activity in Turkey

We construct economic policy uncertainty (EPU) index for Turkey based on newspaper coverage frequency. The EPU index reflects the frequency counts of articles in major Turkish newspapers that contain specific terms related to economy, policy and uncertainty. The EPU index rises around national elections (2002, 2007 and 2015), domestic uncertainty periods (2008 and 2013), domestic and global financial crisis periods (2001 and 2009) and the Euro area debt crisis in 2011. The investigation of the impact of EPU on economic activity reveals that policy uncertainty has adverse impacts on economic growth, consumption and investment in Turkey. Remarkable is that high uncertainty leads to a greater investment decline than output and consumption.     

Exports and growth: a causality analysis for the pulp and paper industries based on international panel data

This study examines the causal relations between exports and domestic production in the pulp and paper industries. The issue is whether exports are the engine of growth, or whether exports follow growth. The data were time-series of the 15 main exporting countries between 1961 and 1995. The method was Granger-causality analysis with error correction, based on models estimated in three ways: ordinary least squares by country, least squares with dummy variables (LSDV), and seemingly unrelated regression. Regardless of method, the strongest relation was an instantaneous (within a year) feedback between exports and production. The LSDV results implied average multipliers across countries of 1.2 to 1.4 from exports to production, and 0.20 to 0.25 from production to exports, in both industries. Experiments with monthly data on the pulp industries of Canada and the USA showed that temporal aggregation could affect the Granger-causality test results.     

The theory of economic price and quantity indicators

Summary. This paper develops the theory of economic price and quantity indicators, being the difference analogue of indexes. The properties of indicators and indexes are compared. Observable bounds for the indicators will be derived, as well as two exactness results for Bennet (1920)-type price and quantity indicators.Received: 3 January 2002, Revised: 2 December 2002, JEL Classification Numbers: C43Previous versions of this paper were presented at the Economic Measurement Group Workshop 2001, School of Economics, University of New South Wales, Sydney, 30 March 2001, and at a seminar at the School of Economics, University of New England, Armidale NSW, 7 September 2001. The authors thank Erwin Diewert for helpful comments on a previous version. The views expressed in this paper do not necessarily reflect any policy of Statistics Netherlands.     

A cost-benefit analysis for the economic growth in China

Currently, traditional development issues such as income inequality, depletion of natural resources, environmental pollution as well as retardation of infrastructure have occurred in China. In the future, more pressures would be imposed on China by the continuous fast development of industrialization, and with transfer of the world manufacture center to China. Sustainable development, including its economic, environmental and social elements, is a key goal of decisionmakers. This paper develops a methodology on cost benefit analysis of economic growth at macroscopic level to identify issues of China's sustainability. In order to address some important issues on how to make policies to improve the quality of economic growth, the CBA framework developed in this study analyses economic-ecological-social interaction, building three accounts that reflect three dimensions of sustainable development that includes 26 sub-models in all, and finally is integrated into an index as Net Progress Proceeds (NPP). The estimation methods of these submodels, such as cost of environmental pollution, depletion of natural resources and defensive expenditures are described in detail. Based on the framework and methods, this paper examines the costs and benefits of economic growth in three aspects of economy, ecology and society. The results illustrate that NPR of China's economic growth had been negative for a long time and has just became positive since year 2000 but was quite low. Even the best was only 1.6% in 2002 (the worst was − 24.2% in 1982). Based on the comparison between three accounts, we can draw a conclusion that ecological cost is the dominant factor that affects China's NPR. The empirical results show that if no other innovative measures or policies are taken in the future the costs of growth would outweigh its benefits, resulting in un-sustainability. Basically, the long-term economic growth would be unsustainable due to increasing environmental damage and depletion of natural resources. There are a few limitations that we consider need to be improved in our CBA framework and method, nevertheless they have many options that can be explored by policy makers, to make the development path more sustainable.     

Measuring CPI's reliability: the stochastic approach to index numbers revisited

The reliability measurement of the Consumer Price Index (CPI) has recently drawn much attention, as the index number has been criticized for its inaccuracy in accessing the degree of inflation. This article centers on providing a new regression specification that can help better gauge the CPI's reliability. More specifically, based on the stochastic approach to index numbers, we argue that the conventional treatment of the systematic changes in relative prices should be made time variant. We therefore propose a more comprehensive regression specification by including additional dummies that represent different general inflation rate levels and business cycle phases. Under this framework, we are more capable of avoiding possible misspecifications in the regression equation, as was experienced by Clements and Izan (1987). It also allows us to better answer the ‘Keynes’ critic’ regarding the stochastic approach to index numbers. The empirical results of Australia and the US are used to validate the merit of our specification.     

Military spending and economic growth in China: a regime-switching analysis

This article investigates the impact of military spending changes on economic growth in China over the period 1953 to 2010. Using two-state Markov-switching specifications, the results suggest that the relationship between military spending changes and economic growth is state dependent. Specifically, the results show that military spending changes affect the economic growth negatively during a slower growth–higher variance state, while positively within a faster growth–lower variance one. It is also demonstrated that military spending changes contain information about the growth transition probabilities. As a policy tool, the results indicate that increases in military spending can be detrimental to growth during slower growth–higher growth volatility periods.     

Intriguing pendula: founding metaphors in the analysis of economic fluctuations

The paper is an inquiry into the definition of the early econometricprogramme, namely into the discussions which Frisch and Schumpeterheld in the early 1930s about the most suitable model for representinginnovations, change and equilibrium in economics. The argument and its framework are briefly presented in thefirst section. The 1931 correspondence between the two foundersof the Econometric Society is discussed in the second section.It provides a magnificent example of the importance of rhetoricsin economics, of the heuristic role of constitutive metaphorsin a research programme and of the difficulties in definingthe most suitable mathematical formalism for dealing with cyclesand structural change. The third section presents the conclusionof the story: the bifurcation between the resulting contributionsmade by Frisch (Propagation problems and impulse problems indynamic economics, pp. 171-205 in Koch, K. (ed.), Economic Essaysin Honour of Gustav Cassel, London, Frank Cass, 1933) and Schumpeter(Business Cycles, New York, McGraw, 1939; and the posthumousvolume, History of Economic Analysis, London, Routledge, 1954).Finally, the fourth section presents an alternative epilogue,highlighting some of the hidden implications of these verbalaccounts of pendula as the founding metaphor for business cycles. The paper is based upon as yet unpublished papers that werefound in Frisch's Collections (Oslo University Library and Frisch'sRommet at the Institute of Economics) and Schumpeter's Collection(Harvard University).     

Corporate yield curves as predictors of future economic and financial indicators

The government yield curve is known for its ability to predict the future growth rate of the economy. Later studies showed that credit spreads can assist in predicting macroeconomic behaviour as well. We extend this notion by utilizing corporate yield curves and demonstrating that corporate yield curve spreads can predict future economic growth, the future state of the economy and stock market behaviour. In addition, our sample covers the most recent data available, and it also includes the crash year of 2008 and the recovery period following it. Our results reveal a trade-off effect between the government yield curve, which is a better predictor for long-term forecasting, and the corporate yield curves, which are better predictors for short-term predictions. In addition, we show that both the government and corporate yield curves are more effective in predicting negative rather than positive economic changes.     

Terms of trade movements and the global economic crisis

Dramatic changes in the relative prices of goods in international trade have accompanied, and indeed preceded, the recent global crisis. The causes and effects of the relative price changes are analysed by applying the analysis of business cycles developed by Joseph Schumpeter. Schumpeter’s analysis emphasises innovation and structural change (particularly creative destruction) which impart uneven development on the economy and can foster financial crises. This puts the current crisis in the context of long-wave development of the capitalist system and leads to predictions about the likely path of price and output changes over the next few decades.     

Modelling the dynamics of EU economic sentiment indicators: an interaction-based approach

This article estimates a simple univariate model of expectation or opinion formation in continuous time adapting a ‘canonical’ stochastic model of collective opinion dynamics (Weidlich and Haag, 1983 Weidlich, W, and Haag, G, 1983. Concepts and Models of a Quantitative Sociology. Berlin: Springer; 1983.[Crossref] , [Google Scholar]; Lux, 1995 Lux, T, 1995. Herd behavior, bubbles and crashes, The Economic Journal 105 (1995), pp. 881–96.[Crossref], [Web of Science ®] , [Google Scholar], 2009a Lux, T, 2009a. Rational forecasts or social opinion dynamics? Identification of interaction effects in a business climate survey, Journal of Economic Behavior and Organization 72 (2009a), pp. 638–55.[Crossref], [Web of Science ®] , [Google Scholar]). This framework is applied to a selected data set on survey-based expectations from the rich EU business and consumer survey database for 12 European countries. The model parameters are estimated through Maximum Likelihood (ML) and numerical solution of the transient probability density functions for the resulting stochastic process. The model's success is assessed with respect to its out-of-sample forecasting performance relative to univariate Time Series (TS) models of the Autoregressive Moving Average model, ARMA(p,?q) and Autoregressive Fractionally Integrated Moving Average, ARFIMA(p,?d,?q) varieties. These tests speak for a slight superiority of the canonical opinion dynamics model over the alternatives in the majority of cases.     

Structural fiscal balances of the UK: a state-space DSGE approach

This article proposes a new framework to estimate and analyse structural fiscal balances of the UK, by combining the state-space modelling with the Bayesian DSGE modelling. In this way, trends and cycles of aggregate variables can be extracted from data consistently with the macroeconomic theory. A setting of an integrated random walk for the underlying stochastic trends fits the data best. An expansion in government spending can increase nominal fiscal revenue to a certain degree, but the effect is not persistent due to two kinds of crowd-out effects: it crowds out domestic investment; and it pushes up the price of domestic goods and simultaneously crowds out the foreign demand. The shocks to the nominal interest rate, foreign output and the government spending are the three major contributors to the variation of the fiscal revenue cycle.     

Classical and modern business cycle measurement: The European case

This paper intends to harmonize two different approaches employed in the analysis of business cycles and, in doing so, it retrieves the stylized facts of the business cycle in Europe. We start with the classical approach proposed in Burns and Mitchell (1946) of dating and analyzing the business cycle. The stylized facts retrieved are commented and compared to those obtained by Harding and Pagan (2002) for the U.S.. Two conclusions can be extracted from the results: a) though the turning points obtained for individual countries seem to cluster and would suggest the idea of a common cycle, there are relevant differences in the stylized facts characterizing the business cycle in the individual European economies under analysis; b) moreover, we find relevant differences in the business cycle stylized facts of the European countries and the U.S., mostly in terms of the duration, the amplitude of the cycle and the shape of the recovery. We then adopt the modern alternative: the Markov-switching vector autoregression (MS-VAR). The models regime probabilities provide an optimal statistical inference of the turning point of the European business cycle. For assessing the capacity of the parametric approach to generate the stylized facts of the classical cycle in Europe, the stylized facts of the original data are compared to those of simulated data. Contrary to the results reported by Harding and Pagan (2002) , we show that the MS-VAR model is a good candidate to be used as an statistical instrument to improve the understanding of the business cycle.JEL Classification: E32, F43, F47, C32We are grateful to Mike Artis, Mike Clements and Adrian Pagan for useful comments and discussions. Financial support from the UK Economic and Social Research Council under grant L116251015 is gratefully acknowledged by the first author. The research of the second author was supported through a European Community Marie Curie Fellowship, contract HPMF-CT-2000-00761. Corresponding author: Juan Toro     

On the role of personal relationships for doing business in the Greater Pearl River Delta,China

This article investigates the role of personal relationships for doing business in the Greater Pearl River Delta, China (GPRD). First, it discusses the interplay of formal and informal (relationship-based) institutions based on institutional economics. Second, it describes the institutional environment for doing business in China, and in the GPRD in particular. Third, it uses data obtained from a survey among executives of Hong Kong electronics SMEs with business operations in the Pearl River Delta (PRD) to gain insights into their perceptions of the importance and the motives of using personal relationships for business in PRD in general, and on the impact of personal relationships on location and partner decisions for companies' production as well as innovation activities, in particular. The results confirm the importance of personal relationships for doing business in the GPRD and suggest that companies rely on personal relationships for business not only for cultural reasons but also to cope with deficient legal and political institutions.     

On the measurement of patent stock as knowledge indicators

Most of the conventional indicators for measuring the amount of technological knowledge (TK) have so far been input-based indicators. Hence, there is growing need to develop output-based indicators, and accordingly some studies have been conducted thereon. However, previous research has adopted patent count or patent stock by simple count in measuring the amount of TK as output-based indicators. The principal problem with using this variable is that the value of individual patent is too heterogeneous. That is a large portion of these patent databases are either of little value or nothing at all. As a result, patent count or patent stock by simple count cannot be seen as a suitable measure of TK.In this study, we attempted to resolve the value-heterogeneity problem in measuring patent stock. The notion of citation-based patent stock (CPS) and valuation-based patent stock (VPS) is proposed in this paper and the calculation method is described in detail. In CPS, the economic value of individual patent is assumed to be proportional to the number of citations received from other patents. And in VPS, the economic value of individual patent is derived from the value distribution of patents registered in some cohort by manipulating the patent renewal data. We validated the indicators by comparing them with the usual input-based indicators and by analyzing the relationships between them and the productivity growth empirically.     

Inclusive institutions and economic growth: comparative perspective and policy implications for China

ABSTRACT

This paper examines the empirical relationship between the presence of inclusive institutions and the pattern of economic growth in a cross-country setting. We find evidence that the presence of inclusive institutions, indicated by political democracy, positively affects consumption share. In turn, the increase of the latter in the preceding year is associated with a significantly higher rate of total factor productivity (TFP) growth. The link from democracy to TFP growth via consumption is stronger for countries of higher levels of income. These findings suggest that institutional inclusiveness may have become increasingly important for economic growth when the level of income rises. We also provide preliminary evidence that consumption may have facilitated productivity growth via the channels of increasing innovations and reducing social conflicts. The findings shed lights on the structural transformations toward a more inclusive and sustainable model of growth in China today.

Abbreviations: FE: GMM: Generalized method of moments PWT: TFP: Total factor productivity     

China and the global business revolution

As China joins the World Trade Organisation, the author questionswhether China's large firms will be able to compete on the globallevel playing field. Over the past two decades, Chinese largeenterprises have undertaken extensive evolutionary change (comparableto that of other latecomer countries such as Korea, Taiwan andSingapore) but, at the same time, the world's leading firmshave undergone a revolutionary transformation. Based on analysisderived from case studies made in the course of the China BigBusiness Programme at the Judge Institute of Management Studies,Cambridge, the author concludes that China's large firms havenot caught up with the world's leading businesses.     

How foreign investments contribute to economic growth of industrial parks in China: a production-frontier decomposition approach

We study the importance of foreign direct investment for economic growth of 52 Chinese industrial parks from 2007 to 2015. For this task, we extend a production-frontier methodology, specially designed to decompose economic growth into different sources, to take two types of capital into account. Our results reveal that foreign capital is necessary for boosting economic growth of the parks, but domestic capital played the main role.     

Extracting business cycles with three filters: A comparative study and application in the case of China

This paper aims to evaluate the performances of the wavelet, Hodrick–Prescott (HP), and Baxter–King (BK) filters in extracting cyclical information and to use an appropriate method to analyze China's business cycles. First, we use a second-order autoregression (AR (2)) and random walk, based on Monte Carlo simulation experiments, to generate the data-generating processes (DGPs) with different frequency characteristics. Second, the HP, BK, and wavelet filters are applied to extract the cyclical components of the respective DGPs. Third, the filtering abilities of the three methods are statistically compared. The results show the following: (1) Under the condition that the DGP is low frequency (long cycle) and trend dominated, the filtering performance of the three methods will remain unsatisfactory. (2) If the DGP is high frequency (short cycle), all three methods can serve as effective methods regardless of whether they are trend dominated or cycle dominated. However, it can be seen that the BK and wavelet filters present better performance than the HP filter. (3) In other cases, better filtering performances can be observed in the wavelet. Finally, the three methods are applied to estimate China's business cycles. In conclusion, this paper argues that the wavelet can effectively replace HP and BK filters to extract cyclical components.