Measures Of GDP Research Articles

Toward a more reliable picture of the economic activity: An application to Argentina

Abstract We advocate a dynamic factor model to provide alternative measures of output data using indirect information from economic indicators. We apply the method to show evidence of a significant gap between estimated and official measures of Argentine GDP since 2007.

Financial development convergence

Abstract We show that credit levels relative to GDP and other measures for financial development tend to converge across countries over time. The results are obtained using a broad sample of countries over many years and controlling for the quality of country-level institutions, the efficiency of financial institutions, and a range of macroeconomic variables. While we find evidence for convergence in the broad sample, we show that it levels off when countries reach a medium level of financial development. At high levels of financial development, convergence slows down even more and becomes negligible.

Output Growth and Inflation across Space and Time

It is common for comparisons to be made of output growth and inflation across groups of countries, yet such comparisons can result in inconsistencies. We address two problems: (i) how to measure aggregate real output and inflation for groups of countries and (ii) how to construct measures of real GDP for a group of countries where the country measures of real GDP are consistent across time and space. A method is proposed for harmonizing conflicting estimates of OECD member-country real GDP, ensuring consistency over space and overall group consistency over time. A new measure of OECD inflation is also proposed.

Economic growth and measurement reconsidered in Botswana, Kenya, Tanzania, and Zambia, 1965-1995

How do we measure African economic performance? This volume studies how growth is measured in Botswana, Kenya, Tanzania and Zambia and challenges commonly held beliefs of African economic performance. The volume offers a reconsideration of economic growth in Africa in three respects. First, it shows that the focus has been on average economic growth and that there has been no failure of economic growth. In particular the gains made in the 1960s and 1970s have been neglected. Second, it emphasizes that for many countries the decline in economic growth in the 1980s was overstated, as was the improvement in economic growth in the 1990s. The coverage of economic activities in GDP measures is incomplete. In the 1980s many economic activities were increasingly missed in the official records thus the decline in the 1980s was overestimated (resulting from declining coverage) and the increase in the 1990s was overestimated (resulting from increasing coverage). The third important reconsideration is that there is no clear association between economic growth and orthodox economic policies. This is counter to the mainstream interpretation, and suggests that the importance of sound economic policies has been overstated, and that the importance of the external economic conditions have been understated in the prevailing explanation of African economic performance. (Less)

Is the market size hypothesis relevant for Botswana? Vector error correction framework

The current study investigated the relevancy of the market size hypothesis of FDI in Botswana in Botswana using the VECM approach with data ranging from 1975 to 2013. The study used FDI net inflows (% of GDP) as a measure of FDI and GDP per capita as a proxy of market size. The findings of the study are threefold: (1) observed that there exists a long run uni-directional causality relationship running from GDP per capita to FDI in Botswana, (2) there is no long run causality running from FDI to GDP per capita in Botswana between 1975 and 2013 and (3) failed to establish any short run causality either from GDP per capita to FDI or from FDI to GDP per capita in Botswana. Although, GDP per capita of Botswana was a conditional characteristic that attracted FDI, Botswana did not economically benefit from FDI net inflows during the period from 1975 to 2013. The findings defied the theory that mentions that FDI brings into the host country an improvement of human capital development and technology improvement among other advantages which boost economic growth. Possibly, there are other host country characteristics that Botswana needs to address if it hopes to benefit from FDI. The current study recommends further research to find out which are the other conditional characteristics that Botswana authorities need to put in place in ensure that FDI inflows is translated into economic benefits for the country.

Does it Matter Where You Came from? Ancestry Composition and Economic Performance of U.S. Counties, 1850-2010

The United States provides a unique laboratory for understanding how the cultural, institutional, and human capital endowments of immigrant groups shape economic outcomes. In this paper, we use census micro-sample information to reconstruct the country-of-ancestry distribution for US counties from 1850 to 2010. We also develop a county-level measure of GDP per capita over the same period. Using this novel panel data set, we investigate whether changes in the ancestry composition of a county matter for local economic development and the channels through which the cultural, institutional, and educational legacy of the country of origin affects economic outcomes in the US. Our results show that the evolution of the country-of-origin composition of a county matters. Moreover, the culture, institutions, and human capital that the immigrant groups brought with them and pass on to their children are positively associated with local development in the US. Among these factors, measures of culture that capture attitudes towards cooperation play the most important and robust role. Finally, our results suggest that while fractionalization of ancestry groups is positively related with county GDP, fractionalization in attributes such as trust, is negatively related to local economic performance.

Changes in GDP's measurement error volatility and response of the monetary policy rate: Two approaches

Using a stylized model in which output is measured with error, we derive the optimal policy response to the demand shock signal and to changes in the measurement error volatility from two different perspectives: the minimization of the expected loss (from which we derive the ‘standard’ policy) and the minimization of the maximum possible loss across all potential scenarios (from which we derive the ‘prudent’ or ‘robust’ policy). We find that (1) the prudent policymaker reacts more aggressively to the shock signal than the standard one and (2) while the standard policymaker always mitigates her reaction if the measurement error volatility rises, the prudent one may even increase her response if her risk aversion is very high. When we incorporate forward-looking expectations, the second result is preserved but, in this case, the prudent policymaker is less aggressive than the standard one in responding to the shock signal.

Relationships among the Energy, Emergy, and Money Flows of the United States from 1900 to 2011

Energy Systems Language models of the resource base for the U.S. economy and of economic exchange were used, respectively, (1) to show how energy consumption and emergy use contribute to real and nominal GDP and (2) to propose a model of coupled flows that explains high correlations of these inputs with measures of market-based economic activity. We examined a 3rd power law model of growth supported by excess resources and found evidence that it has governed U.S. economic growth since 1900, i.e., nominal GDP was best explained by a power function of total emergy use with exponent 2.8. We used a weight of evidence approach to identify relationships among emergy, energy, and money flows in the U.S. from 1900 to 2011. All measures of quality adjusted energy consumption had a relationship with nominal GDP that was best described by a hyperbolic function plus a constant and the relationship between all measures of energy consumption and real GDP was best described by a 2nd order polynomial. The fact that energy consumption per unit of real GDP declined after 1996 as real GDP continued to increase indicates that energy conservation or a shift toward less energy intensive industries has resulted in lower fossil fuel use and reduced CO2 emissions, while maintaining growth in real GDP. Since all energy consumption measures vs. real GDP deviated from a power law relationship after 1996; whereas, total emergy use did not, we concluded that total emergy use captured more of the factors responsible for the increase in real GDP than did energy measures alone, and as a result, total emergy use may be the best measure to quantify the biophysical basis for social and economic activity in the information age. The Emergy to Money Ratio measured as solar emjoules per nominal $ followed a decreasing trend from a high of 1.01E+14 semj/$ in 1902 to 1.56E+12 semj/$ in 2011 with fluctuations in its value corresponding to major periods of inflation and deflation over this time.

Gross Output: A New Revolutionary Way to Confuse Students about Measuring the Economy

Even considered only as a measure of aggregate economic output, GDP is problematic because, of necessity, it includes many arbitrary, politically charged and ideological assumptions and conventions that undermine its usefulness. For example, housing services are estimated and included in GDP, but in-home work is not. Similarly, government spending on goods and services is included as a final good at cost, not as an intermediate good. Early on, when they were creating the aggregate income accounts, there was a debate about whether government spending on goods and services should be considered an intermediate good or a final good. Possibly, in part because of a desire of some of those designing the measure to make it politically easier to increase government spending, the decision was made to include government spending on goods and services as a final output at cost, not as an intermediate good. This decision meant that increases in government spending on goods and services increases GDP directly, whereas had the other decision been made, increases in government spending would not have increased GDP; instead they would have lowered productivity. To design an accounting measure choices had to be made. If the GDP measure was used as the rough gauge for the economic component of social welfare that it was meant to be, it would have been fine. But when that rough gauge becomes a carefully watched statistic, and tenths of a percentage point differences are represented as implying something important has happened, as is currently the case, then the measure is being misused. To the degree that the new gross output measure undermines the misuse of GDP figures, it is something to be applauded.

Systematic Policy and Forward Guidance at the Fed

The President of the Federal Reserve Bank of Philadelphia argues that the Federal Open Market Committee, by operating with a set of rules or guidelines and clearly stated objectives, could eliminate much of the second guessing about what it is doing and why, and the associated volatility in markets. The author's preference is that the FOMC formulate its policy as a �reaction function� that can be easily explained to the public. As an example of such a reaction function, he cites the proposal of Stanford economist John Taylor, whose �Taylor Rule� calls for setting the nominal fed funds rate based on three factors: (1) the economy's long-run real interest rate; (2) the deviation of inflation from the central bank's target or goal; and (3) an adjustment of the funds rate to departures of real GDP from some measure of �potential� GDP. Although many variations on Taylor's original recommendations could work, the author believes the FOMC should seek to develop a consensus on how it will react to future economic events. Even a qualitative description of such a reaction function would be a step forward. Taking such a systematic approach will improve the effectiveness of monetary policy in both normal times and more unusual or extreme circumstances, such as when policy is constrained by the lower zero bound on interest rates. The author also suggests that a recent (March 19) FOMC statement took a step in this direction when it moved to a qualitative form of forward guidance by stating that the Committee will be assessing progress�both realized and expected�toward its policy objectives.

The European Union and Turkey: A Review of Their Commonalities and Disparities Using Cluster Analysis

Turkey has enjoyed considerable economic growth over the past decade and has a positive economic outlook and strong growth prospects. The country benefits from being located between Europe and the major energy producers in the Middle East in the so-called strategic energy corridor. The issue of Turkey’s accession to the EU has long been on the political agenda in Europe. Indeed, Turkey has made considerable efforts to become a full EU member state. However, the accession negotiations for EU membership continue, while Turkey has recently refused to open new accession chapters with the EU and instead has turned its attention to other regional developments. Turkey has strengthened its swtrategic ties with a wide range of countries including those in Europe and the Middle East. It also plays an influential role in a geography that stretches across the former Soviet Union nations. In this paper, the path of Turkey’s accession issues is reviewed and the direction of its economy based on the measure of GDP per capita is forecast using an autoregressive integrated moving average model. In addition, the cluster analysis technique is adopted in order to measure the possible standing of Turkey among EU members, the similarities between EU members, and the current path to becoming an EU member state.

Sustainable Development as the Imperative of the Twenty-First Century; Towards Alternative Approaches on Measuring and Monitoring

In the words of UN Secretary-General, Ban Ki-moon: “sustainable development is the imperative of the twenty-first century.” At this point in the evolution of civilizations and societies, such statements have become de riguer for statesmen and social scientists alike; however, more often the discourse of “sustainable development” does not translate to concrete deeds. And in the case of Albania, even the discourse of sustainable development is lacking. In fact, the progress in Albania is measured almost exclusively through measures of GDP. However, using solely economic indicators, such as growth in GPD, to measure societal progress have been disputed since at least mid-twentieth century and continued to be disputed because such measures do not take into account “welfare indicators,” such as the happiness and well-being of people within a society (see, e.g., Kennedy, 1968; Cameron, 2010). In this paper, is presented a new methodological approach to measuring sustainable development based on the happiness indices of Marks (2011) and Veenhoven (1991, 1995) and the measurement of the ecological footprint (Rees, 1992) of development projects. It is argued that this approach to measuring progress within societies is superior to merely economic approaches because it takes into account quality of life, environmental sustainability, and economic development. Such an integrative approach to measuring societal progress is particularly vital to sustainable development in countries such as Albania. DOI: 10.5901/ajis.2014.v3n1p105

Does the Presence of Multinational Corporations Affect a Country’s Gross Domestic Product?

This article investigates how using different measures of GDP can lead to conflicting development policies when it comes to industrial recruitment. The results suggest that often-employed policies of competing for inward FDI may not benefit GDP annual growth. A distinction is made between official exchange rate (OER) GDP and purchasing power parity (PPP) GDP. Both measures are employed as dependent variables in separate cross-sectional, time-series regression analyses of 60 nations. A measure of multinational corporation (MNC) concentration per nation is developed and included in the model to examine whether the investing nations benefit from the outward FDI of their firms. The data analysis shows that to be true particularly for developing nations that had top-ranked MNCs incorporated within their borders between 2005 and 2009. The findings challenge industrial recruitment policies and suggest that FDI outflows may be more contributive to GDP growth than FDI inflows. The findings also show conflicting results as to which factors contribute to GDP annual growth when both GDP measures are examined, thus raising questions about metrics fit and interpretations of previous studies.

Lights, Camera,...Income! Estimating Poverty Using National Accounts, Survey Means, and Lights

In this paper, we try to understand whether measures of GDP per capita taken from the national accounts or measures of mean income or consumption derived from household surveys better proxy for true income per capita. We propose a data-driven method to assess the relative quality of GDP per capita versus survey means by comparing the evolution of each series to the evolution of satellite-recorded nighttime lights. Our main assumption, which is robust to a variety of specification checks, is that the measurement error in nighttime lights is unrelated to the measurement errors in either national accounts or survey means. We obtain estimates of weights on national accounts and survey means in an optimal proxy for true income; these weights are very large for national accounts and very modest for survey means. We conclusively reject the null hypothesis that the optimal weight on surveys is greater than the optimal weight on national accounts, and we generally fail to reject the null hypothesis that the optimal weight on surveys is zero. Using the estimated optimal weights, we compute estimates of true income per capita and $1-a-day poverty rates for the developing world and its regions. We obtain poverty estimates that are substantially lower and fall substantially faster than those of Chen and Ravallion (2010) specifically or of the survey-based poverty literature more generally.

Methodological Developments in Human Development Literature

The present paper is a review of methodological advancements in human development literature starting from 1990 till date. While highlighting the contribution of UNDP to the concept of human development and construction of HDI it mentions that the introduced concept and method of measurement is a huge qualitative improvement over the earlier concept of growth and per capita GDP measurement. Although the human development report started with a poor methodology, thanks to the galaxy of scholars for their untiring efforts and invaluable contributions in the successive years that enabled UNDP in refining its methodology to a large extent. There is no denying fact that there is no end to refinements, the purpose for which Mahbub ul Haq struggled in his entire life has been served.

“Economic Development as Opportunity Equalization”

Economic development should be conceived of as the degree to which an economy has implemented an efficient and just distribution of economic resources. The ubiquitous measure of GDP per capita reflects a utilitarian conception of justice, where individual utility is defined as personal income, and social welfare is the average of utilities in a population. A more attractive conception of justice is opportunity-equalization. Here, a two-dimensional measure of economic development is proposed, based upon viewing individuals’ incomes as a consequence of circumstances, effort, and policy. The first dimension is the average income level of those in the society with the most disadvantaged circumstances, and the second dimension is the degree to which total income inequality is due to differential effort, as opposed to differential circumstances. This pair of numbers is computed for a set of 22 European countries. No country dominates all others on both dimensions. The two-dimensional measure induces a partial ordering of countries with respect to development.

The economic costs of sleaze or how replacing samurai with bureaucrats boosted regional growth in Meiji Japan

The notion that professional, efficient and non-corrupt bureaucracies foster economic growth is virtually uncontested. In spite of this wide consensus, central questions remain unanswered. Thus, while the harmful effects of dysfunctional administrations are extensively covered in the theoretical literature, little is known about the empirical relevance and the expected costs of insufficient administrative rationalization. And while efficient bureaucracies are considered a key ingredient to institutional performance, the existing research rarely investigates how desirable administrative structures have been implemented in history or which concrete policy measures constitute feasible reform strategies for present-day development countries. The present paper therefore aims at providing empirical evidence to dose this lacuna; to do so, it relies on the case of administrative reforms in the last three decades of the nineteenth century in Meiji Japan. Building on an exceptionally detailed set of official statistics and documentary sources, it constructs a panel of 45 Japanese prefectures and assesses the impact of heterogeneous reform implementation on canonical indicators of economic performance including measures of regional GDP, business activity and financial market development. The central results of the econometric analysis are that delayed administrative rationalization came along with a statistically significant and robust penalty on all development indicators. Moreover, this effect was remarkably persistent over time, as the data show that late-reforming prefectures performed systematically worse than the administrative forerunners until well into the twentieth century.

Who Shrunk China? Puzzles in the Measurement of Real GDP

The latest World Bank estimates of real GDP per capita for China are significantly lower than previous ones. We review possible sources of this puzzle including substitution bias in consumption, reliance on urban prices, which we estimate are higher than rural ones, and the use of an expenditure-weighted rather than an output-weighted measure of GDP. Taking all these together, we estimate that Chinese real per capita GDP was 30% higher in 2005 than the World Bank estimates. Our empirical procedures have implications more broadly for international comparisons of living standards and real GDP.

Fiscal Policy Stance in the European Union: The Impact of the Euro

In the recent years there has been an intense discussion whether the actual behaviour of fiscal authorities is consistent with cyclical stabilization objectives. The question of the appropriate fiscal policy is gaining recognition especially for the countries of the euro area after entering the European Monetary Union (EMU). Therefore, the aim of this paper is to evaluate the activity of the fiscal policy before and after the entrance to the euro zone for each individual EMU country in 1995–2010 period. For this purpose we will use the cyclical adjusted balance, which is the common tool used to estimate fiscal policy stance. The analysis of the cyclically adjusted balance gives an additional insight into the former activity arrangements of the fiscal policy, which contributes to gauge the ex-post estimation of the fiscal policy. On this base we can determine the causes of general government budgets imbalance in the past. Despite this fact, we should be aware of some caveats in the assessment of cyclical adjusted balance, which appear due the inconsistency in measurement of output gap and potential GDP growth.To evaluate pro-cyclical or countercyclical fiscal policy stance we compare the dynamic evaluation of the cyclically adjusted balance and output gap. Namely, changes of the cyclically adjusted balance in consecutive years indicate the orientation of fiscal policy, i.e. the fiscal impulse. By comparing the change in the cyclically adjusted balance and output gap between individual years, which indicates fluctuations in the economic cycle, it is possible to assess the orientation of fiscal policy, i.e. the fiscal position. The fiscal policy can be considered as countercyclical if it is expansive in the situation of negative output gap and restrictive in the situation, when the actual growth of GDP is above its potential rate. On the other hand, fiscal policy is characterized to be pro-cyclical if in the situation of negative output gap the government uses restrictive fiscal instruments and when the fiscal policy reacts expansionary in the situation of positive output gap, where the actual output exceeds the estimated potential GDP.In the empirical analysis we evaluate the fiscal policy stance for each country of the euro area. In the assessment of government behaviour we cover 14 countries in the 1995–2010 period. The results of the analysis generally confirm that the fiscal policy in most euro-area member states became more expansionary in the period after entering the EMU. Moreover, these preliminary findings were partly confirmed by a statistical analysis which shows statistically significant differences in expansionary fiscal policy between the aforementioned sub-periods. In addition, we might also conclude the average fiscal stance is expansionary when actual output is above its potential level, which implies a pro-cyclical bias in times of prosperity, and that the fiscal stance tends to be predominantly counter-cyclical when actual output is below its potential level. These conclusions can be associated with asymmetric fiscal behaviour after entering the euro area because the response of fiscal authorities to cyclical conditions in the economy depends on whether good or bad times are prevailing. These assertions reflect some conclusions made in other similar studies. DOI: http://dx.doi.org/10.5755/j01.ee.24.1.1614

Military Spending and Democratisation

Abstract There is considerable evidence that authoritarian regimes have tended to spend more on the military than democracies. However, the direction of causality of this relationship has not been seriously investigated. The literature tends to assume that causality runs from regime type to military expenditure, but one might also expect military expenditure to influence regime type: history yields numerous examples of countries whose democratisation process was reversed by a powerful military unwilling to give up its privileged position in society. Successful democratisation, amongst other things, requires the reform of civil-military relations. In this paper, I build on the empirical literature on democratic transitions and examine whether lowering military expenditure in a democratising country increases the chances of successful democracy consolidation. I use a number of techniques, including two-way fixed effects model and a panel VAR to examine the linkages and pattern of Granger causality between measures of regime type, GDP and military expenditures.