Archive for the ‘Facts’ Category

Impact of financial liberalisation on growth: India vs Thailand

February 4, 2009

One often gets to read this in media and blogs- The impact of crisis on India is less as India is less financially liberalised. What about empirical research on the issue?

Romain Ranciere of IMF has done extensive research (with Aaron Tornell and Frank Westermann) on this issue. He says financial liberalisation is beneficial but leads to crisis as well. He compares a country that adopts financial liberalisation with a relatively less liberalised economy. He then sees the growth of the two over a long time period to see how the 2 economies have performed. His answer: financially liberalised econs perform better than non-financially liberalised even if former has more crisis than latter.

The research paper is  here (a shorter note here as well, presentation, his article at voxeu ). His research mainly compares two economies  – India and Thailand. Thailand belongs to the first category and India to second category. Findings:

Thailand and India illustrate the choices available to countries with weak institutions. While India followed a path of slow but steady growth, Thailand experienced high growth, lending booms and crisis (see Figure I). GDP per capita grew by only 114 percent between 1980 and 2002 in India, whereas Thailand GDP per capita grew by 162 percent, despite the e¤ects of a major crisis.

The link between skewness and growth is economically important. Our benchmark estimates indicate that about a third of the di¤erence in growth between India and Thailand can be attributed to systemic risk taking. Needless to say this finding does not imply that financial crises are good.

This is interesting. It says despite the cost of the crises, financially liberalised economies tend to do better than non-financially liberalised economies. However, one must take this with a pinch of salt. We would like to see the comparisons across other economies as well- say other South East Asian nations, Latin American nations etc. as well. Though, the authors point out they have studied 83 countries from 1960-2000 and the findings are similar, still it makes sense to compare the growth patterns for others as well. It would also be interesting to include ongoing crisis in the database to see whether relation still holds.

The paper also adds the importance of institutions. It says best policy is to get institutions right first and then move towards financially liberalisation. However, as all this institutions setting takes time, it might not be wrong to get financial liberalisation going on. After all, it generates more growth on an aggregate despite the costs of the crisis.

However, is paper is highly technical and I am still trying to figure it out. It points to some literature on the issue. So, it is a place to begin research on the hot issue.

Central Bankers play test-match cricket under trying conditions

June 23, 2008

I was reading this piece from Tamal Bandyopadhyay:

In cricketing parlance, this is a not a dream pitch to bat on. With the inflation rate at a 13-year high, capital flows drying up and the rupee weakening against the dollar, the job of India’s chief money manager is not going to be easy.

It just struck me. When is it easy? Just a few months back we could reverse this entire thing with the same end

With the inflation rate expected to rise, capital flows rising, the rupee appreciating against the dollar and the economy moderating, the job of India’s chief money manager….

It is still not easy.

Though it was being felt that Central Banker’s job is not exciting and Mervyn King even remarked it as boring. Obviously all this was in backdrop of the Great Moderation when Central bankers felt that lower volatility in output and inflation was here to stay and central banks had little more to do.

We now know all this was nothing but true and Great Moderation is followed by Great Disruption with heightened volatility in output, inflation, financial markets etc. You name it and we have it.

I have a different analogy for Central banks and Cricket. The Central banks play a test-match in trying conditions – on slow turning wickets (Sub-continent, West Indies) where ball stays low and starts turning viciously on 4th/5th day, or in England where the ball swings substantially, or on pacy wickets like those in South Africa, Australia (Perth). First situation is Great Moderation, second and third are like today’s times where swing and pace conditions can unsettle both the sides. Those Central Bankers and Cricketers which can play under all conditions are dubbed as great/benchmarks/ideal, rest are simply known as players.

So far few Central Banks/Bankers were considered as greats, but as they moved from sub-continent to Australia their technique is being questioned. 🙂

What is common between US independence day and Economics?

July 5, 2007

Most US based economist bloggers are off today because of American independence day. Hence the assorted links I posted today are few. Anyways a thought just struck me and let me share it with all of you in form of a question:

What is common between US independence day and Economics?  

Answer: The father of economics, Adam Smith’s epic book Wealth of Nations came out in 1776, the year when US got its independence as well.  Adam Smith’s famous book came out on March 9, 1776 and US got its independence on 4 July, 1776. So in a way American independence and economics as a subject both happened in 1776 (Economics as a thought has been there since ages)

So, in a way, all America based economists have 2 reasons to celebrate 🙂

Some facts about Clark Medal and Nobel Prize

April 23, 2007

Just carrying on with the Clark Medal, I thought I would share some trivia and facts. As Clark Medal is supposed to be for economists under 40, one of the things to see is how many get Nobel finally. Here is a factfile:

  • There are 58 nobel winners so far
  • There are 29 clark medal winners
  • Out of 29 clark medal winners only 11 have got a nobel so far…(38% conversion rate… pretty impressive)
  • Clark started in 1947 and Nobel in 1969….so a gap of 22 years… the fact is that till 1969 Clarkies had already produced 7 future nobel winners!!!
  • Infact in that gap of 22 years, there were 10 clarkies (none was awarded in 1953) and seven went on to win a nobel !!! 70% success ratio
  • Post 1967, the number of clarkies winnining a nobel has been just 4 out of a total of 19 winners a ratio of just 21%
  • Out of 58 winners so far, 42 were associated with US Univs at the time Nobel was awarded….72.4%!!So to say Nobel is panglobal is not really working.. well what can nobel committee do… all top guys and thinkers seem to be in US…
  • It shows nothing but their productive Univs 9 from Uchicago, 4 from UCB, 4 Harvard, 4 columbia, 3 Cambridge (last in 1995)
  • Average & mode age -67, median age-66
  • It takes roughly 22 years of waiting between clark and nobel
    Arrow took the least time between clark and nobel (15) and Tobin and Solow 26…
    Arrow is the youngest (but obvious) to have won a nobel (just 51) .. he still holds the recors… and nobel committee is widely cricticised for giving him a nobel alongwith Hicks… he deserved it all alone…!!!!
  • Merton 2nd youngest at 53, His mentor Samuelson at 55, Scholes at 55…One can imagine the impact Black Scholes Merton model had on fin markets….
  • 3 guys in 80’s gto the Nobel- Schelling (game theory) , Wickfrey (famous for his work on auctions), and Coase (never calls himself an economist.. but what impact…)
  • all fin eco guys were either 66 or below (Both Modgillani and Miller were 67…the oldest of the lot.. funny the guys who contributed the most recognised at last)
  • And plotting the ages gives a somewhat normal disitribution…..!!!!

Here is the full list of Clark Medal Winners who got the nobel as well. The year ahead of name is Year when Clark is given. If the nobel is given, the year is followed after the name..

1947 Paul A. Samuelson 1970
1949 Kenneth E. Boulding
1951 Milton Friedman 1976
1955 James Tobin 1981
1957 Kenneth J. Arrow 1972
1959 Lawrence R. Klein 1980
1961 Robert M. Solow 1987
1963 Hendrik S. Houthakker
1965 Zvi Griliches
1967 Gary S. Becker 1992
1969 Marc Leon Nerlove
1971 Dale W. Jorgenson
1973 Franklin M. Fisher
1975 Daniel McFadden 2000
1977 Martin S. Feldstein
1979 Joseph E. Stiglitz 2001
1981 A. Michael Spence 2001
1983 James J. Heckman 2000
1985 Jerry A. Hausman
1987 Sanford J. Grossman
1989 David M. Kreps
1991 Paul R. Krugman 2008
1993 Lawrence H. Summers
1995 David Card
1997 Kevin M. Murphy
1999 Andrei Shleifer
2001 Matthew Rabin
2003 Steven Levitt
2005 Daron Acemoglu
2007 Susan Athey
2009 Emmanuel Saez

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