Measuring long-run equilibrium exchange rates using standardized products with different specifications

Purchasing Power Parity (PPP) is an appealing theory of the determination of longrun equilibrium exchange rates as it is founded on the intuitive proposition that opportunities for arbitrage will not go unexploited. However, in practice, measuring PPP exchange rates is hindered by difficulties in isolating the cost of tradeable inputs in the price of a reference product basket. This paper proposes a method that can extract this component using price information embodied in slightly different specifications of otherwise identical, standardized products. The method is illustrated using two well-known information and telecommunication (ICT) products, and could readily be applied to a broader, more representative product basket.

The FDI-Income Growth Nexus: a review of the Chinese experience

Amongst many economists, China serves as the foremost example of the benefits that developing countries can derive from being open to foreign direct investment (FDI). Since the early 1990s, China has, by a large margin, received more FDI than any other developing country. It has also experienced the world�s fastest rates of income growth. Moreover, those provinces within China that have hosted the bulk of FDI have grown at relatively faster rates. However, a literature has now emerged that makes it possible to better assess the relationship between FDI and income growth beyond these stylised facts. A review of this literature leads to the conclusion that China�s FDI-income growth nexus is in need of considerable qualification. The paper then attempts to reconcile the perception that FDI has been an important driver of income growth on the one hand with the limited evidence to that effect on the other. By way of conclusion, policy implications consequent to the review of literature are drawn.

The impacts of academic and industry research on high-tech manufacturing: Evidence from supercomputer usage

It is widely accepted that research in the high-tech sector is considered a key to maintain advanced economies’ competitiveness at the face of their emerging counterparts’ rising technological sophistication. Yet, the impact of research on high-tech output has never been quantified. In this paper, we empirically examine the impact of frontier research on high-tech manufacturing production. Standard R&D expenditure measure is found to be too general to capture the input in frontier research. To overcome this problem, we propose a novel proxy for frontier research investment – the supercomputing capacity. Empirical evidence strongly supports this choice of variable. We also find that academic research exerts a larger growth effect on high-tech manufacturing output than its industrial counterpart.

China's capital account convertibility and financial stability

Capital account convertibility in China is on the rise. Some see the process as a means of circumventing domestic financial sector inefficiency while others view it as potentially exposing China to financial crises. In considering these different viewpoints, this paper attempts to quantify the impact that opening the capital account will have on the volume of China�s international capital flows. It is found that were China to fully open its capital account, gross non-FDI capital flows are predicted to rise by around 4.6 percent of GDP. While an increase of this magnitude would present a prudential challenge for China�s monetary authorities, it does not appear to be large enough to seriously call into question financial sector stability, either in China or abroad.

The Hierarchical Structure of the Firm: A Geometric Perspective

This paper incorporates hierarchical structure into the neoclassical theory of the firm. Firms are hierarchical in two respects: the organization of workers in production and the wage structure. The firm’s hierarchy is represented as a sector of a circle, where the radius represents the hierarchy’s height, the width of the sector represents the breadth of the hierarchy at a given height, and the angle of the sector represents span of control. A perfectly competitive firm chooses height and width, as well as capital, in order to maximize profit. We analyze the short run and long run impact of changes in scale economies, input substitutability, and input and output prices on the firm’s hierarchical structure. We find that the firm grows as the specialization of its workers increases or as its output price increases relative to input prices. The effect of changes in scale economies is contingent on the price of output. The model also brings forth an analysis of wage inequality within the firm, which is found to be independent of the firm’s hierarchical organization of workers, and only depends on the firm’s wage schedule.Theory of the firm; Hierarchical structure; Economies of scale; Input substitutability; Inequality

Non-Hierarchical Bivariate Decomposition of Theil Indexes

This paper develops a method to conduct non-hierarchical bivariate decomposition of Theil indexes. The method has the merits that, first, it treats all variates symmetrically and therefore facilitates the comparison of inequalities associated with different variates; and, second, it highlights the interaction between variates in the creation of inequality. The method is applied to measure gender and ethnic income inequality in Australia.

Estimating China�s de-facto capital account convertibility

China�s capital account convertibility is presently not well understood. A relatively closed de jure regime sits in contrast with a de facto regime that exhibits distinct signs of being quite open. This paper seeks to shed light on this issue by using an econometric model to predict the level of capital flows that would be expected if China had a fully open capital account. The results show that over 2001-2003, observed capital flows were around 85 percent of the predicted value, suggesting that China�s capital account over a one year time horizon is already quite open. Short run convertibility would expectedly be less than this figure. Thus, the results carry the connotation that the cost of capital controls in terms of allocative inefficiency over the medium and long run is likely to have been modest while some unwarranted short run volatility has been avoided. Nonetheless, the results do not leave room for policy complacency. As China continues to implement its WTO commitments in addition to other arrangements such as the Common Economic Partnership Agreement with Hong Kong, short run convertibility is presently on the rise. This makes implementing policies that are prerequisites for full convertibility a matter of urgency.

A Rethink on Measuring Health Inequalities Using the Gini Coefficient

Objective- We show that a standardized Gini coefficient that takes into account the feasible range of health inequality for a given health attribute is a better instrument than the normal Gini coefficient for quantifying inter-individual health inequality. Methods- The standardized Gini coefficient is equal to the normal Gini coefficient divided by the maximal attainable Gini coefficient, which is computed based on the maximal level of a health attribute an individual could achieve. Both the old and new coefficients are used to estimate the lifespan inequality of 185 countries for year 1990, 2000 and 2006, respectively. The results are then compared both across countries and over time. Findings- Firstly, the standardized Gini coefficient can still be related to the Lorenz curve. Secondly, changes in standardized Gini coefficients can be decomposed into respectively the change in the distribution of health outcomes and the change in the average health outcomes. Thirdly, the standardized Gini coefficient provides richer information and often gives different conclusions regarding health inequality in individual countries as well as country ranking, as compared to the normal Gini coefficient. Conclusion- Accounting for the maximal level of health attribute an individual could achieve is important when measuring health inequality. The proposed standardized Gini coefficient can provide more accurate information regarding the actual level of health inequality in a society than the normal Gini coefficient

Correcting the size bias in trade openness and globalization measures

The trade intensity index, constructed as exports plus imports divided by GDP, is the most commonly used measure for trade openness and globalization. The index tends to indicate small countries are more open than large countries. We show that it is the inconsistence of two implicit assumptions in the index that leads to a size bias in the openness measurement. We use a combination of axiomatic and parametric methods to derive an unbiased, generalized index that embodies the conventional index as a special case. Correcting the size bias leads to very different results in relative openness measures between countries and in the estimates of the growth effect of trade openness