Inconsistent Definitions of GDP: Implications for Estimates of Decoupling

Efforts to assess the possibilities for decoupling economic growth from negative environmental impacts have examined their historical relationship, with varying and inconclusive results. Part of the problem is ambiguity about definitions of environmental impacts, e.g. whether to use territorial or consumption-based measures of environmental impact. This paper shows that ambiguities arising from definitional changes to GDP are sufficiently large to affect the outcomes. I review the history of structural revisions to GDP using the example of the United States, and on international comparisons of purchasing power parity, compare decoupling results using various historical definitions of GDP on the same environmental indicator, and demonstrate that changing the GDP data vintage does impact decoupling results in qualitatively important ways, with and without purchasing power parity. Inconsistencies in economic measurement introduce an additional layer of ambiguity into historical decoupling evidence and model projection into the future. To advance debate and be clear about scenario assumptions, rigorous reporting of GDP definitions used and the sharing of data vintage for subsequent comparison and replication are urgently needed

Still focused on public deficits. Some remarks on the euro area stability programmes 2012-2015

Using the financial balances accounting identity, we analyze whether there is evidence in recent national accounting data and the projections of the Stability Programmes (SP), that the focus on fiscal deficits to the exclusion of other economic variables risks further deterioration of the euro area economy’s growth rate. We find that, in the past given the focus on shrinking public deficits, growth forecasts have almost always deteriorated from one SP to the next, while the macroeconomic situation is not markedly different from the beginning of the euro area crisis, 2010. We conclude that continued fiscal austerity and disregard of current account imbalances is likely to lead to further deteriorating data that fail to live up to current growth forecasts. This will lead in turn to further growth forecast downward revision in the next SP batch. A simple simulation of a deterioration in the external economic environment indicates that a symmetric rebalancing of the current account imbalances might be more feasible than the current, asymmetric rebalancing

Financing renewable energy: who is financing what and why it matters

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Low-Carbon Transition Risks for Finance

Mitigating climate change requires information about the inequality in energy consumption. Recent contributions (Banerjee and Yakovenko, 2010; Lawrence et al., 2013; Yakovenko, 2010, 2013) have studied energy inequality through the lens of maximum entropy. They claim a weighted international distribution of total primary energy demand should approach a Boltzmann-Gibbs maximum entropy equilibrium distribution in the form of an exponential distribution, implying convergence to a Gini coefficient of 0.5 from above. The present paper challenges the validity of this claim and critically discusses the applicability of statistical equilibrium reasoning to economics from the viewpoint of social accounting. It is shown that the exponential distribution is only a robust candidate for a statistical equilibrium of energy inequality when employing one particular accounting convention for energy flows, the substitution method. But this method has become problematic with a higher renewable share in the international energy mix, and no other accounting method supports the claim of a convergence to a 0.5 Gini. We conclude that the findings based on maximum entropy reasoning are sensitive to accounting conventions and critically discuss the epistemological implications of this sensitivity for the use of maximum entropy approaches in social sciences

Do Firms with Higher Energy Efficiency Have Better Access to Finance?

Improving energy efficiency quickly is key to mitigating climate change and a large part of such improvements has to be implemented in firms. But since most energy efficiency improvements require upfront investments, good access to external finance is important. Theory suggests that information asymmetries may prevent lenders from including energy efficiency into their lending assessment, even though higher energy efficiency makes a firm more cost- competitive and its collateral worth more, especially if stringent climate change mitigation plans are implemented. Empirically, little is known about the impact of energy efficiency on access to external finance. Here we examine for the first time empirically the effect of a firm’s higher energy efficiency on their ability to obtain loans in European Union countries. We exploit a unique firm-level dataset that links a survey from the European Investment Bank on energy efficiency of firms’ building stock and on access to external finance with the ORBIS firm database for European firms. We find that energy efficiency has no effect on the ability of a firm to obtain external financing compared to other indicators on the financial or operational health of the firm. The results reveal an unexploited potential for energy efficiency policy to signal when firms are energy efficient

Piketty's Elasticity of Substitution: A Critique

This article examines Thomas Piketty’s explanation of a falling wage share. Piketty explains rising income inequality between labor and capital as a result of one parameter of a production function: an elasticity of substitution, σ, between labor and capital greater than one. This article reviews Piketty’s elasticity argument, which relies on a non-standard definition of capital. In light of the theory of land rent, it discusses why the non-standard capital definition is a measure of wealth, not capital and is problematic for estimating elasticities. It then presents simple long-run estimates of σ in constant elasticity of substitution functions for Piketty’s data as well as for a subset of his capital measure that comes closer to the standard definition of productive capital. The estimation results cast doubt on Piketty’s hypothesis that σ is greater than one

Nothing learned from the crisis? Some remarks on the stability programmes 2011–2014 of the Euro area governments

In this chapter, we argue that the projections for achieving stability in the current Stability Programmes (SPs) of Euro zone member countries are very likely too optimistic.2 We aver that by ignoring the importance of external rebalancing and assuming an overly buoyant world economy, the SPs either forecast unrealistic growth rates or unrealistically successful fiscal consolidation. Towards this, we examine the interrelated- ness of public deficit reduction and external imbalances reduction. We derive our argument mainly from evaluating the SPs against the logic of simple accounting identities, which clarify the connections of financial balances and thereby of the two challenges. Thus we transcend the SPs’ narrow focus only on the government balance, and shed light instead on the SPs’ projections of the financial balances of all three sectors in the economy (foreign, private and public) and how they are intertwined with the overall macroeconomic development. Merely the final brief sketch of feasible alternative policy recommendations to address both challenges (sustainability of public deficits and current account positions) requires a greater sophistication of the economic argument and thus involves more judgment

What You Exported Matters: Persistence in Productive Capabilities across Two Eras of Globalization

Does what you exported matter? We build a new global commodity-level export database for the previous era of globalization and find persistence in productive capabilities proxied by economic complexity, export diversification, and sophistication across a century. We also show that productive capabilities at the turn of the 20th century are a powerful predictor of today’s income levels. We demonstrate that our results are not driven by persistence in geography or institutions. The persistence mechanism is the complementarity between past and future productive capabilities with one important qualification, the persistent negative effect of European overseas colonization. We also study shocks that undermined persistence, confirm the resource course hypothesis for the long run and find a positive but slow effect of democratization

Inequality in Energy Consumption: Statistical Equilibrium or a Question of Accounting Conventions?

Understanding inequality energy consumption at the global level delivers key insights for strategies to mitigate climate change. Recent contributions [4, 28, 48, 49] have studied energy inequality through the lens of maximum entropy. They claim a weighted international distribution of total primary energy demand should approach a Boltzmann-Gibbs maximum entropy equilibrium distribution in the form of an exponential distribution. This implies convergence to a Gini coefficient of 0.5 from above. The present paper challenges the validity of this claim and critically discusses the applicability of statistical equilibrium reasoning to economics from the viewpoint of social accounting. It is shown that the exponential distribution is only a robust candidate for a statistical equilibrium of energy inequality when employing one particular accounting convention for energy flows, the substitution method. But this method has become problematic with a higher renewable share in the international energy mix, and no other accounting method supports the claim of a convergence to a 0.5 Gini. We conclude that the findings based on maximum entropy reasoning are sensitive to accounting conventions and critically discuss the epistemological implications of this sensitivity for the use of maximum entropy approaches in social sciences