The Cultural Revolution, Stress and Cancer

The link between mental stress and cancer is still a belief, not a well established scientific fact. Scientists have relied largely on opinions of cancer stricken patients to establish a link between stress and cancer. Such opinion surveys tend to produce contradictory statistical inferences. Although it is difficult to conduct scientific experiments on humans similar to those on animals, human history is replete with “experiments” that have caused enormous stress on some human populations. The objective of this exercise is to draw evidence from one such massive experiment, the Cultural Revolution in China. Cancer data from Shanghai analyzed through an age-period-cohort technique show very strong evidence in support of the hypothesis that mental stress causes cancer.

Does the IV estimator establish causality? Re-examining Chinese fertility-growth relationship

The instrumental variable (IV) estimator in a cross-sectional or panel regression model is often taken to provide valid causal inference from contemporaneous correlations. In this exercise we point out that the IV estimator, like the OLS estimator, cannot be used effectively for causal inference without the aid of non-sample information. We present three possible cases (lack of identification, accounting identities, and temporal aggregation) where IV estimates could lead to misleading causal inference. In other words, a non-zero IV estimate does not necessarily indicate a causal effect nor does the causal direction. In this light, we re-examine the relationship between Chinese provincial birth rates and economic growth. This exercise highlights the potential pitfalls of using too much temporal averaging to compile the data for cross sectional and panel regressions and the importance of estimating both (x on y and y on x) regressions to avoid misleading causal inferences. The GMM-SYS results from dynamic panel regressions based on five-year averages show a strong negative relationship running both ways, from births to growth and growth to births. This outcome, however, changes to a more meaningful one-way relationship from births to growth if the panel analysis is carried out with the annual data. Although falling birth rates in China have enhanced the country’s growth performance, it is difficult to attribute this effect solely to the one-child policy implemented after 1978.IV estimator and causality inference, identification, accounting identities, temporal aggregation, spurious causality, Chinese provincial growth and fertility relationship.

Singapore’s Recurrent Budget Surplus The Role of Conservative Growth Forecasts

Aided by strong economic growth the Singapore government has been able to keep both the tax rate and the government expenditure rate low and yet generate healthy budget surpluses year after year. Although the gap between the tax rate and the government expenditure rate is the obvious source of the surplus, this paper shows the presence of another subtle source, a surplus generated by conservative growth forecasts that lay the base for revenue projections. An omitted variable bias in a model based on the tax smoothing hypothesis led us to consider the role played by the growth forecast error in predicting the budget surplus. Our computations show that on average the underprediction of the tax base (GDP) must have contributed about $376 million per year to the realized budget surplus over the period 1990-2005. This appears to be simply a byproduct of the Government’s philosophy of “fiscal prudence”.Tax smoothing model, Reported and adjusted budget surplus, GDP forecast errors.

Temporal Aggregation, Causality Distortions, and a Sign Rule

Temporally aggregated data is a bane for Granger causality tests. The same set of variables may lead to contradictory causality inferences at different levels of temporal aggregation. Obtaining temporally disaggregated data series is impractical in many situations. Since cointegration is invariant to temporal aggregation and implies Granger causality this paper proposes a sign rule to establish the direction of causality. Temporal aggregation leads to a distortion of the sign of the adjustment coefficients of an error correction model. The sign rule works better with highly temporally aggregated data. The practitioners, therefore, may revert to using annual data for Granger causality testing instead of looking for quarterly, monthly or weekly data. The method is illustrated through three applications.Granger causality test, cointegration, error correction model, adjustment coefficient, sign rule

A Gaussian Test for Cointegration

We use a mixed-frequency regression technique to develop a test for cointegration under the null of stationarity of the deviations from a long-run relationship. What is noteworthy about this MA unit root test, based on a variance-difference, is that, instead of having to deal with non-standard distributions, it takes the testing back to the normal distribution and offers a way to increase power without having to increase the sample size substantially. Monte Carlo simulations show minimal size distortions even when the AR root is close to unity and that the test offers substantial gains in power against near-null alternatives in moderate size samples. An empirical exercise illustrates the relative usefulness of the test further.Null of stationarity, MA unit root, mixed-frequency regression, variance difference, normal distribution, power.

SINGAPORE’S DIRECT INVESTMENT IN SRI LANKA: PAST EXPERIENCE AND FUTURE PROSPECTS

Apart from aggregate accounting of Singapore’s investment abroad, case studies on the performance of these investments in individual countries hardly exist. This paper is an attempt to compile such a study by focusing on Singapore’s investment in Sri Lanka. Singapore is one of the largest foreign investors in Sri Lanka though Sri Lanka is a small recipient of Singapore’s total overseas investment. The bulk of Singapore’s investment in Sri Lanka has been in service industries. As usual these investments have created many employment opportunities. However, because of high import dependence the Singapore firms in Sri Lanka have begun to generate trade surpluses only recently. Revealed comparative advantage indices combined with attractive fiscal incentives and low-cost factors of production indicate that there are large investment opportunities in the manufacturing sector that remain to be exploited. The ongoing war obviously has deterred the expansion of Sri Lanka’s FDI base to its full extent.Economic and social indicators, foreign direct investment, employment, trade balance, revealed comparative advantage, future investment opportunities.

Lifetime Income and Housing Affordability in Singapore

The existing measures of housing affordability are essentially short-run indicators that compare current income with property prices. Taking into consideration that a housing purchase is a long-horizon decision and the property price reflects the discounted present value of future mortgage payments, we develop a housing affordability index as the ratio of lifetime income to housing price. Lifetime income is computed by obtaining the predicted income from a regression over the working life from age 20 to 64 for each birth cohort for which limited data were available. Lifetime income of Singapore households by three income quantiles (lower, median, and upper quartiles) shed new light on the increasing income inequality. The affordability index reveals informative trends and cycles in housing affordability both in the public and private sectors. We argue why residential property price escalations need to be avoided by showing that such price increases do not necessarily create a net wealth effect for the aggregate of householdslifetime income inequality, long-run housing affordability, wealth effect, price effect

Quarterly Real GDP Estimates for China and ASEAN4 with a Forecast Evaluation

The growing affluence of the East and Southeast Asian economies has come about through a substantial increase in their economic links with the rest of the world, the OECD economies in particular. Econometric studies that try to quantify these links face a severe shortage of high frequency time series data for China and the group of ASEAN4 (Indonesia, Malaysia, Philippines and Thailand). In this exercise we provide quarterly real GDP estimates for these countries derived by applying the Chow-Lin related series technique to annual real GDP series. The quality of the disaggregated series is evaluated through a number of indirect methods. Some potential problems of using readily available univariate disaggregation techniques are also highlighted.Univariate disaggregation, Chow-Lin procedure, first-difference method, growth-rate method, output linkages and forecast performance