The Unassuming Economist

A new paper by Xiang Li and Dan Su highlights the possible relationship between capital account liberalization and inequality:

From a new Vox piece on robots and firms:

“Frey and Osborne (2017) predict that almost 47% of total US employment could be automated in the nearest future. Focusing on the period from 1993 to 2007 and covering 17 different countries, Graetz and Michaels (2018) find that the growing intensity of robot use accounted for 15% of aggregate economy-wide productivity growth, contributed to significant growth in wages, and had virtually no aggregate employment effects. At the same time, Acemoglu and Restrepo (2017) investigate the US labour market between 1990 and 2007 and show that one additional robot per thousand workers reduces the employment to population ratio by about 0.2 percentage points and wages by 0.37 percent within commuting zones. Dauth et al. (2018) study Germany between 1994 and 2014 and find no effects on total employment, but identify a substantial shift in the composition of jobs away from manufacturing and towards business service”

From VoxEU post by Reda Cherif and Fuad Hasanov:

“The ‘Asian miracles’ and their industrial policies are often considered as statistical accidents that cannot be replicated. The column argues that we can learn more about sustained growth from these miracles than from the large pool of failures, and that industrial policy is instrumental in achieving sustained growth. Successful policy uses state intervention for early entry into sophisticated sectors, strong export orientation, and fierce competition with strict accountability.

Achieving sustained growth over long periods of time has been an elusive ‘holy grail’ of macroeconomics. In the past 50 years developing economies have taken different paths. A few – such as the ‘Asian miracles’ of Hong Kong (China), South Korea, Singapore, and Taiwan Province of China – are catching up swiftly with the advanced economies, and some forging ahead. But many are falling behind, to use the terminology of Abramovitz (1986).

The empirical evidence shows that the odds for poor or middle-income countries to reach high-income status within two generations are very low (Cherif and Hasanov, forthcoming). Between 1960 and 2014, fewer than 10% of economies (16 out of 182 in the sample) reached high-income status. There were three categories of those that made it: Asian miracles, countries that discovered large quantities of oil, and those that benefited from joining the European Union (Figure 1)

 

Figure 1 Half a century of development

Source: Penn World Tables 9.0 (Feenstra et al. 2015).
Note: GDP per capita is in 2011 PPP dollars. The thresholds for upper-middle income and high income are 20 % and 50% of US GDP per capita, respectively (red lines). The diagonal line indicates no change in relative income levels (with respect to the US level).

We argue (Cherif and Hasanov 2019)  that one cannot ignore the pre-eminent role of industrial policy in the development of the Asian miracle countries as well as for Japan, Germany, and the US before them. The industrial policies pursued by the Asian miracles have a lot in common. This suggests that the standard ‘growth policy recipe’ of tackling only government failures (improving macro-stability, enforcing property rights, providing basic infrastructure and education, and so on) may not be enough to create advanced economies in a short period of time. Instead, recent research suggests that industrial policy may benefit economic development too (Rodrik 2019).”

From a Vox piece on NZ’s well-being budget:

“To Prime Minister Jacinda Ardern, the purpose of government spending is to ensure citizens’ health and life satisfaction, and that — not wealth or economic growth — is the metric by which a country’s progress should be measured. GDP alone, she said, “does not guarantee improvement to our living standards” and nor does it “take into account who benefits and who is left out.”The budget requires all new spending to go toward five specific well-being goals: bolstering mental health, reducing child poverty, supporting indigenous peoples, moving to a low-carbon-emission economy, and flourishing in a digital age. To measure progress toward these goals, New Zealand will use 61 indicators tracking everything from loneliness to trust in government institutions, alongside more traditional issues like water quality.”

Other material on similar subjects include an earlier IMF paper on Bhutan’s Gross National Happiness index (GNH) by Sriram Balasubramanian and Paul Cashin and a Vox piece on new growth models.

From an IMF working paper by Tamim Bayoumi and Jelle Barkema:

“Using bilateral data on migration across US metro areas, we find strong evidence that increasing house price and income inequality has reduced long distance migration, the type most linked to jobs. For those migrating uphill, from a less to a more prosperous location, lower mobility is driven by increasing house price inequlity, as the disincentives from higher house prices dominate the incentives from higher earnings. By contrast, increasing income inequality drives the fall in downhill migration as the disincentives from lower earnings dominate the incentives from lower house prices. The model underlines the plight of those trapped in decaying metro areas—those “left behind”.”