The Unassuming Economist

From Marginal Revolution:

“As a metric of how well economes are doing, gdp is underrated, as I argue in my latest Bloomberg column.  Here is one bit:

If a nation has a lot of foreign direct investment, as does Ireland, GDP will exceed GNP by a considerable amount. According to the Irish government, the country’s GDP is about 370 billion euros. Its GNP is less than 300 billion euros. The difference in GDP and GNP is largely accounted for by the outflow of profits to foreign-owned multinationals.

This isn’t just a story about Ireland. Many other nations have had significant differences between their GDP and GNP, including many developing nations and, at times, Singapore.

The conventional wisdom is that GNP is the proper measure of living standards, because domestic citizens do not have claims on the profits of foreign multinationals. That isn’t wrong, but it is also an incomplete answer. When it comes to the future prospects of a country, GDP is a better indicator. Countries that have a high ratio of GDP to GNP are especially promising, though there are some caveats.

A relatively high GDP is a sign that a large number of foreign companies view the future of the domestic economy as bright. They are “putting their money where their mouth is.”

In the case of Ireland, the country is now the only member of the European Union in which English is the main language not only for business but also for schools and public life. Foreign investors are drawn by that fact. They also see that Ireland is relatively underpopulated, and appears to be receptive to absorbing talented foreign immigrants. Furthermore, Ireland is ruled by mainstream parties and seems largely unaffected by the populism and nativism that are creating problems elsewhere in Europe.

All these realities are reason to be bullish. It is also reasonable to expect that the Irish government will be relatively friendly to business looking forward.”

From the IMF’s latest report on Macao:

“Staff reiterates its call to phase out the residency-based LTV capital flow management measure and macroprudential measure (IMF Country Report No. 19/123, Appendix IV). The authorities have introduced this measure in response to a potential risk from soaring property prices fueled by demand from non-residents. However, since 2019 this risk has abated as residential prices have plateaued and residential property transactions by non-residents have fallen. Linking the differentiation in LTV limits directly to banks’ risk assessment of loans and borrowers could attain the same objective without residency-based differentiation.”

From Noahpinion:

“It’s always an interesting experience to read books about China’s economy from before 2018 or so. So many world-shaking events have changed the story since then — Trump’s trade war, Covid, Xi’s industrial crackdowns, the real estate bust, lockdowns, Russia’s invasion of Ukraine. Reading predictions of China’s evolution from before these events occurred is a little like reading sci-fi from 1962.

When I started China’s Economy: What Everyone Needs to Know®, by the veteran economic consultant Arthur Kroeber, I was prepared for this surreal effect. After all, it was published in April 2016 — not the most opportune timing. So I was pleasantly surprised by how relevant the book still felt. Most of the book’s explanations of aspects of the Chinese economy — fiscal federalism, urbanization and real estate construction, corruption, Chinese firms’ position within the supply chain, etc. — are either still highly relevant, or provide important explanations of what Xi’s policies were reacting against. Dan Wang was not wrong to recommend that I read it.

But China’s Economy is still a book from 2016, and through it all runs a strain of stubborn optimism that seems a lot less justifiable six years later. Most crucially, while Kroeber acknowledged many of China’s economic challenges — an unsustainable pace of real estate construction, low efficiency of capital, an imbalance between investment and consumption, and so on — he argued that China would eventually overcome these challenges by shifting from an extensive growth model based on resource mobilization to one based on greater efficiency and productivity improvements. This was despite his acknowledgement of the fact that productivity growth had already slowed well before 2016, and that Xi’s policies so far didn’t seem up to the challenge of reviving it.

In many ways, productivity growth is the thread that ties together the entire story of the Chinese economy since 2008. Basic economic theory says that eventually the growth benefits of capital accumulation hit a wall, and you have to improve technology and/or efficiency to keep growth going. Some countries, like Japan, South Korea, Singapore, and Taiwan, have done this successfully, and are now rich; other, like Thailand, failed to do it and are now languishing at the middle income level. For several decades, Chinese productivity growth looked like Japan’s or Korea’s did. But slightly before Xi came to power, it downshifted to look a bit more like Thailand. Here’s a graph from the Lowy Institute’s recent report:”

From a new paper by Adolfo Maza:

“Okun’s law is one of the best-known stylized facts in the economic literature, as well as one of the most widely used policy tools. The aim of this paper, which utilizes a comprehensive sample of 265 European regions by using annual observations covering the period from 2000 to 2019, is to deepen our knowledge of Okun’s law from two perspectives: on one hand, by checking the existence and intensity of regional differences, and on the other hand, by assessing the factors that explain them. To this end, in the first part, we apply a heterogeneous panel approach that deals with cross-sectional dependence, which allows us to obtain an average coefficient as well as region-specific coefficients. In the second part, a cross-sectional spatial model is used to uncover explanatory factors. Our findings reveal quite remarkable regional differences, as well as a somewhat geographical pattern in them. Moreover, they point out the importance of demographic factors (such as gender and age), labor market variables (share of employment in industry and construction, as well as self-employment and part-time employment and the severity of long-term unemployment), R&D expenditure, and some national institutional factors when it comes to explaining differences across regions.”

On cross-country:

• Global Residential Cities Index – Q4 2021 – Knight Frank
• Understanding African Real Estate Markets – Routledge 
• Tighter monetary policy and regulation point to slowdown in property market – ING

On the US:    

• Housing Market Expectations – CEPR
• The (Non-)Effect of Opportunity Zones on Housing Prices – Journal of Urban Economics
• The Housing Market Is Hot But Certainly Not ‘Unhinged’. Simple patterns in aggregated numbers provide no understanding as to why buyers are paying more for homes. – Bloomberg
• In Wealthy U.S. Suburbs, There’s Not Much of a Housing Boom. Westchester, NY, and Montgomery County, MD, are up about 1%. Home prices in two-thirds of counties gained over 10%: Attom – Bloomberg
• More Than Shelter: The Effects of Rental Eviction Moratoria on Household Well-Being – Philadelphia Fed
• Where pro-housing groups are emerging – Brookings
• The Effect of Housing First Programs on Future Homelessness and Socioeconomic Outcomes – Kansas Fed
• What Has Research Shown About Alternative Home Financing in the U.S.? A look at the available evidence and the persistent gaps, as well as topics for future investigation – PEW
• Home Prices Can Always Get More Ridiculous. Welcome to the (maybe) new normal. – Bloomberg
• Emergency Rental Assistance Has Helped Stabilize Struggling Renters – Harvard Joint Center for Housing Studies
• US mortgage interest rates hit 5% for the first time in a decade. That’s great news – Quartz

On other countries:  

• [Australia] The risks of Australia’s ‘house and holes’ economy are rising. As the country faces an election, it is increasingly reliant on housing and mining for growth – FT
• [Australia] Australia’s Property Market Is Beginning to Cool, Led by Sydney – Bloomberg
• [Canada] Toronto Home Prices Dip as New Listings Close the Gap With Sales – Bloomberg
• [Canada] Canada to Ban Foreigners From Buying Homes as Prices Soar. Trudeau to put billions toward boosting housing supply. Benchmark price is up more than 50% over past two years – Bloomberg
• [Hong Kong] Hong Kong’s property tycoons braced for further losses from zero-Covid regime. Family-run developers forecast to face sharp fall in house prices after steep revenue drops last year – FT
• [Germany] Germany’s Bundesbank warns over bank loans to hot property market – Reuters
• [United Kingdom] UK house prices rise at fastest pace in 18 years. Annual growth hits 14.3% as price-to-earnings ratio reaches all-time high, according to Nationwide survey – FT
• [United Kingdom] UK house prices reach record high in March as supply remains short. Average cost of a property reaches £282,753 driven by strong demand for homes in less dense areas – FT