The Olympics and Economics

There’s something inexplicably uplifting about sporting success. Not only does it inspire — even if fleetingly — at an individual level, it fosters national pride, a feeling rarely experienced in our networked world of partisan sniping. India’s best-ever performance at the Tokyo Olympics gave me, you, and millions of other Indians a reason to chin up in these challenging times.

https://publicpolicy.substack.com/p/139-a-question-of-sports?

So begins Pranay’s essay today from his (and RSJ’s) excellent newsletter, Anticipating the Unanticipated. The essay is a rumination on the role of government in sports, and as Pranay rightly points out, the implicit assumption that most of us make is that government should play a bigger role in fostering an environment more conducive to sporting excellence.

“Fostering an environment more conducive to sporting excellence” ought to at least get me an interview with a consulting firm, so I’ll translate that into plainspeak. The government should spend more, and work more on building out better sporting facilities, hiring better coaches, paying our sportspeople more, and more besides – all so that we win more medals.


Pranays disagrees with this view (and I agree with Pranay). This job, he says, is best left to markets and society.

Consider the role of markets first. Not too long ago, cricket would be criticised by players of other sports for hogging all the popularity, attention, and resources. And then a commercial, entertainment-focused enterprise such as the IPL turned this argument on its head. The city-based league format pioneered in India though IPL proved to be a positive-sum game for other sports. It spawned similar leagues in several sports, even managing to bring back Kabbadi to primetime TV screens. This commercial model energised many sports in ways that no government medals could have done.
At the amateur level, reforms in India’s FDI policy finally brought world-class sporting retailers such as Decathlon to India. Earlier, the sports retailing scene was stagnant, with few old-style shops only catering to demands of select, mass-market sports. By getting out of the way, the government helped change the sports equipment landscape for millions of budding sportspersons in the country. In short, markets are critical to lasting sporting success.

https://publicpolicy.substack.com/p/139-a-question-of-sports?

I agree, for the most part, but with government support, about which I’ll write more in a bit. Pranay also makes the case for the third pillar to do its bit:

Take the role that the MRF Pace Foundation has played in producing fast bowlers in India. Or the contribution of the Tata Group in improving hockey facilities in Odisha. We need many more philanthropic initiatives of this nature.
Besides the well-established corporates, there are smaller non-profit organisations such as the GoSports Foundation and Olympic Gold Quest. These organisations sponsor and support talented Indian sportspersons so that they can become world-class. Perhaps, we need hundreds of such societal initiatives outside the government to achieve sporting excellence.

https://publicpolicy.substack.com/p/139-a-question-of-sports?

By the way, here’s a good (and fairly straightforward) paper to read on this issue:

Every four years it begins anew, the hand-wringing and finger-pointing over a poor showing at the Olympics. The only real uncertainty is which countries will feel the sharpest disappointment over their poor performances. After the
Barcelona Olympics, a headline in the New York Times read “Despite its 108 medals, U.S. rates mixed success.” In 1996, headlines in London trumpeted “Olympic shame over Britain’s medal tally” and “Britain in danger of being left at the starting line,” while in Mexico, Japan, Singapore, Colombia and Egypt, medal totals below expectations led to national self-examinations. After Sydney, in Canada the Globe and Mail bemoaned “Canada’s Olympic fears come true: Despite a few bright spots, athletes not only won fewer medals, they performed below their own and nation’s expectations.” In this paper, we ask the straightforward question of how many medals countries should be expected to win by considering what factors influence national Olympic success

https://www.nber.org/system/files/working_papers/w7998/w7998.pdf

Read the whole paper, of course, but here’s a key bit:

Over time, a country’s real GDP remains the single best predictor of Olympic performance. Population and per capita GDP contribute equally at the margin implying that two countries with identical levels of GDP but different populations and per capita GDP levels will win the same number of medals. While GDP is most of the story, it is not the whole story. Host countries typically win an additional 1.8 percent of the medals beyond what would be predicted by their GDP alone. The forced mobilization of resources by governments clearly can also play a role in medal totals. On average, the
Soviet Union and Eastern Bloc countries won a share of medals higher by 3+ percentage points than predicted by their GDP

https://www.nber.org/system/files/working_papers/w7998/w7998.pdf

As Pranay mentions in his newsletter, sure you could sponsor projects of national pride, but the opportunity costs are far too high.1.

But ultimately, economic well-being is a good predictor of doing well in the Olympics. So what can (and more importantly, should) a government do about increasing the tally of medals at the Olympics?

As with much else in life, just one thing:

  1. Grow the economy as rapidly as possible

… but that being said, help (state, markets or communities – or all three) is needed. This video, via MR (and remember, this is the USA), shows how difficult the economics of being an Olympian are:

If you can afford to help out, please do! 🙂

  1. He doesn’t put it like that, the phrasing is mine[]

A Summer Spent Doing Macroeconomics

Say you’re a student, and you’ve just finished learning a fair bit about macroeconomics. You’ve read and not understood Keynes, you’ve read and think you’ve understood Friedman, and you don’t have the faintest idea what folks in macro have been up to since Robert Lucas.

OK, all that is fine, but how should a budding macroeconomist spend her summer this year?

You could do a lot worse than reading this article, and asking yourself some simple questions.

Such as, do I hear you say? Read on!


Google mobility, for instance, is down more than 40 per cent since the start of April and currently at levels seen a year ago, when the national lockdown was in effect. This dynamic is also visible in the cross-section: states that forced down mobility more strongly have, in general, also seen a larger drop in positivity rates.

https://www.business-standard.com/article/opinion/a-recovery-interrupted-121052300845_1.html

What is Google Mobility? What does the data for India look like? How does this data correlate with statewise Covid-19 numbers? Can I create simple tables and charts in, say, Google Sheets that show a link between the two? And write up a blog about how I did it? Or maybe create YouTube tutorials that show how I did it?


That said, there’s growing evidence the impact will not be trivial even if not of the same scale as the first wave. By the middle of May, power demand was down 13 per cent and vehicle registrations were down 70 per cent compared to the start of the quarter, while e-way bills in the first half of the month were at 40 per cent of where they should be. A broader composite index would suggest activity is tracking a 6-7 per cent sequential decline this quarter and, while this is much shallower than the 25 per cent sequential contraction witnessed last year this time, the fact that it comes on the heels of the first shock, and can potentially trigger more hysteresis, remains a source of concern.

https://www.business-standard.com/article/opinion/a-recovery-interrupted-121052300845_1.html

Where does the data for power demand come from? Where does the data for vehicle registration come from? Where does GST data come from? What does the phrase “tracking a 6-7 percent sequential decline” mean? What is hysteresis?


Household income uncertainty and precautionary savings can be expected to rise. Even before the second wave, households had signalled caution about future spending (manifested in the RBI Consumer Confidence Survey) likely reflecting both an income hit and a precautionary savings motive. This behaviour is consistent with labour market dynamics wherein the unemployment rate, once adjusted for reduced labour force participation, had increased meaningfully even before the second wave.

https://www.business-standard.com/article/opinion/a-recovery-interrupted-121052300845_1.html

What is the RBI Consumer Confidence Survey? How is it calculated (see Annexure A in this document)? Where do we get unemployment data from?


Private investment could also take time to pick up. Even before the second wave, utilisation rates were in the mid-60 per cent range, much lower than needed to jumpstart investment.

https://www.business-standard.com/article/opinion/a-recovery-interrupted-121052300845_1.html

What is OBICUS? It stands for Order Book, Inventory and Capacity Utilization Survey. How else do we track capacity utilization?


We have previously found a strong elasticity of India’s exports to global growth and, if that holds, this should drive a strong export rebound in India. Some of this is already visible in the data with manufacturing exports surging in recent months, and currently 18 per cent (in nominal dollar terms) above pre-pandemic levels.

https://www.business-standard.com/article/opinion/a-recovery-interrupted-121052300845_1.html

Where might that paper/research be, the one that talks about the strong elasticity of India’s exports to global growth? What does it tell us? What is different between the time that paper was written and today? Is that to India’s advantage or not? How do we tell?


If crude prices average close to $70 this fiscal year, as is expected, that would constitute a 50 per cent increase over last year and serve as a negative terms of trade shock that impinges on household purchasing power and firm margins — a process already underway.

https://www.business-standard.com/article/opinion/a-recovery-interrupted-121052300845_1.html

EIA? Or something else? Should we take lagged data? If yes, with what lag? If no, why not? Where do we get information on firm margins? Bloomberg/Reuters? If yes, do we have access to a terminal? If no, whom do we ask for a favor?


When all is said and done, the completeness of an economy’s recovery from Covid-19 — and therefore the level of scarring — is assessed by comparing its post-Covid-19 path of the level of GDP with the path forecasted pre-Covid-19. If the aforementioned forecasts fructify, the level of quarterly GDP at the end of this year would be about almost 8 per cent below the level forecasted pre-pandemic. To be sure, India will not be the only emerging market to be below its pre-pandemic path. In fact, among the large economies, only the US and China will surpass it. But that said, an 8 per cent shortfall is meaningful.

https://www.business-standard.com/article/opinion/a-recovery-interrupted-121052300845_1.html

What is the level of GDP, and how is it different from the growth rate of GDP? Which should one use, and how does the answer change depending on the context? Where do we get data on GDP of all countries at one time? Which one of these measures should we use for comparison, and why?


Macro is hard, and in many different ways. Understanding the theory is hard, but piecing together parts of the puzzle from disparate (and at lest in India, gloriously unfriendly) data sources is perhaps harder still. But if you want to “do” macro for a living, being familiar with the answers to these questions is table stakes.

That is, getting familiar with the answers to the questions I have asked here gets you the right to sit at the table. Playing the game better than the others once you’re in is a whole different story. And playing the game means using this data with your knowledge of theory to try and take a stab at the really important questions:

The question, therefore, is how should economic policy respond to this second shock? With fiscal and monetary policy already quite expansive, is there space to respond further? We assess policy options and tradeoffs in a companion piece tomorrow.

https://www.business-standard.com/article/opinion/a-recovery-interrupted-121052300845_1.html

Trust me, macro is hard.

India, Bangladesh, GDP. Sigh.

When I explain GDP to folks unfamiliar with the concept, I often use the analogy of marks.

“Do you”, I intone in the most professorial voice I can muster, “remember how many marks you scored in your math exam when you were in the 4th grade?”

The point behind asking that question is to help the class realize that there were many other things going on in their life in the 4th grade. The measurement of how well you did on the specific questions you were asked in that test on that day do very little to show you how much math you actually learnt that year. Leave alone, of course, the question of how little the math test had to do with all of what you learnt while you were in the 4th grade.

A similar point was made about GDP recently, in the Business Standard:

Take GDP first. In India, we don’t measure the output of 65 per cent of the economy and make only well-informed guesses about the remaining 35 per cent.

https://www.business-standard.com/article/opinion/the-10-year-upa-nda-scorecard-120102400048_1.html

That’s exactly right, of course. You shouldn’t obsess over GDP numbers, much like you shouldn’t obsess over grades. But we do obsess over both!

And the analogy between marks and GDP works really well especially now, because when it comes to GDP, we now have a Sharmaji ka beta in the neighbourhood.

Hello, Bangladesh.

About two years ago, India’s Home Minister Amit Shah spoke of “infiltrators” who were hollowing out the country “like termites”. A Minister from Bangladesh retorted that Shah’s statement was “inappropriate”, “unwanted”, and “not based on information”. The IMF’s recent per capita GDP projections for South Asian countries show that the alleged ‘termite factory’ is shining — Bangladesh, which has been doing better than both India and Pakistan on social and human development indicators for several years now, is also beginning to march ahead on the economic front.

https://indianexpress.com/article/explained/an-expert-explains-how-bangladesh-has-reduced-gap-and-is-now-projected-to-go-past-india-6906206/

In much the same way that you shouldn’t compare marks obtained by students, you really shouldn’t compare GDP per capita between nations.

But (and you knew there was a but coming along, didn’t you), as I also say in my classes – what else you got, eh? It’s all well and good to say we shouldn’t, but it’s not like we have readymade alternatives. And if you take the GDP factory away from us economists, how do we fill our days?

TCA Srinavasa-Raghavan, in the same column cited above, has three answers:

Only three things: Food inflation, because it has a direct bearing on welfare; foreign exchange reserves, because they serve as a powerful signalling device to foreign investors and sellers of goods; and the revenue deficit. These are the only things the Centre has total control over. In determining all other indicators, the states play a big role.

https://www.business-standard.com/article/opinion/the-10-year-upa-nda-scorecard-120102400048_1.html

Read the whole article (which, I’m sorry, may well be behind a paywall). I don’t necessarily agree with all of it, about which more below, but the point that GDP is overrated as a useful barometer for the state of the economy is a point I agree with wholeheartedly.

TCA’s suggestions about what is to be used instead (food inflation, the revenue deficit and forex reserves) are worth considering, but there is a long list of alternatives that have been suggested. Here is just one example:

Provincial officials have long been suspected of overstating growth. Adding their figures together suggests that China’s economy was $364 billion bigger in 2009 than the total in the national accounts. Mr Li preferred to track Liaoning’s economy by looking at other indicators: the cargo volume on the province’s railways, electricity consumption and loans disbursed by banks.

https://www.economist.com/asia/2010/12/09/keqiang-ker-ching

Other folks may come up with other things to use as a proxy for measuring the state of the economy, but really, it is the old story of the six blind men and the elephant all over again. Whatever you use will give you only a limited picture. That’s just the nature of the beast.

Worse! Whatever you agree to measure instead of GDP immediately becomes susceptible to Goodhart’s Law:

In a paper published in 1997, Anthropologist Marilyn Strathern generalized Goodhart’s law beyond statistics and control to evaluation more broadly. The phrase commonly referred to as Goodhart’s law comes from Strathern’s paper, not from any of Goodhart’s writings:

When a measure becomes a target, it ceases to be a good measure.

https://en.wikipedia.org/wiki/Goodhart%27s_law

(Emphasis added)

So sure, you could ask that food inflation, revenue deficits and forex reserves be the target. But it’ll just be cobras or rat tails all over again.

So GDP, whether you like it or not, whether its measurement is favorable or not, is not going to go away anytime soon, whether in India or elsewhere.

Consider the concluding paragraph from a column in the Livemint yesterday by R Jagannathan:

This does not make GDP calculations worthless, but the real focus should be on sectors. More than macroeconomics, sectoral understanding and microeconomics ought to be central to policy-making. Future GDP will best be estimated as a sum of its parts, and not as a whole extrapolated from numbers in the more visible parts of the economy.

https://www.livemint.com/opinion/online-views/the-fallacy-of-equating-growth-with-the-pursuit-of-higher-gdp-11603811210462.html

Yes, well, sure. Absolutely.

Now if only we could figure out the how.

A paper by Barro et al about mortality and economic performance in 1918

A working paper from Barro et al about the potential effects of the coronavirus on mortality and economic activity. I learnt of the paper via Tim Taylor’s blog. Quick points of note below:

  • Their estimate is of 39 million deaths, while Laura Spinney says anywhere between 50 million to a 100 million. Basically, we don’t know – but a lot!
  • I learnt of this data source. India is missing, but there is still a lot to learn.
  • Assuming they get their 39 million number right, they say that India saw 16 million deaths. About 43% of all deaths worldwide, as per their estimate.
  • Roughly 1/3rd of the world got the flu. 2% mortality rate of all people on the planet, 6% of those who got it.
  • Below is the conclusion from their regression analyses:

 

Further, this death rate corresponds in our regression analysis to declines in the typical country by 6 percent for GDP and 8 percent for consumption. These economic declines are comparable to those last seen during the global Great
Recession of 2008-2009. The results also suggest substantial short-term declines in real returns on stocks and short-term government bills. Thus, the possibility exists not only for unprecedented numbers of deaths but also for major global economic dislocation

This is a working paper, subject to change, and the data is unreliable at best. But the bootom line is that this will at least be as bad as 2008-2009 in terms of economics, maybe worse. And let’s hope and pray that given our capability to deal with health issues, relative to 1918, our mortality rates are nowhere near as bad.

Social distancing matters.

RoW: Links for 8th January, 2020

Five links today to articles that were written recently about how things might pan out in 2020. Sticking one’s neck out and making predictions is difficult enough for relatively small issues – trying to guess where the global  economy might end up is something I would never want to do. Kudos to those who try!

  1. “As tempting as it is to dwell on current financial and macroeconomic conditions, doing so risks obfuscating a key element in the outlook for the future. There is a curious contrast between the relative clarity of expectations for the near term and the murkiness and uncertainty that comes when one extends the horizon further – say, to the next five years.
    […]
    Moreover, in the years ahead, the United States, having notably outperformed many other economies, will decide whether to continue disengaging from the rest of the world – a process that is at odds with its historic position at the center of the global economy.”
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    Mohamed A. El-Erian wrote this article about the outlook for the global economy in the middle of December 2019, and well, things change quickly.
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  2. “The uptick in global growth for 2020 is driven by emerging market and developing economies that are projected to experience a growth rebound to 4.6 percent. About half of this rebound is driven by recoveries or shallower recessions in stressed emerging markets, such as Argentina, Iran, and Turkey, and the rest by recoveries in countries where growth slowed significantly in 2019 relative to 2018, such as Brazil, India, Mexico, Russia, and Saudi Arabia. There is, however, considerable uncertainty surrounding these recoveries, especially when major economies like the United States, Japan, and China are expected to slow further into 2020.”
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    This was written in October 2019, by Gita Gopinath. The IMF’s prognosis is one of a subdued recovery for the global economy as the best case scenario.
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  3. “For the professional prognosticators and market mavens of Wall Street and beyond, there is at least one easy prediction to make about the next 12 months: Investors are going to earn less. A lot less, probably.“The double-digit returns of 2019 will be hard to repeat” is a phrase littering almost every investment outlook for global markets in 2020. Despite the trade war, political turmoil and more, virtually all major assets just posted a once-a-decade performance, and even uber-bulls know the chances of repeating the feat are slim.”
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    Bloomberg thinks financial markets the world over will struggle to put in the kind of performance that we saw in 2019. A good summary of a lot of global outlooks.
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  4. “In 2020 Asia’s GDP will overtake the GDP of the rest of the world combined. By 2030, the region is expected to contribute roughly 60% of global growth. Asia-Pacific will also be responsible for the overwhelming majority (90%) of the 2.4 billion new members of the middle class entering the global economy.The bulk of that growth will come from the developing markets of China, India and throughout South-East Asia and it will give rise to a host of new decisions for businesses, governments and NGOs. The pressure will be on them to guide Asia’s development in a way that is equitable and designed to solve a host of social and economic problems.”
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    The World Economic Forum points to the fact (?) that Asia will produce more economic output than the rest of the world combined this year.
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  5. “Just as the world economy was stabilizing after its worst performance in a decade, a U.S. airstrike in Iraq that killed one of Iran’s most powerful generals is a jolting reminder of how fragile the outlook remains.A tentative trade agreement between the U.S. and China had buoyed expectations that global growth would start to rebound this year. Business confidence has slowly been improving as key manufacturing gauges show signs of bottoming out.

    Now, the U.S.-Iran flare-up could nip any positive sentiment in the bud.”
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    But, well. Happy new year!

India: Links for 2nd December, 2019

What else?

  1. “The non-government part tends to form 87-92% of the economy. In the July-September period, it formed nearly 87% of the economy. If 87% of the economy is growing at 3.05%, the situation is much worse than it seems.”
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    Vivek Kaul about the GDP data is worse than it looks.
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  2. “At its core, Indian industry is cooling rapidly, with industries like coal, steel, cement and electricity having contracted in October. Eight core infrastructure industries have not grown in the first seven months of this year. Manufacturing, led by the automobile industry, has contracted, and mining stopped growing in the second quarter. Energy utilities and construction saw their growth rates almost halving from the same quarter a year ago. Another three months of declines will officially qualify as a manufacturing recession.”
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    The R-word is being heard, louder and louder.
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  3. “The good news is that GDP growth in the next quarter or the fourth quarter could well be a wee bit higher. The pop thesis is that given the lower base of the previous year, growth could be statistically higher—a bit like standing next to Leonardo DiCaprio, who is six feet tall, and then next to Tom Cruise, who is 5 feet 7. The bad news is that the slowdown is not going away anytime soon. ”
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    Shankkar Aiyyar, in top form.
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  4. ““Besides monetary easing by the Reserve Bank of India (RBI), the government needs to simplify the goods and services tax (GST) and introduce a new direct tax code to clear the tax jungle created by our ancient income-tax law and rules,” he says.”
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    The “he” in this case being Arvind Virmani.
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  5. This may be behind a paywall for you, in which case, my apologies. But the final link in this set is from TN Ninan over at Business Standard.

India: Links for 18th November, 2019

  1. ““In the end it was this access to unlimited reserves of credit, partly through stable flows of land revenues, and partly through collaboration of Indian moneylenders and financiers, that in this period finally gave the Company its edge over their Indian rivals. It was no longer superior European military technology, nor powers of administration that made the difference. It was the ability to mobilize and transfer massive financial resources that enabled the Company to put the largest and best-trained army in the eastern world into the field””
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    An excerpt that itself was excerpted, but too delicious to resist – Alex Tabarrok writes an excellent review of William Dalrymple’s latest book on the East India Company.
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  2. “The problem is that, rather than examining independent indicators of economic activity, the Bretton Woods’ forecasts appear to be based primarily on (a) extrapolation of the official growth figures, and (b) some subjective adjustment based on staff’s assessment of policy changes.”
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    CGDEV on reporting of India’s growth numbers.
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  3. “Is all this working? Economists have talked about the possibility of green shoots of recovery in the second half of this financial year. However, looking at the data for July to September 2019, for now the slowdown is well and truly in place.”
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    Vivek Kaul isn’t impressed with the state of the Indian economy.
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  4. And perhaps with good reason: Somesh Jha on the fall(!) in rural demand.
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    “Consumer spending fell for the first time in more than four decades in 2017-18, primarily driven by slackening rural demand, according to the latest consumption expenditure survey by the National Statistical Office (NSO).”
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  5. Slate Star Codex on 1991, and the difficulty of using statistics. Econ nerds only!
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    “…”we need to study and raise awareness of the history of democratic, comparatively “nice” countries that did nothing worse than overregulate business a bit – and investigate whether even these best-case scenarios still doomed millions of people to live in poverty. My (biased) guess is that careful study will show this to be true.”

EC101: Links for 31st October, 2019

  1. “To make this easier to navigate, I’ve grouped the publications by one measure of influence, academic citations per year since publication. The categories are not indications of the quality of the research, just its academic influence to date. Within categories, I’ve ordered studies chronologically.”
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    A useful set of links: 100 of Michael Kremer’s most popular papers.
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  2. “Moreover, the key target of economic policy, Gross Domestic Product (GDP), doesn’t provide much help. So with a view to ‘remastering’ macroeconomics, in a new ING report, produced with the help of John Calverley, Carlo Cocuzzo and I investigate how GDP could be remixed. We pay particular attention to the impact of the rapid digitalisation of the economy that has been gathering momentum over the past 25 years. Pursuing the music analogy, our focus is on a digital remix of GDP.”
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    I’m not a big fan of the concept of GDP in the first place, but that being said, this article helps us understand how the digital economy might perhaps be underrated in national income.
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  3. “Nigeria, like other countries in sub-Saharan Africa, is facing a demographic boom. By 2050, its working-age population will have increased 125 percent. At current GDP growth rates, the local labor market will be unable to absorb all the new entrants. One way for Nigeria to reduce this pressure, and make the most of remittance and skills transfers, is to promote new legal labor migration pathways with countries of destination across the globe.”
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    A useful overview of the Nigerian labor market and how it might be made more effective Applies in part to India as well, I’d argue.
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  4. “Trouble is, the rescue is entirely fictional. The only reason it’s even being attempted is to delay — as long as possible — the collapse of this large shadow lender. Such an event, as S&P Global said in a rare show of plainspeak by a credit appraiser, could be powerful enough to deliver a “solvency shock” to India’s troubled banks. Neither the lenders, nor the Indian government, wants to contemplate this grim prospect. Hence, the make-believe restructuring.”
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    Andy Mukherjee explains the mess that is Dewan Housing. Not only is this not going to end well, I’d argue that there are a lot many more skeletons about to tumble out of the closet.
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  5. “The march of technology means oil’s days are numbered. And for the good of the planet, that transition has to happen as fast as possible. But it doesn’t mean the people who gave their lives to getting energy out of the ground should have to suffer.”
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    Noah Smith on the second order effects of the slowdown in demand for oil.

India: Links for 24th June, 2019

  1. “Was the earlier system, based largely on ASI (Annual Survey of Industries) for manufacturing (registered and unregistered), perfect? No, it wasn’t. Is the MCA-based system perfect? No, it isn’t. Despite problems with MCA, is the MCA-based system superior to the ASI-based one? The consensus (I didn’t use the word unanimity) among experts seems to be that it is.”
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    Bibek Debroy’s article discusses Arvind Subramanian’s paper. That excerpt above is probably the best way of thinking about it – and as I’ve said before and will say again: if thinking about GDP measurement doesn’t give you a headache, you aren’t doing it right. By the way, two of the twitter threads this past Saturday were about the same issue: worth reading, in my opinion.
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  2. “In manufacturing, the increase in informalisation is due to two reasons, according to a 2018 study by the Indian Council for Research on International Economic Relations: first, because of dispersal of production from larger to smaller units; and second, because of the creation of an informal workforce subject to fewer regulations, the fact that employing contract (or informal) workers reduces the bargaining power of the regular or formal worker, suppressing wages overall.”
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    Indiaspend reviews the state of employment in the country, and finds that there is far too much informalization – but also that this is increasing  over time. In this regard, the best book, by far, to read is Bhagwati and Panagariya’s “Tryst with Destiny”.
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  3. “Indian macro policy has been operating under an implicit 2-4-6-8 framework, which are the targets for the sustainable current account deficit, the desired level of retail inflation, the consolidated fiscal deficit target embedded in law and the aspirational rate of economic growth. There is a need to take a fresh look at this macro policy playbook for two reasons. First, the individual targets have been decided at different points of time by different parts of the economic policy ecosystem rather than emerging from a common analytical project. Two, there are reasons to doubt its internal coherence given that India has rarely been able to meet all four targets simultaneously over the past decade.”
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    The always excellent Niranjan Rajadhakshya comes up with a useful framework to keep a tab on India’s macro levers: 2-4-6-8 is a very useful mnemonic. The rest of the paper speaks about whether this framework makes sense!
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  4. “This crisis has systemic written all over it because the market can no longer distinguish financiers that are illiquid from those that are insolvent.”
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    I’m calling it: there’s a major crash just waiting to happen in the Indian equity (not just equity) markets, no matter what is done. Speaking of what is to be done, the five suggestions here make a lot of sense. Andy Mukherjee doing what he does best.
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  5. “India’s firm size distribution is excessively small, even compared to other developing countries. Also, complementarily, the number of really large firms are also excessively small. We have a “small is bad” problem. What is driving the small-ness? Is labour regulations responsible for discouraging businesses from “placing too many workers under one roof”? Is there anything else driving or contributing significantly to this trend?”
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    Bhagwati and Panagariya once again. Also, urbanization matters! Artificial dispersion of industries or people (same thing) tends to not work. Gulzar Natarajan on what needs to be done to increase productivity in India.

Tweets for 22nd June, 2019