Author Archives: jdingel

Growth accelerations and replicating research

It would be interesting to see Dani Rodrik respond to this article (pdf) by Richard Jong-a-Pin and Jakob de Haan in the latest issue of Econ Journal Watch:

Economists treat replication the way teenagers treat chastity—as an ideal to be professed but not to be practiced (Hamermesh 2007, 1).

HPR’s [Hausmann, Pritchett, and Rodrik’s] finding that a political regime change increases the probability of an economic growth acceleration is wrong and the result of a data error. When we correct for this error and stick to the definition of political regime change as a three-unit change in Polity, we find that regime changes do not affect the probability that a growth acceleration occurs. We also find some evidence that economic liberalization increases the probability of a growth acceleration (sustained or otherwise)…

The work represented here was submitted, of course, to the Journal of Economic Growth, although in that version of the paper we had not yet pinpointed the data-description error in the Polity IV manual. The paper was rejected on the basis of the argument that our note is a “welcome correction, however, of limited significance for the main contribution of the original paper.” However, in their abstract, HPR state that one of their main conclusions is that “Political regime changes are statistically significant predictors of growth accelerations.”

Jakob de Haan blogs about the experience:

As our paper was a comment on a previously published paper in the Journal of Economic Growth, it is unlikely to be accepted by another journal. However, a relatively new electronic journal called Econ Journal Watch, recognizes the importance of replication in economics. The editor of that journal, Dan Klein, was therefore happy to publish our paper. It will be published in the first issue of 2008. Of course, HPR get the opportunity to reply to our critique.

Even though I am very happy with this new outlet, I feel that editors of all scientific journals should pay much more attention to replication. A starting point is that authors of published empirical research should commit to make their data available to anyone interested. Unfortunately, even this is not common practice.

Admittedly, the primary achievement of the Growth Accelerations paper was to change how we think about identifying economic growth in a relevant manner. I certainly didn’t recall the regime change finding when I thought of the article. Nonetheless, a data coding error seems like a substantive correction, and I haven’t seen any reply from Hausmann, Pritchett or Rodrik.

I should also note that the Hamermesh paper is interesting in itself.

Rodrik on growth accounting

What use is sources-of-growth accounting?

Aside from all kind of measurement problems, these accounting exercises say nothing about causality, and so are very hard to interpret. Say you found it’s 50% efficiency and 50% factor endowments. What conclusion do you draw from it? You could imagine a story where the underlying cause of growth is factor accumulation, with technological upgrading or enhanced allocative efficiency as the by-product. Or you could imagine a story whereby technological change is the driver behind increased accumulation. Both are compatible with the result from accounting decomposition. Indeed, I have yet to see a sources-of-growth decomposition which answers a useful and relevant economic or policy question…

So here is a contest for economist (or wannabe economist) readers of this blog: can you come up with an interesting question to which a sources-of-growth decomposition is the answer?

NAFTA will liberalize sugar

NAFTA prevails:

The sugar industry announced Friday it was abandoning efforts to insert a provision in the federal farm bill that would renew restrictions on the sugar trade between the United States and Mexico.

The decision came in the face of staunch opposition from the Bush administration, the corn sweetener industry and industrial sugar users.

Lant Pritchett at Reason

Why did Reason wait five months to run this interview with Lant Pritchett, Harvard economist and author of Let Their People Come (free pdfs)? It’s great!

On institutions and migration:

[T]he beautiful thing about institutions that create property rights is that they’re a free good. If we allow in another 10 million, 20 million, 30 million people, then what has created American wealth—its economic institutions that allow entrepreneurship, that allow free markets, that allow people to innovate, that allow people opportunity—none of that is eroded by letting in more people.

America isn’t Kuwait. The wealth of Kuwait is that they’re sitting on this pool of oil. The wealth of America is that we have developed fantastically successful economic institutions. Those institutions are not zero sum. No one has suggested we should have limited America’s natural population growth because with 300 million people there are fewer benefits of our institutions of property rights to go around. It’s the same thing with migration.

On moral philosophy:

Right now all kinds of things that cause much smaller differences in human welfare get much more attention. If we say we are going to discriminate against ethnic Indians in Mexico vs. other citizens of Mexico, there would be a hue and cry across the world. But if we say we’re going to discriminate in favor of people of Mexican descent born in the United States vs. people of Mexican descent born in Mexico, this creates absolutely no moral outrage.

Obama on farmers

As a senator from Illinois, Obama loved the corn lobby, argues Emmanuel. But perhaps as president, Obama would be enjoy a broader base of support and not have to mollify the farm lobby? Then he’d push sensible economic policies?

Look at this gem Tim Lee found:

Encourage Young People to Become Farmers: Obama will establish a new program to identify and train the next generation of farmers. He will also provide tax incentives to make it easier for new farmers to afford their first farm.

I realize that no politician would say this, but the fundamental problem in agriculture is that there are too many farmers. We prop up farms that should have gone out of business a long time ago for no good reason. Why on Earth would the federal government want to spend money encouraging people to go into an already over-staffed industry? Will we also have a program to encourage people to go into the typewriter-repair business?

Less egregiously, Obama proposes a $250,000 subsidy payment cap, but the White House is pushing for $200,000.

Bush threatens to veto farm bill

Is President Bush finally facing down Congress on agriculture in his lame duck year? Here are the guts of tonight’s FT story by Alan Beattie:

President George W. Bush has threatened to veto the “farm bill” unless provisions he says amount to tax rises are taken out, and a cap on subsidies given to richer farmers is lowered…

Even if the White House is successful in getting Congress to trim spending, it is unlikely to make US farm programmes consistent with the offer to cut payments that Washington has already made in Doha…

Collin Peterson, the Minnesota Democrat who chairs the House of Representatives agriculture committee, has said failure to agree a bill by the expiry of the current bill on March 15 would mean reverting to a law dating from 1949 that would massively raise support prices for a range of commodities…

Reformers were dismayed by the draft House and Senate bills, which, they say, have done little to reduce the price supports that encourage overproduction and environmental degradation, and have added only minimal amounts of money for fruits and vegetable farming, which currently receives little support.

Against offshoring alarmism

Fresh policy brief from J. Bradford Jensen and Lori G. Kletzer of the Peterson Institute on “‘fear’ and offshoring“:

Commentators, including Princeton University’s Alan Blinder, estimate 40 million jobs could be at risk of being offshored over the next 20 years and suggest American workers should specialize in services that can be delivered face-to-face. In contrast, Jensen and Kletzer expect the process of globalization in services will proceed much as it has in manufacturing: They estimate only 15–20 million jobs are at risk of being offshored to low-wage, labor-abundant countries; approximately 40 percent of these jobs will be in the manufacturing sector, long considered “at risk.”

They expect these losses to be offset by job gains in high-wage activities from services exporting. The United States will retain its comparative advantage in high-skill, high-wage production and increase these activities in tradable service industries as trade barriers diminish. While the loss of low-wage activities that are offshored and the gain from high-wage service exports will cause dislocation, the globalization of services production is likely to have productivity-enhancing effects similar to the impact of globalization in the manufacturing sector, offering significant potential to improve living standards in the United States and around the world.

More thoughts after I read it this evening.

Can decoupling insulate Asian growth?

Decoupling is a matter of degree and type, reports the FT:

Thailand is a good example. Recent economic growth has been powered primarily by exports, about 12.5 per cent of which went directly to the US last year, down from about 20 per cent when the previous US recession struck in 2001.

Yet Thailand is not as insulated as this might suggest. Sethaput Suthiwart-Narueput, chief economist at SCB Securities, says Bangkok remains vulnerable to a US slowdown since most of its exports to China – about 9.5 per cent of total shipments, up from 4.4 per cent in 2001 – are components used to make goods bound for the US.

The picture is not black and white and decoupling is not an “either/or phenomenon”, says Paul Sheard, global chief economist at Lehman Brothers. Asia emerged relatively unscathed from the 1991 US recession but was much harder hit by the “tech recession” of 2001. Similarly, this time, depending on the precise nature of any downturn, commodity-rich Australia, Indonesia and Malaysia might fare better than, say, countries specialising in electronics, such as Taiwan or South Korea.

Is Obama better on globalization?

I’ve previously reported on speculations that Obama is more of a free trader than Clinton. At the Guardian, Daniel Koffler argues that friends of markets, domestic and international, should be attracted to Obama:

Obama’s language of personal choice and incentive is a reflection of the ideas of his lead economic advisor, Austin Goolsbee, a behavioural economist at the University of Chicago, who agrees with the liberal consensus on the need to address concerns such as income inequality, disparate educational opportunities and, of course, disparate access to healthcare, but breaks sharply from liberal orthodoxy on both the causes of these social ills and the optimal strategy for ameliorating them…

Goolsbee and Obama’s understanding of the free market as a useful means of promoting social justice, rather than an obstacle to it, contrasts most starkly with the rest of the Democratic field on issues of competition, free trade and financial liberalism…

Whereas Clinton has recently taken to pulling protectionist stunts and rethinking the fundamental theoretical soundness of free trade, and Edwards is behaving like the love child of Huey Long and Pat Buchanan, Obama instinctively supports free trade and grasps the universe of possibilities that globalisation opens up, and seamlessly integrates it into his “audacity of hope” theme. As he remarked in a recent debate: “Globalisation is here, and I don’t think Americans are afraid to compete. And we have the goods and the services and the skills and the innovation to compete anywhere in the world.”

At the moment, Obama’s and Clinton’s positions on trade are roughly equivalent – both deserve credit for taking initial steps toward dismantling the obscene US government-supported agricultural cartels – but the present dynamic is Obama moving more and more in the direction of economic freedom, competition and individual choice, and Clinton wavering if not moving away from it…

Perhaps it goes without saying that Obama’s belief in freedom in labour markets and freedom in capital markets, sets him apart from the Republican field as well as the Democrats. Under ordinary circumstances, one would expect Republicans at least to respect free trade, but alas, they are inconsistent at best. As for freedom in immigration, even in politically propitious times, the modern GOP makes tactical concessions toward its xenophobic wing; in this season of famine, the Republican candidates, even those who have supported immigration in the past, have set up their nominating contest as a race to see who can take the most thuggish and contemptuous possible attitude toward Mexicans (the euphemism for this posture is “out-Tancredo-ing Tancredo”).

Ironically, the nativist lunacy sweeping through the GOP underscores the conceptual connection between free trade and immigration, as mutually supporting pillars of economic freedom. Obama properly understands economic freedom as the best vehicle for accomplishing the historic goals of the left, which Irving Howe and Lewis Coser long ago described as wanting “simply to do away with those sources of conflict which are the cause of material deprivation and which, in turn, help create psychological and moral suffering.”

While this is encouraging, it’s hard to verify claims about candidates’ motivations. And how much sway does Goolsbee really have?

UPDATE: Emmanuel says Obama is tied to the usual protectionist lobbies: “Obama is as protectionist as they wanna be, especially on corn. His rhetoric and actions do not suggest otherwise.”