Rigotnomics

If US cities were countries

noreply@blogger.com (Pierre-Louis) — Thu, 19 Jan 2012 11:47:00 +0000

OK this map is old and it's the second post I steal from Richard Florida in 2 days. But still, I thought it was interesting enough. New York produces as much as Canada, San Francisco as Thailand, Chicago as Switzerland, and LA as the Netherlands.

Where are the good music groups from?

noreply@blogger.com (Pierre-Louis) — Wed, 18 Jan 2012 11:42:00 +0000

Last year I became interested in identifying the determinants of good music. Why were some years better than others, why were some countries better than others at producing good recording artists? So far I only managed to examine the time dimension, as the data I had covered mostly the US and the UK. I found that music was better in high-growth years and in high- (but not too high) inflation years.

Now Patrick Adler, a grad student in Urban Planning at UCLA, gathered locational data on the 2012 Coachella acts (Coachella is now one of the biggest music festivals in the US).

Unsurprisingly, most acts are from London, LA, and New York. What is more surprising is the performance of Stockholm and Austin. If we control for population size, these cities now rank first and second as the biggest suppliers of bands.

It would be interesting to gather a dataset covering all festivals and then check what are the city-level determinants of good music. For sure, population matters. And so does agglomeration. As Richard Florida, writing for The Atlantic, from which I have taken these graphs, writes, "the world of popular music is spiky. More than two-thirds of Coachella’s international roster of acts (71 percent) hail from just 14 metros. And four in 10 (43 percent) come from the “big three” of London, LA, or New York."

Book Review: Borderless Economics by Robert Guest

noreply@blogger.com (Pierre-Louis) — Fri, 13 Jan 2012 19:00:00 +0000

Last November The Economist had a special report on the magic of diasporas (discussed on this blog). Most of it was based on Borderless Economics, a new book by Robert Guest, the magazine's business editor. His main arguments are that migrants matter much more than politicians realize, mostly because they help the flow of information between countries and thus create many business opportunities. He argues that the US is well-positioned as it welcomes people from everywhere and makes them feel at home, whatever their background and tastes. He actually devotes a chapter to explain how great the US is. That was unexpected!

While I didn't feel dazzled by this book, I devoured it effortlessly. The stories it tells are quite entertaining and help us understand how migration helps innovation and commerce. What he doesn't discuss is that sometimes network are a bad thing, not because they exist in organized crime (which he discusses), but because they exclude outsiders who could bring new ideas, and because they favour friends over talent.

At the end of his book he suggests citizens from rich countries should be allowed to go live and work everywhere, mostly because that is much more likely to happen any time soon than the opening of borders to citizens from poor countries.

By the way, this is the first book I read on my kindle and I am now a convinced adept.

Why is Swiss unemployment so low?

noreply@blogger.com (Pierre-Louis) — Fri, 13 Jan 2012 13:25:00 +0000

Tyler Cowen wonders. Any other ideas?

Extra virgin Italian?

noreply@blogger.com (Pierre-Louis) — Thu, 12 Jan 2012 13:23:00 +0000

Seems like some of the extra virgin Italian olive oil we've been buying may not be Italian after all, nor extra virgin for that matter. Italian olive oil, deemed to be the best, sells at a premium. But very few consumers can tell the difference between a cheap Spanish olive oil and a top Italian one. Hence, the Mafia had an opportunity to make money buying cheap oil from Spain, Greece, Tunisia and Morocco, and re-exporting it as Italian extra virgin olive oil. As the Guardian reports, a "prominent importer, Leonardo Marseglia – appropriately based in a town called Monopoli – has variously been accused of selling cheap non-European oils as Italian ones, fudging documents to shirk import tariffs and forming a criminal network to smuggle contraband."

Apparently, this is an old story. But according to the Guardian, it's still going on. I had a quick look at the data to see if anything weird was going on. First I checked whether there were missing imports of olive oil in Italy, i.e. whether oil from Greece, Spain, Tunisia and Morocco was imported illegally in Italy. As seen below, it doesn't seem to be the case, as Italy imports more from these countries than they actually export (in kg). Where these extra kg come from is a mystery, but it could be that exports are not reported properly in North Africa.

I then checked whether imports from Spain, Greece, Tunisia and Morocco actually predicted Italian exports. I find little co-movement in quantities, suggesting the illegal transshipment may not be so important as to appear in aggregate figures. However, Italy imports much more olive oil than it exports. And if we look at trade values, imports and exports seem to move together. I guess this is because Italians consume more olive oil than they produce while their exports almost pay for it all. Nice gains from trade?

The price of civilization by Jeffrey Sachs

noreply@blogger.com (Pierre-Louis) — Mon, 26 Dec 2011 16:42:00 +0000

When it reviewed Sachs previous book, The End of Poverty, The Economist wrote that the man was "brilliant, passionate, optimistic and impatient." Jeffrey Sachs is indeed a humanist and he wants the world to be a better place. After advocating a big push in foreign aid, he turns to US politics in his latest book, The Price of Civilization. It warns against the rise of plutocracy and the fall in civility. He's not happy that lobbyists control the government, that inequality is at an all-time high, and that many people do not seem to care as they prefer consuming gadgets than minding about moral values. He wants better education, better democracy, and more civic engagment. He then shows convincingly that the only possible way to stabilize debt and "pay" for civilization is to increase taxes on wealth, pollution, and financial transactions.

The problem is that his arguments, which would be seen as common sense in prosperous Scandinavian countries, are perceived as anti-American by US conservatives. Indeed, conservatives hate him. For example, the Wall Street Journal writes that his book "is essentially a crusade against the free enterprise ethic of our republic." They argue that his ideal is Europe, and that productivty and innovation is much lower in the latter (which is true but not related to moral values, or is it?). Hence, while his ideas are noble, his facts to the point, and his arithmetic flawless, he's probably only praising to the choir.

Mexi-Canadian overpass

noreply@blogger.com (Pierre-Louis) — Fri, 23 Dec 2011 18:40:00 +0000

In addition to facilitating trade between Mexico and Canada, the overpass is expected to increase tourism in both nations by as much as 60 percent. Boasting hundreds of restaurants, gas stations, and hotels, the state-of-the-art overpass will render it unnecessary for Mexicans or Canadians ever to touch U.S. soil when traveling to and from their respective homelands... "At long last, the people of Canada and Mexico can finally begin to forge the sort of friendship and understanding that was impossible as long as the U.S. stood between us. This is the dawn of a wondrous new era..." Source: The Onion

How big is the North Korean army?

noreply@blogger.com (Pierre-Louis) — Fri, 16 Dec 2011 15:55:00 +0000

North Korea has never published any number on military personnel. Yet, due to its belligerent attitude, it could be important for South Korea and others to estimate how big is the (non-nuclear) North Korean threat. How can one get an estimate? Just ask Moon, the forensic economist.

As he writes on Vox, "North Korea may have accidentally published its number of military personnel. A close examination of the census numbers reveals an anomaly. The population overall is greater than the sum of the populations by administrative district". This is because citizen registration has to be returned to the public security office when the citizen enlists in the Army. This implies that the (700,000) discrepancy consists in part of those enlisted in the army. What's more, when looking at the sex ratio of the census numbers (figure below), one can see a sharp dent between ages 16 and 26. This drop coincides exactly with the end of compulsory-education, when some join the armed forces, and is entirely due to a decline in the number of men. It is likely that these "missing men" are members of the armed forces.

Christmas spending outliers

noreply@blogger.com (Pierre-Louis) — Tue, 13 Dec 2011 14:26:00 +0000

At least the dead-weight loss of Christmas is not too high in the Netherlands! Source: The Economist Daily Chart

Melissa Dell and the Mexican war on drugs

noreply@blogger.com (Pierre-Louis) — Thu, 08 Dec 2011 15:35:00 +0000

Melissa Dell is a PhD student at MIT on the job market this year. Her research is extremely interesting, already published in Econometrica, and, guess what, useful! Indeed, her job market paper,"Trafficking Networks and the Mexican Drug War", might help Mexican government officials map probable trafficking routes and identify locations in the road network where interdiction efforts would force the costliest redirection of drug shipments.

How did she do it? She played with Google maps. Read Ray Fisman's on Slate for a nice and simple summary of her paper. Not only is she the next big forensic economist, she also seems to be an economic artist, judging by her maps and graphs (see map below taken from her paper). Respect!

Did higher salaries result in an adverse selection of politicians at the EU parliament?

noreply@blogger.com (Pierre-Louis) — Wed, 07 Dec 2011 16:13:00 +0000

A while ago, I argued that one reason the UN in Geneva was ineffective was that the high salaries it offered resulted in an adverse selection of workers, motivated by luxury rather than by the work itself. But I had no data to back my claim. Now Ray Fisman et al. come in with a new paper quite supportive of my claim.

They examine the labor supply of politicians in the European Parliament where the introduction of a law equalized salaries, which had previously differed by as much as a factor of ten. They find that:

Doubling an member of parliament's (MP) salary increases the probability that she runs for reelection by 21 percentage points
A salary increase, however, lowers the quality of elected MPs, measured by the selectivity of their undergraduate institutions.
Higher pay does not affect effort, measured by legislative sessions attended while in office.

Wouldn't it be nice (to have a bit more inflation)?

noreply@blogger.com (Pierre-Louis) — Tue, 06 Dec 2011 18:43:00 +0000

Central bankers have in their hands policy tools that allow them to optimize society‟s wellbeing. This paper argues that the latter is best captured by the quality of music and then provides estimates based on a reduced-form non-linear smoother as well as a quadratic fit that suggest the Federal Reserve should aim for a rate around 6.2%, way above the holy-grail target of 2%.

How many Chinese live in Africa?

noreply@blogger.com (Pierre-Louis) — Sun, 04 Dec 2011 18:41:00 +0000

Hard numbers are hard to come by. The Economist gives a number only for South Africa (see this post). The two books reviewed on this site give a few numbers but never a complete coverage. The World Bank put some numbers together for around the year 2000, before the last wave of immigration. I just found some data put together by Park in 2009 that seems to be the best currently available. The map below shows their distribution across countries. The scale is in log.

Books on China in Africa

noreply@blogger.com (Pierre-Louis) — Sun, 27 Nov 2011 19:21:00 +0000

I've been reading a couple of books about "China and Africa". The first one is China Safari, by two Geneva journalists who travelled to China and a bunch of African countries and tried to figured out what was going on with the Chinese in Africa. This book is full of horror stories. It portrays the Chinese as heartless, corrupt, with no respect for the environment, laws, decent wages, human rights, or human lives. Wherever they go they cause mayhem. They sell weapons. They have babies with African girls only to abandon them. They do not talk to journalists, and when they do, they are not direct. Chinese products are junk. All in all, a bleak picture hopefully not too representative of reality. The second book is more balanced. Deborah Bautigam, a professor at American Univeristy, digs up the little available data rather than lay out depressing anecdotes. She tries to put numbers on foreign aid and investment. She puts them in historical perspective and compares them with the West's. She even suggests the Chinese could propel African manufacturing, rather than destroy it, as is usually claimed. If you want to know more about China in Africa, read Bautigam. Both books do offer the same conclusion though. China has put Africa back on the map. African governments should grab this opportunity and try not to mess it up.

The magic of diasporas

noreply@blogger.com (Pierre-Louis) — Tue, 22 Nov 2011 11:22:00 +0000

This week's Economist has a special report on migration in business which includes a delicious cover as well as a bunch of fascinating stories. The report focuses mostly on how Chinese and Indian diasporas create trade and new business ideas by facilitating the flow of information across countries and by fostering mutual trust.

The report is based on a wide body of theoretical and empirical work, mostly initiated by James Rauch, though it doesn't cite much of it. In a series of papers he argued that international trade was hampered by search costs as well as contract-enforcement costs. This is why migrant networks, and especially ethnic-Chinese ones, play such an important role in building trade relationships. To show that networks foster mutual trust, Dunlevy showed that immigrants in the US were most useful to promote exports to corrupt countries. I showed this was also the case for Swiss exports. This is also true when using international data from the World Bank. The two graphs here show that the bilateral stock of migrants between two countries increases their trade the higher the corruption whether it's in the importer or exporter country.

Their role as information providers, though quite straightforward, has been harder to identify. Rauch had argued that since networks facilitate trade more in differentiated products, such as cameras, than for products sold on organised markets, such as coffee, they provide market information. The problem with this strategy is that differentiated products are not only information-intensive but also trust-intensive, so we cannot be sure the information channel is at play, as I argue in my paper. A promising avenue is to try to estimate information frictions between countries, and show that networks are most useful when these are high. Information frictions can be captured by a lack of news coverage, a lack of internet connectivity, or a lack of phone traffic (see this new paper by Treb Allen) etc...

Last but not least, The Economist also point out that "the ability to use informal networks built on trust and a sense of belonging is not restricted to honest businesses such as soap making. Those with dirty hands can build criminal networks on a very similar basis." This is exactly what we tried to show empirically in a paper with Lorenzo Rotunno. We showed that import-tariff evasion, a form of illegal trade, was made easier by Chinese networks who know which border official is corrupt and know how to disguise products. The Economist also has put together some new data on Chinese communities abroad, maybe a better estimate than the stock of ethnic-Chinese migrants we use in our paper.

The report also cites Borderless Economics, a new book by Robert Guest, The Economist's business editor, on which this report seems to be based. I'll add that to my Amazon wishlist. But I need to get a kindle before buying it. Too many trade frictions otherwise.

Strategic pricing?

noreply@blogger.com (Pierre-Louis) — Thu, 17 Nov 2011 12:59:00 +0000

I'm looking into buying the new Galaxy Nexus phone. Seems like when comparing 2 deals that have the same monthly fee, I can get the better one by paying a lower one-off cost. Is it still the case? Check here.

How the internet facilitates trade: Evidence from alibaba.com

noreply@blogger.com (Pierre-Louis) — Wed, 16 Nov 2011 11:45:00 +0000

"[Jack Ma]started Alibaba in 1999, to help small firms find customers and suppliers without going through costly middlemen. Alibaba.com now claims to have 57m users, including some in nearly every country. It is sometimes likened to eBay, but is more like an online Yellow Pages… Machine-makers in Turkey or Britain use Alibaba to find cheap suppliers in China without having to go there.”

The Economist, 29 December 2010

So, did alibaba.com have a significant impact on Chinese exports? As per the story above, alibaba.com should definitely reduce search and business-matching costs, which are an important impediment to trade (Rauch and Trindade 2002, Chaney 2011).

To answer this question, I plugged the number of alibaba.com users by country in a gravity equation using 2010 data. The data on alibaba.com users comes from ninjastat and is available here. Unfortunately, it covers only about 20 countries. Still, as seen in the scatter below, the higher the number of alibaba users in a country, the higher the imports from China. The estimated coefficients suggest that a 10% increase in the number of users could increase imports from China by as much as 2.3%. What’s more, the effect remains significant when controlling for the number of ethnic-Chinese migrants in the partner country, a standard proxy for Chinese networks.

Trade costs are going down even though contract-enforcement uncertainty remains a problem.

Note: The relationship plotted above is the added-variable plot obtained after running a gravity equation with Chinese exports on the left-hand side and GDP, GDPPC, distance, Chinese migrants and number of alibaba.com users on the right-hand side.

Languages on twitter

noreply@blogger.com (Pierre-Louis) — Thu, 10 Nov 2011 10:01:00 +0000

by Eric Fischer. There is also a world version.

Was the break-up of the eurozone so predictable?

noreply@blogger.com (Pierre-Louis) — Thu, 10 Nov 2011 00:10:00 +0000

About 6 years ago, this is what "Dr Doom" Roubini had to say about the eurozone:

"the lack of serious economic reforms in Italy implies that there is a growing risk that Italy may end up like Argentina. This is not a foregone conclusion but, if Italy does not reform, an exit from EMU within 5 years is not totally unlikely. Indeed, like Argentina, Italy faces a growing competitiveness loss given an increasingly overvalued currency and the risk of falling exports and growing current account deficit. The growth slowdown will make the public deficit and debt worse and potentially unsustainable over time. And if a devaluation cannot be used to reduce real wages, the real exchange rate overvaluation will be undone via a slow and painful process of wage and price deflation. But such deflation will keep real rates high and exacerbate the growth and fiscal crisis. Without necessary reforms, eventually this vicious circle of stagdeflation would force Italy to exit EMU, return to the Lira and default on its Euro debts."

Berlusconi's legacy

noreply@blogger.com (Pierre-Louis) — Wed, 09 Nov 2011 15:03:00 +0000

With markets in turmoil now that Berlusconi has announced his resignation, people are wondering what's gonna happen to the eurozone. All of a sudden, markets think Italy's debt is a huge problem. Has the shit that's been piling up finally hit the fan? Italy hasn't grown in the last 10 years. Obviously, debt has been piling up, reaching 120% of GDP. But why has Italy not been able to grow? Daniel Gros argues on Vox that Italy’s growth fundamentals are all in pretty good shape. In terms of human and physical capital formation, structural reforms, investment in research and development, Italy has done OK, even better than most eurozone countries. There is only one thing where Italy has fared worse than everybody else: Governance, i.e. corruption and all that crap. All in all, this is what crises are made of.

One-month old public official in Nigeria

noreply@blogger.com (Pierre-Louis) — Fri, 04 Nov 2011 10:06:00 +0000

AFP:

KANO, Nigeria — A one-month old baby, said to hold an ordinary national diploma, was on the Nigerian government payroll... The name of the infant was recently found on the payment voucher of a local government council in northern Nigeria during an exercise to fish out ghost employees from a bloated workforce... [It] is a "widespread trend in the local government service where senior officials stuff payrolls with the names of their wives and children".

The evolution of Western dance music

noreply@blogger.com (Pierre-Louis) — Wed, 02 Nov 2011 14:52:00 +0000

Click image to open interactive version (via Thomson Holidays).
Source: Thomson, via Chart Porn

Book Review: The Rational Optimist, by Matt Ridley

noreply@blogger.com (Pierre-Louis) — Tue, 01 Nov 2011 12:30:00 +0000

The Rational Optimist is a bit like Candide, the character in Voltaire's book. He kinda believes this is the best of all possible worlds and that the future will be even better. But unlike Candide, he bases his optimism on economics. Humans will adapt, specialize, trade while poverty and violence will decrease. This is thanks to the catallaxy, i.e. Hayek's name for the spontaneous order created by exchange and specialization.

This is the book you'd expect from an author who has a PhD in zoology and worked 10 years for The Economist. It's full of interesting material, melting Adam Smith ideas with Darwin's. My favourite chapter is about how markets make people nicer, increases mutual trust and reciprocity. He's quite convincing, going through anthropological, empirical and even experimental evidence.

But I have to admit I skipped a few pages here and there. While anecdotes and evidence are always interesting, we get the point quite fast... It's the gains from trade.

Explaining "Occupy Wall Street"

noreply@blogger.com (Pierre-Louis) — Sat, 29 Oct 2011 01:22:00 +0000

Cause if you ain't sharin, people ain't carin
Come up in your hood and they take everything you wearin
Lyrics from "It doesn't matter" by Wyclef Jean (2000)

Source: NY Times infograph

Equatorial Guinea: Assets of the president's son

noreply@blogger.com (Pierre-Louis) — Fri, 28 Oct 2011 09:09:00 +0000

BBC reports:

The US government is seeking to recover assets worth more $70m from the son of the president of Equatorial Guinea (see this blog post for a background on the country). His US assets include a Gulfstream jet, yachts, cars, a Malibu mansion and nearly $2m in Michael Jackson memorabilia including pairs of crystal-covered socks. Last month, France seized 11 of his luxury cars.

President Obiang's family steals pretty much all of the country's oil revenues and has received huge bribes from US oil companies such as Exxon Mobil and Amerada Hess...