Econdiscussion
  • Home
  • Articles
  • About Me

Articles

"Unproductive Production" - The Economist

23/10/2014

0 Comments

 
Synopsis: Is China’s productivity slowing down?

Click here to read the original article
Discussion:
This article discusses the source and extent of China’s productivity slowdown. In other words, to a large extent, China’s slowing economy can be blamed on disappointing growths in productivity. For the past few decades, China’s boom was caused by an increase in labour and capital, as opposed to an increase in efficiency. The measure of where the source of GDP is from is TFP (total factor productivity), which is, according to the article, “subtracting the change in capital and labour deployed from the change in overall output.” I will discuss the problems with this statement later.

Between different people are differing opinions on China’s TFP. Mr. Harry Wu, an economist who has done a lot of research on the shortcomings of Chinese official data, has a pessimistic opinion (which, itself, faces a plethora of problems given the assumptions he made) and cites a negative TFP, while the World Bank’s more hopeful one shows a slowdown in TFP, even if it is positive for the time being.

Exacerbating China’s problem with a showdown of productivity is China’s bad lending and investment decisions. China’s best firms do not have the credit they deserve. With TFP and ICOR (explained later) increasing, China is likely to face large problems.

Key Words:
1.       ICOR: Incremental Capital-Output Ratio is the measure of how much investment is needed to increase growth by a percentage point.
2.       TFP: Total Factor Productivity, as I said earlier, is stated to be the difference between the change in capital and labour and the change in overall output. Math students will understand the problems with this statement. What does subtraction mean? (The figures in the following tables are not based on actual data).
Picture
Does this mean the TFP is 20%-10%=10%? Because this is what the article says. What I have calculated is the change in GDP and the change in input, and I have subtracted the two, as per the instructions of the article.

This is how TFP is actually calculated:

TFP Calculation 2:
Picture
So, the TFP is now 2.1818/2=9.09%

The difference between the two methods is that firstly, there is no subtraction in the second calculation, and secondly, it is not the change in GDP per year by the change in input per year as the first table would suggest, but rather, the change in ratio between GDP and input per year.

The difference between 9.09% and 10% from both tables might seem negligible, but on a large scale, this could make a large difference.

This is not to say that the writer did not understand how TFP was calculated; his or her phrasing was merely meant for readers to understand the general concept. I think it is important to notice these small differences, though.
0 Comments

Your comment will be posted after it is approved.


Leave a Reply.

    Categories

    All
    Abenomics
    Adam Smith
    Adverse Selection
    Ageing
    Amazon
    Arrows
    Arthur Okun
    Asset
    Asymmetric Information
    Ben Bernanke
    Booms And Busts
    Braess' Paradox
    Brazil
    Bretton Woods
    Brexit
    Bubble
    Bull Market
    Business Cycle
    Capital Control
    Capital Flows
    Capital In The Twenty First Century
    Capital In The Twenty-First Century
    Carry Trade
    Causation
    Central Bank
    China
    Christopher Sims
    Classical Economics
    Consumption
    Counter-cyclical
    CPI
    Creative Destruction
    Crisis
    Daron Acemoglu
    David Cameron
    David Ricardo
    Debt
    Debt-to-GDP
    Deflation
    Deleverage Cycle
    Demography
    Devaluation
    Developing Economies
    Development
    Diffusion
    Diminishing Returns
    Dominant Strategy
    Dominated Strategy
    ECB
    Economic History
    Economic Theory
    Equality
    Equitity
    Equity
    Equity Investments
    EU
    Exchange Rate
    FDI
    Fed
    Federal Reserve
    Finance
    Financial Crisis
    Financial Instability Hypothesis
    Financial-instability Hypothesis
    Financial Times
    Fiscal Multiplier
    Fiscal Policy
    Fixed Exchange Rate
    Fleming
    Floating Exchange Rate
    Free Market
    Free Trade
    Freshwater
    Game Theory
    GDP
    George Akerlof
    Germany
    GFC
    Gini Coefficient
    Global Financial Crisis
    Globalization
    Government Intervention
    Government Spending
    Great Depression
    Growth
    Heckscher-Ohlin
    Helene Rey
    Hyman Minsky
    ICOR
    Illiquid
    Immigration
    Income
    Inequality
    Inflation
    Infrastructure
    Innovation
    Interest Rates
    Investment
    Italy
    James Robinson
    Janet Yellen
    Japan
    Jean Tirole
    J.M. Keynes
    John Nash
    Keynesian Economics
    Labor
    Lawrence Summers
    Leverage
    Lindau
    Liquid
    Malaysia
    Managed Exchange Rate
    Mario Draghi
    Matteo Renzi
    Michael Spense
    Minsky Moment
    Mixed Strategy
    Monetary Policy
    Monopoly
    Monopsony
    Moral Hazard
    Mundell
    Mundell-Fleming Trilemma
    Nash
    Nash Equilibrium
    Nigeria
    Nobel
    Nobel Laureates
    Nobel Prize
    Paul Krugman
    Paul Samuelson
    Perfect Information
    Phillips Curve
    Politics
    Poverty Traps
    Principal Agent Problem
    Prisoner's Dilemma
    Productivity
    Protectionism
    QE
    Qualitative Easing
    Quantitative Easing
    Redistribution
    Regulation
    Retrenching
    Rich
    Risk
    Robert Shiller
    Saltwater
    Saving
    Secular Stagnation
    Shiller
    Shinzo Abe
    Signaling
    Stakeholders
    Stolper-Samuelson Theorem
    Strategy
    Subsidies
    Tariff
    Taxation
    Taxes
    The Economist
    The Market For Lemons
    Theory Of Comparative Advantage
    Thomas Piketty
    Total Factor Productivity
    Trade
    Trilemma
    UK
    Unemployment
    U.S.
    USD
    Wage Benefits
    Wages
    Wealth
    Wealth Effect
    Wolfgang Stolper
    WTO
    Yuan

    Author

    JANANI DHILEEPAN
    A gap year student trying to explore real-world economics

    Archives

    May 2018
    February 2018
    January 2018
    December 2017
    November 2017
    April 2017
    February 2017
    December 2016
    October 2016
    September 2016
    August 2016
    July 2016
    May 2016
    March 2016
    January 2016
    November 2015
    September 2015
    August 2015
    July 2015
    June 2015
    April 2015
    March 2015
    February 2015
    January 2015
    December 2014
    November 2014
    October 2014
    September 2014

    RSS Feed

Powered by Create your own unique website with customizable templates.