Creative tensions between Creative tensions between statistics and economics: statistics and economics: The data-ink ratioThe data-ink ratio

SERC – Plenary Session 5Danny QuahProfessor of Economics, LSE08 August 2009

Creative tensions… Creative tensions… outsideoutsideGlobal economic crisis: “Spread

the joy, feel the burn”◦Finance and macroeconomics◦Asset pricing and economic

fluctuations

Examples:1.Global imbalances2.BRICs in the evolving global

economic landscape3.Global growth and poverty

Creative tensions - statistics and economics D. Quah 2

1. Global imbalances1. Global imbalancesGlobal savings glut, Asian thriftFlood of cheap capital onto world

marketsEver-more innovative, extreme

financial engineering“Asymmetric obligations”

Causality?

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US trade deficit and a GDPUS trade deficit and a GDP

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0

200

400

600

800

1000

1200

1980 1985 1990 1995 2000 2005

Billions US$

US Trade Deficit

India GDP

US trade balanceUS trade balance

Creative tensions - statistics and economics D. Quah 5

-300

-250

-200

-150

-100

-50

0

1980q1 1985q1 1990q1 1995q1 2000q1 2005q1

US trade balance

US-China bilateral trade US-China bilateral trade balancebalance

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-80

-70

-60

-50

-40

-30

-20

-10

0

10

1980q1 1985q1 1990q1 1995q1 2000q1 2005q1

US bilateral trade balance

China

US bilateral trade balanceUS bilateral trade balance

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-80

-70

-60

-50

-40

-30

-20

-10

0

10

1980q1 1985q1 1990q1 1995q1 2000q1 2005q1

US bilateral trade balance

China

Oil exporters

EU

US bilateral trade balanceUS bilateral trade balance

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-80

-70

-60

-50

-40

-30

-20

-10

0

10

1980q1 1985q1 1990q1 1995q1 2000q1 2005q1

US bilateral trade balance

China

Oil exporters

EU

Oil+EU

2. BRICs2. BRICsGrowth, convergenceβ, σ convergence; unit roots,

cointegration; convergence clubs; dynamic distributions

It’s just “Brazil, Russia, India, China” (Goldman Sachs thought leadership)◦“The rise of the rest”◦“The Asian century/hemisphere”

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Shifts in the global Shifts in the global economy’s centre of gravity economy’s centre of gravity … in flat world… in flat world

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Shifts in the global Shifts in the global economy’s centre of gravity economy’s centre of gravity … in flat world… in flat world

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Shifts in the global Shifts in the global economy’s centre of gravity economy’s centre of gravity … in flat world… in flat world

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Shifts in the global Shifts in the global economy’s centre of gravity economy’s centre of gravity … in flat world… in flat world

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3. Global growth and 3. Global growth and inequalityinequalityTradeoff between growth and

inequality? (Kuznets curve, Okun leaky bucket)

Cross section? Time series? Panel?

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World growth and povertyWorld growth and poverty

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World growth and povertyWorld growth and poverty

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World growth and povertyWorld growth and poverty

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World growth and povertyWorld growth and poverty

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ConclusionsConclusionsDiscussion on methodology… but

also substantive examplesOur methods come up short on

the really big questions, those observable from outer space

Edward Tufte’s data/ink ratioWhat is our value/statistic ratio?

Creative tensions - statistics and economics D. Quah 19

Creative tensions between Creative tensions between statistics and economics: statistics and economics: The data-ink ratioThe data-ink ratio

SERC – Plenary Session 5Danny QuahProfessor of Economics, LSE08 August 2009