Download Country Analysis Framework

COUNTRY ANALYSIS
FRAMEWORK
Mode of Analysis
• View country as a unit much like a firm with
goals, comparative advantages and measurable
outcomes.
• More complicated as the goals are less
obvious, constituencies more varied, and
decision making less clear.
• Examine past & present and project into the
future.
• Must choose time frame of analysis to guide focus.
Three Parts
• Context
• Strategy
• Performance
Context
• Background & Resources
• Players of the Game
o Firms: Corporate Sector
o Government Actors
o Non-state Actors
• Rules of the Game
o Formal Rules
o Informal Rules
• International Dimension
Background and Resources
Resources
•Natural
•Labor
•Capital
•Infrastructure
•Technology
Strategy
Context
•Rules of the
Game
•Players
Background
•History
•Culture
•Demographics
•Geography
Austen, J.E., 1990, Managing in Development Economies
•Vision
•Goals
•Policies
BACKGROUND &
RESOURCES
HISTORY AND CULTURE
• Colonial History
TRANSITION
ECONOMIES
Many
economies
are in the
process of
building
market
based
economies
over the last
25 years.
Culture
Hofstede “Cultural Dimensions” Theory
People’s behavior determined by:
• Human Nature - Universal
• Personality - Individual
• Culture - Local
• View of the world
Assess by
measuring values
• Habits of action
through surveys
• Emotional response
World Values Survey
• WVS conducts international surveys to discover attitudes and
values at country level.
Ex.
Link
Link to Example Questionaire
Factor Analysis
• Many questions will be answered in similar ways across
questionaires. (i.e. people who answer “Mentioned” to
V13 will answer “Mentioned” to V18, etc.)
• Statistical Theory: There are a small number of
independent factors which determine systematic
correlations in answers to multiple questions.
(plants/chlorophyll) .
• Use statistics to construct clusters of questions and
related answers which can be predicted by these factors.
• Use theory to interpret the dimensions
Cultural Values have two dimensions
1. Traditional vs. Secular
2. Survival vs. Lifestyle
Link
Atlas of
Cultural
Values
Link
Economic background
• Level of Development
• Industrial Organization
• Organization for Economic Cooperation and
Development provides information sharing on
policies. Limited membership sometimes viewed
as synonymous with developed country status.
http://www.oecd.org
…low-income economies are defined as those with a GNI per capita, calculated
using the World Bank Atlas method, of $1,045 or less in 2013; middle-income
economies are those with a GNI per capita of more than $1,045 but less than
$12,746; high-income economies are those with a GNI per capita of $12,746 or
more. Lower-middle-income and upper-middle-income economies are separated
at a GNI per capita of $4,125.
Measuring the Economy
• National accounts are the core statistical
measure of the economy.
• Accounts cover many features of the economy
but organizing concept is Gross Domestic
Product (GDP)
All goods sold in an economy
share a common unit of
measure: the price at which
they are sold.
Sum up
the value
of goods
Gross Domestic Product (GDP)
• “GDP combines in a single figure, and with no double
counting, all the output (or production) carried out by all
the firms, non-profit institutions, government bodies and
households in a given country during a given period,
regardless of the type of goods and services produced,
provided that the production takes place within the
country’s economic territory.” L & B p. 15
GDP is a measure of production
• Value added at production establishment i
Value Addedi =Sales +  inventories
-raw materials, semi-processed inputs and energy costs.
• GDP is the sum of VA across establishments.
GDP  iValue Addedi
Economic Concept
• Value Added is production at firm level due to the combination
of capital equipment and workers.
• Value added is not equal to profits because the costs of worker
and capital are not deducted.
Link
• Accounts are created by national statistical agencies
• UN System of National Accounts is the “internationally
agreed standard set of recommendations” used by most
countries.
• Annual data for many countries available at the UN
Link
Production Approach
Sub-aggregates
• Divide production establishments into sectors
usually along the line of
• Agriculture: Natural Resources (Agriculture, Forestry,
Fishing)
• Industry: Goods production (Mining, Manufacturing,
Utilities, Construction)
• Services: Trade, Transport, Communication, Services
Other Activities (ISIC J-P)
Transport, storage and
communication (ISIC I)
Wholesale, retail trade,
restaurants and hotels (ISIC
G-H)
Construction (ISIC F)
Manufacturing (ISIC D)
Mining & Utilities
Agriculture, hunting, forestry,
fishing (ISIC A-B)
Hong Kong: Value Added by Sector
60
50
40
30
20
10
0
2010
1970
UN Main Aggregates
Link
Expenditure Approach
•
Purchase of Final goods by end users are
divided into two categories:
Consumption: Household expenditure (durables,
nondurables & services); government
(nondurables & services) expenditure; nonprofit
expenditures
2. Investment: Inventories, Fixed Investment
(equipment, structures)
1.
Some Asian Expenditure Shares: 2010
People’s Republic of China
1
90
0.9
80
0.8
70
0.7
60
0.6
50
0.5
40
0.4
30
0.3
20
0.2
10
0.1
0
1
0
2
Japan
3
4
5
Republic of Korea
6
7
8
9
-10
Household consumption expenditure
General government final consumption expenditure
Gross fixed capital formation
Changes in inventories
Source: United Nations Main Aggregates Database
10
Demand
•
If we add up the value added at all stages of
production we derive the value to the end user.
•
Sum of Final Demand Aggregates equals Sum of
Value Added
•
Some demand for domestically produced value
added comes from abroad, some domestic demand
is satisfied by overseas goods.
GDP = Consumption + Investment + Exports – Imports
Exports – Imports = External Balance = Trade Balance
= Net Exports <> 0
Value Added and Income
• Production establishments are where income is
generated. Funds raised can be paid for labor
and finance costs, left over money is profit
income.
• Sum of domestic value added (GDP) is equal to
wage payments plus financial and profit income
referred to as “operating surplus and mixed
income.”
Income Approach to Measuring GDP
Value Added distributed as income to Employees,
Owner/Creditors, & Gov’t
1. Compensation of employees (Wages, Benefits)
2. Net operating surplus (Profits, Net Interest, Rental
Income)
3. Taxes on Production
Value Added 2010 1.58 Trillion HK$
Compensation of employees
Gross operating surplus
Taxes on production
Value Added
Compensation of employees
Gross operating surplus
Taxes on production
29
1,606,092
828,139
753,171
24,782
1%
47%
52%
National Income vs. Domestic Income
GNI
Gross National Income
GDI
Gross Domestic Income
= income earned by
= income created within
national residents
domestic borders.
GNI = GDI +NFI
• Net Factor Income [NFI] is income earned on overseas
work or investments minus income generated
domestically but paid to foreigners.
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Hong Kong Net Factor Income
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
-1.00%
-2.00%
-3.00%
-4.00%
NFI (% of GDP)
Source: United Nations Main Aggregates Database
NFI Across Countries
NFI/GDP
2009
Chad
-42.68%
Liberia
-20.14%
Ireland
-16.94%
Cambodia
-15.64%
Angola
-13.95%
Chile
-9.69%
Panama
-8.97%
China: Macao SAR
-6.03%
Australia
-4.65%
UN Main Aggregates
Russian Federation
China, People's Republic of
Brazil
India
United States
-3.23%
-2.04%
-2.04%
-0.13%
0.28%
China: Hong Kong SAR
3.12%
Switzerland
4.15%
Haiti
9.62%
Bangladesh
11.00%
Philippines
14.73%
Bermuda
23.62%
Lesotho
35.17%
Source: United Nations Main Aggregates Database
Exchange Rates
• Exchange Rate: S - # of domestic
currency units purchased for 1 US$.
• An increase in S is a depreciation of
domestic currency and a decrease in S
is an appreciation.
Atlas Conversion Method
• Exchange rates are volatile, so convert to US dollars
using SATLAS= 3 year average.
GDP per Capita, US$
60000
50000
Axis Method
40000
30000
20000
10000
0
2000
2001
2002
2003
2004
2005
2006
Hong Kong SAR, China
2007
Singapore
2008
2009
2010
2011
2012
Industrial Structure
Industrial Structure 2012
60.00%
50.00%
%
40.00%
China: Hong Kong SAR
30.00%
Singapore
20.00%
10.00%
0.00%
Manufacturing
(ISIC D)
Wholesale, retail
trade, restaurants
and hotels (ISIC
G-H)
Other Activities
(ISIC J-P)
Economic Orientation
250.00%
200.00%
150.00%
100.00%
50.00%
0.00%
Household
consumption
expenditure
General
government
final
consumption
expenditure
Gross fixed
capital
formation
China: Hong Kong SAR
Exports of
goods and
services
Singapore
Imports of
goods and
services
RESOURCES
Link to CIA Factbook
Human Resources
Hong Kong
Singapore
Rapid Immigration to Singapore
International migrant stock (% of population)
45
40
35
30
25
20
15
1990 [YR1990]
1995 [YR1995]
2000 [YR2000]
Hong Kong SAR, China
2005 [YR2005]
2010 [YR2010]
Singapore
World Bank Jobs Database
Barro, Robert and Jong-Wha Lee, "A New Data Set of Educational Attainment in
the World, 1950-2010." Journal of Development Economics, vol 104, pp.184198.
Education Data
Average Years of Education by 5 year cohort
75
70
65
60
55
50
45
40
35
30
25
20
15
0.00
2.00
4.00
6.00
8.00
HK
Singapore
10.00
12.00
14.00
16.00
INSTITUTIONS
The game
• Players of the Game
o Government Actors
o Political Leaders
o Government Departments
o Firms: Corporate Sector
o Non-state Actors
Link
Corporate Sector
• Informal Sector
• Small & Medium Enterprise Sector
• State Owned Enterprise Sector
• Multi-national Enterprises
• Business Groups
SME Contribution 2003
Link Small and Medium Enterprises across the Globe,
Meghana Ayyagari, Thorsten Beck and Asli Demirgüç-Kunt, World Bank
Labor Force Structure: Employment Shares
70
60
50
40
%
Most up-to-date
data: Link
30
20
10
0
Official SME Sector
Informal Share
Hong Kong
Singapore
Corporate Sector
MNC’s vs. Business Groups vs. SOE
• Multi-national Corporations: Geographically
diverse, but industrially concentrated.
• Business Groups: Geographically
concentrated but industrially diverse.
• A dominant model in emerging markets
and developing economies.
Forbes Global2000
State Owned Enterprises
• Preferential access to finance
• Run on a policy, non-commercial
basis, may
• Engage in activities that boost
economy-wide productivity
• Support subsidized consumer
prices or employment.
State owns 10% of shares sometimes used as a definition
p. 28
• Figure 2. Country SOE Share for selected 38 economies Link
Share of SOE’s among Top 10 companies (sales, assets, value)
Link
Sovereign Wealth Funds
Link
Link
Non-government Actors
• Political parties & movements
• Religious groups
Rules of the Game
• Formal
• Constitution,
• Type of Legal system
• Property Rights
Link
Link
World Bank Jobs Database
EIU Indicators
10
9
8
7
6
5
4
3
2
1
0
Overall
Electoral Process &
Pluralism
Functioning of Govt
Hong Kong
Political Participation
Singapore
Political Culture
Civil Liberties
Link
Rules of the Game
• Informal
• Unwritten practices
• Business/work culture
Control of Corruption (CC) – capturing perceptions of the extent to which public power
is exercised for private gain, including both petty and grand forms of corruption, as well
as "capture" of the state by elites and private interests.
Link
2013 Results Link
Strategy
• Vision - Overall view of society
•
•
Ideology
Orientation
• Goals
• Policies
Orientation
Dimensions of Analysis
o Market
Implementation vs. Government
Control
o Externally Oriented vs. Internally Oriented
o Business
Oriented vs. Labor Oriented
Link
IMF Fiscal Monitor 2013
Link
Labor Orientation
World Bank Jobs Database
Hong
Kong Singapore Germany Spain
Notice period for redundancy
dismissal
(for a worker with 5 years of
tenure, in salary weeks)
4.33
Minimum wage for a 19-year old
worker
or an apprentice (US$/month)
0.00
Paid annual leave for a worker
with 5 years of tenure (in
working days)
10.00
Retraining or reassignment
obligation before redundancy?
0.00
Weeks of severance pay for
redundancy of experienced
workers
5.80
4.00
0.00
8.67
2.14
USA
0.00
1145.47 1043.96 1242.58
11.00
24.00
22.00
0.00
0.00
1.00
0.00
0.00
0.00
43.33
52.00
0.00
STRATEGY DOCUMENTS
The dedicated chapter clearly sets out, among other things, the
Central Authorities' support for Hong Kong –
• to consolidate and enhance its competitive advantages,
including consolidating and enhancing Hong Kong's status as
an international centre for financial services, trade and
shipping; and in particular, the support for Hong Kong's
development as an offshore Renminbi centre and an
international asset management centre;
• to nurture its emerging industries and develop the six industries
where Hong Kong enjoys clear advantages to widen their cooperation areas and scope of services; and
• to deepen economic co-operation with the Mainland and
continue to implement CEPA. It also confirms the significant
functions and positioning of Hong Kong's co-operation with
Guangdong under the Framework Agreement on Hong
Kong/Guangdong Co-operation, including the establishment of
a financial co-operation zone and a world-class metropolitan
cluster with Hong Kong's financial system taking the lead, and
the support for Guangdong to open up its service industries for
Hong Kong on a pilot basis and extending the pilot scheme to
other regions gradually.
Link
Synthesis
• Construct a story that uses the different elements to
describe the situation faced by the country.
• No perfect system for describing a
country’s situation. This system offers a
straight-forward, easily comparable
framework.
• Country-level approach may also be
questioned. Any country has many
individual actors which will each have their
own objectives, strategies and
performance measures.
MEASURING
ECONOMIC
PERFORMANCE
Readings
• Lequiller François and Derek Blades, 2006, Under standing NATIONAL
ACCOUNTS, Organization for Economic Cooperation and
Development, Chapter 1 and 2. Link
• Bureau of Economic Analysis “Introduction to the National Income and
Product Accounts” Link
•
Using GDP to Measure Economic
Performance
• Measuring stick of value is prices of goods in terms of money,
but arbitrary changes in the stock of money arbitrarily change
prices/the measure of value over time.
• Comparing value across time requires abstracting from those
arbitrary changes in value.
What is Economic Growth in a world of many
goods?
• We need to combine the many goods produced or consumed in an
economy into one measure.
+
+
+
+
=?
Value vs. Volume
• Consider the sales of a hypothetical single good k
(for example, k = apples).
• Dollar Value of sales (called vk) is the product of
the volume of goods sold (called qk) measured in
the goods natural units (i.e. bushels of apples) and
the dollar price per good (called pk)
vk = pk*qk
• Growth of value can be decomposed into growth
of volume and growth in prices.
Share of Value
• We could measure total value for the economy.
• Divide our economy into K categories of goods indexed by k
= 1,…, K.
• Value of sales of good k, vk. GDP is represented as the sum
of value across goods
GDPt  Vt  v  v  v ...  v
1
t
2
t
3
t
K
t
Value weignts and Inflation Vectors
k
t
w
• The weight of k in the economy
w 
k
v
could be defined as
which adds up to 1 across sectors.
k
V
• Identify inflation tendency for that sector for every type of good at
time t. Calculate an inflation vector representing the growth rate
of prices.
k
t
p
k
t 1
p
 1 g
pk
t
Notes on Price Indices: New Goods
• Weights change as production structure of the economy changes
k
p
• Market baskets used to construct t
don’t need to stay the
k
t 1
p
same over long-periods.
• K categories of goods don’t need to stay the same over long
periods.
• New goods can be introduced as long as matched goods are
compared in every t and t-1 period.
Real GDP Growth
• Growth of value can be decomposed into growth of volume and growth
in prices.
(1  g )  (1  g )  (1  g )
vk
t
 (1  g ) 
q
t
k
pk
t
(1  g )
vk
t
(1  g )
pk
t

k
t
v
qk
t
k
t
p
k
t 1
v
k
t 1
p
• We could construct a weighted average
gt
REALGDP

w  gt  w  gt  w  gt  ...  w  gt
1
t 1
q1
2
t 1
q2
3
t 1
q3
K
t 1
qK
Constant Price GDP Growth Rates
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
1970-1975 1975-1980 1980-1985 1985-1990 1990-1995 1995-2000 2000-2005 2005-2010
China: Hong Kong SAR
Singapore
Real GDP per Capita Growth Rates
9.00%
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
1970-1975
1975-1980
1980-1985
1985-1990
China: Hong Kong SAR
1990-1995
1995-2000
Singapore
2000-2005
2005-2010
Comparisons
GDP per capita (constant LCU) Average % Growth
2000-2013
10.00%
9.00%
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
Hong Kong SAR, China
[HKG]
Singapore [SGP]
China [CHN]
United States [USA]
Inflation
• We also decompose the growth of the aggregates into growth in prices
(inflation) and growth in volume (output).
(1  g )  (1  g )(1  g )
V
t
P
t
(1  g ) 
P
t
Q
t
(1  g )
V
t
(1  g )
Q
t
Gross Growth Rate
• The gross growth rate is equivalent to the ratio of todays goods
valued at yesterdays prices to yesterdays good valued at yesterdays
prices. .
k w g
k
qk
t 1 t
k
k
t 1 t 1
k
k
q

q
 t t 1 
p q
 k

k
V 1
q 1
1442t 44
314442t 4443
wtk1



k
k
ptk1qtk


 p q
p q


 p q
k
k
t 1 t 1
p q
 1  gtRGDP
k
k
k
ptk1qtk1
k
k
k
t 1 t 1
k
k
t 1 t
k
k
t 1 t 1
gtq

k
ptk1  qtk  qtk1 
Vt 1
k



k
k
ptk1qtk
k
k
t 1 t 1
p q
1
Value of Goods measured in constant
prices
1. Choose Base year. RGDPBase= GDPBase
2. Calculate the value of goods in the next year using the
increase in value.
RGDP
k
k
RGDPBase1  1  g Base

RGDP

p
q
 k Base Base1
1 
Base
The level of RGDP is measured at constant prices.
RGDP
RGDPBase  2  1  g Base  2  RGDPBase 1
3. Repeat.


...RGDPt 1  1  gtRGDP
  RGDPt
1
4. Invert for periods before.
RGDPt 
RGDPt 1
RGDP
1

g
 t 1 