Download + The World Top income database

Dmitry Volchenkov : Work Package 7 “Analysis and Validation of Data from Multi-Level
Anticipatory Complex Systems”(UNIBI - Bielefeld University)
Workshop "Analytical approaches to financial and economic problems“, Università Politecnica delle Marche in Ancona on
September 9-10 2014.
How can we save Europe?
Integration of databases for forecasting future trends:
Maddison historical GDP
+Polity IV (Political Regimes)
+ The World Top income database
Forecasting future trends
Present
Database
?
time
Forecasting future trends
Kalman filter
Hypothesis (fitting
parameters)
Present Forecasting
?
Database
Training sequence
time
Real-world databases
Many real-world
databases are
inhomogeneous
& incomplete:
Real-world databases
Many real-world
databases are
inhomogeneous
& incomplete:
• The major statistics
come after WWII;
• The number of states
is ever growing;
Real-world databases
We have to forecast the future development
Varying composition
Database A
Many gaps/ questionable data
time
Relevant databases
Real-world databases
Database C
Database A
Database B
time
Relevant databases
Markov chain model for real-world
databases
Transitions
between states
Database C
Database A
Database B
A graph of
states
time
Crisis for Europe as trust hits record low:
Is there a common trend for European countries?
No common trends for EU if we replay the
recent history
▪ Maddison historical GDP data
Kalman filter
Model
equation
The Kalman filter
(the linear
estimation
algorithm) operates
recursively on
streams of noisy
input data to
produce a
statistically
optimal estimate of
the underlying
system state.
Stochastic version of Kalman’s filter
Annual GDP changes in all
countries
Markov chain
predictions
based on the
previous history
PDF generated over
the preliminary
forecasts
Predicted values are
generated w.r.t.
PDFs
Different “future
scenarios” via PDFs:
• bandwidths;
• left/right bounds;
Average over ALL derived scenarios
Different scenarios via the PDFs:
Smallest bandwidth 
Play mostly the previous
history
Larger bandwidth  A greater
variety of scenarios
Bounds on PDFs  yes/no for big
shocks (wars)
- $500/year
+ $500/year
Under the different polices on PDFs,
different “historical scenarios”
could be modelled.
No common trends for EU if we play the
previous history
SCENARIO #1
SCENARIO #2
High
trend
High
trend
Low
trend
Low
trend
Economic recovery after the WWII came at different rates
in different parts of Europe.
Maddison’s database tediously retells us the
story about the recovering after the WWII
Industrial countries have an edge on competitors if
there is no war (GDP variations are limited to ±
$500/year)
Traditional capital shelters
thrive for larger variations
Maddison’s database predicts bankruptcy to the countries
that remained uninvolved in the global recovery process.
To catch up with new tendencies, we have to
add more databases
Evolution of political
Regimes
Democracy/Autocracy indices
Inequality
Top income shares;
the largest historical
database available concerning the evolution of
income inequality
Polity IV tells us that
• Six criteria are enough
to fully describe a
governing regime;
• These criteria describe
a political state- no
matter whether this state
is presently occupied, or
not;
• The historical data on
governing polices are
well documented (no
interruptions/almost no
“noise”);
• It is possible to
quantify the difference
between political regimes
Regulation
of chief
executive
recruitment
Unregulated
Openness of
Executive
Recruitment
Closed
Competitiven
ess of
Executive
Recruitment
Unregulated
Dual
executive
designation
Transitional
Selection
Dual
executive
election
Regulated
Open
Executive
constrains
Regulation
of
Participatio
n
Competitiv
eness of
participatio
n
Unlimited
Authority
Unregulated
Unregulated
Intermediate
Multiple
identity
Repressed
Slight to
moderate
limitations
Sectarian
Suppressed
Intermediate
Substantial
limitations
Dual
hereditary/co
mpetitive
Factional
Restricted
Transitional
Intermediate
Executive
Parity
Regulated
Competitive
“Political distance” – the minimal number of
political changes (reforms) required to convert the
political system of one country into that of another
Trends in Governance in 1810
Trends in Governance in 2012
Polity IV tells us that
• There should be a
positive feedback,
reinforcing the
multiplication of
polities;
dN
N
dt
• We witness the very
beginning of a chain
reaction process (of
atomization of the
polity landscape)
The World Top Income database tells us
that
There are many inequality metrics
The Pareto
principle:
income follows
a power law
probability
distribution.
Vilfredo Pareto
→ number of people →
I’ve used the inverse Pareto-Lorenz coefficient (IPLC)
→ wealth →
The World Top Income database tells us
that
Parabolic fit(!)
If the GDP-gain
substantially
outmatches/ lags
below the mean
(red line), it
apparently comes
at the cost of
increasing
inequality.
The World Top Income database tells us
that
Parabolic fit(!)
If the GDP-gain
substantially
outmatches/ lags
below the mean
(red line), it
apparently comes
at the cost of
increasing
inequality.
The high
concentration
of capital
The high
concentration
of capital
Perhaps, it reflects
the fact that the
global economy depends
upon investments:
When the rate of return
on capital
significantly exceeds
the growth rate of the
economy, then it
logically follows that
inherited wealth grows
faster than output and
income, so that
inherited wealth will
dominate wealth amassed
from a lifetime’s labor
by a wide margin, and
the concentration of
capital will attain
extremely high levels
(Thomas Piketty, Capital in
the Twenty-First Century
(2014))
The World Top Income database tells us
that
▪ Rapidly rising
inequality marks
wars/conflicts/
instabilities;
▪ Global
synchronization
of inequality
dynamics;
The World Top Income database tells us
that
▪ Rapidly rising
inequality marks
wars/conflicts/
instabilities;
▪ Global
synchronization
of inequality
dynamics;
South–East
Asia
▪ Hypercompetition
in elites
destabilizes
states;
▪ Instabilities
multiply
polities;
Integration of databases for forecasting
future trends
define
transitions
between
different
governing
regimes;
defines the
graph of
governing
regimes;
Polity IV: 7,563 governance
configurations
Regulation of
chief executive
recruitment
Unregulated
Openness of
Executive
Recruitment
Closed
Competitiveness of
Executive
Recruitment
Selection
Dual executive
election
Regulated
Open
Regulation of
Participation
Competitiveness
of participation
Unlimited Authority
Unregulated
Unregulated
Intermediate
Multiple identity
Repressed
Slight to moderate
limitations
Sectarian
Suppressed
Unregulated
Dual executive
designation
Transitional
Executive
constrains
Intermediate
Substantial
limitations
Dual
hereditary/competit
ive
Factional
Restricted
Transitional
Intermediate
Regulated
Competitive
Executive Parity
+ Interruption (foreign occupation) + Interregnum (anarchy) +
Transitional = 7,566 “states”
232 configurations have been observed
since 1800
"Tajikistan", 2013
"Nepal", 1945
"Korea North", 2013
Foreign interruption
"Cuba", 2005
"Libya", 2010
"United States", 2013
"Thailand", 2013
"Korea South", 2013
"Czech Republic", 2013
"Estonia", 2013
New configurations arise from time to time …
Historical transition probabilities between
232 configurations observed since 1800
• 17,000
transitions
Most transitions
between different
states happen within
the groups of
authoritarian states/
presidential republics,
while liberal
democracies and
dictatorships are quite
“sticky”.
Random walks on the graph of political
regimes
Graph of governance regimes
Each political regime has its own
dynamics for GDP and IPLC
Process starts from the actual data (GDPPC &
IPLC) for 2013
+ Averaging over all collected
histories
Random walks on the graph of political
regimes
• A common state
insists on a common
economic and
political destiny for
its citizens.
• However, the actual
trends of different
economic groups might
be statistically
inconsistent.
Polities proliferation score
▪ Greece
vs.
Russia
Possible
splitting of
a country is
visible as
the
statistically
inconsistent
trends.
Main factors resulting
in multiplying scores:
1. Inequality (stretches
bandwidth of boxes);
2. Authoritarian regimes
are short-lived,
quickly transforming
to other modes of
authoritarianism,
provoking instability
Polities proliferation score
▪ Expected number
of countries
There can be a common European trend if…
• if the workforce will be
able to migrate freely,
• and polities will be
able to split without
wars.
Possible splitting of a
country is visible as the
statistically inconsistent
trends.
Germany vs. Greece
Back to the City-States?
Strong inequality worsens perspectives,
authoritarian governance worsens perspectives…
USA vs. China
IPLC ~ O(GDPPC2)
“In slowly growing economies, past wealth
naturally takes on disproportionate
importance, because it takes only a small
flow of new savings to increase the stock
of wealth steadily and substantially.”
(Thomas Piketty, Capital in the Twenty-First Century (2014))
Battle in Asia, concord in Europe
China (red)
vs.
Indonesia
(blue)
The future
is fraught
with
surprises
Battle in Asia, concord in Europe
Germany
(dark) vs.
Austria
(light)
Conclusions
▪ In purpose of forecasting, it might be useful to
integrate data from many relevant databases;
▪
In the proposed integration model, one database
should be continuous, well defined (a graph of
states); others would define transitions;
▪ Combined analysis of three databases shows
interesting features related to inequality
a permanent increase of the number of self
governing polities, indicate a possibility
common development for a union of European
states.
many
growth,
of
city-