Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Homework 2 Economics 2000 Assigned: Thursday, October 14th, 2014 Due: Friday, October 31st, 2014 1. Institutions vs. Geography. In class, we have examined two competing theories explaining under-development. One theory focuses on geographical shortcomings. Another suggests that good institutions that minimize transactions costs and the exercise of property rights. Economist Jeffrey Sachs is a leading exponent of the former theory. In a review of “Why Nations Fail,” by Daron Acemoglu and James Robinson1, he wrote, “Compare Bolivia and Vietnam in the 1990s, both places I experienced firsthand as an economic adviser. Bolivians enjoyed greater political and civil rights than the Vietnamese did, as measured by Freedom House, yet Bolivia's economy grew slowly whereas Vietnam's attracted foreign investment like a magnet. It is easy to see why: Bolivia is a landlocked mountainous country with much of its territory lying higher than 10,000 feet above sea level, whereas Vietnam has a vast coastline with deep-water ports conveniently located near Asia's booming industrial economies. Vietnam, not Bolivia, was the desirable place to assemble television sets and consumer appliances for Japanese and South Korean companies.” Explore this assessment using data. A. Measure FDI. Quantify Sachs’ assertion: i. Calculate the average FDI inflows for the two countries using Foreign direct investment, net inflows (% of GDP) for 2004-2013. Is this indeed larger in Vietnam? Calculate average FDI inflows for the same years for Lower Middle Income economies as a group. Is Bolivia or Vietnam exceptional? Consider the importance of trade in the two economies. Over the last decade, Vietnam’s track record in FDI is indeed exceptional. We can show the average for Vietnam, Bolivia, and lower Middle Income Economies Foreign direct investment, net inflows (% of GDP) Bolivia Vietnam Lower middle income Average 2.54 5.87 2.51 ii. What is the share of GDP accounted for by exports in the two economies in 2012 (use Exports of goods and services (% of GDP)). Can geography explain the difference? Use the World Bank’s Doing Business survey of some objective measures of the cost of Trading Across Borders for both Bolivia and Vietnam. Trade is important to both Vietnam than Bolivia, but has become substantially larger than Bolivia. This backs up Sachs idea that FDI is motivated by companies wanting to take advantage of Vietnam as a trading platform: 1 Read at the library Link here. Bolivia Vietnam 47.25236 80.02862 Exports of goods and services (% of GDP) 2012 If we examine the Doing Business Survey, we see that along this dimension, Vietnam is a better place to engage in international trade (ranking #65 overall) compared to Bolivia which is very poor (ranking #126). Trading Across Borders rank ii. Bolivia Vietnam Docume nts to export (number ) Time to export (days) 126 7 21 1,440 65 5 21 610 The biggest difference comes in the measure of the Cost to Export a container from the country which is more than twice as expensive. This may include fees or transportation costs. Given the landlocked nature of Bolivia, it is not perhaps surprising that it would be expensive to export. iii. Examine the quality of transportation infrastructure. Get data on Road density (km of road per 100 sq. km of land area) and Roads, paved (% of total roads) for 2007. Which country has better transportation? Series Name (2007) Road density (km of road per 100 sq. km of land area) Roads, paved (% of total roads) Bolivia Vietnam 6.80 48.33 6.81 47.62 Another reason for Vietnam’s trading focus may come from infrastructure. It seems clear that Vietnam has a much denser road network with paved roads than Bolivia. B. Background. Compare the level of development of Bolivia and Vietnam using GNI per capita, Atlas method (current US$) for 2013 from the World Development Indicators. Compare the industrialization of the two countries using Manufacturing, value added (% of GDP) from the most recent year 2012. Are the two countries of comparable level of development? Compare economic growth in the two countries over the last decade using the average of GDP per capita growth (annual %) for 2004-2013. Bolivia Vietnam 2013 2550 1730 2012 13.48252 17.39064 GNI per capita, Atlas method (current US$) Manufacturing, value added (% of GDP) Bolivia has a substantially higher income levels, but Vietnam has a somewhat greater level of industrialization. GDP per capita growth (annual %) Average Bolivia Vietnam 3.12 5.21 Vietnam’s economic growth has been much higher. Cost to export (US$ per containe r) C. Governance. i. Assess the type of government. Use the most recent Freedom House Freedom in the World to compare the level of democracy. Bolivia Vietnam 2014 Civil Liberties Partly Free 3 Not Free 5 Political Rights 3 7 Sachs points out correctly that Bolivia has a more democratic system than Vietnam where Political Rights are the lowest on a scale of 7 out of 7. ii. Assess the quality of government. Use Worldwide Governance Indicators Table View to assess the percentile ranking in 2013 of Bolivia and Vietnam in terms of Political Stability and Absence of Violence/Terrorism, Government Effectiveness, Regulatory Quality, Rule of Law. Which country does well on which measure? This assessment is Indicator -- 2013 Political Stability and Absence of Violence/Terrorism Government Effectiveness Regulatory Quality Rule of Law Bolivia 36.49 41.63 23.44 14.22 Vietnam 55.92 44.02 28.23 39.34 Along these indicators, Vietnam does better on all dimensions of governance but especially the Rule of Law, where Bolivia is only in the 14th percentile indicating the system protecting property rights is quite poor. iii. How big a problem is corruption in these economies? See the Corruptions Perceptions Index from Transparency International 2013 . What is the rank out of 177? Corruptions Perceptions Index Bolivia Vietnam 106/177 116/177 D. Compare Institutions. Examine how well the institutions of the two countries might be doing in supporting the economy. i. Use the objective Doing Business measure to compare the transactions environment in the two countries. Contract Enforcement to the effectiveness of the legal environment. Which country ranks higher in this measure? Economy ▲ Bolivia Vietnam Enforcing Contracts rank Time (days) Cost (% of claim) Procedures (number) 131 591 33.2 40 46 400 29 36 ii. Use the Registering Property and Starting a Business measures to assess the degree to which property rights can be exercised. How do these countries rank along this dimension? Economy ▲ Registering Property rank Bolivia Vietnam Economy ▲ Bolivia Vietnam Starting a Business rank Procedures (number) Time (days) Cost (% of property value 144 7 91 4.7 51 4 57 0.6 Procedures (number) Cost (% of income per capita) Time (days) Paid-in Min. Capital (% of income per capita) 180 15 49 71.6 1.8 109 10 34 7.7 0 iii. On which of the dimensions of Doing Business does Vietnam rank the best. On which dimension does Bolivia do the best. TOPICS Starting a Business Dealing with Construction Permits Getting Electricity Registering Property Getting Credit Protecting Investors Paying Taxes Trading Across Borders Enforcing Contracts Resolving Insolvency Vietnam 109 29 156 51 42 157 149 65 46 149 Bolivia 180 136 128 144 130 138 185 126 131 67 Bolivia does better in Electricity, and Protecting Investors and much better in Resolving Insolvency. Bolivia’s business environment is in the top 100 only in Rersolving Insolvency. Along the other dimensions, Vietnam does better and is Top 30 in terms of Dealing with Construction Permits. Write a paragraph summarizing your findings. What factors make you think that Bolivia’s relative performance can be explained by its landlocked nature? What factors make you think the relative performance can be explained by institutional quality. As suggested by the quotation, Vietnam has been a more attractive to Foreign Direct Investment compared to Bolivia despite Vietnam being less democratic. Geography could play a role. Bolivia is landlocked and mountainous and the cost of exporting from Bolivia is very high. These costs may, however, be exacerbated by Bolivia’s poor transportation network. Exports are low relative to Vietnam. The more democratic government in Bolivia has not translated into better market institutions. Along the dimensions of the quality of governance, Vietnam seems superior than Bolivia, but Bolivia is especially sub-standard in terms of the Rule of Law. According to the objective measures, contract enforcement is of a quality ahead of its level of economic development, Along a variety of objective measures of the business environment, Bolivia does very badly in terms of the institutions that support markets. 2. E-Commerce in ASEAN. E-commerce has shown enormous success in filling institutional gaps in China. Assess the market potential in some potentially comparable Southeast Asian nations: Malaysia, the Philippines, and Thailand. A. Infrastructure. i. Internet. Use data from the World Bank Jobs Database to get information on Internet users (per 100 people), and Fixed broadband Internet subscribers (per 100 people) for the most recent year available for these three countries plus China. China Thailand Malaysia Philippines Internet users (per 100 people) 38.30 23.70 61.00 29.00 Fixed broadband Internet subscribers (per 100 people) 11.61 5.03 7.44 1.89 ii. Transport. Examine the World Economic Forum Global Competitiveness Report which provides subjective measures of the quality of the transport infrastructure in various countries. How do the individual ASEAN economies compare with China? Transport infrastructure, 1-7 (best) Malaysia China Thailand Philippines 5.7 5 4.6 3.5 Rank 11 21 36 74 iii. Information. Find data from World Bank Jobs Database to assess the availability of consumer credit information for the four countries. Use the most recent measure of Public credit registry coverage (% of adults) and Private credit bureau coverage (% of adults) to assess the quality of information in each country. China Thailand Malaysia Philippines (% of adults) Public credit registry coverage 27.7 0 56.1 0 Private credit bureau coverage 0 44.1 81.8 9 B. Payments e-Commerce requires use of electronic payments. Use the Global Financial Inclusion database to assess penetration of electronic payments methods in the three ASEAN countries and China. Get the most recent value of Credit card, older adults (% age 25+), Mobile phone used to pay bills, older adults (% age 25+) , and Debit card, older adults (% age 25+). How do these countries compare with China in terms of potential for on-line payment? (% age 25+) Credit card, older adults Mobile phone used to pay bills, older adults Debit card, older adults China 8.19 0.96 38.87 Philippines 3.59 2.29 13.89 Thailand 4.71 0.26 43.38 Malaysia 15.67 2.73 26.64 C. Informal Institutions In the case of China, e-commerce has been on the consumer to consumer model (C2C). This might depend on the level of interpersonal trust. Get information from the World Values Survey on the levels of trust in the economy. The traditional measure of trust from this source is based on the answer to the question “Generally speaking, would you say that most people can be trusted or that you need to be very careful in dealing with people?” Report the responses to Question V24 from Survey Wave 6 for China, Malaysia and the Philippines and to Question V23 from Survey Wave 5 for Thailand. How do the countries compare in terms of social trust? Most people can be trusted World Values Survey Wave 6: 2010-2014 China Most people can be trusted Need to be very careful No answer Don´t know (N) 32 65.7 0.9 1.4 4.8 60.3 35.2 1.8 2.6 2.3 Malaysia Philippines 8.5 3.2 91.5 96.4 0 0 0 0.5 1.3 1.2 Wave 5: 2005-2009 Thailand 41.3 58.1 0.6 0 1.534 Along these dimensions, write a paragraph or two assessing the potential for the growth of e-commerce in the ASEAN countries. What additional cross-country data on the background or resources of these countries might be useful in assessing this potential? Many of the private market institutions and infrastructure that might underlie an on-line consumer market place seem to be relatively strong in both Malaysia and China. A majority of Malaysians use the internet and Malaysia is second behind only China in terms of fixed broadband use. Malaysia has the highest rated transport network in Southeast Asian countries (excepting Singapore) and has the broadest coverage of consumer credit. Payments systems in Malaysia seem deep with a larger fraction using credit cards and mobile phone payments, though they are behind in terms of debit cards. The main question about Malaysia might be in terms of social capital. The degree of interpersonal trust in China is quite high for a developing economy. This social trust might help build consumer-to-consumer internet. By contrast, trust is quite low and Malaysia, so an internet business may need to adapt. By contrast, Thailand has relatively high levels of trust and may have advantages for internet business along these lines. Additional information to be considered would be how easy it is to start a formal business, the protection of property rights which may be obtained from Doing Business. Additional information on education could also be useful.