Time will tell if there is a China model

Comments on David Dollar "What institutions do Asian countries need to keep growing?" 31 May 2015

The next decade or two may prove one way or another whether there is a China model or not. While Dollar argues historical evidence is likely to be against China’s authoritarian system for its next stage of development, the current indication is that China is unlikely to say goodbye to it any time soon. As a result, we will likely to see either a China model with authoritarian government that successfully defy the historical evidence that Dollar relies, or China falls into the middle income trap including possibly a scenario where the authoritarian government is forced to give up its power in favour of the traditional democracy.

China, however, has a unique feature that is lacking in many other countries, that is, it has the largest population and it’s economy will soon be the largest in the world. Can China create a new way, that is a new model? That is a question no one can answer with absolute certainty, but will be fascinating to see for many over the next decade or two.

Political economy of trade, partial economic theories/models and true optimality

Comments on Ronald I. McKinnon “Why exchange rate changes will not correct global trade imbalances”, 5/06/2010, http://www.eastasiaforum.org/2010/06/05/why-exchange-rate-changes-will-not-correct-global-trade-imbalances/
It appears that there are more than one factor working in the issues of trade balances - the elasticity and more fundamentally savings and investment behaviours, as well as various preferences and behaviour inertias, both short and long terms.

So the economic reality is invariantly much more complex than many nice but mostly partial economic theories and models based on certain assumptions and focus on certain aspects of the reality.

The main issues are largely empirical in nature.

The US has tended to run trade deficits for fairly long period of time, with different countries on the other side of the balance from time to time and as its target of trade wars.

The question is not just China with its currency pegged to the $US has trade surplus with the US, but also some other countries whose currencies are free to adjust that also have trade surpluses with the US.

While the US can blame China for fixed exchange rate, how should it blame those other countries?  Which countries should and can the US to blame for its budget deficits over a very long period that is internal in nature? Still external high savings countries?

Besides, bilateral trade balance is not and should not be the benchmark for trade balance in a multi-country trade in the world as it is. To require bilateral trade balance will mean huge losses in global welfare due to losses in trade opportunities.

Further, optimal trade balance even for a country should be over a sufficiently long period and should not mean balance year by year.

But trade is economic as well as political, so people from short term political point of view often selectively quote or use some partial economic theories to their advance their arguments. Even economists sometimes can act either inadvertently or deliberately in that way.

Paul Krugman, a fairly recent Nobel Economics laureate, is an example in this regard. Of course, he is famous for strategic trade theories, after all.

Roskam exposes flaws of Rudd economics

In a featured article in The Australian Financial Review today, 28/05/2010, page 58, John Roskan has an excellent exposition of Rudd's distorted and selective approaches to economics.
Roskam states that Rudd, in his economic essay published in the Monthly in February 2009, went so far in attacking the so called "neo-liberals and their belief in the efficient-market hypothesis", and branded their "economic modelling for causing the global financial crisis".

But now Rudd is using a never tried theoretic modelling involving many assumptions as the basis for his Resource Super Profits Tax.

What Roskam concludes is that "it seems Rudd has no qualms about theoretical models when it's social democrats instead of neo-liberals doing the modelling."

By the way, the AFR editorial, on the same page, is titled: "a way out of the quagmire" and has the following advice to Rudd and Swan and their government:

"The RSPT is nor so neutral after all. Another to dislike the silent partner model is that it merely postpones the risk of fiscal shocks."

"The government needs to examine all these options, and more."

Note: Those options include: Professor Garnaut's suggestion of replacing the RSPT with a version of the petroleum resource rent tax. The "neutral" mentioned above means the Brownian theoretical basis of the RSPT that it does not distorts investment incentives and decisions.

Some resources for CGE and macroeconomic modeling

For some resources see the following:

1. GTAP - a CGE model of the international ecoomies, also there is a dynamic version. Standard version can be used online or downloaded: https://www.gtap.agecon.purdue.edu/
2. Monash Model - a dynamic CGE model of the Asutralian economy: http://www.monash.edu.au/policy/
3. G-Cubed model - McKibbin model, based on agent optimisation and expecations, has money or monetary policy in it, multi country model, has features of CGE and macro models (commercial): http://www.msgpl.com.au/
4. The Fair models - macroeconometric model of the US, and macroeconometric model of the US and ROW - Econometric model, estimated, both models and data freely available online and downloadable: http://fairmodel.econ.yale.edu/main3.htm
5. IMF GEM model: http://www.imf.org/external/np/res/gem/2004/eng/
6. World Bank: http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTPOVERTY/EXTPSIA/0,,contentMDK:20481491~isCURL:Y~menuPK:1108016~pagePK:148956~piPK:216618~theSitePK:490130,00.html
7. ECB:

Questions for Harry Clarke on national interest

These are some questions that I posed to Harry Clarke as comments to his article / blog "More on Rio, BHP-Billiton & Chinalco’s rejected love", or reply to his questions for me, 9/06/2009, http://www.harryrclarke.com/2009/06/09/more-on-rio-bhp-billiton-chinalcos-rejected-love/

I have commented on this article before. But Harry asked me to demonstrate my argument agaist his argument that the use of the Cournot Nash model is right in this case. Here are my questions.

hc, some quick points to discuss with you. First how do you define national interest clearly so that whoever is reviewing foreign investments can apply it consistently across the board?

Second, is your argument of monopoly power by Australia correct or informed as it should be? Both Rio and BHP say they would market their shares of iron ore production separately that seems to contradict your argument.

Third, is either Rio or BHP wholly owned by Australians, so Australia has the monopoly power? If they are not, why an increase in Chinalco's share in Rio would reduce any monopoly power that Australia has?

In terms of models, why is the Cournot-Nash story right in this case? Isn't the case that that model assumes perfect competition on the demand side? If that is the case, is that consistent with your argument of monopsony power demand? If you have monoply powers on both the supply and demand side, why is that model applicable?