Dr.DEBESH BHOWMIK
Friday, 21 October 2016
Thursday, 20 October 2016
INDO-CHINA TRADE,YUAN IN SDR BASKET AND THE WORLD ECONOMY
INDO-CHINA
TRADE,YUAN IN SDR BASKET AND THE WORLD ECONOMY
ABSTRACT
The
paper studies that India’s export and import intensity are positively related
with GDP growth rate and both are increasing during 1986-2014.Johansen
cointegration test asserted that Trace statistic has 6 cointegrating vectors
and Max Eigen statistics has 3 cointegrating vectors among export intensity, growth
rate, world share of FDI, world share of foreign exchange reserves, US$/yuan
exchange rate.VAR model is stable and variables are related with previous
period. In Johansen cointegration test among import intensity, growth rate, world
FDI share, world foreign exchange reserve share, US$/yuan exchange rate,it was
found that Trace statistic has 3 cointegrating vectors and Max Eigen Statistic
has 2 cointegrating vectors and VAR model is stable. It is verified that one
percent increase in India’s world share in FDI and dollar-Yuan exchange rate
per year led to increase in trade intensity of India to China in export by
0.33% and 1.953% respectively per year significantly during 1986-2014.
Moreover, one percent increase in India’s world share in FDI, Chinese global
share of FDI, dollar yuan rate and India’s global share of foreign exchanges
per year lead to increase in trade intensity of India to China in import by
0.148%, 0.272%,0.912% and 0.622% respectively per year significantly during
1986-2014.
The paper explained that the Chinese Yuan is
included in SDR basket with effect from 1/10/2016 in which the decision was
delayed and its weight in the basket is underestimated having unchanged the
weight of US dollar. It is proposed to reconsider weight of SDR basket by using
world share of international trade as percent of world GDP or by total trade as
percent of world trade. If SDR be considered as international money in the
offing then inclusion of rupee, ruble, rand, Australian dollar, ECOWAS’s common
currency should be reconsidered for wider and equitable importance of SDR
basket.
The paper reviewed the importance and domination of
Indo-China trade in Asia and world in the ancient past but India China relation
has broken after the 1962 war and revived again since 1990s.In recent years’
Indo-China cooperation in trade, commerce, money and finance have been
incorporated in the paper giving emphasis on their strategic role in the world
economy because India China ties can lead to Asian Economic Integration process
and financial integration linkages realizing AMF and in the areas of Indo-USA
defense treaty, Japan-USA defense treaty, Indo-Russian cooperation, Pakistan
China cooperation , Indo-Japan economic cooperation and Indo-ASEAN+3
cooperation respectively.
Key
words-Trade intensity,SDR,growth,VAR,cointegration
JEL-C13,C22,F15,F33,F53
Tuesday, 11 October 2016
NOBEL ECONOMISTS-2016
NOBEL ECONOMISTS-2016
The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2016 was awarded jointly to Oliver Hart and Bengt Holmström "for their contributions to contract theory".Their findings on contract theory have implications in such areas as corporate governance, bankruptcy law and political constitutions, said the Royal Swedish Academy of Sciences, which announced the 8 million Swedish crown ($928,000) prize.
Oliver Hart, 68, a British economist teaching at Harvard, and Bengt Holmström, 67, a Finnish economist teaching at MIT
"This theory has really been incredibly important, not just for economics, but also for other social sciences," said Per Stromberg, a member of the prize committee and professor at the Stockholm School of Economics.
Contract theory considers, for example, whether managers should get paid bonuses or stock options, or whether teachers or healthcare workers should be paid fixed rates or by performance-based criteria.
Holmstrom, a 67-year-old professor of economics and management at the Massachusetts Institute of Technology, said he had been friends with Hart for decades and was thrilled to be sharing the award with him.
Hart, an economics professor at Harvard University, has focused on understanding which companies should merge and with what mix of financing, and when institutions such as schools, prisons and hospitals should be privately or publicly owned.
At Harvard since 1993, Hart has argued that the incentives for cost reductions in privatized services, such as private prisons in the United States, are typically too strong.
Holmstrom has
studied the setting of contracts for workers from teachers to corporate bosses.
He concluded that in high-risk industries, pay should lean toward a fixed
salary, while in more stable sectors pay should be more biased toward
performance rewards.
Asked at a Cambridge, Massachusetts,
news conference about the current high level of executive pay, Holmstrom said,
“It is somehow demand and supply working its magic.”
But he said he was concerned about
the state of income distribution and the unhappiness of many workers about
stagnant wages and incomes.
“I’d much rather live in a society
where this wasn’t happening,” he said. “But I’m not prepared to speak about the
question about how to repair it” because it would mean tinkering with complex
markets.
Most of us sign
contracts. Why do we do so? Take the contracts we enter into with our
employers, for example. There are two main reasons.
First, a contract helps
the two sides of the deal work together over a long period of time. Think of
what would happen if each company would have to search for new employees at the
start of every day, or vice versa.
Second, the contract
creates rules that allow agents with different interests to cooperate to
achieve some goal. No market economy can work without such cooperation premised
on trust but also backed by the law. How contracts are designed defines our
incentives in various situations in the real world.
There are various
nuances in our contracts. They could be formal or informal, depending on
whether they are enforced by law or social norms. They could be complete or
incomplete, which is based on whether they take into account all possibilities
that lay in the future.
One side of a contract
may know more than the other because of information asymmetry, so insurance
companies, for example, may end up covering people with health problems rather
than the healthy, through what is called adverse selection.
There are also agency
problems—as when managers who are under contract with shareholders actually try
to maximize their own earnings rather than those of their shareholders.
Contract theory helps us
understand these problems. And helps us solve them through better contract
design. Take a simple informal contract. A harried mother has to leave the
house for a couple of hours. She is worried her two children will bring the
house down by fighting over a large piece of cake in the refrigerator.
The mother leaves a
simple instruction—the elder child will cut the cake while the younger one will
choose which piece to eat. Now, the elder child cannot cheat. The mother has
aligned their interests—or achieved incentive compatibility—through an informal
contract.
Contract theory is not just about such parlour
games. In two landmark papers written in 1979 and 1991, Holmstrom provided the
principles that can help companies draw up contracts to ensure that managers do
not sacrifice the long-term health of the firm in pursuit of bonuses linked to
short-term performance.
The fact that the 2016 Nobel Prize in economics has gone to two
giants of contract theory tells us something else as well. Most of the public
attention is lavished on macroeconomics and the related dark art of
forecasting. This is where the crisis of economics is the deepest.
Subscribe to:
Posts (Atom)