Jun 30, 2010

The Israel siege as trade protection

Bloomberg reports: 
Israel’s blockade of the Hamas-ruled Gaza Strip has been a bonanza for Palestine Food Industries Co., the only functioning juice maker in the Gaza Strip, with sales increasing ten-fold as the embargo kept out competition.
Now, as Israel relaxes its restrictions, the company has joined fellow manufacturers including Pepsi-Cola bottlers Yazegi Group in demanding that Hamas protect local industries and refuse imports of juice, soda and snack foods. Officials of the Islamic movement have heeded the calls and are barring entry of such items as Israeli grapefruit juice and potato chips.
“The policy of the government is to protect and maintain local products and industry and employ a large number of workers who have no job due to the siege,” Ziad Zaza, the Hamas economy minister, said in an e-mailed response to questions about the restrictions on Israeli goods.

Jun 29, 2010

Greece's structural reforms

World Cup Pool

The first round of the World Cup is over, hence it is time to announce the winner of the World Cup pool. Drum roll... Cameron! He correctly predicted 52% of the games... and that is better than JP Morgan's statistical model! But overall, JP Morgan's model did better than our prediction market (see horse race below).

Among banks it is UBS who did better, with a 66% accuracy, as calculated by Miroslav (not comparable with our percentage).

UBS                  66%
JP Morgan         59%
Goldman Sachs  53%

Jun 21, 2010

China decides to let the renminbi appreciate

China has just decided to let its currency appreciate. While some argue this won't matter that much, Bob Mundell signaled that it may erode stability in the global and Chinese economies:

Keeping the yuan pegged to the dollar has been “a great source of stability” for China and the world... While Barack Obama welcomed the move, “he is not an economist." The yuan climbed the most in 18 months against the dollar today after the central bank said June 19 it will increase the currency’s “flexibility.” The announcement was ahead of a G20 summit this week where leaders will discuss how to sustain the global recovery and prevent a repeat of the financial crisis. Mundell, credited as the intellectual “father” of the euro, has previously called for the euro to be fixed against the dollar, saying exchange-rate swings were a cause of the global financial crisis. The central bank’s announcement followed pressure from trading partners including the US, where lawmakers threaten legislation that could penalize Chinese imports. Mundell  called the Chinese move “political.”
ht: Bunk

Jun 18, 2010

A 10% World Cup trade effect?

The other day I blogged about how South African wine sales were booming worldwide, thanks to a certain World Cup effect, similar to Rose's Olympic effect. As Rose 34% effect cannot be taken too seriously, mostly due to outdated econometric methods, I played a bit with the data to check for myself.

I compared export growth in a World Cup year between the host and the failed bidders and found that it is 10% higher for hosts on average, conditional on export growth in the 2 years before the Cup, and this is significant at the 5% level.

Jun 17, 2010

Paul Romer and Madagascar

From a new article in Atlantic Monthly (via Laura Freschi at Aid Watch), we learn that Madagascar might have become the first testing ground for Paul Romer’s charter cities idea—if not for a coup that ousted the Malagasy President in March 2009:
Madagascar’s government was anxious to attract foreign investment, and it understood that a credibility deficit held it back… Faced with this obstacle, the Malagasy authorities were open to unconventional arrangements. To boost investment in agriculture, they were ready to lease a Connecticut-size tract of land to Daewoo, a South Korean corporation, for 99 years…Romer’s proposal fit in with these adventurous ideas.…
Romer made his pitch for a charter city, and Ravalomanana responded that he wasn’t sure one was enough; if Romer could identify two rich countries willing to play the role of government trustee, it might be better to launch two parallel experiments. The president and the professor agreed that the new hubs should be open to migrants from nearby countries as well as to locals. They rose to examine a map of Madagascar on the study wall. Ravalomanana suggested building the first city on the island’s southwestern coast, which was largely uninhabited because of its dry heat. To Romer, the site sounded very much like the coastal locations that appeal most to the world’s affluent as vacation spots.

Jun 16, 2010

South African wine exports are booming

Andrew Rose knows economists just wanna be entertained by research. This is probably what he had in mind when he wrote "The Olympic effect", in which he claims that hosting the Olympics or World Cup has a positive impact on national exports (see his Vox Column ). According to his results, hosting a World Cup could boost exports by as much as 34%. No one believed his paper, but many talked about it.

But something seems at play. As it is hosting the World Cup, South African wine exports are booming. What's more, CNN reports  a spike in sales to countries competing in the tournament! How is this happening? Not only are soccer fans all of a sudden more curious about SA wines but wine retailers around the world, from Kansas City to Jamaica, are organizing tastings and offering special deals on SA wines, using the World Cup as an excuse.

So, rather than being a trade liberalization signalling mechanism, as suggested by Rose and his co-author, it could be an informational effect that has lasting consequnces on the extensive margin of trade. Worth a new paper!

Jun 14, 2010

World Cup Pool update

In case you haven't been following your performance in the pool, here is a quick graphical update. You can check your bets and updated results here at all time. Also, the predictometer on the right tells what share of games were predicted correctly by our market. The horse race is between JPMorgan's statistical model and Rigotnomics' prediction market.

Jun 10, 2010

Expat orders for British supermarket

The financial crisis destroyed the pound. For a while, people had been used to 1.5 € per pound, in Jan 2009, it was close to parity with the euro.

 This boosted cross-Channel food deliveries. The Guardian reports (via  TC) :
...due to the strength of the euro against the pound, hundreds of Britons living in France are now using the internet to order their food, including many French specialties, from British supermarkets.Simon Goodenough, the director of Sterling Shopping, a delivery firm based in Northamptonshire, says his company has 2500 British customers in France and is running five delivery vans full of food to France each week... "we have delivered bottles of Bergerac wine bought from Sainsbury's to a customer in Bergerac. We even have a few French customers who have now heard about what we do. They love things like curries and tacos, which they just can't get in France... A lot of people are using us to get things they really miss, such as bacon and sausages."

But now the euro is falling! Apparently, this has led to more shopping in bordering France from Geneva . Too bad we are here far from free food trade... imagine the bufalino invasion we could enjoy...

Two tonnes of cocaine in the Gambia

Is the African cocaine route being tackled? The BBC reports that at least two tonnes of cocaine with a street value estimated at $1 billion has been seized in The Gambia, bound for Europe. In addition to the huge haul of drugs, the Gambian authorities have arrested a dozen suspected traffickers, and seized large quantities of cash and arms. Meanwhile, The Economist says that while cocaine use in America has fallen by 50% over the last two decades, some European countries have seen consumption rates double or triple.

Jun 8, 2010

Pizza inflation in Buenos Aires

Tyler Cowen links us to this guy's blog, where he has been uploading pictures of Ugi's, a pizzeria in Buenos Aires, since 2000. He even collected the price data, and calls it Ugi's index. I played a bit with it and calculated the implied inflation rate and compared it to the official one. Of course, this homemade chart has to be taken with a grain of salt... but still, governments lie. What would I do for a muzza now...

Jun 7, 2010

The Euro/CHF fx and trade along the border in switzerland

Since the beginning of the Euro-turmoil the, Swiss National Bank has intervened to prevent a massive appreciation of the Swiss Franc vis à vis the Euro. As of today, the exchange rate was below 1.4.

I read today lots of business occurs especially across the border. The amount of trade with the neighboring regions of Baden-Württemberg and Bavaria in Germany is about 20CHF Bn per year, the same as the total export of Switzerland to the US. Much of this trade is accompanied by strong capital flows: of about 2000 swiss firms operating in Germany, half of them are concentrated in these two regions (including giants like Swiss Re and Novartis). In the neighboring France (Rhône-Alpes region), Switzerland exports about 2.3 CHF Bn of goods including chemicals, plastics, electronics and electricity. This is the same value of export to India. While cross border investments relate to retailing and pharmaceuticals, there are also about 70,000 transfontaliers (50,000 are french working switzerland and 20,000 are Swiss living in France and working in Switzerland). In neighboring Italy (Lombardy) Switzerland exports about 5.2 CHF Billion of goods, including pharmaceuticals, foods... No wonder the SNB feels a bit nervous about the exchange rate vis à vis the Euro.

Changing the World

For another instance of Institute students shaping the policy debate, checkout Seb's column on Vox!

Grande Seb!

Goldman Sachs and JP Morgan's World Cup predictions

Not only UBS makes World Cup predictions.  Here are the predictions of Goldman Sachs and JP Morgan (in that order). These combine, rankings, betting odds and otehr stuff. For all banks, Brazil is the clear favorite, while Spain, which, according to UBS had only a 4% chance of winning, is the runner-up this time. JP Morgan even gives its predictions for all games, with England taking the trophy in the end, not Brazil. You can find the three reports here.

Jun 6, 2010

Smokers have little net financial impact on the rest of us

Mankiw, in a NYT article on sin taxes:
Sometimes, advocates of “sin” taxes contend that consumers of certain products impose adverse budgetary externalities on the rest of us — that if the consumption induces, say, smoking- or obesity-related illness, it raises health care costs, which we all pay for through higher taxes or insurance premiums. Yet this argument has a flip side: If consumers of these products die earlier, they will also collect less in pension payments, including Social Security. Economists have run the numbers for smoking and often find that these savings may more than offset the budgetary costs. In other words, smokers have little net financial impact on the rest of us.

Jun 4, 2010

How far would you go to buy a beer?

For the series "Questions I was curious about but always afraid to ask" today we focus on the following: How far would you go to buy a beer? The answer comes from a natural experiment in Western Australia. After the only pub in Marble Bar, a small town in the Pilbara region, closed last weekend, some of the circa 300 villagers started to move to the next closest town to get a refreshing alcoholic drink (apparently Marble Bar people can not buy alcohol at the supermarkets). The next closest town , Nullagine, is though 112 Km away, so the answer to the question is: about 224 Km. A caveat though remains: since the temperature in Marble Bar can be as high as 40 degrees Celsius, the result might be applicable only at "high temperature".

PS: As expected, Nullagine is also running short of alcohol supply.

Jun 3, 2010

Mockus for President!

Seems like Antanas Mockus won't be Colombia's next president after all... But there is still a chance as the contest will go to a second round in June.

Mockus is the mathematician and philosopher who, with no political experience, ran for mayor of Bogotá as the city was choked with violence, lawless traffic, corruption, and gangs of street children who mugged and stole. He focused on changing hearts and minds - not through preaching but through artistically creative strategies that employed the power of individual and community disapproval. And man was he successful!

In his struggle against corruption, he closed down the transit police because many of those 2,000 members were notoriously bribable.  Initially, he hired 20 professional mimes to to control traffic in Bogotá's chaotic and dangerous streets. They shadowed and mocked pedestrians who didn't follow crossing rules and poked fun at reckless drivers. The program was so popular that another 400 people were trained as mimes. He also decided to paint stars on the spots where pedestrians (1,500 of them) had been killed in traffic accidents. Traffic fatalities dropped by more than half, from an average of 1,300 per year to about 600.

As Bogotá women were afraid to go out at night, he launched a "Night for Women" and asked the city's men to stay home in the evening and care for the children; 700,000 women went out on the first of three nights. . "At that time, we were also looking for what would be the best image of a safe city, and I realized that if you see streets with many women you feel safer".

When there was a water shortage, Mockus appeared on TV programs taking a shower and turning off the water as he soaped, asking his fellow citizens to do the same. Water use is now 40% less than before the shortage.

He also asked people to pay 10% extra in voluntary taxes. To the surprise of many, 63,000 people voluntarily paid the extra taxes. In 2002, the city collected more than three times the revenues it had garnered in 1990. 

Another Mockus inspiration was to ask people to call his office if they found a kind and honest taxi driver; 150 people called and the mayor organized a meeting with all those good taxi drivers, who advised him about how to improve the behavior of mean taxi drivers. The good taxi drivers were named "Knights of the Zebra."

Read his full profile here. ht: freakonomics

Jun 2, 2010

Tracing transhipments

As most Muslim countries do not buy goods from Israel but the latter has stuff to sell them, ingenuous smuggling networks have found a solution: disguise them as Egyptian goods. Egypt is one of the few Muslim countries that allows trade with Israel. The goods leave Israel officially as exports to Egypt from where they are re-exported to Muslim countries. Imports from Israel are found to be a statistically significant predictor of Egypt’s exports to Muslim countries, but not to the US, its main trade partner. This can be seen on the figure below which shows most products that Egypt imports from Israel are exported to Muslim countries, whereas they aren’t to the US.

Jun 1, 2010

Missing trade does capture smuggling

Does missing trade, i.e. the discrepancy between what exporters and importers report, capture smuggling activities? Indeed, it may be a too noisy measure. Imports include cost-insurance and freight costs whereas exports are free on board, exchange rates can be miscalculated, lax custom statisticians make mistakes and indirect trade can be confusing.

The figure shows the distribution of missing exports to Israel. From non-Muslim countries, missing trade appears as noise, beautifully distributed around zero. But when looking at Muslim countries, which ban trade with Israel, missing exports seem uniformly distributed at positive values. As I blogged a while ago, there are good reasons to believe the $50 million missing exports from Malaysia to Israel are actually smuggled out of Malaysia.