13/8/2012: Telling tales about our 'Productivity'?

IDA recently used the following chart in the context of Irish competitiveness comparatives to the rest of EEC:

According to the above, Irish labour productivity per person employed is at 136.9% of the EU27 average, which makes us the second most productive economy in the Euro Area and the third most productive in the EEC. Of course, the thing that jumps out in the chart is the massive over-performance in output terms by two other 'special' countries: Luxembourg and Norway. This should ring lots of alarm bells when it comes to trusting the above data to base actual comparative assessments on.

It turns out that adjusting our productivity performance for GDP/GNP gap so as to remove the portion of our output that has absolutely no anchoring in Ireland (net after-tax factor payments to foreign investors) implies Irish productivity index at around 102-106% of the EU27 average, placing us below-to-just-above Germany and ahead of Greece.

I wouldn't argue that that is indeed where we are positioned, but rather that the chart used by IDA is simply reflective of vastly over-inflated real productivity of our workforce, just as it is for Norway (petro-dollars economy) and Lux (an economy with massively undercounted non-resident workforce and an industrial scale 'dry cleaning laundry' for European, EEC & Eastern European corporates).

13/8/2012: National Competitiveness: Not Exactly Good Numbers for Ireland

An interesting paper, THE DETERMINANTS OF NATIONAL COMPETITIVENESS by Mercedes Delgado, Christian Ketels, Michael E. Porter and Scott Stern (NBER Working Paper 18249) looked at three broad and interrelated drivers of foundational competitiveness:

• social infrastructure and political institutions (SIPI),
• monetary and fiscal policy (MFP), and 
• the microeconomic environment. 

The study defined foundational competitiveness as "the expected level of output per working-age individual that is supported by the overall quality of a country as a place to do business".  The paper focused on output per potential worker, which is "a broader measure of national productivity than output per current worker". This "reflects the dual role of workforce participation and output per worker in determining a nation’s standard of living".


Using data "covering more than 130 countries over the 2001-2008 period", the authors found "a positive and separate influence of each driver on output per potential worker". Specifically, "we find significant evidence for the positive and separate influence of SIPI, MFP, and the microeconomic conditions on national competitiveness":

• Consistent with prior studies, institutions (SIPI) positively influence national output per potential worker;
• However, microeconomic conditions have a strong positive impact as well, even after controlling for current institutional conditions;
• Microeconomic conditions have a positive influence on competitiveness even after controlling for historical institutional conditions and incorporating country fixed effects (which offer a broader measure of a country’s unobserved legacy);
• Current institutions and macroeconomic policies "seem largely endogenous to historical legacies";
• "Overall, the findings strongly suggest that contemporaneous public and private choices, especially those that relate to microeconomic competitiveness, are an important driver of country output per potential worker and, ultimately, prosperity".

The paper also defined a new concept, global investment attractiveness, "which is the cost of factor inputs relative to a country’s competitiveness".

Using the new metric, the authors rank the countries with respect to their global investment competitiveness:

The unpleasant bit is that in 2010, a year after we began the process of 'competitiveness improvements' that has stalled since around mid 2011, we were ranked just 24th. The pleasant bit... we still made it into top 25.

And in terms of other comparatives, here are few charts:

Oh, the naughty, naughty authors did get some things right: "In the case of Ireland, we used GNP instead of GDP because of the size of dividend outflows to foreign investors".

And here's what they had to say in terms of their analysis of the Global Investment Attractiveness scores (GIA): "Countries with high GIA tend to experience a strong positive growth, including China and India (with growth rates above 8% and 4%, respectively).  In contrast, countries with low GIA tend to experience a high contraction in output with growth rates below the median value, including Italy, Spain, Ireland, and Venezuela, among others."

Now, wait, is that really the neighborhood we (Ireland) are in? You wouldn't think so from our policymakers/IDA/EI/Forfas/ESRI/CBofI/... statements.

Economics 23/12/2009: Couple more points on Ireland's trade data

Wading through CSO latest data, table below shows just how important the MNCs are to our trade and GDP:
Absent MNCs-led sectors in our economy, we would be running massive deficits even accounting for the wholesale collapse of consumer imports. And note that as our own economy is shrinking, net contribution of MNC's own trade balance to our GDP is rising in importance.

Let's look at geography:

1. Overall exports are declining faster in September than they were over the last 9 months
2. Exports to Great Britain, EU overall, and Euro area are falling faster in September 2009 than over the first 9 months of 2009
3. Exports to France are falling slower in September 2009 than over the first 9 months of 2009
4. Exports to Germany, Italy, the Netherlands, Spain and Sweden are falling faster in September 2009 than over the first 9 months of 2009
5. Exports to Australia, China, Japan, Switzerland, and the USA are significantly improving over September 2009 relative to the first 9 months of 2009 – a strange result, given these exports are subject to dollar – euro exchange rate fluctuations.

And another way of looking at it is through the trade balance by country:
And one caveat - the cases where dramatic improvements in trade balance do not match those in exports are, of course, reflective of the collapse in imports.

Economics 28/11/2009: Net investment position, 2008

CSO released Ireland's net investment positions for 2008 yesterday. Full release is available here. My analysis of this data follows:

Table shows outflows of Irish-owned investment from Ireland to foreign destinations (negative values) and the share of each destination in total outflows. Note the significant jump in outflows to the offshore centres, which has risen between 2006 and 2007. It will be interesting to see if this trend – moderated in 2008 – resumes in 2009 in the wake of significant increase in taxation burden in Ireland. Per more detailed breakdown in CSO data, the offshore centres received only a modest share of Irish capital in the form of reinvested earnings, and virtually none in equity purchases, suggesting that most of the outflow to these destinations was in form of business investment and cash.
Another interesting feature of this data is that significant outflows continued to the UK in 2008. Margin calls? These related to equity purchases and reinvested dividends and a significant uptick in ‘other capital’ outflows (margin calls covers on buy-to-let and other risky investments covers?).

Over the same period of time, outflow of investments to the US has fallen off the cliff in 2008. Equity purchases in the US peaked in 2007 at almost 5 times the levels of 2006 and then collapsed to a quarter of 2007 levels in 2008. Someone was buying into the top of the bubble in the US stock markets… Meanwhile, reinvested dividends remained relatively stable. Other types of capital have fallen off the cliff from almost €3 billion in 2006 to €746mln in 2007 to €77mln in 2008. Given that the US property prices peaked in 2006, this also suggests that we were buying at the top of the market there.

Table above shows inward investment inflows to Ireland. Negative values imply that foreign investors took out net amount of capital from Ireland. Offshore centres sent in about as much as 40% of the inflows from entire European area. Any alarms ringing at the Financial Regulator’s office? Notice dramatic swing from net inflows to net outflow vis-à-vis Lux and the Netherlands in 2007-2008? Equity and other capital outflows dominated here. Tax optimization in action, especially on capital taxes side.

Amazing figures from the US. Between 2007-2008, a surplus of inward inflows of €15.2bn swings into a deficit of net outflows of €14.6bn – a spread of €29.8bn or 17.4% of 2009 GDP! Interestingly, equity and reinvested earnings were still in net positive in 2008, and going strong, so the massive net outflows were the result of something else. Capital flight? Deposits crunch? Losses taking?

Net deterioration in our inward investment position between 2007 and 2008 was over €31.7bn or -18.54% of our 2009 GDP. Net improvement in our inward investment position between 2006 and 2007 was €13.63bn or +7.97% of our 2009 GDP. Massive volatility even for a small open economy, but what does it tell us about Government's idea that Ireland Inc will be rescued not by our own actions, but by foreign investors coming back to our shores?

The totals suggest that Ireland has bled a massive €36.8bn worth of investments (equivalent to 21.5% of our 2009 GDP) out of the country in 2006-2008 alone. This hardly accounts for the full extent of deterioration in the capital values of the remaining investments by foreigners in Ireland and Irish own investments abroad. But even without taking into account our current crisis, at the peak of our markets valuations in 2006-2007, we were hardly generating much real growth out of our own and foreign investments into the country. Wonder why? Me too.