The power of log scales in showing exponential growth

 From the always brilliant FT data people via Twitter 

Explanations for low productivity growth: some history

As this paper nicely points out,  Shimaa Elkomy et al, "Energy and Productivity, A review of the literature" https://cusp.ac.uk/wp-content/uploads/pp-energy-report.pdf#ppem, the explanations seem to be rather the same: 

"For example, in 1966 Cambridge economist Nicholas Kaldor pointed to (and rejected) a number of common explanations for the UK’s declining productivity growth. Many of these reappear in the UK government’s recent industrial strategy (Table 2). Either we have made little progress in tackling these issues in the intervening half century, or we have missed a key element of productivity"

 

Kaldor, N. (1966) Causes of the Slow Rate of Economic Growth of the United Kingdom: An Inaugural Lecture. Great Britain: University of Cambridge Press

BEIS (2018) Industrial Strategy: Building a Britain Fit for the Future. Available at: 78 | CUSP WORKING PAPER No 23 https://assets.publishing.service.gov.uk/government/uploads/system/ uploads/attachment_data/file/664563/industrial-strategy-whitepaper-web-ready-version.pdf (Accessed: 29/04 2018)

Has Globalisation Slowed Down

 Happy to have done a Tuck/Dartmouth college panel on this.  Here's some data from Pol Antras on "slowbalisation" https://scholar.harvard.edu/files/antras/files/deglobalization_sintra_antras.pdf

a.       "The world trade‐to‐GDP ratio – a standard measure of globalisation – has recovered from its late 2008 low, while last year, the share of migrants in world population attained its highest level since 1990

b.       Concerning the ratio of world trade to world GDP in the last fifty years, 1970-2020

                                                               i.      The ratio of world trade to world GDP almost doubled (increasing by a factor of 1.72) during that period of “hyperglobalisation”.

                                                             ii.      I find that 80% of the growth in this ratio occurred during the subperiod 1986‐2008. (Why? Combination of ICT, fall of communism, China, shipping costs falling)

                                                           iii.      Because many measures of globalisation are simple ratios or shares that have natural upper bounds, I argue that growth explosions in trade openness of the type experienced during the hyperglobalisation of 1986‐2008 are simply not sustainable. In other words, a period of “slowbalisation” was inevitable."

Here's his figure 1

Pass Through

 This 2014 paper on cost pass-through is a nice summary.  

Our discussion of relevant theory is framed in terms of absolute pass-through: the degree to which a given absolute change in cost causes an absolute change in price

The extent of industry-wide cost pass-through in a perfectly competitive market depends on the elasticity of demand relative to supply. The more elastic is demand, and the less elastic is supply, the smaller the extent of pass-through, all else being equal

With other market structures, economic theory indicates that: 

– Pass-through depends on the curvature of demand. It is greater with convex inverse demand (the inverse demand curve becomes steeper as output decreases) and smaller with concave inverse-demand (the inverse demand curve becomes flatter as output decreases), all else being equal. 

– Pass-through is smaller when marginal cost curves slope upwards (i.e. marginal cost increases as output increases) and greater when marginal cost curves slope downwards (i.e. marginal cost falls as output increases). 

– Pass-through in excess of 100% is possible when inverse-demand is convex enough and/or when there are strong increasing returns to scale such that marginal cost curves slope sufficiently downwards. Industry-wide cost increases can result in increased profits when demand is very convex.

Many theoretical models indicate that pass-through of industry-wide cost changes increases with the intensity of competition1 , provided that inverse demand is not very convex,

The paper usefully illustrates some examples of industry curvature.

"Suppose that a monopolist faces an increase in its unit costs. The monopolist will consider its scope to adjust its price upwards. 

The monopolist will think: “how much output do I have to sacrifice to pass on a certain amount of this change in my costs?” If the answer is “very little”, passing on the cost shock will be more attractive; if the answer is “a lot”, passing on the cost shock will be less attractive. The answer to the monopolist’s question is related to the curvature of demand. Other things being equal, pass-through will be lower if inverse demand is concave (because passing on the cost increase will cause a relatively large fall in output). On the other hand, pass-through will be higher with convex demand (since passing on the cost increase has a smaller impact on volumes)."

A useful formula in Genakos, 2019, summarises this. 

where 

• rho is the impact of an incrase in marginal cost on price
• theta is price marginal cost margin times product demand elasticity, an intensity of competition index (theta=0 competition, theta=1 monopoly)
• es the elasticity of supply 
• ems is the curvature of demand (strictly the curvature of log demand). 
• etheta how intensity varies with quantity

special cases

• theta=0, 
  
  
• MC=constant, ed-theta/es = 0; demand linear ems=1, then rho=1/1+theta and so more monoply means less pass-through.