Saturday, September 28, 2013

Citations Variance and Journal Ranking Uncertainty

Two articles in the August issue of the Economic Journal make similar points to my Journal of Economic Literature article on the uncertainty in economics journal rankings, which I discussed in this blog here.

David Laband's article "On the use and abuse of economics journal rankings" (also see his recent blogpost) explicitly looks at the issue of the dispersal of citations in a journal as important information in addition to the mean or median citations. The major table in his paper includes mean, median, and standard deviation of citations to 2011 of articles published in 248 economics journals in 2001-5. Also provided is the Hirsch index, the fraction of the journal's articles included in the Hirsch index, the percent of articles with zero citations, at least 15 citations, and at least 40 citations. Finally, an interesting concept is the number of articles in each journal which were included in the 408 articles that made up the "global Hirsch index" of the 248 journals. Most journals do not have any articles in this highly cited group and a small number of the "usual suspects" have large numbers of them.

John Hudson's article "Ranking journals" compares four different subjective journal rankings including the Keele list and the ARC ERA 2010 list. He regresses their rankings on various objective citation based measures and measures intended to capture bias factors such as home country bias. The model is then used to predict the probability that a given journal belongs in a given quality rank, of which there are four (for example ABDC uses A*, A, B, C). There is a lot of ambiguity with many journals with low probabilities based on the objective criteria being allocated to a particular category by the subjective list-makers. The message is that there is a lot of uncertainty in the rankings assigned by such lists. A simpler way of making the same point is in the table of correlations that Hudson presents. The correlation between the ARC and Keele lists is only 0.67.

Capital in the Penn World Table 8.0

This is another tricky issue with the new Penn World Table (PWT 8.0). In principle it is easy to compute a capital series if we know the level of investments each year, have estimates of the depreciation rate and the initial capital stock. The latter is the most difficult to obtain and cross-country datasets make essentially arbitrary decisions to estimate these starting stocks. The usual approach is to assume that the economy is in the steady state of the Solow model and compute the initial stock from the current level of investment, some growth rate of the economy or capital stock and the rate of depreciation. We are using that for the paper we are writing on the stylized facts of energy and growth. PWT 8.0 instead assumes that all countries had a capital/GDP ratio of 2.6 expressed in units of the local currency in the first year that data is available for that country, which could be anywhere from 1950 to 1990... There is some rationale for this. A regression analysis shows that there is no relation between the level of GDP and capital/GDP ratios in 2005 (Because of depreciation capital stocks in 2005 are not that sensitive to the initial values) and the average is about 2.6.

The interesting thing is that they have separate price series for each country for (output side) GDP (pl_gdpo) and for capital stock (pl_k). These show that in developing countries capital is much more expensive relative to output than it is in the US and other developed countries. This means that a common ratio of 2.6 translates into a real capital/GDP ratio where capital and GDP are both aggregated using US prices that varies across countries and is lower in developing and higher in developed countries. You can compute this as CK/CGDPO. Also, this will mean that there is an extra term in a cross-country Solow growth model which is the capital/output price ratio:

where Y is GDP, K capital, delta is the depreciation rate, s is the saving rate, and pY/pK is the ratio of output to capital prices. In developing countries saving buys less new capital stock per Dollar than it does in developed countries. This would be another reason in the Solow framework for why developing countries are poorer than developed countries. At least, that's what I'm understanding at the moment.

Here are the three different capital-output ratios for China:

The blue line is the ratio at international prices and the red line at constant national prices. These are equal by construction in 2005. The green line is the nominal ratio of dollar values of capital and GDP. This is equal to 2.6 in 1952. The blue line shows the strong capital deepening in China since the late 1980s. The other series do not indicate any capital deepening at all. The discrepancy between the blue and green lines is easy to explain. The price of capital/output relative to the US ratio has fallen from 2.77 in 1952 to 0.74 in 2011 (capital cost 1.39 times the US price in 1952 and 0.46 times in 2011 while output's price changed from 0.5 to 0.61 times the US level). By assumption capital and output have the same price in the US.

So what does the red "constant national prices" series mean? It will deviate from the blue line to the extent that the prices of different types of capital deviate in the country in question from the international price vector. It seems that the two lines tend to track each other much better in developed countries than developing, though India is a clear exception to that rule. For example, if structures are relatively undervalued in China (as would make sense as structures are non-traded) and the capital deepening in China is heavily driven by structures (as the data in this article by Wang and Szirmai support) then the red line will show a much slower increase in capital per unit of GDP than the blue line. 

Carbon Taxes vs. Cap and Trade: A Critical Review

A nice paper by Goulder and Schein comparing the two policy instruments. They come down in favor of carbon taxes, which is also my current thinking on this issue. One issue that they highlight is that under a cap on emissions, fossil fuel producers can cut supply raising energy prices with no demand response from consumers until the carbon price falls to zero. Therefore, potentially they can extract all the revenue from the scheme and the government gets zero. This isn't the case at all under a carbon tax.

AR5 WG1 Summary for Policy Makers Released

The IPCC Working Group 1  5th Assessment Report Summary for Policymakers (WG1 AR5 SPM in IPCC jargon) was released yesterday. It is the overall summary of the first of three volumes of the 5th AR. The other two will be released next year. We are still working on the final draft of the Working Group 3 report (I notice some e-mails in my inbox about it this morning). The SPM will then go next year for approval by the governments.

This cartoon appeared on The Australian website:

I think it does nicely sum things up. The SPM is pretty similar to previous ones and pretty conservative on projected climate change. Not much different from previous reports. When reading it, I was thinking "Joe Romm won't like this" and also that it was pretty jargon-laden for a report to policymakers. It turns out that Climate Progress is pretty positive about the report, though Romm's own comments are a bit more negative.

One interesting statement (D.1) is:

"There is robust evidence that the downward trend in Arctic summer sea ice extent since 1979 is now reproduced by more models than at the time of the AR4, with about one-quarter of the models showing a trend as large as, or larger than, the trend in the observations. Most models simulate a small downward trend in Antarctic sea ice extent, albeit with large inter-model spread, in contrast to the small upward trend in observations."

This is in the context that it is often stated that Arctic sea ice is declining much faster than  models predict. Another change is that there is now much more information about ocean heat content trends. The words "ocean heat content" don't even appear in the the AR4 WG1 SPM. This time there is a separate section on the oceans (the whole summary is about 50% longer). Ocean warming is also the third point on the really brief headline summary. So this is a change of emphasis based on the better availability of data on the oceans.

Thursday, September 26, 2013

Economic Growth and the Transition from Traditional to Modern Energy in Sweden

During my recent visit to Sweden, we successfully revised and resubmitted a paper, titled: "Economic Growth and the Transition from Traditional to Modern Energy in Sweden". We have now made it available as a working paper in the CAMA Working Paper series.

This paper follows up on the paper we published last year in the Energy Journal. That paper looked at the paradox of energy and growth. How could energy have been important in the Industrial Revolution yet be a fairly small portion of production costs today. The new paper looks at the relative contributions of changes in the quantity, quality, and related technology (so called factor augmenting technical change) of traditional (biomass, animal power) and modern (fossil fuels and hydro-electricity) to economic growth in Sweden between 1850 and 1950. This was the period of the energy transition to modern energy in Sweden.

The graph shows that in 1850 less than 5% of energy in Sweden was derived from modern energy sources. By 1950 around 80% was. There are two large spikes in the share of traditional energy associated with the World Wars when imports of fossil fuels were restricted. The share of biomass in Sweden today is higher than it was in 1950. Because the share of modern energy was so small in the early years, even though the rate of improvement in the efficiency with which it was used was in fact higher than that of traditional energy, it contributed less to growth than traditional energy did. Over time, as the share of modern energy increased, this changed so that modern energy innovation and the increase in the use of (quality adjusted) modern energy contributed more to growth. However, according to our data and model, innovation in energy came to a halt towards the end of this period. By contrast, the role of labor augmenting technical change, which includes both better management of labor, increased human capital per worker etc. accelerated smoothly over time to become the most important driver of growth. Of course, Stern and Kander (2012) found this too. It's nice that the results in the two papers match! :)

The table presents the detailed growth accounting results. We actually computed these contributions for every year and then the table provides averages for each 20-year period. Betwen 1870 and 1910 growth was at first slower and then faster than our simple model fitted to the data predicts. But we found that giving the model more degrees of freedom to fit the wiggles in the data could lead to nonsensical results. It's also possible that it is the data that is mismeasured.

What the data implies is that it took a long time for the innovation in using modern energy to diffuse through the economy as the quantity of modern energy used increased. The following graph shows the rate of (factor-augmenting) technological change associated with each of the three inputs (the model also has capital but we assume its rate is zero):

We probably shouldn't take the negative values too seriously, but as noted above, fitting a more complex model was challenging. There was very rapid innovation in the use of modern energy in 1850-1890 starting at about a 7% per year increase in productivity and falling to about 3% a year. But the contribution to growth in the table started at 0.03% per year and rose to 0.08% per year over this time. Growth accounting type exercises, by attributing all the effects of an innovation to the year it happens, are extremely conservative. In later years, when the quantity of modern energy was much larger, that energy contributed more to growth than it would otherwise have done because those earlier innovations had permanently increased the marginal product of modern energy (ceteris paribus of course...).

Penn World Table 8.0

The new version of the Penn World Table - version 8.0 - has recently been made available and is now hosted at University of Groningen in the Netherlands. An NBER working paper by Feenstra et al. describes what is new in PWT 8.0.

The new edition of the dataset introduces several new measures of GDP and the working paper is mostly devoted to discussing them as well as the relationship between PPP exchange rates (relative to market exchange rates) and the level of income known as the Penn or Balassa-Samuelson Effect.

GDP is now given both in terms of the output side and the expenditure side. The difference between these is that real output side GDP (RGDP(O)) deflates expenditure on final goods (the standard macro-economic C+I+G - consumption, investment, and government expenditure), exports (X), and imports (M) using separate deflators:

The expenditure side real GDP (RGDP(E)) uses only the final output deflator to deflate the GDP. Feenstra et al. argue that the former expresses better the real production level in each country and the latter the standard of living in each country. Previous versions of the Penn World Table used the expenditure side measure only. The difference between the two measures is due to the terms of trade. Countries with relatively expensive exports and relatively cheap imports will have living standards (RGDP(E)) that are higher than their real productive capacity (RGDP(O)).

GDP is also given in "current" and "constant" prices. This terminology is confusing because usually current prices mean prices not adjusted for inflation and constant prices mean adjusted for inflation. Here constant prices mean the reference prices from a given benchmark year -  in the current version 2005 - and current prices mean using the reference prices from each year though these are adjusted for US inflation. These differ because the reference prices change over time. The constant price series RGDP are better for comparisons across time while the current price series CGDP can be used to compare countries at a single point in time.

Finally, there is also an RGDP(NA) series that uses the growth rates in each country's own national accounts to extrapolate GDP in that country in years other than the benchmark year. National accounts growth rates were used exclusively in previous versions of the Penn World Table. This series can differ substantially from the RGDP(E) series as is shown by this graph for India:

According to RGDP(E) living standards in India fell from 1975 to 1985 while according to India's own national accounts they rose. Which is right? Well, it depends what you want to measure. The change in RGDP(E) measures the change in relative living standards across countries while that in RGDP(NA) measures the change in real expenditure weighted according to the budget shares in the country in question. They differ because budget shares differ across countries. RGDP(E) will also grow faster than RGDP(NA) in a country experiencing an improvement in the terms of trade as, for example, Australia did in the years up to 2009 due to the mining boom.

PWT 8.0 also includes capital stock, human capital, and total factor productivity series. The former was included for some countries in some previous versions but not version 7. The latter are both new.

So, all this sounds more complicated than using The Economist's Big Mac Index or previous versions of the PWT. The User Guide gives a less technical guide on how to use the data.

Meta-Analysis Paper Accepted at The Energy Journal

My paper with Stephan Bruns and Christian Gross on meta-analysis of the energy-GDP causality literature has been accepted (subject to some minor editing corrections) at the Energy Journal. Back in March, I wrote a blogpost about this paper when we put out the working paper version. In this final version we mainly added some separate results for OECD and non-OECD countries, which while different do not change the overall results very much. As you will see, both my coauthors have nicely developing research track records and, if you are hiring, they are looking for jobs (probably in Germany or nearby countries)!

Librello Publishing

Librello Publishing is a new open access publisher with a model somewhat similar to PeerJ. But while PeerJ has lifetime memberships that then allow you to submit as many papers as you want (for $299 membership and one or two papers a year for the discount classes), Librello is using annual memberships of 156 Swiss Francs. As its five journals are mostly in the social sciences this higher pricing is necessary as the average number of authors is lower. In practice this will likely amount to the submission fee which many subscription journals already charge. For example, the Energy Journal requires you to either pay USD 100 per submission or be a member of the IAEE. Assuming a 50-70% rejection rate this is still very much below the pricing of a conventional open access journal like PLoS ONE, which is only profitable because it operates on such a huge scale. However, this looks to be a totally legitimate publisher with a respectable editorial board for the Challenges in Sustainability journal.

Tuesday, September 17, 2013

Revising and Resubmitting...

Sorry, I haven't posted much recently... I'm in Sweden, working with Astrid Kander, so far we've only been working on this paper we are trying to revise and resubmit. It's for the top journal in economic history and so we are really working hard on it. We'll put up a working paper soon when it is ready. In the middle of all that I just saw this blogpost on the processing of trying to get articles published. Seems this guy tries to hit all the top journals in political science each time with only limited success. Some of my papers have gone to about four journals before getting a revise and resubmit but mostly they get published in the first or second one we try. The paper I am working on was rejected from a good general interest economics journal first. But that only took a day :) Desk rejection is common in economics now which maybe is speeding the process up a little. Doesn't seem like polisci has caught onto that yet. But if you are working in environmental and resource economics and one general interest journal rejects your paper it's probably not productive to send it to more, I think?

Other interesting points in the article - importance of avoiding sloppiness - a lot of effort needs to go into polishing articles and revising and resubmitting if you want to get published in good journals. I think a lot of beginning researchers underestimate the effort involved in that. Also that researchers are often surprised by which of their articles get into good journals and how many citations they get. This is somewhat true. When I do research and write a paper I am always thinking it is going to be a good one. I think though that at the submission stage it can be clear that a paper is not the greatest. But sometimes I have been surprised that some of my papers got few citations, while others got a lot.

Tuesday, September 3, 2013

Xenophon Opposes "Direct Action", Favours Carbon Trading

Senator Xenophon, a South Australian independent, says that he won't back repeal of the carbon pricing legislation as promised by the Liberal Party unless it is replaced with a carbon trading scheme similar to the one proposed by Frontier Economics in a report commissioned by Xenophon and the Liberal Party.

Even if Xenophon loses his seat in the Senate he will remain in parliament till 1 July 2014 but he looks to be certainly re-elected as the Liberal-National coalition looks certain to be elected as the new government. Of course, we don't know if he will have the balance of power when the new Senate takes its seats or whether the Liberals might call a double dissolution election.

The Liberals "direct action" plan might make some sense as a small scheme to get emissions reductions in the agricultural sector etc. but its big flaw is that as it costs taxpayer money it requires raising taxes elsewhere, ceteris paribus, to pay for the payouts.

An even simpler approach than the Frontier Economics trading model would be carbon emissions trading with totally free allocation of permits. This is no longer a "big new tax" because the government doesn't gather any revenue from it. It doesn't require spending except for monitoring and other administration. On the other hand, it isn't as efficient as auctioned permits because it doesn't allow the reduction of other taxes in a "green tax reform".

I'm sceptical that the Liberals will agree to Nick Xenophon's demands or modify carbon trading to a free permit system. A double dissolution election is not unlikely. Free allocated permit trading that could be modified later would though be a better outcome I think though I am actually a supporter of carbon taxes rather than emissions trading.

Monday, September 2, 2013

World Congress of Environmental and Resource Economics 2014

The European Association of Environmental and Resource Economics (EAERE) and the US based Association of Environmental and Resource Economics hold a joint meeting every four years called The World Congress of Environmental and Resource Economics. 2014's meeting will be in Istanbul from 28 June to 2 July. The deadline for submission of sessions is 1 December 2013 and for individual papers 15 January 2014. Submissions are peer reviewed. Details of submission requirements are yet to be released.

I was at the first of these World Congresses in Venice in 1998. But I haven't been to one since. I've always wanted to visit Turkey, but the nearest I've got is Istanbul airport this year in June. So, this looks like a good opportunity.