November 2012 Consumer Prices

Consumer inflation for November continues to slow, though you can’t really tell from the chart (log annual and monthly changes):

Democracy And Natural Resources

In the popular imagination, democracy is the foundation for prosperity. Strong, trustworthy political and public institutions are a precondition for sustained economic growth and development. The empirical evidence however, is decidedly mixed – not a few studies find little to no evidence of a link, and some fund links going the other way i.e. income creates democracies but not the other way around.

This new working paper from the IMF partly explains why (abstract):

Income and Democracy: Lipset's Law Revisited
Hoeffler, Anke, and Bates, Robert H. & Fayad, Ghada

Summary: We revisit Lipset‘s law, which posits a positive and significant relationship between income and democracy. Using dynamic and heterogeneous panel data estimation techniques, we find a significant and negative relationship between income and democracy: higher/lower incomes per capita hinder/trigger democratization. Decomposing overall income per capita into its resource and non-resource components, we find that the coefficient on the latter is positive and significant while that on the former is significant but negative, indicating that the role of resource income is central to the result.

Preschool Education: Public or Private? The Answer Is Both

We’ve started on the way to providing universal preschool education, but it’s still going to be a long road. At present, the Malaysian strategy is to incentivise private provision of pre-school education via grants and tax incentives, even though there does exist public funded pre-schools.

From last month’s round of NBER working papers, it appears that there’s a place for public pre-schools as well (abstract):

Does State Preschool Crowd-Out Private Provision? The Impact of Universal Preschool on the Childcare Sector in Oklahoma and Georgia
Daphna Bassok, Maria Fitzpatrick, Susanna Loeb

The success of any governmental subsidy depends on whether it increases or crowds out existing consumption. Yet to date there has been little empirical evidence, particularly in the education sector, on whether government intervention crowds out private provision. Universal preschool policies introduced in Georgia and Oklahoma offer an opportunity to investigate the impact of government provision and government funding on provision of childcare. Using synthetic control group difference-in-difference and interrupted time series estimation frameworks, we examine the effects of universal preschool on childcare providers. In both states there is an increase in the amount of formal childcare. In Georgia, both the private and public sectors grow, while in Oklahoma, the increase occurs in the public sector only. The differences likely stem from the states’ choices of provision versus funding. We find the largest positive effects on provision in the most rural areas, a finding that may help direct policymaking efforts aimed at expanding childcare.

The point here is that both public and private-run pre-schools can co-exist, and the former won’t necessarily push out the latter. Another key point is that the largest impact of public pre-schools is in rural areas, where the private sector will be less likely to venture.

If we’re going to achieve universal pre-school education, thereby equalising investment in education for all our children and ensuring a true level playing field for economic opportunity (and hence reducing income and wealth inequality), public funded and run pre-schools would probably have to be part of the strategy.

Technical Notes

Bassok, Daphna; and Maria Fitzpatrick & Susanna Loeb, "Does State Preschool Crowd-Out Private Provision? The Impact of Universal Preschool on the Childcare Sector in Oklahoma and Georgia", NBER Working Paper No. 18605, December 2012

3Q 2012 Federal Government Debt Update

Another quick update on the numbers. Federal government debt rose to RM484.6 billion as at the end of 3Q2012 (RM billions):

3Q 2012 Federal Government Finance

Just a quick update on the numbers – more for my own records and conscience than anything else.

Up to 3Q2012, the government has received 72.7% and spent 69.4% of the 2012 budget based on the latest estimates published two months ago (RM millions):

The budget deficit over the first three quarters of 2012 has averaged a little under RM7.5 billion a quarter, higher than the average RM5.7 billion from the same period in 2011 but substantially lower than the RM10.6 billion average for the full year in 2011.

Revenue growth averaged 9.4% while total expenditure climbed 11.8% – both  numbers are below the 2011 full-year growth figures (16.1% and 12.3% respectively).

October 2012 Industrial Production

The October numbers for industrial production released yesterday came out pretty strong. How strong? They floored me, and you’ll see why in a sec (log annual and monthly changes; seasonally adjusted):

Reforming Bankruptcy Laws

I’ve always felt that the legal provisions for bankruptcy in Malaysia are too punitive. Seems like I have some company (excerpt):

...If the borrower or the guarantor (who is equally liable) has a debt of RM30,000 or more and has not been repaying that loan, the financial institution or creditor can institute bankruptcy proceedings to get their money back.

And it is tough being a bankrupt. When a person is declared a bankrupt, their existing bank accounts will be deactivated. This means they cannot withdraw money, open a new account or use their existing account unless they get permission from the Director-General of Insolvency (DGI). Their assets will be frozen and sold off to pay the debtors; they are unable to get new loans or travel overseas (unless they get written permission from the DGI) and can only use a credit of up to RM1,000 on an existing credit card. Their standing in society is damaged and they can forget about any political ambitions as they would not be allowed to stand for elections.

According to Rembau MP and Umno Youth chief Khairy Jamaluddin, who has been pushing for a review of the Bankruptcy Law to give people a second chance, Malaysia has one of the most stringent bankruptcy laws in the world...

October 2012 External Trade

What goes up must come down, or something like that. I didn’t think many believed that last month’s trade growth numbers were sustainable, and so it has proved (log annual and monthly changes; seasonally adjusted):

On the whole, trade looks like its just treading water, though there’s a lot of heterogeneity in the numbers – ASEAN and US exports are up, but China and Europe are down.

Rank And File: The Corruption Perception Index

You can’t miss it in the news over the past few days – Malaysia’s ranking in Transparency International’s Global Corruption Perception Index has “improved” from 60th in 2011 to 54th. Or has it?

A friend told me the methodology had changed, and so it has (details here; warning: pdf link). This made me a little upset, because its clear that most of the work I put in for this series of posts was mostly wasted.

More relevant still, its also clear that the CPI rankings in previous years are pretty much worthless for tracking both corruption and the perception of corruption over time.

October 2012 Monetary Conditions

I was looking at liquidity conditions, and found something interesting, but I’ll get to that in a bit. M1 growth decelerated sharply in October, although M2 showed a slight uptick in growth (log annual and monthly changes; seasonally adjusted):