How to compare trade and FDI?

Comments on James Laurenceson, UTS “In the US–AU–China love triangle, actions speak louder than words”, 12/10/2017

The author seems persuasive in arguing that trade and investment relations are both important. It is also probably true that it is difficult to be sure which of the two is more important and by how much. Notwithstanding those, it is probably also true that the two may not be completely equally important, or equally important in all circumstances and at all times. Some people may say they are two different things similar to things like apple and orange. Trade is a flow concept and FDI is more closely related to stock of capital.

Given that, a question to ask may: is there a way to assess which is more important and under which circumstances?

To begin to tackle that question, one may consider saving/consumption ratio, capital/labor ratio, capital/income ratio for the role of investment in the economy. Besides, a factor may be relevant is the depreciation rate of investment (maybe real economic depreciation rate). There is also the question of the role of FDI which is a little more difficult to have a fixed value on each dollar of FDI.

For trade, while there is the GDP identity, the question of trade to the economy and welfare is probably more than that seeming relationship of exports add to GDP and imports subtract from GDP.

The question is how to value/measure that and how to compare that with investment/FDI.

I don’t know how to answer that now, but hope someone may have that as an interest of a research topic.

Russia is indispensable to solving North Korea nuclear crisis

Comments on Editorial Board, East Asia Forum "Stepping back from the brink with North Korea", 2/10/2017

This article, like the leading article of the week, underestimates the important role of Russia in the context of the Korea peninsula nuclear crisis. Sidelining Russia will be a huge mistake and represents a serious misunderstanding of the world power dynamics. As a result, it is unlikely to work.

An obvious point is that the US often threatens China militarily but not against Russia, because it thinks China is no match in term of nuclear power.

Do the author really think that the US and China can guarantee the security of North Korea, given that China’s own security cannot be guaranteed? Do you think North Korea is that naïve as the authors are?

While it is true that China is very important economically, but Russia is much more important militarily than China.

Unfortunately, this is a security issue more than an economic issue involved here.

The PC draft report on GST system itself lacks comprehension

Comments on Peter Martin "GST system broken 'beyond comprehension', Productivity Commission finds", 9/10/2017

While it would take a careful reading of the draft report to fully understand it and to make constructive comments, a glance at the key points suggests that the draft report may suffer a fundamental weakness, that is, it may have based on incorrect premises and misunderstanding of the current HFE system.

For example, it includes the following key points:
· But the pure may be the enemy of the good: the current HFE system struggles with extreme circumstances, and this is corroding confidence in the system.
- Equalising comprehensively and to the fiscally strongest State means that the redistribution task is too great for any jurisdiction to bear; and is volatile at times of significant cyclical and structural change.
- There is scope for it to discourage desirable mineral and energy resources policies (royalties and development) and State policy for major tax reform (a costly first-mover disadvantage).
- The system is beyond comprehension by the public, and poorly understood by most within government — lending itself to a myriad of myths and confused accountability.

The first two subpoints appear to be incorrect.

The current system has not been equalising to the fiscally strongest State. To the contrary, it equalises to the average capacity of the states, although by doing so, it equalises away the strongest states capacity down to the average.

The second subpoint is misleading at best, because the current system is policy neutral or relies on the average policy.

Efficiency illusive to understand

Comments on Xinling Wang, China Policy "China’s twenty-year dream of SOE reform still unfulfilled", 8/10/2017

Efficiency seems so easy to define in theory yet very hard to really understand.

To illustrate this, consider two extremes in terms of efficiency.

First, the case of China. There have been and still are so many areas in China which are so inefficient, yet its economy has been growing remarkably fast.

Second, the case of the US. Arguably, it has been the leader of free market economies and should generally be very efficient. Yet, it was the source or epicentre of the GFC. Was it efficient in the time leading up to the GFC? One could argue that some parts of the US economy must have been highly problematic in efficiency term in the broadest sense.

It seems, there are still important issues in economic development processes that are still not well understood, notwithstanding that there is mainstream economics and many theories regarding development. There maybe some disconnect between aggregate economy and particular efficiency issues. There does not seem to be a perfectly efficient economy.