Summary of Findings (Green Team): Economic Trend Analysis (3.75 out of 5 Stars)

Note: This post represents the synthesis of the thoughts, procedures and experiences of others as represented in the 12 articles read in advance (see previous posts) and the discussion among the students and instructor during the Advanced Analytic Techniques class at Mercyhurst University in April 2012 regarding Economic Trend Analysis specifically. This technique was evaluated based on its overall validity, simplicity, flexibility, its ability to effectively use unstructured data and its ease of communication to a decision maker.

Description:
Economic trend analysis is a methodology useful in determining trends by statistically analyzing data. The technique is very reliable up to a certain point, but has limitations based on availability of data, understanding of the topic and technique and each problems’ predictive horizon. The method’s flexibility and usefulness is incumbent upon sufficient actionable data. Given adequate, structured, information and analysis, economic trend analysis can easily communicate complex trends and forecasts to decision makers. The method is most useful for competitive and national intelligence.

Strengths:

• Allows analysis to extrapolate based on available data
• Can be used for future forecasting or estimation by monitoring indicators and its drivers
• Can be applied to social issues such as sustainability, eco-tech, public spending and health indicators.
• Utilizes big data to extract trends from overwhelming amounts of information
• Able to use both qualitative and quantitative data sources

Weaknesses:

• Limited by the quality of available data
• Need to understand differences in definitions
• Can be time consuming
• Outcomes can be hard to interpret (especially with bigger data sets)

How-to:

• Pick a problem or issue to examine
• Decide on specific qualitative and/or quantitative data needed for analysis
• Obtain relevant data
• Input data into an analytic tool such as Excel or STATA
• Configure and analyze results of data using charts, graphs, etc.
• Use forecasting tools within Excel or STATA to gain further insight

Personal Application of Technique:
The class was divided into groups of two and assigned a country.  The class identified values for various economic variables for the years 2006 to 2010.  After compiling the data the teams made a conclusion on the economic well being of the country and determine if that would affect the stability of the country in the future.  Each team provided an analytic confidence based upon the believability of the data.

Each country had different issues with finding data to enter into a uniform database such as availability of data, as well as reliability of data reported to international statistical sources.

Rating: 3.75 out of 5

Trend Analysis: Globalization and the Scottish Economy

The paper “Trend Analysis: Globalization and the Scottish Economy” is one of the papers in the “The Futures Project”, a series on trends analysis that attempts to identify some key trends that are likely to have an impact on Scotland, along with some of the factors likely to influence those trends. The paper recognizes the trends and its drivers, followed by the factors affecting the drivers of change. The paper then discusses the trends’ implications to Scotland.

The paper recognizes two main trends:

Trend 1: Growing interconnectedness - market opportunities and greater competition

Trend 2: Pressure on natural resources and primary commodities

Growing interconnectedness – market opportunities and greater competition

Factors affecting drivers of change

Driver 1: Closer economic ties

Driver 2: Accelerating technological change & knowledge economy

Driver 3: Political integration

According to the paper, the growing interdependence of counties and people is a crucial trend for Scotland and will continue drive structural changes in the Scottish economy. The increasing interdependence is driven by emergence of new competitors like China and India. The process will open up new avenues for trade and investment flows for Scotland but also accelerate the process of market change as new and more efficient competitors gain market share. This process of globalization underscores the crucial importance for Scottish business to constantly innovate and to firmly establish the capacity to react flexibly to changes in the market environment.

Likely implications for Scotland

Despite increasing pressures, more developed countries are, on the whole, well prepared to meet the competitive challenge from emerging countries.  High skill levels and sophisticated capital equipment lead to greater productivity and income levels than, for example, China and India could be able to achieve in the foreseeable future.  The rise of these countries to economic superpowers will put continuing pressure on the Scottish economy as they move towards industries that are ever more skill-intensive.  However, whilst the emergence of India and China will present new challenges, the scope for new opportunities in trade should not be underestimated, creating new export markets for Scotland and also a source of cheaper inputs.  The overall benefits of greater competition and gains in efficiency should benefit the world economy as a whole.

Trend 2: Pressure on natural resources and primary commodities

 Factors affecting drivers of change :

Driver 1: Rising global energy and raw material demand

The demand for food, fresh water, timber, fiber and fuel is growing rapidly, putting pressure on available resources.  Resources of fossil fuels are finite and will be subject to increasing demand as a consequence of the growing energy demands of expanding developing countries such as China and India and the continued growth of the developed world. The impact of China’s extraordinary growth can already be felt by Scottish businesses in the markets for raw materials; energy prices in particular have been rising and are currently high. In the coming decades, the scarcity and price of energy supplies could be a problem common to the developed and the developing world and, in the near-term the dependence on oil of the developed world will be the greater.

Likely implications for Scotland

Growing global demand for energy and raw material supplies will raise price pressures and put strain on the energy and primary material-intensive Scottish industries, especially when the US dollar regains strength. In the quest for alternative sources of energy, Scotland is well placed to reap considerable returns from further investment in renewable energy production and research.  

Conclusion

The paper “Trend Analysis: Globalization and the Scottish Economy” written in 2006 discusses the macro economic trends and impacts on the Scottish Economy with an outlook of 20 years. Some of the major trends uncovered are the growing interconnectedness between countries that is causing closer economic & political ties, and accelerating technology. The paper also recognizes the increasing demand for finite resources and its impact on Scotland. 

Economic Trend Analysis for Highway Bypass Communities

Introduction:
Ryan Pettit’s paper on the economic impacts of highway bypasses on communities in Iowa uses trend analysis, including economic trend analysis, to determine if the change from highways going through the middle of town’s central business districts to bypasses to move traffic around the edge of the city impacted the revenue to businesses.

Summary:

The research evaluates economic and population data from prior, during, and after the construction of the bypasses for four communities in Iowa. The economic data consists of retail sales, number of firms, and pull factors all which provide a good look at the economic characteristics of a community. The analysis of the trends with completion dates, allows the researcher to assess the community impact. The data was then compared to four control cities with similar population and location, but was not bypassed.

The retail sales, number of firms, pull factor, and population data for the report was gathered through the Office of Social and Economic Trend Analysis. The researcher also visited the bypass communities to gather HUMINT from community leaders and business owners.

Averages were calculated on the economic data to get an overall look at how the bypass communities compared to the control communities. The trend analysis showed that although the average populations in bypass communities had increased, the average pull factors and average retail sales have not kept pace with the control communities. The analysis shows that bypass communities moved from roles as local hubs of retail to a role as a bedroom community.

The economic data shows that average retail trade in both the control and bypass communities fluctuate at almost the same rate with the control cities seeing more of an increase in the 1990’s. This could be a result of decreased sales in the bypass communities due to construction making access to business difficult.

Conclusion:

This report shows that bypasses are not the likely reason for negative economic impacts felt by small communities. Overall the communities do not blame the bypasses for the decreases in business, but credit them for having removed traffic, congestions, and pollution from the towns.

Source:

Pettit, R. (2007). Economic Impacts of Highway Bypasses on Communities in Iowa. Midwest Transportation Consortium. Retrieved from http://www.ctre.iastate.edu/mtc/papers/documents/pettit2007paper.pdf

Understanding Public Attiudes Towards Wildlife

Introduction:

In the article, “Public attitudes toward wildlife are changing: a trend analysis of New York residents”, the authors explored the current attitudes toward wildlife, due to the fact that very few researches have had the opportunity to examine data that allows analysis of such trends. The authors conducted a survey and ran a multivariate trend analysis to examine the results of the survey.

Summary:

Wildlife management policies are, to varying degrees, founded on the public’s attitudes about wildlife and thus impact how science and management programs are operated. Thus, researchers and governmental agency personnel continually seek to answer: “What are the current attitudes of stakeholders concerning wildlife” and “how are they changing”? So to help answer these questions, the authors examined the attitudes of specific stakeholder groups to four underlying dimensions. The groups included hunters, outdoor recreationists, rural landowners, suburban homeowners, wildlife agency personnel and graduates of hunter training courses.

The initial sample of the 17 studies was comprised of 9,847 residents living in New York State, with 7,589 observations included in the final analysis. The Wildlife Attitude and Values Scale asked respondents how strongly they agree or disagree with attitudinal statements based on the personal importance of each item. The four sections included:

·         Social benefits: contained items about the appreciation and existence of wildlife

·         Traditional conversation: included items involving management for sustainable use

·         Communication benefits: included items about observing and talking about wildlife

·         Problem tolerance: included items concerning safety risks in human and wildlife interaction.

The authors used multivariate trend analysis to account for the variability due to differences in each study (the different variants). This type of analysis also accounted for individual level differences for the models were run for the main effects of demographic characteristics including sex, age, rural or nonrural residence and stakeholder types. Finally, interaction effects of year and demographic variables were included in the analysis to show effects over time.

Conclusion

Using the multivariate trend analysis indicated declining problem tolerance in New York, regardless of stakeholder group. Other attitudes have increased, stating that communication is important and that traditional conversation attitudes have gained proponents. Finally, by using multivariate trend analysis the author’s research suggest that New York attitudes towards wildlife is evolving toward a more protectionist view.

Source

Butler, J., Shnahaha, J., & Decker, D. (2003). Public attitudes toward wildlife are changing: a trend analysis of new york residents. Wildlife Society Bulletin, 31(4), 1027-1036. Retrieved from http://www.jstor.org/stable/pdfplus/3784448.pdf?acceptTC=true

Can foreign aid buy growth?

Introduction:
This post will be an examination of an application of economic trend analysis using economic growth, investment, and foreign aid data.  In the article, Can Foreign Aid Buy Growth?,  William Easterly discusses the effectiveness that foreign aid has on influencing economic growth in developing countries.

Summary:
The standard model used to justify aid is called the “two gap” model.  It was developed by Chenery and Strout in the mid-1960s.  The first gap in the model addresses the difference between the amount of investment in an economy that is necessary to attain a certain rate of growth and the available domestic savings.  Essentially the gap exists when the public does not save enough and thus there is not enough capital to invest.  The second gap is between import requirements for a given level of production and foreign exchange earnings.  In the article the author primarily focuses on the first gap.

The first gap, the “financing gap”, makes two assumptions.  The first is a stable linear relationship between investment and growth exists.   That is to say, that for every dollar invested in an economy, the economy sees a corresponding dollar in growth.   The second is that aid intended to fill the financing gap will actually finance investment rather than consumption.  Easterly says that if the causes of low investment in an economy are because of poor incentives to invest, then aid will not increase investment.  In fact, the author claims, aid could actually worsen incentives to invest which could lead to economic contraction.  Aid in this case will then finance consumption, the author cites the work of Boone in 2006 as an example.  

Easterly tested the “financing gap” to determine how many of the 88 aid recipient countries showed a significant and positive result from having received foreign aid.  The test covered the period of 1965 to 1995.  Only six of the 88 countries showed results that indicate aid was able to increase investment in the economy.  Hong Kong, China, Tunisia, Morocco, Malta, and Sri Lanka were the six countries.  The next step in the Easterly’s analysis was to look at the growth rate of the economy and rate of investment in the economy.  Using the same 88 countries the author found only four countries had a significant relationship between growth and investment.  Israel, Liberia, Reunion (a French colony) and Tunisia were the four countries.  Easterly concluded that only one country, Tunisia, passed the “financing gap” test.  Of course, the author said that Tunisia was more likely to have passed due to chance.  

The following graph shows a 10-year moving average of aid as a percentage of GDP and growth per capita in Africa from 1970 through 2000.

Easterly reports that the current theme in foreign aid is that aid should be directed to where it can do the most good.  Specifically, to nations that have good fiscal, monetary, and trade policies.  There is, however, some debate on what constitutes “good” policy.  The article concludes with the author stating that in no other field of economics do economists and policymakers promise such large benefits for modest proposals.  Easterly says the macroeconomic evidence simply does not support the claims.  He suggest the goals should be more modest in that the aid should simply provide benefit to some of the poor some of the time.  However, Easterly also says the quality of aid should come before an increase in quantity.

Source:
Easterly , W. (2003). Can foreign aid buy growth?. Journal of Economic Perspectives, 17(3), 23-48.