# Random thoughts of an economist

## True or False: The increase of tourists has cost Hong Kong 3.5% GDP.

Posted in Econometrics, Economics, Hong Kong, Population, Research, Statistics/Econometrics, teaching by kafuwong on March 4, 2014

First, there is an i-Cable story which uses the statistical analysis of a colleague. Second, there is a column written by a friend. They are both about the extra waiting time due to the influx of tourists.

In the i-Cable story, the reporter took the MTR trains from Tai Wai Station to Wan Chai Station. It showed the amount of waiting to get on a train at every interchange. Then, the reporter interviewed a colleague of mine. He showed that the number of MTR passengers was highly positively related to the number of tourists. Therefore, an increase in the number of tourists would cause an increase in the number of MTR passengers, and consequently the amount of waiting to get on trains, and the amount of time one has to spend on commuting. My colleague’s analysis was not about how the number of tourists would impact on the commuting time. But, audience will get the impression.

In her article, my friend estimated the amount of loss of GDP due to waiting. She used the extra 10-minute commuting time by LegCo member’s experiment during rush hour and deduce a loss of 3.5% of GDP. Suppose all employees has to work 47 hours per week on average and suppose each of them wastes 10 minutes commuting. The extra 20 minutes round trip (10 minutes x 2) is equivalent to a loss of 3.5% of GDP. Striking! The story certainly catches eyes of a lot of people, including me. Unfortunately, striking stories are often wrong — if you are willing to check their calculation or deduction.

I would like to raise two questions:
(1) Is the “extra” waiting time of 10 minutes an upper bound, lower bound or median? I took MTR today and did not have to wait for the next train to get in. Imposing the upper bound on all employees will yield a very unreasonable exaggerated number. I think it is actually much less than 3.5% of Hong Kong’s GDP.
(2) Given it is indeed extra 10-minute waiting, how much of it is due to the tourist or our increase in population and government policy to divert the flow of traffic from buses to MTR (for cleaner air, perhaps)? I do not think most tourists would take the MTR during rush hour. Of course, there are exceptions.
I am waiting for some serious researchers to provide good answer to my questions. Yes, data could be a big problem.

If you are interested in seeing the i-Cable story, here is the link to the video:
http://cablenews.i-cable.com/webapps/program/newslancet/videoPlay.php?video_id=12178031
If you are interested in the column, here is the link to the article:

## A silly administrative mistake that could have been easily avoided!

Posted in Research, teaching by kafuwong on September 22, 2013

A student was browsing the websites of foreign universities for graduate studies. She discovered in one of the universities that “Applicants who have completed a degree program at universities in the following countries may be exempt from showing proof of proficiency in English.” Among the list was “Hong Kong*”. The remark said “*Applicants from the Chinese University of Hong Kong are required to provide proof of English proficiency.”

To people who do not know Hong Kong’s university education system, it is so logical to require applicants from the Chinese University of Hong Kong to provide proof of English proficiency because “Chinese University of Hong Kong” suggests that the major medium of instruction is Chinese. This is a mistake! In fact, Chinese University of Hong Kong mandates to use English as its medium of instruction in at least 50% of the courses.

Chinese University of Hong Kong is among the top three universities in Hong Kong. (While a definitive ranking may not be agreeable by all, I think University of Hong Kong is probably the best, Chinese University of Hong Kong the second, and Hong Kong University of Science and Technology the third.) If x% students from Chinese University of Hong Kong cannot speak English well, there must be more than x% such students from other lower ranked Hong Kong universities. Of course, at the University of Hong Kong, the percentage is definitely much less than x% because it takes in slightly better students and English is used in all courses except for a small number of language courses. (You would not expect Chinese Literature to be taught in English, would you?)

It is a joke that applicants from the lower ranked HK universities are exempted but not those from the Chinese University of Hong Kong.

I am glad that this joke did not happen to me. Definitely, I learn a good lesson!

[If you are interested in knowing the university who made such mistake, you can google the key sentence above. I expect this statement will be changed in the near future, though.]

## Why are the US-made DVD so expensive in Hong Kong?

Posted in Economics, Movie, Parenting, Research, teaching by kafuwong on January 28, 2012

I could not believe my eyes when I saw the price differentials of a DVD set across regions in this globalized world.

Monk is an American comedy-drama detective mystery television series from 2002 to 2009.  Eight seasons in total.  DVDs by seasons or complete series are available for sale.  Among detective TV series, this is much more suitable for kids/teens than other dective series, such as CSI, I have ever watched.  We bought the DVD of the first season of Monk as a test.  It was good.  So, we went out to get the other seasons.

Surprised!  The complete series DVD set at the Hong Kong HMV online (store specialized in sales of DVD products) costs HK\$2385 (about US\$305).  It is almost the same as the cost of buying 8 DVDs of separate seasons.  Should we not expect the complete series at the Hong Kong HMV online (store specialized in sales of DVD products) to cost much less than the cost of buying 8 DVDs of separate seasons?

Unconvinced, I checked the cost of similar items in Amazon.  The complete series DVD set (new, not used) is available at \$100, and is much cheaper than the eight seasons sold separately.  Good deal!  So, I submitted my order with my Hong Kong shipping address.  Amazon refused to accept my order.  They will not ship to Hong Kong.  What prevents them to ship to Hong Kong?  I Wonder!

I can ask a friend in the US to purchase it and ship it over.  The US postal service will charge me about US\$60.  If I ask my friend to do so, there will be a gain of US\$140, to be shared among us.   If I ask a friend who is about to return to or to visit Hong Kong to bring me the DVD, there will be a gain of \$200 to be shared among us.  Good profit if a local DVD store can ask a flight attendant or passengers to bring in similar products from the States.  The bigger the price differential, the bigger the incentive to engage in such activity (such activities is often called parallel imports).

Such parallel import activities should narrow the price differential, shouldn’t it?  Why are we seeing the 200% difference in prices in Hong Kong and the United States?  A puzzle to me.  An opportunity to you?

## Why are carseats still recommended despite solid research results?

Posted in Economics, Parenting, Regulation, Research, teaching by kafuwong on January 26, 2012

In 2005, Steve Levitt showed us his finding that for kids two years old and above, carseats did not reduce injury or mortality due to car accidents when it is compared to the usual seatbelts.

Six years have passed.  Shouldn’t we be disappointed to see what the Highway Traffic Safety Administration (NHTSA) still recommends carseats (http://www.nhtsa.gov/Safety/CPS)?

1-3 years
Keep your child rear-facing as long as possible. It’s the best way to keep him or her safe. Your child should remain in a rear-facing car seat until he or she reaches the top height or weight limit allowed by your car seat’s manufacturer. Once your child outgrows the rear-facing car seat, your child is ready to travel in a forward-facing car seat with a harness.
4 – 7 years
Keep your child in a forward-facing car seat with a harness until he or she reaches the top height or weight limit allowed by your car seat’s manufacturer. Once your child outgrows the forward-facing car seat with a harness, it’s time to travel in a booster seat, but still in the back seat.
8 – 12 years
Keep your child in a booster seat until he or she is big enough to fit in a seat belt properly. For a seat belt to fit properly the lap belt must lie snugly across the upper thighs, not the stomach. The shoulder belt should lie snug across the shoulder and chest and not cross the neck or face. Remember: your child should still ride in the back seat because it’s safer there.

## Impact of an revaluation of Reminbi on the Chinese economy

Posted in China, Econometrics, Economics, Exchange rate, Forecasting, Research, Trade balance by kafuwong on April 17, 2010

Recently (early 2010), the United States has been pushing China to revalue its currency (Reminbi).   Central to the debate of revaluation of Reminbi (RMB) is the impact of such revaluation on the Chinese economy.  I have seen people giving a qualitative analysis (for instance, http://mpettis.com/2010/03/how-will-an-rmb-revaluation-affect-china-the-us-and-the-world/).  How do we obtain a quantitative estimate of the impact?

Building a structural model?  Building a structural model of the Chinese economy can take enormous time and resources — not something you and I can afford.  An alternative but cheaper approach is to assume that a small set of macroeconomic variables (employment, real exchange rate, trade balance, consumer price index, etc.) approximately evolves over time as a close system.  This set of macroeconomic variables is known as a vector of variables.  This vector is assumed to evolve over time as an autoregressive process (i.e., $y_t=a_0+a_1 y_{t-1} +... +a_p y_{t-p}+e_t$, or in other words, current values of the vector depends on the past values of the vector and a shock).   We can then apply Ordinary Least Squares (OLS) to estimate the parameters equation by equation.  An impulse response function can be calculated.  The impulse can be a change in the real exchange rate (which is a ratio of domestic and foreign prices adjusted for exchange rate).  The response can be the trade balance, or the unemployment rate.

This modelling technique is called the Vector AutoRegressions, or VAR in short.  It is often taught in courses like Economic Forecasting.

## Earthquake at Qinghai, China

Posted in Economic growth, Economics, Natural disasters, Research by kafuwong on April 15, 2010

Sad to read the news about the earthquake at Qinghai, China (http://www.guardian.co.uk/world/2010/apr/14/china-earthquake-death-toll-yushu).   At magnitude 7.1 and in a poorly developed province of China, the causalty can easily exceed 1000.  Indeed, in January 2010, an earthquake of magnitude 7.0 at Haiti killed more than 200,000.   So, a natural question is:  How is the causalties related to the level of economic development and the population density in the cities or countries?   What is the likely causalty at Qinghai?

It turns out that United States Geological Survey’s (USGS) Earthquake Hazards Program  (http://earthquake.usgs.gov/earthquakes/world/world_deaths.php) keeps data about earthquakes in the US and around the world.  One can easily obtain data bout GDP (a measure of economic development) and the population density of different countries.  With the collected information, a multiple linear regression of the causalties on the magnitude of earthquake, a time trend, the GDP and the population density should provide a reasonable answer to the question posted.  It turns out that a similar research has been conducted — “Economic development and the impacts of natural disasters” by Hideki Toya and Mark Skidmore (Economics Letters 94 (2007) pp.20-25).

Of course, we might be interested in the alternative question: How does the frequency of earthquakes (or natural disasters) affect the economic development of a country?  I will leave that to you to tell me the relevant research papers on this question.