Transcript 39TH ANNUAL MEETING OF THE LIBERIAN STUDIES ASSOCIATION

39TH Meeting of the Liberian Studies
Association
Forecasting Liberian GDP
Anthony Andrews, Ph.D.
Global Trade Research Institute
University Park, IL
39TH Meeting of the Liberian Studies
Association
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5.
Introduction
The Problem
Model
Results
Summary
Introduction
•
Liberia has been in non-accrual status
with the World Bank since 1987 and as
such, the country’s historically countrycomparable socio-economic development
indicators have not received annual
updating and publication in the World
Development Indicators.
Introduction
•
The country currently has a Watching
Brief Status (WBS), allowing the World
Bank to carry out special activities at
the government’s request.
Introduction
• In early 2003, the World Bank’s Board
of Executive Directors endorsed the
Liberia Country Re-engagement Note
(CRN), which outlined a plan for World
Bank reengagement within the
Results Focused Transitional
Framework (RFTF).
Introduction
• As envisioned by the CRN, Bank
financing is provided by a $4 million
Low Income Country Under Stress
(LICUS), the Implementation Trust
Fund, and a US$25 million grant from
surplus established and administered
by the International Development.
Introduction
•
This led to establishment of the
collection of data, but only for the most
recent years, leaving a large gap in
historical data, which is needed for
long-term forecasting and, more
important, policy issue developments.
Introduction
•
The purpose of this paper is to forecast
Gross Domestic Product using the
PENN World Tables Database on Liberia
for 1960 -1986, 27 years of data, to
forecast to 2006.
Introduction
•
The forecast exercise presented consist
of estimating missing periods of GDP
data and using actual and estimated
data to develop “counterfactual”
forecasts of a potential upturn in
economic activity.
•
A “counterfactual” is “contrary to fact”
or “what if” scenario.
Introduction
•
Economics has a long history of
counterfactual argument. For example,
Nobel Laureate Robert Fogel, in his 1964
book American Railroads and American
Economic Growth, uses quantitative
methods to imagine what the American
economy would have been like in 1890 if
there were no railroads.
Introduction
•
We use counterfactuals to examine
three scenarios on the Liberian
economy:
1. What would the Liberian Economy have
looked like if there had been not war?
2. What was trend GDP per capita growth over
the period 1960 – 1986?
3. What factors can cause an upturn in
economic activity?
The Problem
•
Historical time series data on Liberian GDP is
available from the Penn World Tables, where
the Purchasing Parity Series for International
Comparison Data is developed.
•
Purchasing Power Parity are rates of currency
conversion that eliminate differences in price
levels between countries. Per capita volume
indices based on PPP converted data reflect
only differences in the volume of goods and
services produced
The Problem
•
•
More importantly, PPP is a theory which states
that exchange rates between currencies are in
equilibrium when their purchasing power is the
same in each of the two countries.
This means that the exchange rate between
two countries should equal the ratio of the two
countries' price level of a fixed basket of goods
and services. When a country's domestic price
level is increasing (i.e., a country experiences
inflation), that country's exchange rate must
depreciated in order to return to PPP.
The Problem
•
•
Socio-economic data for Liberia was not
developed by the World bank for a
number of years and, thus, the Penn
World Tables (PWT) is the best available
data for the country.
We use the PWT data to develop our
analysis and forecasts of our
“counterfactual scenarios:
The Problem
•
Figure 1 presents Real GDP for Liberia
from 1960 – 1986 in US $.
•
Viewing the data shows pre-war growth,
instability, and decline in the Liberian
economy over the period of analysis.
Real Gross Domestic Product
(Purchasing Power Parity)
Figure 1:
1100
1000
900
800
700
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000
Source: PENN World Tables, Mark 5
Real Gross Domestic Product
(Purchasing Power Parity)
Figure 1:
1100
1000
900
800
700
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000
Source: PENN World Tables, Mark 5
Real Gross Domestic Product
(Purchasing Power Parity)
Figure 1:
1100
1000
900
800
700
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000
Source: PENN World Tables, Mark 5
Real Gross Domestic Product
(PPP)
1100
I
II
III
1000
900
800
700
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000
Source: PENN World Tables, Mark 5
Real Gross Domestic Product
(PPP)
1100
1000
I
II
III
AAG =
2.75%
900
800
700
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000
Source: PENN World Tables, Mark 5
Estimating GDP for Region I
• Estimating GDP for Region I shows the
Liberian economy grew at an average
annual rate of 2.75%
– Inflation, over the period was, 2.1%, so
that average annual real growth was only
.65%.
No War Forecast of Liberian GDP
3200
GDP estimated for 2006 = US$ 3,000
GDP Forecast = U$ 3000 in 2006
1985 US $
2800
2400
2000
1600
1200
800
GDP71_F
GDP_71
Estimating GDP for
Region I - III
• We now present the current and most up
to date estimate of GDP, provided by the
World Bank.
• The next figure shows the PPP GDP
and the latest estimate.
Real PPP GDP
1200
1100
1000
900
800
700
600
1986 -2006
1955 - 1971
500
400
US$ 341
300
1960
1970
1980
1990
2000
2010
Updated GDP
• PPP GDP in 2006 was estimated to be
$2.911 billion; however, rebased in 1985
figures yielded approximately US $341
million.
• Thus, the graph shows the impact of the
political conflict on the production capacity
of the economy.
Updated GDP
• We use the series from 1971 to 2006 to
estimate the growth rate of the economy,
which will provide estimates of GPD for
the missing periods and allow us to
develop a consistent GDP series from
1960 to 2006 in 1985 US$
• The results of this estimation is presented
in the following graph.
Updated GDP
• We use the series from 1971 to 2006 to
estimate the growth rate of the economy,
which will provide estimates of GPD for
the missing periods and allow us to
develop a consistent GDP series from
1960 to 2006 in 1985 US$
• The results of this estimation is
summarized in the following graph.
Real Gross Domestic Product
(PPP)
1100
•
I
Updated GDP
II III
1000
+ 2.75%
- 3.24%
900
800
700
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000
Source: PENN World Tables, Mark 5
Forecasted GDP with Actual 2006 GDP Estimate
1200
1100
2006 Actual = US$ 341
2006 Estimated = US$ 407.5
1000
900
800
700
600
500
400
GDP_FNEG
RGDPTT
300
60
65
70
75
80
85
90
95
00
05
10
Results
•
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Our counterfactual “no war” forecast shows
that had there been no war, GDP for
Liberia would be approximately UD$ 3
billion.
This would be approximately 2.5 times the
1986 level.
That is, the Liberian economy would
possibly have more than doubled if there
was not war.
Results
•
•
•
Due to the war, the Liberian economy grew
at -3.24% since 1971, resulting in a decline
forecasted in 2006 of GDP at US$ 407
million.
This was approximate half the value of
GDP in 1960.
The World Bank’s 2006 GDP estimate is
US$ 341, which is US$66 billion below our
estimate.
Policy Considerations
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What can be done to have an upturn in the
Liberian economy?
Liberia continues to be an agri-business
based economy with 70% of the labor force
engaged in agricultural production.
Exports in 2004 were valued at US$ 910
million.
However, there is 85% unemployment and
15% inflation
Policy Considerations
•
•
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What can be done to have an upturn in the
Liberian economy?
Liberia’s major exports are rubber, coffee,
cocoa, rice, cassava, palm oil, sugarcane,
bananas; sheep, goats; timber.
Much interest has be been placed on
concessions for extraction of diamonds and
timber, both of which are inconsequential in
world market share.
Policy Considerations
•
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•
What can be done to have an upturn in the
Liberian economy?
Thus, the critical short-run problem for
Liberia is to increase productivity in the
agriculture sector, especially with a focus
on increasing the food security.
This can be accomplished by focusing
most of the resources in the country’s
competitive advantage: agriculture.
Policy Considerations
•
•
•
What can be done to have an upturn in the
Liberian economy?
Agriculture production for domestic
consumption should be the country’s first
priority.
Mineral, Timer, and other revenues should
be used to increase agricultural production.
Policy Considerations
•
•
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What can be done to have an upturn in the
Liberian economy?
Rather than focusing on developing
unilateral extraction concession, Liberia
should move to align with Botswana and
Namibia.
Expertise from these countries could assist
in providing “lessons of experience” for
domestic economic initiatives.
Policy Considerations
•
What can be done to have an upturn in the
Liberian economy?
•
Liberia is not without resources to become
self-sufficient in agricultural; however, the
resources must be devoted to this sector of
the economy.
Policy Considerations
•
•
What can be done to have an upturn in the
Liberian economy?
A 2000 estimate of labor force occupation:
– 70% agriculture
– 18% Services
– 8% Industry
Based on these allocations, we would expect
the amount of investment in these sectors
to proceed at the same levels.
Thank you for your attention