Transcript Valuing Art: the Economics of Museums

Yale School of Management
Emerging Market Finance
Lecture 1: The Big Picture
By Zhiwu Chen
Professor of Finance
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Why Do Countries Differ in Wealth?
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Relationship between Average Number of Hours
Worked in 1998 and Per-capita GDP in 2001
Per-capita GDP
in 2001
U.S.
40000
35000
Japan
30000
25000
20000
Latin
America
Holland
15000
China
10000
5000
0
1300
1500
1700
1900
2100
2300
Average Number of Hours Worked by the Employed in 1998
Data source for the working hours is Angus Maddison，2001, The World
Economy：A Millennial Perspective.
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What determines national wealth?
Traditional view: physical assets (e.g., natural
resource endowments)
2002 per-capita GDP in
units of $10,000
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3
3.63
2.34
2.8
2.67
2.47
2
1
0.47
1.11
0.78
0.58
国
本
Japan U.S.
美
HK
日
港
香
加
坡
湾
Taiwan
新
阿
拉
伊
沙
特
俄
中
China Russia India
台
伯
朗
罗
斯
国
0
Saudi Arabia Singapore
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What determines national wealth?
physical capital or something else?
Per-Capita GDP ($)
15000
12739
11546
10901
10000
5000
2562
3419
4027
0
Countries with Least Oil Countries with Average Countries with Most Oil
& Gas Reserves
Oil & Gas Reserves
& Gas Reserves
Based on per-capita oil and natural gas reserves, 44 countries are divided into
three groups. The average per-capita GDP for each country group is reported
respectively for the year 1975 (in BLUE) and 2001 (in RED).
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Difference in Growth
7.00%
6.14%
5.10%
5.00%
4.18%
3.00%
储藏最少的国家
Oil+Gas
Poor
Countries
中等储藏的国家
Oil+Gas
Avg.
Countries
储藏最多的国家
Oil+Gas
Rich
Countries
Based on per-capita oil and natural gas reserves, 44 countries are divided into
three groups. The average GDP growth is reported for the 1975-2001 period 7
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How do we explain this?
Natural physical wealth is a “curse”?
Lower transportation costs and higher
transportation capacity make resource
endowments less of an advantage?
But, ……
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Lack of mass transportation means made each
place’s income depend on its natural endowment,
but not any more
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World’s 世界历年海运总容量(万吨)
sea-going ship capacity in 10,000’s of tons
17100
18000
15000
9610
12000
9000
6000
3000
32
73
145
395
588
1460
0
1470 1570 1670 1780 1820 1850 1900 1913
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Total number of vessels departed from
Europe for Asia
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(按每世纪汇总计算)
Total
trips in each century
9000
6661
6000
3161
3000
770
0
1500-1600
1601-1700
1701-1800
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Maybe, the ability to innovate
financially also makes a difference
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What a difference financialization
makes!
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A century of American Financial Revolution:
Total value of all financial claims
$ trillions
150
128.5
130
110
90
70
52.5
50
23.5
30
10
-10
0.06
1.0
1.8
3.5
7.6
1900
1945
1955
1965
1975
1985
1995
2006
Sources: For 1900, Goldsmith (1969),
Financial Structure and Development. For
post-1945, Federal Reserve Flow-of-Funds
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American Financial Capitalism:
Ratio of all financial claims to GDP
For each $ GDP, how many $ of financial claims floating?
10
8
6
1900
4
2
Phase I
Phase II: stagnation
2005
2002
1999
1996
1993
1990
1987
1984
1981
1978
1975
1972
1969
1966
1963
1960
1957
1954
1951
1948
1945
1929
1880
0
Phase III: globalization
Sources: Prior to 1945, Goldsmith (1969),
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Financial Structure and Development. For
post-1945, Federal Reserve Flow-of-Funds
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More financialization => more capital to create wealth
But, how did capitalization increase so fast?
4 primary sources of capitalization:
– Corporate assets and cashflows
– Land and real assets
– Future labor income flows
– Future government tax flows
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Source #1: capitalization of
corporate assets & future cashflows
250%
Equity mkt capitalization to GDP ratio
200%
150%
100%
50%
2005
2002
1999
1996
1993
1990
1987
1984
1981
1978
1975
1972
1969
1966
1963
1960
1957
1954
1951
1948
1945
0%
Similar trend in bonds
Sources: Federal Reserve Flow-of16
Funds
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Source #2: more capitalization of
Land and real assets
120%
Total mortgage loans outstanding to GDP ratio
100%
80%
60%
40%
20%
2005
2002
1999
1996
1993
1990
1987
1984
1981
1978
1975
1972
1969
1966
1963
1960
1957
1954
1951
1948
1945
0%
Sources: Federal Reserve Flow-of-Funds
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Source #3: capitalization of
future labor income
$billions
Consumer credit outstanding
3000
2000
1000
05
20
02
20
99
19
96
19
93
19
90
19
87
19
84
19
81
19
78
19
75
19
72
19
69
19
66
19
63
19
60
19
57
19
54
19
51
19
48
19
19
45
0
Sources: Federal Reserve Flow-of-Funds
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What pushed financial development?
A 1920’s ad by Julian Goldman Stores Inc.
“Wouldn’t it be nice if Jim Jones could use some
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of that money now?”
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As financialization has increased in developed
countries, capital flow into funds grows.
Has this capitalization trend peaked?
No.
Other countries are only starting to
follow.
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Puzzles
Why doesn’t every country engage in
financial innovations?
Why growth does not always translate into
stock returns?
Why capital flow differs across countries?
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But, you need Quality Institutions for this to be
feasible. Example: Press Freedom and Service
Sector Development
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Country
1990
Press Freedom Rating
Service Sector's Contribution to
GDP in 2002
U.S.A.
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70.70%
Hong Kong
30
86.50%
Singapore
60
64.10%
China
89
27.50%
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Press freedom rating is on a 1-100 scale, with 1 representing the freest press.
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