Saturday, October 10, 2015

The global productivity frontier and dark matter

Alex Tabarrok cites a study that says productivity may not be growing overall, but is growing for firms on the "global productivity frontier". It does seem a bit strange to select a subset consisting of the most productive firms and then saying these firms have high productivity growth. While not exactly contradictory (it's a finding that high productivity "stock" has high productivity "flow"), it does seem like they should go a bit farther in figuring out if this partitioning of the data makes sense.

In any case, the result isn't particularly shocking if we go back to the dark matter problem. Selecting the most productive firms is very much like the selection process going into selecting firms for a stock index. You end up over-representing the firms with large information transfer index values.

7 comments:

  1. "Selecting the most productive firms is very much like the selection process going into selecting firms for a stock index."

    Right. If the DJIA were comprised of its original firms, where would it be now? ;)

    ReplyDelete
    Replies
    1. Well, let's see ... take the stock price of the current form of the companies:

      American Cotton Oil
      Unilever (UN, UL [Anglo-Dutch])
      42.26

      American Sugar
      American Sugar Refining (private)
      (leave out, and scale by 11 instead of 12)

      American Tobacco
      RJ Reynolds (RJR), Fortune Brands (FO)
      46.47

      Chicago Gas
      We Energes (WEC)
      52.36

      Distilling & Cattle Feeding
      LyondellBasell Industries (LYB)
      95.45

      General Electric (GE)
      28.06

      Laclede Gas
      Laclede Group (LG)
      56.80

      National Lead
      NL Industries (NL)
      3.69

      North American
      We Energies (WEC)
      52.36

      Tennessee Coal & Iron
      US Steel (X)
      12.38

      U.S. Leather (pfd)
      liquidated
      0.00

      U.S. Rubber
      Michelin (Paris)
      85.99 euro = 97.67

      11 companies total = 487.50

      scale to modern size of index (x 30/11) = 1329.55

      weight by divisor (÷ 0.15) = 8863.64

      The liquidation of US leather leads to a value that is lower by about 900 than leaving it out.

      Current DJIA = 17084.49

      So it would be worth about 50% as much.

      Delete
    2. Also, it's 8702.80 if we leave out the second We Energies and scale appropriately (by 10 instead of 11).

      Delete
    3. Bravo!

      Actually, that's not so bad. :)

      Delete
  2. O/T, I saw this and thought of you:

    "The great Romanian-American mathematical statistician and economist Nicholas Georgescu-Roegen (1906-1994) argued in his epochal The Entropy Law and the Economic Process (1971) that the economy was actually a giant thermodynamic system in which entropy increases inexorably and our material basis disappears."

    Have you heard of that before?

    ReplyDelete

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