Economic research paper
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ChallengestoBalanceofPaymentsDataCollectionand.pptxChallenges to Balance of Payments Data Collection and its effect on International Business
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Overview
Introduction
Literature Review
Data Presentation
The Theory
Data Analysis
Conclusion
Hello everyone,
Today I am going to make a presentation on my topic which was Challenges to Balance of Payments Data Collection and its effect on International Business. After making a brief introduction, I will guide you through my literature review. Data presentation, theory used, analysis based on this theory and finally provide my conclusions and recommendations.
Enjoy.
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Introduction
Increase in trade between countries due to globalization
Economic and political differences in these countries mean differences in ability to do business cc
Bop used to indicate all transactions (monetary and economic) between two or more countries
Globalization has resulted to an increase in trade between countries irrespective of geographical location. However, given the economic and political differences in these countries, then the monetary and economic transactions made between the countries during the entire process becomes different. The BoP is a statement of all transactions (monetary and economic) between two or more countries during a specific period of time (Stern, 2017). All transactions have to be recorded for purposes of monitoring the financial activities between countries.
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Introduction Cont.
The bop is used to account for all transactions made by a country over a specific period of time, recorded in three separate accounts;
Current account
The capital account
The financial account
Challenges addressed include
Errors And Omissions (Statistical Discrepancies),
Fluctuating Exchange Rates
Change In The Value Of Money And Other Accounting Conventions
According to the Federal Reserve Bank of New York, the BoP is used to account for all transactions made by a country over a specific period of time, recorded in three separate accounts. These are the current account, the capital account, and the financial account (Scitovsky, 2016). Understanding how the balance of payments works in a country is critical to keeping the right kind of records. However, challenges to the collection of data on balance of payments oftentimes result from the problems of BoP. For instance, a country will be unwilling to release data that indicates how badly the economy is in a BoP disequilibrium. Others include errors, and omissions (statistical discrepancies), fluctuating exchange rates, change in the value of money and other accounting conventions (Kyle, 2015).
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Literature review
Razmi (2015)
Fávaro, Da Silva & Pirtouscheg (2016)
Bouchet, Fishkin & Goguel (2018)
Des Roches & Betancourt (2016)
Ko & Ha (2018)
Edmond, Midrigan & Xu, (2015)
A number of studies have been used to illustrate how BOP affects the ability of countries to do business. This sudy analyzed just but a few including the following;
Razmi (2015)
Fávaro, Da Silva & Pirtouscheg (2016)
Bouchet, Fishkin & Goguel (2018)
Des Roches & Betancourt (2016)
Ko & Ha (2018)
Edmond, Midrigan & Xu, (2015)
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Data Presentation
BoP = CuA+CA+FA-NeO
Where BoP=Balance of Payment
CuA=Current Account
CA=Capital Account
NeO=Net Error Omissions
In order to illustrate the challenges in Balance of Payments Data Collection and its effect on International Business, this study collected the available data on the current account, capital account, financial account and the net errors omissions from trade between USA and China. Their balance of payment was then calculated using the following formula;
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Data Presentation Cont.
| Year | Quarter | Current account (excludes reserves and related items) | Capital account (excludes reserves and related items) | Financial account (excludes reserves and related items) | Net errors and omissions |
| 2017 | Q1 | -84840 | -1 | -54163 | 30437.06 |
| Q2 | -133916 | 0 | -115328 | 18738.66 | |
| Q3 | -114190 | 24787 | -101682 | -12340.65 | |
| Q4 | -116191 | -40 | -59001 | 55686.67939 | |
| 2018 | Q1 | -93794 | -2 | -144647 | -50857.66 |
| Q2 | -118290 | -5 | -148497 | -27121.10 | |
| Q3 | -138602 | 562 | -24450 | 113411.76 |
Available fata data on the current account, capital account, financial account and the net errors omissions from trade between USA and China as recorded in the IMF is as indicated in the slide above.
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Data Presentation Cont.
A visual presentation of this data is included in the bar graphs below;
The first figure presents the balance of payments data calculated from the available CuA, CA, FA and NeO. A negative value indicates that there was a deficit. The second figure provides the data for the CA, CuA, FA and NeO in graphic.
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BOP
BOP 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 -169441.06476675376 -267982.66425245028 -178744.34818779078 -230918.67938600294 -187585.33703370698 -239670.89715554664 -275901.76326971489
Current account (excludes reserves and related items) 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 -84840 -133916 -114190 -116191 -93794 -118290 -138602 Capital account (excludes reserves and related items) 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 -1 0 24787 -40 -2 -5 562 Financial account (excludes reserves and related items) 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 -54163 -115328 -101682 -59001.000000000007 -144647 -148497 -24450 Net errors and omissions 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 30437.064766753752 18738.6642524503 -12340.651812209237 55686.679386002928 -50857.662966293028 -27121.102844453355 113411.76326971492
The Balance of Payment Theory
Exchange rate of a particular country affects the position of the balance of payments.
Unfavorable balance of payments causes a depreciation of the external value
Favorable balance of payments leads to an appreciation in the external value of the currency of the country
This theory asserts that the exchange rate of a particular country affects the position of the balance of payments. Indeed, a favorable balance of payments leads to an appreciation in the external value of the currency of the country while an unfavorable balance of payments causes a depreciation of the external value. Challenges in the collection of this data arise when these exchange rates are fluctuating so much, or when there are irregularities when coming up with the exchange rates themselves, which are determined by the current account and financial account.
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Data Analysis
| Regression Statistics | |
| Multiple R | 1 |
| R Square | 1 |
| Adjusted R Square | 1 |
| Standard Error | 6.76652E-12 |
| Observations | 7 |
| df | SS | MS | F | Significance F | |
| Regression | 4 | 11227456504 | 2806864126 | 6.13043E+31 | 1.63121E-32 |
| Residual | 2 | 9.15715E-23 | 4.57857E-23 | ||
| Total | 6 | 11227456504 |
| Coefficients | Standard Error | t Stat | P-value | |
| Intercept | 6.54836E-11 | 2.03361E-11 | 3.220073191 | 0.084410704 |
| Current account | 1 | 2.67639E-15 | 3.73638E+14 | 7.16305E-30 |
| Capital account | 1 | 2.69809E-15 | 3.70633E+14 | 7.27968E-30 |
| Financial account | 1 | 2.58184E-15 | 3.8732E+14 | 6.66591E-30 |
| Net errors and omissions | -1 | 2.63246E-15 | -3.79872E+14 | 6.92987E-30 |
To illustrate how a slight change might affect the balance of payment, a regression analysis was fitted to the data collected from IMF. It is important to note that this data has no irregularities as it is assumed that IMF did not have any challenges. Therefore, the data depicts a perfect relationship between CuA, CA, FA and NeO as indicated by the regression results included in the
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Data Analysis Cont.
BoP = 6.54836E-11+CuA+CA+FA-NeO
Where 6.54836E-11= coefficient which is basically 0.00.
BoP=Balance of Payment
CuA=Current Account
CA=Capital Account
NeO=Net Error Omissions
From the regression table results above, with BoP as the dependent variable and Current account, Capital account, Financial account and Net errors and omissions, then the formula derived is as follows;
BoP = 6.54836E-11+CuA+CA+FA-NeO
Where 6.54836E-11= coefficient which is basically 0.00.
BoP=Balance of Payment
CuA=Current Account
CA=Capital Account
NeO=Net Error Omissions
All the independent variables have a coefficient of 1 (with p values of 0.00), implying that when the data is collected without any issues/challenges, then the formula tallies with the formula asserted by the balance of payment theory.
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Conclusion
Having the perfect data collected over a given period of time will always result to accurate BoP
It is clear that having the perfect data collected over a given period of time will always result to accurate BoP that reflects the ability of a country to engage in international business. Data from IMF was used to affirm this claim, and a regression analysis revealed that the formula for calculating BoP as provided for by the balance of payments theory is accurate when the data has been collected in the best possible manner, given that net error omissions were considered. Challenges to the collection of balance of payments identified by this study included errors, and omissions (statistical discrepancies), fluctuating exchange rates, change in the value of money and other accounting conventions (Kyle, 2015).
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References
Des Roches, J. D. B., & Betancourt, R. G. (2016). Balance of payments and exchange rates. Chapters, 5-21.
Fávaro, F. F. F., Da Silva, G. J. C., & Pirtouscheg, L. A. S. (2016). Bureaucracy, External Trade and Long-Term Growth in a Balance-of-Payments Constrained Growth Model. In Anais do XLIII Encontro Nacional de Economia [Proceedings of the 43rd Brazilian Economics Meeting] (No. 113). ANPEC-Associaà § ã o Nacional dos Centros de Pós-Graduaà § ã o em Economia [Brazilian Association of Graduate Programs in Economics].
Ko, J. H., & Ha, J. W. (2018). A Trade War between China and the United States and Its Likely Economic Impacts. Journal of Global and Area Studies (JGA), 2(2), 47-64.
Kyle, J. F. (2015). The balance of payments in a monetary economy. Princeton University Press.
Razmi, A. (2015). Correctly analysing the balance-of-payments constraint on growth. Cambridge Journal of Economics, 40(6), 1581-1608.
Scitovsky, T. (2016). Money and the Balance of Payments. Routledge.
Stern, R. (2017). Balance of Payments: Theory and Economic Policy. Routledge.
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THE END
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