Economic Letters


29 December 2021

  • Determinants of loans to the private sector in Hong Kong (PDF)
    Veronica Li
    This article studies the determinants of private loans in Hong Kong from 1995 to 2019.  Specifically, the relationship between private loans and domestic macroeconomic variables namely GDP, 3-month HIBOR and residential property prices were examined using the vector error correction model.  The empirical results suggest that real GDP had a positive impact on real private loans over the next one to three quarters, while residential property prices would affect loans positively in the next quarter in the short run.  In the long run, property prices remained a significant positive determinant of private loans, while the cumulative negative impact of the HIBOR became more significant.

26 November 2021

  • Estimating the return to education in Hong Kong: An econometric approach (PDF)
    Jason Cheung
    The return to education is one of the most frequently-studied topics in labour economics. This paper attempts to estimate the private return to education in Hong Kong using the Mincerian equation and data from the 2016 By-census. The result suggests that, holding other factors constant, an additional year of schooling would increase the monthly income of a man by 11.6% and that of a woman by 12.6% respectively. Alternatively, a model in categorical form suggests that the returns to education at bachelor's degree and master's degree levels are much higher than those of upper secondary education and matriculation. The results were generally in line with those from previous studies.

29 October 2021

  • Forecasting unemployment with a model of labour flows (PDF)
    James P Vere
    This article applies Barnichon and Nekarda's (2012) two-state model of labour flows to the case of Hong Kong in two steps. In the first step, time series data on the employed and unemployed are used to estimate transition probabilities in and out of employment. In the second step, the transition probabilities are forecast with a VAR model, which yields one-step ahead forecasts of employment, unemployment, and the non-seasonally adjusted unemployment rate. Between 2001 and 2020, the model achieves a mean absolute error of 0.20 percentage point, performing notably better than a benchmark AR model.

30 September 2021

  • Labour market participation and employment composition of youths in Hong Kong: 1993-2020 (PDF)
    William Li
    This article analyses the dynamics of youths' labour market participation in Hong Kong and their employment composition from 1993 to 2020 as higher education became more popularised. The results suggest that (i) the overall labour force participation rate of youths declined along with the increase in the share of youths in full-time education, as full time students were less likely to participate in the labour market; (ii) most full-time students who opted to join the labour force engaged in part-time jobs, which was reflected in their sectoral and occupational compositions of employment; and (iii) an increasing proportion of youths not in full-time education engaged in the financing, insurance, real estate, professional and business services sector and higher-skilled occupations over time, especially for the older youths (aged 25-29). This was partly attributable to the educational upgrading of youths during the period.

29 July 2021

  • Impact of exchange rate movements of the Hong Kong dollar on consumer price inflation in Hong Kong (PDF)
    Eric Cheung and Victor Leung
    As Hong Kong relies predominantly on imports from outside sources for its supply of foodstuffs and consumer goods, local consumer price inflation is often influenced by external factors such as global economic and inflation conditions, as well as exchange rate movements. As such, there are concerns that the recent depreciation of the Hong Kong dollar alongside the US dollar against other major currencies may push up import prices, and hence, fuel price pressures in Hong Kong. This note analyses the extent to which Hong Kong's inflation is influenced by exchange rate movements (as measured by the import-weighted Effective Exchange Rate Index (EERI)). It is crudely estimated that a 1% year-on-year decrease in the import-weighted EERI would lead to a cumulative increase of around 0.1 percentage point in underlying inflation over one year.

16 July 2021

  • Hong Kong's long-term unemployment conditions since the recent economic downturn and compared with those in past downturns (PDF)
    Kelvin Wong
    This article surveys Hong Kong's long-term unemployment situation since the beginning of the recent economic downturn and compares the patterns with those in previous economic contractions in the past two decades or so. The long-term unemployment rate of Hong Kong surged from 0.6% in the second quarter of 2019 (the quarter before the recent recession) to a record high of 2.8% in Dec 2020 – Feb 2021. The sharp deterioration of the long-term unemployment situation during the recent economic downturn was even more drastic than those experienced in past economic downturns. This reflects the fact that COVID-19 seriously disrupted a wide range of economic activities, causing many persons to become unemployed within a short period of time and increasing the difficulty of finding a new job. As the local labour market improved more recently amid the gradual recovery of Hong Kong's economy and receding local epidemic, the long-term unemployment situation began to show some signs of improvement. The phenomenon was similar to past experiences that the improvement in the latter generally lagged that in the former by several months.

30 April 2021

  • An overview of the supply chain structure of major trade entities (PDF)
    Winnie Tse
    While global supply chains have traditionally been understood as a driver of economic efficiency along with globalization in the past decades, the interdependence therein has also introduced vulnerabilities to production. This article aims to map out the supply chain structure of the three biggest trade entities in the world, namely the Mainland, the US and the EU, and explores the potential impact of the disruptions in international trade on global supply chains arising from demand and supply shocks like the current pandemic.

16 April 2021

  • Impact of population ageing on productivity growth in Hong Kong (PDF)
    Leo Wong and Kelvin Wong
    As in many other advanced economies, Hong Kong's population is ageing rapidly. Besides affecting the stock of labour supply, the literature also suggests that ageing could have a negative impact on the productivity growth of an economy. This article aims to quantify the impacts of population ageing on Hong Kong's productivity growth. By analysing advanced economies using a panel regression, it is crudely estimated that population ageing would lower total factor productivity (TFP) growth in Hong Kong, and hence economic growth, by around 0.1 percentage point per annum during 2025-2044. The results suggest that the main channel through which ageing will affect Hong Kong's economic growth will be through dwindling labour supply.

30 March 2021

  • The potential impact of the COVID-19 pandemic on global poverty and income disparity: A literature review (PDF)
    Hector Cheng and Raymond Tsang
    The COVID-19 pandemic has severely affected people's livelihoods around the world and caused a profound impact on the global economy. With worldwide pandemic-related job losses and deprivation amid a deep global recession, there is a growing concern about vulnerable groups around the globe suffering from worsened poverty and income disparity. This literature review briefly summarises the methodologies and preliminary findings of major research articles on the anticipated impact of the COVID-19 pandemic on global poverty and income disparity from an economic perspective.

26 February 2021

  • An Overview of Universal Basic Income from an International Perspective (PDF)
    Kelvin Wong and Benny Lui
    The discussion of Universal Basic Income (UBI) has reignited in some advanced economies in recent years. Nevertheless, whether UBI can be taken on board as an implementable policy or even to fully replace existing social welfare measures of similar function has long been subject to notable controversy. This article reviews and compares the key features of selected UBI-related policies and experiments based on international experience, serving as an entry point to discuss some of the pros and cons and the potential possible impacts on public finance and social welfare.

18 January 2021

  • The effects of real exchange rates and income on inbound tourism demand for Hong Kong (PDF)
    Siu Yat Kui, Pascal
    This note investigates how real exchange rates and income (proxied by GDP) of selected Asian economies affected their visitor arrivals to Hong Kong during 2000Q1-2019Q1. Empirical findings show that appreciation of the real exchange rate of the origin economy (against the Hong Kong dollar) and increases in visitors' income generally induced more visitor arrivals to Hong Kong in both the short and long term. Furthermore, the impact of real exchange rates on visitors' travel decisions was usually reflected earlier than the income effect, matching the intuition that visitors might be quicker to decide to switch between destinations (a substitution effect between potential destinations caused by moving exchange rates) than to increase their amount of travel in general (an income effect).