The American University in Cairo (AUC) School of Business is welcoming Karim Abadir as a Distinguished Visiting Professor (DVP) for the full duration of the 2017-18 academic year.
An AUC alumnus at both the undergraduate and graduate levels, and a School of Business Dean’s Strategic Advisory Board (SAB) member, Abadir is considered one of the world’s most renowned financial econometricians. He is an Emeritus Professor of Financial Econometrics at the Business School in Imperial College London and a referee in the Royal Swedish Academy of Sciences, the entity responsible for handing out Nobel Prizes.
The AUC School of Business spoke to Abadir about his experiences at AUC and what lies ahead for the Egyptian economy.
Looking back at your education at AUC, what tools do you feel you gained that have allowed you to succeed in the way that you have?
Critical thinking was vital; expressing myself in a mature and scientific way was very important. The material that I learned was also very important – because of it, I was ahead of many of my colleagues at [University of] Oxford [in my DPhil].
The undergrad degree gave me the option of choosing to do courses that were harder and even self-studied. For the master’s, I also gained extra knowledge – more technical knowledge – that bridged the gap between higher studies and undergraduate [studies]. What would you say is your favorite thing about being an academic?
The ability to shut out the world and just think quietly. I think research and discovery are my favorite things about the work. What makes you study a certain topic?
Initially you start with a blank piece of paper. Then you get some ideas by looking around you in the real world and by checking what people in the academic world are doing to see if there’s something that could be reworked or built on. Then you form your own research agenda and prioritize things that you feel are more important.
The unpredictability of it is my favorite part. I’ve worked on big projects that started with small ideas in terms of the way we understand economics and econometric models. The unpredictability in terms of how the discovery is going to be made is fascinating. Sometimes, I would spend the whole year thinking about something, and not getting any result; and all of sudden, without even thinking about it, it’s at the back of my mind and the answer is found – just like that. What do you feel attracts you to the field of econometrics?
What attracts me to it is its very scientific nature. It’s also connecting the world with economics in the sense that I have a lot of interest in macroeconomics and finance. There are many interesting theories, but they just don’t fit the data [in the two fields], so you try to understand: Is the theory wrong, or is the data analysis wrong? Having econometrics as well as those two topics of interest is a good connection because it makes your research more useful.
There is blue sky research that I’m engaged in which is very stimulating. You have ideas about developing mathematical tools; maybe 20 years into the future someone will use it, maybe not. The gap is getting bigger between the theory and application in mathematical areas. But now I’m also increasingly engaged in things that are applicable. There are major questions about how to fine-tune an economy and steer it away from a recession.What do you enjoy about teaching?
Teaching is very important because you train students to think in the way that you believe is the right method to think about the economy and the financial market. Do you tailor your teaching methods based on where you are?
It depends on the subject. If I’m teaching a mathematical subject, there’s some tweaking that is done, but not a lot. If I’m teaching an empirical subject, then yes definitely I do tailor it. There’s no point in trying to push something when the background interest isn’t the right one for it. What do you aim to accomplish during your stay as a DVP in the AUC School of Business?
In terms of research, I’m hoping to get some interest in exciting questions that are open, not just in the Egyptian economy, but in the world economy. I’ll also try to increase the collaborations and build up networks for AUC, which I have been doing anyway from a distance, but being here is more effective for that.
In terms of teaching, [my goal is to] educate business students to do things that even in the UK (United Kingdom) some universities don’t have access to.Do you feel that there are any goals that you have still not accomplished in your academic career?
There are unfinished research agendas. I would like to finish these because two of them in particular I think could be quite influential. One has to do with macroeconomic stabilization and how to guide an economy onto a good path. The other is related to volatility in financial markets. Do you feel that the Egyptian economy is going to bounce back soon?
The economy will not bounce back on its own. Government and Central Bank policies have to be adjusted. Some of the initiatives taken haven’t been applied in a proper way. Take subsidies for instance: You shouldn’t subsidize the goods; you should subsidize the people. A cash handout is good in many ways. First of all it gives people responsibility over their budget, leading to less waste and more awareness. It would also keep demand going in the economy and sustain people with low incomes.
The continuing jump in prices is mainly caused by the government deficit, as well as the recent freeing of the pound – which was a good move. Countering inflation by raising interest rates, however, isn’t going to bring back the value of the pound or limit consumption. The main reason central banks abroad raise interest rates is to reduce borrowing and consumption spending; this is not what is taking place in Egypt. If interest rates remain as high as they are now, it will kill off investment in productive activities and reduce productive capacity for the future. Inflation is going to come down, though, simply because after one year, the effect of the adjustment of the price of the pound is going to disappear, not because rates were raised. I would like to add that mega projects are a drain on limited resources, and do not generate enough economic benefit to justify themselves.