Friday, November 11, 2011

European macroeconomic figures

The Economist published a very interesting macroeconomic figures comparing European countries regarding three main indicators; state of the economy, debt and growth. The indicators of the state of the economy portray GDP per capita, unemployment rate and youth unemployment. Not surprisingly, countries with the highest unemployment rate are Spain, Greece, Lithuania and Slovakia. Counties with the most envious youth unemployment rate are Austia, Netherlands, Germany and Slovenia. Debt indicators consist of public debt, budget balance and average debt. The most interesting figure in this respect is public debt. The economies with the most heavily indebted governments are Greece and Italy while the countries with the lowest indeptedness are Bulgaria and Estonia. The latter was one of the first counties that prohibited public sector borrowing. Growth indicators are divided into three parts; annual GDP changes, latest GDP and annual GDP forecast. The forecast suggests that the most favorable growth prospects are expected in Lithuania, Estonia, Sweden and Poland. Negative growth prospect are expected for Greece and Portugal. Overall, the aggregate figures suggest that macroeconomic future of Europe will bring several yet unexpected changes.

Tuesday, October 18, 2011

Arab women

The interesting article in The Economist discusses the position of women in the post-revolutionary era in the Arab world, in particularly in Tunisia and Egypt. Nevertheless, the contribution and emancipation of women in Jasmin revolution has been instrumental in defending richly deserved civil liberties and grater human freedom. From now on, the main challenge of newly-emerged Arab societies is not only to lay solid foundationa of democratic institutions and governance but, nevertheless, to promote the political and economic empowermant of women since the transition to a vibrant civil sociaty can not be accomplished, by any means, without extending the virtues of human freedom to women. Recent political development in post-revolutionary Egypt suggests the opposite since women have been excluded from the commission on the drafting of the new constitution. Moreover, recent polls have shown that 60 percent of Egyptians believe that Sharia law sould be the ultimate legal system in the country. If that is the case, it would certainly jeopardize the prospects of bringing civil liberties to the very infancy of world's (hopfully) prospective democracies. What women of Jasmin revolution fear is the (yet) unlikely possibility that civil liberties would vanish. Nevertheless, the experience from Iraq suggests that even though women suffered badly during Saddam's rule it should not be forgotten that mostly prior to 1991 women were free to work, go to school and walk the streets unveiled. Moreover, in the early years of Baath rule women were declared equal under law and were required to attend literacy classes. Hopefully, the Arab spring shall correct the failures of the past while acknowledging its rather rare but vital virtues.

Saturday, September 10, 2011

The hidden side of China's economic growth

The Economist posted an interesting article where the author Mr. Arvind Subramanian portrays the picture of world economy in the next 20 years. The auther combined the index of economic dominance by considering three dominant factors: country's share of world GDP, trade and foreign investment. The index predicts a rapid increase in China's share of world GDP and a perpetual decline of America's economic leadership. According to his calculations by 2030, China will account for over 23 percent of world GDP. Although the author warns against big changes in geopolitical and economic landscape in the coming decades, the role of demography in these prediction has been overlooked. In fact, the author did not pay sufficient attention to the dynamics of ageing that will occur in the coming decades.

Although China's impressive growth record of last decades is result of its low level of income per capita compared to Western economies, its demographic prospects undermine China's long-run growth potential. China pursued strict birth-control policies and contoversial one-child policy, supposedly to prevent overcrowding of the population, particulary in densely-populated urban areas. China has been characterized by low fertility rate even though countries in the same income ladder enjoy disproportionely higher total fertility rate. In 2010, China's total fertility rate of 1.54 children per woman was surpassed by the majority of Western countries such as U.S. 2.06, France 1.97, UK 1.92, Norway 1.77, Netherlands 1.66 and Canada 1.58 childern per woman. As a consequence, one should not overlook the possibility of rapidly ageing Chinese population in spite of plenty of space to sustain robust catch-up growth.

As a country with abundant workingage population, Chinese policymakers might sooner or later introduce universal social security schemes that would in the long run jeopardize fiscal obligations and net financial liabilities from social security. The cost of ageing should not be underestimated even though current demographic projections do not capture the extent of policy changes therein that will eventually enter the couse of China's economic development.

The slow down of China's growth shoul be expected, in spite of current rapidity of growth - the situation that Japanese economy resembled in early 1980s when it rapid growth exhausted it potential.

Monday, May 30, 2011

Oil wealth and democracy

The recent study by Kevin K. Tsui (link) shed some important implications of the relationship between oil wealth and democratic governance. It is a well argued fact that major discoveries of oil hindered rather than encouraged the political transition of less developed and developing countries into well-functioning, stable and mature democracies.

Although oil-rich countries tend to favor political dictatorship, Norway, U.S. and Canada are proven exceptions to this particular pattern mainly because of the evolution of institutional stability safeguarding contract enforcement while imposing strict limits on the executive branch of government. On the other hand, oil-rich non-democratic countries, such as Libya, Jordan and Saudi Arabia may enjoy longer longevity and higher income per capita but, in the long run, the pressure for freedom of the press and greater civil liberties may sooner or later undermine the political power of seemingly untouchable dictatorships. This particular hypothesis can explain recent uprisings across the Arab world.

By and large, the lesson from revolutions in Tunisia, Egypt, Libya and other Arab states is that once oil wealth leads to the improvment of infrastructure, life expectancy and standard of living, the call for political liberties and stronger civil society is irreversible, which can undermine even the most robust dictators.

Saturday, February 19, 2011

The Future of the Arab World

The wave of revolutions in the Arab world has withheld authocratic political regimes in Tunisia and Egypt after weeks of violent protests and political turmoil that eventually resulted in overthrowing some of the most bloated and corrupt political leaders in the Arab world. The final departure of Egyptian and Tunisian presidents sparked a series of political demonstrations in countries across the Middle East, from Syria to Yemen and from Algeria to Bahrain. The ongoing pressures for greater civil society and for the establishment of democratic institutions pose a major threat to long standing political dictators in Arab states. Hence, the upcoming democratic change has eventually undermined the political authoritarianism and millitary dictatorship, both of which are incompatibile with the principles of economic freedom and civil society.

After having gained independence from colonial powers in 1950s, Arab countries adopted socialist model of economic development enhanced by heavy government intervention and political nationalism. The adoption of socialist public policies led to economic stagnation, institutionalized authocracy, often marred by millitary violence and civil war as in Algeria in early 1990s. The political and economic model of the typical Arab state is known for very low level of economic freedom even though structural indicators of Arab societies might indicate the opposite. Libya has steadily enjoyed the highest per capita income in North Africa. The country is the 15th largest oil exporter and has 9th largest prooved oil reserves in the World. However, Libya suffers heavily from 30 percent unemployment rate and diminished health and education outcomes. Libya's high GDP per capita is entirely inflated by high oil prices via excessive appreciation of the domestic exchange rate. Thus, as a developing country, Libya posts trade deficit while the country is a net exporter of capital flows. Excessive appreciation of Libyan currency, following high oil prices, is a potential source of Dutch disease - a triangle of slow productivity, weak domestic manufacturing sector and artificial wealth, created by a sudden surge of prices of natural resources without sufficient productivity growth. Therefore, Arab countries, from Qatar to Morocco, will have to undergo a swift transition to a competitive market economies, based on domestic structural change, rather than on artificial wealth increases, resulted from natural resource abundance.

The majority of Arab states suffers from centralized and dysfunctional financial system - a painful legacy of decades of socialist economic mismanagement. Prior to independence from France and the UK, several Arab countries already enjoyed competitive financial systems. Raghuram Rajan and Luigi Zingales examined the reversal of financial development in the 20th century and showed that, by 1913, Egypt's stock market capitalization/GDP ratio amounted to 1.09, far ahead of many of today's advanced economies. By that time, Egypt's financial development was comparable to the UK and Belgium. In 1960, in the midst of socialist revolution, the ratio plummeted to 0.01 - a symptom of severe underdevelopment of financial market.

The Arab world is flooded by widespread corruption. In Transparency International's Corruption Perception Index, the vast majority of Arab states perform badly, hindering institutions of the rule of law and democratic governance as the essential foundation of economic growth and structural change in the long run. The fact that 75 percent of Algerian youth below the age of 30 is unemployed, calls for immediate deregulation of the labor market and better governance in private and public sector.

The revolution and civil unrest across the Arab world is nevertheless calling for greater civil liberties and for the shift from corrupt authocratic regimes into political freedom, freedom of association and democratic institutions, safeguarding free elections and a cohesive adoption of non-authocratic political governance. Without restoring a sound protection of human rights for women and men and freedom of the press and speech, the economic future of the Arab world is doomed to gradual stagnation behind fast-growing emerging markets.