tag:blogger.com,1999:blog-64361956280427150042024-03-21T06:17:51.023-07:00Business EconomistA random walk down the world of business economicsUrsula Sprukhttp://www.blogger.com/profile/09989030899817531494noreply@blogger.comBlogger50125tag:blogger.com,1999:blog-6436195628042715004.post-80253169245507396632012-03-28T15:28:00.005-07:002012-03-29T04:50:29.261-07:00Cigarette consumption between genders<span>According to <a href="http://www.economist.com/blogs/graphicdetail/2012/03/daily-chart-14">The Economist</a> smoking is in the decline in Western Europe by 26% between 1990 to 2009 due to taxes, smoke-free policies and education. Whereas in the Middle East and Africa consumption of cigarettes increased by 57%. In emerging markets 800 million men are smokers whereas only 200 million are women. Moreover, 80% of this male cigarettes consumers are from low-income and middle-income countries. This problem is most apperent in China where 50% of men smoke compared to only 2% of women. In total China consumes 1/3 of world's cigarettes.</span><div><br /></div><br /><br /><a href="http://media.economist.com/sites/default/files/imagecache/full-width/images/2012/03/blogs/graphic-detail/20120324_WOM906.png"><img style="float:left; margin:0 10px 10px 0;cursor:pointer; cursor:hand;width: 595px; height: 859px;" src="http://media.economist.com/sites/default/files/imagecache/full-width/images/2012/03/blogs/graphic-detail/20120324_WOM906.png" border="0" alt="" /></a>Ursula Sprukhttp://www.blogger.com/profile/09989030899817531494noreply@blogger.com15tag:blogger.com,1999:blog-6436195628042715004.post-2325034819865976722012-03-26T15:58:00.002-07:002012-03-26T16:01:28.973-07:00Slavery in Mauritania<div><p class="MsoNormal"><span lang="EN-US">Slavery still exists in </span><st1:country-region><st1:place><span lang="EN-US">Mauritania</span></st1:place></st1:country-region><span lang="EN-US"> today. According to the UN 10% to 20% of people still live in slavery.</span></p><p class="MsoNormal"><span lang="EN-US"><a href="http://www.youtube.com/watch?v=5yQlOPD8mNo">http://www.youtube.com/watch?v=5yQlOPD8mNo</a> </span></p></div><div><br /></div>Ursula Sprukhttp://www.blogger.com/profile/09989030899817531494noreply@blogger.com2tag:blogger.com,1999:blog-6436195628042715004.post-55547908489784449642012-03-25T16:20:00.004-07:002012-03-25T16:26:20.753-07:00The changing demographic trends in London<a href="http://media.economist.com/sites/default/files/imagecache/full-width/images/print-edition/20120128_BRP001_0.jpg"><img style="float: left; margin: 0pt 10px 10px 0pt; cursor: pointer; width: 246px; height: 138px;" src="http://media.economist.com/sites/default/files/imagecache/full-width/images/print-edition/20120128_BRP001_0.jpg" alt="" border="0" /></a>Barking and Dagenham, in east London. With the fastest-growing birth rate in greater London over the decade to 2010 (up 58%), it also faces the biggest increase in demand for school places. At primary-school level this is set to rise by 43% between the academic years 2010-11 and 2015-16 (see map). <a href="http://www.economist.com/node/21543532">Link</a>Ursula Sprukhttp://www.blogger.com/profile/09989030899817531494noreply@blogger.com1tag:blogger.com,1999:blog-6436195628042715004.post-58912616570900983602012-03-25T16:07:00.004-07:002012-03-25T16:18:47.930-07:00Cuba's demographic challenges<a href="http://media.economist.com/sites/default/files/imagecache/290-width/images/print-edition/20120324_SRC697.png"><img style="float:left; margin:0 10px 10px 0;cursor:pointer; cursor:hand;width: 290px; height: 272px;" src="http://media.economist.com/sites/default/files/imagecache/290-width/images/print-edition/20120324_SRC697.png" alt="" border="0" /></a>Cuba is getting older. “The typical Cuban family consists of two grandparents, two parents and one child,” says Jorge Mario Sánchez of CEEC. <a href="http://www.economist.com/node/21550420">Link</a>Ursula Sprukhttp://www.blogger.com/profile/09989030899817531494noreply@blogger.com0tag:blogger.com,1999:blog-6436195628042715004.post-5774540941464413772011-11-11T12:36:00.000-08:002011-11-11T13:23:21.903-08:00European macroeconomic figures<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://encrypted-tbn3.google.com/images?q=tbn:ANd9GcTejh7nFAX3qYOGuCm8VxhDDthx7GwbhwZh5PK6JzUqP8UN5NVK"><img style="float: left; margin: 0pt 10px 10px 0pt; cursor: pointer; width: 221px; height: 115px;" src="https://encrypted-tbn3.google.com/images?q=tbn:ANd9GcTejh7nFAX3qYOGuCm8VxhDDthx7GwbhwZh5PK6JzUqP8UN5NVK" alt="" border="0" /></a><a href="http://www.economist.com/blogs/dailychart/2011/05/europes_economies">The Economist</a> 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.Ursula Sprukhttp://www.blogger.com/profile/09989030899817531494noreply@blogger.com0tag:blogger.com,1999:blog-6436195628042715004.post-63928679829299764152011-10-18T08:25:00.000-07:002011-10-19T08:00:49.878-07:00Arab women<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://media.economist.com/sites/default/files/imagecache/full-width/images/print-edition/20111015_FBP001_0.jpg"><img style="float: left; margin: 0pt 10px 10px 0pt; cursor: pointer; width: 198px; height: 111px;" src="http://media.economist.com/sites/default/files/imagecache/full-width/images/print-edition/20111015_FBP001_0.jpg" alt="" border="0" /></a>The interesting article in The <a href="http://www.economist.com/node/21532256">Economist</a> 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.Ursula Sprukhttp://www.blogger.com/profile/09989030899817531494noreply@blogger.com2tag:blogger.com,1999:blog-6436195628042715004.post-51541899180821364362011-09-10T13:36:00.000-07:002011-10-27T09:48:55.747-07:00The hidden side of China's economic growth<a href="http://www.enchantedlearning.com/asia/china/flag.GIF" onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}"><img style="float:left; margin:0 10px 10px 0;cursor:pointer; cursor:hand;width: 244px; height: 160px;" src="http://www.enchantedlearning.com/asia/china/flag.GIF" alt="" border="0" /></a><a href="http://www.economist.com/node/21528591">The Economist</a> 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.<br /><br />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.<br /><br /><a href="http://t0.gstatic.com/images?q=tbn:ANd9GcSM81qaKZcNnSW_5Rqrc1sYSPS4WGSZe7guojQgWdVB42qJC_b1" onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}"><img style="float:left; margin:0 10px 10px 0;cursor:pointer; cursor:hand;width: 256px; height: 197px;" src="http://t0.gstatic.com/images?q=tbn:ANd9GcSM81qaKZcNnSW_5Rqrc1sYSPS4WGSZe7guojQgWdVB42qJC_b1" alt="" border="0" /></a>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.<br /><br /><br /><br />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.Ursula Sprukhttp://www.blogger.com/profile/09989030899817531494noreply@blogger.com0tag:blogger.com,1999:blog-6436195628042715004.post-38718214783143756292011-05-30T12:37:00.000-07:002011-05-30T13:05:28.304-07:00Oil wealth and democracy<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://www.airforcetimes.com/xml/news/2011/03/ap-libya-rebels-divided-over-replacement-033011/033011ap_libya_rebels_800.JPG"><img style="float: left; margin: 0pt 10px 10px 0pt; cursor: pointer; width: 214px; height: 155px;" src="http://www.airforcetimes.com/xml/news/2011/03/ap-libya-rebels-divided-over-replacement-033011/033011ap_libya_rebels_800.JPG" alt="" border="0" /></a>The recent study by Kevin K. Tsui (<a href="http://www.voxeu.org/index.php?q=node/6537">link</a>) 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.<br /><br />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.<br /><br />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.Ursula Sprukhttp://www.blogger.com/profile/09989030899817531494noreply@blogger.com0tag:blogger.com,1999:blog-6436195628042715004.post-65480841799744588772011-02-19T11:03:00.000-08:002011-02-19T12:37:29.826-08:00The Future of the Arab WorldThe 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.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://orbitgoogle.com/wp-content/uploads/2011/01/arab-revolution-300x199.jpg"><img style="float: left; margin: 0pt 10px 10px 0pt; cursor: pointer; width: 203px; height: 135px;" src="http://orbitgoogle.com/wp-content/uploads/2011/01/arab-revolution-300x199.jpg" alt="" border="0" /></a>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.<br /><br />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.<br /><br />The Arab world is flooded by widespread corruption. In Transparency International's <span style="font-style: italic;">Corruption Perception Index</span>, 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.<br /><br />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.Ursula Sprukhttp://www.blogger.com/profile/09989030899817531494noreply@blogger.com0tag:blogger.com,1999:blog-6436195628042715004.post-17505500712041775052010-12-09T11:57:00.000-08:002010-12-09T12:52:02.623-08:00Corruption and bribesThe chart below shows the percentage of respondents in selected countries who willingly paid bribes to different service providers. The frequency of offering bribes for personal gains is strongly associated with the level of economic development. The highest percentage of paid bribes accures in those countries where the quality of institutions is very poor. The absence of judicial independence leads to the lack of trust, spread of uncertainty and costlier contract enforcement. In such conditions, corruption increases network and transaction costs. Thus corruption is a substitute for tax system. In terms of economic costs, corruption reduces economic growth by increasing the cost of transparent contractual relations. If corruption is persistent to a lesser extent, corrupt behaviour such as paying bribes is costlier since the probability of being caught is higher. Property rights and the rule of law together with judicial independence play an essential role in fighting corruption. Poorly defined property rights increase the risk of expropriation and therefore provide an incentive to pay bribes. Establishing a robust system of the rule of law is the best safeguard in tackling the persistence of corruption.<br /><br /><br /><div style="text-align: center;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://media.economist.com/sites/default/files/imagecache/original-size/20101211_WOC799.gif"><img style="margin: 0px auto 10px; display: block; text-align: center; cursor: pointer; width: 412px; height: 313px;" src="http://media.economist.com/sites/default/files/imagecache/original-size/20101211_WOC799.gif" alt="" border="0" /></a>Source: The Economist (<a href="http://www.economist.com/blogs/dailychart/2010/12/bribery">link</a>)<br /></div>Ursula Sprukhttp://www.blogger.com/profile/09989030899817531494noreply@blogger.com4tag:blogger.com,1999:blog-6436195628042715004.post-12572836119541238252010-12-08T13:44:00.000-08:002010-12-08T14:43:23.985-08:00Colonial legacy and economic developmentIn their <a href="http://www.sscnet.ucla.edu/polisci/wgape/papers/17_Lee.pdf">newest study</a>, Alexander Lee and Kenneth Schultz investigated the causes of widely divergent development outcomes in Northern and Southern Cameroon. After the independence in 1960, both parts of Cameroon attached a strong commitment to the culture of the respective colonizers. In spite of strong centralization policy, the economic divergence between both parts persisted.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://t1.gstatic.com/images?q=tbn:ANd9GcSLPDsx3X5PHfoiHZ8HwTUOfjYEIF9RgnqDq3pXQgEVYzxF_i3ZFg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 121px; height: 162px;" src="http://t1.gstatic.com/images?q=tbn:ANd9GcSLPDsx3X5PHfoiHZ8HwTUOfjYEIF9RgnqDq3pXQgEVYzxF_i3ZFg" alt="" border="0" /></a>As one of the most powerful colonial forces, France favored the policy principles of strongly centralized institutions which relied heavily on the administrative machinery of the state. Consequently, the French favored massive amounts of infrastructure investment. However, French colonial model led to the establishment of extractive states which lacked the rule of law and property rights as a foundation of economic development. In addition, the absence of clearly defined property rights resulted into the persistent power of political elites to extract political rents from natural resources while leaving behind a lot of forced labor and the lack of institutional autonomy. Consequently, development outcomes in the French part of Cameroon were significantly lower.<br /><br />On the other hand, the British part of Cameroon enjoyed sizeable benefits from the exposure to British common law, Protestant religion, British education system, ideas of limited government and institutional autonomy which provided independent judicial system. Contrary to the French, British colonizers did not boost forced labor to a great extent since massive investment in infrastructure was not fostered. The authors of the new study tested the hypothesis of long-run influence of colonial legacy on contemporary development outcomes. Interestingly, the British part of Cameroon enjoys significantly better access to clean water than the French part as well as higher level of economic development. The evidence suggests that colonial origins importantly determine development outcomes. Concluding on Cameroon's experience, the evidence seems to support the notion that the economic outcomes from the British rule are superior to the outcomes generaded by French colonial rule.Ursula Sprukhttp://www.blogger.com/profile/09989030899817531494noreply@blogger.com0tag:blogger.com,1999:blog-6436195628042715004.post-53802358508253878322010-12-06T05:58:00.000-08:002010-12-06T08:11:11.844-08:00Fertility, Earnings and Taxes<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://beckyland.files.wordpress.com/2009/07/stevens-family-c1909.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 148px; height: 118px;" src="http://beckyland.files.wordpress.com/2009/07/stevens-family-c1909.jpg" alt="" border="0" /></a>The persistence of low fertility rate is one of the many factors inhibiting the stability of public pension systems in developed world. From the 20th century onwards fertility rates have plummeted in all countries that belong to high-income group. The causes of this systematic drop in average fertility rates could be attributed to income affects of higher education and human capital as well es to greater perticipation of women in the labor market. The fertility rate used to stand above average in countries where the dominance of hierarchical religion has been present. Catholic countries such as Ireland, Portugal and Spain were known for extensive influence of religion on fertility decisions regarding the number of children. Thanks to greater use of contraceptive means, the fertility rates in those countries have stadely converged to the level of fertility in Protestant countries. In recent years, the fertility rate in Catholic countries has been ranked at the bottom in high-income country group.<br /><br />In concidering the features behind lower fertility rate, the influence of taxation of labor supply has been neglected. In Catholic countries, the rate of female participation in the labor market was significantly lower than male labor perticipation rate. The spread of the welfare state in developed countries in the 20th century led to significant spikes in marginal tax rates on labor supply. For instance, 45 percent marginal tax rate implies that from each additional dollar earned, 45 cents go directly to the governement. The implication is that tax burden of labor supply nearing predatory levels does not encourage men and women to spend more time in the labor market. Consequently, the level of earnings decreases in the course of life cycle, further reducing the parental willingness to increase family size.<br /><br />It is difficult to reverse the tax burden of labor earnings since the continuous growth of the welfare state amassed significant financial labilities of the government. To boost fertillity rate, it is essential to expand incentives to participate in the labor market, postpone labor market withdrawal and increase the family size. Without a prudent reduction of marginal tax rates and effective tax burden of labor supply, the Western world will experience decades of stagnating fertility rates whose negative impact on the stability of public finance could be difficult to reverse.Ursula Sprukhttp://www.blogger.com/profile/09989030899817531494noreply@blogger.com1tag:blogger.com,1999:blog-6436195628042715004.post-16023085050397048132010-11-27T14:24:00.000-08:002010-11-29T10:31:33.328-08:00The Consequences of Lower Fertility RateOne of the major challenges that modern world has to face is the reduction of fertility rate. Lower fertility rate leads to demographic imbalances. Demographic pressure on public finance will be enormous since the share of population above the age of 65 is expected to rise rapidly. Western world is undergoing a massive aging of the population. In the 20th and 21sth century, birth rates in Western countries have fallen considerably. Consequently, the share of population 65+ and old-age dependency ratio have increased extensively.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://t0.gstatic.com/images?q=tbn:ANd9GcSTamzl7-cpaPNCMDaTB17nujJacIDn0a8kBX80ROzrTdoHXoQs"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 172px; height: 175px;" src="http://t0.gstatic.com/images?q=tbn:ANd9GcSTamzl7-cpaPNCMDaTB17nujJacIDn0a8kBX80ROzrTdoHXoQs" alt="" border="0" /></a>One of the most notable consequences of aging population is an enormous pressure on the long term sustainability of entitlement spending. If public pension and health care systems will not adjust to changes in fertility rate and labor market entry and exit age, an ageing population might easely undermine the ability of public finance to cope with the burden of old-age dependency.<br /><br />The economic pressure of ageing population will inevitably require the adjustment of tax and spending policies. A growing share of dependent population implies that tax burden disporportionately falls on the working population. The growth of net financial liabilities and current effective tax burden strongly distorts labor supply decisions. Higher implicit tax rate during the working age might easily reduce the fertility rate and keep replacement rates below the demographic equilibrium level. Higher tax burden would then reduce the incentives for having children since the loss of consumption in the working age would stream into prospective periods. In addition, Western countries will have to tackle the issue of early retirement. Empirical evidence suggests that early retirement costs Western countries from 5 percent to 10 percent of the GDP each year.<br /><br />The growing share of population 65+ leads to changing political landscape. Pension spending would be difficult to reverse if age-dependent population represented a significant share of the voting body. This might trigger the incidence of pensioners' parties in national parliaments which could substantially halt the prospects of pension reform. In any case, age-dependent population would be able to subordinate the preferences of political parties. That would diminsh any plausible possibility of a much needed pension reform.Ursula Sprukhttp://www.blogger.com/profile/09989030899817531494noreply@blogger.com0tag:blogger.com,1999:blog-6436195628042715004.post-28145307466894196942010-11-23T04:22:00.000-08:002010-11-23T04:49:30.568-08:00Unemployment rate and economic freedomDoes increasing economic freedom raise the unemployment rate? To answer the question, I collected data on the unemployment rate and Index of Economic Freedom in 2010. I randomly chose 26 countries from various income groups. In the sample are Hong Kong, New Zealand, Switzerland, Australia, Canada, U.S., Denmark, Chile, UK, Netherlands, Spain, Norway, Mexico, France, Turkey, Italy, Tunisia, Brazil, India, Indonesia, China, Russia, Syria, Bolivia, Venezuela and Zimbabwe. Based on the sample data, I estimated the rate of unemployment as a function of economic freedom as measured by the Heritage Foundation.<br /><br />As it can be seen from the graph, economic freedom does affect the unemployment rate. In fact, the influence of economic freedom accounts for almost 37 percent of the variation in the unemployment rate. Partial regression coefficient suggests that a 1 point increase in the Index of Economic Freedom would reduce the rate of unemployment rate by 0.1452 percentage point. The coefficient is highly significant with p-value equal to 0.001. Thus, one could hardly blame greater economic freedom and labor market deregulation for the rise of the unemployment rate.<br /><br /><div style="text-align: center;"><span style="font-weight: bold;">Economic Freedom and Unemployment Rate</span><br /></div><div style="text-align: center;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgOIUo4hyFf7F-DcdwATs2MW5NZz7Ec_99unN9GektuyTJ_hAUIaB6bO28X15pIJMaKYRZzkdccUP9YBqzcawjs0y-VM-YOtep4rf_X8C36bsYBli2mGPM6xJV2BNng0gcUUvmoIBGL_TE/s1600/Graf.jpg"><img style="margin: 0px auto 10px; display: block; text-align: center; cursor: pointer; width: 320px; height: 214px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgOIUo4hyFf7F-DcdwATs2MW5NZz7Ec_99unN9GektuyTJ_hAUIaB6bO28X15pIJMaKYRZzkdccUP9YBqzcawjs0y-VM-YOtep4rf_X8C36bsYBli2mGPM6xJV2BNng0gcUUvmoIBGL_TE/s320/Graf.jpg" alt="" id="BLOGGER_PHOTO_ID_5542720240927712818" border="0" /></a><span style="font-style: italic;">Source: Index of Economic Freedom, 2010.</span><br /></div>Ursula Sprukhttp://www.blogger.com/profile/09989030899817531494noreply@blogger.com145tag:blogger.com,1999:blog-6436195628042715004.post-29307585594129127172010-10-26T14:48:00.000-07:002010-10-26T15:33:38.108-07:00The Strength of Corruption<a href="http://www.economist.com/blogs/dailychart/2010/10/corruption_perceptions">The Economist</a> summarized the findings of the 2010 Corruption Perception Index. Corruption is still one of the main obstacles to prosperity and good governance. Many governments around the world are reluctant to tackle corruption because it is a rewarding political behavior abusing the quality of institutions. Nevertheless, persistent corruption causes high transaction costs of contract enforcement. Thereby it is creating wasteful allocation of resources. On the other hand, developed countries are not immune to corruption. The key to high quality institutions in developed world is to find the way how to eliminate the presence of legal corruption.<br /><br />According to the <a href="http://www.transparency.org/policy_research/surveys_indices/cpi/2010/results">Index</a>, the perception of corruption in the world is the lowest in New Zealand, Denmark, Singapore and Sweden. Scandinavian countries still remain a benchmark for the nations around the world in adopting the best practices in fighting corruption. One of the main reasons is that these countries have adopted first-class institutions in formal and informal dimension. The highest perception of corruption was found in Somalia, Myanmar, Afghanistan and Iraq. It is time for undeveloped countries to recognize that corruption is the central drawback that keeps them poor and underprivileged; because it leads to economic stagnation, moral crises, wars and social unrest.<br /><br /><div style="text-align: center;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://media.economist.com/sites/default/files/imagecache/original-size/20101030_WOM500.gif"><img style="margin: 0px auto 10px; display: block; text-align: center; cursor: pointer; width: 386px; height: 227px;" src="http://media.economist.com/sites/default/files/imagecache/original-size/20101030_WOM500.gif" alt="" border="0" /></a><span style="font-style: italic;">Source: The Economist, The usual suspect</span> (<a href="http://www.economist.com/blogs/dailychart/2010/10/corruption_perceptions">link</a>).<br /></div>Ursula Sprukhttp://www.blogger.com/profile/09989030899817531494noreply@blogger.com0tag:blogger.com,1999:blog-6436195628042715004.post-65692958159887325612010-10-06T14:30:00.000-07:002010-10-12T05:11:08.100-07:00Obesity and employment<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://28.media.tumblr.com/tumblr_l9vemcxosm1qb4gfio1_250.png"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 250px; height: 200px;" src="http://28.media.tumblr.com/tumblr_l9vemcxosm1qb4gfio1_250.png" alt="" border="0" /></a>A very interesting estimate by the OECD shows that women with low level of education are far more likely than men to become obese.<br /><br />WSJ posted an interesting <a href="http://blogs.wsj.com/juggle/2010/10/06/for-women-it-pays-to-be-very-thin/">article</a> discussing the effect of weight on pay rates in Germany and the United States. The study found that employers treat women in a similar way than fashion industry does; by rewarding very thin women with higher pay. On the other hand, very thin men tend to get paid by $8,437 less than men with average weight. As men pack up their weight, their payroll goes up as well up to the point where they become obese. According to the study, pay-maximizing male weight is 207 pounds (93.89 kg). After that point, the loss of pay and productivity is higher for male than female. The study found that women who weigh 25 pounds (11.34 kg) less than the group norm, earned an average $15,572 more than women of normal weight. Another study found that direct and indirect cost of obesity for women is $4,879 which is about twice as much as for men ($2,646).<br /><br />Overall, the obesity strongly reduces employment prospects and wage rates for both male and female. It also increases social risk such as exclusion and significantly lower mobility. Obese people find it more difficult to increase the payroll and employment status. This pattern is confirmed both at the theoretical and empirical level.Ursula Sprukhttp://www.blogger.com/profile/09989030899817531494noreply@blogger.com2tag:blogger.com,1999:blog-6436195628042715004.post-23995866053757611192010-10-06T14:05:00.000-07:002010-10-06T14:28:26.616-07:00Does education increase employment?<a href="http://oecdfactblog.tumblr.com/post/1255613232/want-to-work-stay-in-college">The data</a> supplied by the OECD indicate that going to college significantly increases the likelihood of employment. The graph shows the distribution of employment rates by educational level in 8 OECD countries. Employment rates are divided into two categories - secondary degree or less and tertiary degree. The gap in employment rate between the two categories is the widest in Slovak Republic, Italy and Germany. There is a general tendency across countries that the likelihood of employment increases with the level of education. In addition, the employment gap persists in observed countries. This empirical fact is consistent with human capital theory which predicts higher earnings and employment alongside the increasing level of education.<br /><br /><div style="text-align: center;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://24.media.tumblr.com/tumblr_l9veiryR4o1qb4gfio1_250.png"><img style="margin: 0px auto 10px; display: block; text-align: center; cursor: pointer; width: 250px; height: 200px;" src="http://24.media.tumblr.com/tumblr_l9veiryR4o1qb4gfio1_250.png" alt="" border="0" /></a> Source: OECD (2010)<br /></div>Ursula Sprukhttp://www.blogger.com/profile/09989030899817531494noreply@blogger.com0tag:blogger.com,1999:blog-6436195628042715004.post-86033786414121126582010-09-14T12:28:00.000-07:002010-09-14T14:07:21.786-07:00Why Cuba's economic model failedFidel Castro, Cuba's long-standing dictator, recently confessed (<a href="http://news.yahoo.com/s/ap/20100908/ap_on_re_la_am_ca/cb_cuba_fidel_castro_5">link</a>) to the American journalist that Cuba's communist political and economic model never worked. This is nonetheless a shocking statement revealing the actual awareness of the fundamental fallacies of the communist economic model. Cuba was long known for miserable social and economic indicators that were tried to be hidden by the ruling Communist party of Cuba. So, why is Cuban economic model destined to fail?<br /><br />First, prior to the 1959 communist revolution, Cuba enjoyed the status of one of the wealthiest countries in Latin America, known for high level of judicial independence and strong protection of private property rights. Not surprisingly, before the revolution, Cuba recorded the highest stock market capitalization of any Latin American countries. The solid level of capital market development was a mere reflection of sound contract enforcement instituted by the judicial protection and the rule of law. When the revolution began, Cuba eliminated all private property rights by collectivization of land and by a complete nationalization of private enterprises. By that time, the very fundamentals of economic development were destroyed.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://cdn0.lostateminor.com/wp-content/uploads/2009/02/havana-cuba.jpg"><img style="margin: 0pt 0pt 10px 10px; float: right; cursor: pointer; width: 250px; height: 164px;" src="http://cdn0.lostateminor.com/wp-content/uploads/2009/02/havana-cuba.jpg" alt="" border="0" /></a> Second, Cuban communist leaders looked up to the Soviet Union as a role model of the socialist society. By the time of the revolution, Cuba followed the course of destructive economic policy. It began imposing price controls and the trade with the rest of the world, except for the socialist countries, was ended. In addition, civil and personal liberties vanished under the communist regime. Therefore, Cuban economic model resulted in food shortages, land depletion, massive immigration and frequent oil crises.<br /><br />The collapse of the Cuban system was anticipated since every communist nation ended its Marxist economic experiment in the disastrous failure. For instance, Yugoslavia's socialist model resulted in the political disintegration of the country, record-breaking hyperinflation and a civil war. Cuba long praised its supposedly superior health care system which was said to outperform the quality of the American health care system. It is not difficult to infer that the majority of health indicators was manipulated by the government bureaucracy. Recently, Raul Castro decided to fire 500.000 government employees as an attempt to boost the growth of the struggling socialist economy (<a href="http://edition.cnn.com/2010/WORLD/americas/09/13/cuba.economy/">link</a>).<br /><br />The ultimate roots of Cuban economic failure lie in the belief of the power of the state to replace free price mechanism and free enterprise system as the coordinator of economic decisions of individuals and firms. The intention of Cuban revolutionary leaders to create "heaven on earth" resulted in probably the most significant economic and social stagnation in the 20th and 21st century. The case of Cuba reaffirmed the unprecendent failure and theoretical inconsistency of Marxist economic theory and policy. Cuban political and economic experiment once again showed that socialist political philosophy is based on false and misguided philosophical premises that completely misunderstood the meaning and nature of human liberty.Ursula Sprukhttp://www.blogger.com/profile/09989030899817531494noreply@blogger.com0tag:blogger.com,1999:blog-6436195628042715004.post-73811626229368711052010-09-10T11:38:00.000-07:002010-09-10T12:43:45.269-07:00Spain's labor market reform<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://live.kyero.com/wp-content/uploads/zapatero2.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 232px; height: 178px;" src="http://live.kyero.com/wp-content/uploads/zapatero2.jpg" alt="" border="0" /></a>According to WSJ (<a href="http://online.wsj.com/article/SB10001424052748704644404575481312712670330.html?mod=WSJ_World_LEFTSecondNews">link</a>), Spain has finally implemented the broader reform of the labor market structure. Spain's 20 percent unemployment rate is the highest in the Euroarea. Traditionally, Spain was known for its notorious and heavily regulated labor market. The country used to maintain high levels of minimum wage and high cost of dismissal. The reform introduced by the Zapatero government removed the restrictions for dismissals on a fair basis and deregulated dismissal procedures on indefinite labor contracts. Dismissal cost has been decreased from 45 days to 33 days of salary per year worked.<br /><br />The labor reform in Spain led to a lot of controversy among economists. Dani Rodrik (<a href="http://rodrik.typepad.com/dani_rodriks_weblog/2010/09/some-economists-topsy-turvy-world.html">link</a>), for instance, claims that labor market deregulation and fewer firing restrictions will further increase the unemployment rate since the major cause of it is the lack of labor demand. On the other hand, a handful of economists claim that Spain's persistent labor market rigidities are the major cause of country's high unemployment rate.<br /><br />According to World Bank, redundancy cost in Spain averages 56 weeks of wages, more than twice the OECD level. During recessions, the decline in labor demand usually increases the unemployment rate and, therefore, hiring and firing restrictions do not exert the major influence on firm's decisions to employ additional units of labor. However, the persistence of strong labor market regulation imposes significant economic costs.<br /><br />First, firms do not employ the optimum amount of labor. High redundancy cost and rigid dismissal procedures lead to either under-employment or over-employment of labor. Thus, firms shift the burden of high labor cost on higher prices, lower dividends and lower net wages.<br /><br />Second, labor market regulation has broader implications. It eventually leads to more institutional rigidities and more pressure on higher wages by trade unions through collective bargaining. Consequently, wages become downward rigid. During the economic recovery, firms are therefore less motivated to employ new workers or extend the existing labor contracts.<br /><br />As Spain finally recovered from the recession, the ongoing labor rigidity and even the increasing labor demand could not alleviate Spain's high unemployment rate. It would only put more pressure on Spain's government to increase government spending on unemployment schemes. Therefore, the reform of the labor law based on labor market flexibility is the most plausible alternative for Spain to boost employment and decrease the widening budget deficit that threatens country's economic recovery.Ursula Sprukhttp://www.blogger.com/profile/09989030899817531494noreply@blogger.com2tag:blogger.com,1999:blog-6436195628042715004.post-78225136976503272392010-09-06T13:07:00.000-07:002010-09-06T14:20:56.271-07:00Should Bush tax cuts be extended?According to WSJ (<a href="http://online.wsj.com/article/SB10001424052748703723504575425282130641978.html">link</a>), the majority of surveyed economists in the U.S. suggests that Obama administration should extend personal income tax cuts imposed under Bush administration between 2001 and 2003. Given the dismal effects of $787 billion stimulus, the U.S. economy would greatly benefit from tax cuts on earners in all income brackets. However, is the administration under president Obama willing to reverse the growing trend of government spending?<br /><br />Critics of Bush tax cuts claim that reduction in personal income tax rates between 2001 and 2003 resulted in a disproportionate windfall gain to the wealthiest U.S. households while the families in the lower tail of income distribution received very low or zero gains from 2001-2003 tax cuts. What would happen if the Obama administration extended tax cuts for all taxpayers? Would the reduction of tax burden lead to stronger and faster U.S. economic recovery? To answer the question, it is essential to understand what actually happened with the U.S. economy when Bush tax cuts were implemented.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://theiowarepublican.com/home/wp-content/uploads/2010/08/tax-cuts.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 147px; height: 111px;" src="http://theiowarepublican.com/home/wp-content/uploads/2010/08/tax-cuts.jpg" alt="" border="0" /></a>Between 2001 and 2003, Bush administration enacted a series of tax cuts aimed at boosting the recovery of the U.S. economy from the 2001 recesion. In this year, tax rate on income in the lowest bracket was reduced to 10 percent while top marginal tax rate was slashed to 35 percent from 39.6 percent. Tax rates were also reduced for middle-income earners. In 2002, the administration reduced tax burden on new business investment while in 2003 tax rates on dividends and capital gains was decreased. These measures were a part of broader $1.35 trillion tax cut program approved by the Congress over a ten year course.<br /><br />However, tax cuts didn't pay for themselves as President Bush promised. The reason is the growth of federal government spending which increased by 2.5 percentage points of GDP between 2001 and 2008. During his term, President Bush signed the so called <span style="font-style: italic;">Medicare Part D</span> plan which assured seniors additional drug prescription. The act created $8.4 trillion in unfunded obligations in present value terms. The CBO (Congressional Budget Office) estimated that extending Bush tax cuts would cost the U.S. Treasury $1.8 trillion in the following decade and would dramatically increase the federal budget deficit.<br /><br />The war in Iraq was the major source of a growing public debt. Between 2001 and 2008 the federal public debt increased by 5.4 percentage points of GDP. Due to the growth of government spending, tax cuts led to a widening budget deficit. It should be noted that tax cuts were not the cause of the 2008-2009 budget deficit as critics often argue. An analysis by Center for Budget and Policy Priorities has shown that Bush tax cuts account for about 25 percent of the 2009 federal budget deficit.<br /><br />If tax cuts are not accompanied by the reduction in government spending, the outcome is likely to result in either budget deficit or growing public debt. This is exactly what happened in the medium term with Bush tax cuts. A reduction in tax burden on personal income can result in higher tax revenue only if government spending is reduced. The U.S. budget outlook suggests a dismal fiscal future for America, marred by high public debt and a wide budget deficit that is unlikely to disappear before 2017. Bush tax cuts should be extended for earners in all income brackets, but only under a permanent reduction of government spending. Otherwise, any further tax cut would only add to the magnitude of federal budget deficit.Ursula Sprukhttp://www.blogger.com/profile/09989030899817531494noreply@blogger.com0tag:blogger.com,1999:blog-6436195628042715004.post-88731106817095522802010-08-05T10:40:00.000-07:002010-08-10T07:48:05.851-07:00Natural resources and prosperityDoes natural resource abundance lead to more wealth and higher growth? This is an ample question of economic growth theory. In addition, many episodes of economic consequences of resource abundance suggest there is no single relationship between resources and growth. Many countries around the world are economically dependent on the supply of natural resources, especially in least developed and developing countries. In spite of significant amount of resources such as oil, coal, natural gas, gold and other commodities, many developing nations remain undeveloped and vastly dependent on foreign aid.<br /><br /><div style="text-align: left;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://www.vnf.com/assets/htmlimages/Oil_Rigs.resize.jpg"><img style="margin: 0pt 0pt 10px 10px; float: right; cursor: pointer; width: 232px; height: 159px;" src="http://www.vnf.com/assets/htmlimages/Oil_Rigs.resize.jpg" alt="" border="0" /></a>Countries such as Iran, Libya and Venezuela are among the largest oil-producing developing countries. In spite of vast supply of commodities, the data and experience do not suggest a positive impact of resources on economic growth. Prior to the 1979 Islamic revolution, Iran used to be one of the most developed countries in the Middle East. After 1979, Iran underwent an overhaul of its economic system and a beginning of large-scale state intervention in the economy. The theocratic government regime <span style="font-style: italic;">de facto</span> suppressed private property rights and imposed strict government control over the economy. Even though Iran's oil reserves have been among the largest in the world, country's GDP per capita and structural indicators have stagnated since 1979.<br /><br />Venezuela is a brilliant textbook example of how resource-abundant economy can stall as a consequence of socialist political dictatorship and unlimited constitutional power of the dictator. Libya is attributed with the largest supply of oil in Africa. Country's oil sector accounts for 95 percent of export earnings, 60 percent of public sector wages and 25 percent of GDP (<a href="https://www.cia.gov/library/publications/the-world-factbook/geos/ly.html">link</a>). Even though the country is the largest oil exporter in Africa and despite a GDP per capita in the rank of Russia and Lithuania, the unemployment rate is estimated at 30 percent which is the 21st highest unemployment rate in the world. In addition, Libya's business environment is marred by the lack of economic freedom resulted from high degree of corruption in public sector and judicial system. According to Heritage Index of Economic Freedom (<a href="http://www.heritage.org/index/Country/Libya">link</a>), Libya is the least free economy in North Africa and Middle East which is nonetheless unsurprising since in 1978 all private property rights for private businesses were eliminated.<br /><br />Resource abundant countries also used to be expropriated by the colonizers in the age of colonization. Early colonizers of a vast majority of African resource-abundant countries did not focus on the permanent establishment of sound property rights and contract enforcement but solely on the extraction of natural resources. This created huge political instability and intense war conflicts on the African continent. On the other side, there are countries with abundant natural resources and high prosperity at the same time such as Norway and Canada. The political history of these countries suggests an entirely different institutional setting, based on the protection of private property and contract enforcement. Such a structure and origin of the legal system ensured low transaction costs and sound contract protection by the judicial system as the basis of economic development.<br /><br />After centuries of socialist political and economic mismanagement, dictatorships in Africa and the Middle East resulted in the artificial wealth illusion demonstrated by relatively high GDP per capita and poor structural indicators such as high unemployment rate. Therefore, one should be cautious in examining the relationship between natural resources and economic growth in the longer run. Nevertheless, institutional, historical and political background of resource abundance should not be neglected.</div>Ursula Sprukhttp://www.blogger.com/profile/09989030899817531494noreply@blogger.com1tag:blogger.com,1999:blog-6436195628042715004.post-28175295687375645372010-07-15T13:16:00.000-07:002010-07-15T15:01:52.765-07:00The economic nonsense of corporate income taxThe share of corporate income tax in tax revenue has been growing in the last two decades in the majority of countries. Beginning in 1990s, policymakers in developed countries have trimmed corporate income tax rates in the hope of fewer distortions to saving and investment. As a consequence, tax revenues from this particular tax have increased as a share of the GDP. Surprisingly, leaders in corporate income tax reduction were high-tax European countries such as Sweden, Austria and Germany. Today, the lowest corporate income tax rates in developed world are found in European countries such as Cyprus and Ireland.<br /><br />What is the economic feasibility of corporate income tax? In fiscal theory, the rationale for this particular tax lies in the existence of benefits from legal protection enjoyed by the corporations and private limited companies. Joseph Stiglitz has argued that this particular tax is a tax on entrepreneurship as it discourages new capital formation. Corporation's tax base depends on the amount of revenues minus expenditures for labor, materials and capital goods. The real paradox of corporate income tax is that it is preferable for the corporation to create new debt than to issue equity. In fact, the debt is considered as a deduction from corporation's tax base. Thus, it is difficult for start-ups to get the loan from the banks as the bank is not willing to take on the risk involved with the repayment of the loan since start-ups' success is uncertain. Therefore, the existence of corporate income tax hinders business investments and entrepreneurial activity in general.<br /><br />The abolition of corporate income tax would be an important boost to capital formation and new business investment. In addition, many economic distortions would disappear. It should not be neglected that tax incidence in corporate income tax is not shifted to the corporation. The ultimate payers of this tax are workers, customers, suppliers and shareholders. The tax is shifted in lower wages, higher prices and lower dividends. At last, the tax also creates perverse incentives that discourage investment and, nevertheless, job creation.<br /><br /><div style="text-align: center;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://upload.wikimedia.org/wikipedia/commons/thumb/3/36/Income_Taxes_By_Country.svg/800px-Income_Taxes_By_Country.svg.png"><img style="margin: 0px auto 10px; display: block; text-align: center; cursor: pointer; width: 425px; height: 299px;" src="http://upload.wikimedia.org/wikipedia/commons/thumb/3/36/Income_Taxes_By_Country.svg/800px-Income_Taxes_By_Country.svg.png" alt="" border="0" /></a>Source: OECD Tax Database (<a href="http://www.oecd.org/document/60/0,2340,en_2649_34533_1942460_1_1_1_1,00.html">link</a>)<br /></div>Ursula Sprukhttp://www.blogger.com/profile/09989030899817531494noreply@blogger.com1tag:blogger.com,1999:blog-6436195628042715004.post-71900693176682179332010-07-14T12:16:00.000-07:002010-08-06T14:27:27.364-07:00Benefits of immigration<a href="http://www.economist.com/blogs/newsbook/2010/07/migration&fsrc=nwl">The Economist</a> wrote an interesting article on the significance of migration and important spillovers from immigration into developed countries. The economic crisis of the past year has slowed the flow of international migration. As the estimate from Migration Policy Institute suggests, the stock of illegal immigrants in America fell from 12.1 million in July 2008 to 11.9 million in the year after. It is important to emphasize the economic benefits of migration for developed and developing countries.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://www.economist.com/sites/default/files/201029NAP455.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 266px; height: 151px;" src="http://www.economist.com/sites/default/files/201029NAP455.jpg" alt="" border="0" /></a>The migration to developed countries has resulted in higher employment and greater specialization in the labor market. Without the flow of migrants the structure of the labor market in developed countries would incentivize workers to take lower paid jobs which would result in lower incomes. As the developed countries opened their borders to immigrants from all over the world, young individuals were enabled to invest in human capital and by doing so increase their career prospects. As for developing countries, migrants increase the stock of human capital availible to the country of migrant's origin. Therefore, immigration from less developed countries should not be seen as a loss but as an immense opportunity to get the know-how and high skills through which the country of migrant's origin shall prosper. The widespread emergence of technologies such as Google's applications, Twitter, Facebook, Linkedin etc. has further enhanced the flow of knowledge and information to the countries of migrant's origin. It should not be neglected that economic catch-up, generated from technological imitation, is the only way for less developed countries to reach the income per capita of their richer peers.<br /><br />The OECD published a report where it estimated that the inflow of migrants to rich countries fell by 6 percent in 2008, to 4.4 million. Five years before 2008, the inflow of migrants soared. The main benefit of immigration is more favorable demographic outlook since developed countries will experience sharp increases in the share of older population (65 years and over), replacement rate and fiscal burden of entitlement spending. The inflow of immigrants not only benefits the labor market but it also boosts incentives to work, save and invest since immigrants work longer hours and retire later than native population. Therefore, immigration should not be discarded but encouraged and promoted by national governments.Ursula Sprukhttp://www.blogger.com/profile/09989030899817531494noreply@blogger.com0tag:blogger.com,1999:blog-6436195628042715004.post-38933322057146471412010-07-12T12:27:00.000-07:002010-07-12T13:23:43.877-07:00African economic developmentCould the 2010 World Cup bring an end to decade-long economic stagnation and poverty persistence on the African continent? Political and social unrest in the great number of African countries has led to civil wars and consequently, African countries experienced little or no economic growth. Institutions such as World Bank have produced vast amounts of theoretical and empirical literature concerning African development agenda. African economic history is a history of colonization which serves as an efficient instrument for controlled experiments to test different theories of economic development and explain the true causes behind economic success and failure.<br /><br />To be more percise, there is a limited amount of successful country studies that serve as a model of development to other African countries. In particular, legal origins of colonizers explain both initial economic conditions and long run economic performance. South Africa has been colonized by the Dutch and Great Britain. These two countries have exported their legal system based on the rule of law, robust property rights and liberal commercial code. The same happened in Mauritius, Gabon and Botswana. Incidentially, African countries abundant with natural resources were a quick target to European colonizers who focused their attention to the extraction of natural resources rather than on building a solid system of property rights protection and long term law enforcement. This hypothesis probably explains why countries situated near equator are deemed to long-run economic stagnation.<br /><br />Policymakers in less developed African countries should realize the drawbacks of political instabillity and potential conflicts. Without strong institutional foundations of economic performance such as a clear committment to establish a sound system of property rights protection, foreign aid will help little and produce no net gain for African countries. This reaffirms the basic postulate of economics: Incentives matter. Everything else is a commentary.Ursula Sprukhttp://www.blogger.com/profile/09989030899817531494noreply@blogger.com0tag:blogger.com,1999:blog-6436195628042715004.post-45047230833704885222010-07-09T12:31:00.000-07:002010-07-09T13:08:15.614-07:00The impact of crisis on employmentIn recent days, Greek public sector workers have launched protests against government austersity measures which include a cutback in minimum wages, public pensions, an increase in effective retirement age and a cut in entitlements. An interesting question is how the crisis affected employment outlook across the world. The OECD recently presented a brief overview of unemployment dynamics in member states (<a href="http://www.oecd.org/document/9/0,3343,en_21571361_44315115_45602953_1_1_1_1,00.html">link</a>).<br /><br />The countries, least affected by the crisis in terms of unemployment surge, are the ones with strong and flexible institutional foundations of the labor market such as the flexibility of wages, the ease of firing and hiring, tax wedge and the linkage between productivity and wage rates. These countries are, for instance, Austria, The Netherlands, Korea and Norway. The surge in unemployment has been the most significant in countries such as Spain, Ireland, U.S. and Iceland where the banking and financial crisis have torn real income and employment by heavy spillover of financial shock into the real sector. It is important to emphasize that long-term employment outlook in OECD countries will be determined by wage flexibility and regulatory environment which is essential and conducive to job creation besides economic growth and unit labor costs.Ursula Sprukhttp://www.blogger.com/profile/09989030899817531494noreply@blogger.com0