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11. China’s quest for innovation: progress and bottlenecks

Author:
Alicia Garcia-Herrero and Robin Schindowski
Publication Date:
06-2023
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
As the Chinese economy continues to decelerate, the central government is investing heavily in innovation, doubling down on research and development (R&D) spending and STEM-oriented human capital. In this paper, we assess China’s progress so far, looking at the inputs to innovation (R&D and human capital) as well as intermediate targets, such as scientific research and patents. We then evaluate how China has fared with respect to the ultimate goal of commercialising this progress, by looking at the value-added of Chinese exports and the overall productivity of the economy. We identify three potential bottlenecks that might be hindering the translation of China’s innovation efforts into productivity growth.
Topic:
Industrial Policy, European Union, Economic Growth, Innovation, and COVID-19
Political Geography:
China, Europe, and Asia

12. Can Chinese growth defy gravity?

Author:
Alicia Garcia-Herrero
Publication Date:
06-2023
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Chinese growth, astounding since the beginning of the reform era, has slowed in the last decade. We offer a baseline estimate (based on the current trend) of China’s medium-term growth rate, which we project to fall to 2.4 percent by 2035. Several factors create uncertainty around this baseline. China’s rapid aging is already incorporated into our long-term growth scenario, but its impact on growth will depend on how China’s remaining urbanisation process spreads over time, how the shrinking labour supply affects labour productivity and whether the decline in total factor productivity growth, reflecting the lack of reform during the last decade and possibly the rising role of the state, can be reversed. Investment in China, for decades the largest factor in China’s growth, is expected to contribute less to growth given the increasingly low return on assets, particularly on state-led investment. The rapid piling up of public debt is also becoming a heavy burden for the Chinese economy. Finally, the COVID-19 pandemic may have left significant scarring effects, such as structurally high youth unemployment and low investment confidence. On the upside for China, the rise in human capital and research and development expenditure may support innovation and growth, but the magnitude of this effect is uncertain, because it is unclear if higher innovation will translate into higher total factor productivity, and because of the United States’s push to contain China technologically.
Topic:
Industrial Policy, European Union, Economic Growth, and COVID-19
Political Geography:
China, Europe, and Asia

13. The state of economic convergence in the Eurozone: Two decades of monetary union and economic governance

Author:
Adriaan Schout
Publication Date:
01-2023
Content Type:
Special Report
Institution:
Clingendael Netherlands Institute of International Relations
Abstract:
What is the state of economic convergence in the euro area? And will the redefinition of the Stability and Growth Pact result in a more effective policy for achieving convergence? A common currency, together with the four freedoms, was assumed to lead to economic convergence. This Clingendael Report reviews the state of convergence in the euro area by focusing on nominal, real and institutional convergence. Despite a range of policy initiatives and monitoring systems, convergence has not been achieved neither in terms of monetary and economic performance nor of the quality of governance at the national level. Despite some major successes in convergence, welfare has continued to diverge in some countries and differences in debt levels have increased up to the point of threatening the - economic and political - coherence of the euro area. Public spending also varies considerably while higher public spending does not ensure higher growth levels. The paradoxical situation has arisen in which countries that (drastically) reduced debt levels performed better in terms of growth and reduction in unemployment.
Topic:
Economics, Governance, European Union, Economic Growth, and Economic Stability
Political Geography:
Europe

14. The Emissions Reduction Potential for Freight Transport on a High-speed Rail Line Along the ‘European Silk Road’

Author:
Erica Angers, Aleksandr Arsenev, and Mario Holzner
Publication Date:
09-2023
Content Type:
Special Report
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
This report estimates the CO2 emissions of freight transport on a hypothetical high-speed rail (HSR) line along the northern route, from Lyon to Warsaw, of a ‘European Silk Road’ (ESR). Using a methodology consisting of predictions regarding the freight-carrying capacity of the future HSR, and the commodity-level switchover, our results indicate that a best-case scenario, at a project lifecycle of 60 years, in which all trains run with 257 tonnes of load, provides for a reduction of 176.2 Mt of net CO2 emissions compared with current levels. These lifespan savings are comparable to a reduction of net emissions by close to 24% of the overall EU transport sector emissions (excluding air transport) of one year (as measured by the net emissions in 2018). The net negative emissions in the optimistic full-capacity scenario will compensate for the construction costs in 13 years. Thus, the potential for emission reduction along the northern route of the ESR is quite substantial, given that this is just one line, with limited capacity. This hints at the importance that bold missions, such as the construction of a pan-European HSR network, could have for the definition of a European Green Industrial Policy that is capable of supporting the fulfilment of the goals of the Paris Agreement on climate change.
Topic:
Climate Change, Infrastructure, European Union, Economic Growth, Transportation, Logistics, Ecology, and Green Economy
Political Geography:
Europe

15. Policy landscape 2023

Author:
Ben Zaranko, Jonathan Portes, Mike Brewer, Paul Cheshire, and Carole Willis
Publication Date:
09-2023
Content Type:
Special Report
Institution:
UK in a Changing Europe, King's College London
Abstract:
What are the public policy challenges confronting the UK? What plans do the parties have for addressing them? To what extent are these plans fit for purpose? As Parliament returns from its summer recess, Full Fact and UK in a Changing Europe have partnered to produce a series of evidence led, research-based assessments of the key issues that politicians will confront. To do this, we brought together a group of leading experts from respected institutions including the Health Foundation, the Institute for Fiscal Studies, and the Royal United Services Institute. We asked each of them to consider, based on the findings of their own research, the challenges the country faces in their area of expertise, the immediate and longer-term issues politicians will need to address, and the potential implications of any choices they might make. We selected the issues based on the Ipsos issues index, and added security, defence and foreign affairs, which did not figure amongst the public’s priorities in July of this year. The intention of the collection is to inform and not persuade. Each article in this collection is the responsibility of its author.
Topic:
Climate Change, Education, Health, Politics, European Union, Economy, Brexit, Economic Growth, Public Policy, Fiscal Policy, Housing, and Standard of Living
Political Geography:
United Kingdom and Europe

16. The Fate of Flat Tax in the EU countries

Author:
Krassen Stanchev
Publication Date:
12-2023
Content Type:
Working Paper
Institution:
Center for Social and Economic Research - CASE
Abstract:
Since 1989, flat tax (FT) reforms have been attempted in Europe and the EU only by ex-communist countries and Iceland. In the 1990s all ex-communist countries lowered and simplified their income taxes, often starting with corporate taxes. In the late 1990s and early 2000s they also reformed their social security systems. In many respects the tax reforms have never stopped, but with regard to income taxation they are less radical than in the 1990s and at the turn of this century. Even when there were reforms re-establishing progressive taxation, they have almost never returned to complex sets of nominal rates and a steep vertical ladder of progressive thresholds. This report attempts to reconstruct the reasons why EU countries moved to introduce proportional taxation on either corporate or personal income, or both, as well as the reasons behind five of them returning to progressive taxation. These reforms happened in different political and economic contexts. It would be difficult to identify unequivocal causality between flattening taxes and economic performance. However, the report compares the dynamics of economic growth and factors related to competitiveness for periods before and after the reforms were launched. The same effort has been made for indicators of wealth and disposable income. The analysis allows for a discussion of lessons learnt and of the prospects for further reforms. The report concludes that it seems impossible to prove that FT systems have been a key contributor to higher economic growth. However, it does seem that, if the social security contributions remain relatively stable and are financed by other tax revenues, they have a positive impact on fiscal performance and general welfare.
Topic:
Reform, European Union, Economic Growth, Tax Systems, Corporate Tax, and Flat Tax
Political Geography:
Europe and Post-Soviet Europe

17. What Growth Strategies Do Citizens Want? Evidence from a New Survey

Author:
Lucio Baccaro, Bjorn Bremer, and Erik Neimanns
Publication Date:
08-2023
Content Type:
Working Paper
Institution:
Max Planck Sciences Po Center on Coping with Instability in Market Societies (MaxPo)
Abstract:
While research on the economic characteristics of growth models across countries is now extensive, research on the politics of growth models is still in its infancy, even though governments routinely pursue different strategies to generate growth. In particular, we lack evidence on (1) whether citizens have coherent preferences towards growth strategies, (2) what growth strategies citizens prefer, and (3) what shapes their preferences. We address these questions through a new survey of public opinion in Germany, Italy, Sweden, and the United Kingdom, which exemplify different models. We find that preferences for growth strategies are consistent with other policy preferences and are meaningfully structured by class and retirement status, and to a lesser extent by sector of employment. At the same time, differences across class and sector are small, and a large majority of respondents across countries favor wage-led growth. This suggests there is a “representation gap,” since this particular growth strategy is in crisis everywhere.
Topic:
Public Opinion, Economic Growth, Representation, Macroeconomics, Comparative Capitalism, and Growth Models
Political Geography:
United Kingdom, Europe, Germany, Italy, and Sweden

18. Between inflation and growth: for an ECB at the service of European power and strategic autonomy

Author:
Nicolas Goetzmann
Publication Date:
09-2023
Content Type:
Working Paper
Institution:
Robert Schuman Foundation (RSF)
Abstract:
The succession of shocks that have hit the global economy since the beginning of 2020 highlights the strengths and vulnerabilities of the different growth models of the major global blocs, namely the United States, China and the European Union[1]. While the United States can still count on domestic consumption, which is the unsinkable foundation of the country's development, China faces the necessary evolution of a model considered obsolete by its authorities[2]. From growth guided by a level of investment that will be difficult to sustain over the long term and a trade balance that is largely in surplus, Xi Jinping's China is under increasing pressure to support its domestic demand as a means of correcting its imbalances. Situated at the centre of this Sino-American competition, the European Union - and more precisely its heartland, the euro area - finds itself weakened by sluggish domestic demand and development based largely on foreign trade, the structure of which has been geopolitically undermined over the last three years. However, the shortcomings of the European growth model came to light in the aftermath of the great financial crisis, which pushed the GDP trajectory onto a path of stagnation, the first consequence of which was that it fell behind the United States, before being overtaken by the Chinese economy in 2021.
Topic:
European Union, Economic Growth, Inflation, and Strategic Autonomy
Political Geography:
United States, China, and Europe

19. Reimagining Africa’s role in revitalizing the global economy

Author:
Amin Mohseni-Cheraghlou
Publication Date:
10-2023
Content Type:
Policy Brief
Institution:
Atlantic Council
Abstract:
The world economy now finds itself at a critical juncture, facing a series of extraordinary setbacks that have pushed down growth. Reigniting growth requires a unique combination of targeted policies, robust international cooperation, and a renewed look at the global economy, with a particular focus on Africa. Due to its burgeoning and youthful population, abundant natural resources, and a strategic geographical location that can facilitate global trade, Africa can play a major role in—and should be front and center of—any renewed efforts for revitalizing the global economy. A decade-long robust, inclusive, and green growth in Africa will not only move hundreds of millions living in the continent out of poverty but will also accelerate a global rebound and recovery. However, for this to materialize, Africa needs substantial investments in its failing and inadequate physical and social infrastructure. With access to basic infrastructure, alongside efficient institutions as well as its young population, massive natural endowments, and strategic location Africa can seize its economic potential and act as an engine of growth for the global economy for decades to come. Therefore, it is crucial to support Africa to unleash its immense economic potential, through massive and focused investments in the continent’s human capital and its physical and social infrastructure.
Topic:
Development, International Organization, Reform, European Union, Regulation, Finance, Economy, and Economic Growth
Political Geography:
Africa, China, Europe, and United States of America

20. If the EU was a State in the United States: Comparing Economic Growth between EU and US States

Author:
Fredrik Erixon, Oscar Guinea, and Oscar du Roy
Publication Date:
07-2023
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
This Policy Brief is a warning call about Europe’s poor economic growth and its consequences for prosperity. The long-term trend of Gross Domestic Product per capita is crucially important but not always easy to grasp. While it’s common to compare levels of growth between countries in a single year, the reality is that it is the long-term trend that matters. An economy that grows at 3 percent per year will double in 24 years but an economy that grows at 1 percent per year will double only in 48 years. For a long time now, the average growth rate in mature and developed European economies has been closer to 1 than 3 percent. The EU has had positive economic growth but it has been slow in comparison with other developed economies. If European countries were states in the United States, many of them would belong to the group of poorest countries. In this Policy Brief, we rank GDP per capita in EU countries and US states, and the result is dispiriting. The ranking of GDP per capita in 14 EU member states, which together represented 89 percent of EU GDP, was lower in 2021 than in 2000. For instance, France and Germany were as rich as the 36th and the 31st US states in 2000, but twenty-one years later, French GDP per capita was lower than the 48th poorest US state, Arkansas, while German GDP per capita had fallen to become as prosperous as the 38th US state, Oklahoma. GDP per capita in Central and Eastern European countries have grown considerably but their relatively small size and lower starting point stop them from reverting the trend of relative European economic decline. The result of this economic divergence between EU member states and US states is a growing wedge of GDP per capita between the EU and the US, which in 2021 was as large as 82 percent. If the trend continues, the prosperity gap between the average European and American in 2035 will be as big as between the average European and Indian today. This Policy Brief tells a story about the EU’s unfulfilled economic potential but also offers a ray of hope. If the US states have managed to sustain robust rates of economic growth, the EU member states can do it too. However, to do so the EU must bring back economic growth and competitiveness to the centre of its economic policy. If Europe is to face the challenges presented by climate change and the digital transition, the growing burden of an aging society and defence budgets, higher economic growth is not an option but a necessity.
Topic:
European Union, GDP, and Economic Growth
Political Geography:
Europe, North America, and United States of America