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1. Recent Global Business Cycles: Characteristics and Implications

Author:
Sang-Ha Yoon
Publication Date:
02-2025
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
The analysis of economic patterns from late 1999 to 2023 reveals significant changes in how the world's economies connect with each other. Our research shows a clear trend toward more varied economic patterns, with regional and country-specific factors becoming more important than global influences. This shift became particularly noticeable after the COVID-19 pandemic, where we saw global factors having less influence on national economies than before. The study's findings have important implications for economic policy making. Countries need to develop flexible approaches that can adapt to both global and regional economic changes. At the same time, they must strengthen regional economic cooperation while maintaining domestic economic stability. The findings also highlight the importance of building better systems for responding to economic crises, while considering both regional and global factors in economic policy decisions. These changes suggest that the global economy is becoming more complex, with different regions and countries showing more independent movement than before. As this trend continues, the ability to balance global, regional, and domestic economic relationships will become increasingly important for maintaining economic stability and promoting growth.
Topic:
Economics, Business, Economic Growth, and COVID-19
Political Geography:
Global Focus

2. Unleashing AI´s Transformative Power: Reshaping Productivity, Labor Markets and Policy in the Global Economy

Author:
Antonio Serrano
Publication Date:
01-2025
Content Type:
Journal Article
Journal:
Revista UNISCI/UNISCI Journal
Institution:
Unidad de investigación sobre seguridad y cooperación (UNISCI)
Abstract:
This article explores how artificial intelligence (AI) is reshaping global productivity, labour markets and regulatory landscapes. It examines AI's potential to drive innovation, optimise processes and improve decision-making, while acknowledging associated risks such as job displacement, inequality and ethical concerns. The study highlights policy approaches such as the EU AI Act, emphasising a balanced, human-centred framework. It highlights the need for interdisciplinary collaboration to balance the transformative potential of AI with equitable and sustainable growth, and advocates for adaptive governance that fosters innovation while protecting fundamental rights.
Topic:
Economy, Economic Growth, Artificial Intelligence, and Digital Transformation
Political Geography:
Global Focus

3. Models of Industrial Policy: Driving Innovation and Economic Growth

Author:
Andrea Dugo, Fredrik Erixon, and Oscar Guinea
Publication Date:
05-2025
Content Type:
Working Paper
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
Europe’s approach to industrial policy has undergone a dramatic transformation in recent years, with state aid reaching 1.4 per cent of GDP in 2022, levels unseen since the early 1990s. While advocates of substantial state aid argue that this intervention is necessary to maintain competitiveness in a world where the US and China are implementing large-scale industrial strategies, the effectiveness of this approach remains contested. This paper critically examines the evolution of EU industrial policy, contrasting it with alternative models adopted globally and within Europe itself. While EU economic strategies since the 1980s had focused mainly on horizontal policies such as market liberalisation, competition enforcement and support to Research and Development (R&D), recent developments have shifted towards a more interventionist stance. This shift has largely been driven by crises – the financial crisis of 2008, the COVID-19 pandemic, geopolitical tensions, and the energy transition – which have prompted calls for greater state involvement in shaping industrial outcomes. However, this paper shows that, while industrial policy can support good economic development, it is not a determinant of economic success. All successful economies have pursued industrial policy, but so have all unsuccessful ones. This suggests that industrial policy, in and of itself, is not a determinant of economic growth and competitiveness. The effectiveness of industrial policy depends on its design, its ability to avoid market distortions, and its capacity to stimulate genuine private-sector investment rather than crowding it out. The revival of industrial policy in the EU – best exemplified by a series of high-level reports, including the Enrico Letta and Mario Draghi Reports of 2024 – signals a shift towards an industrial strategy that embraces state aid as a central tool for economic restructuring. Unlike earlier EU economic strategies that prioritised the deepening of the Single Market as the best form of industrial policy, recent proposals advocate for a relaxation of state aid rules to enable greater public subsidies for European industries. The rationale is that the EU must respond to global competitors who are no longer playing by the rules of free trade. As documented in this study, across a diverse range of EU countries, sectors, and policy targets, the prevailing industrial policy model in Europe consistently prioritises a selection of incumbent firms over the private sector as a whole, direct grants over other policy instruments, middle-technology sectors over high-tech ones. This paper argues that such an approach will not generate the desired outcome and assesses its shortcomings to encourage careful review by policymakers before Europe embarks on more of the same. In search of other policy solutions, this paper contrasts the broad European model of industrial policy with other approaches, particularly those of the US, South Korea, Switzerland, and Ireland, which offer, in different fields, alternative frameworks for fostering industrial competitiveness. These models are attractive because they respond to specific and growing problems in the EU economy that public policy can help to alleviate: low levels of investment, declining inward Foreign Direct Investment (FDI), lagging R&D-based innovation, and problems supplying industry with adequate human capital.
Topic:
Industrial Policy, European Union, Economic Growth, and Innovation
Political Geography:
Global Focus

4. Gender diversity and economic growth

Author:
Jonathan Ostry
Publication Date:
02-2025
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
Most macroeconomic and growth accounting models assume that male and female workers are perfectly substitutable in the aggregate production function. Whether this assumption is valid is an empirical question that this paper aims to answer by estimating the elasticity of substitution between female and male labour. We apply linear and non-linear techniques to firm-level data, cross-country sectoral data and cross-country aggregate data. We find that women and men are far from being perfect substitutes in production, a result that is consistent with much microeconomic evidence, but has not permeated to macroeconomics. The failure to account for imperfect gender substitutability has far-reaching implications. In particular, standard growth accounting exercises are likely to attribute to technological progress gains that are more properly attributable to the impact of greater gender inclusiveness in the labour force over time. Put differently, the gains from gender inclusiveness are likely to be much larger than standard economic models estimate.
Topic:
Governance, Women, Employment, Inequality, Economic Growth, and Macroeconomics
Political Geography:
Global Focus

5. Engaging Gender Equality in the Economic-Productive Sphere

Author:
Beatriz Muriel and Daniel Romero
Publication Date:
02-2024
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
This study reviews the conceptual framework of the economic-productive sphere and of gender equality, the aim of which is to establish theoretical-practical lines allowing progress in engaging these two spheres. In this context, equality in opportunities and in rights can be harmonized, though equality of “responsibilities, resources and retribution” by gender are more difficult to reconcile. Also, women’s (economic) empowerment – seen as a way of promoting gender equality – possesses a degree of relation with the theory of growth and wellbeing when an individual has the role of consumer, for which “capabilities” are needed for selecting valuable “functionings”. However, when such a woman takes on the role of worker, producer or businesswoman, her seeking of a high level of economic-productive performance does not imply that she is empowered, nor does the latter imply the former; though there may be a positive correlation between the two. On this basis, economic-productive interventions may harmonize with equality of opportunities by gender.
Topic:
Economic Growth, Equality, Empowerment, Gender, and Well-Being
Political Geography:
Global Focus

6. Good Governance and Rule of Law Effect on GDP Growth: Lessons for Emerging Economies

Author:
Esat A. Durguti, Avni Alidemaj, and Anatolijs Krivins
Publication Date:
04-2024
Content Type:
Journal Article
Journal:
Journal of Liberty and International Affairs
Institution:
Institute for Research and European Studies (IRES)
Abstract:
The overall aim of this article is to explore the effect of governance parameters on gross domestic product (GDP) in the 15 countries of the European Union (EU15) as well as the 6 countries of Southeast Europe (SEE6). The research employed the dynamic methodology generalized methods of moments (GMM) to explore the data gathered from the World Bank and the Global Economy database stretching 2000 - 2022, correspondingly 2008 - 2022. Our analyzed result for EU15 confirms that regulatory quality (RQ), government effectiveness (GE), and rule of law (RL) positively influence GDP; instead, control of corruption (CC) negatively influences GDP. The results obtained for SEE6 reveal that GE and CC positively influence GDP, but instead, the RL negatively influences GDP. Additionally, RQ in the SEE6 instance has shown an insignificant influence on GDP. Unfortunately, the study could not cover every country in both panel groups because of data limitations. Regarding the study’s conclusions, increased dedication to applying and undertaking reform measures for the key governance indicators for SEE6 countries would be helpful. These insights may raise the need to create specific mechanisms for the RL and CC. Compared to other research, the novelty and originality of the present research lies in the fact that it used panel data via the dynamic GMM approach to explore the role of improving government quality metrics in GDP.
Topic:
Corruption, Governance, GDP, Economic Growth, and Emerging Economies
Political Geography:
Global Focus

7. Reconciling Contrasting Views on the Growth Effect of Currency undervaluations

Author:
Cécile Couharde, Carl Grekou, Valérie Mignon, and Florian Morvillier
Publication Date:
05-2024
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
This paper provides an in-depth analysis of the link between exchange rate misalignments and economic growth for a large sample of 170 countries over the 1973-2019 period. We rely on new cross-country data on multilateral currency misalignments and cross-quantile regressions to demonstrate that the seemingly divergent views of the Washington Consensus and the export-led growth theory on the role of currency undervaluations in promoting economic growth can be reconciled. Although any significant departures from the equilibrium exchange rate levels are found undesirable, we show that undervaluations are more likely to stimulate economic growth in developing countries. However, this positive impact is observed only up to certain thresholds of development level and currency undervaluation. Consequently, strategies in the poorest countries that systematically undervalue currencies in real terms to foster growth should be carefully tailored, as they raise the risk for these economies of switching from a positive to a less favorable growth regime, depending on both their specific wealth level and the extent of their currency undervaluation.
Topic:
Economic Growth, Currency, and Undervaluation
Political Geography:
Global Focus

8. A Better Proxy for Technology Determinant of Economic Growth: The International Digital Economy and Society Index

Author:
Elif Asoy
Publication Date:
01-2024
Content Type:
Journal Article
Journal:
Istanbul Journal of Economics
Institution:
Istanbul University Faculty of Economics
Abstract:
The importance of information communication technology in fueling economic growth is widely acknowledged. In the current digital era, the International Digital Economy and Society Index (I-DESI) offers a more precise depiction alternative to the ICT indicators by serving as a better proxy for changes in the factors of production. It monitors the advancement of ICT in the EU27 and 14 non-EU nations, highlighting their strides towards a technologydriven economy. The objective of the study was to evaluate the influence of the I-DESI on economic growth through the utilization of the panel data method. Hence, gross domestic product (GDP) measured at constant prices was utilized as the dependent variable in the analysis, while the Index of Digital Economy and Society Integration (I-DESI), calculated by the European Commission, served as the independent variable. However, it’s important to note that the described index is current and limited at present. In line with this constraint, only four years of data, spanning from 2015 to 2018, were available. To ensure the accuracy of the model, diagnostic tests were conducted, and the Driscoll-Kraay standard error model was employed to assess the outcomes. Two models were constructed to achieve this goal, with the initial one revealing the relationship between the I-DESI and economic growth. The second model aimed to pinpoint the dimensions of the I-DESI that had the greatest impact on growth. According to findings obtained from the analysis, I-DESI and certain subdimensions which are digital skills, use of internet, integration of digital technology, and digital public services affect economic growth positively and significantly. A one percent increase in I-DESI results in a one percent increase in GDP. Similarly, each subdimension mentioned, where meaningful relationships have been identified, possesses explanatory power for GDP. Furthermore, evaluating the coefficient of these independent variables, changing the weight of dimensions can be considered.
Topic:
Economics, Science and Technology, Digital Economy, and Economic Growth
Political Geography:
Global Focus

9. Panel Data Analysis of Export Structure and Growth: Case of BRICS-T Countries

Author:
Necip Dündar and Yüksel Bayraktar
Publication Date:
01-2024
Content Type:
Journal Article
Journal:
Istanbul Journal of Economics
Institution:
Istanbul University Faculty of Economics
Abstract:
Realisation of specialisation in areas dominated by technological production structure and the technological level of exported goods are essential determinants of macroeconomic performance. Therefore, the export structure and technological level of exported goods are highly significant. In this study, the relationship between real GDP and exports of goods produced in BRICS-T countries with low, medium, and high levels of skill and technology is investigated. In the panel data analysis using data for the period 1995–2020, the cointegration relationship between the variables was examined, and it was concluded that there is no long-run relationship between real GDP and goods produced in labour-resource intensive, low, medium, and high skill and technology levels of countries. In addition, a causality test using Dumitrescu and Hurlin’s (2012) linear heterogeneous model was carried out. The test results showed a unidirectional causality relationship between real GDP and goods with low and high skill and technology but a bidirectional causality relationship between real GDP and labour-resource-intensive goods.
Topic:
Science and Technology, GDP, Economic Growth, Exports, and BRICS
Political Geography:
Global Focus

10. The tension between exploding AI investment costs and slow productivity growth

Author:
Bertin Martens
Publication Date:
10-2024
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
This working paper explores the tension between rapidly increasing artificial intelligence investment costs and the slower pace of productivity growth, raising concerns about a potential ‘economic winter’ for AI. AI has shown significant technological progress, particularly with machine learning and generative AI models like ChatGPT. Investment in AI has surged. But there are concerns about whether these investments will yield proportional returns. Training costs for a single frontier AI model are increasing exponentially, , from $1,000 in 2017 to nearly $200 million in 2024, driven by constant returns to scale in AI model training data, compute capacity and model complexity. Costs could reach billions of dollars by 2030, despite a rapid fall in unit costs per computing operation over the same period. Global AI infrastructure costs in hardware could exceed $1 trillion by the mid-2030s. Amortizing these huge fixed costs requires business models that can be rolled out across a very large user market. Estimates about AI’s contribution to productivity growth vary, from a modest 0.5 percent per year to a very optimistic 10 percent per year. Research shows that productivity usually catches up slowly compared to costs. Without significant productivity gains, the current investment cost trajectory is unsustainable. We estimate that 3 percent annual productivity growth across advanced economies would be required to sustain AI model cost extrapolations to 2030. In an optimistic scenario, productivity increases would result in accelerated economic growth.
Topic:
Digital Economy, Economic Growth, Microeconomics, Artificial Intelligence, and Productivity
Political Geography:
Global Focus