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171. The Economic Impact of Political Instability and Mass Civil Protest

Author:
Samer Matta, Michael Bleaney, and Simon Appleton
Publication Date:
01-2021
Content Type:
Working Paper
Institution:
Nottingham Interdisciplinary Centre for Economic and Political Research (NICEP)
Abstract:
An extensive literature has examined the economic effects of non-violent political instability events. Nonetheless, the issue of whether economies react differently over time to such events remains largely unexplored. Using synthetic control methodology, which constructs a counterfactual in the absence of political instability, we estimate the output effect of 38 regime crises in the period 1970-2011. A crucial factor is whether crises are accompanied by mass civil protest. In the crises accompanied by mass civil protest, there is typically an immediate fall in output which is never recovered in the subsequent five years. In crises unaccompanied by protest, there are usually no significant effects. Furthermore, this paper provides new evidence that regime crises (with and without mass civil protest) have heterogeneous (country-specific) effects on output per capita.
Topic:
Economics, Political Economy, Regime Change, Political stability, Economic Growth, Protests, Economic Policy, and Civil Unrest
Political Geography:
Global Focus

172. World economy in spring 2021: Recovery stays on track

Author:
Klaus-Jurgen Gern, Philipp Hauber, Stefan Kooths, and Ulrich Stolzenburg
Publication Date:
03-2021
Content Type:
Commentary and Analysis
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
The global economy continued to recover in the winter semester, despite the number of new infections with the coronavirus rising sharply and containment measures tightened again in many countries. Industrial production and world trade have already fully catched up with activity levels before the pandemic and appear to be little affected by the second wave of Covid-19. While the European economy did slip into recession again, the decline in GDP is not expected to be dramatic and should be followed by a strong recovery from spring onward, provided that progress in vaccination allows a substantial and sustained relaxation of measures designed to suppress the virus. In the course of this year, the global upturn will thus increasingly extend to economic sectors that remain severely impeded for the time being, such as tourism and entertainment, and to economies that are particularly geared to these activities. On a purchasing power parity basis, global output is expected to increase by 6.7 percent in 2021 and by 4.7 percent in 2022, thus progressively closing the gap to the pre-crisis path of activity towards the end of the forecast period. We have raised our December forecast by 0.6 percent for both this year and next, with a particularly strong improvement in the outlook for the United States. World trade in goods is expected to grow by 7.5 percent this year. With growth of 4.7 percent this year and next, respectively, Towards the end of the forecast horizon world trade will thus be even higher than expected before the crisis.
Topic:
Economics, International Trade and Finance, Forecast, Economic Growth, Pandemic, and COVID-19
Political Geography:
North America and United States of America

173. Endogenous Growth, Skill Obsolescence and Fiscal Multipliers

Author:
Wolfgang Lechthaler and Mewael F. Tesfaselassie
Publication Date:
05-2021
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
We analyze the effects of government spending in a New-Keynesian model with search and matching frictions featuring endogenous growth through learning-by-doing and skill loss from longterm unemployment. We show that medium-run and long-run output and unemployment multipliers are much larger compared to the standard model that abstracts from endogenous growth and skill loss. In our model the aggregate effect of a temporary fiscal stimulus is amplified via the skill loss channel through lower training costs. Via the learning-by-doing channel, it leads to hysteresis in human capital accumulation and thereby output. These results hold for alternative forms of fiscal financing (lump-sumtax, distortionary tax and government debt) as well as alternative labor market institutions (US and Europe).
Topic:
Governance, Economic Growth, Economic Theory, and Labor Market
Political Geography:
North America and United States of America

174. German Economy Summer 2021

Author:
Kiel Institute
Publication Date:
06-2021
Content Type:
Commentary and Analysis
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
The German economy is picking up speed again. After the resurgence of the Covid-19 pandemic had interrupted the economic recovery in the winter half-year, GDP will expand at a fast pace in the further course of the year and exceed its pre-crisis level again. With the removal of the pandemic-related restrictions, activity will rebound, especially in those areas that were previously particularly burdened. Retail trade and contact-intensive services in particular are likely to benefit from the rebound in private household consumption. For the time being, however, the recovery will be delayed in the manufacturing industry. The strong global recovery has brought with it multi-layered supply bottlenecks that are noticeably hampering production in many firms. Despite the very good order situation, production in the manufacturing industry will therefore probably only gradually return to its recovery path in the second half of the year, provided that the supply bottlenecks then gradually ease. With the supply bottlenecks, price pressures have also increased, especially as economic momentum is high worldwide. Thus, prices for raw materials, intermediate goods and transport services have recently been on a broad upward trend. All in all, GDP is expected to grow by 3.9 percent this year and by 4.8 percent in 2022. Consumer prices will rise at a much faster rate of probably 2.6 percent this year and by around 2 percent in 2022.
Topic:
Economics, GDP, Economic Growth, Pandemic, Industry, and COVID-19
Political Geography:
Europe and Germany

175. Cordon of Conformity: Why DSGE models Are Not the Future of Macroeconomics

Author:
Servaas Storm
Publication Date:
02-2021
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The Rebuilding Macroeconomic Theory Project, led by David Vines and Samuel Wills (2020), is an important, albeit long overdue, initiative to rethink a failing mainstream macroeconomics. Professors Vines and Wills, who must be congratulated for stepping up to the challenge of trying to make mainstream macroeconomics relevant again, call for a new multiple-equilibrium and diverse (MEADE) paradigm for macroeconomics. Their idea is to start with simple models, ideally two-dimensional sketches, that explain mechanisms that can cause multiple equilibria. These mechanisms should then be incorporated into larger DSGE models in a new, multiple-equilibrium synthesis – to see how the fundamental pieces of the economy fit together, subject to it being ‘properly micro-founded’. This paper argues that the MEADE paradigm is bound to fail, because it maintains the DSGE model as the unifying framework at the center of macroeconomic analysis. The paper reviews 10 fundamental weaknesses inherent in DSGE models which make these models irreparably useless for macroeconomic policy analysis. Mainstream macroeconomics must put DSGE models, once and for all, in the Museum of Implausible Economic Models – and learn important lessons from non-DSGE macroeconomic approaches.
Topic:
Economics, Economic Growth, Macroeconomics, Money, Demand, and Models
Political Geography:
Global Focus

176. The Updated Okun Method for Estimation of Potential Output with Broad Measures of Labor Underutilization: An Empirical Analysis

Author:
Claudia Fontanari, Antonella Palumbo, and Chiara Salvatori
Publication Date:
05-2021
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper extends to different indicators of labor underutilization the Updated Okun Method (UOM) for estimation of potential output proposed in Fontanari et al (2020), which, from a demand-led growth perspective, regards potential output as an empirical approximation to fullemployment output, as in A.M.Okun’s (1962) original method. Based on the apparent incapability of the official rate of unemployment to fully account for labor underutilization, in this paper we offer estimates of Okun’s law both with broad unemployment indicators and with an indicator of ‘standardized hours worked’ which we propose as a novel measure of the labor input. The paper reflects on the possible different empirical measures of full employment. The various measures of potential output that we extract from our analysis show greater output gaps than those produced by standard methods, thus highlighting a systematic tendency of the latter to underestimate potential output. Output gaps that underestimate the size of the output loss or that tend to close too soon during recovery, may produce a bias towards untimely restriction.
Topic:
Economics, Labor Issues, Economic Growth, Demand, and Unemployment
Political Geography:
Global Focus

177. Institutional Quality, Trade Openness and Economic Growth in South Asian Economies: Some New Insights from a Panel Data Analysis

Author:
Hafiz Muhammad Qasim, Abdul Majid, and Atif Jadoon
Publication Date:
01-2021
Content Type:
Journal Article
Journal:
South Asian Studies
Institution:
Department of Political Science, University of the Punjab
Abstract:
The main aim of the present study is to empirically investigate into the question whether the Institutional Quality (IQ) and Trade Openness (TO) are competitors or complements in Economic Growth (EG) in case of sample South Asia Economies; “India, Bangladesh, Pakistan, and Sri Lanka”. The panel data for the period of 1984-2018 has been utilized. The Fixed Effects Model (FEM) estimation technique has been applied for empirical investigation. The empirical results of FEM confirm the positive and statically significant impact of IQ and Interaction Term on Economic Growth in sample countries. The positive significant results strongly supported the hypothesis of this study, the IQ and TO are complements in EG in the case of sample SAE. The IQ measure has also established positive and significant effects on EG while the TO has a negative impact. Based on empirical findings, this study recommends that the policymakers of sample countries should make policies that strengthen the IQ, in order to improve trade and, consequently, the EG.
Topic:
International Trade and Finance, Economic Growth, Institutions, and Economic Theory
Political Geography:
South Asia and Asia

178. Transformation through Inclusive Growth: Achieving a Balanced Recovery

Author:
Zambia Institute for Policy Analysis & Research (ZIPAR)
Publication Date:
11-2021
Content Type:
Commentary and Analysis
Institution:
Zambia Institute for Policy Analysis and Research (ZIPAR)
Abstract:
The Zambian National Budget for the year 2022 was announced by the Minister of Finance on 29th October 2021. This marked the first Budget of the newly elected United Party for National Development Government following the August 12, 2021 national election. As such, this represented the first formal statement of the new Government’s economic policy. While the Budget contains many transformative ideas, it is important to zoom in on the areas where caution is imperative and what those specific details means for the people the Budget is meant to serve, and for the whole economy. This paper therefore analyses the 2022 National Budget under the theme: ‘Transformation through Inclusive Growth: Achieving a Balanced Recovery’. The paper present insights into the key fiscal and macroeconomic priorities, debt management and international financing relations, the real sector policy options to stimulate the balanced and green recovery of the economy and taking development closer to the people. The paper also gives pointers for strengthening the governance environment for effective budget execution and for sidestepping the perils of the ambitious decentralisation programme.
Topic:
Governance, Budget, Economic Growth, Macroeconomics, Fiscal Policy, and Revenue Management
Political Geography:
Africa and Zambia

179. Does Immigration Grow the Pie? Asymmetric Evidence from Germany

Author:
Eugenia Vella
Publication Date:
01-2021
Content Type:
Policy Brief
Institution:
Hellenic Foundation for European and Foreign Policy (ELIAMEP)
Abstract:
This Policy brief by Eugenia Vella, Postdoctoral Research Fellow, elected to the position of Assistant Professor, Athens University of Economics and Business; Research Fellow, ELIAMEP and Fundació MOVE provides empirical evidence suggesting that net migration flows can have substantial demand effects. Using monthly administrative data (2006-2019) for Germany, we show that migration stimulates job openings, wages, house prices, investment, consumption, net exports, and output. Unemployment falls for natives (job-creation effect), driving a decline in total unemployment, while rising for foreigners (job-competition effect). The geographic origin of migrants and the education level of residents matter crucially for the effects. Overall, the evidence implies that the policy debate should focus on redistributive strategies between natives and foreigners.
Topic:
Migration, Immigration, Employment, and Economic Growth
Political Geography:
Europe and Germany

180. Recovery and reform in the EU’s most vulnerable regions

Author:
Alison Hunter and Marta Pilati
Publication Date:
06-2021
Content Type:
Policy Brief
Institution:
European Policy Centre (EPC)
Abstract:
Europe’s most vulnerable regions, characterised by persistent low growth and poverty, face a systemic lack of specific EU support. These regions display particularly high levels of vulnerability to the social, economic and territorial impacts of COVID-19, which will affect their recovery trajectories. They risk being left further behind in the EU’s complex pathway towards ‘a green and digital recovery’. The Union’s lack of focus and action for investing in these most vulnerable regions must be addressed. First and foremost, EU institutions and member states should recognise that some territories will struggle much more than others in their recovery trajectories. Ignoring their plight would have potentially far-reaching consequences. The EU’s ‘convergence machine’ could be damaged irreparably, with long-term – and potentially political – consequences. Alison Hunter and Marta Pilati continue their extensive research on the Union’s low-growth, poor regions, calling for the founding of a specific EU initiative to support them as well as further targeting by the existing policy architecture. In particular, they recommend: creating an EU policy space for regions experiencing long-term low growth and poverty, to promote the value and visibility of place-based support; aligning Cohesion Policy and the Recovery and Resilience Facility for improved policy coherence and greater investment impact; and tailoring support for growth-enhancing reforms in the EU’s most vulnerable regions. The EU’s green and digital recovery strategy fails to account for the specific needs of its poor and low-growth regions. Existing disparities and fragmentation challenges across the Union could widen or even become entrenched, casting new doubts on the EU’s ability and commitment to strengthen its convergence agenda and execute a just transition. The fallout could lead to a rise in territorial and political tensions while leaving many vulnerable places behind. Hunter and Pilati outline an agenda for a new EU initiative that champions reform support for these vulnerable territories and improves their prospects for a digital and green recovery.
Topic:
Political Economy, Poverty, Reform, European Union, Digital Economy, Economic Growth, Green Technology, Recovery, COVID-19, and Economic Recovery
Political Geography:
Europe