Category: Macroeconomics

Structural polarisation and path dependent development models in the EU

heimbergecon1 Comment

The macroeconomic consequences of the CODID-19 pandemic in the EU economy are materializing against the background of underlying structural challenges. Ensuring long-term convergence and stability between EU countries will require coordinated fiscal, wage and industrial policies. This blog post finds that EU countries are stuck on different trajectories in their economic development. Core countries, periphery countries, East European countries and financial hubs have responded differently to increasing European economic integration. This leaves Europe mired in structural polarisation, where political tension relates to diverging economic developments and increasing gaps in the evolution of technological capabilities. As a consequence, counteracting polarisation and promoting convergence requires a coordinated strategy that includes fiscal, wage and industrial policies.

Several EU countries were already on diverging macroeconomic development paths when the COVID-19 pandemic hit, but the macroeconomic consequences of the crisis must be expected to further accelerate existing divergences. Even though large parts of the EU experienced an economic upswing in the years running up to the COVID-19 pandemic, this temporary upswing in the business cycle served to mask the underlying tendencies towards structural polarisation in Europe, which will become more apparent over the course of the current crisis.

In a, I argue with Claudius Gr盲bner, Jakob Kapeller and Bernhard Sch眉tz that essential factors for explaining the long-term polarisation between EU countries are to be found in the unequal regulatory conditions in the context of the European 鈥榬ace for the best location鈥� (for example, in the areas of labour market, tax and corporate law or financial market regulation), as well as in the different technological capabilities across EU countries.

We show that technological capabilities in EU countries are distributed unequally; EU countries remain structurally polarised, i.e. they are that contradict the political goal of ensuring convergence and stability in the EU. Notwithstanding short- and medium-term cyclical developments, existing differences in technological capabilities will continue to fuel a process of economic disintegration in the EU if policy-makers fail to counteract the polarisation trend by introducing a coordinated policy strategy that should include fiscal, wage and industrial policies.Read More »

Lost in Technicalities: The Great Indian Slowdown

rohitazadLeave a comment

India鈥檚 Finance Minister Nirmala Sitharaman has said, while replying to a discussion on the economic slowdown in the Rajya Sabha, 鈥榞rowth may have come down, but it is not a recession yet and it won鈥檛 be a recession ever鈥�. Drawing on data up until December 2019, I evaluate to what extent India’s economy is indeed slowing down.

Figure 1: Quarterly Rate of Growth of GDP in IndiaScreenshot 2020-01-21 at 09.42.32

No, it鈥檚 not a recession, defined strictly in technical terms, i.e. on the whole, the level of activity hasn鈥檛 fallen, even though certain crucial sectors, like automobiles, are seeing a fall. What we have instead is a slow down, a severe one at that, with falling rate of growth of GDP for five straight quarters (figure 1).聽The Indian government is hiding behind economic jargon to obfuscate the reality that is biting the economy. The writing is on the wall. The Indian economy is facing a severe crisis and the sooner we come to terms with it, the better. Based on a in Economic and Political Weekly, this blog discusses the changing growth levels in the Indian economy, the reasons for the recent slowdown, and some possible short and long term solutions.Read More »

Advocates of the SDGs have a monetarism problem

RRowden2 Comments
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UN Secretariat Headquarters, New York. .

More expansionary fiscal and monetary policies聽are needed to meet the Sustainable Development Goals

This month, the international community will gather at the United Nations in New York to review progress on the implementation of the 17 Sustainable Development Goals (SDGs) that are intended to reduce poverty, hunger and economic inequality and promote development, particularly in developing countries. But only one of the SDGs, #17, says anything about how to finance all the efforts. While SDG 17 calls for more international cooperation and foreign aid, it only suggests that developing countries strengthen domestic resource mobilization (DRM) by improving their tax collection and curtailing illicit financial flows, etc.

While important, this approach neglects much bigger problems with the prevailing set of macroeconomic policies that hamper the ability of developing countries to increase public investment, employment and scale-up the long-term investments in the underlying health and education infrastructure needed to achieve the SDGs. The policy framework used in many developing countries is characterized by an overly restrictive low-inflation target achieved by using high interest rates and backed up by strict inflation targeting regimes at independent central banks.Read More »

Economic Development in the 21st Century: A Review

ramiroealvarezLeave a comment

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by Ramiro Eugenio 脕lvarez (University of Siena) and聽Santiago Jos茅 Gahn (Roma Tre University)

What drives economic development? What is the nature of the external constraints that developing economies face? What is the role of industrial policy and the central banks in the development process? These were the core questions that were posed in the recent webinar series on Development in the 21st Century, organized by the of the . These four meetings were particularly oriented towards examining notions such as distribution, patterns of specialization, industrial policies and balance of payment constraints. The discussion of such phenomena is especially important in a context of deep academic divides regarding the drivers of economic development.

Following the tradition of the Latin American structuralist school, the meetings placed special emphasis on the inherent challenges of conditions associated with being in the periphery when the problem of development is faced. During the meetings, processes of economic integration that perpetuate asymmetric economic relations of the center-periphery type were examined, as well as the role played by public institutions, e.g. central banks, in the development of industrial economies.Read More »

Africa: Time to Rediscover the Economics of Population Density and Development

Erik Reinert1 Comment

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叠测听Erik Reinert听补苍诲听Richard Itaman.

At the OECD鈥檚 origin, we find the 1947 Marshall Plan that re-industrialised a war-torn Europe. At the very core of the Marshall Plan was a profound understanding of the relationship between a nation鈥檚 economic structure and its carrying capacity in terms of population density. We argue that it is necessary to rediscover this theoretical understanding now, in the mutual interest of Africa and Europe.Read More »

Currency crisis in Argentina or the IMF鈥檚 tango

robertolampa2 Comments

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By Roberto Lampa and聽狈颈肠辞濒谩蝉 贬别谤苍谩苍 Zeolla

The Argentinian government has requested financial assistance from the IMF to tackle the consequences of a serious currency crisis. Last Wednesday, the government emphatically announced the new terms of such an agreement. However, unpacking the terms of those agreements and the current situation reveals serious concerns about the country’s future .

A few months back (), we provided an analysis of the current Argentinian crisis, highlighting the excessive vulnerability of the economy produced by the abrupt financial deregulation carried out by Macri鈥檚 administration.聽Three aspects in particular threatened the country’s future prospects: the deregulation of foreign exchange that failed to stop capital flight, a boom in foreign debt (at a record level among emerging market economies) and the promotion of speculative capital inflows to carry trade (buying financial instruments issued by the Central Bank聽called LEBAC in order to pursue carry trade operations).

When international conditions worsened and the carry trade circuit came to an end, the 鈥淟EBAC bubble鈥� exploded and produced a tremendous foreign exchange crisis that shook the Argentine economy, causing a sharp rise in inflation and a severe recession from which the country has not yet managed to escape. Read More »

How History Matters in Post-Socialist Economies

Aleksandr V. Gevorkyan1 Comment

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Though it has been suggested that 鈥� it was in the early 1991 that captured the minds of the new generation of Eastern Europe (EE) and the Former Soviet Union (FSU).

The promise of more open societies following Mikhail 骋辞谤产补肠丑别惫鈥檚 perestroika announcement set in motion powerful dynamics completely transforming the world. The Berlin Wall fell in 1989 and by the end of 1991 the Soviet Union disintegrated bringing down the entire socialist institutional edifice. Newly independent nation-states emerged across Europe, the Caucasus, and Central Asia. This new 鈥渨ind鈥� was that of hope, progressive stability and economic prosperity, or so it seemed at the time. And yet, 鈥淸蹿]or whom the wall fell?鈥� , is not as straightforward as might have been expected.

Despite the independence premium in national policy and in parallel with the post-socialist economies are yet to achieve the ideals announced at the outset of market reforms. Ironically, the most unfortunate economic plan was the 1990s script of transition from planned economy to free market in the EE and FSU.

Read More »

Keynes or New-Keynesian: Why Not Teach Both?

rohitazad3 Comments

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For economists, the Great Recession, the worst crisis the world economy has seen since the Great Depression of the 1930s, has highlighted the need for plurality in macroeconomics education. Ironically, however, there is a move towards greater insularity from alternative or contrasting points of view. Where as, what is required for vibrant policy making is an open-minded academic engagement between contesting viewpoints. In fact, there does not even exist a textbook which contrasts these contesting ideas in a tractable manner. This blog post is as an attempt to provide certain pointers towards developing macroeconomics in a unified framework.

Macroeconomics as a subject proper came into existence with the writings of John Maynard Keynes[i]. There were debates during his time about how to characterise a capitalist economy, most of which are still a part of the discussion among economists. Keynes argued that capitalism is a fundamentally unstable system so the state needs to intervene to control this instability.Read More »