Inclusive Growth

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Explaining High Unemployment in ECCU Countries

A new IMF paper explains unemployment in ECCU countries:

“Unemployment rates in Grenada (GRD), St. Lucia (LCA), and St. Vincent and Grenadines (VCT) have been above 20 percent in recent years. Unemployment in Dominica (DMA) has also been high by international standards even before the natural disasters that recently hit the country. While it is likely that weak employment this decade was partly related to the impact of the global economic downturn, unemployment was already high prior to the global crisis in most of these countries, thus suggesting there are structural factors behind it. This paper evaluates factors that could explain high unemployment in ECCU countries, cyclical and structural.1 Our analysis systemically reviews demand, supply, and institutional factors that could foster unemployment. Within this framework, we analyze the potential impact of the global financial crisis, the downfall of the banana/sugar industries, the hurricanes that frequently hit these countries, the relatively rigid wage setting process, as well as factors that could increase reservation wages.”

A new IMF paper explains unemployment in ECCU countries:

“Unemployment rates in Grenada (GRD), St. Lucia (LCA), and St. Vincent and Grenadines (VCT) have been above 20 percent in recent years. Unemployment in Dominica (DMA) has also been high by international standards even before the natural disasters that recently hit the country. While it is likely that weak employment this decade was partly related to the impact of the global economic downturn,

Read the full article…

Posted by at 4:36 PM

Labels: Inclusive Growth

Wealth Inequality and Private Savings in Germany

From latest IMF report on Germany:

“Does the large current account surplus in Germany reflect export-driven income gains that are evenly shared among the population? The evidence strongly suggests this is not the case and underscores the important role of German business wealth concentration in this context. As high corporate savings and underlying profits largely reflect capital income accruing to wealthy households and increasingly retained in closely-held firms, the buildup of external imbalance has been accompanied by widening top income inequality, rising private savings and compressed consumption rates.”

From latest IMF report on Germany:

“Does the large current account surplus in Germany reflect export-driven income gains that are evenly shared among the population? The evidence strongly suggests this is not the case and underscores the important role of German business wealth concentration in this context. As high corporate savings and underlying profits largely reflect capital income accruing to wealthy households and increasingly retained in closely-held firms, the buildup of external imbalance has been accompanied by widening top income inequality,

Read the full article…

Posted by at 12:02 PM

Labels: Inclusive Growth

Capital Account Liberalization and Inequality

A new paper by Xiang Li and Dan Su highlights the possible relationship between capital account liberalization and inequality:

“This study adds empirical evidence to the literature linking external financial liberalization and income inequality. Its contributions are as follows. First, we provide evidence of the effect of opening the capital account on the income shares of different income groups. The dependent variable of previous studies is usually the nationwide Gini index. The use of income share data in this study cannot only show the effects on the overall distributional effect but also explain specifically which group benefits or loses the most. Second, we distinguish the direction and categories of capital account liberalization by using an updated measure from Fernández et al. (2016). The impacts of various dimensions of capital account liberalization can help narrow the discussion on specific opening policies . Third, we employ the difference-in-difference (DID) approach combined with propensity score matching (PSM) to estimate the impact of opening the capital account on income inequality in a 20-year window. In this way, we mitigate the endogeneity concern of conventional panel fixed effects models because the DID method tries to construct an experiment by selecting two groups of similar countries and then randomly liberalizing the capital account of the treated group while keeping that of the control group closed. In this way, we interpret the findings of this study one step closer to causality”

 

A new paper by Xiang Li and Dan Su highlights the possible relationship between capital account liberalization and inequality:

“This study adds empirical evidence to the literature linking external financial liberalization and income inequality. Its contributions are as follows. First, we provide evidence of the effect of opening the capital account on the income shares of different income groups. The dependent variable of previous studies is usually the nationwide Gini index.

Read the full article…

Posted by at 8:55 PM

Labels: Inclusive Growth

Robots and Firms—A fresh perspective

From a new Vox piece on robots and firms:

“Frey and Osborne (2017) predict that almost 47% of total US employment could be automated in the nearest future. Focusing on the period from 1993 to 2007 and covering 17 different countries, Graetz and Michaels (2018) find that the growing intensity of robot use accounted for 15% of aggregate economy-wide productivity growth, contributed to significant growth in wages, and had virtually no aggregate employment effects. At the same time, Acemoglu and Restrepo (2017) investigate the US labour market between 1990 and 2007 and show that one additional robot per thousand workers reduces the employment to population ratio by about 0.2 percentage points and wages by 0.37 percent within commuting zones. Dauth et al. (2018) study Germany between 1994 and 2014 and find no effects on total employment, but identify a substantial shift in the composition of jobs away from manufacturing and towards business service”

 

From a new Vox piece on robots and firms:

“Frey and Osborne (2017) predict that almost 47% of total US employment could be automated in the nearest future. Focusing on the period from 1993 to 2007 and covering 17 different countries, Graetz and Michaels (2018) find that the growing intensity of robot use accounted for 15% of aggregate economy-wide productivity growth, contributed to significant growth in wages, and had virtually no aggregate employment effects.

Read the full article…

Posted by at 10:27 PM

Labels: Inclusive Growth

The return of the policy that shall not be named: Principles of industrial policy

From VoxEU post by Reda Cherif and Fuad Hasanov:

“The ‘Asian miracles’ and their industrial policies are often considered as statistical accidents that cannot be replicated. The column argues that we can learn more about sustained growth from these miracles than from the large pool of failures, and that industrial policy is instrumental in achieving sustained growth. Successful policy uses state intervention for early entry into sophisticated sectors, strong export orientation, and fierce competition with strict accountability.

Achieving sustained growth over long periods of time has been an elusive ‘holy grail’ of macroeconomics. In the past 50 years developing economies have taken different paths. A few – such as the ‘Asian miracles’ of Hong Kong (China), South Korea, Singapore, and Taiwan Province of China – are catching up swiftly with the advanced economies, and some forging ahead. But many are falling behind, to use the terminology of Abramovitz (1986).

The empirical evidence shows that the odds for poor or middle-income countries to reach high-income status within two generations are very low (Cherif and Hasanov, forthcoming). Between 1960 and 2014, fewer than 10% of economies (16 out of 182 in the sample) reached high-income status. There were three categories of those that made it: Asian miracles, countries that discovered large quantities of oil, and those that benefited from joining the European Union (Figure 1)

 

Figure 1 Half a century of development

Source: Penn World Tables 9.0 (Feenstra et al. 2015).
Note: GDP per capita is in 2011 PPP dollars. The thresholds for upper-middle income and high income are 20 % and 50% of US GDP per capita, respectively (red lines). The diagonal line indicates no change in relative income levels (with respect to the US level).

We argue (Cherif and Hasanov 2019)  that one cannot ignore the pre-eminent role of industrial policy in the development of the Asian miracle countries as well as for Japan, Germany, and the US before them. The industrial policies pursued by the Asian miracles have a lot in common. This suggests that the standard ‘growth policy recipe’ of tackling only government failures (improving macro-stability, enforcing property rights, providing basic infrastructure and education, and so on) may not be enough to create advanced economies in a short period of time. Instead, recent research suggests that industrial policy may benefit economic development too (Rodrik 2019).”

From VoxEU post by Reda Cherif and Fuad Hasanov:

“The ‘Asian miracles’ and their industrial policies are often considered as statistical accidents that cannot be replicated. The column argues that we can learn more about sustained growth from these miracles than from the large pool of failures, and that industrial policy is instrumental in achieving sustained growth. Successful policy uses state intervention for early entry into sophisticated sectors, strong export orientation,

Read the full article…

Posted by at 10:37 AM

Labels: Inclusive Growth

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