The Unassuming Economist

Source: United Nations Department of Economic and Social Affairs

“Global economic recovery hinges on a delicate balance amid new waves of COVID-19 infections, persistent labour market challenges, lingering supply-chain constraints and rising inflationary pressures”, reads the recently released report by the UN. The world economy is projected to grow by 4 percent in 2022 and 3.5 percent in 2023. Some excerpts from the report are as presented underneath:

The good: Half of the world’s economies will exceed pre-pandemic levels of output by at least 7 percent in 2023. In East Asia and South Asia, the average gross domestic product (GDP) in 2023 is projected to be 18.4 percent above its 2019 level, compared to only 3.4 percent in Latin America and the Caribbean. Besides, global investment expanded by an estimated 7.5 percent in 2021 (after contracting by 2.7 percent in 2020) driven by growth in China and the United States. As regards poverty, the number of people living in extreme poverty globally is projected to decrease slightly to 876 million in 2022 but is expected to remain well above pre-pandemic levels. Fast-developing economies in East Asia and South Asia and developed economies are expected to experience some poverty reduction.

The not so good: Despite a robust recovery, East Asia and South Asia’s GDP in 2023 is projected to remain 1.7 percent below the levels forecast prior to the pandemic, while these figures stand at 5.5 and 4.2 percent for Africa, and Latin America and the Caribbean, respectively. Labour markets have contracted severely, and full recovery in developed economies is only projected to happen by 2023 or 2024.

The risks: Limited access to vaccines poses a particular challenge to most developing countries and transition economies. Rising inflationary pressures in major developed economies and a number of large developing countries present additional risks to recovery. Global headline inflation rose to an estimated 5.2 percent in 2021, more than 2 percentage points above its trend rate in the past 10 years. The inflationary pressure was particularly pronounced in the United States, the euro area and Latin America and the Caribbean. Higher levels of inequality within and between countries, and against vulnerable populations like women, is one of the greatest risks to the social fabric as suggested by the report.

Read the full report for in-depth forecasts on issues like the state of multilateralism, asset price bubbles, monetary policy, healthcare crises, and climate change.

Also Read:

World Bank’s Global Economic Prospects 2022 Report

Source: VoxEU

“After a century of stability, the labour share of national income began to decline around 2000 in the US and many other countries. This column reviews the growing literature examining the potential reasons for the decline of the labour share, which include (1) capital-biased technical change, (2) globalisation and the rise of China, (3) increasing industry concentration and market power, (4) unionisation, and (5) population growth. The column also discusses pitfalls associated with common empirical strategies in the literature and suggests that more work is needed to understand fundamental, rather than proximate, causes of the decline.“

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Is Something Different this Time about the Effect of Technology on Labor Markets (2019)

The COVID-19 pandemic brought with it numerous travel and immigration-related restrictions throughout the globe. For the USA, this translated into a shortfall of nearly 2 million working-age immigrants compared to how many there would have been if the pre-2020 immigration trend had continued unchanged. 

Metadata within this shows that out of these 2 million immigrants nearly one million would have been college graduates, implying a loss to the US labor market in terms of skilled workers, entrepreneurs, and a huge loss to American Universities which annually attract several foreign students. The drop in numbers of highly-skilled immigrants is significant due to its “long-run effects on productivity, innovation, and entrepreneurship”. The blog sheds light on these and several such issues.

Click here to read the full blog.

Source: NBER Working Paper (2022)

Abstract– “Need fluctuates over the business cycle. We conduct a survey revealing a desire for nonprofit activities to countercyclically expand during downturns. We then demonstrate, using comprehensive US nonprofit data drawn from millions of tax returns, that the public’s hopes are disappointed. Nonprofit expenditure, revenue, and balance sheets fluctuate procyclically: contracting during national and local downturns. This finding is evident even for a narrow group of nonprofits the public most wishes would expand during downturns, e.g., those providing critical needs like food or housing. Our new facts contribute to the charitable giving, nonprofit, and business cycle literatures (sic).”

Source: VoxDev

Authors of this article (2022), Baafra Abeberese, A. et al describe their study and its results as follows:

“We study how democratisation affects firm productivity — a critical micro-driver of economic growth. We do so in the context of Indonesia, which had been under the dictatorial rule of Soeharto for three decades, until the unexpected collapse of his regime in 1998. Using the exogenous timing of when each district in the country transitioned to a democracy, we estimate the causal effect of democratisation on firm productivity. We combine data on the timing of democratisation with an annual census of manufacturing firms over two decades to analyse the impact of democratisation on firms using an event study design. Our findings suggest that democratic leaders are less likely to impose socially inefficient regulations or engage in rent-seeking and, hence, enhance firm productivity.”

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Revisiting the causal effect of democracy on long-run development