Economic Divergence Research Articles

Brazil, BRICS Membership And FDI: Economic Divergence And Future Prospects

Brazil, BRICS Membership And FDI: Economic Divergence And Future Prospects

Re-evaluating the East-West divide in the European Union

ABSTRACT This introduction argues that the East-West divide in Europe continues to be politically salient since the fall of the Berlin Wall and two decades since the accession of most East Central European (ECE) countries to the European Union. We re-evaluate the nature of the East-West divide in the EU, consider its sources, and examine the interplay between political variation and cross-border economic inequalities. The fundamental question posed here is whether such divisions are persistent, intractable, or transitional. We note that earlier scholarship on the East-West divide emphasised economic divergence as a primary explanatory factor. As relevant as the economy still is, our contribution is to argue that the divide also needs to be assessed against the broader political backdrop of democratic backsliding and new geopolitical developments. Although we find that the East-West divide is still highly salient, the articles here specify how fluid categories are and how variation has emerged – both between and within countries in the ECE region. Finally, the very perception of an East-West divide is politically consequential. If unaddressed, East-West divisions and tensions will impede future reforms of the EU’s internal governance processes and limit its power on the global stage.

Institutions When It Matters: Can Institutional Performance Counteract Economic Divergence?

Institutions When It Matters: Can Institutional Performance Counteract Economic Divergence?

Economic growth of Ukrainian regions and determinants of financial resilience: Modeling the causal nexus

Stable economic progress and upward dynamics of economic growth in the regions depend on their level of security and ability to withstand adverse macroeconomic and other shocks, as well as the state of affairs in which risks cannot be transformed into threats and dangers. The study aims to assess the causal nexus and the level of sensitivity of regional economic growth components to changes in financial resilience determinants. The research methods include systemic and structural analyses (building an information and analytical model for studying financial resilience), Granger test (identifying causal relationships between the variables under study), risk theory (studying the nature of fluctuations), and spatial and temporal approach. Data from the regions (oblasts) of Ukraine between 2015 and 2021 form the informational and analytical basis of the study. The paper reveals that the targeted use of transfers for socio-economic progress, increasing investment capacity, and bolstering financial and budgetary autonomy through increasing local budget revenues are the dominant financial determinants of regional economic growth. The results show that the most dominant causal nexus exists between (1) budgetary efficiency, interest rates on consumer/mortgage loans, and SME development, (2) the volume of loans/deposits and labor market efficiency and SME development, and (3) innovation development and foreign economic cooperation. Intensification of investment activity is crucial for ensuring real changes in the economic structure of all regions, particularly outsiders, accelerating transformation processes, mitigating regional economic divergence, and increasing competitiveness. AcknowledgmentsThe study was conducted within the framework of the “Financial Determinants of Ensuring Economic Growth of Regions and Territorial Communities based on Behavioral Economics” project (№ 2020.02/0215) funded by the National Research Foundation of Ukraine (Competition “Support for Research of Leading and Young Scientists”).

Research on the Characteristics of Economic Resilience under the Financial Crisis-Taking China as an Example

Since the financial crisis, there has been a second phase of global economic divergence. The context for global economic development has been worse due to the anti-globalization tendency and the predominance of trade protectionism. In the face of economic shocks, there are differentiated results for economic resilience among countries. Therefore, it is of great significance to study China's economic vitality against the background of the financial crisis. China's economy shows the negative adjustment effect of ownership structure. The relatively high proportion of state-owned enterprises weakens the promoting effect of economic complexity on regional economic resilience, and the weakening effect is more significant in inland areas. China's accelerated structural reform has increased the complexity of its economy. Therefore, this study focuses on the characteristics of economic resilience during the financial crisis, using China as an example. This paper uses the literature research method, the theoretical analysis method, and the case analysis method. In the context of the financial crisis, China's economic resilience has been fluctuating on an upward trend. But China still needs to adopt the economic measures it took to deal with the financial crisis.

Regional economic resistance and divergence in Ireland, 2011–22

Abstract This paper examines the resistance of Irish regions to potential future economic shock, focusing specifically on employment change in firms in receipt of assistance from the Irish government’s enterprise development agencies. The paper classifies both regions and sectors in terms of their employment performance during the course of the 2011–22 period and assesses the roles of sectoral composition and firm nationality in shaping regional performance. While nationality mix is significant, sectoral composition is seen as having a more important impact on regional employment performance. It then uses the same approach to predict the performance of regions in the context of potential future shocks post 2022. The paper suggests that the Border region is the least resistant to potential future shock. Other regions with relatively low resistance include the Mid East and the Midlands. The paper subsequently considers the implications of the findings for both regional economic divergence trends and the policy aim of balanced regional development in Ireland.

Divergence before the division: the colonial origins of separate development paths in Korea

AbstractThis study revisits the question of what impact Japanese colonialism had on the long-term economic development of North and South Korea. Factor endowments, economic activity and economic performance are compared between the regions that later became parts of North and South Korea, respectively. The study finds that important elements of the economic history of the peninsula have not been sufficiently acknowledged in much of the influential literature that uses Korea as an illustration of theoretical claims of the root causes of development. In particular, the fact that the economic divergence of northern and southern regions could be traced back to different colonial treatments – especially after mid-1920s – has often been overlooked when analysing the divergent post-partition development trajectories. The study suggests, based on a sectoral similarities analysis, that the initial dissimilar economic performance of North and South can at least partially be found in differences in political economy and economic trajectories preceding the partition.

Economic divergence and the role of disasters in Mexico and Central America

Traditionally, disasters have not been considered as factors that influence economic growth and convergence or divergence between countries. Using macroeconomic and disaster data for Mexico and Central America, it was found that disasters generate a negative effect on economic growth and exacerbate divergence. If disasters are omitted in the convergence-cointegration analysis, the results may be biased. With divergence, very small and poor economies compared to slightly richer economies, enter a vicious cycle in which they tend to increasingly diverge or to converge to lower levels of economic growth in the long run.

Delinking ‘the two rupees’: The devaluation dilemma and economic divergence in the decolonized subcontinent, September 1949–February 1951

AbstractBy looking at the September 1949 devaluation dilemma faced by the governments of Pakistan and India, this article argues that it was an early episode of divergence between them following partition. The reasons why Pakistan did not devalue when India did so have remained largely obscured in the historiography. Deeply contested, the decision was a determining event through which the state staked its claim for economic sovereignty, internally and externally. It led to a 17-month-long official trade deadlock, especially in the eastern region of partitioned Bengal. It ended when the two governments established an exchange ratio for the two rupees, no longer at par with each other. This interactive delinking of currencies was symptomatic of the improvisational decoupling of the colonial subcontinent’s post-colonial states. In tracing its trajectory, this article contributes to the inconsiderable literature on why devaluation did not happen in Pakistan, revises the rationale offered, and presents the event as a contingent exercise in economic decolonization, generative of a post-colonial sovereign difference.

Economic divergence between Poland and The Ukraine from the perspective of their balances of payment

The paper aims to look at the phenomenon of the economic divergence between Poland and Ukraine from the perspective of the dynamics of the balances of payments in both countries. It is assumed that the differences in the paths of economic development are reflected in the current and financial flows, which are recorded in their balances of payments. The model for testing the potential determinants of economic divergence between Poland and Ukraine resulting from their balances of payments was based on univariate linear regressions. The study was carried out based on the annual data collected from the World Bank (WDI) for the period 1995–2001. A significant positive relationship between the dynamics of the economic divergence between Poland and Ukraine was found in the dynamics of (i) trade openness, (ii) trade and services balances, (iii) capital transfers, (iv) FDI liabilities – a proxy for FDI inflows, and (v) FDI assets – a proxy for direct investments carried out by residents. The dynamics of the differences in the primary and secondary accounts between both countries were negatively correlated with the level of divergence between Poland and Ukraine. The larger differences between the GDPs of Poland and Ukraine occurred despite the deteriorating primary account in Poland and despite the large inflows of current transfers recorded in the secondary account in Ukraine.

Greenhouse Gas Emissions in the Industrial Processes and Product Use Sector of Saudi Arabia—An Emerging Challenge

The Kingdom of Saudi Arabia has been experiencing consistent growth in industrial processes and product use (IPPU). The IPPU’s emission has been following an increasing trend. This study investigated time-series and cross-sectional analyses of the IPPU sector. Petrochemical, iron and steel, and cement production are the leading source categories in the Kingdom. In recent years, aluminum, zinc, and titanium dioxide production industries were established. During the last ten years, a significant growth was observed in steel, ethylene, direct reduce iron (DRI), and cement production. The growth of this sector depends on many factors, including domestic and international demand, socioeconomic conditions, and the availability of feedstock. The emissions from IPPU without considering energy use was 78 million tons of CO2 equivalent (CO2eq) in 2020, and the cement industry was the highest emitter (35.5%), followed by petrochemical (32.3%) and iron and steel industries (16.8%). A scenario-based projection analysis was performed to estimate the range of emissions for the years up to 2050. The results show that the total emissions could reach between 199 and 426 million tons of CO2eq in 2050. The Kingdom has started initiatives that mainly focus on climate change adaptation and economic divergence with mitigation co-benefits. In general, the focus of such initiatives is the energy sector. However, the timely accomplishment of the Saudi Vision 2030 and Saudi Green Initiative will affect mitigation scenarios significantly, including in the IPPU sector. The mitigation opportunities for this sector include (i) energy efficiency, (ii) emissions efficiency, (iii) material efficiency, (iv) the re-use of materials and recycling of products, (v) intensive and longer use of products, and (vi) demand management. The results of this study will support the Kingdom in developing an appropriate climate change mitigation roadmap.

The constrained politics of local public investment under cooperative federalism

Abstract Public investment spending declined steadily in advanced economies during the last three decades. Germany is a case in point where the aggregate decline coincided with growing inequality in investments across districts. What explains the variation in local investment spending? We assembled a novel data set to investigate the effects of structural constraints and partisanship on German districts’ investment spending from 1995 to 2018. We find that the lack of fiscal and administrative capacity significantly influences local investment patterns. Yet, within these constraints, partisanship matters. Conservative politicians tend to prioritize public investment more than the left. This is especially the case when revenues from local taxes are low. As the fiscal conditions improve, left-wing politicians increase investment more strongly and hence the difference between the left and the right disappears. Our findings are indicative of how regional economic divergence can emerge even within cooperative federal systems and show that, even when decision-makers operate under various institutional and structural constraints, partisanship matters for how these actors allocate discretionary spending.

Natural disasters, intra-national FDI spillovers, and economic divergence: Evidence from India

This paper studies the effects of natural disasters on foreign direct investment, considering the case of India. We document large and persistent investment reductions in affected regions following a disaster as well as lasting positive spillovers into otherwise unaffected Indian regions. Intra-national relocations account for more than two-thirds of the losses in affected areas, explaining the puzzlingly small country-level findings of previous works. Furthermore, we show that these investment shifts tend to flow into more developed, less disaster-prone regions, fueling the prominent divergence in India’s economic growth. Combined, our results suggest that multinational firms consider both local cost and region-specific disaster risk when selecting locations for production.

Regional Economic Development Divergence Research in Georgia by PCA Method

The study of a mix of the negative effects of unequal economic development between regions is one of the challenges economic science is now facing. Numerous methods are provided in terms of assessing regional disparities and interpreting the assessment results. The article describes the methodology for studying economic divergence between regions using the method of principal component analysis. The introduction of an aggregate indicator describing divergence allows us to reflect on a variety of different data, to study and explore a complete, real, comprehensive, volumetric picture of divergence. It appears possible: to identify clusters of regions according to mathematical calculations, including distinguishing the growth poles, less developed and depressed regions of the middle zone; to determine the degree of disparity when classifying in terms of the phases of divergence: the cases of differentiation, asymmetry and polarization; to rank the regions according to their share in this divergence; to analyze how the level of divergence changes over time by observing the dynamics of indicators. Following the description of this methodology, the existing problems of divergence of economic development between the regions of Georgia are analyzed.

The perceived impact of tourism development and sustainable strategies for residents of Varkala, South India

Tourism is an important business for contemporary society and is emerging as a major economic activity globally. Technological expansion and economic divergence have created a tourism friendly environment in the present age of globalization. India has a great geographical, historical and cultural heritage that drives tourism in the country. The Varkala cliff is a geoheritge site and popular tourist destination in Kerala where inhabitants earn a means of living by involving them in medical, pilgrim, beaches, and nature-based tourism. The tourist inflow to Varkala has increased tremendously over time. This paper investigates the impact of tourism the on the local community and alternative strategies of livelihood for residents in Varkala. The aims and objectives of the research are achieved through the use of a mixed method approach (qualitative and quantitative). Semi-structured questionnaires were prepared for 100 households and detailed face to face interviews were conducted with the 13 chief informers. Data were analyzed using correlation, regression analysis and ANOVA tests to examine the relationship between tourism and income level of the local community. The major findings of the paper show that tourism is the major source of livelihood for the local communities in Varkala. While the tourism activities in the study area provide a meaningful source of livelihood, it is imperative to find alternative strategies of producing income, due to the instability and seasonality of the tourism industry. The investigation suggests managers within the study area should formulate plans, policies and strategies that will improve the tourism industry and involve local community members in the decision making process and management of tourism activities.

Interpreting the European monetary union with OCA criteria

This aim of this study is to reinterpret optimum currency area (OCA) theory to assess the capacity of a monetary union to produce economic growth. Instead of utilizing OCA criteria to evaluate the costs and benefits of a monetary union, we use Kathleen R. McNamara’s framework to assemble them and analyze their interaction and effect on economic growth. First, we show that OCA theory is unable to address the question. Then, we develop a new framework and conclude that a monetary union brings structural deflation, economic divergence, and current account imbalances. Finally, we test these conclusions on the European monetary union. Post-Keynesian works are mobilized to show their concomitance with our framework in the second and third sections of this paper.

Экономическая конвергенция в методологии структурных сдвигов

Throughout the entire period of market transformations, the trend towards the distance of the Russian economy from technologically advanced countries has persisted, in terms of both the dynamics of the main macroeconomic indicators and structural proportions. This is due to the high sensitivity of the Russian economy to external shocks, including technological ones, as well as a number of successive negative structural shifts. At the same time, the commonality of endogenous processes, which affect the structure of factors of production and distribution of national income, in the economies of advanced and catching up countries is not fully associated with economic convergence. The studies are dominated by exogenous sources of convergence - sociopolitical, cultural. Therefore, the study of the role and place of structural shifts in the system of economic convergence is a methodological approach that allows one to come close to the theoretical foundations for stabilizing macroeconomic dynamics, reducing the susceptibility of the national economy to external shocks, and entering a long-term growth trajectory above world rates. In this article, the authors consider the problem of launching convergent structural shifts - the basis for the transition of the Russian economy from economic divergence to convergence with advanced countries, which was the basis for the aim of this study. Within the framework of this article, a methodology for analyzing structural shifts in their mutual influence on technological, structural and economic convergence is presented. The authors give a typology of convergent and divergent structural shifts that bring the national economy closer or further away from technologically advanced market systems. Such a typology of structural shifts implies the endogenous nature of economic convergence, due to a change in the proportions of accumulation and consumption, the involvement of production factors in the creation of national income and its distribution, contrary to the prevailing exogenous approach to the study of economic convergence. Based on the presented typology, the article highlights the factors of structural convergence -neo-industrial and fundamental investment, associated with a priority increase in funding for fundamental research, the creation of new innovation and investment partnerships between the state and business, and the modernization of basic industries based on convergent technologies. The authors show that these factors should be institutionalized in a system of convergence-oriented structural policy, which is a key condition for the transition of the Russian economy from structural divergence to convergence, with access to a sustainable growth trajectory and a reduction in exposure to external shocks.

The European Union post COVID-19: Preserving innovation's cutting edge and fostering social cohesion

Abstract Despite a long period of post-crisis recovery, the COVID crisis caught the EU in a precarious state. The policy and institutional innovations during the financial crisis tempered the macroeconomic imbalances that had caused the crisis. Nevertheless, the EU was left with a strong trend of divergence in economic and social performance because of the lack of sufficiently strong reforms at EU and national levels. But the lessons of the previous crisis were learned. This time around, the EU-level policy and institutional innovations were decisive. The fiscal capacities of the hard-hit countries were strengthened quickly. Green and digital transformation will require a major new wave of innovation in the corporate sector in the EU. This, in turn, critically hinges on improving the quality of public and private institutions and advancing with the implementation of major reforms at the EU level, such as the digital single market or Capital Market Union. Implementing these reforms fully, and preventing later reversals is a key to stemming the trend of economic and social divergence, thus strengthening the coherence of the EU.

The Use of Decomposition Methods to Understand the Economic Growth Gap between Latin America and East Asia

Understanding how growth factors contribute to explaining the large differences in growth rates across countries remains an important research agenda. The common approach to exploring this issue is based on the use of multiple linear regression analyses. This work contributes to growth literature by applying a new perspective based on the use of variance decomposition procedures: Shapley–Owen–Shorrocks and Oaxaca–Blinder. These methodologies have four main advantages with respect to traditional methodologies: they make possible the quantification of the relative contribution of each factor to economic growth, they allow us to estimate the efficiency in the use of the endowments of each factor, they can be used with any functional form and they can be used with estimation methods that are robust regarding endogeneity issues. We illustrate these advantages by analyzing the causes of the economic growth gap between Latin America and East Asia over the period 1980–2014. We find that the economic growth divergence between the two regions can be primarily explained by the differences in institutions and physical capital. In addition, the results indicate that the higher East Asian performance is not only due to its higher levels of endowments in these factors, but also to the higher efficiency in its use. We connect our results with the 2030 Agenda for Sustainable Development.

Agglomeration and balance: the evolution patterns for regional economic divergence in the pearl river delta area

This study analysed the differences in the process of regional economic development and revealed the dynamic imbalance mechanism of regional economic development in Pearl River Delta (PRD). Based on the statistical yearbook of PRD 1978-2018 GDP and per capita disposable income (PCDI) data, using standard deviation, Gini index, range rate and clustering analysis methods, we analysed regional inequalities to the evolution dating back to nearly 40 years in the PRD. The cross-sectional data showed that the relative difference is stable and the absolute has always been rising in the evolution of the difference in GDP of PRD. However, in terms of PCDI, the relative difference shows a shrinking trend on the whole. Furthermore, the cluster analysis indicated that with the construction of the PRD Metropolitan Areas, the economic development is concentrated in the core cities. However, the PCDI between regions is converge. We suggested that the three major metropolitan areas should further expand and radiate outward to achieve the overall coordinated development of PRD. At the same time, less developed regions should not be afraid of the concentration of production factors in core cities. With the free flow of production factors, the gap between regions has actually narrowed.