GDP Reduction Research Articles

Overcoming the Effects of Restrictive Fiscal Policy: The Case of Argentina and Serbia

Abstract The paper analyses one of the most important economic issues relevant to most countries. The issue involves how to as painless as possible overcome the problems of high budget deficits and excessive accumulated public debt. Argentina and Serbia are used as an example. Argentina implemented rigorous saving measures in 2002 and Serbia began to implement restrictive budgetary measures in 2014. The effects of such a policy can be designed for the future. Results indicate that the key to Argentina’s success lies in the transition to a floating exchange rate and the high level of correlation between the growth of the foreign exchange rate and growth in exports. When comparing strict fiscal policy in Argentina and Serbia, it should be emphasised that the measures in Serbia are far less stringent than those that were established in Argentina. But it also means that the effect of reducing budget expenditures should have less of an impact on GDP reduction than in the case of Argentina.

Austerity in the aftermath of the great recession

Cross-country differences in austerity, defined as government purchases below forecast, account for 75% of the observed cross-sectional variation in GDP in advanced economies during 2010–2014. Statistically, austerity is associated with lower GDP, lower inflation and higher net exports. A multi-country DSGE model calibrated to 29 advanced economies generates effects of austerity consistent with the data. Counterfactuals suggest that eliminating austerity would have substantially reduced output losses in Europe. Austerity was so contractionary that debt-to-GDP ratios in some countries increased as a result of endogenous reductions in GDP and tax revenue.

The impact of sustainable land management on household crop production in the Blue Nile Basin, Ethiopia

AbstractAgricultural productivity in the highlands of Ethiopia is threatened by severe land degradation, resulting in significant reductions in agricultural GDP. In order to mitigate ongoing erosion and soil nutrient loss, the government of Ethiopia initiated a Sustainable Land Management Program (SLMP) targeting 177 micro‐watersheds in six regions of the Country. This study evaluates the impact of SLMP on the value of agricultural production across diverse agro‐ecological zones by using a panel survey from 2010 to 2014. Results suggest the need for long‐term engagement in SLM activities regardless of underlying biophysical endowments and environmental characteristics. The analysis finds that the SLMP is not associated with significant increases in household‐level agricultural value of production after 4 years of program participation regardless of agro‐ecological zone or landscape type. However, SLM investments and agricultural value of production increased significantly in both treatment and nontreatment areas between 2010 and 2014. Although data suggest positive trends in agricultural productivity and SLM activities during program years, past soil and water conservation programs in Ethiopia have failed to maintain momentum in rural communities after programs ceased funding. Given the results presented in this paper, SLM programs should place emphasis on SLM infrastructure maintenance over the medium to long term in order to reap sustainable effects of SLM on agricultural productivity in critical watersheds.

The social cost of carbon revisited

An estimate of the social cost of carbon (SCC) is crucial to climate policy. But how should we estimate the SCC? A common approach uses an integrated assessment model (IAM) to simulate time paths for the atmospheric CO2 concentration, its impact on temperature, and resulting reductions in GDP. I have argued that IAMs have deficiencies that make them poorly suited for this job, but what is the alternative? I present an approach to estimating an average SCC, which I argue can be a useful guide for policy. I rely on a survey of experts to elicit opinions regarding (1) probabilities of alternative economic outcomes of climate change, but not the causes of those outcomes; and (2) the reduction in emissions required to avert an extreme outcome, i.e., a large climate-induced reduction in GDP. The average SCC is the ratio of the present value of lost GDP from an extreme outcome to the total emission reduction needed to avert that outcome. I discuss the survey instrument, explain how experts were identified, and present results. I obtain SCC estimates of $200/mt or higher, but the variation across experts is large. Trimming outliers and focusing on experts who expressed a high degree of confidence in their answers yields lower SCCs, $80 to $100/mt, but still well above the IAM-based estimates used by the U.S. government.

High‐speed railway to success? The effects of high‐speed rail connection on regional economic development in China

AbstractWe find that high‐speed railway connection in China has led to a reduction in GDP per capita for connected peripheral prefectures. We use the least‐cost path‐spanning tree network to address the nonrandom route placement issue. We find that the reduction of GDP per capita is driven by significant contractions in capital input, industrial output, and skilled labor outflow. We present evidence to support a trade‐based channel in light of falling transportation costs between peripheral and metropolitan regions. Our finding highlights the importance of the cost of human transport.

Research on IFLP optimization model for carbon emission reduction

This study proposed an optimization model combined with Binding Interval Linear Programming (ILP) and Fuzzy linear programming (FLP) Methods and further analyzed from the views of economic output, energy consumption, carbon dioxide emission and emission cost. The optimization model results demonstrated that the heavy energy consumption industries will significantly reduce, and the target of the carbon dioxide emissions per unit of GDP reduction decrease by 40%-45% from 2005 to 2020. In addition, the economic development model will trend to optimize the allocation of resources and green economy. However, a single low-carbon economic policy will always have shortcomings and low efficiency in emission reduction. Hence, the government should combine all emission reduction policies together and establish a lowcarbon economy system that practice production activities need.

The environmental benefits and economic impacts of Fit-in-Tariff in China

We employ a dynamic computable general equilibrium (CGE) model that includes Fit-in-Tariff, greenhouse gas (GHG), and air pollutants modules to evaluate the impacts of different subsidy scenarios. Assuming that the subsidies will continue until 2030, our results indicate that the Fit-in-Tariff will have positive effects on real GDP, employment, and emission reductions and that these benefits will increase over time. Such subsidies not only encourage the substitution of clean energy for traditional fossil energy, but also invite investment in renewable energy industries, ultimately benefiting all sectors. A sustained higher subsidy rate can contribute to the abatement of GHGs, and air pollutant emissions significantly, while also stimulating real GDP and employment in the early periods of the policy, yet it will not be conducive to growth over time due to the increasing tax burden. If subsidies continue until 2050, the environmental benefits will become more pronounced while the economic benefits will gradually disappear.

General equilibrium economy-wide impacts of the increased energy taxes in Vietnam

The Vietnamese Government is proposing a new tax levy on either petroleum products or coal, or both. That is, the Government expects to increase the current tax rates to the maximum levels set previously. In this instance, the tax on coal is intended to increase by 50%, while the tax on petroleum products is intended to increase by 33.33%. This study employs a computable general equilibrium model to assess the effects of these increases in taxes on the Vietnamese economy, focusing on energy, transportation, and the private sectors. Results show that an increase in tax on petroleum products will considerably affect the country with a reduction of real GDP by 1.99%. Exports and imports are also highly unfavorably affected. In this instance, the total emission level will be reduced by 7.12%. The increased tax on coal, however, will allow Vietnam to experience much lower unfavorable effects, while being able to cut a substantial amount of the emission level. For example, real GDP would only decline by 0.51%, while total emission level will be reduced by 10.25%. If these taxes are increased together, Vietnam will experience considerable contractions in the economy, but it is able to reduce a substantial emission level.

Potential impacts of the Emissions Reduction Fund on the Australian economy

This paper examines the impacts of the Emissions Reduction Fund on the Australian economy. The GTAP-E model has been extended to allocate the subsidy directly to each eligible sector. The simulation of the subsidy policy has been supplemented by introducing an improvement of energy efficiency to non-agricultural sectors and of resource efficiency by using endowment factors in the agricultural sector. Results indicate that, with the current budget of A$2.55 billion, or US$1.86 billion (Scenario 1), Australia can only achieve the minimum cumulative emissions reduction target of 225 MtCO2-e during 2015–20. Australia needs a budget of US$2.08 billion (Scenario 2) to achieve the maximum cumulative emissions reduction target of 279 MtCO2-e. In both scenarios, the agricultural sector receives the highest payment from the Australian Federal Government under the subsidy programme, followed by the electricity generation sector. Under the scheme, Australia experiences only a mild contraction in the economy, with a reduction of real GDP by 0.37% and 0.55% in the two scenarios, respectively.

Is Bhutan destined for 100% organic? Assessing the economy-wide effects of a large-scale conversion policy.

Organic agriculture (OA) is considered a strategy to make agriculture more sustainable. Bhutan has embraced the ambitious goal of becoming the world’s first 100% organic nation. By analysing recent on-farm data in Bhutan, we found organic crop yields on average to be 24% lower than conventional yields. Based on these yield gaps, we assess the effects of the 100% organic conversion policy by employing an economy-wide computable general equilibrium (CGE) model with detailed representation of Bhutan’s agricultural sector incorporating agroecological zones, crop nutrients, and field operations. Despite a low dependency on agrochemicals from the onset of this initiative, we find a considerable reduction in Bhutan’s GDP, substantial welfare losses, particularly for non-agricultural households, and adverse impacts on food security. The yield gap is the main driver for a strong decline in domestic agricultural production, which is largely compensated by increased food imports, resulting in a weakening of the country’s cereal self-sufficiency. Current organic by default farming practices in Bhutan are still underdeveloped and do not apply the systems approach of organic farming as defined in the IFOAM organic farming standards. This is reflected in the strong decline of nitrogen (N) availability to crops in our simulation and bears potential for increased yields in OA. Improvement of soil-fertility practices, e.g., the adoption of N-fixing crops, improved animal husbandry systems with increased provision of animal manure and access to markets with price premium for organic products could help to lower the economic cost of the large-scale conversion.

The direct and indirect effect of cash transfers: the case of Indonesia

PurposeThe purpose of this paper is to analyze the impact of unconditional cash transfers in Indonesia on poverty and inequality while, unlike much of the previous literature on the welfare impact of such transfers, acknowledging that they will have both a direct effect and an economy-wide effect on the national economy.Design/methodology/approachThe methodology used is a Computable General Equilibrium (CGE) model of the Indonesian economy. The unique feature of this model, which is very relevant in this study, is the disaggregation of households by expenditure classes; this allows for precise estimation of the distributional impact and poverty incidence.FindingsThe results suggest that, despite a large reduction in poverty, particularly in rural areas, such transfers reduce the Indonesian GDP, especially if domestically financed through increasing the value added tax of all commodities. However, the GDP reduction can be reduced by approximately half when cash transfers are financed by reducing the distortionary fuel subsidy. Moreover, cash transfers financed by reducing the fuel subsidy also reduce inequality by much more than otherwise. Various extents of the distribution of the transfers are compared, from giving them to the poorest 10 percent to distributing them equally to all households. The benefit of the transfers, in terms of reduced poverty and inequality, is found to be smaller when the author extends the beneficiaries toward the non-poor, although the economy-wide cost, in terms of the reduced GDP, is smaller.Research limitations/implicationsThe CGE model used in this model is a comparative-static model that does not explicitly model the time dimension, i.e. how the impact of the transfers evolves over time. This is important if we want to know the timing of the transfers and how and when they are translated into impacts.Practical implicationsTo reduce the contractionary effect of cash transfers program, government/policy makers should carefully look for appropriate financing such as from removing subsidy with pre-existing distortions like fuel subsidies.Social implicationsGovernment needs to carefully design cash transfers to minimize the negative indirect (economy-wide) implication for the national economy and to make sure that the transfers reach the targeted beneficiaries.Originality/valueFew previous studies have acknowledged the indirect economy-wide effect in analyzing the impact of cash transfers. To the author’s knowledge, this has never been done before for Indonesia. Unlike previous studies, this paper is unique as it contains sensitivity analysis on how transfers can be mistargeted and reach the non-poor and looks at the implications not only for poverty and inequality but also for the rest of the economy.

Tourism and Economic Development in ASEAN 1998-2013

Many countries support government policies to encourage tourism sector, including ASEAN countries, due to an assumption that tourism contributes positively to GDP and poverty reduction. This study investigates that assumption, as well as the correlation between tourism and HDI, by applying panel data regression to eight ASEAN countries (Brunei Darussalam, Indonesia, Laos Singapore, Malaysia, Thailand, the Philippines, and Vietnam,) during 1998--2013. We found that the number of international tourist arrivals as a proxy variable for tourism have a significant and positive correlation with poverty reduction. Tourism is also proven to increase GDP per capita (albeit in a smaller magnitude) and increase HDI (in an even smaller scale). These findings confirmed our hypothesis on the positive effects of tourism. It is recommended that the tourist promotion is continued while studying the best practices to strategically develop the tourism sector in order to strengthen the positive correlation.

Enhancing global climate policy ambition towards a 1.5 °C stabilization: a short-term multi-model assessment

The Paris Agreement is a milestone in international climate policy as it establishes a global mitigation framework towards 2030 and sets the ground for a potential 1.5 °C climate stabilization. To provide useful insights for the 2018 UNFCCC Talanoa facilitative dialogue, we use eight state-of-the-art climate-energy-economy models to assess the effectiveness of the Intended Nationally Determined Contributions (INDCs) in meeting high probability 1.5 and 2 °C stabilization goals. We estimate that the implementation of conditional INDCs in 2030 leaves an emissions gap from least cost 2 °C and 1.5 °C pathways for year 2030 equal to 15.6 (9.0–20.3) and 24.6 (18.5–29.0) GtCO2eq respectively. The immediate transition to a more efficient and low-carbon energy system is key to achieving the Paris goals. The decarbonization of the power supply sector delivers half of total CO2 emission reductions in all scenarios, primarily through high penetration of renewables and energy efficiency improvements. In combination with an increased electrification of final energy demand, low-carbon power supply is the main short-term abatement option. We find that the global macroeconomic cost of mitigation efforts does not reduce the 2020–2030 annual GDP growth rates in any model more than 0.1 percentage points in the INDC or 0.3 and 0.5 in the 2 °C and 1.5 °C scenarios respectively even without accounting for potential co-benefits and avoided climate damages. Accordingly, the median GDP reductions across all models in 2030 are 0.4%, 1.2% and 3.3% of reference GDP for each respective scenario. Costs go up with increasing mitigation efforts but a fragmented action, as implied by the INDCs, results in higher costs per unit of abated emissions. On a regional level, the cost distribution is different across scenarios while fossil fuel exporters see the highest GDP reductions in all INDC, 2 °C and 1.5 °C scenarios.

Estimating energy service demand and CO2 emissions in the Chinese service sector at provincial level up to 2030

China has been through a rapid development process of expanding tertiary industries and urbanization. Due to the aggressive expansion of service building space, energy consumption and CO2 emissions from the service sector are increasing significantly. In this study, we concentrate on China’s service sector and analyze CO2 emissions from six sub-sectors: offices, mercantile, food and lodging, education, healthcare and others. Considering the gap of tertiary industry development status and climate diversity across regions, we base our study on regional analyses and the study subjects include 31 provincial regions of mainland China. We first estimate floor area and energy service demand of each sub-sector based on difference-influencing indicators. Then we conduct a scenario analysis and use an AIM/Enduse bottom-up cost optimization model to evaluate the CO2 reduction potential brought about by efficient technologies in China’s service buildings. The results show that: 1) office and mercantile are two major sub-sectors in the service sector, while most of the floor area increase in the service sector is due to office buildings; 2) by 2030 a considerable part of energy consumption will be replaced by renewable energy, which leads to no-regrets CO2 emissions reductions; 3) renewable energy penetration potential is smaller in regions with larger tertiary industry GDP and CO2 emission reductions in cold and warm regions are caused by consumption decrease of coal and electricity respectively; 4) the optimization analysis allocates more reduction potential to regions with a smaller tertiary GDP share.

INTERNATIONAL FINANCIAL INTEGRATION, INSTITUTIONAL QUALITY AND ECONOMIC GROWTH IN DEVELOPING AND EMERGING ECONOMIES

ABSTRACT For an economy to foster economic growth, it is important for businesses to be able to access capital to expand investment and production. According to the neoclassical growth model, increases in financial integration help to ease the flow of capital to capital scarce countries, encouraging foreign and domestic private investment, in turn allowing firms to increase their capital investment and output. Thus, to ensure greater efficiency and economic growth, economies, especially developing and emerging economies, are encouraged to integrate into the global financial markets. However, the benefits of financial openness assumes a frictionless domestic financial market. In the presence of poor institutional quality that creates hurdles, investment in the domestic market and exposure to global business cycles might increase risk. Poor institutional quality due to things such as lack of government effectiveness and law, or corruption may prohibit domestic firms from realizing the benefits of international financial integration and experience a reduction in capital flows, investment and GDP. While Developing and Emerging countries have large potential gains from international integration, they need to weigh the costs and benefits of financial openness and understand how poor institutional quality may generate “crowing out” effects of capital outflows, potentially reducing economic growth. This paper examines the importance of financial openness and institutional quality on developing and emerging countries economic growth. Results show the importance of better government effectiveness and voice, and that greater financial integration reduces economic growth for developing and emerging countries. Keywords Financial Integration, Economic Growth and Institutional Quality

Reassessing the Links between GHG Emissions, Economic Growth, and the UNFCCC: A Difference-in-Differences Approach

International climate agreements such as the Kyoto Protocol of 1997 and, more recently, the Paris Climate Agreement are fragile because, at a national level, political constituencies’ value systems may conflict with the goal of reducing greenhouse gas (GHG) emissions to sustainable levels. Proponents cite climate change as the most pressing challenge of our time, contending that international cooperation will play an essential role in addressing this challenge. Political opponents argue that the disproportionate requirements on developed nations to shoulder the financial burden will inhibit their economic growth. We find empirical evidence that both arguments are likely to be correct. We use standard regression techniques to analyze a multi-country dataset of GHG emissions, GDP per capita growth, and other factors. We estimate that after the Kyoto Protocol (KP) entered into force ‘Annex I’ countries reduced GHG emissions on average by roughly 1 million metric tons of CO2 equivalent (MTCO2e), relative to non-Annex I countries. However, our estimates reveal that these countries also experienced an average reduction in GDP per capita growth rates of around 1–2 percentage points relative to non-Annex I countries.

Customs Duties as a Key Function of Rwandaas Economic Growth Case Study: Gatuna Border in Gicumbi District (201002016)

The study was about “Customs duties as a key function of Rwanda’s economic growth, Case study of GATUNA Border in Gicumbi District” has the general objective of assessing the impact of customs duties on Rwanda’s Economic growth guided by the following specific objectives: to identify the constraints faced economic growth based on customs duties from Gatuna Border, to analyze the factors influencing customs duties from Gatuna Border to achieve economic growth in Rwanda and to find out the indicators of economic growth in Rwanda via customs duties from Gatuna Border. The hypotheses of the study were: Fraud, Informal cross-border, High level of interest rate and High level of penalties are constraints faced economic growth based on customs duties from Gatuna Border. Type of goods traded, knowledge of the customs union protocol and mode of transportation across the border have the influence influencing customs duties from Gatuna Border to achieve economic growth in Rwanda and Infrastructure development, Increase in PCY, Poverty reduction and Increase in GDP as well as GNP are the indicators of economic growth in Rwanda via customs duties from Gatuna Border. The study was qualitative and quantitative parts as a research design where it used both primary data and secondary data, for data collection techniques the study used interview and documentation techniques. 10 people were considered as the study respondents in interview technique and it referred on the seated data from concerned institutions. E-Views through Microsoft excel was used to estimate simple and multiple regression model by using OLS Method. The major findings of this study revealed that there are different constraints faced economic growth based on customs duties from Gatuna Border where all 10 interviewees equal to 100% of the respondents said that the fraud is one in these constraints and there are factors influencing customs duties to achieve economic growth as R-Square of 0.994 which means 99.4% change in GDP as the measurement of economic growth if the explanatory variables change illustrated and there are different indicators of economic growth in Rwanda through customs duties from Gatuna Border where all 10 interviewees equal to 100% agreed. The study concluded that all the three objectives of this study were achieved and three research questions were answered and help to verify and to confirm all three hypotheses of the study. Finally, the study proposed different recommendations to the concerned people such as international traders, government and future researchers.

Alternative measures of macroeconomic imbalances in the EU – design and verification

Years 2008 and 2009 were particularly affected by the outbreak of the global economic recession which in addition to economic instability was also affected by political instability. Economies of most countries in the world felt the impact of the financial crisis, not excluding the EU countries. Since the start of the crisis, there has been a substantial reduction in the EU’s growth potential. In the EU, this was reflected at the macro-level by 4.74% GDP reduction in 2009 (Campos-Soria, Inchausti-Sintes & Eugenio-Martin, 2014). The high levels of external liabilities and private and public debt in many countries in the EU still constitute substantial vulnerabilities for growth, jobs and financial stability. The development of various indicators at micro and macro levels in times of last crisis in various countries was investigated by several authors (Campos-Soria, Inchausti-Sintes, & Eugenio-Martin, 2015; Gugler, Weichselbaumer, & Zulehner, 2015; Zhao, Jiang, & Li, 2014; Tatulescu & Patruti, 2014; Mazurek & Mielcova, 2017; Klepac & Hampel, 2018).

The macroeconomic effects of monetary policy shocks under fiscal rules constrained by public debt sustainability

This paper studies the macroeconomic effects of monetary policy shocks when fiscal rules are constrained to ensure public debt sustainability. In such an economy, the rise in the interest rate following a monetary policy shock increases the cost of financing debt, thereby making a fiscal adjustment necessary to guarantee debt sustainability. The analysis is based on a DSGE model developed and calibrated to describe the Brazilian economy, where the effects of the interest rate on public debt service tends to be pronounced. The model incorporates a detailed public sector capable of intervening in the economy through several channels. Our simulations show that the magnitude of the reduction in GDP following a monetary policy shock varies considerably depending on the fiscal rule adopted. In particular, there is strong evidence that economic performance worsens when fiscal adjustment relies on public investment cuts.

Prospects and Challenges: Mozambique's Growth and Human Development Outlook to 2040

Prospects and Challenges: Mozambique's Growth and Human Development Outlook to 2040