Negative GDP Research Articles

Do free trade agreements promote intra-industry trade? The case of India and its FTAs

The paper examines the role of free trade agreements (FTAs) in promoting intra–industry trade (IIT) between India and its selected FTAs - Association of South East Asian Nations (ASEAN), South Asian Free Trade Agreement (SAFTA) and Sri Lanka. IIT is evident for India's trade with Sri Lanka and Singapore whereas the same is low for other countries. Even the observed IIT is mostly in the form of vertical IIT (VIIT). The results based on fixed effects model using gravity equation shows that the FTAs have a significant impact in promoting IIT. This can be attributed to the high levels of VIIT observed after trade agreements are signed. The negative and significant GDP difference confirms the hypothesis of an inverse relationship between the level of IIT and the differences in development of the trading economies. If countries within an FTA are with different levels of development, then the resultant trade would mainly exhibit an inter–industry structure thus indicating possibilities of greater resource adjustment costs.

Real and Financial Vulnerabilities from Crossborder Banking Linkages

This paper looks at the vulnerabilities stemming from banking sector linkages between countries and their macroeconomic effects. It finds that credit risks (from a banking system’s claims on other countries) and funding risks (from a banking system’s liabilities to another) have declined over the past five years. It also finds that funding vulnerabilities have real effects. During normal times, funding vulnerabilities are associated with significant positive GDP growth surprises. During crisis times, funding vulnerabilities are associated with significant negative GDP growth surprises. The results tell us that policymakers should pay more attention to understanding crossborder funding risks.

Real and Financial Vulnerabilities from Crossborder Banking Linkages

This paper looks at the vulnerabilities stemming from banking sector linkages between countries and their macroeconomic effects. It finds that credit risks (from a banking system’s claims on other countries) and funding risks (from a banking system’s liabilities to another) have declined over the past five years. It also finds that funding vulnerabilities have real effects. During normal times, funding vulnerabilities are associated with significant positive GDP growth surprises. During crisis times, funding vulnerabilities are associated with significant negative GDP growth surprises. The results tell us that policymakers should pay more attention to understanding crossborder funding risks.

Maßnahmen zur Vermeidung von Altersarmut: Makroökonomische Folgen und Verteilungseffekte

There is an intensive debate about old-age poverty in Germany that has induced political parties to develop proposals for higher pensions of poor pensioners in light of the federal elections of September 2013. In addition, several proposals from economists aim at reforming the pension system in a way that mitigates old-age poverty. In this paper, we consider these proposals in a computable general equilibrium model in order to derive their effects on the income distribution, on employment, on the capital stock and on GDP. Our results indicate that negative employment, capital and GDP effects are induced by such reforms as compared to the alternative of basic means-tested social welfare in old-age. Moreover, the strongest beneficiaries would be the currently higher age employees with low income and much less the respective younger employees, while younger and higher age employees with high and medium incomes will lose.

Dynamic stock market covariances in the Eurozone

This paper examines the short-term dynamics, macroeconomic sensitivities, and longer-term trends in the variances and covariances of national equity market index daily returns for eleven countries in the Euro currency zone. We modify Colacito, Engle and Ghysel's Mixed Data Sampling Dynamic Conditional Correlation Garch model to include a new scalar measure for the degree of correlatedness in time-varying correlation matrices. We also explore the robustness of the findings with a less model-dependent realized covariance estimator. We find a secular trend toward higher correlation during our sample period, and significant linkages between macroeconomic and market-wide variables and dynamic correlation. One notable finding is that average correlation between these markets is lower when their average GDP growth rate is lower or when more of them have negative GDP growth.

Dynamic Stock Market Covariances in the Eurozone

This paper examines the short-term dynamics, macroeconomic sensitivities, and longer-term trends in the variances and covariances of national equity market index daily returns for eleven countries in the Euro currency zone. We modify Colacito, Engle and Ghysel's Mixed Data Sampling Dynamic Conditional Correlation Garch model to include a new scalar measure for the degree of correlatedness in time-varying correlation matrices. We also explore the robustness of the findings with a less model-dependent realized covariance estimator. We find a secular trend toward higher correlation during our sample period, and significant linkages between macroeconomic and market-wide variables and dynamic correlation. One notable finding is that average correlation between these markets is lower when their average GDP growth rate is lower or when more of them have negative GDP growth.

The limited usefulness of macroeconomic Bayesian VARs when estimating the probability of a US recession

The Bayesian VAR model provides a convenient tool for generating predictive densities and making probability statements regarding the future development of economic variables. This paper investigates the usefulness of standard macroeconomic Bayesian VAR models to estimate the probability of a US recession. Defining a recession as two quarters in a row of negative GDP growth, the probability is estimated for two quarters of the most recent US recession, namely 2008Q3–2008Q4. In contrast to judgemental probabilities from this point in time, it is found that the BVAR assigns a very low probability to such an event. This is true also when survey data, which generally are considered as good leading indicators, are included in the models. We conclude that while Bayesian VAR models are good forecasting tools in many cases, the results in this paper raise question marks regarding their usefulness for predicting recessions.

China’s Fiscal Stimulus and the Recession Australia Never Had: Is a Growth Slowdown Now Inevitable?

China's timely and well-targeted two-year fiscal stimulus was particularly effective in stimulating growth in Australia's commodity exports. Using a constructed series of export volumes to China, this paper finds that the post-stimulus GDP growth contribution from export volumes to China is significant. Had growth in export volumes to China been commensurate with pre-stimulus rates, Australia would have experienced three consecutive quarters of negative real GDP growth - a technical recession. China's gradual and uniquely revenue-based unwinding of fiscal stimulus reduces the risk to Australia of an imminent growth slowdown.

Modelling Stock Exchange Index Returns in Different GDP Growth Regimes

During different GDP growth regimes, the dynamics of global financial markets impacts the Slovenian stock exchange with varying intensity. We propose a smooth transition regression model to explain Slovene stock exchange index returns employing financial and macroeconomic variables. According to our model, the reaction of the stock market to several of the explanatory variables depends on the magnitude of GDP growth. The weaker relationship between Slovene stock exchange index returns and S&P 500 returns in the period of lower or negative GDP growth could be explained by less developed financial market in Slovenia and therefore not closely linked interchange of securities.

How to increase global resource productivity? Findings from modelling in the petrE project

The analysis in the chapter is based on the extensive and disaggregated global GINFORS model that contains 50 countries and two regions and their bilateral trade relations, energy balances, material, macro-economic and structural data. The model is applied in the petrE project to analyze the impacts of major environmental tax reforms (ETR) and the EU ETS to reach the EU GHG reduction targets until 2020. The ETR includes a carbon tax for all non-ETS sectors and a material tax. Scenarios look at unilateral EU action and at international cooperation by all OECD countries and the major emerging economies. The chapter presents some of the modelling results. A major ETR in Europe could significantly reduce environmental pressures in Europe while creating additional jobs. Small negative GDP impacts are within the range of results of other studies. The results clearly demonstrate that only global action with substantial carbon prices may lead to an emission path still in line with the 2° target. But even if a far-reaching global climate agreement is reached later in 2010, global resource extraction will continue to increase without additional international measures.

Causes of banking crises revisited

We examine to what extent there exists heterogeneity in the causes of a banking crisis. For this purpose, we use a random coefficient logit model including 110 countries between 1970 and 2007. We conclude that there exists significant heterogeneity in the causes of a banking crisis. We find that a high credit growth, a negative GDP growth and a high real interest rate are on average the most important causes of a banking crisis. However, none of the variables has a significant impact in more than 60 percent of the banking crises. Besides we find that the impact of the determinants differ between systemic and non-systemic crises and across stages of economic development.

Impacts of the Doha Round on Brazilian, Chinese and Indian agribusiness

The central themes to be addressed during the Doha Round of the world trade negotiations are the reduction of the agricultural production and export subsidies and improved market access for agricultural and non-agricultural goods. The G-20 group wields enough power to press negotiations at the Doha Round toward lower agricultural trade barriers and production and export subsidies. The objective of this study is to determine the impacts of the Doha Round on the economies of Brazil, China, and India. The Global Trade Analysis Project's (GTAP) general equilibrium model and database (version 7) are used. The Doha Round scenarios simulated in this paper consider the WTO agricultural production and export subsidy reduction requirement, and the application of the Harbinson approach, and Swiss formula to reduce import tariffs. Brazil and China present the highest GDP growth rate varying from 0.4 % to 1.4%. India shows a negative GDP growth rate in all scenarios, except in that which replicates the Uruguay Round. The welfare gains are positive, but small, for Brazil, China and India. The GDP loss observed in the economies of the EU25 and the US may make it difficult to reach a trade agreement at the Doha Round.

Aid and the Financial Crisis: Shall We Expect Development Aid to Fall?

This paper estimates the likely consequences of the financial crisis on aid budgets. It uses two different approaches. First, past financial crises are used to compare aid budgets between countries where a crisis broke out and those where it did not. It is shown that a financial crisis not only decreases aid, but also changes its trend. I find that a crisis decreases aid by 13 percent, or that the time trend after the crisis implies aid falls by 5 additional percent per year. Countries that experienced a crisis therefore tended to significantly slow down (and often reverse) their aid budget expansion. Second, vector autoregressions unveil a significant and usually long-lasting consequence of GDP shocks on aid. Five years after a negative GDP growth shock of 1 percent, aid budgets fall by as much as 8 percent. At current aid levels, that is equivalent to a US $7 billion drop in aid disbursements. The conclusion of the paper is therefore that aid is likely to be significantly reduced by the global financial crisis unless preventive action is taken.

Financial Strains and the Zero Lower Bound: The Japanese Experience

We analyse the case of persistent deflation in Japan by estimating the long-run Phillips curve equation using the GDP deflator and the estimated GDP gap. Then we show that the Japanese banking sector has been losing money since the early 1990s due to the heavy credit cost and that it is quickly running out of capital. The Japanese government has been preventing a banking crisis by providing a blanket guarantee on most banking sector liabilities. However, the government is facing a rapid deterioration of financial conditions due to massive budget deficits and the negative nominal GDP growth in recent years. In spite of the quantitative easing of monetary policy, the traditional interest rate policy has lost its potency due to the zero lower bound of nominal interest rates and accelerating deflation. Without stopping deflation quickly, the Japanese government may face capital flight due to the uncontrolled budget deficit. In order to cope with this unusual situation, two nontraditional policy measures are proposed: massive open market purchases of high-quality real assets and a negative nominal interest policy by levying tax on all government-guaranteed yen financial assets.

The value of probability forecasts as predictors of cyclical downturns

The joint subjective probabilities for negative GDP growth during two consecutive quarters obtained from the Survey of Professional Forecasters (SPF) are evaluated as predictors of cyclical downturns in the economy using the prequential approach of Dawid (1984) and the skill score decomposition of Murphy (1988).

Lessons from East Asia’s crisis and recovery

This paper provides an empirical analysis of the currency crisis and recovery in three East Asian countries, Malaysia, Thailand and South Korea. Using macro economic data for the three countries over a 13 year period, 1990 – 2002, the paper examines the factors leading to the crisis, the policy response to the crisis, an evaluation of their recovery and the lessons that can be learnt. During the seven year period prior to the crisis, all three countries experienced very rapid GDP growth. Collectively, average annual GDP growth was 11.5%. This growth however was fueled by rapid monetary growth, current account deficits, negative S-I gaps and short term capital inflows. As a result, serious structural weaknesses were built. Overvalued exchange rates enhanced the vulnerabilities. The two year period of crisis, saw sharply negative GDP growth in all three countries. These were accentuated by the contractionary policies. While Thailand and South Korea had to turn to the IMF and adopt the IMF package, Malaysia took the ‘unorthodox’ route of capital controls and currency peg. The paper argues that despite different policy stance the underlying responses were the same. All three countries experienced a V-shaped recovery. Malaysia’s controversial policies appears to have provided no additional advantage. The paper concludes with an outline of key lessons for policy makers from the experience of the three countries.

Subjective Probability Forecasts for Recessions

Probabilistic forecasts are often more useful in business than point forecasts. In this paper, the joint subjective probabilities for negative GDP growth during the next two quarters obtained from the Survey of Professional Forecasters (SPF) are evaluated using various decompositions of the Quadratic Probability Score (QPS). Using the odds ratio and other forecasting accuracy scores appropriate for rare event forecasting, we find that the forecasts have statistically significant accuracy. However, compared to their discriminatory power, these forecasts have excess variability that is caused by relatively low assigned probabilities to forthcoming recessions. We suggest simple guidelines for the use of probability forecasts in practice.

Commerce international et développement, quelles relations ? Une réponse empirique à partir de données de panel

Jean-Marie Cardebat — International trade and development : what relationships ? An empirical response from international data panel. This work exploits a panel data concerning seven developing zones, between 1980 and 1996. It studies the direct links between international trade and changes of the gdp per capita. The results first show that the intensity and nature of intra-branch trade cause development in the developing countries, as viewed from Grangers' point. Trade with higher income per capita nations doesn't have a greater development impact than that with the rest of the world. The study of the specific effects on each zone however shows that the previous statement applies mainly to the Newly Industrialized Countries of Asia. Elsewhere, the direct links between opening and development are more ambiguous : trade may result in negative GDP per capita growth.

Are Business Cycle Dynamics the Same across Countries? Testing Linearity around the Globe

We investigate business cycle dynamics for 26 countries, estimating a set of nonlinear models for real GDP where appropriate. We find a great deal of heterogeneity in the dynamics of real output growth across countries. At the same time, a common feature is the asymmetric response of real GDP to shocks and the tendency for negative real GDP shocks to be less persistent than positive real GDP shocks.

Hong Kong's Hotel industry—the post-hand-over blues

Hong Kong's tourism industry collapsed around July 1997, shortly after the hand over to Chinese rule. When the Asian financial crisis hit, Hong Kong's investments in neighboring countries suffered. Thereafter the Heng Seng Index dropped 55 percent. Throughout the last quarter of 1997 Hong Kong's economic inhibitors—unemployment, business failures, and negative GDP—all pointed to a recession. Among Hong Kong's hotels, more than 1,750 jobs were lost from December 1997 to March 1998, and average room rates dropped below 1991 levels. Hong Kong's tourism crisis can be traced to: an imbalance between room supply and demand (caused by the inflated demand for office space), unfair hotel pricing to take advantage of Japanese tourists, ineffective national promotional campaigns, airline woes, and food-borne illnesses that scared away visitors. Economic recovery is likely to take several years, and is dependent on the recovery of the rest of the region's countries. In June 1998 Hong Kong produced an economic-stimulus package to stem the tide of decreasing land values and stimulate the money supply. Hoteliers can help by working together to ensure pricing stability. Coordination is also needed between the Hong Kong Tourist Association and the rest of the industry to set goals and objectives. Hospitality education and training need to focus on the current needs of the industry and on how to compete in the new market.