Potential GDP Research Articles

Diversification in sight? A macroeconomic assessment of Saudi Arabia’s vision 2030

Saudi Arabia, currently the world’s largest oil exporter, embarked since 2021 on a large-scale National Investment Strategy (NIS) designed to lift potential GDP growth by diversifying the economy. This article describes the strategy and is the first paper that quantifies its impact on growth using a dynamic general equilibrium model. It also decomposes this impact into two main channels: the direct impact of the investment push and the impact of complementary reforms. We find that the overall strategy – when supported by appropriate fiscal measures, labor supply reform, and higher public sector efficiency – could boost potential non-oil growth by 4.8 percentage points to about 8.8 percent in the medium term. We also assess the growth dividends of a wider range of alternative scenarios around the NIS baseline.

Research of multimodal transport potential of major cities in China based on the satellite remote sensing

Abstract. By two or more modes of transportation to connect with each other and complete the transport process, multimodal transport could significantly improve transport efficiency, reduce costs, while promote energy conservation and emission reduction, compared with the traditional single mode of transport. Therefore, the multimodal transport development reflects the level of national or regional economic development to some extent. In this study, multimodal transport potential index was built to evaluate the possibility of multimodal transport. Remote sensing images from satellites were used to extract roads, railway stations and airports. A method was proposed to derive the road-rail transport potential index and road-air transport potential index, and then for the analysis of multimodal transport potential in 36 cities. Results show that there is a big gap among 36 cities on the development potential of road-rail and road-air transport. Compared with the road-rail transport potential index, the distribution of road-air transport potential index is more consistent among and within the seven regions. Index values of megacity and super cities are much higher than type I and II big cities. Moreover, in the 36 cities, there is a positive correlation between the multimodal transport potential index and GDP. The research results could be used to quantitatively evaluate the development of transport infrastructure, consequently provide more solid and reliable basic information for the planning, design and scheme adjustment of multimodal transport, thus comprehensively improve the efficiency and quality of multimodal transport, serve the territorial spatial planning.

Unleashing potential: Model-based reform benchmarking for EU Member States

Supply-side policies take centre stage in the EU's post-pandemic recovery plans. This paper employs a benchmarking approach to quantify the potential impact of structural reforms in the EU Member States. Based on a comprehensive collection of structural indicators and a rich endogenous growth model, we evaluate reforms in five policy areas: (i) market competition and regulation; (ii) taxation; (iii) skills and education; (iv) labour markets; and (v) research and development. For each indicator and Member State, we simulate the closing of half of the gap with the EU's best performers, implying ambitious reforms for countries with significant distance to the frontier. For these stylised reforms, we find significant potential gains in employment and output, raising EU GDP by around 2% and 8% after five and twenty years, respectively. In the long run, the policies can increase EU GDP by over 20%. The policies also reduce economic disparities between countries, given different scope for reform. For countries with a sizable distance to the best performers, increases in potential GDP could exceed 40% when halving the gap across all indicators. Among the reforms considered here, human capital investment emerges as central for enhancing growth potential. In addition, we find synergies across reforms and countries and assess the sensitivity to alternative assumptions on technology dynamics in our model.

Debt sustainability and policy targets: Full employment or structural balance? A simulation for the Spanish economy

The idea that Spain should reduce its structural fiscal deficit has been playing a crucial role in determining the orientation of its fiscal policy for the past three decades, in line with the European fiscal rules. Nevertheless, relying on unobservable variables for its estimation might lead to an underestimation of potential GDP and to the application of pro-cyclical measures in times of crisis. Following the Updated Okun Method to estimate an alternative measure of potential GDP, which targets full employment, we simulate alternative fiscal policy scenarios for Spain from 2023 to 2028. Our results point to a better performance, both in terms of public debt sustainability and reduction of the unemployment rate, when focusing on an unemployment rate target rather than on the reduction of the structural fiscal balance. This suggests a departure from this indicator in guiding fiscal policy orientation in the context of the reform of the European fiscal rules.

Unraveling the Relationship Between GDP and Unemployment in China with Okuns Law

As the worlds second-largest economic powerhouse, China stands at the nexus of global trade, investment, and economic policies. Yet, despite its meteoric rise and the subsequent spotlight on its financial milestones, the correlation between its GDP growth and the unemployment rate remains a fertile ground for exploration. Using time-series data as the backbone of this paper, the Granger Causality Test and Vector Autoregression (VAR) methodologies are employed during the research process. These sophisticated approaches are capable of ascertaining the linear interdependencies between these variables, providing a dynamic perspective that goes beyond traditional static analyses. This research aims to answer key questions: Can the historical fluctuations in GDP serve as a reliable predictor for future unemployment trajectories, and if so, to what extent does Okuns Law hold true? Conversely, does a shift in unemployment rates offer insights into potential GDP movements? The conclusions drawn from this comprehensive analysis aim to uncover the relationship between GDP and unemployment and provide possible explanations by integrating the notion of Okuns law.

Is there hysteresis in potential output estimates?

Using an error correction model, this paper studies the dynamics of GDP and potential GDP using OECD's Economic Outlook and IMF's World Economic Outlook estimates of the output gap. The findings suggest the presence of hysteresis, implying that short-run shocks to GDP have sizeable permanent effects on potential GDP.

The governance of regional innovation policy and its economic implications

This paper provides insights on the potential macroeconomic impact of the governance of the European innovation policy called Smart Specialisation. We use original empirical data on the implementation of the policy, which is funded through a dedicated financial envelope of the 2014–2020 EU cohesion policy, in a spatial macroeconomic modelling framework capable of gauging the general equilibrium effects of varying degrees of governance quality. Our contribution aims at narrowing the gap between the abstraction of ex-ante impact assessment exercises based on macroeconomic simulations and the reality of how policy interventions may take place. By using data for all Italian NUTS 2 regions, we find that the measured quality of Smart Specialisation governance could increase the pure investment-related impact of the policy by up to 40 percent. At the same time, we estimate that further potential GDP gains—in the order of an additional 40–50 percent over what was achieved with the observed levels of governance—would not materialise because of the comparatively low quality of governance in some regions.

통화정책과 금융여건을 고려한 한국의 잠재GDP 추정

The policies of central banks, financial conditions, and economic fluctuations are not entirely independent; nevertheless, the conventional method for estimating potential GDP has the convenience of considering supply or real factors independently, potentially leading to biases in estimating the GDP gap that represents economic fluctuations. In this paper, we estimate potential GDP using a multivariate filtering approach that incorporates monetary policy and financial conditions during the period from 1996 to 2011. According to the estimation results, the level of potential GDP during the years 2003 to 2005 experienced a significant decline, and the GDP gap was observed to have a positive value. Despite this, expansionary economic policies were predominantly implemented during that time, which can be attributed to the limitations of the conventional method for estimating potential GDP. The findings of this study hold implications for future monetary policy formulation.

Застосування монетарних режимів у процесі прийняття рішень із грошово-кредитної політики

Introduction. The article studies two main monetary regimes in the process of monetary reform of central banks: a target-based regime and a rule-based regime. Inflation targeting is the most common rule of monetary policy. Using the key rate as a monetary policy tool can ensure price stability and economic growth. Problem Statement. Using the interest rate rule of inflation targeting, the central bank has certain advantages over the target variables. If preferences change unexpectedly, they are not taken into account by economic agents as quickly and act as an exogenous shock to the economy. This allows the central bank to test its policy against a rule that is potentially persistent in many cases of macroeconomic models. The purpose is to evaluate the reforms of the monetary regimes of the Reserve Bank of New Zealand and the Federal Reserve System, which are based on legally established rules and instruments of monetary policy, which enables the central bank to make effective monetary decisions to achieve price stability and sustainable employment. Methods. The Taylor rule was used to test the hypothesis that there is a relationship between the inflation target and the variables of the Taylor function, including the gap between GDP and potential GDP, as well as the determination of the key rate based on the quantitative parameters of the target function. This confirms the expediency of applying the Taylor rule when implementing the inflation targeting regime. Results. Reforms of monetary regimes were aimed at clarifying the political responsibility of central banks, strengthening their independence in making decisions related to monetary policy objectives. The reforms were supposed to contribute to increasing the level of transparency by improving the effectiveness of the communication policy, which consisted in transmitting policy decisions from the central bank to the public and signaling future political intentions. In general, the responsibility in the inflation targeting regime is enhanced by the public nature of the assumed obligations related to the announced goal and the requirements put forward by the central bank regarding its implementation. Achieving the goal becomes an indicator of the central bank's effective activity. Conclusions. Many of the aspects that were introduced in New Zealand and the US – the public commitment to an inflation target, high levels of transparency and accountability – are now considered the best practice in monetary policy. Making targets public promotes accountability, especially if the central bank has a single policy objective – price stability or an inflation target. Otherwise, broad independence in decision-making may make the central bank less accountable, and therefore independence should be clearly linked to the objectives rather than the choice of instruments, which is the best strategy for central bank reform.

Measuring the Natural Interest Rate for the Macedonian Economy: A Multi-Model Approach

Abstract This paper identifies the natural interest rate for the Macedonian economy using quarterly data for 2001Q4-2019Q3. To this end, the estimation is made by using different types of models, such as the Holston, Laubach, and Williams model and the full-fledged country-specific structural MAKPAM model. The empirical results show that the natural rate of interest in the Macedonian economy has declined over time, which is similar to the findings for other countries. The decomposition of the natural rate suggests that the main driver for the decline is the slowdown of the Macedonian potential GDP growth in the period after the global economic crisis, although there are signs of its recovery at the end of the sample period. In addition, the results indicate that the monetary policy conditions in the Macedonian economy have been broadly accommodative from 2011Q4 onwards. The substantive conclusions are unchanged across the multiple models used in this study.

LABOR MARKET RIGIDITIES AND OKUN'S LAW ASYMMETRIES FOR LATIN AMERICA DURING THE PERIOD 2000-2018

This paper evaluates the relationship between market rigidity and Okun's law asymmetry, using a sample of six Latin American countries from 2000 to 2018. After econometric processing of the variables, the annual data show that the potential GDP of the six countries is negatively correlated with the unemployment rate. Latin American hiring regulations and the relationship between minimum wage and unemployment are opposite, and there is no explanation on how the significance of unemployment affects these variables, and there is a positive relationship with centralized collective bargaining

Estimation of the potential GDP by a new robust filter method

The first purpose of this paper is to propose a theoretically new robust filter method to estimate non-observable macroeconomic indicators. The second purpose is to apply the proposed method to estimate the Hungarian potential GDP in 2000–2021. The novelty of the proposed filter method is that — unlike papers published so far — it does not require the stability of the dynamic model, only a partial stability condition must be satisfied. Moreover, such time-dependent uncertainties and nonlinearities can arise in the model that satisfy a general quadratic constraint. An important advantage of the proposed robust filter method over the traditional Kalman filter is that no stochastic assumptions is needed that may not be valid for the problem at hand. The proposed filter method has never been applied to estimate the potential GDP. To estimate the Hungarian potential GDP, the proposed method is applied using uni-, bi- and trivariate models. Estimations up to 2021 has not been published yet for the Hungarian economy. The examined period includes both the financial world crisis and the Covid-19 crisis. The results of the different models are consistent. It turned out that the economic policy was very procyclical after 2012, and the GDP gap was still positive during and also after the Covid-19 crisis.

On the unfinished business of stabilization programs: a CGE model of Egypt

ABSTRACT Several emerging economies have embarked on structural adjustment reform programs that focused more on short-run-oriented stabilization reforms. Yet, longer-term structural policies that can shift their potential GDP were not fully taken into consideration. Thus, this paper contributes to the literature in three ways. First, we contrast the effects of stabilization and allocation policies in order to examine to what extent they complement or substitute each other. Second, we analyze how the effects of such policies can differ in the short and long term and with different market structures (perfect vs. imperfect competition). Third, we develop a CGE model for Egypt that was subject to a recent reform program developed with the IMF. Our main findings show that stabilization reforms reduce economic growth by 2.5% in the short run. Yet, they positively affect it over time especially if they are accompanied by structural reforms. Indeed, the latter increase economic growth (of 8.6% in the long run). Furthermore, from a social perspective, stabilization reform deteriorates households’ welfare in the short run. Finally, we find that negative effects of stabilization and structural reforms are more pronounced under imperfect competition pointing out the importance of an effective competition policy.

Competency-Based Entrepreneurship Education: Analysis of the ‘Disruptive Innovation’ Theory in African Higher Education Institutions

This aim of this article is to examine several entrepreneurial education innovations (competency-based education as a disruptive innovation model and pedagogy in the HEIs) using a comprehensive systematic literature review (SLR). It is accepted practise to undertake systematic literature reviews when implementing evidence-based policy. This article discusses the ways higher education has evolved in teaching leading to innovative scholarships that unsettle established institutional structures and academic practices. Particularly, within the African context as entrepreneurship is gaining increasing mention as a discipline at Higher Education Institutions (HEIs) given the potential employment and GDP contribution benefits. The findings support the conclusion that the move towards this high-quality, personalised approach, the focus is not only on the level of competency achieved by the student but also on validating the learning experience.

A commodity exporting economy under “the new reality”: Aggregate and structural changes

“The new reality” means a commodity-exporting economy cannot use its accumulated fx-reserves or attract new fx-debt to smooth abrupt import reduction amid slower decline of income flow from commodity export. We use a modified version of the Ramsey—Cass—Koopmans’ model to study aggregate and structural changes in the economy under these conditions in the shorter and longer run. The results show that the potential GDP of the economy which cannot effectively substitute its import should decline both in the shorter and longer run. However, full and effective import substitution does not guarantee households would restore their volume of consumption. The reasons are, first, labor reallocation into the import-substituting sector that reduces availability of labor for other sectors and, second, the need to keep capital intensity of production at a higher level. If the efficiency of import substitution is asymmetric and biased to goods for final consumption relative to goods for investments, the structure of imported goods becomes biased to the later. Moreover, goods for final consumption experience very intensive import substitution in such a case. However, it does not result in the restored level of total consumption. The results may imply higher consumer goods inflation in practice. If import substitution is extremely inefficient in both consumption and investment goods’ production, households cannot avert a huge reduction of their welfare.

Growing Skills: Building Towards the Future

Abstract The digital skills gap is costing billions each year in potential GDP gains and, according to the UK Digital Strategy released this year, building a pipeline of tech skills is key to unlocking the opportunities for economic growth, writes BCS Head of Apprenticeships Annette Allmark.

Quantitative decomposition of China's industrial energy consumption structure based on production-theoretical decomposition method

The environment constraints have become more restrictive over time, because the transformation of energy consumption structure (ECS) is the key path to achieve the commitment of net-zero emission. However, the adjustment of ECS involves the influence of many factors, including economic factors, energy factors and social factors. Not to mention how ECS-driving factors under tougher environmental regulation may behave throughout long time period remains explored. According to the background, the periodic driving factors of industrial ECS in China based on the periodic effect of environmental regulation on ECS are discussed. In this paper, industries of China are divided into four sectors from 1998 to 2017, and a multi-layer LMDI decomposition model is constructed to decompose ECS of the four sectors in stages. Since the industrial and commercial sector provides the largest contribution rate, the LMDI model based on PDA production theory method is applied to decompose industrial and commercial ECS, aiming to deeply explore the main driving factors of ECS in subindustries, and formulate scientific energy and environmental policies. The results show that from the perspective of the whole industry, the per capita pollution control investment has the most significant negative contribution, and the economic activity effect provides a great positive contribution to the ECS. In terms of subindustries, the main negative drivers are potential energy intensity and GDP technology change.

Forecast of the Long-Term Trajectory of the Potential GDP of Kazakhstan in the Context of the Global Energy Transition.

—The article presents a forecast of the potential GDP of Kazakhstan performed using a structural method based on a production function that establishes relationships between the factors of production, total factor productivity, and output. Forecast estimations of trends of the key factors of production and the total factor productivity that form the long-term trend of the potential GDP of the country in the context of the global energy transition are presented. The baseline scenario of a long-term forecast of the potential GDP of Kazakhstan for the period until 2050 as adjusted for the objective of decarbonization of the economy is developed. Approaches to economic policy that could “nudge” the potential GDP up are proposed.

Factors of Economic Growth in 2011–2021 and Their Reflection in Macroeconomic Models

The article examines factors of economic growth in Russia over more than a decade (2011–2021). The focus is on evaluating new factors, including specific ones, which have influenced the development dynamics of the period under review. Models of cyclic dynamics and macroeconomic factor models are used as research tools.The authors consider possibilities for estimating potential GDP using two approaches: through the selection and elimination of short-term cyclic fluctuations and based on the construction of factor models. The paper discusses the matter of substantiating potential GDP, taking into account changes in the ratio of factors that form it, including the external economic factor. It is noted that for a more detailed analysis of specific factors, there has to be a transition to monthly and quarterly data treatment, which is done using the example of cyclic dynamics models and factor models. The nature of the impact of specific factors by specified periods, including the post-crisis period of 2011–2014, the 2014 to 2017 period, when Western countries imposed sanctions, as well as the impact in 2020–2021 of the factor associated with the coronavirus pandemic, are revealed. To be specific, for the latest period of development of the domestic economy, the paper demonstrates how three waves of COVID-19 correlate with the three waves of its impact on economy. Meanwhile, despite the increase of the coronavirus waves up to the fourth wave, their direct and conjugated impact decreased exponentially. At the same time, the impact was differentiated by industry sectors. A number of industry sectors during this period gained a significant impetus to accelerate development, which will affect the subsequent change in the structure of production.Strengthening the role of new specific factors now enhances the relevance and need to apply and develop these methods, including the active use and development of import matrices as part of the input-output tables. In this regard, the authors consider some directions in development of methods for addressing new factors at the present stage.

Unemployment in the Russian Federation against the background of foreign sanctions

Changes of various kinds in recent months related to the redistribution of supply chains in the world market, as well as the withdrawal of foreign companies and the imposition of Western sanctions, have led to a variety of problems in our country that require immediate solutions. The main social and economic problem in the current situation is the unemployment increase. This factor has an extremely negative impact on various spheres of human life and society as a whole. The underutilization of human resources leads to a decrease in potential GDP and national income. Also in this situation, an individual suffers, as his/her income is reduced, which entails a decrease in demand in the market. This kind of situation will complicate the existence of various types of business, which again can lead to a decrease in the number of employed population. The research has been conducted in order to identify the consequences that have occurred or may occur as a result of foreign sanctions and the withdrawal of corporations from the Russian market. The way the state is struggling with the main problems is sponsoring domestic enterprises and indexing various types of payments to citizens and increasing the number of employees. During the research, the following scientific methods have been used: induction, analysis, synthesis, comparison, abstraction. The result of the presented article is the conclusion that, of course, the sanctions imposed against the Russian Federation cause damage to the state economy. In any case, unemployment will rise this year, but this increase will not be critical. Timely introduced support measures from the government help to stabilize the situation. Thus, economic indicators will return to normal level next year, by this time new supply chains will be established, and new enterprises will begin to appear that can provide people with work.