Global Economy Journal

What probability can we assign to the outlook for global deflation? Recently, much of the discussion around monetary policy in the United States, Eurozone and Japan has focused on the threat of deflation and how to avoid it. How likely is deflation for each of these countries, and more broadly, for the global economy as a whole? This paper provides an early-warning-system (EWS) to predict the probability of inflation/deflation in the near term. Specifically, we utilize an ordered probit approach to estimate the six-month ahead probability of three distinct scenarios for the inflation outlook: inflationary pressure, deflationary pressure or price stability. We build models for five regions to generate a signal for each region’s inflation outlook. Our first model assesses the inflation/deflation outlook for the global economy, while the second model generates the likelihood of each inflation scenario for the advanced economies. Our final three models forecast the probability of inflation/deflation for the United States, the Eurozone and Japan. Our global model suggests deflationary pressure is more likely than the other two inflation scenarios, with the model forecasting a 99 percent chance of deflationary pressure in the next six months. The advanced economies model suggests a 58 percent chance of deflationary pressure. The probability of deflationary pressure for the United States is 60 percent, 72 percent for Japan and 56 percent for the Eurozone. Since 2013, all five models have consistently suggested that deflationary pressure is the most likely of the three scenarios. Given the historical accuracy of these models, and by combining all these signals into one framework, we predict that the risk of deflationary pressure is much higher than the other two inflation scenarios for the global economy in the near term.

The nexus between globalization and democracy has generated fervent discussions in the relevant literature. This paper addresses the globalization-democracy question using the KOF index that allows for the multidimensionality of this process and hence different channels through which globalization can affect democracy. Furthermore, any effect exerted by globalization on democracy may differ depending on a country’s attributes. To this effect, we allow for possible differences that depend upon the level of development, the sample of 110 countries used here was split into four different income groups: high, upper-middle, lower-middle and low income. On balance, the results yielded using the Polity 2 index of democracy point to a positive impact of globalization on democracy but this was not a universal finding across all income groups and differences were unearthed by the estimated panel models covering the period 1970–2011.

The present study is an attempt to test the relationship between energy consumption, energy efficiency, CO₂ Emissions and economic growth for a set of some developed, transition and developing counties. For this purpose, panel data on various factors of GDP growth has been taken for 18 developing, 16 transition and 18 developed countries from 1980–2013. The paper uses the variant of Solow model to provide the economic justification behind the econometric estimation of regression model which includes energy consumption per capita, CO₂ emissions and energy efficiency as one of the independent variables affecting GDP growth of a country, among others. To estimate the regression model, the study uses various panel data estimation methodologies such as: panel data cointegration, panel causality (assuming homogeneous and heterogeneous panels), panel VECM, panel VAR and panel data ARDL and SURE. The results help us to find out he short run and long-run relationship between the policy variables. The paper also tests the direction of causality between energy consumption and GDP and per capita GDP growth by working on the following hypotheses:(a) Neutrality Hypothesis, which holds that there is no causality (neither direction) between these two variables; (b) Energy conservation hypothesis, which holds that there is evidence of unidirectional causality from GDP growth to energy consumption; (c)Growth hypothesis, energy consumption drives GDP growth; and (d) Feedback hypothesis, which suggests a bidirectional causal relationship between energy consumption and GDP growth. S-shaped relationship between energy consumption and per capita GDP is also tested by hypothesizing that with high GDP, first energy consumption increases at an increasing rate and then increases at a decreasing rate. The overall conclusion emerges from the analysis is that per capita energy consumption has a negative impact on growth of per capita GDP in developing countries and transition economies but positive impact in case of developed countries. This may be due to the fact that in developed nations, the energy consumption expenditures may be more devoted to technological progress in alternative source of oil like shell gas or in expenditures related to renewable energy intensive technological products. The developing and transition countries although trying to put efforts in increasing expenditures in alternative energy sources like non-renewable, oil consumption still seem to not have many alternatives sources of energy. Therefore, reducing oil expenditures tend to promote growth among developing countries. Growth, Energy Conservation and Feedback hypotheses tend to work for developed, transition and developing countries. Also, the direction of causality may run from growth per capita to energy consumption depicting a S-shaped relation signifying that as society matures energy consumption increases but at a decreasing rate.

We update three earlier articles on the determinants of interpenetration of financial centers by banks by adding the year 2010 to our analyses for 1970 and 1980, 1990, and 2000. In addition, we also re-estimate our model to include data for Beijing/Shanghai, and add those emerging centers for 2010. First, the number of banks in our data and the number of their offices in other centers has fallen by 46 % and 24 % since peaking in 1990. Second, even so our matrix saw less turbulence than in the prior two decades as density and number of presences in other centers per bank increased. Third, London had regained the first place from New York. Tokyo remains in fifth place after Hong Kong and Singapore. Once one includes Beijing/Shanghai, the Chinese centers now rank first and Tokyo sixth. Fourth, Paris and Frankfurt/Hamburg have regained some centrality. Fifth, our gravity model approach continues to model the data well, with distance between centers continuing to depress interpenetration between centers as it did in 2000. Lastly, the primary effect of introducing Beijing/Shanghai as a center has increased the importance of interpenetration as banks from Beijing and Shanghai are going to centers from which banks are coming to Beijing and Shanghai.

This paper assesses the welfare effects of integration in Latin America. It estimates trade creation and diversion of: 1) integration of the four Mercosur countries (Brazil, Argentina, Paraguay and Uruguay) and 2) amalgamation of Mercosur with the Andean group (Bolivia, Colombia, Ecuador and Peru). The method used to proxy trade creation is the change in total imports of a country from before to after integration, while trade diversion is proxied by the change in the country’s external imports between the two periods. A “control country” approach is used to hold constant the effects on imports of factors other than integration, such as income and price changes. With some exceptions Latin American integration was found beneficial to welfare in that trade creation exceeded trade diversion.

On the question of whether external finance stimulates GDP growth, the profession offers inconclusive as well as frequent contradictory outcomes. While waiting for a robust consensus, this paper addressed directly the mechanisms through which external finance should influence economic growth. Investment was identify as the most significant transmission mechanism, and as well considers effects via funding regime consumption expenditure and import. By employing the residual generated repressors’, we accomplish a measure of the overall influence of external finance on economic growth, accounting for the influence through investment. Based on the pooled panel outcomes, a sample of twenty-five Sub-Saharan Africa economies were examine over the period of 1970–1997; the result indicates that there is a significant and positive effect of overseas assistance on economic growth, ceteris paribus. Based on average, each 1 % point upsurge in the aid/GNP ratio contributes one-quarter of 1 % point to the growth rate. Therefore, the poor economic growth in Africa should not be attributed to external finance ineffectiveness.

At a time when regional production networks have been resurgent, especially in Asia, why has India’s integration in regional markets not been deeper? Using highly disaggregated trade data and firm level field interviews, the paper found that despite low volumes, vertically specialized trade has been growing between India and ASEAN. Overall, we find that there is significant potential for deepening India’s engagement in ASEAN by expanding intermediates exports in the machinery sector, expanding into higher value specialty chemicals exports, unlocking the underexploited potential for growth in the electronics sector and moving up the value chain in the road vehicles and, telecommunications sectors where network exports are already important. Our field level interviews bear out these findings and show that besides the usual policy costs associated with supply side constraints in Indian manufacturing three factors hamper India’s deeper integration in Asian production networks: (i) low value addition in Indian manufacturing which translates into low-value component exports and a high degree of reliance on expensive imports creating a perverse effect on both learning and trade balance; (ii) a janus faced effect on technological change and productivity stemming from relatively low quality standards associated with cost-sensitive demand from domestic buyers and weak exports. This leads to technological stagnation on the one hand, and a growing capital intensity of routine operations on the other. (iii) and finally, despite the rise of export oriented industrial parks and SEZ’s there is a striking lack of an effective institutional eco-system of industrial advantage that agglomeration economies and colocation of interdependent, sectorally specialized firms can bring. Instead, sectoral fragmentation adds to manufacturing costs despite co-location. Although some firms have found innovative ways to cope, the coping costs are high.

This paper examines the dynamic impact of both bank-based and market-based financial development on economic growth in the United Kingdom (UK) during the period 1980–2012, using the autoregressive distributed lag bounds testing approach. Given the complexity of the financial structure in the United Kingdom, various financial development indicators have been used to construct bank-based and market-based financial development indices. The empirical results of this study show that while market-based financial development has a positive impact on economic growth in the United Kingdom, bank-based financial development has a distinct negative impact. These results apply irrespective of whether the regression analysis is conducted in the long run or in the short run.