Putin makes the world poorer.

Spoiler: Putin’s war against Ukraine has led to decreased supplies of several goods which Ukraine and Russia exports. We have already seen price hikes of oil and gas followed by decreased supply and higher prices of wheat, sunflower oil, fertilizers, steel to mention some of the most important goods.  The world will be poorer, and the poorest people will be hit hardest by Putin.

The effects are felt directly and indirectly. The direct effects concern those firms and households who use gas and oil for as energy or wheat when baking bread. They are also felt indirectly as goods that are produced with gas, oil, wheat, sunflower, and steel become more expensive. The effects are stronger in countries where imports of the goods are relatively large, account for a large part of final domestic demand and the more elastic demand for those goods are.

The effects are stronger in continents and countries with a relatively large share of poor households. More families will be poor. But the effects will reach further. Increased poverty is associated with less nutrition, shorter life expectance and higher natal mortality numbers. Putin kills people today and in the future. In addition to that, his war will lead to fewer births. 

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No Russian gas, wir shaffen das!

Spoiler: Since the psychopath in the Kremlin decided to attack Ukraine on a full scale, the corruption project, aka, Nordstream2 will not be certified by Germany. If I’m correct, Germany has also decided to stop buying Russian gas. The sanctions against Russian will significantly decrease trade with Russia. The Kremlin will probably also implement counter sanctions. To have an idea about the effects of these sanctions, this post will investigate how much Russian exports constitute of total domestic final demand in other countries. The next post will look at it the other way around to give a picture of how Putin has punished his own people.

The Kremlin war against Ukraine has caused many countries and the EU to seriously begin to think of how to reduce their dependence of Russian gas. The dependency is often measured in terms of how much imports of Russian gas or oil constitutes of total energy imports or consumption. That measure is not reflecting the true dependency of Russian gas and other products from Russia. It doesn’t take other suppliers of gas or energy into account. And it doesn’t show how much of the gas that is needed to produce different types of goods and services. A more accurate way to measure the dependence is to look at how much of the total value of final demand in different countries that are generated in Russian gas production. This approach takes into account the total supply of energy and the extent to which energy is used in the production of goods and services that are absorbed domestically in different countries.

This is bad news for Putin who overestimated our dependence on him.

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Confusions about democracy and prosperity

Spoiler: in a previous post, I claimed that there was a positive relationship between prosperity and high quality institutions. Some people go further and argue that democracy leads to growth and prosperity as this influential study argues. Other people think that the causality is reversed. The effects of democracy on growth and prosperity occur through better conditions for people to engage in entrepreneurial activities, to save, and invest in both physical and human capital. These conditions are determined by the quality of institutions.

Property rights, rule and law and control of corruption are regarded as key institutions for growth. But not everyone is convinced which you can see here. Critics of instutions’ role for growth and prosperity see the devleopments of traditional growth theory variables as independent of institutional changes.

In this post I will have a look at some countries where it seems that institutions don’t matter (much) or that growth precedes democracy and high-quality institutions. And maybe you can have high quality institutions that are good for growth without democracy. You can also find examples of countries where the regimes don’t seem to care a lot of growth, on the contrary, they fear growth as it may serve to undermine them.

If you’re not confused now, don’t worry. You will be.

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How Sweden chose lower growth

Spoiler: SwedishGDP per capita growth is declining. The decline is mainly due to decreasing growth of GDP per hours worked. While average hours worked, the employment rate and the labour force participation rate worked in the other direction, the contributions from these factors are small. The working-age population rate continue to decrease.

The declining growth rates of GDP per hours worked are a consequence of how patterns of consumption change when incomes increase. As incomes increase, demand shifts from goods to services. The relatively stronger demand for services leads to a reallocation of capital and labour towards these industries from goods-producing industries.

The shift leads to a change in the industrial structure which reduces overall GDP per capita growth through two channels. Firstly, increasing shares of services in overall consumption, increases the weight of services industries relative to manufacturing industries. Secondly, services industries’ productivity growth is lower than manufacturing industries’ productivity growth. Thus, the contribution of the less productive services industries, to GDP per capita growth, increase at the expense of the more productive manufacturing industries.  

This may not be as worrying as one might think. It is partly a consequence of increasing living standards. As our incomes increase, we spend more on services than on goods. The decreasing working-age population rate is also a consequence of increasing living standards. As incomes increase, people choose to have smaller families.

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