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41. A Gateway to Africa? Economic Opportunities in Israel-Morocco Relations

Author:
Morr Link
Publication Date:
05-2022
Content Type:
Working Paper
Institution:
Institute for National Security Studies (INSS)
Abstract:
Since renewing diplomatic relations between Jerusalem and Rabat, the scope of trade indeed has grown between the two countries, but the full potential still has not been realized. How can the economic cooperation be improved, which also entails many policy opportunities for both Israel and Morocco?
Topic:
Economics, International Cooperation, International Trade and Finance, Bilateral Relations, and Economic Cooperation
Political Geography:
Africa, Middle East, Israel, and Morocco

42. Demonstrations in Iran in Protest of the Sharp Rise in Prices of Basic Goods

Author:
Raz Zimmt
Publication Date:
05-2022
Content Type:
Working Paper
Institution:
Institute for National Security Studies (INSS)
Abstract:
At least three people were killed and dozens were injured and arrested in protests that erupted in southwestern Iran due to a controversial move by the government in Tehran. Until now, the scope of the protest is very limited and does not threaten the regime’s stability, but it is additional evidence of the severe economic crisis, which can be added to the long list of challenges facing President Raisi
Topic:
Economics, Protests, Demonstrations, and Standard of Living
Political Geography:
Iran and Middle East

43. Iraq-Gulf Relations: An Anchor for Stability and Restraining Iranian Involvement in the Region?

Author:
Yoel Guzansky and Yaron Schneider
Publication Date:
05-2022
Content Type:
Working Paper
Institution:
Institute for National Security Studies (INSS)
Abstract:
While weathering a political crisis, Iraq is now at a crossroads regarding the future of the state. In tandem, neighboring Sunni states, led by Saudi Arabia, are moving closer to Baghdad. What are the reasons for this development, and how is it likely to affect the Middle East, Iran’s expansion in the area, and Israel?
Topic:
Economics, International Cooperation, Economic Stability, and Regional Power
Political Geography:
Iraq, Iran, Middle East, and Gulf Nations

44. MF Dollars for Dictators? The Allocation of SDR to Moderate and Isolated Countries

Author:
Haggy Etkes
Publication Date:
03-2022
Content Type:
Working Paper
Institution:
Institute for National Security Studies (INSS)
Abstract:
“The International Monetary Fund assisted radical regimes, including the Russian government and the Taliban in Afghanistan”: This claim was made given the allocation of Special Drawing Rights (SDR) by the IMF to states in the region. Is there truth to this charge?
Topic:
Economics, International Cooperation, Finance, and IMF
Political Geography:
Afghanistan, Russia, Europe, and Middle East

45. World Economy Autumn 2022: Global growth falters

Author:
Klaus-Jurgen Gern, Ulrich Stolzenburg, Nils Sonnenberg, Stefan Kooths, and Jan Reents
Publication Date:
09-2022
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
In spring 2022, world economic growth came to a standstill amid high inflation, persistent supply bottlenecks and elevated uncertainty. In many countries real wages are declining significantly dampening private consumption even though extra savings accumulated during the pandemic are still available to mitigate the adverse impact to some extent. At the same time financial conditions have also deteriorated as central banks tightened their policies. In China, the strict zero-covid policy and problems in the real estate sector are slowing economic activity. Against this backdrop, the outlook for the global economy has deteriorated further. We have, again, lowered our forecast and are now expecting global output to increase by only 2.9 percent this year and 2.2 percent next year (calculated on a purchasing power parity basis). The forecast assumes that commodity prices will gradually decline in line with forward prices, which will over time reduce the upward pressure on prices and provides the foundations for an economic upturn in 2024. However, the pass-through of higher commodity prices into consumer prices is probably not yet complete and wage increases are likely to intensify in many countries. Consequently, underlying inflation is likely to remain higher than in the years before the Covid crisis and remain above central bank targets over the forecast horizon
Topic:
Economics, Globalization, Economic Growth, and COVID-19
Political Geography:
Global Focus

46. German Economy Summer 2022: Slowly progressing recovery

Author:
Jens Boysen-Hogrefe, Nils Jannsen, Saskia Meuchelbock, Dominik Groll, Stefan Kooths, and Nils Sonnenberg
Publication Date:
06-2022
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
The German economy navigates troubled waters. The catch-up process in the contact-intensive service industries is continuing at a fast pace and companies in the manufacturing sector are sitting on well-filled order books. However, high inflation is reducing the purchasing power of disposable incomes and thus dampening the recovery in consumption. In addition, supply bottlenecks have recently worsened again due to the war in Ukraine. As a result, the recovery will regain strength only in the second half of the year, when prices will no longer rise as rapidly and supply bottlenecks will begin to ease. Overall, we expect GDP to increase by 2.1 percent this year, as in our spring forecast. In 2023, GDP will grow by 3.3 percent (spring forecast: 3.5 percent). At 7.4 percent, inflation in the current year will be higher than ever before in reunified Germany. Next year, inflation will probably remain high with 4.2 percent. The recovery in employment continues. Effective earnings will rise strongly, also because labor shortages have reached an all-time high. In the current year, however, the increase of about 5 percent will lag behind the rate of inflation. Public budget deficits will decline as revenues increase strongly and pandemic-related expenditures are reduced. In 2023, public debt in relation to GDP is expected to be slightly above 60 percent.
Topic:
Economics, GDP, Inflation, and Russia-Ukraine War
Political Geography:
Europe and Germany

47. World economy in summer 2022: Inflation is curbing global growth

Author:
Klaus-Jurgen Gern, Ulrich Stolzenburg, Nils Sonnenberg, Stefan Kooths, and Jan Reents
Publication Date:
06-2022
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
In a situation with already elevated inflation, the war in Ukraine and the zero-covid policy in China have led to additional upward pressures on prices and reinforced the global supply chain problems. Real wages are declining in many countries, dampening personal consumption expenditures even though households are often able to draw from a substantial amount of extra savings accumulated during the pandemic. Given the widespread inflationary pressures, central banks have shifted towards a more restrictive monetary policy stance. Against this backdrop, the outlook for global growth has weakened. We forecast global growth of 3.0 percent in 2022 and 3.2 percent in 2023 (measured in terms of purchasing-power parities), representing a reduction by 0.5 and 0.4 percentage points for 2022 and 2023, respectively. The forecast is based on the assumption that commodity prices have peaked, which would reduce inflationary pressures considerably going forward. However, there is the risk that inflation proves to be more persistent than central banks expect. In such a case, central banks would need to step on the brakes more than assumed, with the risk of a recession in advanced economies and a pronounced deterioration in financial conditions in emerging markets
Topic:
Security, Economics, Inflation, COVID-19, and Russia-Ukraine War
Political Geography:
Global Focus

48. German Economy Spring 2022: Recovery at risk – Soaring Inflation

Author:
Jens Boysen-Hogrefe, Nils Jannsen, Saskia Meuchelbock, Jan Reents, Dominik Groll, Stefan Kooths, Martin Ademmer, and Nils Sonnenberg
Publication Date:
03-2022
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
The German economy is once again facing strong headwinds. The war in Ukraine is leading to rising commodity prices, new supply bottlenecks and dwindling sales opportunities. These factors will affect the German economy in different ways. Higher commodity prices reduce the purchasing power of disposable incomes and thus dampen private consumption. Moreover, new supply bottlenecks will dampen industrial production in the coming months. Finally, sales opportunities will deteriorate at least temporarily due to the sanctions and the increased uncertainty caused by the war. All this is hitting the economy in a phase in which the dampening effects of the pandemic are fading out and a strong recovery has begun to emerge. The dampening factors are cushioned because private households have accumulated large amounts of extra savings since the beginning of the pandemic, so that high inflation does not fully impact private consumption. In addition, industrial firms have an unusually high stock of orders, which will cushion the temporarily lower sales opportunities. As a result, the recovery is likely to continue this year, albeit at a noticeably slower pace than expected in winter. Overall, we now expect GDP to rise by 2.1 percent in this year (winter forecast: 4 percent) and by 3.5 percent in 2023 (winter forecast: 3.3 percent). With 5.8 percent inflation is likely to be higher this year than ever before in reunified Germany. Even if commodity prices stop rising and supply bottlenecks gradually ease, inflation is still likely to be unusually high at 3.4 percent next year, also because recent producer price increases are only gradually being passed through to consumers. The labor market is expected to remain robust. Public spending will rise in response to the war and its economic consequences, so that budget deficits will remain at elevated levels for a longer period.
Topic:
Economics, GDP, Inflation, and Purchasing Power
Political Geography:
Europe and Germany

49. Place-based policies and agglomeration economies: Firm-level evidence from Special Economic Zones in India

Author:
Holger Görg and Alina Mulyukova
Publication Date:
03-2022
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
This paper exploits time and geographic variation in the adoption of Special Economic Zones in India to assess the direct and spillover effects of the program. We combine geocoded firm-level data and geocoded SEZs using a concentric ring approach, thus creating a novel dataset of firms with their assigned SEZ status. To overcome the selection bias we employ inverse probability weighting with time-varying covariates in a difference-in-differences framework. Our analysis yields that conditional on controlling for initial selection, SEZs induced no further productivity gains for within SEZ firms, on average. This effect is predominantly driven by relatively less productive firms, whereas more productive firms experienced significant productivity gains. However, SEZs created negative externalities for firms in the vicinity which attenuate with distance. Neighbouring domestic firms, large firms, manufacturing firms and non-importer firms are the main losers of the program. Evidence points at the diversion of inputs from non-SEZ to SEZ-firms as a potential mechanism.
Topic:
Economics, Business, Special Economic Zones, and Geography
Political Geography:
India and Asia

50. Who Lends to Africa and How? Introducing the Africa Debt Database

Author:
David Mihalyi and Christoph Trebesch
Publication Date:
03-2022
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
Africa’s sovereign debt markets are not well understood, partly due to a lack of data. This paper introduces the Africa Debt Database (ADD), the most granular and comprehensive dataset on external borrowing by African governments thus far. Our project moves beyond existing aggregate datasets and instead releases information on individual loans and bonds, in particular on the financial terms of each instrument. Taken together, we cover nearly 7000 loans and bonds between 2000 and 2020, with a total volume of 644 billion USD. Using this data, we study Africa’s record lending boom of the 2010s in detail. The debt boom was mainly driven by large sovereign bond issuances in London and New York, as well as growing lending by Chinese state-owned banks. The micro data also reveal a large variation in lending terms across countries, time, and creditors. Sovereign external bonds have interest rates of 6 percent, on average, Chinese banks charge 2-4 percent, and multilateral organizations just 1 percent. Strikingly, many governments in Africa simultaneously borrow large amounts from both private and official creditors, at vastly different rates. The large differences in debt servicing costs are indicative of a cross-creditor subsidy, as cheap concessional loans can be used to pay the high interest to private or Chinese creditors.
Topic:
Economics, Foreign Aid, Credit, and Influence
Political Geography:
Africa, China, and Asia

51. Exchanging Money for Love? A Regional Analysis of EU Cohesion Policy on Euroscepticism

Author:
Michael Bayerlein and Matthias Diermeier
Publication Date:
04-2022
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
In the past, the European Union seems to have been able to tame Euroscepticism through regional 'convergence' funding. After the Eastern enlargement of the Union, however, this relationship needs to be put to the test. Not only have the new member states become the main recipients of EU funding, Eastern Europe has also changed from once being the most integration-friendly region to displaying the most integration-hostile attitudes in the EU. Motivated by this empirical puzzle, we revisit the relationship between structural 'convergence' funding and Euroscepticism and ask where - if at all - is the EU's convergence spending still able to tame Euroscepticism. Most surprisingly, correlation analyses reveal that between 2006 and 2018 larger regional subsidies go along with increasing opposition to EU integration. We can rebut this counterintuitive finding by a Diff-in-Diff approach that reveals an increasing Euroscepticism in Eastern European regions between 2006 and 2014. Nevertheless, also these more advanced models fail to establish a positive relationship between regional funding eligibility and pro-integrationist attitudes. Finally, fuzzy RDD models exploit the funding assignment rule and corroborate that the EU is no longer able to pacify integration-critical regions by their simply increasing 'convergence' funding. Nevertheless, the EU has won support in Eastern Europe where EU investments are perceived (positively). In designing a strategy to win back support for EU integration, Brussels does not need more fiscal capacity but rather has to design 'convergence' funding that is visible as well as clearly attributable to its donor.
Topic:
Economics, Regional Cooperation, Foreign Aid, European Union, and Eurocentrism
Political Geography:
Europe

53. The Sky is the Limit: The Azerbaijan-Israel-Türkiye Trio and the Greater Middle East

Author:
Rusif Huseynov
Publication Date:
08-2022
Content Type:
Working Paper
Institution:
Moshe Dayan Center for Middle Eastern and African Studies
Abstract:
In our latest issue of Turkeyscope, the director of Azerbaijan's Topchubashov Center, Rusif Huseynov writes on the existing and potential security and economic cooperation between Israel and Azerbaijan, as well as the strategic link both countries share with Turkey.
Topic:
Security, Economics, Bilateral Relations, and Cooperation
Political Geography:
Turkey, Middle East, Israel, and Azerbaijan

54. Peace treaty between Azerbaijan and Armenia: Who will economically win?

Author:
Emin Mammadov and Nigar Islamli
Publication Date:
10-2022
Content Type:
Working Paper
Institution:
Center for Economic and Social Development (CESD)
Abstract:
Following the recent September escalations along the Azerbaijan and Armenian border, in a way towards achieving a sustainable peace deal and long-lasting security in the Caucasus, the quadrilateral meeting in pragmatic terms is deemed to play a significant role in this vein putting an end to hostilities. The President of Azerbaijan and the Prime Minister of Armenia met in Prague on 6 October 2022 in the margins of the first European Political Community at the invitation of the President of the French Republic and the President of the European Council. Both sides reiterated their commitment to the Charter of the United Nations and the Alma Ata 1991 Declaration through which both recognize each other’s territorial integrity and sovereignty which will act as a legal basis for the work of the border delimitation commissions.
Topic:
Security, Economics, Sovereignty, Treaties and Agreements, Territorial Disputes, and Borders
Political Geography:
Caucasus, Armenia, and Azerbaijan

55. Eighth sanctions package: Which side will be the economic loser?

Author:
Nigar Islamli
Publication Date:
09-2022
Content Type:
Working Paper
Institution:
Center for Economic and Social Development (CESD)
Abstract:
Since February 24, 2022, Russia's invasion policy towards Ukraine has been tried to be prevented by several series of sanctions by the European Union. These sanctions include trade, travel, asset freezes, oil, transport, and SWIFT bans. Since the start of the war, 7 sanctions packages have been presented and many of them are being implemented. In response to Russia's invasion policy against Ukraine, the European Commission presented the eighth package of sanctions covering visa issues and asset freezes.
Topic:
Economics, Sanctions, European Union, and Russia-Ukraine War
Political Geography:
Russia, Europe, and Ukraine

56. The economic impact of COVID-19 on Turkish-Azeri bilateral relations

Author:
Duncan Labadie
Publication Date:
02-2022
Content Type:
Working Paper
Institution:
Center for Economic and Social Development (CESD)
Abstract:
While the economic instability of the international system resurrected debates about the future of the World Order, diving against the current and studying in a destabilizing pandemic context a bilateralism touted for its durability and solidity seemed academically attractive. Thus, the purpose of this research paper is to verify whether COVID-19 is causing fatal economic disruptions among the iron alliances, or if on the contrary one is witnessing an "unnatural" strengthening. By reconciling empirical data (reports of the Central Bank, the OSCE, press articles) and academic papers, this study analyzes the surprising Turkish-Azeri economic consolidation before questioning its still-perceptible limitsin the short and long term. This work concludes that through the neorealist prism, Ankara and Baku managed to transform Covidian negativity into an element of strategic economic cooperation aimed at repairing financial loopholes on a national scale.
Topic:
Economics, War, Bilateral Relations, Natural Resources, COVID-19, Liberalization, and Asymmetric Relations
Political Geography:
Turkey and Azerbaijan

57. Why Diagnostic Expectations Cannot Replace REH

Author:
Roman Frydman and Halina Frydman
Publication Date:
01-2022
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Gennaioli and Shleifer (GS) have proposed diagnostic expectations (DE) as an empirically-based approach to specifying participants’ expectations, which, like REH, can be applied in every model. Beyond its supposedly general applicability, GS’s formalization of DE implies that participants systematically and predictably overreact to news. Here, we present a formal argument that Kahneman and Tversky’s compelling empirical findings, and those of other behavioral economists, do not provide a basis for a general approach to specifying participants’ “predictable errors.” We also show that the overreaction of participants’ expectations is not a regularity, but rather an artifact of GS’s particular specification of DE.
Topic:
Economics, Models, and Predictability
Political Geography:
Global Focus

58. Why Diagnostic Expectations Cannot Replace REH

Author:
Roman Frydman and Halina Frydman
Publication Date:
01-2022
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Gennaioli and Shleifer (GS) have proposed diagnostic expectations (DE) as an empirically-based approach to specifying participants’ expectations, which, like REH, can be applied in every model. Beyond its supposedly general applicability, GS’s formalization of DE implies that participants systematically and predictably overreact to news. Here, we present a formal argument that Kahneman and Tversky’s compelling empirical findings, and those of other behavioral economists, do not provide a basis for a general approach to specifying participants’ “predictable errors.” We also show that the overreaction of participants’ expectations is not a regularity, but rather an artifact of GS’s particular specification of DE.
Topic:
Economics, Academia, and Models
Political Geography:
Global Focus

59. After the Allocation: What Role for the Special Drawing Rights System?

Author:
Tobias Pforr, Fabian Pape, and Steffen Murau
Publication Date:
03-2022
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
In August 2021, the IMF made a new SDR allocation to help ease pandemic-induced financial strains in the Global South. This paper assesses the potential of the SDR system to address debt- related problems in global finance. We analyze the SDR system as a web of interlocking balance sheets whose members can use SDR holdings—the system’s tradable assets—for conversion into usable currency as a perpetual low-interest loan or to make payments to each other. Using original IMF data, we study how the system has been practically used since 1990. Though widely perceived as a solution in search of a problem in the post-Bretton Woods era, we find that the SDR system provides three mechanisms through which IMF members borrow and lend usable currency to each other, with different strings attached: first, transactions by agreement; second, the IMF’s core lending facilities for which the SDR system offers additional resources; and third, IMF-sponsored Trusts which seek to harness the SDR system for development purposes and are the basis for the current idea of ‘voluntary channeling’. Overall, given the SDR system’s idiosyncratic accounting rules, the new allocation can improve the liquidity position of a country and offer some limited avenues for sovereign debt restructuring but comes with new interest and exchange rate risks. Voluntary channeling cannot happen without a wealth transfer, neither the SDR allocation nor the use of Trusts can overcome this problem. Still, Trusts can be a useful instrument to help with debt forgiveness and to ensure that borrowed funds are used for their intended purpose.
Topic:
Economics, International Cooperation, Finance, and IMF
Political Geography:
Global Focus

60. An Economic Defense of Multiple Antitrust Goals: Reversing Income Inequality and Promoting Political Democracy

Author:
Mark Glick
Publication Date:
03-2022
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Two recent papers by prominent antitrust scholars argue that a revived antitrust movement can help reverse the dramatic rise in economic inequality and the erosion of political democracy in the United States. Both papers rely on the legislative history of the key antitrust statutes to support their case. Not surprisingly, their recommendations have been met with alarm in some quarters and with skepticism in others. Such proposals by antitrust reformers are often contrasted with the Consumer Welfare Standard that pervades antitrust policy today. The Consumer Welfare Standard suffers from several defects: (1) It employs a narrow, unworkable measure of welfare; (2) It excludes important sources of welfare based on the assumption that antitrust seeks only to maximize wealth; (3) It assumes a constant and equal individual marginal utility of money; and (4) It is often combined with extraneous ideological goals. Even with these defects, however, if applied consistent with its theoretical underpinnings, the consideration of the transfer of labor rents resulting from a merger or dominant firm conduct is supported by the Consumer Welfare Standard. Moreover, even when only consumers (and not producers) are deemed relevant, the welfare of labor still should consistently be considered part of consumer welfare. In contrast, fostering political democracy—a prominent traditional antitrust goal that was jettisoned by the Chicago School—falls outside the Consumer Welfare Standard in any of its constructs. To undergird such important broader goals requires that the Consumer Welfare Standard be replaced with the General Welfare Standard. The General Welfare Standard consists of modern welfare economics modified to accommodate objective analyses of human welfare and purged of inconsistencies.
Topic:
Economics, Democracy, Income Inequality, and Antitrust Law
Political Geography:
Global Focus