Archive for category: Economy

Information and stories about economy.

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Timor-Leste’s Future Is Business

Timor-Leste’s Future Is Business
Timor-Leste, also known as East Timor, occupies the eastern side of Timor Island; the other half is Indonesian territory. Timor-Leste has had a difficult history. Poverty rates and unemployment remain high, but the rate of improvement is astounding. The country’s extreme poverty rate fell from 47.2 percent to 30.3 percent over a seven-year period, showing more progress than most developing countries. With some sources of income such as oil coming to an end, it is becoming increasingly clear that Timor-Leste’s future is business.

Timor-Leste’s Tumultuous History

Portugal invaded and colonized the island of Timor in the 1600s. In 1749, the island was split into East and West Timor, with Portugal remaining in control of East Timor until 1975. In November 1975, after Portugal’s revolution and the administrative withdrawal, the Fretilin (Revolutionary Front for an Independent East Timor) declared East Timor independent. Less than a month later, Indonesia invaded and claimed East Timor as its new territory.

After many years of occupation, Indonesia let East Timor vote on independence in 1999 and 78 percent voted for freedom. This led to many Indonesian nationals and supporters rebelling, but April 2002 saw Xanana Gusmao (a leader of the Fretilin against Indonesia) win the presidency of Timor-Leste. In May 2002, independence was celebrated and in September Timor-Leste became the 191st member of the United Nations.

The Obstacles to Growth

Timor-Leste’s weak infrastructure has made improving quality of life and building business difficult. Roads are inadequate and electricity can be haphazard. The lack of infrastructure can be attributed to Portugal’s neglect during its control of East Timor. Indonesia’s occupation did contribute towards better infrastructure, particularly buildings and roads, but ironically many of the roads and power lines were destroyed by the rebellion of Indonesian supporters and nationalists after the 1999 vote for independence.

With a population of 1.1 million, only about 200,000 people have a conventional job or the ability to employ others. Most citizens live in an off-grid manner, sustaining themselves on agriculture, forestry and fishing. On top of this, Timor-Leste imports half its food, creating difficulties in acquiring fresh, nutritious food. Up to now, Timor-Leste’s main source of income has largely been from the oil and gas fields discovered in 2005. Now those fields are beginning to dry up; profits decreased from $1 billion in 2015 to $400 million in 2016. With stagnation in other areas such as coffee, many believe Timor-Leste’s future is business.

The Efforts to Ensure Timor-Leste’s Future Is Business

Despite difficulties, Timor-Leste is revealing an astonishing ability to overcome. In 2007, the basic needs poverty rate was 50 percent, which fell to 41.8 percent in 2014. Over this same seven-year period the domestic economy grew by 77 percent. Electricity access rose from 36 to 72 percent, and access to improved sanitation increased from 42 to 60 percent. School attendance rates increased from 58 percent to 83 percent. Coffee exports were stagnating with a lack of investment, but in 2016 coffee exports totaled $30 million, double the amount of the previous three years.

The Path to a Better Future

Timor-Leste has gone through much to claim independence and counter the difficulties it inherited. Many entrepreneurs in Timor-Leste have identified the end of the U.N.’s peacekeeping mission in 2012 as a wake-up call that it was time for the country’s citizens to take control. With half the population being under 30 years old and having jobs to turn to, many are finding the boldness to trust that Timor-Leste’s future is business.

Business operations in Timor-Leste are still not perfect. Its Ease of Doing Business rating–a reflection of potential foreign investment or local growth–fell to 178th place after being at 167th place out of 191 countries. However, there are improvements underway. The office that registers new businesses has made efforts towards creating a more efficient process. The office used to process about 5,000 applications every five years, but was recently able to increase this to 11,000 applications over three years.

With few external options and a government focus on development, Timor-Leste’s future is business. The continued focus on business will lead to continued decreases in poverty and improvements in the country’s infrastructure.

– Natasha Komen
Photo: Flickr

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The Future Course of Alleviating Poverty in Iran

Poverty in Iran

As Iran is currently at the epicenter of geopolitics and regional conflicts in the turbulent Middle East, the country’s role in international affairs is steadily growing in importance. Moreover, the Iran nuclear deal is also revitalizing Iran’s presence and significance on the global stage at the same time.

The Current Situation in Iran

According to the World Bank Group, Iran’s GDP in 2017 was $439.5 billion while its population peaked at 80.6 million. On the poverty alleviation front, poverty in Iran fell from 13.1 percent to 8.1 percent between the years 2009 to 2013. Also, in the changing dynamic of its domestic politics and a new wave of secularism and liberalism brought on by a burgeoning young population in the country, addressing poverty in Iran is a very key objective for various stakeholder groups.

However, according to a report by the Independent from Dec. 2017, the economic situation in Iran appears rather bleak in some regard because food prices are on the rise and unemployment figures are at an all-time high at over 12.4 percent. Expanding income inequalities in the country are also becoming quite widespread due to major deficiencies in the taxation and welfare systems offered to the people.

How Iran’s Political Climate Could Affect Poverty

Historically, since the culmination of the Pahlavi dynasty and revolution in Iran in 1979, the country’s social and economic progress has been a vital priority. In recent years, owing to the perceived threat of its nuclear arsenal, Iran’s diplomatic relations with its western counterparts have impacted its trade and commerce majorly due to the imposition of crippling international sanctions.

Furthermore, the changing attitudes of the Trump administration are a major threat to the deal as it may be detrimental to the future economic and diplomatic recovery Iran is trying to seek. Unfortunately, the collapse of the deal could be a major hindrance to countering poverty in Iran.

The Iran nuclear deal can help greatly bolster the capacity to alleviate poverty in Iran due to the level of investment Iran could easily achieve in the future with the expansion of its oil market, given its vast and abundant reserves. Iran can boost its oil output, GDP and household incomes in the future with diminished sanctions.

Consequently, the introduction of the Iran nuclear deal was followed by noticeable economic recovery in the country with Iran’s economy growing at an annual rate of about 12.5 percent after a sizeable contraction of about 1.6 percent in the year 2015. The country hopes to maintain growth amounting to four percent annually.

Alleviating Poverty in Iran through Investment

Moreover, remediating poverty in Iran can also be achieved by increasing the level of investment and tapping into Iran’s potential. Iran is beginning to expand and diversify its industries, especially its hydrocarbon, agriculture and services sectors, and is also continuing to focus on boosting its financial and manufacturing capabilities as well. Additionally, this may help decrease Iran’s over-reliance on its oil market as prices have often tended to remain quite volatile, especially in recent years.

The government is also implementing its twentieth-year vision and sixth five-year development plan in order to focus more on market-based reforms and techniques. This strategy is targeting three important realms: economy, science and technology. The subsidy reforms orchestrated by the government will directly help reduce poverty in Iran as they aim to target price adjustment and further increase cash transfers to low-income households in the country.

Alleviating poverty in Iran shall largely depend on existing and future initiatives that involve opening up the economy further, engaging in economic and trade liberalization with its key trading partners and embarking on further domestic structural reforms.

– Shivani Ekkanath
Photo: Flickr

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Growing Ecommerce in India a Sign of the Nation’s Progress

Ecommerce in India
With Walmart’s recently announced acquisition of Flipkart, India’s largest online retailer, the U.S. retail multinational has placed a substantial bet on the future of ecommerce in India and the country’s economic potential.

Confirmed in recent weeks, Walmart’s purchase of almost 80 percent ownership of Flipkart represents the largest single foreign direct investment transaction in the country’s history. Although ecommerce represents a small portion of total retail sales in India, companies like Walmart are betting that a burgeoning middle class and greater access to technology offer the potential for a sizable market.

Indeed, the more bullish analysts predict an ecommerce boom in the country. U.S. investment bank Morgan Stanley estimates that online retail sales in India could grow by more than 1,200 percent, from $15 billion in 2016 to $200 billion in 2026. These numbers would trail the world leaders in online retail sales such as China ($1.1 trillion in 2017) and the U.S. ($453 billion) but would already put India among the largest ecommerce markets in the world and unmatched in the rest of the world in terms of potential size.

Forecasts include burgeoning internet usage and lower data access costs in the country, which will broaden the accessibility of online retailers. Optimism also stems from size and growth of the Indian economy: its population is 1.3 billion, the second-highest behind China, with a young demographic profile and GDP growth of 7.2 percent in 2017. This represented the fastest rate among all major economies. It is also hoped that Prime Minister Narendra Modi will be successful in implementing economic reforms to ease the cost of doing business, including for foreign investors, in the coming years.

Walmart is not alone in betting on the potential of ecommerce in India. Amazon entered the market in 2013 in an attempt to challenge Flipkart’s success and has steadily gained ground. Alibaba, the Chinese ecommerce giant, first made inroads into the space in 2015 by investing in Paytm, a financial technology startup, and has since continued to expand its investment into other ecommerce groups.

Some observers are more tepid about India’s potential. GDP per capita remains low compared to other major economies; at approximately $1,700 in 2016, it is roughly one-fourth that of China. Moreover, the wealth of 80 percent of the population falls below that number, reflecting the country’s problem with income inequality, with the richest segment of the population holding an outsized share of the wealth.

In fact, despite proclamations heralding the arrival of India’s massive middle class, a 2015 Pew survey found that the country’s progress in poverty alleviation has largely moved its population from poor to low-income earners. This leaves them dangerously close to re-entering poverty with such limited disposable income.

Outlooks vary, but the commitments to the country by some of the world’s major online retailers represent their belief in its likely transformation and growing earning potential. As some experts have noted, the acquisition by Walmart and its competitors represents a long-term bet that India could be on the cusp of the consumption explosion China saw earlier this century. If their bets on ecommerce in India pay off, it will likely be because it coincides with rising prosperity and economic security for Indians as a whole.

– Mark Fitzpatrick
Photo: Flickr

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World Update: Top 10 Facts About Poverty in Japan

Top 10 Facts About Poverty in JapanJapan is a sovereign island nation located on the eastern coast of Asia and stretches from the Sea of Okhotsk to the East China Sea. Its household income per capita in 2017 was $1.7 billion, and Japan ranks the top three world’s largest economy, only behind U.S. and China. In 2016, its GDP reached $4.94 trillion.

Japan has outstanding technology achievements, a comprehensive social system and a very advanced transportation system that included bullet trains 51 years ago. Even though the overall economic condition of Japan is very mature, there are severe poverty issues behind these numbers. Here are top 10 facts about poverty in Japan.

Top 10 Facts About Poverty in Japan

  1. The Japanese economy decreased sharply since 2012. While the world GDP grew from $74.89 trillion to $74.1 trillion from 2012 to 2014, Japanese GDP shrank from $6.203 trillion $4.85 trillion in 2015.
  2. Japan sets disposable income below $14,424 as the poverty level. In 2013, there was 12 percent of the national population under the poverty level.
  3. In 2010, there was 32 percent of females who are 23 to 64 years old in poverty, and the rate of males was 25 percent. Since the GDP growth was -0.115 percent in 2011 and later it has been recovering in a very slow path, the poverty condition is consistent.
  4. The average wages of Japan in 2016 was around $39,113. This number was far less than the average U.S. wage, which was about $60,154. More importantly, while constant prices increased 1.2 percent from 2015 to 2016, its average wage only increased 0.7 percent. The wage growth rate makes Japanese people barely able to pursue higher standards of life.
  5. At least one in every six children struggle with poverty problems, issues that often inhibit them from accessing higher levels of education. To solve this problem, Japan sets the compulsory education system until the age of 15. In 2013, the Japanese government passed the law to increase the number of social workers in school and increased free, after-school tutors.
  6. The aging population is one of the most severe issues in Japan. In 2016, the Japanese population was around 127 million; however, in the next five decades, the population is likely to shrink by about one-third, and the population of over-64-year-olds may increase from 25 to 38 percent. This dilemma largely decreases Japanese labor force.
  7. The Japanese government announced in 2009 that there were around 16,000 homeless people on the streets. Around 35 percent of this population was about 60 years old, but the number has been dropping since April 2012. For example, the number dropped around 12 percent from 2011 to 2012 due to the support of health and welfare ministry.
  8. The average house price in greater Tokyo increased more than 12 percent from 2014 to 2015; however, the price-to-income ratio in 2016 was 11 percent. This is the first time the ratio has exceeded 10 percent since the 1990 bubble economy. The higher house price puts more people in jeopardy and as a result, more people become homeless.
  9. There is a large income gap in Japan, especially under Prime Minister Shinzo Abe’s policies. For example, people who live in Tokyo are gaining benefits an their average taxable income raised near 7 percent through fiscal 2016. However, the income of people who live in Kagawa dropped during the same period.
  10. In Japan, more than 99 percent of businesses are small and middle-sized enterprises (SMEs). SMEs are influential supporters of the Japanese economy. Based on a report in the Economist Intelligence Unit, though, SMEs have been in decline since the 1990 bubble economy, and the decline continued through the 2008 economic crisis as many of them are reliant upon the domestic economy.

The Japanese government currently works to set new policies to promote economic development, and strives to effectively solve issues such as the ones in the top 10 facts about poverty in Japan. 

 – Judy Lu
Photo: Flickr

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The Mechanisms and Determinants of Development

Determinants of Development
The enduring issue of why some countries are rich while others remain poor has long been the subject of great interest among scholars. New research on the determinants of development, though, appears to better identify the driving force behind development by taking an incisive look at the three traditional economic explanations for these cross-country disparities – economic policy, political institutions and geography.

Based on the findings, the researchers conclude that the primary determinant of developmental success may be the strength of institutions.

Economic Policy, Political Institutions and Geography

The research first laid out the traditional arguments for the importance of policy, institutions and geography as determinants of development.

All three are pretty straightforward: economic policy, such as a nation’s savings rate and the strength of its currency, clearly dictate, to some extent, the economic vitality of a country; geographic factors can also matter, for instance, a landlocked country like Chad – without access to the ocean or major rivers – is at a natural disadvantage because trade becomes a logistical nuisance; institutions — like the rule of law to maintain public safety, ensure property rights, and mitigate corruption — still were found to have a greater impact.

However, the researchers’ revelation was not just that policy and geography took a back seat in importance to the role of institutions in development, but that they were, independently, hardly influential at all. Research sampling 72 countries found that while poor policies may hurt growth rates temporarily, they did not have the sort of impact on long-term income levels that many had previously suspected.

Promotion of Stable Institutions

The relationship between geography and development was a bit more complicated. Although nations with poor geography and stable institutions still do well, the authors acknowledge the role geography often plays in promoting stable institutions historically.

Specifically, nations colonized by Europe in unfavorable regions (in regard to disease and other conditions) were typically turned into rentier states and dealt poorer institutions. Conversely, regions which could be settled were afforded European-mainland style institutions: democracy, property rights and the rule of law.

Determinants of Development

So, Europe’s unique colonial history shows that geography did affect the type of institutions implemented in various countries, and it is these institutions that explain differences in development.

In a sense, the revelation that among the determinants of development, growth is primarily a function of institutions should be somewhat heartening, as institutions can be reformed. Therefore, instead of nations across Sub-Saharan Africa and parts of Central America being condemned to second-class status economically, focus can shift to the ways their poor institutions can be altered to better catalyze development.

Although researchers failed to explain the means of doing so directly, recognizing that building robust institutions is the best path toward progress is an important insight.

– Brendan Wade

Photo: Flickr

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Bettering Credit Access in Niger

Credit Access in Niger

In today’s economy, credit access is a necessity. Credit access in Niger, however, has been a struggle in recent years. Individuals and businesses need it to sustain themselves and use registered credit to increase buying power. Without it, people are often exposed to predatory lenders who will abuse the power of the loans. For low-income communities, credit access can provide hope in the economy by providing citizens the opportunity to build a credit history for themselves. 

Niger doesn’t offer sufficient credit access for its communities, forcing them to use personal savings to sustain businesses. This often means their only savings go back to the production of more profit to be used for maintaining their business, not to sustain their household. The cycle of earning just the minimum to sustain the small business forms and doesn’t allow for the businesses to grow. Additionally, the smaller the business, the less likely it is to apply for and receive a loan.

One of the biggest struggles for credit access in Niger is geography. The country’s population is low in density and there are large distances between communities, which hinders access to microfinance institutions. The distance and cost of transportation make it impossible for some individuals to gain credit access. Some can not even afford a viable way to get to the institution without spending a sufficient amount of their household income. The need for multiple visits doesn’t help the situation.

The correlation between distance and access to credit institutions in Niger can not go unnoticed. Of adults living in rural areas, only seven percent have access to a bank account. Less than two percent of Nigerians had taken out a loan as of 2014.

Niger’s rural areas, business types and economy also factor into its underdeveloped classification as a country. Credit access in Niger has been very timid for agriculture and other industries on the rise, such as technology and media. However, there have been recent initiatives to help the lack of credit access in Niger.

BAGRI, a public agricultural bank in Niger, and SOS Faim have been trying to implement certain experiments and programs to address the ongoing problem of credit access in Niger. SOS Faim led an experiment in 2015 where it analyzed four cases in Niamey. The experiment aimed to better understand credit management strategies of farmers, identify support requirements and come up with possible solutions. What is needed now is more research and economic evidence to start and find a real solution to a problem that has been affecting Niger’s economy on a higher level.

– Elisa Martinez Cancino

Photo: Flickr

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10 Facts About Poverty in Russia

Poverty in Russia
Almost 145 million people live in Russia. Despite placing emphasis on unity, some enjoy a much higher quality of living than others. This is evident in the country’s large income discrepancy, and the accompanying poverty in Russia. Below are 10 facts about poverty in Russia:

1. Poverty is on the Rise in Russia

In the early 2000s, income levels increased in Russia and drove down the poverty rate from 29 percent in 2000 to 10.7 percent in 2012. Unfortunately, the income levels didn’t remain and the poverty rate has grown slowly back to 13.5 percent in 2016.

2. Oil is Partly to Blame

One of the greatest threats to the Russian economy has been decreasing oil prices. In a country that greatly depends on oil, a shift in prices can be catastrophic. Given the falling oil prices over the past few years, from more than $100 per barrel to less than $30, Russia’s economy is vulnerable. Although there has been modest improvement as barrel prices are now at $60.

3. Agriculture is Also at Fault

As a country with vast amounts of tundra, agriculture is not a prime industry in Russia. Soil that lacks productive capabilities places a limit on economic expansion. Although Russia plays to its strength with oil, decreasing its dependency is a must. Diverse industries create jobs – something that could help alleviate poverty in Russia.

4. Wealth Inequality is Common

Wealth inequality exists in both developing and developed countries; including the U.S. Russia is no exception. The richest 10 percent of Russia’s population control three-fourths of wealth. This raises flags for a country with a rising poverty rate. With a dwindling middle class, Russia faces a problem on the horizon. Improving wealth distribution will take a creative solution.

5. President Putin has Vowed to Help

Acknowledging the issues that many Russians face, Vladimir Putin committed to improving conditions. He mentioned nearly 20 million Russians are living below the poverty line and promised to cut the number in half by 2024. Some had concerns that the plan lacked specific methods of action. Regardless, starting a conversation on poverty in Russia is a step in the right direction.

6. Rural Areas can Offer Relief

Russian citizens in rural areas often enjoy a better quality of life. Due in part to the wealth inequality that plagues the country, city living can be expensive. For this reason, those living in rural parts of Russia often experience less poverty than in the city. Rural living is beneficial in Russia; despite the country’s lack of agricultural capabilities.

7. The Future Remains Unclear

As a whole, the economic future of Russia is hard to predict. Poverty can be a direct result of economic conditions. In a country like Russia, this principle holds true. Growth in key industries is slow. With bankruptcy being commonplace in many regions of Russia, the time for the country to act is now.

8. Slow Economic Conditions Inspire Change

One positive of a struggling economy is the Russian government’s shift toward improvement. Adopting a pro-growth policy, the Russian government has launched infrastructure improvements. When paired with methods to fight poverty, this could lead to success for Russia.

9. Russia Needs Political Advocacy

As one of the most powerful methods of change a country has, utilizing politics can help Russia. An absence of a cohesive strategy to combat poverty is a key reason for Russia’s struggle. Developing and executing a policy on a national level has achieved success elsewhere. Local, regional and national policies could provide a piece to Russia’s poverty puzzle.

10. The Road to Poverty Reduction Could be Long

Russia’s economic woes might not see a quick resolution. The country’s economy is slow to change with the rest of the world. And with oil prices still below what they were during prosperity, Russia needs to adapt. Until it does, poverty in Russia will continue to be a problem.

– Robert Stephen

Photo: Google

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How Economic Inequalities Harm Societies

How Economic Inequalities Harm Societies
The idea that economic inequalities are socially corrosive has been around for decades. But there now exists statistical evidence substantially supporting the notion.

Since Richard Wilkinson’s enlightening TED talk presented the impact of income gaps and unequal societies on the wellbeing of both the rich and the poor, the issue has received unprecedented attention. A professor emeritus of social epidemiology, Wilkinson based his results upon statistical data, presenting conclusive, irrefutable evidence to prove how economic inequalities harm societies.

He chose widely accepted parameters of quality of life to draw the comparison between societies. These parameters include:

  1. Life expectancy
  2. Infant mortality
  3. Teenage births
  4. Imprisonment
  5. Obesity
  6. Mental illness
  7. Social mobility
  8. Homicide
  9. Math and literacy

However, the 15-minute presentation focused on developed countries only. Other studies in the recent past have revealed a similar pattern in developing and impoverished economies. In nations like India and China, where glaring income gaps continue to exist despite steadily increasing rates of economic growth, data illustrating how economic inequalities harm societies has been found. A United Nations Development Programme (UNDP) report published in November 2013 gives a lucid explanation of what inequality is and how economic inequalities harm societies.

According to the report, inequality within a society takes two main forms: inequality of outcomes and inequality of opportunity. Inequality of outcomes includes income inequality resulting in inequalities in nutrition, education, etc. On the other hand, inequality of opportunity refers to unequal access to education and basic resources, among other things. As the report notes, both types are “opposite sides of the same coin” and cannot be viewed as independent.

More importantly, to answer the key question of how economic inequalities harm societies, it is important to note the relationship between factors that were earlier assumed to be independent. For example, poor countries with unequal distribution of income face greater political instability, lower investment in human development, higher taxation, less secure property rights and negative impacts on growth. Moreover, surveys conducted by UNDP found that citizens in such countries showed little or no trust in government policies formed to bridge income gaps.

Both Richard Wilkinson’s research and the UNDP report found that even the rich in unequal societies suffer from lack of trust, harsher sentencing (partially because of stricter laws), greater incidence of physical and mental illness (due to the pressure to “watch your back”) and higher taxation, among several other crucial indicators of quality of life. Undoubtedly, an equal society is in the best interest of all people.

– Himja Sethi

Photo: Flickr

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The Relationship Between Social Justice and Economic Justice

social justice and economic justice
There is an enduring and powerful relationship between social justice and economic justice. Social justice has many definitions. The most common definition, according to the Oxford Dictionary, is: “Justice in terms of the distribution of wealth, opportunities and privileges within a society.”

The definitions that are most applicable to alleviating poverty, however, are:

  • The idea that every person should have equal rights to basic liberties and needs, and inequalities should be arranged to the greatest benefit for those considered lowest in society.
  • From the Huffington Post: “…promoting a just society by challenging injustice and valuing diversity. It exists when all people share a common humanity and therefore have a right to equitable treatment, support for their human rights and a fair allocation of community resources.”

However, the current functioning of global society violates each of these definitions almost completely, and therefore expresses the lack of and need for social justice in all areas of the world, especially developing nations.

The United Nations Development Programme reports shocking statistics from poverty elimination research, detailing that as of 2000, there were 323 million people living on less than $1 a day, 185 million people who were undernourished and 273 million people without access to improved water sources in sub-Saharan Africa, the most impoverished region overall.

These harrowing numbers from sub-Saharan Africa were accompanied by information stating that 44 million primary age children were not in school, 23 million primary age girls were not in school, five million children under five years old were dying each year and 299 million people were without access to adequate sanitation. These statistics demonstrate that simple economic failure and injustice is not an isolated issue, but rather closely parallelled by social failure and injustice as well.

In contrast, the statistics from central and eastern Europe are staggeringly different. Only 21 million people were living on less than on $1 a day, only 33 million people were undernourished, only 29 million people were without access to improved water sources, only three million primary age children were not in school, only one million primary age girls were not in school, less than a million children under five years old were dying each year and an insignificant amount of people were without access to adequate sanitation as of 2000, so low that it was not even reported numerically.

As can be clearly seen, there is a direct correlation between social justice and economic justice, and a very large gap between developed nations and impoverished countries. The more economically impoverished a nation remains, the more social injustice thrives and prevails. The greater the poverty, the fewer people are given fair and equal access to basic needs and rights.  

To start fighting such global, national and statistical chasms and deprivations, the United Nations’ Millennium Development Goals have started targeting social justice, specifically to help achieve the goals of:

  • Eradicating extreme poverty and hunger
  • Promoting gender equality and empowering women
  • Ensuring environmental sustainability

The hope is that the new information and educational awareness of the relationship between social justice and economic justice will kickstart the alleviation of poverty by focusing on the social injustices in each region and developing country to foster a new approach for decreasing poverty overall.

– Lydia Lamm

Photo: Wikimedia Commons

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The Global Economy Is on the Rise

global economy is on the risePeople around the globe experienced the mania of the Dow Jones’ historic low in February 2018. Some traders even questioned if this was a sign of a global stock market crash. But as the U.S. stock market recovers from its volatile hijinks, global trade as a whole is rising, and rapidly. This rapid rise has many economists optimistic that the global economy is on the rise as well.

The global economy is driven by trade. As international trade rises, so do technological developments as nations tear down trade barriers. According to a report by the CPB Netherlands Bureau for Economics Policy Analysis, the volume of imports and exports grew by 4.5 percent in 2017. To gain perspective, this is a significant spike from a stagnant 1.5 percent rate of growth the previous year, which was the lowest since the global financial crisis in 2007-2008.

Globalization a Reason Why the Global Economy Is on the Rise

The world is changing. Globalization moves the market, just as we move through our interconnected culture of technology, digital communications and transportation. As markets evolve, global poverty is decreasing, while the global economy is on the rise.

Old business practices are being phased out, technology is replacing hard labor and workers are rising to higher levels of efficiency. Automation is shifting the way goods and services are distributed, easing mass production.

Nations have outsourced businesses to developing nations, partly to reduce wage costs. Yet, business process outsourcing provides an oasis of income for people in developing countries such as India, the Philippines and Malaysia. In many places, this opportunity to earn a living would not be possible without outsourcing.

As technology advances, the market shifts and standards of living rise across the globe. Developing countries who have broken trade barriers have developed competitive advantages in the production of certain products. Ukraine, for example, is known as the breadbasket for its richness in wheat and farmland. Venezuela is known for its vast oil supply and China’s factories are known for producing more than half of the world’s clothing.

Tariff Reduction Has a History of Success in Developing Countries

History reveals that nations who open their economies to trade with the global economy experience faster growth and poverty reduction. During the past 30 years, global poverty has been cut in half. Studies show that developing countries that lowered tariffs in the 1980s experienced quicker economic growth in the 1990s compared to those that did not. Tariffs, or taxes on imports and exports between sovereign states, are often viewed as barriers affecting the global economy.

Developing nations have tariffs that are three to four times higher than industrial countries, and they are even higher on agriculture. Average tariff protection in agriculture is about nine times higher than in manufacturing. This can undermine a developing country’s agricultural sector and exports by depressing world prices.

The outlook for the global economy depends on these countries tearing down trade barriers. Yet, political decisions in developed countries are affected by trade barriers as well. In Venezuela’s case, the U.S. has imposed investor-related sanctions on Venezuelan oil to pressure its government to address its humanitarian crisis of inflation and starvation. According to Reuters, U.S. officials are not ruling out a complete ban on Venezuelan oil in order to send a strong message to its dictator, Nicolás Maduro.

Trade Wars Are Common and May Not Affect Global Trend

China’s trade practices have also affected U.S. trade on a political level. Elon Musk, the CEO of Tesla, recently called on U.S. President Trump for equal and fair rules for cars, citing China’s pressure on foreign businesses to partner with Chinese carmakers before manufacturing in China. Musk noted China’s 25 percent import duty on cars compared to America’s 2.5 percent duty. President Trump proposed a sweeping tariff on steel and aluminum on March 8, 2018, which characterizes the trade wars.

Skeptics believe this political decision could take the global economy down the rabbit hole. Others are bracing for a global crash for different reasons. “I still believe that we’ll face a financial crisis within the next two years if we don’t solve the debt problems,” said Bjorn Ritschewald, a civil engineer with the government Road and Traffic office in Bremen, Germany, a city popular for its maritime trade. “Almost every country spends more than its income. Actually, I don’t know any country that spends less than what it takes in.”

“Waves in trade flow are common, but it depends on the goods,” Ritschewald told The Borgen Project. “You can’t just look at the financial numbers. You also have to look at the real amount of goods and which kind of goods are being sold.” World markets experienced the rippling effects of the Dow Jones’ plunge. The plunge is characterized as market correction, a phenomenon where unusual market success sparks panicked selling, driving market drops across the globe.

On the other hand, many economists believe that the global economy is on the rise. Their confidence stems from positive trade initiatives such as the Trans-Pacific Partnership, a free trade agreement set to be signed by 11 countries in March. The trade wars and other trade barriers are pitfalls that affect the global economy. However, with trade growth booming, there is much optimism in the air about a healthy global economy in the future.

– Alex Galante

Photo: Google