Tag Archives: GDP

Germany owes NATO ‘vast sums’: Trump

US President Donald Trump unleashed a diatribe against Germany on Saturday, saying Berlin owes NATO “vast sums of money” and must pay the United States more for security.

His latest tweetstorm comes a day after he met German Chancellor Angela Merkel in Washington, where the two leaders showed little common ground over a host of thorny issues, including NATO and defense spending.

“Germany owes vast sums of money to NATO & the United States must be paid more for the powerful, and very expensive, defense it provides to Germany!” Trump tweeted on Saturday morning.

He prefaced his statement by lashing out at the news media. “Despite what you have heard from the FAKE NEWS,” he tweeted, “I had a GREAT meeting with German Chancellor Angela Merkel.”

Continue reading Germany owes NATO ‘vast sums’: Trump

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Mafia neighbours are bad for business, new report finds

Research into impact of organised crime groups on global economy found their presence in a region can reduce GDP per capita by 20%

When mafia bosses move in, it’s bad news for the local economy as well as for law and order, according to academic research which suggests the presence of organised crime in a region can slash GDP per capita by a catastrophic 20% over three decades.

A series of articles in August’s Economic Journal brings together the latest research on the impact of organised crime groups on the global economy.

Professor Paolo Pinotti of Bocconi University in Milan, focused on two regions in southern Italy, Apulia and Basilicata, which were dramatically affected by the arrival of organised crime groups, such as the mafia, Camorra and ‘Ndrangheta, from the 1970s.

Pinotti quantified the costs attributable to organised crime by comparing the economic performance of these areas with that of the rest of the country.

Before the arrival of organised crime groups, Apulia and Basilicata were two of the fastest-growing economies in the country, with low levels of crime.

Afterwards, their growth rates fell from the highest to the lowest in the country, while the murder rate quadrupled to more than four per 100,000 inhabitants.

According to Pinotti, his research suggested the presence of organised crime has a long-term impact on GDP-per-capita. “The estimated effect remains in most cases around 16%, increasing to 20% when matching on a longer time span,” he said.

Pinotti attributed this stunting of economic growth to the contraction of private investments due to an increase in mafia violence. The crime groups would seize control of politics, and replace private with public capital, so that their profits increased.

Giovanni Falcone, an Italian prosecuting magistrate who led the 1986/87 Maxi trial against the Sicilian mafia and was killed by the mafia in 1992, said at the time:

“More than one-fifth of mafia profits come from public investment.”

Separate research by Gianmarco Daniele and Benny Geys used data from Italian municipalities between 1985 and 2011 to show that the presence of organised crime also leads to less-educated politicians taking charge.

On average, politicians are 18% more educated in the absence of mafia infiltration, they found – equivalent to a year’s education.

“In areas with active criminal organisations, the average quality of elected politicians is significantly depressed, because they’re faced with bribes and punishments,” said the authors. “This makes better (or more highly educated) politicians opt out of a political career, and instead pursue an alternative vocation.”

Pinotti suggested that the expansion of criminal organisations towards the south east of Italy in the 1970s and 1980s was caused by three main factors:

  • The increasing importance of tobacco smuggling in the 1970s meant the ports in the south gained a strategic importance to criminal groups, while a major earthquake that struck the region in November 1980 led to mafia members flocking to take advantage of public funds set aside for reconstruction.
  • The influx of criminals to the region was also due to suspected or convicted mafia members being sent to the region in “confino”, a measure designed by the Italian police to keep the suspects from continuing to engage in illegal activities by moving them to areas with little criminal activity. Pinotti argued it backfired, simply spreading mafia presence to other regions.
  • The United Nations estimates the total profits of transnational criminal organisations may be as high as $1.6tn (£1tn) , making up 1.5% of global GDP, and 70% of all criminal proceeds.

A third article by Dr Giovanni Mastrobuoni of the University of Essex, used declassified data on 800 mafia members’ finances, to assess their place within the criminal hierarchy, on the basis of the value of their property.

“We have used economic status to work out how much of a key player each member is,” said Mastrobuoni. “Mobsters who are more central in the criminal network are found to live in more expensive housing – an exception being the bosses of mafia families who tend to keep a lower profile by officially residing in more humble housing.”

Italy in Greece’s economic shadow

As Greece moves ever closer toward capital controls and default, one hopes that European policymakers are mindful of the long-run potential fallout of such an event on Europe’s overall economy.

A Greek move in the direction of exiting from the euro could have an important bearing on the much larger and still very troubled Italian economy. While the euro can very well survive without Greece, it is difficult to imagine how the euro could survive if Italy were to eventually follow Greece out of the euro.

The Italian economy, which is the eurozone’s third largest economy, dwarfs that of Greece in relative importance. Whereas Greece accounts for less than 2 percent of the eurozone economy, the Italian economy accounts for as much as one-sixth.

Similarly, whereas Greece’s public debt is less than 350 billion euros, Italy’s exceeds 2 trillion euros, which makes Italy the world’s third-largest sovereign bond market.

A principal reason why European policymakers should be concerned about contagion from an eventual Greek euro exit to the Italian economy is that Italy’s public debt dynamics are on an unsustainable path.

At the start of the European sovereign debt crisis in 2010, Italy’s public debt to gross domestic product (GDP) ratio was already very high at around 115 percent. Since then, the country’s debt ratio has risen to its present level of 135 percent and it shows no sign of coming down anytime soon.

While this very high debt level has proved to be relatively easy to manage in today’s world of abundant global liquidity, one has to wonder whether the same will be true when global liquidity conditions normalize.

What makes Italy’s high debt level all the more troubling is Italy’s very poor economic growth record. Some six years after the 2008-2009 global economic crisis, Italy’s economy is still some 7 percent below its pre-crisis peak.

Even more disturbing is the fact that the Italian economy today is practically at the same level as it was in 1999. This has to raise the most serious of questions as to whether the Italian economy is capable of growing itself out from under its debt mountain.

If Italy is unable to generate rapid economic growth, the only way that it can reduce its debt pile is by exercising considerable budget discipline over the longer haul.

However, maintaining an austere fiscal policy stance in a euro straitjacket, which precludes exchange rate depreciation as an offset to budget tightening, can prove to be counterproductive in that it makes economic growth all the more difficult to achieve.

It is also far from clear whether Italy has the political will to endure many years of budget discipline. Indeed, a striking feature of today’s Italian political landscape is the growing evidence of budget austerity fatigue and the rising tide of euro skepticism.

This is underlined by the fact that today, all of the major Italian political parties — other than the ruling Democratic Party — openly question the advantages of Italy’s continued euro membership.

A Greek exit from the euro would deliver a body blow to Italy’s long-term economic prospects. It would send the clearest of messages to the markets that euro membership was no longer irrevocable.

It would also send the message that the European Central Bank was not always there to backstop a troubled European economy. In time of crisis, this would only make the Italian economy vulnerable to speculative attack, especially considering the country’s over-indebtedness.

One hopes that in weighing whether or not to help prevent Greece from leaving the euro, European policymakers carefully think through the long-run consequences of their actions for the Italian economy.

That might give them pause before being overly cavalier about the long-run fallout from a Greek exit for the rest of the European economy.

10 crazy facts about Russia [Infographic]

crazy russia facts

Back in 1939, Winston Churchill famously remarked that Russia was “a riddle wrapped in a mystery inside an enigma.”

For most people, his words ring true to this day.

Although Russia is the largest country in the world and has the eighth-largest GDP, little is widely known about the nation and its culture.

To help you out with that, we’ve put together a handy little infographic with 10 of the craziest facts about the Russian language, culture, and politics.

The world’s richest economies – China no more

IN THIS week’s print edition we published a chart that looks at the world’s biggest economies over time. We timed it to coincide with the news that China, at least in purchasing-power parity terms, is now the world’s biggest economy. People tend to find this historical stuff rather interesting, so below we have produced a similar chart that shows GDP per capita over the same time frame.

The results are quite different. Europe is much more dominant than it was in the original chart. The Netherlands, which does not feature at all in the original graph, does particularly well. Britain, which during the 1700s and 1800s developed a capital-intensive, trade-boosting navy, was a leader during these two centuries. By the 1950s, tiny but oil-rich states did nicely.

This Is What GDP Growth Looks Like Around The World

map

Click for higher resolution to the picture

The above map comes from RBC Capital Markets. It is a GDP heat map, showing the estimated growth rate of every country in the world for next year based on International Monetary Fund numbers.

There are a few things to note here: Europe is looking pale. Argentina and Venezuela are in for a rough year. Brazil isn’t looking so hot, either.

Both Libya and South Sudan are set to have great year-over-year growth — although that’s likely because war has had such drastic effects on them this past year.

This is what the heat map for 2014 looks like:

gdpRBC Capital Markets

The Countries Where You’re Surrounded By Tourists

silver-datalab-tourists-1-v3

The Vatican still qualifies as a huge outlier relative to the rest of the world. My method estimates that there are about five tourists there on average for every one resident, or a tourist percentage of 83 percent. Surely the tourist percentage is higher still during the hours when the Vatican Museums are open or when the Pope is hosting a major public event.

Ranking second in the world is tiny Andorra, with a tourist percentage of 29 percent. The numbers drop off quickly after that; it’s about 11 percent in Palau and Bahrain, for example, 9 percent in the Bahamas and 8 percent in Monaco.

Vicente Villamón / Flickr CC BY-SA 2.0

There’s an economic lesson here: Even in places whose economies are dominated by tourism, and where it may seem like you’re completely surrounded by tourists, you’ll generally find a number of locals for every tourist. Hotels can employ one employee per guest room or even more in parts of the world where labor is cheap but tourist dollars are plentiful. Tourists also need dining, transportation and entertainment options.

Meanwhile, all the people who work in the tourism industry have families and needs of their own. This is why tourism is associated with a multiplier effect; it produces secondary and tertiary sources of income and employment in addition to the revenues received directly from tourists.

By contrast, tourists can represent a vanishingly small part of the population in large countries. This next chart lists the tourist percentage for the top 25 countries in the world by GDP:

silver-datalab-tourists-2-v2

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