China Research

A discussion forum on emerging markets, mainly China – from a macro, micro, institutional and corporate angle.

International Women’s Day 2022 – female upgrading good for the economy

March 7, 2022

Even if the position of women in the society and particularly on labor markets has improved during the past decades in quite a number of countries, no one really can be happy about noted developments. So much more can be done – even in Sweden which actually in 2021 was in the lead among EU countries according to the so-called equality index (https://eige.europa.eu/gender-equality-index/2021) – and particularly in emerging markets and other less advanced countries.

Focus on the relationship between equality and economic growth

There are many good arguments in favor of genuine equality between women and men. These arguments may have a social, political, democratic, human or psychological angle. On the occasion of this year’s International Women’s Day, it may be appropriate to focus this time on the mechanisms that lead from female upgrading – particularly on the labor market – to better economic (GDP) growth in the longer run. It is a reaction chain from microeconomics to macroeconomics. What is often neglected: Also men would benefit from such a development.

However, such a win-win situation should be explained more deeply. There are still more than enough skeptics who do not really understand the positive relationship between (more) female equality and GDP growth. Visibly and sustained improving equality for women has to be considered as an economic win-win-position. Another fact that should not be forgotten: The more women are added to the labor force, the more wages are – ceteris paribus – earned in a country.

Unfortunately, this win-win-situation usually is not very well explained by experts and politicians. More should be done – and can be done quite easily. At least if transparency is considered to be important.

In my view, it makes sense to apply a life cycle perspective for achieving positive and visible improvements of female equality. The life cycle goes from birth to retirement in a number of different stages – for example from school, professional education, entry into the labor market to equality at work and job promotions.

However, a visible positive correlation of improved female equality and higher GDP growth in the medium or longer run assumes that such improvement measures are both extensive and sustained. Given this order, there is a stronger scientific relationship than the other way around, i.e. when correlations between good economic growth and improved female equality are measured.

Going more into details, the chain of this microeconomic input to macroeconomic reactions and better GDP growth may practically be implemented as follows:

¤ application of a national strategy to improve female equality – partly simultaneously – on all levels by both law and collective bargaining partners;  if possible provided with numerical objectives and incentives,

¤ annual evaluations, including amendments if necessary,

¤ a first scientific report on achievements and the possible impact on purchasing power, private consumption and GDP after five years,

¤ thereafter further reports on these issues every third year on some more occasions, following up what else has been achieved in this new period for female equality and possible new positive contributions to economic growth.

Theoretically (scientifically), the reaction functions could be described the following way after sustained and sizeable injections of improved equality:

  • improved disposable income for women by fairer wages and better / increasing entry into the labor market,
  • additional financial contributions to private consumption,
  • additional stimuli from private consumption to GDP (favoring also men),  
  • (possibly) new additional jobs.

 

Of course, all these assumptions and developments need quite some years and a lot of determination to be come true. However, this is exactly the reason why there is no time to lose to fight for more female equality.

All the conclusions mentioned above can also be applied to emerging market countries and other less advanced countries. Therefore female empowerment should be much more launched in a global perspective.

 

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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Emerging countries on German import markets 2001-2021

February 23, 2022

Two facts are obvious when analyzing international and German developments in the past two decades. One is that Germany remains the number one importing country in Europe, the other one is that emerging countries have gained substantial markets shares in the advanced country of Germany. Although the table below does not explain everything, one should get some illuminating impression – also in general terms – about successfully exporting emerging markets and late EU-member countries.

German imports by country*
(percent of total imports)
 2001 2021 Difference
U.S. 8.5 6.0 minus 2.5
UK 6.9 2.7 minus 4.2
France 9.2 5.2 minus 4.0
Sweden 1.7 1.4 minus 0.3
Poland 2.5 5.7 plus 3.2
Czech Rep 2.7 4.2 plus 1.5
Slovak Rep 0.8 1.4 plus 0.6
Hungary 2.2 2.5 plus 0.3
Romania 0.4 1.2 plus 0.8
Bulgaria 0.1 0.4 plus 0.3
Russia 2.7 2.8 plus 0.1
China 3.7 11.8 plus 8.1
India 0.5 0.9 plus 0.4
Vietnam 0.2 0.9 plus 0,7
Korea 0.9 1.1 plus 0.2
Malaysia 0.7 0.8 plus 0.1
Turkey 1.2 1.5 plus 0.3
South Africa 0.6 1.0 plus 0.4
Mexico 0.3 0.6 plus 0.3
Brazil 0.8 0.6 minus 0.2
Asia (China included) 15.5 22.2 plus 6.7 (minus if China excl)
Africa 2.1 2.2 plus 0.1
Latin America 1.6 1.3 minus 0.3
Europe 70.9 66.8 minus 4.1

* In current prices. Source:  https://www.destatis.de/EN/Themes/Economy/Foreign-Trade/Tables/order-rank-germany-trading-partners.html; own calculations

It is indeed no surprise that Poland and the Czech Republic have been particularly successful on the large German market – but also the Slovak Republic, Hungary and Romania have made visible progress. As one could expect, Asia is the continental winner on the German market for importers, due to China’s success story. India – on the other hand – is still moving very slowly (but has been improving all the same). Vietnam performed quite nicely in recent years.

A number of other Asian – mainly South East Asian – countries, however, stagnated more or less in Germany since the beginning of this century and contributed strongly to the slightly declining market share of Asia minus China. This is not always known. Africa still remains, unfortunately, unable to catch up significantly. The same seems to be the case when it comes to Latin America which has been losing momentum in the past two decades, mainly caused by disappointing Brazil.

Summary: It may be concluded that emerging countries from Asia – but not all of them – and countries from the previous Comecon area in Eastern Europe obviously have succeeded well on the tough German market during the past twenty years. Most countries in Latin America have their difficulties to compete. Persistent future progress on foreign markets assumes much more focus on improvements of education and institutions.

 

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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Worsening outlook for emerging markets – China included

January 26, 2022

It seems obvious that the Fed in 2022 will have a couple of interest rate hikes which have been almost officially announced in recent weeks by Chairman Powell. This probable development may be necessary to be started in the U.S. for the attempt to re-balance the globally economy, both when it comes to the fight against the ongoing high inflation and to the deflation of unpleasant asset price bubbles in quite a number of countries (real estate, bond and stock markets).

However, welcoming higher interest rates in the U.S. – and at a somewhat later stage in Europe and other parts of the world – is really not an easy call, particularly since such a development also will dampen GDP growth somewhat in the global economy. Some kind of getting back to a realistic “new normal” for short-term rates has no alternative. But how can a “new normal” be found and defined? A safe answer cannot be given these days. Different markets (financial and labor markets, technological competition, etc.) will gradually lead us to more insight in this conundrum.

Higher U.S. rates bad news for (many) emerging markets

For emerging markets, tightening monetary policy of the U.S. is bad news in several respects. Matters of concern for emerging and less developed countries are, for example (at least theoretically and according to textbooks):

¤ Lower growth in OECD countries dampens imports from emerging countries
Higher interest rates have a negative impact on investors and consumers in advanced countries – followed by a similar reaction in emerging countries. However, in this case some new hope may arise from declining global bottlenecks on the supply side. Many emerging countries may benefit from weakening commodity prices in the case of slower growth in mainly the U.S.

¤ Many emerging countries are highly indebted in U.S. dollars
Higher short-term rates in the U.S. mean also ceteris paribus higher costs for the borrowing in USD by emerging countries. Reactions on bond markets are not really predictable.

¤ Higher U.S. rates will probably strengthen the dollar
Higher short-term rates in the U.S. make the USD stronger – and for emerging countries the costs for changing into USD more expensive. The open question is for how long time the dollar will surge.

¤ Declining foreign propensity to invest in emerging countries
Here we have really a high risk. We have seen such reactions in the past. Portfolio investors prefer often less risky strategies in (very) uncertain times. They wait for signs of recovery. Greenfield investors also tend to cut or delay their planned projects when uncertainty is increasing.

¤ Economically vulnerable countries are less resilient
Countries with healthy economic conditions and limited foreign debt are certainly more resilient against rising U.S. rates than the weak and vulnerable emerging and developing countries. Analysts should consider this distinction.

¤ How much will China be hit – and how much hits China emerging countries?
This question is not easy to answer. China stands now for 17 percent of the global economy. This is why China cannot isolate itself from developments in the U.S. and the global economy.

But how much will China be hit by the American hikes? Financially certainly to some extent, probably also (temporarily) by weakening exports to mainly the U.S. and other emerging countries. However, most of China’s problems are made at home by the worrisome conditions on the bubbling real estate market, the enormous domestic debt credit bubbles and all the well-known structural growth impediments -> see my previous article in this blog (chinaresearch.se). It is not a secret that China is overly dependent on the real estate market – even more than the U.S.

Altogether, developments in China will be very important to other emerging countries in 2022 and beyond – but not basically due to the interest rate hikes by the Fed. The main Chinese economic problems are purely made at home.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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