Ecuador’s Lasso weathers early storm but clouds loom

Significance He appears to have weathered this early political storm, achieving notable successes in areas such as tax reform. However, the political outlook remains uncertain, with a likely COVID-19 resurgence heralding new challenges in 2022. Impacts Containing the spread of the Omicron variant will be a priority for Lasso in the coming months. A pandemic resurgence would place downward pressure on economic growth and tax collection. Tax reforms will please international investors and support efforts to attract foreign direct investment to stimulate economic activity.

2018 ◽  
Vol 13 (6) ◽  
pp. 1928-1947
Author(s):  
Svitlana Shevelova ◽  
Svitlana Plaskon

Purpose Despite an increasing volume of literature focussed on foreign direct investment (FDI) in transition economies, there has been little research into FDI in Ukraine. The relationship between the inflows of FDI (IFDI) and absorptive capacity (AC) has been under-researched in the peripheral transition countries like Ukraine. The purpose of this paper is to analyse the appropriateness of the Ukrainian economy’s AC to attract IFDI and facilitate economic growth with a particular focus on AC factors, such as the potential of human resources to absorb innovation and benefit from research and development (R&D) expenditure. Design/methodology/approach This study presents a thoughtful research design: there is an analysis of the AC framework for justification and selection factors that allows a measurement of the potential of Ukraine’s AC to attract and exploit IFDI. The study uses data from 25 regions in Ukraine for the 1996–2015 period. To estimate the effects of IFDI on Ukrainian economic growth, a Cobb–Douglas production function is used. As an appropriate instrumentation technique for dynamic panel data, the Generalised Method of Moments is used to provide unbiased and efficient estimates of the results. The application of the interactive term in this study allows the authors to indicate the existence of complementarities between IFDI and human capital, in particular with higher education, that afford opportunity to absorb new technologies and benefit from IFDI. Findings The resulting model indicates that R&D expenditure benefited very significantly in evolving country’s innovation system due to economic growth. Physical and human capital has not been used effectively in Ukraine to facilitate economic growth and attract IFDI. The number of patents is not significant in all of the regression models. Moreover, IFDI in Ukraine for the 1996–2015 period did not significantly impact on economic growth. However, the AC of human capital, in particular those with a higher education, is relatively relevant to benefit from IFDI. Practical implications The findings have important implications for governmental policy, which should be based on improving the business climate, a strategy for digital development, innovation, migration, institutional and regional policies aimed at the achievement of country’s sustainable economic growth. The government should increase R&D expenditure as an important factor of gross domestic product growth and introduce grants, loans and other financial supports for encouraging students to continue university education. Originality/value The originality and value of this paper is empirical and methodological. The empirical results of this study enable a conclusion about the appropriate level of the country’s absorptive capability required to benefit from IFDI. The paper also contributes to the existing academic debate and proves that despite the well-established theoretical framework for the IFDI–AC economic impact context, a new theorisation is needed to explore the full complexity of the country’s explicit relationship between AC and IFDI. Future research should be focussed on examining not only groups of countries but also distinctly the country’s explicit relationship between AC and IFDI with the particular attention for the under-researched countries: the peripheral transition economies to discover new research niches for theory building. This study presents an original methodological approach with a careful justification of the theoretical framework for hypothesis development, an appropriate sample and an original application of seminal research methods based on the Cobb–Douglas production function. This study proves that the interactive term, which allows indication of the existence of complementarities between IFDI and other variables, is appropriate for measuring AC in countries with smaller amounts of IFDI.


2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Amna Zardoub ◽  
Faouzi Sboui

PurposeGlobalization occupies a central research activity and remains an increasingly controversial phenomenon in economics. This phenomenon corresponds to a subject that can be criticized through its impact on national economies. On the other hand, the world economy is evolving in a liberalized environment in which foreign direct investment plays a fundamental role in the economic development of each country. The advent of financial flows – FDI, remittances and official development assistance – can be a key factor in the development of the economy. The subject of this article is to analyses the effect of financial flows on economic growth in developing countries. Empirically, different approaches have been employed. As part of this work, an attempt was made to use a panel data approach. The results indicate ambiguous effects and confirm the results of previous work.Design/methodology/approachThe authors seek to study the effect of foreign direct investment, remittances and official development assistance (ODA) and some control variables i.e. domestic credit, life expectancy, gross fixed capital formation (GFCF), inflation and three institutional factors on economic growth in developing countries by adopting the panel data methodology. Then, the authors will discuss empirical tests to assess the econometric relevance of the model specification before presenting the analysis of the results and their interpretations that lead to economic policy implications. As part of this work, the authors have rolled panel data for developing countries at an annual frequency during the period from 1990 to 2016. In a first stage of empirical analysis, the authors will carry out a technical study of the heterogeneity test of the individual fixed effects of the countries. This kind of analysis makes it possible to identify the problems retained in the specific choice of econometric modeling to be undertaken in the specificities of the panel data.FindingsThe empirical results validate the hypotheses put forward and indicate the evidence of an ambiguous effect of financial flows on economic growth. The empirical findings from this analysis suggest the use of economic-type solutions to resolve some of the shortcomings encountered in terms of unexpected effects. Governments in these countries should improve the business environment by establishing a framework that further encourages domestic and foreign investment.Originality/valueIn this article, the authors adopt the panel data to study the links between financial flows and economic growth. The authors considered four groups of countries by income.


2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jagadish Prasad Sahu

Purpose The purpose of this paper is to examine whether surge in foreign direct investment (FDI) inflows leads to surge in economic growth in 52 developing countries for the period 1990-2014. Design/methodology/approach The author used a threshold approach to identify surge incidences in gross domestic product (GDP) per capita growth rates and FDI inflows (measured as percentage of GDP) for each country included in the sample. Three different criteria are used to identify surge instances. As a preliminary analysis the author used the probit and complementary log–log regression methods to estimate the likelihood of growth surge occurrence. To correct the potential endogeneity problem the author jointly estimated the growth surge and FDI surge equations using the recursive bivariate probit (RBP) regression. Findings The author found that East Asia and the Pacific region has highest rate of growth surge incidences followed by South Asia. The results suggest that surge in FDI inflows significantly increases the likelihood of growth surge. The finding is robust to alternative surge definitions and methods of estimation. Practical implications The analysis reveals that inbound FDI flow is a critical driver of economic growth in developing countries. Large FDI inflows matters for achieving rapid economic growth. Therefore developing countries should adopt favourable policies to attract more FDI. Policymakers should focus on improving the investment climate of the country to boost domestic investment and to attract larger amount of FDI into the economy. Originality/value To the best of the author’s knowledge this is the first study to examine whether surge in FDI inflows stimulates surge in economic growth in developing countries. The analysis reveals that FDI surge is a robust predictor of rapid economic growth in developing countries.


Subject The impact of fiscal austerity on growth and the re-election outlook. Significance Following a long fiscal expansion, Ecuador is set to enter a period of austerity. The collapse of world oil prices and the deterioration of public finances have forced President Rafael Correa's government to propose a 15% reduction in spending next year. The cut will improve public finances and please international investors, but create political problems for the president and government as the country moves towards elections in 2017. Impacts Lower levels of public spending will decrease domestic demand and place downward pressure on growth. Oil revenues and savings from public investment in infrastructure will support public finances over the longer term. These will include revenues from oil fields previously integrated into the Yasuni/ITT environmental programme. Clashes between the central and local governments will increase as austerity deepens and pre-election political jostling intensifies.


Significance Two years on from its founding in 2015, the EEU has not created the expected boom in trade among member states, and is hampered by internal disagreements and persistent trade barriers. A new customs agreement has yet to be signed by Belarus. Impacts Modest economic growth in Russia will dampen growth rates across the EEU. Tajikistan and Azerbaijan will weigh the political benefits of membership against the EEU’s unimpressive results. Further Russian military action against Ukraine or Georgia would weaken Kazakh and Belarusian support for the EEU.


Significance Portugal is set for the best five-year period of growth since the turn of the millennium, unemployment is falling and public finances are showing positive signs. The upswing is reflected in the remarkable stability of the political system. Impacts The economic recovery is likely to drive down yields on government bonds. Centeno’s appointment as Eurogroup president will raise Portugal’s standing in the EU. Security concerns in many Mediterranean countries are likely to boost Portugal’s tourism industry.


Subject Results of the 2017 census. Significance Peru’s population growth has slowed markedly over the last ten years according to the latest census, reflecting growing urbanisation, changes in social structure and lifestyles, and the increased availability of methods of birth control. Years of high growth rates appear to underscore the expansion of a substantial urban middle class, while Peru is also enjoying a decline in the ratio between workers and the dependent population. Impacts Increasingly urban populations will benefit companies providing goods and services, whether imported or not. Construction activity will hinge around economic growth and its geographical distribution. Population concentration will reduce the political weight of rural constituencies. Peru’s cities will remain highly vulnerable to water shortages.


Significance This is the second cabinet change in as many months by President Martin Vizcarra’s administration. Tuesta’s removal represents a shift in the power balance between the prime minister’s office and the Ministry of Economy and Finance (MEF), traditionally regarded as the guardian of public finances. It reflects the determination of the new administration to avoid unpopular fiscal policies whose main impact would fall on less affluent taxpayers. Impacts The direction of policy will not change radically under Oliva. A probable rise in mining revenues will likely defer unpopular attempts at broader tax reform. Efforts to reduce tax evasion will produce disappointing results.


Subject Tax reform update in the Philippines. Significance The next congressional session opens on July 24, in which the Senate will address its version of the first reform bill in the Duterte administration’s Comprehensive Tax Reform Package (CTRP). This follows the House of Representatives passing its version -- the Tax Reform for Acceleration and Inclusion Act (TRAIN) -- on May 31. Impacts As it would prove the government’s reform commitment, the CTRP’s passage would likely see Philippine credit rating upgrades. Lowering taxes could bring some business and investment competitiveness benefits, but this is not guaranteed. The tax reforms’ success will be moderated by inefficient tax collection and disbursement, and corruption and evasion.


Subject The political impact of the coronavirus outbreak in China. Significance The extreme measures the Communist Party has taken in response to the COVID-19 outbreak are partly designed to instill faith in its governing capacity among ordinary citizens, but inertia and slow decision-making at every level have revealed a gap between official rhetoric and reality. Impacts China will increasingly treat public health as a matter of state security; regulation and more involvement by senior officials will follow. The main risk to political stability is indirect, via the outbreak’s negative effect economic growth and employment. Despite signs of public outrage, protests are unlikely due to the risk of contamination and intense activity by the security services.


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