Saturday, March 14, 2015

Economic Growth across the World

Many economic and political events that took place over the past decades contributed to creating or destroying wealth across the globe. The wealth created by a country is measured by its gross domestic product (GDP). I here point out some of the major events that significantly shifted the distribution of GDP growth across countries.

The Distribution of Annual Average Growth across the World, Data Source: World Bank
The Distribution of Annual Average Growth across the World

The Period 1990-94 

This period was marked by the dissolution of the Soviet Union, the first Gulf war, and civil wars in Africa. Many countries thus experienced large declines in GDP. The above figure reveals that GDP growth distribution across countries for the period 1990-94 is the only one to be left-tailed.  

After their independence in 1991, many post-Soviet countries such as Albania, Armenia, Azerbaijan, Georgia, Kazakhstan, and Latvia experienced social unrest, war, and economic crises. In 1992, growth rates, for instance, in Georgia and Armenia were respectively -44.9% and -41.8 %. Cuba, a trading partner of the Soviet Union, also severely suffered from its dissolution. Its GDP fell by 7.9 %, on average. In the same time, in many other countries such as Mongolia, Mauritania and Togo where people started fighting for democracy, economic activity went down due to strikes and social unrest. In Mauritania, GDP fell by 39.9 % in 1992. In Togo, it fell by 15.1 % in 1993.  

GDP fell by more than one-half in African countries such as Liberia in 1990 and Rwanda in 1994 due to civil wars.  

During the first Gulf war, oil price rose due to the disruption of its supply from Iraq and Kuwait. Oil supply from the Soviet Union, a major oil producer, was also disrupted after its dissolution. This fueled inflation in developed countries. Tightening monetary policies aiming at fighting inflation slowed down economic activity and led to recession.  

Few countries experienced sustainable growth over 1990-94. Among the economies that performed well, one could include: Chile (7.33 % on average), East Asian countries such as China (10.8 %) and South Korea (7.98 %), and Southeast Asian countries such as Malaysia (9.31 %), Singapore (9.26 %), and Thailand (9.01 %). Lebanon recovering from the civil war of 1975-90 grew by 16.8% on average.  

The Period 1995-99 

The distribution of GDP growth across countries is more peaked because of the favorable economic conditions.

Economic disasters slowed down over the period 1995-99. A part from Kazakhstan, Moldavia and Ukraine, most post-Soviet economies started growing thanks to foreign investment.
Countries such as Bosnia-Herzegovina, Liberia, and Rwanda recovering from war experienced respectively average growth rates of 33.9 %, 33.4 %, and 15.7 %.

Equatorial Guinea which became the third oil producer in Sub-Saharan Africa grew by 56.7 % on average. The promotion of the market economy and the attraction of foreign investment in Cape Verde prove successful. This country grew by 12.1 % on average.

During this prosperous period that was characterized by the information technology (IT) bubble, the average growth rate more than doubled in Canada and the United Kingdom. It almost doubled in Australia and the United States.
The late 1990s also saw European Union (EU) member States complying with the euro convergence criteria and, in 1999, the official launching of the euro alongside their national currencies. Most of these countries ended up with higher growth rates. The average growth rates more than doubled in Finland, Spain, and Ireland. The Irish   miracle was in part based on policy measures such as the low tax rate aiming at attracting foreign investment.

This period was negatively marked by the East Asia financial crisis that slowed down growth in this region.  

The Period 2000-04 

The early 2000s witnessed the beginning of the enlargement of the EU to East European countries and the end of the IT bubble.  Growth over this period was moderate and its distribution across countries was less sharp than in the previous period.

In 2002, the euro became the single currency of twelve European States. Converting prices from their national currencies into the euro occasions inflation. Except Greece, Spain, and the Netherlands, these economies slowed down. The IT bubble burst in the same time.

Some East European countries joined the EU in 2004 and hosted a lot of foreign investment. Average growth rate in Estonia, Latvia, and Lithuania was about 7 % on average.
Post-Soviet countries such as Armenia, Azerbaijan, and Kazakhstan grew by 10 % on average thanks to free market, foreign investment and international aid.

Growth slowed down in Equatorial Guinea but the country still showed the highest record of the period (30.6 % on average). Nigeria, another major oil producer in Africa, grew by 11.52 %.
Zimbabwe showed the worst record (-6.66 % on average) due to its mismanagement and international sanctions.

The Period 2005-09 

The Great Recession undermines growth in the EU and in North America. This recession stemmed from the burst of a housing bubble and a speculation on commodity prices.  
The economic situation was beneficial to oil producing countries such as Azerbaijan, Qatar, and Angola that showed the highest average growth rates, 21.2 %, 16.3 %, and 15.6 % respectively.

The Period 2010-13

This period witnessed the European debt crisis. It became impossible for Cyprus, Greece, Ireland, Portugal, and Spain to repay or refinance their debts. Greece had one of the lowest average growth rates (-6.05 %).

Macao and Mongolia showed the highest average growth rates: respectively 17.5 % and 12 % on average. The distribution of growth across countries is flatter than the others.