Robert Allen’s recent AER paper on “Absolute Poverty: When Necessity Displaces Desire” is a fascinating read, on many levels. The paper uses linear programming (LP) to compute (four variants of) least-cost diets for twenty countries, using prices from the International Comparisons Project (ICP) microdata. To the resulting least-cost food budgets, estimates of non-food costs covering housing, fuel, lighting, clothing and soap are added, generating “basic need poverty lines” (BNPL) for each country.
We know that fiscal policy can be harnessed to reduce inequality in low- and middle-income countries, but until now, we knew less about its ability to reduce poverty. Our recent volume looks at the revenue and spending of governments across eight low and middle income countries (Armenia, Ethiopia, Georgia, Indonesia, Jordan, Russia, South Africa and Sri Lanka), and it reveals that fiscal systems, while nearly always reducing inequality, can often worsen poverty.
Global economic growth is accelerating. After registering the slowest pace since the 2007-2009 financial crisis in 2016, global growth is expected to rise to a 2.7 percent pace this year and 2.9 percent over 2018-19.
While much has been said about better economic news from the major advanced economies, the seven largest emerging market economies—call them the Emerging Market Seven, or EM7 – have been the main drivers of this anticipated pickup.
The contribution of the seven largest emerging market economies to global output has climbed substantially over the last quarter century.
The EM7 -- Brazil, China, India, Indonesia, Mexico, Russia and Turkey – accounted for 24 percent of global economic output over 2010-2016, up from 14 percent in 1990s. Although this is a smaller share than the Group of Seven major industrialized economies, the G7’s portion of global economic output has narrowed to 48 percent from 60 percent over the same time frame.
If the nation which has bestowed to the civilization such giants as Tchaikovsky and Shostakovich, Tolstoy and Bulgakov could manage its economy as splendidly and robustly as its culture, Russia would be doing just great! Unfortunately, it’s not the case. The resource curse is affecting the economy in a negative way and even more seriously than certain counterproductive habits and mental inertia from the old times of statist, centrally planned economy.
I’m afraid there is not much time left for Russia. If it wants to catch up with the advanced world – and become a true member of the G8 group of developed countries – it must use wisely for investment in restructuring and diversification of its economy the windfall revenue from exploitation of vast natural resources. Otherwise, the process of deindustrialization without offsetting by the nowadays service sector will continue and this great country – with huge potential for fast, durable, and sustainable development – will miss the chance to become one of the leaders of world economy. This decade will decide the fate of Russia for the whole 21st century. And the time runs fast.