nep-tra New Economics Papers
on Transition Economics
Issue of 2022‒05‒23
eight papers chosen by
Maksym Obrizan
Kyiv School of Economics

  1. Russia’s Attack on Ukraine: Economic Challenges, Embargo Issues & a New World Order By Paul J. J. Welfens
  2. Long-term challenges to Russian economic policy By Simola, Heli
  3. The economic effects of stopping Russian energy Import in Poland By Jakub Sokolowski; Marek Antosiewicz; Piotr Lewandowski
  4. Are the supporters of socialism the losers of capitalism? Conformism in East Germany and transition success By Deter, Max; Lange, Martin
  5. When populists deliver on their promises: the electoral effects of a large cash transfer program in Poland By Michał Brzeziński; Jan Gromadzki; Katarzyna Sałach
  7. A potential sudden stop of energy imports from Russia: Effects on energy security and economic output in Germany and the EU By Berger, Eva M.; Bialek, Sylwia; Garnadt, Niklas; Grimm, Veronika; Other, Lars; Salzmann, Leonard; Schnitzer, Monika; Truger, Achim; Wieland, Volker
  8. Effective Aid for Ukraine by OECD Countries By Paul J. J. Welfens

  1. By: Paul J. J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: The launch of Russia’s war of aggression against Ukraine on February 24th, 2022, has resulted in great suffering for the people of Ukraine and has created turning point in Europe. Western countries and Japan have imposed very comprehensive sanctions against Russia, the aggressor. The country is largely politically isolated on the international stage, but seemingly has China - still - on its side. Large movements of refugees are to be expected, along with sharp price increases for gas and - somewhat less so - for oil, but also for wheat, with Russia and Ukraine being important exporter countries of that commodity representing together a combined 28% share of the world market. Some economists have suggested Germany impose an energy import boycott against Russia. A realistic analysis, however, arrives at significantly higher losses in real income than the 0.5% to 3% found, for example, by Bachmann et al. (2022), although additional retaliatory measures (e.g., tariff increases) by Russia and other effects must indeed also be considered: -6% in terms of real income and increased unemployment rates are conceivable as an overall effect in Germany; and there will be negative Russian spillover effects to central Asian countries which also have not been considered in the Bachman et al approach. On March 23rd, President Putin declared that Russia’s energy exports to “unfriendly countries” would have to be paid for in Rubles in the future, which is a clear strategic move in terms of the international economic conflict between the West and Russia. The latter could itself impose an energy supply boycott on Germany and also other EU countries. Additional supplies from, say, the US - in the form of liquefied natural gas (LNG) - would be limited in relation to the redistribution of supplies within the EU, as the pipeline network is still poorly integrated. Poland, Bulgaria, Austria, Germany and Italy are likely to face particular problems with natural gas supplies in the event of an energy import boycott. As of May 24th, 2022, US citizens will not be allowed to accept interest payments from either private Russian companies or the Russian state; this measure is peculiar and hardly compatible with the idea of a constitutional state, since even companies from Russia that are not actually in danger of bankruptcy will be artificially pushed toward bankruptcy - with the US switching to preventing Dollar bond payments to April 6th (due to the Russian massacre in Bucha, Ukraine), the first Russian bond interest payment missed concerned Russian Railways on April 11th. The very high current and expected numbers of refugees will have positive demand effects in certain countries in 2022 and positive supply effects in overall economic production thereafter. The global economy will be marked by a new economic slowdown and higher inflation rates in 2022/23; it could face a breakup into regional “blocs” and a reduced effectiveness of international economic organizations in the event of international economic conflicts. The weakening of the international legal order should be countered by OECD countries. The figures presented by the Kiel Institute for the World Economy for combined humanitarian, financial and military support to Ukraine are grossly misleading; if one takes into account the important spending on refugees from Ukraine and the corresponding (implied) pledges by OECD countries, EU spending in favour of the Ukrainian people is significantly higher than that of the US, and Germany's spending is also significantly higher than shown in the Kiel study. A new and lasting order for peace in Europe is urgently required. An EU eastern enlargement to include Ukraine will bring about new BREXIT-type risks and could destabilize the EU considerably.
    Keywords: Ukraine war, Russia sanctions, economic effects of the war in Ukraine, US, EU, international economic order, aid for Ukraine
    JEL: F50 F51 N44 Q48
    Date: 2022–04
  2. By: Simola, Heli
    Abstract: Russia's economic growth slowed substantially over the past decade. To improve its long-term growth outlook, Russia must deal with structural problems. While the country has not lacked for ambitious development plans, the results of late have been rather thin. We discuss some of the key challenges facing the Russian economy and policy responses. Considering Russia's recent economic policy in light of the economic literature and potential reasons for its successes and failures, we suggest the focus of the country's current economic policy framework is too narrowly drawn to achieve a significant acceleration in long-term growth.
    Keywords: Russia,economic policy,development plans,economic growth
    Date: 2021
  3. By: Jakub Sokolowski; Marek Antosiewicz; Piotr Lewandowski
    Abstract: We estimate the macroeconomic and distributional effects that a ban on fuel imports from Russia would have in Poland. We simulate the embargo as a hike in oil, gas and coal prices, and evaluate the macroeconomic effects with a dynamic general equilibrium model. We soft-link it with a microsimulation model based on Household Budget Survey data to assess the impacts on various income groups. We find that the effects of an embargo on Russian fuels would be substantial but manageable. Depending on the severity of the price hikes, we expect Poland’s GDP to be lower by 0.2–3.3% by the end of 2022, and by 2.1–5.7% by 2025. Furthermore, depending on the price increases, high-income households would spend an additional 0.2–1.3% of their incomes on energy in 2022 and 0.7–1.6% in 2025, and low-income households would spend 0.3–4.7% more of their incomes on energy in 2022 and 2.6–4.8% in 2025. We suggest direct money transfers to less affluent households, and investments in alternative gas and oil supplies, energy efficiency, renewable energy and nuclear power as instruments that could ease the negative economic impacts of the embargo.
    Keywords: embargo; distributional effects; microsimulation; general equilibrium
    JEL: H23 P18 O15
    Date: 2022–05
  4. By: Deter, Max; Lange, Martin
    Abstract: The empirical literature is inconclusive about whether a country's democratization has a long-lasting impact on former supporters or opponents of the bygone regime. With newly available individual-level data of former residents of the socialist German Democratic Republic (GDR), we analyze how supporters and opponents of the socialist system performed within the market-based democracy after reunification. Protesters, those who helped to overthrow the socialist regime in the Peaceful Revolution show higher life satisfaction and better labor market outcomes in the new politico-economic system. Former members of the ruling socialist party and employees in state-supervised sectors become substantially less satisfied. These results do not seem to be driven by differential reactions in the post-transition period, but rather by the removal of discriminatory practices in the GDR. Additional results indicate that conformism in the GDR also explains political preferences over the almost three decades after the reunification of Germany.
    Keywords: East Germany,state socialism,transition,labor market,life satisfaction
    JEL: H10 N44 P20 D31
    Date: 2022
  5. By: Michał Brzeziński; Jan Gromadzki; Katarzyna Sałach
    Abstract: We estimate the effects of the introduction of a large cash transfer program on support for the ruling populist party in Poland. We exploit the variation at the municipal level in the annual cash transfer amount received per capita, and use a difference-in-differences research design to study the electoral effects of the transfer. Our results show that a cash transfer amount of $100 per capita translated into an increase in the vote share for the ruling party of nearly two percentage points. We also find that these effects were largely due to the recruitment of previously non-voting individuals. We conclude that without the transfer program, all else being equal, the populist party would not have remained in power.
    Keywords: Elections, Voting Behavior, Populism, Unconditional Cash Transfer
    JEL: D72 H23 H53 I38 J18
    Date: 2022–01
  6. By: Gheorghe ZAMAN (Institute of National Economy – Romanian Academy); Giani Ionel GRÄ‚DINARU (Department of Statistics and Econometrics, The Bucharest University of Economic Studies, Institute of National Economy – Romanian Academy); Alin MARICUÈš (The Bucharest University of Economic Studies); Ana-Maria BĂTRÎNCEA (The Bucharest University of Economic Studies)
    Abstract: This paper determines the rebound effect from a comparative perspective on the Romanian economy: before and after accession to the European Union. The empirically determined rebound effect is a defined analysis of the link between production factors in order to present the non-singularity of energy in determining the economy. Therefore, factors such as capital, labor force and technological progress are included in the analysis. The rebound effect on the Romanian economy shows that it had high values when there was a lower increase in energy consumption compared to GDP growth, indicating the impact of economic sustainability in energy use. Since 2015, Romania has recorded a constant level of rebound effect involving an irrational action of energy use.
    Keywords: rebound effect, energy consumption, Data Envelopment Analysis
    JEL: Q43 P28 C80 C67
    Date: 2021–12
  7. By: Berger, Eva M.; Bialek, Sylwia; Garnadt, Niklas; Grimm, Veronika; Other, Lars; Salzmann, Leonard; Schnitzer, Monika; Truger, Achim; Wieland, Volker
    Abstract: The Russian war of aggression against Ukraine since 24 February 2022 has intensified the discussion of Europe's reliance on energy imports from Russia. A ban on Russian imports of oil, natural gas and coal has already been imposed by the United States, while the United Kingdom plans to cease imports of oil and coal from Russia by the end of 2022. The German Federal Government is currently opposing an energy embargo against Russia. However, the Federal Ministry for Economic Affairs and Climate Action is working on a strategy to reduce energy imports from Russia. In this paper, the authors give an overview of the German and European reliance on energy imports from Russia with a focus on gas imports and discuss price effects, alternative suppliers of natural gas, and the potential for saving and replacing natural gas. They also provide an overview of estimates of the consequences on the economic outlook if the conflict intensifies.
    Date: 2022
  8. By: Paul J. J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: The Russo-Ukrainian war has given rise to a broad discussion about adequate aid for Ukraine across the Western world and within the OECD country group in particularly. Essentially, policymakers and the wider public would like to have an economic aid indicator which allows to understand whether or not individual donor countries are carrying a "fair" share of the burden: Humanitarian aid would naturally include the commitments of OECD countries for Ukrainian refugees plus other humanitarian expenditure items. The sum of humanitarian, financial and military aid provided by various countries to Ukraine has been presented by the Kiel Institute for the World Economy (Kiel IfW) in April 2022 and thus many new data points became available, including a table with a ranking of the countries on the basis of combined aid - relative to GDP - which shows that the aid ratio of the US is larger than that of the whole EU, including EU funds for Ukraine. The IfW, however, omits the commitments with regard to refugee support made by OECD countries which, for most countries considered, indeed represents the largest share of overall support commitments for the Ukrainian people. The IfW approach is quite misleading as it ignores commitments of the respective OECD countries for Ukrainian refugees. If one includes the relevant expenditures and commitments for 2022, the donor country ranking looks quite different from the ranking calculated by Antezza et al. (2022). It is also noteworthy that the press release by the Kiel Institute for the World Economy on publication of the IfW Discussion Paper No. 2218 does not mention that the IfW summary aid indicator for support for the Ukraine does not take expenditures for Ukrainian refugees into consideration, while the paper mentions this peculiar point - this might be an error in the press release. The IfW has emphasized that its calculations show that US support clearly exceeds that of the EU in nominal terms. The Kiel IfW press release seems to have been aimed at arousing maximum media attention on the basis "bad news is good news" which might be acceptable for selling newspapers, but which is clearly in contradiction to the concept of sound research in Economics. As is shown in this research note, the commitments of EU countries (plus the EU's own commitment) - with commitments for refugees included - were about five times higher than that of the US in the period February 24th to March 27th, 2022. Moreover, the correct ranking for the sum of humanitarian, financial and military aid - including commitments for Ukrainian refugees - in the EIIW approach differs significantly in most cases from the aid-GDP ratio ranking of the Kiel IfW. In the analytical discussion, the Russia-Ukraine conflict shocks are partly viewed through the lens of the Heckscher-Ohlin theorem, the Stolper-Samuelson theorem and the Rybczynski theorem, respectively; it is argued that there is some equivalence of the Heckscher-Ohlin theorem and the Rybczynski theorem.
    Keywords: Foreign aid, Ukraine, Russia-Ukraine War, Expenditures on Refugee Support, OECD Countries, Media Attention, Kiel Institute for the World Economy
    JEL: F35 F51 H63 H84 H89
    Date: 2022–05

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