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Artificial Intelligence in Economic Modeling and Forecasting
(S & B World Foundation, 2025) Kaytaz, Mehmet; Özmucur, Süleyman; Yürükoğlu, Tanju
Artificial Intelligence (AI) originated from multiple disciplines, with Alan Turing’s work on the Turing Machine laying its foundation. Early developments such as neural networks and the Turing Test marked the beginning of AI’s evolution through cycles of enthusiasm and setbacks. Recent breakthroughs in big data, GPU computing, and deep learning have made AI a part of daily life, from healthcare and translation to robotics and gaming. However, its rapid expansion raises serious concerns regarding autonomous weapons, surveillance, labor displacement, and the existential threat posed by unsupervised superintelligent systems. Reflecting this surge, AI and machine learning publications have skyrocketed since 2019, with most research emerging only in the past five years and spanning diverse fields beyond computer science. In parallel, machine learning techniques have increasingly influenced modern economics, building on econometric tools such as regression, principal components, and ARIMA models. Concepts such as supervised learning and methods like logistic regression, LASSO, and neural networks have bridged the gap between traditional econometrics and data science, enhancing predictive accuracy and flexibility. Lawrence Klein’s Current Quarter Model (CQM), which leverages high-frequency indicators and bridge equations to nowcast GDP, exemplifies this integration. His approach, now echoed in MIDAS regressions and global modeling efforts like Project LINK, remains vital. The COVID-19 shock underscored the need for adaptive, interdisciplinary forecasting frameworks that incorporate health, behavioral, and environmental variables in an interconnected world. The use of AI, specifically machine learning (ML), in official statistics is very recent compared to other disciplines and areas. This may seem contradictory to the objectives of official statistics. At the same time, the digital revolution led to an abundance of all types of data and the demand for data has considerably increased. Several reasons may be specified for this delay. One reason may be the structure of official statistical organizations and the role of statisticians in these organizations. The breakthroughs in AI technology and the use of satellite imagery have disrupted the way official statisticians collect, process, and analyze data. There is skepticism among some official statisticians about employing new technological developments. Official statisticians are reluctant to work with data that does not rely on probability samples and legacy methods. Concerns about quality, ethics, and privacy are the major factors contributing to this unwillingness. There is also an insufficiency of both financial and human resources. Over the last seven years, the efforts of the United Nations Economic Commission for Europe (UNECE) within the framework of modernizing official statistics, along with its Machine Learning Group, have played a significant role in many national statistical offices adopting and applying machine learning methods. In two years, it grew from 120 statisticians from 23 countries to more than 400 statisticians from 35 countries. Currently, many NSOs and international organizations are involved in developing applications of ML in various areas of data collection. In various areas of data collection, many NSOs and international organizations are also involved in developing applications of ML. The IMF has developed the PortWatch Platform, utilizing satellite-based vessel data to provide real-time indicators of port and trade activity. Statistics Colombia is predicting poverty rates using daytime and nighttime satellite imagery. Statistics Indonesia has a similar project. Statistics Netherlands is using webscraping to identify different types of companies. The U.S. Census Bureau and the Bureau of Transportation Statistics (BTS) jointly produce the Commodity Flow Survey. They reduced manual workload by using machine learning methods. Federal Statistical Office of Switzerland developed StatBot, a chatbot for sharing statistical information, soon to provide services in three different languages. The Swedish Land Registry (SLR) is the government agency with the mission of securing the ownership of real estate and making geodata available for the society. SLR uses handwritten text recognition together with neural networks to get information from documents going back to 1850s. The Australian Bureau of Statistics is undertaking a comprehensive review of the Australian and New Zealand Standard Classification of Occupations using large language models. Statistics Canada also has explored the use of large language models to automate and enhance statistical report generation, aiming to improve efficiency and reduce manual workloads. The experience of statistical offices showed that machine learning has proven to contribute to producing data that is more relevant, with better quality, in a faster or more cost-efficient manner, without any significant reduction to any of these dimensions. Machine learning is advantageous particularly in processes that are labor intensive, repetitive and stable, such as in classification and coding. Another lesson from the activities of the Machine Learning group is that sharing and collaboration within and between statistical organizations are also essential to advance the use of machine learning based on lessons learned on where it adds value, where it shows promise and where it offers less value. Artificial intelligence (AI) is reshaping economic policymaking by enabling more dynamic, data-driven analysis and forecasting. Unlike traditional models, AI systems, especially those utilizing machine learning, can adapt to changing conditions and extract insights from massive datasets. Central banks and institutions, such as the IMF and World Bank, now utilize AI for inflation tracking, labor analysis, and risk forecasting, while natural language processing aids in interpreting media and public sentiment. AI enhances forecasting accuracy for key indicators, such as GDP and inflation, by continuously updating projections. Deep learning and reinforcement learning further enhance real-time decision-making in an increasingly volatile global economy. AI is also transforming fiscal policy, trade, and regulation. Governments use predictive analytics for tax reform, compliance, and investment planning, while AI models assess trade shocks and climate risks. However, the rapid adoption of AI raises concerns about bias, transparency, and inequality, particularly in developing countries that lack data infrastructure and expertise. Ensuring AI systems are ethical, auditable, and inclusive is essential. Ultimately, AI's societal impact will hinge not just on innovation but on building governance frameworks that safeguard human rights and promote equitable outcomes. The global approach to AI regulation is fragmented. The EU leads with comprehensive laws, while countries like the U.S. favor sector-specific guidelines, and China pursues centralized, state-aligned control. International bodies such as the OECD promote ethical principles, but challenges remain, including cross-border enforcement, rapid innovation, and definitional ambiguity. To govern AI ethically, regulations must embed transparency, explainability, and oversight from the start. Independent audits, impact assessments, and robust privacy protections are crucial, especially in sensitive sectors such as healthcare and justice. Public trust depends on democratic participation and the inclusion of marginalized voices in shaping AI governance. Human-centered AI (HCAI) presents an alternative vision, one that supports rather than replaces human decision-making, and promotes usability, accountability, and equity. In fields such as education and healthcare, HCAI can enhance services while upholding ethical standards. However, AI’s labor market effects are concerning, as automation threatens jobs and exacerbates inequality. Without deliberate policies, such as reskilling and fair labor protections, especially in the Global South, AI could deepen global divides. Yet with inclusive governance, AI has the potential to reduce poverty, empower workers, and create a more equitable digital economy. The labor market implications of AI are profound. Cognitive automation threatens both lowskill and middle-income jobs while concentrating wealth among those who own the technology. These risks are widening income inequality and weakening social cohesion. Scholars such as Daron Acemoglu warn of "excessive automation" that replaces workers rather than empowering them, while others like Erik Brynjolfsson advocate for worker-augmenting AI and institutional reform to ensure inclusive innovation. Global disparities are stark—developed nations invest in reskilling and infrastructure, while developing economies face job displacement without adequate digital capacity. AI can be a force for upward mobility or social fragmentation, depending on how societies manage the transition. The impact of AI on poverty will depend heavily on policy choices. While it has already enabled life-saving advances in agriculture, healthcare, education, and microfinance in countries like Kenya, Colombia, and India, it also risks excluding low-income workers through automation and exploitative digital labor models. The rise of precarious gig work, digital piecework, and content moderation in the Global South underscores the need for inclusive labor protections, fair compensation, and recognition of data as a form of labor. Without intervention, the benefits of AI will continue to deepen global inequalities. With deliberate governance, however, AI can help build a fairer, more resilient, and more equitable digital economy.
A Comparative Review of Economic Performances of Egypt, Iran and Turkey (and South Korea as a Benchmark)
(S & B World Foundation, 2016-08) Kaytaz, Mehmet; Özmucur, Süleyman; Yürükoğlu, Tanju
There is a strong statistical relationship between a country’s per capita GDP (expressed in PPP dollars) and per capita health expenditures also expressed in PPP dollars. In 2013, on average, 8.4 percent of per capita GDP was spent on health as a regression among 179 countries showed. Given their income levels, all four countries (EIT and South Korea) spent less than the norm based on this yardstick. Egypt had the lowest share of budgetary expenditures on social sectors, particularly health and education. In turn, the shares of social spending in all three countries were considerably lower than the average for EU-28 in 2014. For instance, health expenditures in Egypt was 5.6 percent of total budget expenditures in 2014, contrasted to 17.5 percent in Iran, 12.3 percent in Turkey and 15 percent in the European Union. Key health indicators, in a way, reflect the relationship between the resources allocated to the sector and outcomes. There were also significant improvements in sanitary facilities contributing to improvements in health outcomes in three countries. Egypt had the lowest life expectancy at birth and the highest infant mortality rate among the EIT countries in 2014. In terms of resources of the health care systems, there are significant differences among the EIT. Compared to South Korea, the number of hospital beds per 1,000 in Egypt, Iran and Turkey are significantly lower and showed little improvement during the last thirty years. The number of health care practitioners varies a lot among the EIT. Unlike Iran and Turkey, Egypt has many more physicians and nurses on a per capita basis than the cross country comparisons suggest. Because of the concentration of doctors in the Cairo area, the rest of the country is not well served despite the relatively larger numbers of practitioners who also run parallel practices in addition to their jobs at public health care facilities. The Iranian health care system went through a series of reforms since 1983 by creating the National Health Network including “Health Houses”, staffed by trained “Behvarz” in rural areas and a chain of Rural and District Health Centers. The Family Physician Program which was established in 2005 and implemented in rural areas and cities with populations of less than 20 000 people to improve the referral system and provide health-care services did not prove to be effective. Rising health costs and slow improvements in health care led to the adoption of the “Health Sector Evolution Plan” in 2014. While the plan has helped bring down out-of-pocket (OOP) costs for patients, there is room for further significant improvements in the health care system. Turkey embarked on an ambitious health reform program in 2003 intended to separate policymaking, regulatory, financing, and provision roles. The Social Security Institution was established as a single payer, on pooling both risk and funds from contributory health insurance and the government-financed Green Card. It also included the introduction of a family practitioner scheme nationwide, the introduction of a performance-based payment system in Ministry of Health hospitals, and transferring the ownership of the majority of public hospitals to the Ministry of Health. Lack of cost controls and favorable treatment of private providers pushed up health care costs which doubled in real terms between 2001 and 2014. The share of expenditures on hospitals went up from 38 percent in 2001 to 49 percent in 2014, contrary to the intentions of the program. In the latest Human Development Index which is for 2014, Iran ranked the 69th, Turkey the 72nd and Egypt the 108th compared to South Korea which ranked the 17th. While the EIT showed progress over time in improving their scores, their relative ranking has not changed since 1990. On the Gender Inequality Index Turkey ranked the 71st, Iran the 114th, Egypt the 131st and South Korea the 23rd. The Global Gender Gap Index (GGI) compiled by the World Economic Forum (WEF) shows deterioration in Iran’s score between 1996 and 2015 and some improvement for Egypt and Turkey during the same period. Rapidly declining mortality rates and high fertility rates led to large increases in populations of the EIT; in 1965-2015 the population of Turkey almost tripled; the populations of Egypt and Iran more than tripled. The fertility rate in Egypt continues to be higher than that of in Iran and Turkey. It is projected that the population of Egypt will reach about 109 million in 2025, while that of Iran will be 86 million and the population of Turkey will be 85 million. The young population in the EIT creates an important window of opportunity. The education, health, and employment indicators suggest that Turkey is nearer to make use of this opportunity than Iran and Egypt. The population growth in Egypt, Iran and Turkey has been faster than employment growth. Egypt created 10.7 million jobs against a population increase of 29.9 million during 1991-2013. Iran and Turkey created 10.3 and 6.3 million jobs for a population increase of 19.9 and 20.1 million respectively, during the same period. In the EIT labor force participation rates and overall employment rates are low in comparison to many other countries. The low level of particularly female participation rates creates serious social and economic problems. In the urban areas these problems become more acute. Another problem is the low level of education of the labor force. In the EIT more than half of the labor force has just primary education. The labor force in Egypt is more educated than the others in relative terms. However, the female labor force in Iran is more educated than in the others. There is a mismatch between education and occupational needs in varying degrees in these countries. For instance, the number of graduates of humanities and Islamic studies is four times more than the graduates in other areas in Iran. While the unemployment rates in Egypt and Iran seem settled to a plateau of 13 percent, the policies implemented in Turkey starting in 2009 were relatively successful and the unemployment rate is around 10 percent. The unemployment rates for women in Egypt and Iran are significantly higher than males in contrast to Turkey where there is not a significant difference between them. In Egypt and in Iran and to some extent in Turkey women face many hurdles even though their educational attainment is high. In Iran, the education level of women is very high; more than 30 percent of female labor force has a tertiary education; on the other hand the female university graduates have a 50 percent unemployment rate. The governments do not have specific policies for supporting employment or for supporting labor intensive industries in Egypt and in Iran. The existing labor codes have an anti-business biases which cause strong rigidities in the labor markets and the non-wage expenses on labor are higher than the wages in all three countries. Particularly in Iran absence of independent labor unions, low labor mobility, lack of collective bargaining, and inflexibility of wages created strong structural barriers to a well-functioning labor market. While social justice and distributive dimension of Islam religion are emphasized by the EIT politicians, in general, the inequality of income distribution has not changed much over the decades. Egypt presents a better picture of income distribution than the others. Egyptian income distribution was relatively egalitarian since the mid-1950s, have improved over time where the Gini coefficient declined from 36.1 percent in 2000 to 30 percent in 2013. It was estimated at 37.8 percent for Iran and 40.1 percent for Turkey in 2013. On the other hand, absolute poverty is a real problem in Egypt while Turkey and Iran reduced poverty to a great extent. During the 1950s, there was not much difference between these countries. Their integration with the global economy and their transition to a market economy is an ongoing process. Turkey’s joining the Customs Union and candidacy for the EU provided a strong impetus for diversification and a competitive environment. Egypt and Iran were not successful in diversifying industry and providing competition. In both countries established interests were protected. Furthermore, Iran fought with embargoes and economic sanctions and the economy depended on oil exports. Overall the political system in Turkey, although it lacks a lot, is more conducive to inclusiveness and economic growth than in Egypt and Iran.
Consumer response to economic crisis and lessons for marketers: The Turkish experience
(Elsevier Science Inc, 2014-01) Kaytaz, Mehmet; Gül, Mısra Çağla
Private consumption is the largest component of gross domestic product (GDP). It has a substantial impact on the speed of recovery from an economic crisis. This paper aims to examine the behavior of consumers, firms, and government in Turkey in response to the recent global economic crisis. Turkey was one of the few countries that emerged from the economic downturn relatively quickly. The demographics of consumers, the solidity of financial sector, and the government policies led to a speedy recovery from the crisis through an increase in consumption expenditures. During the initial shock, consumers switched to cheaper goods and decreased consumption expenditures in total. The government emphasized that the impact of crisis would be limited. The opening of credit lines, the temporary reduction in value-added tax and special consumption tax on certain commodities, aggressive marketing campaigns, and a rosy future drawn by chambers of commerce and NGOs in specific promotional activities were influential in increasing consumption. This paper discusses the consumer response to and the marketing lessons derived from this experience.
CSR and social marketing as enablers of recovery after the global recession: The Turkish banking industry
(IGI Global, 2018-01-01) Gül, Mısra Çağla; Kaytaz, Mehmet
Corporate Social Responsibility (CSR) is a relatively new concept in Turkey. Leading companies including banks stress socially responsible activities in their marketing communications. The recent economic crisis put banks into the center stage again. Turkey was one of the few countries that emerged from the economic downturn relatively quickly. In the initial stages of the crisis, banks faced some criticism for protecting their self-interest more and not acting for the benefit of the society. Later, these criticisms got weaker and less frequent. This chapter examines the behavior of banks during the crisis with respect to CSR and social marketing. Particularly, the chapter analyzes how the banks behaved during the crisis and how they supported small and medium scale enterprises and local communities through CSR strategies, as well as how they utilized CSR efforts as a marketing tool. In addition, the outcome of these strategies is discussed.
CSR and social marketing as enablers of recovery after the global recession: the Turkish banking industry
(IGI Global, 2016-12-21) Gül, Mısra Çağla; Kaytaz, Mehmet
Corporate Social Responsibility (CSR) is a relatively new concept in Turkey. Leading companies including banks stress socially responsible activities in their marketing communications. The recent economic crisis put banks into the center stage again. Turkey was one of the few countries that emerged from the economic downturn relatively quickly. In the initial stages of the crisis, banks faced some criticism for protecting their self-interest more and not acting for the benefit of the society. Later, these criticisms got weaker and less frequent. This chapter examines the behavior of banks during the crisis with respect to CSR and social marketing. Particularly, the chapter analyzes how the banks behaved during the crisis and how they supported small and medium scale enterprises and local communities through CSR strategies, as well as how they utilized CSR efforts as a marketing tool. In addition, the outcome of these strategies is discussed.
Economic Effects of COVID-19 Pandemic
(S & B World Foundation, 2022) Kaytaz, Mehmet; Özmucur, Süleyman; Yürükoğlu, Tanju
Now it is more than two years since the COVID-19 virus first appeared in China. Its overall effects are becoming clearer. It killed millions of people in a short time. It led to a deep recession. It disrupted the lives of many people all over the world. It pushed millions back into poverty. It is no wonder that the UN Deputy-Secretary-General characterized the situation as "we are facing a human crisis unlike any we have experienced". The severity and the depth of the economic effects of the pandemic are considered by many to be on the same level as the Great Depression or the Great Recession. The pandemic is essentially a health crisis. As of January 11, 2022 the number of cases has risen to about 312 million and the number of people died is more than 5.51 million. These are the official figures. The estimates of the excess deaths due to COVID-19 are about three times the official figures. The infection and death rates varied greatly across time and countries. The factors such as the age composition of population, the measures adopted, the strictness of the measures applied, the degree of readiness of the public institutions for a pandemic, and vaccination played an important role in the infection and death rates. For example, the countries which were affected by the SARS pandemic, seemed to be more ready for the COVID-19. The countries with an aged population, most of which are high income countries suffered higher death rates, because the incidence of death was significantly more on aged groups. The lockdowns, social distancing measures and travel restrictions caused an immediate drop in employment and production as well as a sharp drop in demand and some changes in the composition of demand. The recession hit all the countries. Though some recovered earlier than other countries. For example, in the United States, there were decreases in real GDP in all quarters of 2020. The major loss (decrease compared with the real GDP in the fourth quarter of 2019) in real GDP (10.1%) occurred in the second quarter of 2020. The general economic activity was lower in the five consecutive quarters following the last quarter of 2019. The second quarter of 2021 was the first time that the level of real GDP was higher than the level in the fourth quarter of 2019. In the first quarter of 2021, the cumulative loss had reached to 17.8% of real GDP of the fourth quarter of 2019. The cumulative loss decreased to 12.3% with improvements in the remaining three quarters of 2021. On the other hand, the total loss from the long-run trend is about 28%. The cumulative change from the final quarter of 2019 was negative in 80 out of 97 countries or regions. The negative change was the highest in Spain with 69.0%, followed by the Philippines (67.4%). In about 7 quarters, some countries started to turn the losses to minor gains. Serbia (cumulative change of positive 0.5%) and New Zealand (0.6%) are leading these countries. The changes were significantly positive in Ireland (76.7%), Turkey (30.6%), Taiwan (29.9%), China (25.7%), and Egypt (19.1%), among others. Comparisons with the level in December 2019 reveal that changes were even bigger for industrial production. For example, the Philippines had the biggest cumulative decrease, compared with the level in December 2019, in industrial production (347.0%), followed by Portugal (183.8%). These are much bigger decreases compared with decreases in real GDP. Since 33 countries/regions were on the positive side of the cumulative percentage change from December 2019, one can conclude that generally a relatively faster recovery was observed in industrial production compared with real GDP following large declines in economic activity due to the pandemic. As expected, export is one of the activities that was adversely affected the most by the pandemic. Cumulative decreases were quite large in some countries. On the other hand, there were large increases in exports in in some countries in 2020 and 2021 because of a very low starting point. Largest cumulative decreases in exports from December 2019 were observed in Nigeria (789.7%) and United Kingdom (394.8%). Largest cumulative increases in relation to the level in December 2019 were observed in Guyana (2201.7%) and Zambia (884.1%). One of the results of the pandemic was that sectors were affected in different ways and degrees. For example, since accommodation, restaurant, and hospitality sector required face to face interaction, it was affected much worse than some others. Educational services, transportation, utilities, retail trade, and mining were also among the sectors affected adversely both because of the working conditions and changes in the composition of demand. On the other hand, the demand increased for some services such as information and services which could be provided online did not suffer at all. For example, finance and insurance witnessed growth in real terms. The first visible impact of the COVID-19 on economic life was in the labor markets. The lock-down measures and social distancing rules led to an immediate decline in working hours and employment. The impact of the pandemic was deep and the recovery has progressed slowly. The global level of unemployment was 186 million in 2019. It is estimated to be 207 million in 2022, and it is expected that 2019 level will be reached in 2023 according to the ILO forecasts. Furthermore, the recovery varied with income levels of countries. Lowermiddle income countries performed worse than the others. Also many people have left the labor force. The 2022 labor force participation rate is forecasted to be still lower than the 2019 rate. The pandemic caused a very big declines in employment in the United States. Although, there were gains in employment after the second half of 2020, more than 20 million jobs lost due to the pandemic were not recovered, yet. The level of employment in March of 2022 is still below what it was in December 2019. In the United States, while the largest percentage decline in employment from December 2019 to March 2022 was observed in scenic and sightseeing transportation (28.3%), the largest percentage increase was observed in warehousing and storage (37.7%). The arithmetic average of the monthly rate of unemployment in the United States during January 1948 to March 2022 was 5.75%. The maximum unemployment rate was 14.7% (April 2020) , followed by 13.2% (May 2020), and 11.0% (June 2020). These are the three highest numbers since 1948. Among 65 countries/regions that data were released by the World Bank GEM, largest decreases in unemployment rate compared with the rate in December 2019 were observed in Greece (2.9%) and Turkey (2.2%). Largest increases in the rate of unemployment were realized in South Africa (5.5%) and Sub Saharan Africa (5.5%). The largest decreases in stock prices (in terms of US dollars) from December 2019 to December 2021 in 75 countries/regions were observed in Kenya (35.8%) and Brazil (31.6%), while the largest percentage increases from December 2019 were realized in Iran (275.1%) and Argentina (127.4). During 2020, the precious metals price index continued its increase compared with decreases in other indexes (energy, non-energy, fertilizers, and metals and minerals). A further look reveals that gold is the commodity deriving the increase in the precious metals index, and not silver nor the platinum. This is no surprise because gold has been seen as the key asset during periods of uncertainty. Comparisons of March 2022 price with December 2019 price reveal that the largest increases were seen in natural gas price in Europe (489%), while the largest decreases in prices were observed in tea (9.4%). The pandemic exacerbated the tendencies in global inflationary pressures. Largest percentage changes in GDP deflator from the final quarter of 2019 were observed in Argentina (92.8%) and Turkey (41.4%). There were only two countries in the group of 83 with decreases in GDP deflator (Ireland 3.0%, and Japan 0.4%). In the United States, the headline price index for consumer prices increased 11.4% from December 2019 to March 2022. Among countries, largest increases in the consumer price index from December 2019 to December 2021 were observed in Lebanon (588.7%) and Turkey (55.9). Bahrain, Fiji, and Japan had decreases in consumer prices from December 2019. The border closures, lockdown in supply markets, restrictions in vehicle movements, interruptions in trade, labor shortages, and maintaining of physical distance in manufacturing created multidimensional negative impacts on supply chains. The trade as share of world GDP fell from 56.3% in 2019 to 51.6% in 2020. The export of goods and services declined by 8.9%. The net inflow of FDI fell from 1.7% of GDP in 2019 to 1.4% in 2020. In the decline of trade and FDI the disruption of supply chains and hence GVCs played an important role. The impact of COVID-19 has been more severe in comparison to recent epidemics such as SARS 2003 and H1N1 2009. Furthermore, its impact has been more diversified and dynamic. In the case of COVID-19 all the nodes (enterprises in the chain) and edges (relationship between enterprises) were affected simultaneously. GVCs both propagated and mitigated the impact of COVID-19 lockdowns. GVCs also played an important role in the rapid recovery of trade observed in the second half of 2020 in USA. As long as governments do not try to decrease dependency on other countries and firms do not go into vertical integration GVCs continue to grow. It is possible that firms will shift their input sources towards some other developing countries where prices are more favorable and the supply reliable. They will not reshore, near-shore or The immediate impact of COVID-19 was on output and employment. The sharp drop in output and increase in unemployment led to increasing inequality of income distribution and poverty. Furthermore, disruption of educational activities created conditions for exacerbating the inequality in the longer term. The COVID-19 pandemic brought about one of the largest fiscal and monetary policy responses compared to previous crises seen in the world. The U.S. which is by far the most affected country in terms of infections and the number of deaths has allocated significant budgetary resources, around 25 percent of GDP to dealing with the pandemic in 2020. The average fiscal cost for the high-income countries was around 10 percent of GDP and less than half of that for the emerging markets. Some countries chose to make credit accessible to corporate and household sectors while spending limited amounts of budgetary resources for direct support. Because of the multitude of factors involved in dealing with the pandemic, it is difficult to attribute outcomes to financial resources expended particularly in the middle- and low-income countries. Regardless of the type of the dominant instrument, fiscal or financial, large sums of liquidity were injected into the economies. This helped a faster recovery than most expected and reduce the suffering from supply shortages due to logistics breakdowns. These large outlays limited the fiscal space for many governments and reduced the margins of maneuverability for monetary policy in the coming years. Only time will tell the trade-off between forgoing high priority spending in the future and the outcomes of the pandemic-induced expenditures. This includes the impact of the global inflation faced today, some of it can be traced back to monetary expansion to deal with the pandemic, but there are other aggravating factors like the Russian invasion of Ukraine, sanctions, and the vagaries of the energy markets. According to UNESCO the COVID-19 pandemic has been the worst shock to education systems in a century, with more than 1.6 billion children and youth not being able to attend school for months. The pandemic hit the education system all over the world. All levels of education were affected. Most damaging effect was felt by all the children at risk, marginalized, and children with disabilities. It affected 99% of students in low and lower-middle income countries. Some of the impact of school closures on students were in short–term, but some will be felt in the long-term. Furthermore, this impact was uneven and unequitable across countries and within countries. The global learning crisis has grown by even more than previously feared: this generation of students now risks losing $17 trillion in lifetime earnings in present value as a result of school closures, or the equivalent of 14 percent of today’s global GDP, far more than the $10 trillion estimated in 2020. In low- and middle-income countries, the share of children living in Learning Poverty—already over 50 percent before the pandemic—will rise sharply, potentially up to 70 percent, given the long school closures and the varying quality and effectiveness of remote learning. The international inequality of income distribution (inequality between countries in terms of GDP per capita) tended to increase with the pandemic. The lower income countries faced a higher drop in output than in relatively higher income countries. International inequality takes each country as a unit at per capita income. If this measure is weighted by the population, that is, each person earns the same per capita income then the deterioration in the distribution becomes more clear. Indeed, China and India dominates the distribution. If they are excluded both pre- and post-pandemic inequality increases. The relatively quick recovery of China played a role in this development. Still there are very few household data to measure the effects of the COVID-19 on national inequality (within country distribution of income). The available data and studies suggest that in many countries income inequality increased or the potential for more inequality got stronger. The countries which supported the unemployed with various subsidies slowed or reversed the worsening in inequality. International and national distribution of income constitute the global distribution. It is not wrong to forecast that the overall effects of the COVID-19 pandemic on income inequality is negative. The effects of the pandemic on poverty is related to its effects on income inequality. It seems that the worst effect of the pandemic is felt by the poor. Millions of people fell back into poverty.
Economies of Nordic Countries
(S & B World Foundation, 2019) Kaytaz, Mehmet; Özmucur, Süleyman; Yürükoğlu, Tanju
This study is an introduction to Nordic economies. Is there a Nordic model? Are Nordic economies unique? Is Nordic model replicable? There has been a large amount of studies done on these questions. The jury is still out. However it is possible to identify some common characteristics of Nordic economies as well as their differences. They are basically market economies open to the world economy. Finland, Denmark and Sweden are members of EU. Finland is in Eurozone, Denmark is a member of ECU, and Sweden is a member of neither. Norway and Iceland are members of the European Economic Area and European Free Trade Area which give them full access to EU market with little restriction. Social democracy has been historically important in the development of Nordic countries and in the formation of economic and political institutions and traditions. However the basic tenets of the Nordic system are held together by strong institutions of macroeconomic governance, organized working life, and public welfare system which are interconnected through markets and the intervention by stakeholders not by social democracy alone. While social democratic ideology provided the framework for the equity and participation dimension, there are other factors such as the history, traditions and the advantages of being homogenous small countries which have made the system work. The political pendulum swung between left-leaning governments and conservatives several times in the four large Nordic countries, but they remained as the countries with the highest union density and collective bargaining rates in Europe. Even Iceland which has had conservative governments for extended periods has continued to maintain its traditional structure of collective bargaining and tripartite cooperation with the government. The economic liberalization of the 1980s and 1990s was not accompanied by dismantling the labor relations or the welfare state. Examination of historical data shows some interesting findings. Statistical analysis of pooled data on 167 countries for the 1600-2016 period shows that both the starting level and the rate of increase of per capita real GDP are higher in Nordic countries than in other countries. More recent period of 1950-2016 shows slightly different results. For example, the average rate of increase in real GDP per capita was statistically higher for Nordic countries, at a 95% level of confidence, but not with a 99% level of confidence. Furthermore, population growth was statistically significantly lower during the 1950-2016 period in Nordic countries than other countries. The growth record of Nordic economies are not uniform. The growth rates in Sweden show a positive trend from 1620 to 2017. The standard deviation of growth rates shows a decrease in seven-year moving standard deviations indicating a slightly less volatile growth rates, a higher stability. On the other hand, in Norway both the trend and cyclical component get bigger in time. In Denmark, the 1940-1979 period was the one with the highest average annual growth rate. On the other hand, the standard deviations of residuals (cyclical component) were also higher during 1900-2016 period, that is, a more volatile growth. In Finland, the 1917-1929 period was the one with the highest average annual growth rate, followed by the 1930-1939 period and the 1948-1969 period with a higher cyclical component slightly higher during 1900-2016 period. In Iceland, with available data starting in 1950, the growth was significantly higher during the 1950-1982 period compared with the 1983-2016 period. Cyclical component was higher during the 1960-2000 period. The labor market outcomes are result of some form of democratic corporatism. Labor unions, employers’ unions, government and some other institutions are involved in wage determination. In this process general economic conditions, competitiveness of the particular industry, and employment outcomes are taken into account. Even central banks are involved in this process through determination of interest rates and exchange rates. The leading objective is to have high levels of employment. If certain policies lead to unemployment, the unemployed are protected through generous unemployment benefits. This brings flexibility to firing and hiring procedures. If capitalist economies are ranked on the power of markets Nordic economies would be at one end and USA on the other end. It was hypothesized that in Nordic economies the lack of competition and incentives would lead to stagnation and low level of technological development. The data do not support this hypothesis. Nordic economies up to now kept their welfare system, labor market institutions and polices and still performed well in terms of economic growth and employment compared to other advanced economies. The recent test was globalization and the Great Recession and these economies overall did well. The welfare system and labor market outcomes led to reduction of inequalities and poverty. Nordic economies have not followed the trend in some other advanced economies where distribution of income deteriorated in the recent decades. The question is whether this system of welfare and labor market outcomes are sustainable. This is a subject widely discussed particularly in Nordic countries. The following areas are considered as putting pressure on Nordic labor markets. Firstly labor union density is declining, though still high compared to other countries. More importantly union membership is falling among vulnerable groups in the private sector. Secondly, due to the increased migration the structure of labor force has been changing. This coupled with international low-wage competition is weakening the collective bargaining system and the cooperation between companies in some industries. Thirdly, the national autonomy in the regulation of worker rights and industrial relations has been eroded because of EU. These developments reduces the wage floor as well as the social floor. Lastly, some reforms were introduced which tended to weaken incentives for organization and bargaining. All these pressures are not helping to maintain a system of negotiated flexibility, balanced tripartite cooperation, increased union organization, and active participation at company and workplace levels. Furthermore the political parties are moving towards the center. Fiscal policy is the key policy instrument to make the welfare state work both in terms of revenue and the expenditure sides. The Nordic countries have one of the highest tax burdens in the world, but also the most inclusive, almost free of charge social services with the highest quality available to their residents. Most of the revenues come from direct taxes on income and profits which are progressive as opposed to regressive taxes on goods and services. Norway which is an outlier cycles its hydrocarbon revenues through the Government Pension Fund Global, using only a fraction of it to finance the current budget. While health spending is in line with the EU countries, education and social protection spending is higher than the EU average. Despite these common characteristics, there are significant differences in the organization of the delivery of social services. On the other hand, monetary policy is not one of the distinguishing characteristics of Nordic model. The studies on Nordic model very rarely include a chapter or a section on monetary policy. The Nordic countries are small and open countries. It would be very difficult for them to have an independent monetary and exchange rate policies. Whether they are members or not they have a very close relationship with the European countries. Consequently Norway, Sweden and Iceland closely shadow ECB policies.
Global Inflation
(S & B World Foundation, 2023-06) Kaytaz, Mehmet; Özmucur, Süleyman; Yürükoğlu, Tanju
Globalization led to the integration of more economies and more labor sources into the global economy. Thus, the availability of cheap labor helped accelerate economic growth and increase trade, particularly the expansion of global value chains. And the end of the cold war after the break of the Soviet Union also contributed to reducing inflationary pressures on a global scale. The global inflation rate tended to increase starting in 2019, and with COVID-19, it began to rise steadily. The pandemic caused further disruptions in economic activity and created supply chain issues, leading to higher commodity and consumer prices. Moreover, governments trying to cope with the pandemic had significant increases in government expenditures and Money supply. The average inflation rate reached the Great Recession levels in the middle months of 2020, while the median rate reached that level in October 2022. With output and employment, inflation is one of the most important macroeconomic variables. An inflation rate higher than moderate levels or a deflationary development creates instability in the economy. The instability leads to volatility in economic activities and economic inefficiencies. The result is lower rates of growth and social problems. Workers and pensioners whose wage rates are fixed for a period suffer the most because of inflation. To tame inflation, to reduce it to moderate rates requires reducing output. The cost of this is borne again by lowerincome groups. The Phillips curve has been at the center of the debates on inflation, economic growth, and monetary policy for over sixty years. It has been criticized and changed a lot from its original version of 1958. However, its modeling of the relationship between economic activity and inflation made it a useful and essential tool for policymakers. There are several measures of inflation, measured as the percentage change in prices over time. The most common measure is the Consumer Price Index (CPI), which reflects the changes in prices paid by consumers. The consumer should be a typical consumer. It requires a representative household and thousands of prices for the goods and services that comprise a typical consumer’s budget. Although gathering all needed data may be much simpler compared to earlier years, there may be issues with new commodities introduced and a pandemic where conducting the same surveys with the same accuracy may not be possible. Commodity prices, determined primarily by supply and demand, are influenced by various factors, such as speculators, producers' cartels, force majeure events, and disruptions in the supply chain, like the COVID-19 pandemic. Commodity price cycles have occurred throughout history, with increasing frequencies over time. The unprecedented swings in commodity prices during and after the pandemic had a significant impact on inflation dynamics worldwide. Energy prices, particularly natural gas, and hydrocarbon-based fertilizer prices, experienced the highest increases since 2018, affecting agricultural production costs and global food prices. The pass-through of commodity prices to domestic prices varies depending on the commodity type, inflation regime, exchange rates, and the level of competition in the market. Energy prices reached record highs due to geopolitical tensions, while food prices remained elevated, causing concerns about food insecurity. Metals and minerals experienced a rebound in demand, driven by the recovery of the global economy, but prices have since declined. The empirical studies show that supply chain disruptions, particularly shipping costs, influence import price inflation and domestic prices. These effects change from industry to industry and from economy to economy. Economies more integrated into the global economy are more affected than those less integrated. Island economies are affected more. In general, those economies with a strong central bank are less affected. These results suggest that the study of inflation and inflation policies should take globalization into account. Supply chains, especially global value chains, play an important role in forming inflationary expectations, the price formation behavior of firms, and the labor force. The Phillips curve would perform better with the inclusion of global variables into the model. A disequilibrium in demand and supply of goods & services is reflected in prices. A demand exceeding supply results in increases in prices. The percentage change in the general price level is the rate of inflation. This imbalance between supply and demand may start in the product market, as realized shortages during the pandemic, or it may originate in other markets and affect the product markets. The pandemic had a profound negative effect and created imbalances in labor markets, financial markets, government budget and foreign markets which led to more inflation. Some of these negative effects subsided, but most of them still linger and continue to have adverse effects on all the economies in the world. A very coordinated effort by world leaders and policy makers is the first step that is necessary to combat inflation and other issues that the world faces. Dealing with inflation, domestic or pass-thru global, requires the effective use of the combination of macroeconomic policy tools in a coordinated and judicious manner. Monetary policy, carried out by central banks, and fiscal policy, determined by the executive and legislative bodies of governments, played crucial roles in addressing the pandemic's economic and social effects. Monetary policy aimed to maintain macroeconomic stability, while fiscal policy interventions were targeted at specific problems arising from government-imposed restrictions. Monetary policy instruments such as interest rates, money supply management, inflation targeting, and expectations management were used by central banks worldwide. Interest rate reductions, quantitative easing, liquidity provisions, forward guidance, currency swaps, and targeted lending programs were common measures implemented during the pandemic. Quantitative easing proved to be a powerful tool, involving purchasing financial assets from the market to inject liquidity, lower borrowing costs, and stimulate lending and spending. However, the effectiveness of quantitative easing in stimulating inflation depends on various factors and the state of the economy. Following the formal ending of quantitative easing in major economies, monetary expansion started to slow down and even reverse in some cases in 2022. Policy rates were raised to manage the inflationary pressures. Fiscal policies adopted during the pandemic were a major inflationary shock, supported by the financial system and accommodated by monetary policies. These policies included direct income support, business support and stimulus packages, healthcare and vaccination spending, job protection and retraining programs, infrastructure investment, tax relief and deferrals, debt relief and financial sector support, and enhancements to social welfare programs. The extent to which these fiscal policy instruments were used varied across countries. Targeted interventions were found to have a lower inflationary effect compared to broad-based support. Providing targeted support to households through cash transfers was highlighted as the most cost-effective way to alleviate the burden on vulnerable families. In terms of the relationship between budget surplus and inflation, historical analyses show an inverse correlation in most periods, except during times of oil price hikes. Additionally, the relationship between the rate of inflation and changes in the assets of central banks showed long lags in their impact. The indicators suggest that the current inflationary process is not ending soon, although there is a decline in the global inflation rate. The effect of inflationary shock caused by fiscal policies adopted and implemented during the pandemic is continuing. The supply chain disruptions got weaker; however, the impact of supply shocks is longer lasting than expected. A significant problem is the labor market imbalance leading to sectoral price surges.
Globalization, Growth, and Inequality
(S & B World Foundation, 2017-11) Kaytaz, Mehmet; Özmucur, Süleyman; Yürükoğlu, Tanju
While there are many definitions of globalization, depending on the observers, their political leanings, areas of interests and geographical origins, the following can be considered as a broadly accepted definition: "Globalization is a process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade and investment and aided by information technology. This process has effects on the environment, on culture, on political systems, on economic development and prosperity, and on human physical well-being in societies around the world."¹ It also has several dimensions: economic, social, political, cultural, etc. which are also interrelated. This report focuses on economic globalization². Globalization, in the form of trade among the lands across continents, dates to Sumerian and Indus Valley civilizations. Economic historians cite the Silk Road, spanning a vast area between China and Europe as an example of globalization of trade. The period after the industrial revolution until the World War I is also highlighted as another example of relatively free flow of goods and capital across countries far apart. Globalization in the second half the 20th Century follows several decades of import substitution policies in developing countries particularly in Latin America proved to be less effective than export-oriented policies implemented by several East Asian countries around mid-1980s. By the beginning of the 1990s, many countries have embarked on export-oriented policies and started to reduce trade barriers. The policy framework that was labeled as the “Washington Consensus” advocated liberalization of trade, elimination of quantitative restrictions and replacement by low and uniform tariffs; liberalization of rules for foreign direct investment flows and reducing capital controls; and market determined exchange rates. Together with rapid technological advancement, particularly in communication and information technology, globalization took off between the early 1990s and 2007 when the global financial crisis brought it to an abrupt halt. Trade as a share of world GDP almost doubled from 16.8 percent to 31.3 percent during the twenty years between 1988 and 2008. Global capital flows have acted as both the causes and outcomes of globalization. They increased from 5.8 percent of global GDP in 1995 to 21.5 percent in 2007 and the stock of global financial assets went up from 256 percent of GDP to355 percent respectively. The period from 1990 to 2007 saw a very rapid growth at 8 percent a year in global financial assets in contrast to the 2008-2012 period when their growth slowed down to 1.9 percent a year. Because of its multifaceted character, measuring globalization has not been an easy task. One of the most commonly used measure is the KOF Index which covers the 1970-2014 period. It has five distinguishable trends. The increase was highest during 1994-2000 with an annual increase of 1.16, followed by 1988-1993 with an annual increase of 0.86, and 2001-2006 with an annual increase of 0.59. The increase was more modest for the 1970-1987 period with an annual increase of 0.32, and very low for the 2007-2014 period with an annual increase of 0.10. These indicate that the 1988-2006 period may be regarded as a period of rapid rate of globalization. While the impact of globalization on individual countries has been varied depending on their political and social environment, it is likely that globalization spurred economic growth, creating employment in developing countries and helped reduce absolute poverty across the globe, but empirical evidence is scant. The real-World GDP using purchasing power parity has four distinct periods in terms of growth rates, with average growth rates of 1.7% for the 1990-1994 period, 3.4% for the 1994-2001 period, 4.7% for the 2002-2008 period and 3.5% for the 2009-2016 period. A significant trend shift was observed in World inflation (measured using GDP deflator). The rate of increase (not the rate of inflation itself) in inflation was 1.9% during 1960-1975, and negative 0.2 during 1976-2016. This significant decrease was probably largely due to globalization with the increase in the number of less expensive places of production, and other factors such as decreases in commodity prices, and the peace dividend. An important effect was seen on poverty (measured as poverty headcount ratio at $1.90 a day, 2011 PPP, % of population). There was a negative trend in the poverty headcount ratio for the entire period, but significantly negative for the post 2005 period. In short, whether one uses flow of goods and services, flows of capital (foreign direct investment), or flow of labor (migration, and even tourism), there is a significant increase during the post 1990 period. A small econometric model with alternative scenarios clearly show that real GDP would have been higher with a higher KOF globalization index in all countries and the world. In addition, inflation would have been lower in the world economy. These results suggest positive effect of globalization on real GDP. The index of Economic Complexity attempts to measure the amount of productive knowledge that each country holds. This measure for productive knowledge can account income differences between the nations of the world and has the capacity to predict the growth rate. Results on growth and inflation equations are mixed in terms of identifying determinants. There is no clear dominance of the index of economic complexity, and world exports. Simulation results based on a small econometric model indicate that economic complexity indexes are higher with higher KOF indexes. The effects of globalization on employment cover a large and controversial area. Trade, foreign direct investment and technology transfer have differing effects on employment outcomes in both advanced and developing economies. The opponents of globalization in developed countries argue that trade with developing countries where wages and labor standards are low lead to unemployment at least in some sectors and regions. An important implication of this is increasing inequality. De-industrialization in developed countries is a result of the trade with labor surplus countries. The low labor standards put pressure on the labor standards in developed countries and start the process of ‘race to the bottom’. There is no theoretical framework providing clear explanations to these questions. The empirical findings are mixed. Trade causes sectoral shifts in employment; may lead to unemployment in some sectors. On the other hand, the culprit may be skill-biased technological change. The de-industrialization, that is, declining employment share of manufacturing, is result of more of a technological change and increasing productivity. There is no evidence of ‘race to the bottom’. The wage rates in developing countries tend to increase after some point, and FDI flows put pressure on domestic institutions for wage and labor standards to increase. Some authors find that trade policy is one of the aspects of globalization; other aspects such as immigration, capital flows, and technology transfers had more effect on employment and wages, and over-all well-being of labor force. The effects of globalization employment in developing countries are also mixed. In general, protected industries suffered, in competitive sectors employment increased. Countries differ in their management of integration with the world economy, speed and spread of liberalization and technological capabilities. Depending on these factors employment effects showed some variation. In some countries employment increased, however this was not a shift from less productive to more productive sectors. Consequently, these countries did not really benefit from globalization. Compared to earlier migration waves, this period has smaller waves. The sources of migration and destinations have changed. Migrant receiving developed countries, have stricter rules and controls. Current globalization is less friendly to unskilled migrants. So, migration is more in the form of brain drain, where educated and skilled people migrate. This has a negative effect on the migrating country labor force. Growing inequality is one of the developments most associated with globalization. There is not enough evidence on the causality between income distribution and globalization. On the other hand, this wave of globalization was accompanied by somewhat unexpected developments with respect to income distribution and related areas. Firstly, the world witnessed a dramatic decline in poverty. During the last three decades more than one billion people escaped poverty. There is more room for improvement, however this is still a great achievement. While China and Southern Asia took important steps in eradicating poverty, Sub-Saharan Africa is the region where more than 50 percent of the global poor still lives. The main factor in reducing poverty was the economic growth performance of these countries. This brings us to the second development that took place in the recent decades. During 1960s, it was a fact that the gap between advanced and developing countries would never close. However, some developing countries particularly those classified as emerging markets showed a remarkable growth performance. During the last decades, these countries had growth rates on average significantly higher than developed countries. Indeed, this did not close the gap, but these countries’ performance contributed to gap getting smaller. The convergence became a possibility. The inequality between countries got smaller. Again, not all developing countries showed this performance and benefited from the current wave of globalization. The third development is the increasing inequality within countries. According to the Kuznets Cycle economies would have more inequality in initial stages of development and inequality would decline as the economies mature. This was the experience of the developed countries. However, this wave of globalization was accompanied with increasing inequality in both developed and developing countries. In most of the developed countries the incomes of middle income groups stagnated while high income groups, particularly top 1 percent gained a lot. This also contributed to increasing inequality in the global distribution of income. Globally the losers of this process are the middle class in developed countries. The winners are the poor and middle-income groups of some developing countries such as China and top income groups of developed countries. These outcomes are considered as result of trade liberalization, financial deregulation, skill-biased technological change or rent-seeking activities. In line with the changes in the distribution of income the wealth distribution has also changed. The regional and global distribution of wealth show the same picture. The Human Development Index does not just rely on per capita gross domestic product to measure development. It is a more general measure of achievements in three key dimensions of human development: a long and healthy life, access to knowledge and a decent standard of living. It should be stressed that growth or human development is a long-run phenomenon, hence cross-country regressions rather than annual data on a single country may be a better approach. However, with the latter it was possible to see the effects in various countries. Scenarios with KOF indexes 10% higher than historical values are used to make comparisons. Here, results based on Scenario 2 – all KOF indexes (for the world and sample countries) are 10% higher. Results show that human development indexes are higher with higher globalization indexes. Most people in the world are better off in terms of income, health, and education compared with their situation in 1990s.
Globalization, Trade, Productivity and Development
(S & B World Foundation, 2018) Kaytaz, Mehmet; Özmucur, Süleyman; Yürükoğlu, Tanju
Globalization is the integration of economies, industries, markets, cultures and policy-making around the world, as defined by the Financial Times. Initially, globalization referred to international trade - increased interconnectedness of product markets, but gradually expanded to include international capital flows, labor markets and migration, and recently broader areas such as culture, media, sports and entertainment. Economic globalization started to accelerate with trade liberalization and expansion after the World War II and picked up speed in the early 1990s which lasted until about 2007, then slowed down again after the 2008 global financial crisis. It also affected different geographical regions at varying degrees: countries in East Asia and Pacific experienced the most rapid pace while in the Europe and Central Asia the slowest and upper middle-income countries also experienced a rapid pace during the 1970-2015 in contrast to high income countries which had already a higher starting point. Some aspects of globalization evolved so rapidly: mobile telephone subscriptions increased at a stellar speed from 12 per 100 people in 2001 to 105 per 100 people in 2017, individuals using internet from 8 percent of population to 46 percent respectively. The rise of social media and instantaneous global communications have helped rapid expansion of globalization in culture and entertainment. Developments in information technology pushed envelope for financial globalization and developments in maritime transportation such as containerization made larger volumes of goods traded across in short time possible. Globalization and increased international trade are the major forces behind improved competitiveness and productivity, hence growth and development in the case of least developed economies. Although, the benefits of trade are conceptually very clear, and the world is full of positive anecdotes, there are still opposing views and myths regarding international trade. The political economy of trade is the key to understanding these opposing views. It is clear to everyone that it is not necessary for a company in New Jersey to produce the same goods which are produced at a lower cost in Pennsylvania. Once, borders and customs are introduced, as between countries, these very clear results are questioned. International relations and politics start to play a major role after this. Pressure groups find their ways of imposing restrictions on free trade. Results may not be beneficial for most of the people, but just a small number of economically powerful groups. The world has witnessed objections in developing countries to foreign direct investment before 1980s. A cursory look at academic journals or daily newspapers is enough to see the opposition in all circles. The argument was that multinationals from developed countries build factories in developing economies, make large profits, and repatriate these profits to their home countries, without helping much to host countries. On the other side, developed economies were pushing for free trade and free movement of capital. There are large markets with large demand in developing world, but not enough local production. These can be filled by large companies from developed countries. Developed economies slowly moved in that direction of a trade with a smaller number of restrictions. China, a socialist country initiated economic reforms in 1978 and finally become a member of the World Trade Organization in 1998. The collapse of the Soviet Union in 1991 also helped people to give support to marketbased economies and made any free trade argument sound more reasonable. These factors made movement towards a world free trade faster. A country has to be more competitive once its borders are opened to foreign goods. Producers in a closed economy can sell whatever they produce to domestic consumers who do not have much choice. With open borders, consumers have a choices and domestic producers should live up to expectations and deliver those goods. If borders are open to foreign companies, then those companies, which have the technology, can produce those goods at a lower cost because of lower wages. These goods are then exported to developed countries at a lower price, including the country that is the base for the company. All countries can benefit from this trade, but benefits may not be shared equally within a country. Protectionist trade policies were adopted by all the countries at various times. The reason may be to protect the domestic infant industry, or to generate additional government revenue, etc. In general, these policies lead to gains for domestic producers and losses for consumers. Since commodity prices are distorted as a result of these policies, the allocation of resources will ultimately be affected. Reduction in tariffs, especially after 1998, may have played a role in reduction in prices at a global level, and increases in world trade. If a tariff is imposed on a commodity, it may have the effect on the corresponding sector, and more. Higher prices will increase the cost of production in related products. Higher product prices will affect prices in other sectors. Higher prices and lower outputs are the outcomes in all the sectors. If this analysis is extended to other countries, the global economy may end up with higher prices and lower output. Global value chains (GVC) represent the changing nature of trade in the current wave of globalization. The fragmentation of production, vertical specialization and trade in tasks are the main features of this changing nature. The role of GVCs in trade and investment flows have been discussed a lot in academic and policy circles. The policy implications of GVCs are important. The proponents of GVC trade consider GVC as denationalizing comparative advantage, thus countries could industrialize by joining GVCs rather than by building their own. So integration into GVCs has been widely viewed as a strategic pillar for developing countries to become more competitive, to develop the skills and human capital of their labor force, and to acquire technology to industrialize and move into higher value-added production. This may result in escaping from middle-income trap for some countries. There is a lot of speculation and debate whether this is happening. The overall evidence is positive, but the benefits are not automatic. Another benefit of GVC framework is the revisiting trade statistics. Traditional statistics cover only the gross trade. Consequently, it is not possible to see the contribution of trade to national income. Within the GVC framework trade in value added can be estimated and better trade and industrial policies can be formulated. The last wave of globalization witnessed a dramatic increase in capital flows. Financial integration has become a key component of globalization which facilitated larger flows of portfolio investments and financial derivatives in addition to the foreign direct investment and inter-company loans across borders. The attitudes towards foreign direct investment (FDI) has undergone some changes. Outward investment was considered as the cause of job displacement, while the inward flow as replacing the domestic export industries. At certain periods these attitudes were justified and valid. The interaction between domestic governments and transnational corporations (TNCs) changed these attitudes and eliminated some of the concerns. At a different level the relationship between international trade and FDI is an issue of concern. Earlier studies implied that trade and FDI were substitutes. The recent theoretical and empirical studies on the other hand indicated that FDI and trade are complements. Indeed, there are number of factors involved in this process. However, the overall relation is beneficial to all parties. During the recent decades the income inequality has undergone some conflicting changes. Firstly, there has been some convergence between developed and developing countries. This is an unexpected development. This convergence is on average terms; some developing countries like China grew very fast, while some other developing countries lagged. Secondly, another unexpected development was the growing inequality in some developed countries. This happened in the last four decades. It was unexpected because trend after 1930s were more equal distribution of income. Finally, the global distribution of income shows a trend towards more equality. The combination of convergence and large number of people escaping from poverty led to more global equality. As extensive study in this report shows that economic reforms particularly liberalization of trade and capital, introduced in China and India and some other countries opened the formerly closed economies to global competition. These economies have grown uninterruptedly at high rates and hence the mean income increased considerably. The mean levels of income are still far below the average income levels of the middle classes in developed countries of income. However still billions of people escaped from poverty. The relationship between trade and inequality has been a controversial issue. The opponents of globalization blamed globalization and trade for job displacement and increasing inequality particularly in some developed countries. Theoretical and empirical studies indicate that trade in itself is not the cause increasing inequality. There are other political and social variables which determine the distribution of income. Furthermore, the increasing income equality is a serious problem for some countries but not for all. The between countries income equality has decreased and the convergence between advanced and developing economies became a possibility during this period. Global inequality of income as well as poverty decreased. These are the developments possibly outweighing the increasing inequality in some economies. Another important criticism of globalization is the increased risk of contagion of economic crises through interconnected financial and product markets as was seen in the 2008 crisis. As it occurred in the previous global economic crises the protectionist tendencies in the world have increased. With the great recession, flow of goods and services as well as capital decreased; then they tended to increase but not reached the pre-crisis levels. Another important development is the increasing possibility of trade wars and the dissolution of multilateral agreements on trade. As discussed in thisreport, globalization has had positive effects on the world economy whether one looks at increases in per capita incomes, growth, decreases in poverty, and decreases in inflation. The positive effects of globalization on productivity, competitiveness, economic complexity, and human developments are shown in detail in this report. On the other hand, this report demonstrates that, in general, economic equality has deteriorated with globalization. Further research is required to determine whether globalization or technological development is the major contributing factor to increasing inequality within countries.
Impact of COVID-19 on people-processing vs. information-processing services: case of food service and banking industries
(Springer Nature, 2021) Gül, Mısra Çağla; Kaytaz, Mehmet
Although COVID-19 pandemic is a health crisis, it has and will continue to have serious repercussions on business activities and the global economy, as well as a strong societal impact. This chapter focuses on comparing and contrasting the banking services sector and the food service industry in Turkey in relation to how these industries were impacted by and responded to the crisis caused by COVID-19 pandemic. Banking services are information-processing services and the food service business for the most part is people-processing. The distinction is that informationprocessing services can be provided both face-to-face in a high-contact fashion, and online/through the phone in an untact fashion. People-processing services, however, are mostly high-contact services where the person receiving the service must be present when the service is provided (Lovelock in Journal of Marketing 47: 9–20, 1983). Naturally, this distinction creates a difference in the response of these two different types of services to the COVID-19 crisis. This chapter analyzes the economic and social developments during the COVID-19 outbreak in Turkey along with current and expected future action steps by the government and NGOs. Findings suggest that innovative products, market-linking capabilities and investment in digitalization and trust building activities are effective in dealing with the new normal.
The impact of financial development on homeownership and housing in emerging economies evidence from Turkey
(Walter de Gruyter GmbH, 2012-10-31) Yılmazer, Tansel; Adaman, Fikret; Kaytaz, Mehmet
This paper aims to investigate the role of financial development on homeownership and housing in emerging economies. We construct a measure of regional financial development using data from the Survey of Consumer Finances in Turkey. Specifically, we estimate regional effects on the probability that a household does not have access to credit (i.e., are discouraged from applying for credit or their application was denied), and use these estimates to create an indicator of financial development. We find that homeownership increases with financial development in metropolitan areas. Home values, however, increase with financial development in both metropolitan and non-metropolitan areas. Our findings are robust to correction of potential endogeneity of our financial development measure. Our results are also robust to using the variation in the supply of credit across provinces as another measure of financial development.
Industrial Policy in Emerging Markets
(S & B World Foundation, 2021) Kaytaz, Mehmet; Özmucur, Süleyman; Yürükoğlu, Tanju
The literature on industrial policy is large. There is no consensus on the necessity or the success of industrial policy. On the one side there are those who believe that government intervention is necessary for economic growth and development. On the other side there are those who consider that government intervention leads to rent-seeking activities because markets are efficient. The establishment of infant industries, knowledge spillovers and scale economies, coordination failures, informational externalities, support of exports and FDI are the main arguments for industrial policy. A general or traditional definition of industrial policy implies that every country has an industrial policy in one form or another. In the past industrial policy played an important role in the development of current advanced economies. This is true also for the recently industrialized economies. However there are failure stories as well as success ones. The counter argument for the success stories is that the market oriented policies might have produced the same results, if not better. Because no counterfactual data are available, it is not possible to reach the correct conclusions. The failures are seen as the result of governments’ mistakes in identifying the appropriate industries given the endowment structure and development level of the economy. Furthermore industrial policies in the form of import substitution, planning, and state ownership produced some success stories, however when they were not adapted to new conditions and did not undergo any progressive change they failed and led to big economic crises in some cases. The industrial policy experience of the East Asian countries are considered as successful, while the Latin American ones are full of failures. The changes that have been taking place in the global economy together with the establishment of WTO which imposed new restrictions on trade policies and subsidies led to what is called the “new” industrial policies. With the Washington Consensus some economies seemed to abandon industrial policies for a period, however gradually they started to return to some form of industrial policy. The new industrial policies focus more on horizontal policies; and they do not carry much ideological content as the traditional ones. In this study the evaluation of industrial policies are done in two stages. For the first stage Brazil, China, Egypt, India, Iran, South Korea, Turkey, and Vietnam are selected. These are some of the countries where industrial policies were implemented at some periods and/or are being implemented. The first stage evaluations are based on the trend analysis of economic indicators such as GDP growth, human development index, economic structural transformation (shares of major sectors in total value added and total employment), economic complexity index, labor productivity, competitiveness index, share of exports of goods and services in GDP, and globalization index. The results suggest that South Korea and China have more successfully utilized industrial policies to achieve these goals of economic growth and structural transformation than the other countries in the sample. For the second stage of evaluation three countries are selected: South Korea as one of the leading example of employment of industrial policies; Brazil as the representative of Latin American economies; and Vietnam as a latecomer to the scene. These economies are analyzed in more detail. The indicators mentioned in the preceding paragraph are evaluated for each period of distinct industrial policy implementations. Thus, it would be possible to see if there is a correlation between the policies and indicators. The determination of these periods is based on the relevant literature. Furthermore, these periods are determined empirically using least squares with breaks. For some indicators and periods a correspondence between the industrial policy and performance are empirically valid. The same is true for the literature based and empirically determined periods, that is, the empirical results support the literature-based determination of periods. The disadvantage of this method is that it may miss the performance which was a result of policies in an earlier period. During the 1960-1973 period, priorities were exports and key sectors were labor-intensive manufacturers in South Korea. On the other hand, main instruments were import tariff protection, export subsidies, tariff-refunds, and subsidized credit and export targeting. The priorities during the 1973-1980, were heavy and chemical industries, with priority sectors steel, petrochemicals, nonferrous metals, shipbuilding, electronics and machinery and priority firms selected large enterprises. In addition to main instruments used during the earlier period, of policy loans to fund priority sectors and firms, and tax credits as investment incentives were also used as main policy instruments. During the 1980-1990 period priorities moved to high technology exports sectors, and small and medium enterprises. Main instruments used during this period were import liberalization, incentives for research and development, direct lending, and removal of restrictions on foreign investment. From 1990, priorities were private sector-led development, competitiveness in international arena. Main instruments were supporting research and development, open capital account, and financial sector reforms. These four periods are used in this study. Brazil roughly represents the Latin American example of industrial policies. During 1950-1980 Brazil experienced high growth rates, increase in productivity and developed a strong manufacturing base. However, it was not possible to continue with those policies which was instrumental in obtaining those developments. The abandonment of industrial policies provided stability and increased Brazil’s integration to the world economy. On the other hand, the manufacturing base got smaller and productivity increases were negligible. During the recent decades various governments introduced industrial policy measures. However, it is early to see the results of these policies. The case of Brazil also shows that macroeconomic policies, institution building, transparency, good governance constitute the background of industrial policies. If this background is not available then industrial policies may fail. Forty-five years ago, Vietnam was a war-torn, centrally planned and predominantly rural country. Its export earnings could barely finance a third of its imports. For the following ten years, its economy muddled through with a heavy dependence on external aid from the former Soviet Union. In 1986, the Communist Party Congress adopted Doi Moi (Economic Renewal), a transition reform program while reiterating the Marxist-Leninist principles of the state. The principal elements of the program were: rural reform and return to private farming, price liberalization, fiscal and monetary reforms, openness to FDI and regulatory relaxation. The collapse of the former Soviet Union in 1989 halted the external assistance leading to a slowdown in growth. The economy recovered thanks to growth in agriculture and starting flow of external finance from western sources. Low wages and openness helped inflows of FDI to prime the manufacturing sector. Since then, Vietnam’s industrial policies have been broad and comprehensive in design, covering not just manufacturing but a broad range of sectors from agriculture to infrastructure and financial services. Vietnam’s route to become an export oriented industrial economy was quick and effective. Essentially, Vietnam mounted itself on global supply chains taking advantage of its low wages and geographical proximity. Attempts to replicate the Vietnamese version of the Korean chaebols, however, failed when the bureaucrat-run large state enterprises could not compete even with heavy protection. Vietnam’s growth rate averaged 6.5 percent a year between 2000 and 2019 while exports of goods and services grew on average by 16 percent a year in current USD terms during the same period. The share of exports which accounted for 54 percent of GDP in 2000, went up to 106 percent of GDP. The share of high technology exports in manufacturing went up from 8 percent in 2008 to over 40 percent in 2018 and the share of ICT goods exports from 5 percent over a third of the total, respectively. Industrial policy was not only confined to manufacturing. Vietnam managed to become a major producer and exporter of coffee and a net exporter of rice. This impressive record, however, came at a price. The financial system has been stressed because credit demands of large SOEs which has crowded out the private sector, in particular, new entrants. Sustainability of the financial system which needs to provide a level field for private sector, including foreign firms and SOEs, will be critical for the continued growth of the economy. While low wages were an important factor in attracting FDI initially, the education and training system fell short of providing the skills demand, hence resulting in a pressure on wages. There are also serious concerns about increasing corruption with the rapid transition the economy is undergoing. The findings suggest that industrial policies in general are successful in promoting growth and structural transformation. The economic development of South Korea is a good example of well-designed and well-implemented industrial policies. On the other hand, the cases of Brazil and Vietnam show that the policies were instrumental in the establishment of an industrial base and integration with the global economy. However, the government, bureaucracy and entrepreneurs were not able to adapt to the changing conditions, and industrial policies lost their effectiveness. Usually, this situation leads to economic downturn and corruption. Brazil and Vietnam lived through these periods.
İnsani sermayeye kritik yatırım: erken çocukluk eğitimi
(SETA Siyaset, Ekonomi ve Toplum Araştırmaları Vakfı, 2019-07-26) Kaytaz, Mehmet; Öztürk, Naciye
Birey ve toplumun gelişmesinde eğitimin önemi çok eski zamanlardan itibaren bilinmektedir. Ancak erken çocukluk döneminin değeri son yıllarda kavranmaya başlamıştır. Özellikle tıp alanındaki yeni bulgular bu döneme verilen önemin artışında etkili olmuştur. Erken çocukluk embriyo halindeyken başlamakta ve sekiz yaşına kadar devam etmektedir. Bu dönemde en kritik aşama beynin gelişimidir. Başta zihinsel ve fiziksel olmak üzere sosyal, duygusal ve dille alakalı gelişimlerin ana kısımları erken çocukluk döneminde başlamaktadır. Bu nedenle erken çocukluk döneminde yapılan müdahalelerin getirisi yüksek olmaktadır. Yeterince müdahalede bulunulmadığı veya niteliksiz müdahale yapıldığında risk artmakta ve gelecekteki yatırımların da maliyeti bununla beraber yükselmektedir. Çalışmalar bu dönemdeki müdahalelerin –özellikle erken çocukluk eğitiminin– bireysel ve toplumsal getirisinin yüksek olduğunu göstermektedir. Elverişsiz koşullarda yaşayan çocuklara yönelik müdahalelerin bireysel ve toplumsal getirisi çok daha yüksek olmaktadır. Yeterli müdahalede bulunulmadığı zaman ekonomik ve toplumsal eşitsizlik artmaktadır. Sonuç olarak da toplumsal sorunlar büyümektedir. Türkiye son yıllarda erken çocukluk hizmetlerinde önemli adımlar atmıştır. Ancak bunlar yeterli değildir. Türkiye’de okullaşma oranı (3-5 yaş) benzer sosyoekonomik koşullara sahip ülkelere kıyasla düşüktür. Türkiye gibi orta-yüksek gelir grubunda olan ülkelerde okullaşma oranı yüzde 60 civarındayken Türkiye’de bu oran yüzde 40’a yaklaşmıştır. Bu oran dünya ve İktisadi Kalkınma ve İş Birliği Teşkilatı (OECD) ortalamasından düşüktür. Erken çocukluk müdahaleleri insani sermayeye yapılan yatırımdır. Doğal olarak hükümetler ve politika yapıcılar ülkenin gelişimi açısından öncelikler belirlemek zorundadır. Türkiye’nin üyesi olduğu OECD ve Birleşmiş Milletler (BM) gibi kuruluşlar üyelerini bu alanda yatırım yapmaya teşvik etmektedir. Ülkeler kendi ekonomik durumlarına, toplumsal ve siyasi örgütlenmelerine göre değişik finansman modelleri uygulamaktadır. Bununla beraber kamunun payı ve rehberliği önemli bir yer tutmaktadır. 2023 Eğitim Vizyonu’na göre erken çocukluk eğitiminin kapsamını genişletici adımlar atılacaktır. Ancak bunlar Türkiye’nin ana hedeflerine ulaşması için yeterli olmayabilir. Bu nedenle erken çocukluk eğitimi için daha fazla kaynak ayırmak gereklidir.
Technology and Human Development
(S & B World Foundation, 2024) Kaytaz, Mehmet; Özmucur, Süleyman; Yürükoğlu, Tanju
Until the last 250 years of human history the economic growth has been little. It is estimated that before 1750, per capita income in the world doubled every 6,000 years; since then, it has doubled every 50 years. There is a consensus that this growth is mainly due to the increase in productivity through technological progress. Population growth and capital accumulation by themselves cannot account for this level of economic growth. Technological progress, hence economic growth has not been equal across countries and regions, however it dramatically increased per capita incomes on average. Technological development did not just improve the average living standards but created important changes in social, economic, and political life. Historical studies show that technological progress, productivity growth and economic growth did not benefit everybody, at least in the beginning. During the Industrial Revolution productivity increased as well as working hours but the earnings did not increase until the second half o of the 19th century. Furthermore, working conditions deteriorated. The situation that some sections of society suffers with technological progress is not restricted to the Industrial Revolution. For example, increased mechanization may lead to unemployment. One approach to this problem is that technological progress increases living standards at the end and that is the important thing. There may be some casualties along the way, but that is an inevitable price to be paid for future gains. Since the Industrial Revolution there has been opposition to technological progress when it reduces the demand for labor. Historical experience shows that with the advance of technology some tasks were eliminated, however new tasks, new jobs were created. This does not eliminate the suffering of some workers or producers. The negative effects of technological progress are not limited to labor markets. These effects can be eliminated or reduced through economic policies. For example, innovations in medicine are more curative than preventative. Government policies may direct the research in this area to more preventative innovations. Technological progress gives more market power to innovators. With the market power they create barriers to entry, and the market moves towards a monopoly. Only government policies can put a check on the tendency to reduce competition. Technologies can be classified as worker enabling or worker replacing. The former increases the productivity of workers do not replace them. Policy makers can support enabling technologies. Abramovitz and Solow are the two economists who first estimated the direct contribution of technological progress to economic growth though using different approaches. Solow measured total factor productivity (TFP), that is, the portion of output that cannot be attributed to the measured inputs of capital and labor explicitly in a model of economic growth. In the United States the average annual growth rates for the 1947-2022 period were 3.09% for output, 1.77% for labor, 3.89% for capital, and total factor productivity 0.56. However, this model does not explain or rationalize technical progress. Endogenous growth models take technological progress and productivity growth into account. In the recent versions of these models new products make the older ones obsolete; the innovator of the new product has a monopoly power for a period of time which gives incentives for R&D and innovation. The period of 1921-2016 was the one with the highest growth rate in per capita real GDP in England (2.09%), followed by the 1816-1920 period (0.9%), and 1663-1736 (0.5%) and 1737-1815 (0.3%). Estimates suggest that growth in per capita real GDP were higher during 1870-1914 (second Industrial revolution) and 1947-2023 (digital revolution). On the other hand, there is no discernible evidence that the growth in per capita real GDP was higher during 1760-1830 (1st industrial revolution) compared with periods outside of above mentioned three periods. Growth in crop yields (as a measure of productivity in agriculture) for barley, wheat and oats were not significantly different during 1760-1830. There were significant differences in growth rates among countries during the 1820-2018 period. The spread in per capita GDP figures is getting bigger every year. This can easily be seen by the distribution of countries according to GDP per capita in 1820, 1920, 1970 and 2018. These differences among countries were a result of differences in average annual growth rates in GDP, population, and per capita GDP. In the United States, using data on 340 sectors during 1987-2022 period, average annual growth rate in real output was highest in semiconductor and related device manufacturing sector (16.97%), followed by wireless telecommunications carriers (except satellite) (15.93%), and electronic shopping and mail-order houses (13.46%). During the 1987-2022 period, average annual growth rate in labor productivity was highest in semiconductor and related device manufacturing sector (17.48%) among 326 sectors, followed by computer and peripheral xiv equipment manufacturing (12.99%), and wireless telecommunications carriers (except satellite) (12.49%). In fact, top growth rates in labor productivity were observed in sectors related to semiconductors, computers, and other electronics. There is a very close relationship between sectoral labor productivity and real sectoral output. While economic growth is the expansion of the production capacity of an economy and the increase in output, development is the expansion of the capability of people to do things they have reason to value and choose to do. The expansion of capabilities have both direct and indirect effects on development. The expansion of human capabilities indirectly contributes to development by increasing productivity, raising economic growth, broadening development priorities, and bringing demographic changes in a more rational framework. The direct importance of the expansion of human capabilities in the achievement of development is its intrinsic value and its role in human freedom, well-being and quality of life. Technological progress leads to productivity increase which means higher rates of economic growth. This leads to higher income and higher levels of education and a healthier life. In turn, more educated and healthier workers are more productive. Furthermore, higher income leads to more research and development expenditures. Together with a more educated and healthier workforce there is more possibility of innovation and technological progress. Human Development Index (HDI) is a measure of development used widely. It is a summary measure of average achievement in key dimensions of human development: a long and healthy life, being knowledgeable and having a decent standard of living. There are empirical studies covering different countries and time periods indicating a strong relationship between productivity and economic growth and HDI or its components. Our estimates show that A one percent increase in labor productivity measured as GDP per employed leads to an increase of 0.75% of GDP in 175 countries for the period 1992-2022 taking country and time differences into account. If we use total factor productivity as the measure of technological progress, we find that one percent increase in the lagged TFP leads to a 0.5 percent increase in real GDP and a one percent increase in the growth rate of TFP causes a 0.15% increase in the growth rate real GDP. We find that the correlation between HDI and its components is very high, approximately 90%. While the relationship between HDI and education and health seems to be linear, the relationship with income is non-linear. We run various regressions where HDI is the dependent variable, and the past values of its components are regressors. We find that the relationship is significant. The rapid advancements in Artificial Intelligence (AI), 5G, cloud computing, cybersecurity, blockchain, and digital health are driving significant transformations in healthcare, finance, and urban management. These technologies are not just buzzwords but are making processes more efficient, integrated, and are impacting socio-economic factors. However, the progress and challenges in digital development also highlight the existence of the digital divide - the gap between those with access to information communication technology (ICT) and those with limited or no access. While the causality between the digital divide and socio-economic inequality goes both ways, the digital divide has become a significant determinant of income and wealth inequality both within a country and across countries globally. Mobile phone penetration has rapidly increased from 33 percent in 2005 to 110.6 percent in 2023. While 95 percent of the world population lived within mobile phone or broadband coverage, only 67 percent used the internet in 2023. Internet use by individuals skyrocketed from one billion in 2005 to 5.5 billion in 2023, with fixed broadband subscriptions increasing seven-fold and mobile phone subscriptions four times during the same period. The relationship between countries' per capita GNI and individual internet and mobile phone subscriptions is strong. As countries' income levels increase, mobile and internet use saturates the population, and the relationship becomes flat at the higher income levels. Gender inequality in the physical world is reflected in the digital world. The gap between genders from less than a percentage point in high-income countries jumps to 16 percentage points in low-income countries. Several studies show that women, limited by less expensive and sophisticated handsets, use mobile phones and the internet differently - often primarily voice and SMS- than men. The digital age gap, often called the digital divide across different age groups, primarily affects older adults who may not have grown up with current technology or who may not engage with digital tools as frequently as younger generations. This divide has significant implications for social inclusion, access to information, economic opportunities, and even health services, especially as more services move online Infrastructure quality, inclusivity of access, governmental policies, and digital proficiency are identified as major factors influencing the digital divide. Since commercial deployment began in 2019, 5G coverage has increased to 40 percent of the world population in 2023. Distribution, however, remains very uneven. Although mobile broadband deployment has been remarkably rapid, the bulk of the end-use internet traffic is still carried by fixed broadband. In 2022, 95.8 percent of internet traffic was handled by fixed broadband. While mobile internet subscriptions reached 87 per 100 people globally, only about 20 per 100 people had fixed broadband subscriptions in 2023. Fixed broadband is the more expensive service, even considering multiple users are accessing one subscription. In low-income countries, fixed broadband subscriptions can cost as much as 96 percent of per capita GNI as opposed to 7.4 percent for mobile subscriptions at about the same download speeds. In relative terms, fixed and mobile broadband are 25 to 30 times more expensive for people in low-income countries than in high-income countries. An important factor in expanding digital adoption in many countries has been the introduction of e-government to provide government services. While expanding e-government can help to expand and accelerate digital adoption in countries where the ICT infrastructure is in place and affordable, it can also widen the digital divide and exclude people experiencing homelessness, people in poverty, older adults, and those who live in remote areas without broadband access. The digital literacy, defined as essential skills for engaging with digital media, processing information, and retrieving it, is strongly related to the years of schooling - number of years an individual spends in formal education, from primary school to higher education. Schools play a crucial role in laying the groundwork for digital literacy by teaching students basic skills and introducing them to digital tools. Digital literacy encompasses a broad array of Professional computing skills and, like traditional literacy, equips individuals to attain valued outcomes in life, particularly within the contemporary digital economy. Governments, particularly those authoritarian tendencies often employ internet shutdowns and censorship for political control and suppression of information with adverse effects on freedom of expression Frontier technologies refer to innovative and advanced technological developments at the cutting edge of research and development. These technologies can significantly impact and transform various industries and aspects of society. They can disrupt existing industries, create new markets, and drive significant economic and social change. Frontier technologies emerge from the convergence of multiple fields of science and technology led by advances in computing technologies and applications. There is no unique set of frontier technologies. Rapidly developing a broad spectrum of interrelated and interdependent technologies is transforming the world. Advances in one area trigger and spur breakthroughs in others. The Frontier Technology Readiness Index (FTRI) developed by the United Nations Conference on Trade and Development (UNCTAD) measures countries’ readiness in this respect and indicates how prepared countries are to adopt and adapt frontier technologies by combining data on information and communications technologies deployment (ICT), labor skills, research and development (R&D), industrial capacity, and availability of finance. The ICT deployment and skills are the two critical components of the FTRI. There is a strong relationship between per capita GDP and FTRI scores. High-income countries can more effectively integrate advanced technologies into their economies, enhancing competitiveness and creating high-value jobs. Similarly, the Human Development Index (HDI) shows a strong correlation with the FTRI. The impact of frontier technologies—such as artificial intelligence (AI), robotics, biotechnology, and advanced materials—on employment is profound and multifaceted. One of the most immediate impacts is the potential displacement of jobs through automation. Roles that involve routine tasks, whether physical or cognitive, are particularly vulnerable. The demand for high-skilled workers tends to increase with the adoption of frontier technologies, potentially widening the wage gap between highly skilled and less skilled workers. This shift can exacerbate income inequality unless robust educational systems and training programs help workers upskill or reskill.

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