Economic Commission for Europe Geneva
ECONOMIC SURVEY OF EUROPE 2003 No. 2
Prepared by the SECRETARIAT OF THE ECONOMIC COMMISSION FOR EUROPE GENEVA
UNITED NATIONS New York and Geneva, 2003
NOTE The designations employed and the presentation of the material in this publication do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area, or of its authorities, or concerning the delimitation of its frontiers or boundaries.
UNITED NATIONS PUBLICATION Sales No. E.03.II.E.27 ISBN 92-1-116842-2 ISSN 0070-8712 Copyright © United Nations, 2003 All rights reserved Printed at United Nations, Geneva (Switzerland)
iii
CONTENTS Explanatory notes Abbreviations About the main contributors to the Seminar Preface
vii viii x xi
Part One RECENT ECONOMIC DEVELOPMENTS AND THE SHORT-TERM OUTLOOK IN THE ECE REGION
Chapter 1
THE ECE ECONOMIES IN AUTUMN 2003 1.1 The global context
3 3
1.2
Western Europe
11
1.3
Eastern Europe
17
1.4 1.5
The The (i) (ii)
28 35 35 36
CIS short-term economic outlook Western Europe and North America Eastern Europe and the CIS
Part Two SUSTAINABLE DEVELOPMENT IN THE ECE REGION Papers from the ECE Spring Seminar, March 2003
INTRODUCTION AND SUMMAR Y OF DISCUSSION by the Economic Analysis Division, UNECE Chapter 2
41
ECONOMIC GROWTH AND THE ENVIRONMENT Theodore Panayotou
45
2.1
Introduction
45
2.2
Empirical models of environment and growth
47
2.3
Theoretical underpinnings of empirical models
47
2.4 2.5 2.6
The basic environmental Kuznets curve Decomposition of the income-environment relationship International trade
49 51 53
2.7
Thresholds, irreversibility and the quest for sustainability
54
2.8
Political economy and policy
56
2.9
The ECE region
57
IV
Page
2.10 The state of growth and environment in the region
59
2.11 Policy response
59
2.12 Conclusion
60
Annex
62
Discussants' comments
Chapter 3
2.A
Richard Herd
68
2.B
Tomasz Zylicz
70
2.C
Kaj Barlund
71
SECTORAL DIMENSIONS OF SUSTAINABLE DEVELOPMENT: ENERGY AND TRANSPORT David M. Newbery
73
3.1
Introduction
73
3.2
The evolution of energy policy
74
3.3
Sustainable development
75
3.4
Energy use and growth
77
3.5
Sectoral energy use
79
3.6
The effect of price on energy use
80
3.7
Policy to increase the efficiency of energy use (i) Carbon dioxide emissions (ii) Emissions of other pollutants (iii) Particulates (iv) Sulphur dioxide (v) Nitrogen oxides
81 81 82 82 83 84
3.8
Designing efficient energy pollution policies
85
3.9
The current pattern of energy taxes and subsidies
86
3.10 Explaining current fuel taxes
89
3.11 Designing an efficient set of fuel taxes (i) Sulphur taxes and sulphur trading (ii) Particulates (iii) Nitrogen oxides
90 91 91 92
3.12 Taxing transport fuels
92
3.13 Concluding remarks
93
Discussants' comments 3.A
Inge Mayeres
94
3.B
Thomas Johansson
96
3.C
George Kowalski
97
3.D
Jose Capel Ferrer
97
Part Three STATISTICAL
STATISTICAL APPENDIX
APPENDIX
101
V
LIST OF TABLES Table
Page
1.1.1
Changes in United States real GDP and main expenditure items, 2002QI-2003QII
4
1.2.1 1.2.2
Changes in real GDP in major economies, 2002QI-2003QII Changes in euro area real GDP and main expenditure items, 2002QI-2003QII
11 12
1.3.1 1.3.2 1.3.3 1.3.4 1.3.5 1.3.6 1.3.7
Changes in real GDP in eastern Europe, 2001-2004 Major demand components of GDP in selected east European economies, 2002-2003 Volume of retail trade in eastern Europe, 2002-2003 Consumer prices, industrial producer prices and labour costs in industry in eastern Europe, 2002-2003 Registered and labour force survey unemployment in eastern Europe, 2002-2003 International trade and external balances of the east European economies, 2001-2003 Foreign trade of eastern Europe by direction, 2001-2003
17 18 20 22 23 24 27
1.4.1 1.4.2 1.4.3 1.4.4 1.4.5 1.4.6 1.4.7
Changes in real GDP in the CIS, 2001-2004 Major demand components of GDP in selected CIS economies, 2002-2003 Volume of retail trade in the CIS, 2002-2003 Consumer prices, industrial producer prices and labour costs in industry in selected CIS economies, 2002-2003 Registered and labour force survey unemployment in selected CIS economies, 2002-2003 International trade and external balances of the east CIS economies, 2001-2003 CIS countries' trade with CIS and non-CIS countries, 2001-2003
28 30 31 32 32 33 34
1.5.1
Changes in real GDP in the developed market economies, 2002-2004
35
2.7.1
Sustainable growth rates using income levels of 1990
56
3.5.1 3.5.2
Index of industrial energy intensity, 1971-2000 Energy intensity relative to average EU energy intensity, 1972-1999
79 80
3.A.I 3.A.2
Marginal external costs of car use in Brussels, 2005 The welfare effect of transport policy reforms, 2005
95 95
A.1 A.2 A.3 A.4 A.5 A.6 A.7 A.8 A.9 A. 10 A.1 1
Real GDP in western Europe, North America and Japan, 1988-2002 Real private consumption expenditure in western Europe, North America and Japan, 1988-2002 Real general government consumption expenditure in western Europe, North America and Japan, 1988-2002 Real gross domestic fixed capital formation in western Europe, North America and Japan, 1988-2002 Real total domestic expenditures in western Europe, North America and Japan, 1988-2002 Real exports of goods and services in western Europe, North America and Japan, 1988-2002 Real imports of goods and services in western Europe, North America and Japan, 1988-2002 Industrial output in western Europe, North America and Japan, 1988-2002 Total employment in western Europe, North America and Japan, 1988-2002 Standardized unemployment rates in western Europe, North America and Japan, 1988-2002 Consumer prices in western Europe, North America and Japan, 1988-2002
101 102 103 104 105 106 107 108 109 110 111
B.1 B.2 B.3 B.4 B.5 B.6 B.7 B.8 B.9 B.10 B.1l B.12 B.13 B.14 B.15 B.16 B.17
Real GDP/NMP in eastern Europe and the CIS, 1980, 1989-2002 Real total consumption expenditure in eastern Europe and the CIS, 1980, 1989-2002 Real gross fixed capital formation in eastern Europe and the CIS, 1980, 1989-2002 Real gross industrial output in eastern Europe and the CIS, 1980, 1989-2002 Total employment in eastern Europe and the CIS, 1980, 1988-2002 Employment in industry in eastern Europe and the CIS, 1990-2002 Registered unemployment in eastern Europe and the CIS, 1990-2002 Consumer price indices in eastern Europe and the CIS, 1990-2002 Producer price indices in eastern Europe and the CIS, 1990-2002 Nominal gross wages in industry in eastern Europe and the CIS, 1990-2002 Merchandise exports of eastern Europe and the CIS, 1992-2002 Merchandise imports of eastern Europe and the CIS, 1992-2002 Balance of merchandise trade of eastern Europe and the CIS, 1992-2002 Merchandise trade of eastern Europe and the Russian Federation, by direction, 1980, 1990-2002 Exchange rates of eastern Europe and the CIS, 1980, 1991-2002 Current account balances of eastern Europe and the CIS, 1990-2002 Inflows of foreign direct investment in eastern Europe and the CIS, 1990-2002
112 113 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127
vi
LIST OF CHARTS Chart
Page
1.1.1 1.1.2 1.1.3 1.1.4 1.1.5 1.1.6 1.1.7 1.1.8 1.1.9 1.1.10 1.1.11 1.1.12
Quarterly changes in real GDP and major expenditure items in the United States, 2000QI-2003QII Monthly unemployment rate and non-farm employment in the United States, January 2000-September 2003 Nominal short-term and long-term interest rates in selected industrialized countries, January 1999-September 2003 Consumer confidence index and volume of retail sales in the United States, January 2000-August 2003 Surveys of business activity in the United States, January 1999-September 2003 Monthly output and capacity utilization in manufacturing industry in the United States, January 2000-August 2003 Monthly housing starts and mortgage interest rates in the United States, January 2000-August 2003 World non-energy commodity prices, January 2000-August 2003 Crude petroleum prices, January 2002-September 2003 Bilateral exchange rates between the dollar, the euro and the yen, January 2000-September 2003 Real effective exchange rates, January 1999-September 2003 International share prices, January 1999-September 2003
4 4 5 6 6 7 7 8 9 10 10 11
1.2.1 1.2.2 1.2.3 1.2.4 1.2.5 1.2.6 1.2.7
Quarterly changes in real GDP in the developed market economies, 2000QI-2003QII Quarterly changes in real GDP and major expenditure items in the euro area, 2000QI-2003QII Business and consumer confidence in the euro area, January 2000-September 2003 Industrial orders in the euro area, January 2000-September 2003 Surveys on business activity in the euro area, January 1999-September 2003 Consumer prices in the euro area, January 2001-August 2003 Employment and unemployment in the euro area, 1999QI-2003QI
12 13 13 14 14 15 15
1.3.1 1.3.2
Quarterly changes in real GDP and industrial output in eastern Europe, 2000QI-2003QII Merchandise trade flows and balances in selected east European economies and Russia, 2001QI-2003QII
19 25
1.4.1
Quarterly changes in real GDP and industrial output in the CIS, 2000QI-2003QII
29
2.1.1
The environmental Kuznets curve: a development-environment relationship
46
2.5.1
Decomposition of income effects on the environment
53
2.7.1
The income-environment relationship under different policy and institutional scenarios
55
2.9.1 2.9.2
Positioning the ECE developed market economies on the environmental Kuznets curve Decoupling (A) and recoupling (B) of environment and growth in transition and developed economies respectively
58 58
3.4.1 3.4.2 3.4.3 3.4.4
Energy use in relation to real GDP, 1972-1999 Energy use in relation to real GDP at purchasing power parity, 1960-1999 Energy use per head in relation to real GDP per head, 1972-1999 Energy use per head in relation to real GDP per head at purchasing power parity, 1960-1999
77 78 78 78
3.6.1
Cross-section relation between average energy intensity and average energy price, 1993-1999
81
3.7.1 3.7.2
Carbon dioxide content per tonne of oil equivalent, 1960-1999 Emission of particulates in the United Kingdom, 1970-2000
82 83
3.8.1
The benefits of emissions trading
86
3.9.1 3.9.2 3.9.3 3.9.4
Average mineral oil tax rates, 1997 Tax rates on industrial fuels in the EU, excluding VAT, 1997 Effective tax rates on domestic fuel in the EU, net of standard VAT, 1997 Road fuel taxes in the EU, 2001
87 87 88 89
_vii
EXPLANATORY NOTES The following symbols have been used throughout this Survey: .. = not available or not pertinent -
= nil or negligible
* = estimate by the secretariat of the Economic Commission for Europe = break in series In referring to a combination of years, the use of an oblique stroke (e.g. 1998/99) signifies a 12-month period (say, from 1 July 1998 to 30 June 1999). The use of a hyphen (e.g. 1999-2001) normally signifies either an average of, or a total for, the full period of calendar years covered (including the end-years indicated). Unless the contrary is stated, the standard unit of weight used throughout is the metric ton. The definition of "billion" used throughout is a thousand million. The definition of "trillion" used throughout is a thousand billion. Minor discrepancies in totals and percentages are due to rounding. References to dollars ($) are to United States dollars unless otherwise specified. The membership of the United Nations Economic Commission for Europe (UNECE) consists of all the states of western Europe, eastern Europe, the Commonwealth of Independent States (CIS), North America and Israel. For the convenience in presentation, the countries of eastern Europe and the CIS are sometimes grouped into subregions based on geographical proximity. For historic reasons, the group of countries denoted as Eastern Europe refers to the former centrally planned economies (and their successor states) in this part of the ECE region and comprises the following subregions: •
Baltic states (BS-3): Estonia, Latvia and Lithuania;
•
Central Europe (CE-5): Czech Republic, Hungary, Poland, Slovakia and Slovenia;
•
South-east Europe (SEE-7): Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Romania, Serbia and Montenegro and The former Yugoslav Republic of Macedonia.
The Commonwealth of Independent States comprises the Russian Federation and the following subregions: •
Caucasian CIS (CCIS-3): Armenia, Azerbaijan and Georgia;
•
Central Asian CIS (CACIS-5): Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan;
•
European CIS, excluding Russia (ECIS-3): Belarus, Republic of Moldova and Ukraine.
Vlll
ABBREVIATIONS CAFE CCGT CEEC CFC CHP c.i.f. CIS CMEA CNG CO CO2 COMECON CPI DIW EBRD ECB ECE ECLAC EIU EKC EMEP ESA EU FDI FOMC G-7 GDP GDR GEMS GHG gm HFO HICP HWWA ICT IEA IED IIF ILO IMF IPC ISM kg
corporate average fuel economy combined cycle gas turbine central and east European countries chlorofluorcarbons combined heat and power cost, insurance and freight Commonwealth of Independent States (former) Council for Mutual Economic Assistance compressed natural gas carbon monoxide carbon dioxide Council for Mutuel Economic Assistance consumer price index Deutsches Institut fur Wirtschaftsforschung (German Institute for Economic Research) European Bank for Reconstruction and Development European Central Bank Economic Commission for Europe Economic Commission for Latin America and the Caribbean Economist Intelligence Unit environmental Kuznets curve European Monitoring and Evaluation Programme European System of Accounts European Union foreign direct investment Federal Open Market Committee Group of Seven gross domestic product (former) German Democratic Republic Global Environmental Monitoring System greenhouse gas gram heavy fuel oil Harmonized Index of Consumer Prices Hamburgischen Welt-Wirtschafts-Archiv (Hamburg Institute of International Economics) information and communications technology International Energy Agency indicators of environmental degradation Institute of International Finance, Inc. International Labour Office International Monetary Fund income per capita Institute for Supply Management kilogram
IX
km kt ktoe kWh LCP LFO LFS LPG LRMC LRTAP MC MPC MWh NAFTA NBER NMP NOX NO2 OECD OPEC OPT PM10 PPP PSE QALY R&D RD&D RGDP RPIX SAAR SARS SO2 SPM tC toe TPES UNECE USSR VAT VKT VOC
kilometre kiloton thousands of tonnes of oil equivalent kilowatt-hour large combustion plant light fuel oil labour force survey liquid petroleum gas long-run marginal cost Long-range Transboundary Air Pollution marginal cost Monetary Policy Committee megawatt-hour North American Free Trade Agreement National Bureau of Economic Research net material product nitrogen oxides nitrogen dioxide Organisation for Economic Co-operation and Development Organization of the Petroleum Exporting Countries outward processing trade particles of less than 10 microns purchasing power parity producer subsidy equivalent quality adjusted life year research and development research, design and development real gross domestic product retail price index excluding mortgage interest payments seasonally adjusted annual rates Severe Acute Respiratory Syndrome sulphur dioxide suspended particulate matter tonnes of carbon tonnes of oil equivalent total primary energy supply United Nations Economic Commission for Europe (former) Union of Soviet Socialist Republics value added tax vehicle kilometres travelled volatile organic compounds
x.
ABOUT THE MAIN CONTRIBUTORS TO THE S E M I N A R •
Kaj Barlund, Environment and Human Settlements Division, ECE
•
Jose Capel Ferrer, Transport Division, ECE
•
Richard Herd, Economics Department, OECD
•
Thomas Johansson, International Institute for Industrial Environmental Economies (IIIEE), University of Lund
•
George Kowalski, Industrial Restructuring, Energy and Enterprise Development Division, ECE
•
Inge Mayeres, Catholic University, Leuven
•
David M. Newbery, Department of Applied Economics, Cambridge University
•
Theodore Panayotou, Harvard University and Cyprus International Institute of Management
•
Tomasz Zylicz, Warsaw University
XI
PREFACE The present Survey is the fifty-sixth in a series of annual reports prepared by the secretariat of the United Nations Economic Commission for Europe to serve the needs of the Commission and of the United Nations in reporting on and analysing world economic conditions. Until 1997 the Economic Survey of Europe was issued once a year as was the Economic Bulletin for Europe, the secretariat's second publication which focused on trade and payments issues. At its 52nd Session, in April 1997, the Commission decided to replace these two publications with an annual Survey of several issues. In 1998 and 1999 there were three issues each year. There are now two issues a year published in April and November. The Survey is published on the sole responsibility of the Executive Secretary of ECE and the views expressed in it should not be attributed to the Commission or to its participating governments. The analysis in this issue is based on data and information available to the secretariat in early October 2003.
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PART ONE RECENT ECONOMIC DEVELOPMENTS AND THE SHORT-TERM OUTLOOK IN THE ECE REGION
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3
CHAPTER 1 THE ECE ECONOMIES IN A UTUMN 2003
1.1 The global context Improved expectations for a global cyclical recovery but with regional differences There are widespread hopes for a strengthening of global economic activity in the second half of 2003 and its continuation in 2004. These hopes reflect to a large degree improved forward-looking business surveys as well as profit expectations in international equity markets, which have rallied after the end of the Iraq war. However, this optimism about the shortterm outlook contrasts with a weaker assessment, in the same business and consumer surveys, of the current economic situation, and the volatility of many "real activity" indicators, which points to only a rather hesitant recovery. There were marked regional variations in economic growth in the first half of 2003. Hopes for a global recovery continued to be pinned on a strengthening cyclical momentum in the United States, which would thus continue to be the engine of growth for the world economy. Indeed, economic activity picked up in the United States in the second quarter of 2003, albeit strongly influenced by special factors. There was also a surprisingly strong rebound of economic growth in Japan and growth was also strong in the Asian emerging markets. In contrast, economic activity in western Europe stagnated in the first two quarters of 2003, with a number of countries in recession. But in central and eastern Europe and the CIS, growth has remained buoyant despite the deteriorating external economic environment. In fact, growth was particularly dynamic in the Baltic States and the CIS. Hopes for a strengthening of global economic activity are largely based on a considerable monetary policy stimulus in the industrialized countries, with interest rates falling to 40 year lows. Fiscal policy has also been supporting economic activity in the United States and the United Kingdom, but in the euro area it has been somewhat restrictive, despite the protracted cyclical downturn. Global uncertainties have been reduced somewhat by the rapid ending of the Iraq war, but the outlook is still surrounded by significant downside
risks (see section 1.5 below). Global economic activity continues to be restrained by the ongoing adjustment in the private sector to the collapse of international equity markets in the first half of 2000; by the consequences of previous overinvestment, which has led to significant margins of excess capacity, notably in the high-tech sector; and by the accumulation of high levels of debt in the corporate and household sectors. Progress in adjusting corporate balance sheets has been uneven, with western Europe lagging behind the United States. Household debt remains at high levels, especially in the United States. Although earlier concerns about the risks of a global deflationary spiral appear to have abated, there are still concerns that adverse shocks could lead to deflation in Germany and the United States. A persistent source of uncertainty arises from the large and rising United States current account deficit. Oil prices have fallen from their levels in the spring, but they still remained relatively high throughout most of the second and third quarters of 2003. The attempt by OPEC to counter the recent downward pressure on oil prices by reducing production targets could, if successful, weaken the global cyclical recovery, at least in the short run. United States: economic performance improves - but doubts about recovery remain Economic activity gathered momentum in the second quarter of 2003 (table 1.1.1) when real GDP rose by 0.8 per cent compared with 0.4 per cent in the first quarter of 2003.1 The acceleration was driven mainly by increases in personal consumption expenditures, supported by a decline in the household savings rate by 0.3 percentage points to 3.3 per cent, the lowest since the final quarter of 2001. The other main support of economic growth was a surge in defence spending, related to the war in Iraq. Business fixed investment (equipment and software as well as buildings) more than reversed the declines of the first quarter, reflecting easier financing conditions in equity
In terms of seasonally adjusted annual rates (SAAR) reported by the United States Department of Commerce, this is equivalent to an acceleration in GDP growth from 1.4 per cent to 3.3 per cent.
Economic Survey of Europe, 2003 No. 2
4
TABLE 1.1.1
CHART 1.1.1
Changes in United States real GDP and main expenditure items, 2002QI-2003QII (Percentage change over previous quarter, seasonally adjusted)
Quarterly changes in real GDP and major expenditure items in the United States, 2000QI-2003QII (Percentage change over previous quarter, seasonally adjusted at annualized rate)
Private consumption Government consumption Gross fixed investment Stockbuilding a Total domestic demand Exports Imports Net exports a GDP
2002 Qlll
QIV
Ql
Qll
0.4
1.0
0.4
0.5
0.9
0.9
1.4 0.9
0.2
-0.6
0.7 0.1
-0.1
2.1 1.6
0.7
0.3
0.1
0.1
-0.2
-0.2
1.4 0.9
0.6 3.4
1.0 1.1
0.7
0.1
0.8 1.0
Ql
Qll
0.8 1.0 0.4
2.1
5.1
-0.2
-0.3
1.2
0.3
2003
-1.5
1.8 -0.4
0.3
-0.3 -1.6
0.2 0.4
1.0 -0.3
1.9 -0.3
0.8
Source: Bureau of Economic Analysis, United States Department of Commerce. a
Growth contribution in percentage points.
markets and increased profits. Residential investment continued to be stimulated by low mortgage rates and rising house prices. But changes in inventories were a drag on economic activity in the second quarter (chart 1.1.1). As a result, total domestic demand expanded by 1 per cent between the first and second quarters, corresponding to a seasonally adjusted annual rate of somewhat more than 4 per cent. The dynamism of domestic demand was also reflected in a large increase in imports. In contrast, the volume of exports fell for the third consecutive quarter, despite the depreciation of the dollar, reflecting the protracted cyclical weakness in major trading partners. Overall, the change in real net exports in the second quarter had a negative impact on GDP growth. The trade deficit (goods and services) rose to a seasonally adjusted annual rate of $502 billion. The current account deficit for the first half of 2003 corresponded to 5.2 per cent of GDP, compared with an annual average of 4.6 percent in 2002.
Source: United States Department of Commerce. A/ofe: Real net exports and changes in Stockbuilding are expressed as percentage point contributions to real GDP growth.
CHART 1.1.2 Monthly unemployment rate and non-farm employment in the United States, January 2000-September 2003 (Percent, thousand persons)
Despite stronger economic growth, the situation in the labour market has remained depressed. The unemployment rate was 6.1 per cent in September 2003, slightly down from its recent peak of 6.4 per cent in June 2003, a level not seen since the second quarter of 1994. Non-farm payroll employment continued to decline in August for the seventh consecutive month but edged up slightly in September (chart 1.1.2). Partly as a result of job cuts, labour productivity grew strongly by 1.8 per cent in the second quarter in the business sector, and more than offset the rise in hourly compensation, leading to a decline in unit labour costs.
Source: Bureau of Labor Statistics [www.bls.gov]. Note: Unemployment is measured in per cent of the civilian labour force aged 16 and above; non-farm employment is payroll employment (establishment data).
Inflationary pressures have remained absent so far, reflecting falling unit labour costs and the weak pricing power of firms. The headline inflation rate averaged 2.4 per cent (year-on-year) during the first eight months of
2003, while the core rate (which excludes food and energy prices) fell significantly, to 1.2 per cent, over the same period.
5
The ECE Economies in Autumn 2003
CHART 1.1.3 Nominal short-term and long-term interest rates in selected industrialized countries, January 1999-September 2003 (Per cent per annum)
Source: OECD, Main Economic Indicators (Paris); European Central Bank [www.ecb.int]; United States Federal Reserve Board [www.federalreserve.gov]. Note: Short-term rates: three-month interbank rates; long-term rates: yields on 10-year government bonds (average monthly values).
to a surplus of 0.6 per cent of potential GDP in 2000.3 The medium-term fiscal outlook has thus worsened considerably and has led to calls for a strategy to redress the situation.
The risk of deflation2 remains a major concern of monetary policy. In mid-September the Federal Open Market Committee (FOMC) left the target for the federal funds rate unchanged at 1 per cent. As a result, real short-term interest rates have so far been negative throughout 2003. However, long-term interest rates (yields on 10-year treasury bonds) have risen by 1 percentage point to an average of 4.4 per cent in September 2003, compared with their recent low in June, suggesting that deflationary expectations of bond investors may be on the wane and pointing to a shift in expectations of a tightening of monetary policy in 2004 (chart 1.1.3). Corporate bond yields followed the same tendency as yields on treasury bills. Fiscal policy continues to be highly expansionary. For the first 11 months of fiscal 2003, the federal government deficit was double that in fiscal 2002. This reflected the combined impact of lower revenues and higher spending, and was related not only to the automatic stabilizers but also to the tax cuts enacted in 200land 2003, increased outlays on defence and homeland security, and legislation that temporarily increases the share of the federal government in social security spending. The general government budget deficit is projected to reach 6 per cent of GDP, a marked swing from a surplus of 1.2 per cent in 2000. The bulk of this change in the fiscal balance is structural in nature. The cyclically adjusted budget deficit will rise to some 5 per cent in 2003, compared
Short-term economic indicators paint a mixed picture of the current state of the United States economy. Consumer confidence has recovered from its low during the Iraq war in March, but has actually declined slightly since the end of hostilities was announced in May, probably as a result of the persistently weak state of the labour market (chart 1.1.4). The Conference Board's composite leading indicator edged up significantly between March and August 2003, but the underlying tendency of industrial production is still rather sluggish, despite the ISM Purchasing Managers' Index moving back above the 50 per cent threshold which usually signals expanding manufacturing activity. The improvement of business activity in the non-manufacturing sector is more pronounced (chart 1.1.5). Margins of spare capacity in the manufacturing sector are still very large (chart 1.1.6). Demand for housing is still very strong. New residential sales continued to expand in August despite rising interest rates and although sales of existing single-family homes fell slightly in June they remained close to record levels. Housing starts reached a new all-time high in July but fell slightly in August 2003 (chart 1.1.7).
Or rather, in the words of the FOMC, "the risk of inflation becoming undesirably low". Federal Reserve Board, Press Release, 16 September 2003 [www.federalreserve.gov].
MF, World Economic Outlook (Washington, D.C.), September 2003, p. 13, table 1.5 [www.imf.org].
6
_Economic Survey of Europe, 2003 No. 2
CHART 1.1.4 Consumer confidence index and volume of retail sales in the United States, January 2000-August 2003 (Indices)
Source: United States Department of Commerce; Federal Reserve Bank of St. Louis [www.research.stlouisfed.org]; UNECE secretariat calculations. Note: Retail sales are deflated by the consumer price index for urban areas. CHART 1.1.5 Surveys of business activity in the United States, January 1999September 2003 (Percent)
Source: Institute for Supply Management (Arizona) [www.ism.ws]. Note: An index value above (below) 50 indicates that the sector is generally expanding (contracting). The Canadian economy slows down
In Canada, real GDP fell by 0.1 per cent in the second quarter of 2003 following relatively robust growth of 0.6 per cent in the previous quarter. The weakening reflected the combined impact of the
considerable appreciation of the Canadian dollar against the United States dollar, the SARS disease and export restrictions on Canadian cattle and beef resulting from the discovery of mad cow disease. The economic slowdown and the sizeable currency appreciation led to consumer price inflation slowing markedly, to an annual 2 per cent in August, its lowest rate in over a year. Core inflation fell below the 2 per cent mid-point of the Bank of Canada's target range. The labour market softened significantly, with the unemployment rate climbing to 8 per cent in August, and employment falling slightly. The weakening economy, and the concomitant decline of inflation, together with the appreciation of the exchange rate, prompted the Bank of Canada to cut its overnight interest rate by 50 basis points in the third quarter. This fully reversed an equivalent increase of this key rate in the first four months of 2003, when there were still concerns about inflation being above the bank's target range and expectations that the economy would continue to expand strongly, with attendant risks of overheating. Japan on the road to recovery? In Japan, there was a surprisingly strong acceleration in the rate of economic expansion in the second quarter of 2003, when real GDP rose by 1 per cent compared with an increase of 0.6 per cent in the preceding quarter. This has nourished hopes for a sustained economic recovery, but it is known from past experience that Japanese national accounts statistics can be subject to major revisions, hi fact, there are indications that the growth figure for the second quarter may be significantly overstated.4 The available data point to a recovery in domestic demand, reflecting mainly a significant strengthening of private sector fixed capital formation, driven by improved corporate profits. Private consumption continues to be weak in the face of uncertain job prospects. Changes in real net exports supported economic activity in the second quarter, reflecting a rise in exports and falling imports. Deflationary tendencies, however, persist. There was a slowdown in the rate of decline of consumer prices during the first eight months of 2003, but this was partly due to special factors such as a rise in the tobacco tax and the higher costs of health care resulting from a reform of the insurance system. The recent rise in world oil prices has also played a role. Monetary policy remains very expansionary. As a result of ample liquidity provided by the Bank of Japan, the overnight call rate has remained at virtually zero. The same holds for three-month short-term interest rates "Japan scales back growth figures", Financial Times (London), 20/21 September 2003.
The ECE Economies in Autumn 2003
CHART 1.1.6 Monthly output and capacity utilization in manufacturing industry in the United States, January 2000-August 2003 (Indices, percent)
7
intervened in the foreign exchange markets to prevent the yen from appreciating against the dollar (see chart 1.1.10 below). Varying growth rates in emerging markets Private capital flows to emerging markets and other developing countries in 2003 started to recover from a severe downturn in 2001-2002. The latter - the most acute retrenchment in private capital flows since the 1960s - had resulted in net outflows from developing countries during those two years.5 In 2003 private capital flows to the major emerging markets are forecast to rise to $129 billion. Although higher than the previous year's $110 billion, this is still $50 billion lower than the previous 10 years' average.6 Most of the increase will go to Latin America and will be in the form of bonds and portfolio investment. Net inward FDI will fall marginally but will remain the largest component of the foreign capital inflow into emerging markets.
Source: Federal Reserve Board [www.federalreserve.gov]. Note: Data are seasonally adjusted. CHART 1.1.7 Monthly housing starts and mortgage interest rates in the United States, January 2000-August 2003 (Thousand units, per cent)
Source: United States Census Bureau [www.census.gov]. Note: Housing starts are in thousand units, seasonally adjusted. Mortgage rates are average monthly primary market rates on conventional 30-year mortgages, not seasonally adjusted.
(chart 1.1.3). The central bank also began purchasing asset-backed securities in a move to support the credit channel of monetary transmission and to alleviate the credit crunch caused by the persistent weakness of balance sheets in the commercial banking sector. The authorities have also repeatedly and strongly
Growth in developing Asia was resilient during the first half of 2003, although it slowed down from the previous year due to the weaker global environment and the outbreak of the SARS (Severe Acute Respiratory Syndrome) epidemic. The negative impact of the epidemic was mostly concentrated in the second quarter. Another factor limiting growth in developing Asia in early 2003 was sluggish import demand in industrialized countries. Economic activity, nevertheless, was underpinned by robust domestic demand and by intraregional trade in east and south-east Asia. Household consumption has started playing a stronger role in supporting economic growth in countries such as China, Indonesia, Malaysia and Thailand, based on strong labour markets, rising consumer credit and low interest rates. Most countries in the region have been adopting expansionary macroeconomic policies. Exports have also contributed to growth, as intraregional trade strengthens. It is boosted by deeper regional integration of production networks and by the rising importance of China as an export market. Economic activity in developing Asia is expected to strengthen during the second half of 2003 and the region should grow by nearly 6 per cent in 2003 as a whole (slightly below the 6.2 per cent rate of the previous year), led by the two largest economies, China
3 World Bank, Global Development Finance 2003 (Washington, D.C.), 2003 [www.worldbank.org]. These overall developments hide stark regional contrasts: private capital flows to east Asia rose strongly, moderately to central Europe, but fell sharply in Latin America and Turkey, the economies most dependent on foreign capital inflows.
Institute of International Finance, Capital Flows to Emerging Market Economies (New York), May 2003 [www.iif.com].
_ Economic Survey of Europe, 2003 No. 2
8.
and India, which are forecast to expand by some 7.5 per cent and nearly 6 per cent, respectively.7 It should thus remain the fastest growing region in the world. Latin America remains strongly dependent on developments in the international economic environment, which has not been very supportive in 2003. The annual rate of economic growth of the region is forecast to be weak in 2003 (1.5 per cent), although this represents an improvement from the previous year's contraction by 0.6 per cent.8 Domestic demand is weak in most countries, a reflection of the lingering effects of the previous two years' crises on domestic labour markets and structural reforms in public finances in most countries, which in the short term limit the room for manoeuvre of fiscal policy. More competitive exchange rates have contributed to a strong growth in exports in 2003, particularly in South America. With imports compressed due to weak domestic demand, current account deficits have been falling. The improvement in external and fiscal accounts has led to falling international financing spreads for the region. The two largest economies Mexico and Brazil - should grow by 1.5 per cent in 2003, only marginally better than the previous year's performance. In the former country, growth forces have been restrained by a loss of competitiveness in the United States market on account of the appreciation of the peso against the dollar. In Brazil, restrictive macroeconomic policies have dampened economic growth. Argentina is forecast to have the strongest growth rate in the region (6 per cent), following four years of contraction, but it still has to renegotiate its debt to foreign private creditors. Non-energy commodity prices continue rising Non-energy commodity prices rose moderately during the first three quarters of 2003, following a strong recovery from their cyclical trough in late 2001 (chart 1.1.8). This aggregate, however, masks differences among the major product groups. Prices of industrial raw materials continued the recovery that had started in the last quarter of 2001, buoyed by expectations of a worldwide recovery leading to higher industrial production. They were also supported by the arrival in commodity markets of international investors seeking to diversify their portfolios9 and the depreciation of the dollar. In August 2003, the current dollar prices of metals and agricultural raw materials were 15 per cent
7
IMF, World Economic Outlook (Washington, D.C.), September
2003. 8 ECLAC, Economic Survey of Latin America, (Santiago), September 2003 [www.eclac.org]. 9
CHART 1.1.8
World non-energy commodity prices, January 2000-August 2003 (Indices, 2000=100)
Source: Hamburg Institute of International Economics (HWWA). Wofe: Indices calculated on the basis of current dollar prices. Commodity weighting according to the share of these products in imports of industrialized countries in 1999-2001.
higher than 12 months earlier. In contrast, food products in 2003 resumed their long-term decline after they had risen in the wake of temporary supply disruptions during the second half of 2002. Oil prices remain high
Crude oil prices remained relatively high during the first three quarters of 2003. On average they were some 18 per cent higher than in the same period of 2002 and reached their highest level in three years. Between January and September 2003 oil prices were erratic (chart 1.1.9). The spot price of Brent crude fell abruptly from $35/barrel to $23/barrel in the two months up to the end of the war in Iraq, as OPEC promised to maintain oil supplies and as uncertainties concerning the conflict dissipated. In the following months prices rose again, reaching $30/barrel in late August. From the demand side, they were underpinned by the growth in world consumption, forecast at 1.4 per cent in 2003, the largest increase in four years.10 This rise stems mainly from the United States and Asia and is driven not only by the incipient economic recovery, but also by special factors such as temporary fuel-switching to oil from gas and from nuclear power (in the United States and Japan, respectively) and the need to replenish industrial country stocks from very low levels.
2002-2003
"Commodities are a big, new theme", Financial Times (London), 18 September 2003.
International Energy Agency, Monthly Oil Market Report (Paris), 1 August 2003 [omrpublic.iea.org].
_9
The ECE Economies in Autumn 2003
CHART 1.1.9 Crude petroleum prices, January 2002-September 2003 (Dollars/barrel)
Source: United States Department of Energy, Weekly Status Petroleum Report (Washington, D.C.), various issues [www.eia.doe.gov]. Note: Brent spot, monthly average.
Rising demand allowed petroleum producers (both within and outside OPEC) to increase their output through the third quarter of 2003, while benefiting from higher prices. This increase offset supply shortfalls in Iraq, Nigeria and Venezuela. In the first case, persistent security problems and disruption caused by military action are likely to prevent exports from reaching pre-war levels in the near future. Nevertheless, the country's output has risen steadily since mid-2003. Together with the partial removing of supply constraints elsewhere, this led to a rapid decline of the oil price in September, to a low of $25/barrel. OPEC reacted quickly to the fall in prices and to the increased supply by other producers by announcing a cut in its target output of 3.5 per cent from November, which brings its total production quota back to the level of February-May 2003. The cut signals the organization's intention to adjust supply so as to keep prices at the upper end of its target range of $22-$28/barrel. For consumers in the euro area, the higher dollar prices for commodities were more than offset by currency appreciation. In euros, prices of non-energy commodities in August 2003 were 4 per cent below those of a year earlier and the average price of crude oil during the first three quarters was marginally lower than in the corresponding period of 2002. The dollar depreciates against the euro and the yen The dollar's foreign exchange value continued its downward tendency against major currencies over the
first nine months of 2003. The trade-weighted exchange rate index fell against a broad group of countries by 4.2 per cent in September 2003 compared with January 2003. Since its recent peak in February 2002, this index has declined by 8.4 per cent. The decline in the dollar's nominal effective exchange rate index has been limited by continued strong interventions in the foreign exchange market by central banks in some Asian countries, especially China and Japan, which has led to a massive accumulation of foreign reserves in the region. A main motive in Japan has been to stem an appreciation of the yen against the dollar, which is seen to weaken export growth, a major engine for the expected recovery. China has maintained a fixed exchange rate at 8.26 renminbi per dollar since 1994 and the currency is widely believed to be significantly undervalued. A weaker dollar is key for the adjustment of global current account imbalances, meaning essentially the reduction of the huge United States' current account deficit. The need for more exchange rate flexibility for promoting necessary global economic adjustments was emphasized in a statement of G-7 finance ministers and central bank governors in Dubai on 20 September 2003.11 Against this background, the exchange rate of the dollar against the yen was relatively stable during the 12 months to August 2003 (chart 1.1.10). In September 2003, stronger market focus on the need to finance the United States external deficit together with the G-7 Ministerial statement led to stronger selling pressure on the dollar. At the end of September the dollar was traded at 111.4 yen down from 117.4 yen in mid-September, corresponding to dollar depreciation by 5.1 per cent over two weeks. The average monthly exchange rate was 114.8 yen/dollar in September 2003, which compared with a recent monthly peak of 133.6 yen/dollar corresponds to dollar depreciation by 14.1 per cent (or a yen appreciation by 16.3 per cent). The euro continued to strengthen against the dollar during 2003, rising from a monthly average of $1.06 in January 2003 to a monthly peak of $1.17 in June. This corresponded to a year-on-year appreciation of 22 per cent. In July and August the dollar strengthened again, probably influenced by increased optimism about the United States economy and the persistent sluggishness of the euro area. In early September, the euro traded at $1.08, only slightly above the average level for January 2003. As was the case for the yen, the euro appreciated significantly against the dollar in the course of September, but the upward tendency was even more pronounced than for
Internet website [www.g7.utoronto.ca/].
10
Economic Survey of Europe, 2003 No. 2
CHART 1.1.10 Bilateral exchange rates between the dollar, the euro and the yen, January 2000-September 2003
Source: Eurostat, New Cronos Database. Note: Average monthly values.
CHART 1.1.11 Real effective exchange rates, January 1999-September 2003 (Indices, January 1999=100)
appreciation of the euro was partly reversed (chart 1.1.10). In September 2003, the euro traded at a monthly average of 128.9 yen, which still amounted to an appreciation by nearly 9 per cent compared with the same months of the preceding year. In terms of the real effective exchange rate against a broad group of countries, the euro appreciated by 8 per cent in the 12 months to September 2003 (chart 1.1.11). From its trough in October 2000, it had risen by 23 per cent. The dollar had depreciated in real effective terms by nearly 6 per cent over the same period. Compared with its recent peak in February 2002, the real effective depreciation amounts to some 8 per cent. The average monthly real effective exchange rate of the yen fell by 1.5 per cent in the 12 months to September 2003. International stock markets are moving up
Source: European Central Bank [www.ecb.int]; Federal Reserve Board [www.federalreserve.gov]; Bank of Japan [www.boj.or.jp/en]. Note: Deflated by consumer price indices.
the Japanese currency. On September 30, the euro traded again at $1.17, up by more than 8 per cent compared to early September. The average monthly exchange rate of the euro was $1.12 in September 2003; compared with the recent low of the euro at $.87 in February 2002, this amounts to an appreciation by nearly 29 per cent (chart 1.1.10). The euro continued to appreciate against the yen up to June 2003 when (at a monthly average of 138 yen/euro) it was some 17 per cent higher than 12 months earlier. During the third quarter of 2003, this
After a stagnant first quarter attributed to warrelated risks, prices in global stock markets started to rise in the second quarter of 2003, reflecting investors' optimism about short-term prospects for the world economy. The upward tendency continued in the third quarter of 2003 on the back of positive economic news about the stronger than expected performance of the United States economy in the second quarter of 2003 and in anticipation of a continued accommodative stance of monetary policy. Compared to their January 2003 opening levels, the blue-chip Dow Jones Industrial Average in September 2003 (month-enddata) traded about 8 per cent higher while the broader S&P 500 index rose almost 10 per cent. The high-tech oriented Nasdaq Composite rose by as much as 29 per cent over the same period. It now stands at its highest level in 16 months after a seventh straight monthly gain (chart 1.1.12).
11
The ECE Economies in Autumn 2003
CHART 1.1.12
TABLE 1.2.1
International share prices, January 1999-September 2003
Changes in real GDP in major economies, 2002QI-2003QII (Percentage change over previous quarter, seasonally adjusted)
(Indices, January 1999=100)
2002
2003
Q1
Qll
can
QIV
France Germany Italy United Kingdom
0.6 0.2 0.3
0.6 0.2 0.2 0.6
0.3 0.1 0.4 0.9
-0.1
0.3 0.5
-0.2
-0.1
0.1
0.3
Canada United States Japan
1.4 1.2 0.2
0.9 0.3 0.9
0.7 1.0 0.8
0.4 0.3 0.6
0.6 0.4 0.6
-0.1
0.8
0.5
0.8
0.3
0.3
0.5
0.3
0.5
0.2
0.1
0.3 0.3
0.5 0.5
0.3 0.3
0.1 0.1
0.1
0.7
0.5
0.7
0.3
0.3
Total above Memorandum items: Euro area European Union Western Europe3 Total industrialized countries"
Ql
Qll
0.2
-0.3
-0.2
-0.1
0.8 1.0
-0.1
0.4
Source: National statistics; Eurostat, New Cronos Database. a European Union plus Norway and Switzerland. b Western Europe, North America and Japan.
the end of the war in Iraq), deteriorating labour markets, corporate sector difficulties and the appreciation of the euro. Source: Internet website [finance.yahoo.com] [www.Stoxx.com]. Note: End of month data.
In the euro area, the developments on the stock markets were considerably more damped over the same period. By end-September 2003, pan-European benchmarks (Euro Stoxx 50 and Stoxx 50) were trading around 5 per cent lower than their January 2003 opening levels, despite sharp losses in the second quarter. The German DAX Xetra was among Europe's best performing national benchmarks rising some 5 per cent in the year to end September 2003. This was explained in part as a correction in view of the sharp losses experienced in 2002 but also was seen as the result of better than expected profitability. In Japan, the Nikkei 225 made steep gains in the third quarter of 2003, amounting to over 17 per cent of its January 2003 opening value by end September 2003 and reaching its highest level in 14 months. The backdrop to this was a surprisingly strong economic performance in the second quarter, which triggered a reallocation of funds from bonds into stocks and significant foreign inflows.
1.2 Western Europe Economic activity in western Europe stagnated in the first two quarters of 2003 against the background of weak business and consumer confidence resulting from uncertainties concerning the world economic and political situation (uncertainties that prevailed despite
Protracted sluggishness of economic activity in the euro area In the euro area, real GDP declined by 0.1 per cent in the second quarter of 2003 following stagnation in the first (table 1.2.1). Real GDP fell in France, Germany, Italy and the Netherlands in the second quarter. In fact, the latter three countries have moved into recession, defined as a decline of real GDP in two consecutive quarters. The aggregate level of economic activity in the euro area in the second quarter was only 0.2 per cent higher than a year earlier (chart 1.2.1), the lowest year-on-year growth rate since the recession of 1993. A weakening of domestic demand (to near stagnation) and contracting foreign demand combined to bring about the decline of economic activity in the euro area in the second quarter (table 1.2.2 and chart 1.2.2). Private household consumption rose only slightly against the background of softening labour markets, which dampened consumer confidence. Although consumer confidence improved somewhat after the first quarter, it remained at low levels (chart 1.2.3). While government consumption moderately supported economic activity, this was more than offset by fixed investment, which declined in both the first and second quarters, falling back to its level of early 1999. Business capital spending was pulled down by uncertainties regarding the world economy, the depressed state of industrial order books (chart 1.2.4),
12
.Economic Survey of Europe, 2003 No. 2
CHART 1.2.1 Quarterly changes in real GDP in the developed market economies, 2000QI-2003QII (Percentage change over same period of previous year)
Source: National statistics; Eurostat, New Cronos Database. Note: Based on seasonally adjusted data. Seven major economies: Canada, France, Germany, Italy, Japan, United Kingdom and United States.
TABLE 1.2.2 Changes in euro area real GDP and main expenditure items, 2002QI-2003QII (Percentage change over previous quarter, seasonally adjusted) 2002
Ql
O//
-0.3
0.4 0.8
2003 QIl
QIV
Ql
0.3
0.3
0.5
0.1
0.5 0.1
0.2 0.2
0.3
0.7
Qlll
generally sluggish level of economic activity in the area's major export markets. At the same time, the volume of imports was maintained in spite of weak domestic demand. As a result, the changes in real net exports continued to be a drag on overall economic activity.
declining capacity utilization in manufacturing and continuing corporate balance-sheet restructuring. While investment in Stockbuilding provided a strong support to GDP during the first quarter, this disappeared in the second quarter (table 1.2.2) when the expected economic upturn did not materialize. The volume of exports continued to decline in the second quarter of 2003. This was the third consecutive quarterly decline, reflecting a loss in price competitiveness brought about by currency appreciation12 and the
Business and consumer surveys for the third quarter of 2003 point to only a moderate improvement in the second half of the year. Consumer confidence improved marginally from June to August, and business confidence strengthened in August and September (chart 1.2.3). The ReutersNTC Purchasing Managers' Index edged up in July and August, but remained below the 50 per cent threshold, which separates expansion from contraction. There are signs of a tentative - and stronger - recovery of business activity in the services sector (chart 1.2.5). Nevertheless, uncertainties remain. Stronger sentiment seems to hinge on growing demand outside the euro area, particularly in the United States. A continuing appreciation of the euro, however, would again be likely to dampen business sentiment. Another factor restraining fixed investment is the relatively high level of spare capacity in manufacturing. Thus, even if the situation improves, this is likely to happen only gradually.
12 In the second quarter of 2003, the cost competitiveness (in terms of unit labour costs) of euro area producers vis-a-vis those of other
industrial countries had deteriorated by 14 per cent (year-on-year). European Commission, Price and Cost Competitiveness, Second Quarter 2003 [europa.eu.int/comm/economy_finance].
Private consumption Government consumption Gross fixed investment Stockbuilding a Total domestic demand Exports Imports Net exports a GDP
0.6 -0.8
0.2
— -1.0
0.4 0.3
-1.3
0.2 0.3 2.6
2.3 0.2 0.5
-0.1
0.2 1.5
1.5 0.2
0.3 -0.4
0.2 -0.2
0.1
-1.2
0.4 0.5 -1.2
0.1 -0.5
-
-0.4
0.1 -0.5
-0.2 -0.1
Source: Eurostat, NewCronos database. a
Growth contribution in percentage points.
13
The ECE Economies in Autumn 2003
CHART 1.2.2
CHART 1.2.3
Quarterly changes in real GDP and major expenditure items in the euro area, 2000QI-2003QII (Percentage change over previous quarter, seasonally adjusted at annual rate)
Business and consumer confidence in the euro area, January 2000September 2003 (Balances)
Source: Eurostat, New Cronos Database. a
Growth contribution in percentage points.
Against this background, inflation in the euro area has remained moderate in 2003. Core inflation (which excludes energy, food and tobacco prices) was well below 2 per cent in August (chart 1.2.6). The economic downturn has continued to take its toll, albeit modestly, on the euro area's labour markets. There has been a steady erosion of the favourable trend from mid-1997 to late 2001, when the harmonized unemployment rate dropped from just under 11 per cent to a 10-year low of 8 per cent. By July 2003, the rate had edged up to 8.9 per cent (chart 1.2.7). Quarter-to-quarter employment change in the total economy remained at zero in the first quarter of 2003 as in the two previous quarters. Employment in the first quarter was also unchanged from its level of a year earlier. With a sluggish economic activity and rising unemployment, wage growth has moderated. Unit labour costs rose by 1.9 per cent over the same period in the first quarter over its year-ago level, compared with a recent peak of 3.2 per cent in the final quarter of 2001. Among the three major euro area economies, economic activity in Germany is forecast to stagnate in 2003 following three consecutive years in which its performance was the weakest of all the member countries of the euro area. The appreciation of the euro and the unfavourable international environment led to a sharp drop in exports in the second quarter.
Source: European Commission, Business and Consumer Survey Results (Brussels), various issues [europa.eu.int/comm/economy_finance/indicators_en.htm]. Note: Balances are the differences between the percentages of respondents giving positive and negative replies.
Moreover, falling business confidence, weak order books and rising spare capacity in manufacturing industry dampened fixed investment in equipment, although construction investment recovered from its steep fall in the first quarter. Private household consumption stagnated, reflecting the lagged effects of higher social security contributions, worsening labour market conditions and faltering consumer confidence. To this was added the restraining economic effects of balance sheet adjustment problems in the corporate and banking sectors. The room for a fiscal stimulus is circumscribed by pressures to correct the general government budget deficit, which exceeds the 3 per cent limit set in the Maastricht Treaty (see below). Inflation has been hovering around 1 per cent in 2003 so far, which is among the lowest observed in the member states of the euro area. Accordingly, real short-term interest rates are about 1 percentage point above the euro area average, suggesting that the stance of monetary policy is too tight for Germany. Nevertheless, the Ifo index of business expectations for the coming six months (one of the two components of the Ifo business climate index) rose steadily between May and September 2003. But the assessment of the current situation has been very volatile over the same period; it fell again in September 2003, pointing to the fragile state of the economy.
14.
. Economic Survey of Europe, 2003 No. 2
CHART 1.2.4
CHART 1.2.5
Industrial orders in the euro area, January 2000-September 2003 (Balances)
Surveys on business activity in the euro area, January 1999September 2003
Source: Dow Jones Reuters Business Interactive (Factiva) [www.factiva.com]. Note: An index value above (below) 50 indicates that the sector is generally expanding (contracting).
Source: European Commission, Business and Consumer Survey Results (Brussels), various issues [europa.eu.int/cx)mm/economy_finance/indicators_en.htm]. Note: Balances are the differences between the percentages of respondents giving positive and negative replies.
In France, real GDP fell in the second quarter of 2003 by 0.3 per cent, the weakest performance among the large industrialized economies (table 1.2.1). This brought the country's real GDP back to its level of a year earlier. This development resulted in equal proportion from a contraction of private consumption and negative stockbuilding. Fixed investment also fell during the second quarter, as had been the case throughout 2002. In the context of a sluggish international environment, foreign demand failed to compensate for the weakness of domestic demand. Changes in real net exports subtracted from GDP between mid-2002 and mid-2003. Conditions in the labour market have worsened: the unemployment rate rose to 9.4 per cent in July compared to 8.8 per cent a year earlier. Available third quarter data indicate declining or stagnant private consumption, while the outlook for fixed investment in 2003 was revised downwards by businesses at mid-year. In Italy the current recession is the second in less than two years. With consumer and business sentiment still subdued, domestic demand rose only moderately. Fixed investment declined sharply during the first half of 2003 (due to cuts in spending on machinery and equipment) after rising strongly during the preceding semester, in response to temporary fiscal incentives. Changes in real net exports continued to be a drag on overall economic activity. The business
sector continues to lose market share in its main export markets due to deteriorating price and cost competitiveness, as well as the specialization of the export sector. Despite sluggish growth, the country's labour market has remained resilient in recent years. The unemployment rate in July was 8.7 per cent, lower than during the second quarter. Preliminary data for the third quarter indicate a slowing down of private consumption growth. Nevertheless, domestic demand is likely to receive some support during the second half from announced reductions in personal income and corporate taxes. Among the smaller economies of the euro area, economic performance has continued to diverge significantly. In the Netherlands, economic activity fell in the three consecutive quarters to mid-2003, the second contraction in two years. The economy was hit by the loss of international cost and price competitiveness and the unfavourable international environment, which contributed to a sharp fall in domestic demand. In Portugal, the economy was still negatively affected by the consequences of the fiscal austerity programme adopted in 2002: this contributed to a year-on-year fall of 2.3 per cent in real GDP in the second quarter of 2003. In Austria, the negative effects of the international environment were countered by a fiscal stimulus, which provided moderate support to the economy. In Finland, there was a turnround during the second quarter thanks to the contribution of net exports, where the country's relative specialization in ICT goods was especially important. Greece and Spain maintained their growth patterns of recent years, expanding well above the euro area average and based on strong domestic demand
15
The ECE Economies in Autumn 2003
CHART 1.2.6
CHART 1.2.7
Consumer prices in the euro area, January 2001-August 2003 (Percentage change over same month of previous year, HICP index, main components)
Employment and unemployment in the euro area, 1999QI-2003QI (Millions, per cent of civilian labour force)
Source: Eurostat, New Cronos Database.
(including fixed investment). In Greece, economic activity continues to be stimulated by the construction boom related to preparations for the Olympic Games in 2004. Monetary policy has remained on hold since June 2003 In response to the deteriorating economic performance and forecasts that inflation would fall below 2 per cent in 2004, the ECB lowered its main refinancing rate by half a percentage point to 2 per cent in June. Taking German official interest rates as the benchmark, this is the lowest rate since the Second World War. Already in March 2003, the central bank had cut its refinancing rate by a quarter of a percentage point to 2.5 per cent. These moves helped to offset to a large extent the tightening of monetary conditions caused by the real effective appreciation of the euro. Despite forecasts of reduced growth for 2003 and 2004, the Governing Council of the ECB decided to leave interest rates unchanged at its latest meeting in September 2003. Average monthly nominal short-term interest rates fell to 2.1 per cent in August, down from 2.8 per cent in January 2003 (chart 1.1.3). Real short-term interest rates were about a quarter of a percentage point in July 2003, down from 1.5 per cent one year earlier. Nominal long-term interest rates (yields on 10year government bonds) followed the trend observed for the corresponding United States treasury bills. After
Source: Eurostat, New Cronos Database; European Central Bank. Note: Unemployment data are seasonally adjusted; employment data are not.
reaching a monthly low of 3.7 per cent in June, they edged up to 4.2 per cent in September. While in June there was still an average yield differential of 40 basis points in favour of euro-denominated bonds, this changed to a differential of 6 basis points in favour of dollar-denominated bonds in September (chart 1.1.3). This reversal can be associated with a more optimistic assessment of the relative growth prospects of the United States and also with the considerable deterioration of the United States federal government deficit. Significant deterioration of public finances
There has been a significant deterioration of public finances in the euro area. This is largely due to the working of the automatic stabilizers in a cyclical downturn that has proved much more protracted than expected. As a result, there has been a shortfall of tax revenues, while expenditures on unemployment benefits have been higher than planned. As in 2002, France and Germany will have excessive deficits in 2003, which are expected to correspond to around 4 per cent of GDP. Current forecasts for 2004 are also for budget deficits close to 4 per cent in Germany and somewhat less, but still significantly above the 3 per cent threshold, in France. This would be the third consecutive year in which the rules of the Stability and Growth Pact are violated. Portugal, moreover, which had an excessive deficit in 2001, will also slip back into the critical zone in 2003. In most of the other
16
.Economic Survey of Europe, 2003 No. 2
countries, the cyclical downturn will also lead to a deterioration of their fiscal positions. In the event, the actual budget deficit in the euro area as a whole is now expected to correspond to some 3 per cent of GDP in 2003, up from 2.3 per cent in 2002." The aggregate level of gross government debt in the euro area will rise to above 70 per cent of GDP. Despite the severe cyclical weakness, the structural fiscal deficit for the euro area is forecast to decline to 1.7 per cent of potential GDP, down from 2 per cent in 2002.14 This points to the somewhat restrictive stance of fiscal policy in the euro area as a whole. Consolidation efforts are most pronounced in Germany and Italy, which are striving to meet their commitment to reduce the structural deficit by at least 0.5 per cent of GDP as demanded by the European Commission and the European Council. This effort appears to be less pronounced in France. The German government, accordingly, has introduced higher tax rates (on tobacco, energy and, for a transitional period, corporate income), increases in social security contributions and expenditure cuts. To stimulate economic activity, the government plans to bring forward the third stage of its income tax reform package from 2005 to 2004. This would reduce tax revenues by some €16 billion (or 0.7 per cent of GDP), which ceteris paribus would mean an increase in the structural budget deficit. It is estimated, however, that this will provide only a mild stimulus to economic growth equivalent to 0.3 percentage points of GDP. The potential growth effects, moreover, will be further dampened if, as planned, the government does not fully finance the tax cuts by borrowing but instead offsets part of the revenue shortfall with a combination of cuts in subsidies and other expenditures as well as increases in other taxes.15 In France, the budget for fiscal year 2003 was slightly expansionary in view of tax cuts being introduced against the background of a progressive cyclical downswing. In September 2003, the government announced further income tax cuts in its draft budget for 2004, which projects a budget deficit close to 3.5 per cent of GDP.
13
IMF, op. cit.
14
Ibid.
15 Model simulations suggest that the net effect of fiscal policy may well be contractionary also in 2004. DIW, Wochenbericht 27-28 (Berlin), 3 July 2003. While it may be argued that reductions in subsidies and tax exemptions can reduce distortions in the economy and thereby stimulate economic growth in the medium term (via the reallocation of resources to more efficient uses), the bulk of the evidence suggests that such measures do not have an expansionary impact on economic activity in the short run. R. Hemming, M. Kell and S. Mahfouz, The Effectiveness of Fiscal Policy in Stimulating Economic Activity - A Review of the Literature, IMF Working Paper WP/02/208 (Washington, D.C.), December 2002.
Economic developments in other western European countries In the United Kingdom, the rate of economic growth picked up in the second quarter of 2003, following a pronounced slowdown in the two proceeding quarters. Real GDP rose by 0.3 per cent between the first and second quarters of 2003, bringing it to 1.8 per cent above its level in the second quarter of 2002. The strengthening of economic growth was supported by a further improvement in manufacturing activity. Household expenditure accelerated markedly in the second quarter of 2003, reflected mostly in accelerating retail sales. The rapid growth in house prices has been a key support for consumer spending over the last few years but surveys now confirm that the rate of increase has moderated substantially so a further boost to expenditure from this area looks less likely. Business investment continued to decline in the second quarter with an especially pronounced weakening in the manufacturing sector. After a strong first quarter, government expenditure declined in the second quarter due to weaker spending on defence. Despite the slowdown in output growth, aggregate employment and unemployment have changed little during the past year. The unemployment rate was 5.1 per cent during the three-month period to July 2003, slightly lower than a year earlier. Inflation (RPIX) was 2.9 per cent in August 2003, above the government's inflation target of 2.5 per cent. When measured on the basis of the HICP, however, inflation was much lower at only 1.4 per cent. Against the background of lingering uncertainties about short-term global economic prospects, the Monetary Policy Committee (MPC) cut the base rate by a quarter of a percentage point to 3.5 per cent in July 2003; the rate had already been reduced by the same amount in February. At its meeting in early September, the MPC decided to leave the base rate unchanged. The stance of fiscal policy remains very expansionary, with the structural fiscal deficit estimated to increase by nearly 1 percentage point to 2.1 per cent of potential GDP, a marked swing from a surplus of somewhat less than 1 per cent in 2001.16 This reflects an increase in government spending on public infrastructure, education and health but also a large shortfall of profit taxes paid by financial corporations. There was relatively robust growth in Sweden during the first half of 2003, thanks largely to real net exports, as the country benefited from the incipient recovery in international ICT trade. As in the other 16
IMF, op. cit.
17
The ECE Economies in Autumn 2003
Nordic countries, net exports also contributed positively to growth in Denmark during the second quarter, but in this case they were more than offset by the sharp fall in domestic demand, particularly of fixed investment. Outside the European Union, both Norway and Switzerland were in recession in the second quarter of 2003. Switzerland has so far pursued a loose monetary policy in 2003, cutting interest rates and aiming at weakening the exchange rate vis-a-vis the dollar and the euro. The economy of Turkey was boosted by falls in inflation and interest rates: these strengthened business confidence and led to industrial production growing at rates above 10 per cent (year-over-year) in mid-2003. The key tourism sector recovered rapidly from the downturn associated with the war in neighbouring Iraq in the first quarter.
1.3 Eastern Europe Growth still mostly driven by domestic demand
During the first half of 2003 growth gained further momentum in most east European economies and the region's aggregate GDP increased by 3.4 per cent, which was above the rates of growth in 2002 (table 1.3.1). Eastern Europe preserved its positive growth differential vis-a-vis western Europe, a distinctive feature of European economic performance in recent years. However, while growth in the region as a whole accelerated in the first half of the year, the pace of economic activity was uneven across countries and subregions. In addition, throughout eastern Europe agriculture was hit by the extraordinarily hot and dry summer, which produced the worst harvests in decades in many countries, with a negative impact on aggregate output growth. According to national accounts data, growth in eastern Europe continued to be predominantly driven by domestic demand (table 1.3.2). Although east European exports remained buoyant, imports generally grew even faster and, consequently, only in two countries (Poland and Slovakia) did net exports make a positive contribution to GDP growth. Both private consumption and, in some cases, the acceleration of fixed investment contributed to aggregate output growth in the region. The data also suggest that the underlying real income gains are based on productivity increases as well as on faster than expected rates of disinflation. At the same time, consumption-led growth has been associated in some countries with large and rising fiscal and current account deficits. Central Europe: growth constrained by weak external demand and fiscal imbalances Due to the intensity of their trade links with the EU, the central European economies were relatively more affected than other east European countries by the
TABLE 1.3.1
Changes in real GDP in eastern Europe, 2001-2004 (Percentage change over previous year) Official Actual forecast a 2002 2003 Full 2001 Hlb year HIb 2003 2004 Eastern Europe Albania Bosnia and Herzegovina Bulgaria Croatia Czech Republic Estonia Hungary Latvia Lithuania Poland Romania Serbia and Montenegro c Slovakia Slovenia The former Yugoslav Republic of Macedonia
2.6
3.4
3.1 6.5 4.5 4.1 3.8 3.1 6.5 3.8 7.9 6.5 1.0 5.7 5.5 3.3 2.9
4.6 4.1 2.3 5.3 2.9 4.3 6.2 0.8 4.6
3.7 4.8 5.2 2.0 6.0 3.3 6.1 6.8 1.4 4.9
4.1 5.0 2.3 4.3 2.5 7.5 7.9 3.0 4.3
3.9 2.9
3.8 4.4 2.9
3.9 2.2
-4.5
-1.4
0.7
2.6
2-3
3-3.5*
6.9 ?1 4.8
5.4 1.8 4.2
6.4 2.2 4.6
7.0 2.8 4.0
6.3 3.1 4.2
5.9 4.2 4.6
3.0 4.7
3.6 4.4 6 6 3 4 4.8 5.0-5.3 4.7 5 2.4 2.8 4.5 6* 2.8-3.2 3.5 7 5-6 6.8 6.2 3.0-3.5 5 4.5-5.0 4-5* 4 0-1 4 4 2.6 3.7
Memorandum items: Baltic states Central Europe South-east Europe
Source: National statistics and direct communications from national statistical offices to UNECE secretariat. Note: Forecasts are those of national conjunctural institutes or government forecasts associated with the central budget formulation. Aggregates are UNECE secretariat calculations, using PPPs based on the 1996 European Comparison Programme benchmarks. Aggregates shown are: eastern Europe (the 15 countries below that line). Sub-aggregates are: Baltic states (BS-3): Estonia, Latvia, Lithuania; central Europe (CE-5): Czech Republic, Hungary, Poland, Slovakia, Slovenia; south-east Europe (SEE-7): Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Romania, Serbia and Montenegro and The former Yugoslav Republic of Macedonia. In the cases when forecasts are given in a range, the mid-point is taken for computing the aggregates. 3 As of October 2003. b Over the same period of the previous year. c Data exclude Kosovo and Metohia.
protracted economic slowdown in the western part of the continent. Since 2001, growth in central Europe, which was the most vibrant economic subregion in eastern Europe in the second half of the 1990s, has lost much of its dynamism and the situation hardly changed in the first half of 2003 (table 1.3.1 and chart 1.3.1). The economic slowdown in this period was marked by considerable fiscal imbalances in most of these economies (with the possible exception of Slovenia).17 The conventional cyclical deterioration of fiscal positions was only partly responsible for those large deficits: they are to a large extent the outcome of expansionary fiscal policies.
In the case of the Czech Republic and Hungary the consolidated general government deficit in 2002 reached almost 10 per cent according to preliminary estimates based on ESA 95 - compatible methodology; in Slovakia it was close to 8 per cent and in Poland around 6 per cent. UNECE, Economic Survey of Europe, 2003 No. /, p. 49.
18
_ Economic Survey of Europe, 2003 No. 2
TABLE 1.3.2 Major demand components of GDP in selected east European economies, 2002-2003
(Percentage change over the same period of the preceding year) Private consumption expenditure a 2002 Bulgaria Croatia Czech Republic Estonia Hungary Latvia Lithuania Poland Romania Slovakia Slovenia
Government consumption expenditure b 2002
2003
HI
HII
HI
HI
3.1 6.0 4.2 7.3 9.4 6.2 6.7 3.2 3.5 5.5 1.6
5.0 7.2 3.8
7.1 4.8 4.9 6.6 8.7 7.5 5.8 2.6 6.0 1.2 2.7
3.1
11.4 10.6
8.1 6.3 3.3 3.2 5.0 2.3
-2.3
4.7 4.5 1.3 0.6 -1.7
0.7 0.6 6.8 3.1
2002
2003
HII
HI
HI
4.7
4.3
8.5 9.0 1.3 17.2 6.5 13.6 12.3 -10.1 5.7 -0.3 2.6
-1.3
6.6 5.5 3.3 2.3 6.4 1.8 3.0 1.9 2.3
-0.2
1.2 5.7 5.0 2.8 3.3 -0.4
2.5 0.1 3.5
Total domestic expenditure c
Gross fixed capital formation
2002
2003
Net exports d
2003
2002
2003
HII
HI
HI
Hii
HI
HI
Htl
HI
10.0
18.0
2.8
2.3
17.4
0.1
-0.3
6.6 5.3 3.7 8.4 6.6
-1.9
11.1
6.2 4.7 1.7 9.8 2.4 5.2 6.1 0.5 2.8 3.4 2.1
-3.4 -1.2 •1.6 -8.2 -4.3 -5.7
15.3
5.4 8.5 6.3 -4.5
9.0 -1.4
3.5
16.4
0.5 13.4 10.7 -2.6
7.5 -1.1
6.7
13.5
5.0 11.8
7.8 5.2 6.8 1.2 4.4 5.8 2.9
-1.3
-6.9
0.5
-3.9
-3.5
-5.1
0.4
-4.2
12.4
-1.2
7.6 2.1 5.8
-0.2
1.7 0.1 0.8 0.2
4.0
0.2 1.5 0.9 0.7
-0.3
0.5
0.8 -1.9 5.1 -1.9
Source: National statistics and direct communications from national statistical offices to UNECE secretariat. a
Expenditures incurred by households and non-profit institutions serving households.
b Expenditures incurred by the general government on both individual consumption of goods and services and collective consumption of services. c
Total consumption expenditure plus gross capital formation.
d
Percentage point contribution to GDP growth.
Since the start of the slowdown, governments in some central European countries (the Czech Republic, Hungary, Slovakia) have tried to counterbalance the effect of the adverse external shock with a fiscal stimulus to boost their economies. This stance was coupled with populist moves associated with general elections (such as generous increases in public sector wages or the postponement of planned cost-cutting measures). In the case of Poland, the widening fiscal gap was the outcome of inconsistent policies followed for a number of years.18 The main problem with expansionary policy measures of the type introduced in these economies is the strong hysteresis effect (this concerns especially wage increases): once put into effect, they are difficult to reverse; on the contrary, they create expectations of further moves in the same direction. At the same time, the prolonged slowdown in external demand has made it difficult for governments to tighten their fiscal policy stance. Given the magnitude of these deficits, the fiscal policies associated with them are clearly unsustainable. The problem that policy makers in central Europe are now facing is that in view of their approaching accession to the EU, they will need to make a major fiscal adjustment in order to comply with the EU's fiscal policy framework, and this will have to be done in the not too distant future.19 From this perspective, the large fiscal deficits are now becoming a drag on
18
19
UNECE, Economic Survey of Europe, 2002 No. 1, pp. 63-69.
For details see UNECE, Economic Survey of Europe, 2003 No. 1, pp. 13-15 and 33-34.
their economic activity, as the necessary adjustment will have a negative effect on domestic demand and hence on economic growth. Fiscal consolidation is now an issue of major concern to policy makers in central Europe and in the first three quarters of 2003 some of them took important steps in this direction.20 However, these are just the initial steps and progress in reducing the deficits is likely to be slow and difficult. The envisaged policies often include unpopular austerity measures, which are likely to meet (and are already meeting) resistance from the public. Moreover, the persistent weakness of external demand is not conducive to the necessary fiscal adjustment. Recovery is finally gaining momentum in Poland... After two years of near-stagnation, the largest economy in eastern Europe finally seems to be on the Thus, the Czech government approved in July a three-year public finance reform programme (which targets both the revenue and the expenditure sides of the fiscal balance) with the goal of trimming the budget deficit to 4 per cent of GDP by 2006. The Hungarian government initiated a series of austerity measures aimed at halving the fiscal deficit to 4.5 per cent in 2003 and reducing it to 3.5 per cent in 2004; in addition, the new tax bill (due to enter into effect in 2004) contains important changes in tax regulations, which are expected to boost tax revenue. However, the new fiscal targets are widely seen as too ambitious and probably unrealistic. In September, Poland's government approved a medium-term fiscal strategy, which continues the public finance reforms (ongoing since 2001). While the 2004 budget assumes a temporary increase of the public sector deficit, the medium-term programme envisages its reduction to 3 per cent of GDP by 2007. A major, though somewhat controversial tax reform - especially in its bias towards flat-rate taxes and shifting the tax burden from direct to indirect taxes — was also initiated in Slovakia; the government there has confirmed its pledge to meet the Maastricht fiscal deficit reference level (3 per cent of GDP) by 2006, but this may also be overly ambitious.
19
The ECE Economies in Autumn 2003
CHART 1.3.1
Quarterly changes in real GDP and industrial output in eastern Europe, 2000QI-2003QII (Percentage change over same period of previous year)
Source: National statistics.
road to a full-blown recovery. After growing by 2.2 per cent year-on-year in the first quarter, Poland's GDP increased by 3.8 per cent in the second. A strong, export-led rebound in the manufacturing sector (especially in the second quarter of the year) was the main supply-side factor behind the economic upturn. Final consumer demand has also been picking up, as evidenced by the accelerating growth in the volume of retail sales during the last year and a half (table 1.3.3), and this was another favourable factor for domestic economic activity. Real fixed investment continued to decline at a diminishing rate in the first two quarters and it now appears to be on the way to recovery. A further easing of the stance of monetary policy by the National Bank of Poland, which made six consecutive cuts in its key interest rates between January and June, contributed to the gradual revival of economic activity. The Polish public finances are in sizeable deficit, and since 2002 the government has been making adjustments, including the introduction of a cap on central government spending. Both the financing of the deficit and the growing public debt have been sources of concern. At the same time, given the general weakness of the economy, policy makers have been hesitant to pursue a more rapid rate of fiscal consolidation. However, the dilemma of whether to pursue growth or rehabilitate the public finances remains: the austerity measures needed to reduce the fiscal imbalance will tend to have an adverse effect on domestic economic activity and hence may endanger
the nascent recovery. According to the latest policy programme (reflected also in the draft budget for 2004), the government has postponed for one more year the harshest of its planned measures, hoping that in the meantime the recovery will strengthen, and so provide cyclical support to the fiscal balance and a more conducive environment for restructuring government spending. ...but economic activity is lacklustre in the Czech Republic, Hungary and Slovenia With the exception of Slovakia, economic activity remained rather subdued in the rest of central Europe in the first half of 2003. In the Czech Republic, Hungary and Slovenia, the rate of GDP growth ranged between 2.2 per cent and 2.5 per cent, year-on-year, and these rates were only achieved because domestic demand was still strong, net exports making a negative contribution to growth (table 1.3.2). In the Czech Republic and Hungary, the dynamics of final domestic demand were dominated by the enduring strength of private consumption (fuelled in both cases by rising real wages and household credit), while in Slovenia, fixed investment, boosted by a large-scale public investment programme, also contributed to growth. In the first months of 2003, fiscal problems in Hungary were compounded by financial volatility instigated by short-term capital flows. The exchange
20
Economic Survey of Europe, 2003 No. 2
TABLE 1.3.3 Volume of retail trade in eastern Europe, 2002-2003
(Percentage change over the same period of previous year) 2002
Albania Bosnia and Herzegovina .... Bulgaria Croatia Czech Republic Estonia Hungary Latvia Lithuania Poland Romania Serbia and Montenegro Slovakia Slovenia The former Yugoslav Republic of Macedonia
2003
HI
Hll
Full year
-8.5
4.8
-1.4
Ql 14.4
QII 26.1
-3.0
1.4 11.5
3.3 13.8 12.3
3.8 13.5
2.6 14.7
7.7
2.6 12.5
3.0 14.3 10.5
14.0
20.9
17.6
14.7
10.8
12.6
3.7 0.1 20.3
4.7 1.5 13.1
4.1 0.8
2.4 5.3 3.2 9.8 9.0 13.1
HI 20.6 -0.3
4.8 8.1 5.4 8.6 7.7
3.6 6.8 4.3 9.1 8.3
12.0
12.5
8.2 1.8 4.0
11.9
10.2
-7.2
9.6 4.5
5.9 4.3
17.4
7.4 3.7
4.4 5.8
5.8 4.7
-6.5
4.2
6.8
5.6
2.2
8.9
5.6
9.6
-13.6
-2.6
-6.8
Source: National statistics and direct communications from national statistical offices to UNECE secretariat. Note: There are regular and considerable revisions of the data for the most recent months in The former Yugoslav Republic of Macedonia. The coverage in 2002-2003, based on current reporting, may differ from the coverage in annual statistics. The quarterly and half-year figures in the table are based on reported monthly data. For all east European countries (except Bulgaria) and the Baltic states, they were computed from fixed-based monthly indices. The figures for Bulgaria were computed from cumulative indices using a decumulation technique.
rate regime was the main casualty of this volatility; interestingly, within a period of just six months (January to June), there were attacks on both the higher and the lower bounds of the forint's fluctuation band. The Hungarian monetary authorities were unusually active in this period but the outcomes were sometimes equivocal: in January the central bank successfully resisted a speculative attack on the forint (when market participants were betting on its appreciation), but the effect of its interventions in June (including an official devaluation) were much more debatable.21 In the Czech Republic, economic policy has been broadly supportive of growth in 2003, with fiscal policy becoming increasingly expansionary and monetary policy relaxing in response to inflation remaining well below the target range and to weakening upward pressures on the exchange rate of the koruna. However, the threat of unsustainable twin deficits, evoked by another large increase in the general government deficit and the rapid widening of the current account deficit, presents the Czech authorities with difficult policy choices. At the beginning of June the National Bank of Hungary devalued the central parity of the forint against the euro by 2V4 per cent, partly succumbing to pressure from the government, in a move to boost competitiveness and help job creation. However, the financial markets interpreted this move as a sign of underlying weakness of the currency and soon the forint was under downward pressure, forcing the central bank to raise interest rates by 300 basis points.
In contrast to its neighbours, Slovakia's economy continued to grow at a relatively fast pace, with GDP increasing by 3.9 per cent, year-on-year, in the first half of 2003. The sources of growth also differed considerably in Slovakia: in the first half of the year aggregate economic activity was entirely driven by accelerating exports (only real net exports contributed positively to GDP growth), while domestic demand as a whole was virtually stagnant (table 1.3.2). The robust export growth reflects the new capacity installed in the industrial sector (associated with inward FDI) and strong cost competitiveness resulting from comparatively low wage levels and rapid productivity growth. Despite this positive outcome, the Slovak economy remains vulnerable to shocks due to its high level of dependence on the automotive sector. The envisaged fiscal reforms also entail certain macroeconomic risks, which may have adverse shortrun effects on output. The Baltic states remain the growth champions of eastern Europe With an average year-on-year rate of GDP growth of 7 per cent in the first half of 2003, the Baltic region remained the fastest growing part of eastern Europe for the fourth consecutive year (table 1.3.1 and chart 1.3.1). GDP growth accelerated in both in Latvia and Lithuania (to 7.5 per cent and 7.9 per cent year-onyear in the first half of 2003), while it slowed down in Estonia reflecting weak performance in some key sectors such as transport and communications. In all three countries (and especially in Estonia and Latvia) final domestic demand (both private consumption and fixed investment) remained strong and gave a boost to domestic economic activity. The growth of merchandise exports slowed down in all three countries (chart 1.3.2) and, according to the quarterly national accounts data, net exports did not make a positive contribution to growth (table 1.3.2). Mixed performance in south-east Europe In the first half of the year, GDP growth remained relatively strong in the majority of south-east European economies despite the weak external environment and the adverse effects of the drought (which was especially pronounced in this region due to the relatively large share of the agricultural sector). The continuing recovery in Bulgaria, Croatia and Romania was mainly supported by buoyant domestic demand: rising real incomes, and a strong tourist season in Bulgaria and Croatia boosted private consumption, while robust fixed investment (mostly private in Bulgaria and Romania and, in the case of Croatia, dominated by public infrastructure projects) also contributed to aggregate output growth. Although export performance was also strong in these
The ECE Economies in Autumn 2003
economies, it was outpaced by an even more rapid growth of imports; as a result, the effect of net trade on GDP growth was generally negative in the first half of the year. Other parts of south-east Europe fared worse in this period and the effects of poor harvests were compounded with other difficulties. In Serbia and Montenegro, following the opening up of the economy, the ongoing price liberalization and the launching of an ambitious programme of restructuring and privatization of the enterprise sector, economic performance has been weak during the last couple of years. (Some observers see parallels between the current state of the economy of Serbia and Montenegro and the initial transformational recession that other east European economies underwent more than a decade ago.) In the first half of 2003 both agricultural and industrial output were down (the latter by 2.4 per cent year-on-year), while aggregate output was probably stagnant. Economic activity in The former Yugoslav Republic of Macedonia and in Bosnia and Herzegovina remained subdued, in the former partly due to a forced fiscal retrenchment following overspending during the recent conflict. Further progress in disinflation Consumer price inflation in eastern Europe continued its downward trend through August 2003, for the third consecutive year (table 1.3.4). With few exceptions, monthly rates of change fell to historic lows and in many countries there were even price falls. The main exception was Slovakia where some regulated prices (mainly utilities) and excise duties were increased sharply.22 Imported inflation continued to fall thanks to the dampening effect of the large depreciation of the dollar and intense competition in weak international markets for manufactured goods.23 The rate of increase of domestic food prices also slowed down further and they retained their inflationary pressure only in Croatia, Romania and Slovenia. In contrast, service prices, albeit rising more slowly than in 2002, remained the major inflationary force, and rose much more rapidly than the total index.24
Year-on-year, August inflation in Slovakia was 9.2 per cent. However, excluding administered prices and indirect tax effects, the increase was only 2.7 per cent. In August 2003, world market prices in dollars for non-energy and energy resources were 8.9 and 11.3 per cent, respectively, higher than a year earlier. In euro terms (in which most of the region's trade is denominated and to which many east European currencies are pegged) these prices fell by 4.4 and 2.3 per cent, respectively. For more details, see sect. 1.1 and charts 1.1.8. and 1.1.9. Apart from the absence (or low level) of pressure from international competition, the more rapid rise of service prices may reflect the differential dynamics of labor productivity in the tradeable and non-tradeable sectors (the so-called Balassa-Samuelson effect) in catching-up economies.
21
In contrast to the previous two years, the rates of core inflation (CPI excluding food and energy prices) also fell in this period in most of the east European economies for which such data exist. This reflected subdued domestic cost pressures as a result of continued wage disinflation (with the main exceptions of the Czech Republic, Estonia and Hungary) combined with rising industrial labour productivity (table 1.3.4). In fact, industrial unit labour costs remained stagnant or declined in most of these economies with the exception of Romania and Slovenia where the growth of labour productivity was relatively weak and unable to offset the growth in wages. Despite the moderate wage growth, the low inflation environment has supported a continued rise in real consumer wages (nominal wages deflated by the CPI).25 Thus, real household disposable incomes probably increased in the first half of 2003, particularly in those countries where household credit expanded rapidly (such as the Czech Republic and Hungary) and those where the labour market situation also improved. Nevertheless, in the absence of external shocks, and given the present state of the labour markets in general, falling import prices and the widespread decline of industrial producer prices, inflation rates (as measured by the CPI) for the year as a whole can be expected to continue to fall in most of the region's economies, and in many of them to remain below the revised (downwards) official targets. Some signs of improvement in east European labour markets but the situation differs across countries In the first half of 2003 there were increasing signs of improvement in east European labour markets as several countries reported notable reductions in unemployment rates. Nevertheless, unemployment in the region remains high and its persistence constitutes a serious challenge for economic policy. Thus, although the number of the registered unemployed in eastern Europe declined by some 400,000 in the 12 months to June 2003, the total still exceeded 8 million people, and the average registered unemployment rate was close to 15 per cent of the labour force. The situation, however, differs considerably across subregions and countries. In central Europe, the average registered unemployment rate was broadly unchanged (at some 15 per cent) in the 12 months to June 2003, but this masks a divergent labour market dynamics in
? Slovakia was an exception as real gross wages actually fell by nearly 1 per cent in the first half of the year.
22
. Economic Survey of Europe, 2003 No. 2
TABLE 1.3.4 Consumer prices, industrial producer prices and labour costs in industrya in eastern Europe, 2002-2003 (January-June over the same period of previous year, percentage change) Consumer price index b 2002 2003 Albania Bosnia and Herzegovina Bulgaria Croatia Czech Republic Estonia Hungary Latvia Lithuania Poland Romania Serbia and Montenegro Slovakia Slovenia The former Yugoslav Republic of Macedonia
5.8 1.3 7.0 1.9 2.4 4.0 5.6 2.1 1.1 2.4
2.8 -0.2
1.3 1.9 -0.1
1.0 4.6 2.7 -1.2
0.4
Producer price index 2002 2003 3.6 1.6 0.3 -2.0 -0.2
0.7 -1.4
1.3 -5.1
0.5
24.6
15.5
26.2
23.4
10.7
14.3
3.5 7.8
8.0 6.1
2.9
0.7
1.9 5.9 -1.2
7.7 2.6 5.6 2.8 -2.3
0.3 0.6 2.8 0.2 2.7 22.6
7.7 8.2 2.8
1.2
Nominal gross wages c 2002 2003 8.1 1.1 5.7 6.3 11.0 13.1 14.0
4.5 4.4
10.5
3.3 6.0 5.8 9.9 9.3 6.0 3.9 2.5
29.0
19.7
79.2
28.2
Real product wages d 2002 2003 6.4 0.8 7.8 6.5 10.2 14.7 12.5 10.0
3.9 2.3 56.8
8.0 8.8
7.0 8.1
5.9 2.8
4.8
6.7
6.1
7.7 -2.2
3.2 8.3 9.6 8.6 3.1 3.7
Labour productivity e 2002 2003
Unit labour costs f 2003 2002
8.2 0.1 2.6 5.6 8.3
7.0 1.9
-0.1 1.0 2.9 0.7 2.5 14.4 13.0 0.2 -1.5 22.3 71.3 3.9 7.7
7.5
19.4
-1.1
5.1
0.9 4.3 6.0 5.5 4.6 3.9 1.1
5.4
-12.3
-0.1 -2.4 19.0 -1.1
10.5 11.1
8.0 7.9 8.1 8.7 5.2 5.6 10.5
3.8
-7.0 -1.8 -2.0 1.7 0.5 0.8 -1.6 -7.2 15.3 -0.1 6.1 -0.7
Source: UNECE secretariat estimates, based on national statistics and direct communications from national statistical offices. a
Industry = mining + manufacturing + utilities.
b January-August over same period of previous year. c
Average gross wages in industry except in Bosnia and Herzegovina - net wages in industry; in Estonia, Lithuania (since 1999) - gross wages in total economy; in Serbia and Montenegro and The former Yugoslav Republic of Macedonia - net wages in total economy. d Nominal gross wages deflated by producer price index. e
Gross industrial output deflated by industrial employment.
f Nominal wages deflated by productivity.
individual countries (table 1.3.5). In Slovakia, exportled growth has contributed to a steady decline in unemployment in the last three years: in July 2003, the unemployment rate stood at 14.5 per cent, more than 3 percentage points lower than a year earlier and a fiveyear low.26 In the same 12 months to June, the unemployment rate declined, albeit slightly, also in Slovenia, and it was broadly unchanged in Hungary. In Slovenia, however, it occurred against a background of declining employment suggesting departures from the labour force rather than the creation of new jobs. In contrast, unemployment is on the rise in the Czech Republic for a second consecutive year and in February the rate peaked at a record high of over 10 per cent. After some seasonal easing in the spring, joblessness started to rise again reaching a rate of 10 per cent in August, 0.6 percentage points higher than a year earlier, In Poland, where the high level of unemployment is probably the most urgent policy issue at present, some first signs of stabilization appeared around mid-year: August was the fifth consecutive month of falling unemployment and the 17.6 per cent unemployment rate was only 0.1 percentage points above the rate of a year earlier.
The recent decline in registered unemployment, however, partly reflects amendments to the rules governing registration and unemployment benefits, in effect since the beginning of 2003.
Polish unemployment - as in many other east European countries - is largely structural and it is not realistic to expect a significant fall in the near future, even if output growth continues to pick up.27 The assessment of unemployment on the basis of the regularly conducted labour force surveys (LFS), which are generally regarded as producing more accurate and internationally comparable data, sharpens the differences among these countries even more. Thus, in the second quarter of 2003, the LFS rate of unemployment was between some 6 to 8 per cent in the Czech Republic, Hungary and Slovenia, but stood at 17 per cent in Slovakia and was above 19 per cent in Poland (table 1.3.5). In the Baltic states, the continuation of strong economic growth contributed to some easing of labour market problems during the first months of the year. In June, the average registered unemployment rate in the region was 8.6 per cent, nearly 1 percentage point lower than a year earlier. Unemployment continued to fall in all three countries, but the steepest decline was in Lithuania where the robust economic recovery has According to national forecasts, the unemployment rate is expected to reach 18.1 per cent at the end of 2003 and then fall to 17.6 per cent by the end of 2004. PAP News Agency, 4 September 2003, as quoted by Dow Jones Reuters Business Interactive (Factiva).
23
The ECE Economies in Autumn 2003
TABLE 1.3.5
Registered and labour force survey unemployment in eastern Europe, 2002-2003 (Per cent of labour force) Registered unemployment a 2002
Eastern Europe
Albania Bosnia and Herzegovina Bulgaria Croatia Czech Republic Estonia Hungary Latvia Lithuania Poland Romania Serbia and Montenegro c Slovakia Slovenia The former Yugoslav Republic of Macedonia
Labour force survey unemployment
Dec,
Mar.
Jun.
15.4*
15.5*
15.8*
14.8*
16.0
15.8
15.5
15.2
42.3
42.7
43.0
43.0
Jun.
Sep.
15.5 16.1 42.0 17.2
17.4
16.3
15.7
13.7
22.2
21.7
21.5
21.0
18.9
8.7
9.4
9.8
7.0
6.8
6.8
7.4
6.5
7.6
7.8
8.0
9.0
7.8
8.9
8.7
8.5
8.9
8.6
10.0
10.7
10.5
10.9
11.8
17.4
17.6
18.1
18.7
9.9
8.4
8.1
8.3
2003
2002
2003
9.5
9.4 17.8
7.1
QI
19.5
Off
Qlll
17.6
17.3
7.7
5.8
7.0
7.2
9.4
9.1
5.6
16.8
5.9
7.3 11.3
5.9
15.6
13.7
6.4
7.5 10.7
5.8
13.0
13.6
12.9
19.7
20.6
19.4
10.5
11.6
17.1
13.0
11.9
20.3
19.9
19.8
7.5
7.6 10.6
10.6
13.3
8.0
Q//
10.7
12.9
10.0
Q/
14.4b
15.2"
11.2
QIV
8.0
8.1
6.9
13.8d
29.0 17.6
16.6
17.4
16.5
14.6
11.3
11.7
11.3
11.3
10.8
44.8
45.3
45.3
45.5
46.0
19.4
6.9
18.6
5.9
18.2
6.0
17.9
6.5
18.4
7.0
17.0
6.6 36.7
31.9
Memorandum items: Baltic states Central Europe South-east Europe
9.5
9.2
9.4
10.0
8.6
14.5
14.7
15.1
15.5
14.6
17.9
17.6*
17.2*
17.2*
16.1*
14.6
12.4
10.9
12.2
12.1
11.7
15.7
15.2
15.2
15.1
15.8
14.9
Source: National statistics and direct communications from national statistical offices to UN ECE secretariat; for Bosnia and Herzegovina: the Economist Intelligence Unit (these figures cover only the Bosnian-Croat Federation; data for Republika Srpska are not available). a Registered unemployment rates in Estonia and The former Yugoslav Republic of Macedonia are UNECE secretariat estimates. The Estonian Statistical Office calculates the rate as a percentage of the number of registered unemployed to the people between 16 and pensionable age. The official figure for June 2003 based on this methodology was equal to 5.2 per cent. The National Statistical Office of The former Yugoslav Republic of Macedonia reports only the number of registered unemployed. The rate is the officially reported number of registered unemployed as a percentage of the labour force obtained from labour force surveys conducted in April 2002 and 2003.
b Averages for the first and the second half of 2002. c
Data exclude Kosovo and Metohia.
d October.
been associated with net job creation, particularly in industry and construction.
reforms are likely to result in further increases in the number of people out of work.
There were also clear signs of improvement in the labour markets of most of the south-east European countries. At 16.1 per cent, the average unemployment rate in June was nearly 2 percentage points lower than a year earlier. During the preceding 12 months, the rates fell noticeably (by some 3 percentage points or more) in Bulgaria, Croatia and Romania; it continued to fall in Albania as well. These improvements were generally the result of a relatively strong economic recovery and, in some cases, of active labour market policies (such as incentives for investment in regions with high unemployment and public works programmes). But in some countries labour markets remain very weak with unemployment rates reaching some 30 per cent or more in Bosnia and Herzegovina, Serbia and Montenegro and The former Yugoslav Republic of Macedonia. High unemployment in these three countries is not expected to fall in the short run as privatization and structural
Exports grow but gradually lose their momentum In January-June 2003, the volume of east European exports and imports continued to expand, at year-on-year rates of around 7 per cent, notably faster than the recent growth of EU trade and world trade in general. In current dollar terms, the region's trade grew by nearly 30 per cent (table 1.3.6), a reflection of the substantial depreciation of the dollar; in current euros - in which about two thirds of the region's trade is conducted - the increases were much more moderate, about 4-5 per cent. The pace of export volume growth slowed noticeably in the second quarter of the year in several countries of the region (chart 1.3.2). Nevertheless, as the supply capacity and competitiveness of many east European countries has been enhanced considerably in recent years by FDI coming on stream, the region's
24
_Economic Survey of Europe, 2003 No. 2
TABLE 1.3.6 International trade and external balances of the east European economies, 2001-2003 (Rates of change and shares, per cent) Merchandise exports in dollars (growth rates)
Eastern Europe Albania Bosnia and Herzegovina Bulgaria Croatia Czech Republic Estonia Hungary Latvia Lithuania Poland Romania Serbia and Montenegro Slovakia Slovenia The former Yugoslav Republic of Macedonia Memorandum items: Baltic states Central Europe South-east Europe
2007
2002
2003 HI a
10.8
13.7
29.3
Merchandise imports in dollars (growth rates)
2001 2002 8.9
-9.3
-9.1
12.0
28.0
8.8
42.1 35.0
-23.9 -39.4 -14.2 -25.9
-22.8 -32.1 -16.3 -27.6
11.7
28.4
-5.4
-3.4
-1.6
-3273
11.4
38.4
-17.6 -20.9
-22.8
-339
-5.0
-6.6
-1754
-19.6 -21.0 -14.9 -16.3
-21.5 -13.6
-732
-647
-574
-734
49.7
11.2
38.9
11.6
31.1
16.0
17.1
29.6
13.3
4.1 8.6 7.3
15.0
3.5
33.7
0.8 5.0
12.6
18.9
11.7
26.1
13.9
29.5
10.0
15.2
31.3
20.3
20.4
31.7
16.4
22.3
26.3
14.0
13.6
26.9
9.8 9.6 6.7 6.0
21.8
32.8
20.0
0.3
2.7
-6.1
-218
-1 564
-8.4
-7.2
-33.4 -41.6
-36.2 -11.4 -17.2
-983
-6.2
-4.4
-3.7
-7.2
-5.7
-6.4
-5.0
-663
-6.0
-12.3
-16.4
-2646
-3.4
-4.0
-6.6
-385
-9.6
-7.7
-8.2
-490
-4.8
-5.3
-6.0
-3.9
-3.5
-2.7
-5.5
-3.4
-6.2
-4.6
-8.8
-10.3
-8.5
-8.2
-1.3
0.2
1.7
-0.5
-7166 -2223
20.3
29.7
31.0
23.0
14.4
54.8
16.0
12.6
39.7
-9.7
-8.5
-1.7
11.9
25.9
0.3
7.7
29.7
-4.6
-2.6
-4.1
-1 746 31
-12.7
28.2
0.4 -19.4
23.0
-22.4 -14.4
-21.0
-244
11.7
13.4
31.9
31.0
-16.9 -18.7
-18.0
13.7
28.4
9.7 6.8
17.2
11.4
10.8
26.3
-7.0
-6.0
-5.2
13.8
33.2
16.5
14.2
33.9
-17.7
-17.5
-19.6
7.8
-5.0
-5.1
-2267 -2033
35.9
-11.9 -23.4
-1 150
-5.7
-4.8
-679
14.8
-8.7 -10.4 -25.7 -25.8
-2137
-210
2003 HI
-1606 -4415
19.1
-6.9
-407
2001 2002
-725
20.4
-7.5
2003 HI
-842
9.6
-7.7
Current account (per cent of GDP)
-21 896 -25 632 -16326
-9.9
-23.7 -36.6 -15.8 -22.9
-2.5
15.0
2002
30.7
11.5
5.0
2001
28.3
49.9
6.0 5.3
2003 HI
13.1
8.2
7.5
2001 2002
Current account (million dollars)
12.0
17.6
24.3
2003 Hla
Trade balance (per cent of GDP)
-528
-801
-2655
-6700 -1573 -1388 -1939 375
-2656 -1 377 -1004 -197
-64
-325
-201
-7.1
-8.8
-8.6
-1 644 -2182 -13908 -15335 -6343 -8115
-1539 -7596 -7192
-6.5
-7.6
-9.1
-4.2
-4.1
-3.7
-6.5
-7.2
-11.6
Source: UNECE secretariat calculations, based on national statistics and direct communications from national statistical offices. Note: Foreign trade growth is measured in current dollar values. Trade balances are related to GDP at current prices, converted from national currencies at current dollar exchange rates. GDP values in some cases are estimated from reported real growth rates and consumer price indices. For country groups see table 1.3.1. a
Over the same period of the previous year.
exporters seem to have become quite resilient to faltering demand in western Europe in the past two years and also rather successful in increasing exports to the more dynamic markets of other developed and developing economies (table 1.3.7). Moreover, some east European countries (such as the Czech Republic, Poland and Slovakia, among others) have perceptibly increased their share of EU markets since 2001.28 This is largely due to their integration into international production networks, particularly in the automotive and engineering industries, which in turn is supported by their geographical proximity to western markets and still competitive labour costs. Hungary, however, has been an exception to this pattern since the middle of 2002. The volume growth of Hungarian exports has slowed down markedly since
then and in fact stagnated in the second quarter of 2003, partly because several transnational companies relocated part of their production of office and data processing equipment to Asia in 2002 and early 2003. The move was in part due to the considerable rise in Hungarian unit labour costs in the past two years. The strong appreciation of the forint in real effective terms since the end of 2000 also started to affect the country's export price competitiveness, particularly in the more competitive western markets, forcing the exporting sector to accept a serious squeeze on profit margins.29 There was also a sharp slowdown in Lithuania's export volume growth (chart 1.3.2) and an actual fall in exports to the EU in the first half of 2003, but this was confined mainly to refined petroleum exports, which were redirected to other developed markets.30 29
28
According to Eurostat data, EU imports (in current euros) from the Czech Republic, Poland and Slovakia rose by 9, 8 and 30 per cent, respectively, in January-June 2003, year-on-year, following average annual increases of 13, 10 and 18 per cent, respectively, in 2001-2002, while the overall extra-EU imports remained flat (in 2003) or even declined (in 2001-2002); as a result, these three countries accounted for above 7 per cent of extra-EU merchandise purchases, a gain of more than 2 percentage points in share since 2000. Eurostat, Euroindicators, News Release, No. 110/2003, 18 September 2003 and Eurostat, Comext, Intraand Extra-EU Trade, CD-ROM No. 8, 2003.
The Hungarian forint had appreciated at an average annual rate of above 14 per cent in real effective terms, deflated by unit labour costs, in 2001-2002; it remained broadly unchanged year-on-year in the first half of 2003. 30 In current euros, Lithuanian exports of refined petroleum to the EU fell year-on-year, nearly 20-fold in January-May 2003, from €285 million to €14.4 million. However, these exports seem to have been largely redirected to other countries: thus, according to Lithuanian statistics, exports to Switzerland increased from a mere €9 million in January-May 2002 to €287 million in the first five months of 2003.
25
The ECE Economies in Autumn 2003
CHART 1.3.2
Merchandise trade flows and balances in selected east European economies and Russia, 2001QI-2003QII (Percentage change in export and import volumes over same quarter of the previous year, trade balance values in million dollars)
Source: UNECE secretariat calculations, based on national statistics. Note: Export and import volume changes as reported by countries or estimated from changes in average export and import prices (unit values) and trade values. Merchandise trade balance values at the end of the quarter cumulated over 12 months.
. Economic Survey of Europe, 2003 No. 2
26
The strong growth of import demand in Russia and Ukraine, the two largest CIS economies, was the main factor behind the general rise of east European exports to the CIS (table 1.3.7), while the strength of eastern Europe's intraregional trade was sustained by the buoyant growth of domestic demand in the region.31 Import demand remains high In the first half of 2003, the growth of east European imports was supported by the generally robust growth of domestic demand, but it was also partly driven by the exporting sectors' requirements for inputs and capital goods and, in some cases, by the strong appreciation of domestic currencies. In aggregate, imports grew slightly less than exports, both in volume and value, and also slowed down during the second quarter of the year. However, the growth of imports varied from country to country and the aggregate outcome was influenced mainly by the slowdown of import volume growth in Poland. Developments were somewhat similar in Lithuania, Slovakia and some of the south-east European countries, while Czech import volumes tended to move more in parallel with exports (chart 1.3.2 and table 1.3.6).32 In other countries (such as Bulgaria, Estonia, Hungary and Romania), imports markedly outpaced exports (especially in more recent months), in most cases driven by buoyant consumption. The recent import surge in smaller economies such as Latvia and Slovenia, however, was often due to one-off purchases of expensive equipment (such as civil aircraft and helicopters in the case of Slovenia). In those economies with rapidly growing imports there was a considerable widening of their merchandise trade deficits compared with the first half of 2002, both in value terms and in relation to GDP, while in the other east European countries there was generally a narrowing of their deficit-to-GDP ratios; in dollar value terms, only in the Czech Republic and Slovakia were deficits slightly smaller than a year earlier. With the exceptions of Hungary and Poland, the terms of trade improved slightly or remained unchanged across the region, partly as a result of the lower dollar prices of imported energy in the second
The growth potential of intraregional trade seems again to be a focus of research and policy debates as the majority of these countries are getting ready to join the EU. A recent study published by the French Ministry of Economy, Finance and Industry foresees that the intraregional trade of CEECs could triple over the next 10 years, accounting for around 15 per cent of their total trade in 2010. Revue Elargissement Special Intra-CEEC Trade, Dossier No. 30, September 2003. Imports into Poland seem to have been picking up since May 2003, supported by the recent strengthening of household consumption and investment. Large increases in imports were also reported in JulyAugust in Slovakia.
quarter of 2003,33 but also due to somewhat lower prices for imports of intermediate goods originating from outside western Europe (the weak dollar effect). On the export side, however, the increased competitive pressures in international markets for manufactured goods generally inhibited a rise in export prices. The pick-up of world market prices of agricultural products and some industrial raw materials in the second quarter of 2003 had a positive effect on the terms of trade of several southeast European countries, which are net-exporters of these goods (inter alia, Bulgaria and Romania). Current account deficits tend to widen The general widening of merchandise trade deficits shaped the dynamics of current-account positions in the first half of the year in most east European economies; changes in the balance on services were on the whole rather small while changes in net investment income and transfers, often in opposite directions, were important in only a few countries. The aggregate east European current account deficit amounted to $16.3 billion in JanuaryJune 2003, a deterioration by some $3.1 billion compared with the same period of 2002.34 In relation to GDP, the current-account position weakened slightly for the region as a whole, but the ratio varied widely among countries (table 1.3.6). While the merchandise trade deficit widened, the total east European surplus from trade in services shrank, to $2.3 billion (from $2.4 billion in January-June 2002), mainly due to a surge in the deficit generated by services other than travel and transport. The latter two sectors still generated net inflows, although net inflows from transport were smaller than a year earlier owing to increasing outflows on transport commensurate with larger trade deficits. Tourism revenues, however, picked up in the second quarter in a number of countries. An increase in net outflows on the investment income account ($6.7 billion in aggregate, due mainly to the growth of external debt and profit repatriation) was nearly offset by a rise in the net inflow of current transfers - mainly workers' remittances and funds associated with EU accession. Only in Poland and Slovakia was there a marked reduction in their current account deficits. In Slovakia this was almost entirely due to the reduction in the merchandise trade deficit, while in Poland it was attributable to a surge of unclassified net inflows (a $190 million improvement in Poland's merchandise trade deficit (balance of payment methodology) was more than offset by a marked rise in outflows on services).
33 In April-June 2003, the average world market dollar price for crude oil was just 4 per cent higher year-on-year following a 46 per cent increase in the first quarter. 34
In current euros, the deterioration of the aggregate current account deficit was much less pronounced.
27
The ECE Economies in Autumn 2003
TABLE 1.3.7 Foreign trade of eastern Europe by direction, 2001-2003
(Value in billion dollars, growth rates in per cent)3 Imports Growth rates
Exports
Value 2002 Baltic states, to and from: World Eastern Europe and CIS CIS Baltic states Central and south-east Europe Developed market economies European Union Developing countries Central Europe, to and from: World Eastern Europe and CIS CIS Baltic states Central and south-east Europe Developed market economies European Union Developing countries South-east Europe, to and from: World Eastern Europe and CIS CIS Baltic states Central and south-east Europe Developed market economies European Union Developing countries Eastern Europe, to and from: World Eastern Europe and CIS CIS Baltic states Central and south-east Europe Developed market economies European Union Developing countries Memorandum items: Russian Federation, to and from: World Intra-CIS Non-CIS countries Eastern Europe Baltic States Central and south-east Europe Developed market economies European Union Developing countries
11.2
3.3 1.5 1.4 0.4 7.3 6.4 0.6
2001
Growth rates 2002
2003b
11.7
13.4
31.9
22.6
8.3
26.1
38.8 10.0 24.0
5.1 4.7 55.7
Value 2002 16.6
11.4
27.8
32.6
-19.9
5.4 3.0 1.1 1.2 9.7 8.4 1.6
15.1
8.2
17.5 32.5
-9.7
35.2
14.6
39.4
138.6
11.4
13.7
28.4
161.0
29.0
15.7
14.1
29.8
31.6
6.2 1.6
17.5
14.3
22.7
13.5
26.5
20.9
34.4
21.2
14.4
13.6
31.4
17.8
103.4
10.5
13.3
28.1
109.1
95.2
10.9
6.2 28.9
5.5 0.6 4.8
0.4
15.5
25.9
19.0
17.0
35.2
18.8
27.1
5.5 5.5 50.1
6.8 5.2
35.5
18.4
25.8
25.2
26.3
10.8
26.3
5.6
32.7
-0.7
-0.2
30.9
-3.1
-10.6
53.7
11.0
11.0
5.6 6.6
8.9 9.6
33.8 23.6 24.8
20.2
19.1
33.7
31.7
7.8
13.8
33.2
48.7
16.5
14.2
33.9
36.4
13.0
-3.1
-16.1 22.2
5.7 -23.6
4.0
19.6 31.0
5.4 7.6
29.6
29.2
17.3
13.7
14.0
32.6
26.2
29.9
46.2
6.5
0.6
178.8
10.8
13.7
29.3
226.3
37.8
12.9
12.3
30.4
50.0
16.0
10.4
21.5
22.0
18.2
14.4
33.5
26.5
11.4
12.7
32.9
26.5
130.0 118.8
10.6
13.4
28.9
10.9
13.3
28.6
148.0 130.0
23.2
30.8
28.2
29.3 33.8 28.5
6.8
-2.9
5.2
90.5
-4.2
15.9
-7.8
-22.5
11.8
-2.2
50.4
-5.0
37.6
-0.2
24.3
39.8 43.2
95.4
13.2
4.1
6.5
31.0
26.4
13.1
15.6
12.4
28.0
19.3
106.2
17.2
18.3
41.5
11.0
9.7 9.3 4.5
2003b
13.3
11.2
8.2 3.0
2002
8.0
-0.7
4.2
2001
0.6
6.2 6.8 6.1 -3.7
6.6 -6.8
7.2 2.3 10.9
1.5
8.4 7.5
9.6 0.9
30.8 25.8
-18.4
36.1
83.0
9.2
16.7
37.8
19.4
13.3
31.1
20.7
15.3
32.3
23.4
29.9
55.6
12.0
28.3
8.9 6.4 1.9 8.1
7.3 1.0
33.0 31.5
14.7
40.3
12.8
34.8
10.3
25.2
11.3
26.3
21.5
32.3
36.4
46.2
23.4
10.2
20.1
10.2
-3.7
-8.7
22.8
35.9
37.5
17.1
19.3
25.9
20.4
3.7 0.6 3.2
10.8
8.0 9.0
29.1
29.5
25.4
19.0
23.7
34.2
14.3
18.3
37.9
18.4
55.7
24.2
8.5
Source: National statistics and direct communications from national statistical offices to UNECE secretariat; State Customs Committee data for the Russian Federation. Note: For country groups see table 1.3.1 . a
Growth rates are calculated on values expressed in dollars.
b
January-June 2003 over same period of 2002.
The sharp deterioration of the current account balance in Hungary35 was largely due to the near
tripling of its merchandise trade gap in current dollars (balance of payment methodology) compared with the
The current account deficit continues to be reported by the National Bank of Hungary on a net cash basis, diminishing the deficit by
the amount of reinvested earnings of foreign-invested firms, which may be equivalent to 2-3 per cent of GDP.
28
_ Economic Survey of Europe, 2003 No. 2
first half of 2002, but it was also influenced by the appearance of a deficit on the services account. Net revenues from tourism declined, while net outflows on the income account and for other services increased considerably compared with the same period of last year. The main concern for the Hungarian authorities seems to be the financing of the current account: at present they are having to rely increasingly on new borrowing from abroad to cover the surging current account deficit. Total net inflows of FDI to eastern Europe which for most of the transition period have been the leading source of external financing in the region diminished considerably in January-June 2003, mainly as a result of large net outflows from Hungary, but also due to smaller inflows to several other countries (the Czech Republic, Lithuania, Poland and Slovenia). Despite that, however, current account deficits were relatively easily financed. In particular, portfolio investment and short-term capital inflows have been picking up recently. The issuance of international bonds by east European entities (Hungary, Poland and Romania, among others) benefited from falling risk premia and low interest rates.
1.4 The CIS A strong economic upturn After a slowdown in 2002, there was a renewed surge in economic activity throughout the CIS in the first half of 2003 with aggregate GDP growing by 7.4 per cent year-on-year (table 1.4.1). There was strong growth in all subregions, and in most CIS economies the pace of expansion picked up. The simultaneous upturn in much of the CIS and, especially in its largest economies, Kazakhstan, Russia and Ukraine, benefited the region as a whole as - thanks to the strengthening of intra-CIS trade - growth in neighbouring economies was mutually reinforcing. Growth in the first half of the year was predominantly driven by the rapid expansion of domestic demand, especially private consumption. The widespread acceleration of output growth in the industrial sectors (chart 1.4.1) provided solid support to GDP growth in most of the CIS economies. In addition, recent developments in world energy and commodity prices also favoured the commodity exporting countries. On the downside, grain harvests in some CIS economies were hit by drought (Ukraine was probably the worst affected) but the effect varied from country to country. The economic revival in the CIS region (which has been underway for several consecutive years) has been accompanied by marked progress in their economic transformation, especially in recent years. The acceleration of systemic reforms in a number of
TABLE 1.4.1 Changes in real GDP in the CIS, 2001-2004
(Percentage change over previous year) Official Actual forecast3 2002 2003 Jan.- Full Jan.2001 Jun.b year Jun.b 2003 2004 CIS Armenia Azerbaijan Belarus Georgia Kazakhstan Kyrgyzstan
Republic of Moldova c Russian Federation Tajikistan Turkmenistan d Ukraine Uzbekistan
6.1 9.6 9.9 4.7 4.7 13.6
5.3 6.1 5.0
4.4 9.6 8.4 4.7 2.7 9.1 -4.8
4.9
81
70
59
8.3
9.6 7.2
7.2 6.4
7.5
6.3
5.3
14.8
10.6
10.1
4.7 5.6 9.5 -0.5
10.2
6.4 3.6 8.3
205 9.2 4.5
6.1 4.2
4.8 4.2
62
62
6.9 6.8
9.5 7.3
5.7
4R
Memorandum items: CIS without Russian Federation 84 Caucasian CIS countries 8.1 Central Asian CIS countries . 9.4 Three European CIS 7.8 countries
8.6 3.8
5.2 6.3 7* 11* 9 10* 6-7 6* 4.5 8* 7 9 4.1 6 6 5 6 3.8-5.2 7.4 6* 16 4.8 6.5 5 6
7.4
12.9
7.2 4.3 9.1 21.2
5.1 8.6 12.3
2.3 6.5 7.0 8.6 21.5
10.7
Source: National statistics; CIS Statistical Committee; direct communications from national statistical offices to UNECE secretariat. Note: Forecasts are those of national conjunctural institutes or government forecasts associated with the central budget formulation. Aggregates are UNECE secretariat calculations, using PPPs based on the 1996 European Comparison Programme benchmarks. Aggregates shown are: CIS (the 12 member countries of the Commonwealth of Independent States). Sub-aggregates are: Caucasian CIS countries (CCIS-3): Armenia, Azerbaijan, Georgia; central Asian CIS countries (CACIS-5): Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan; three European CIS countries (ECIS-3): Belarus, Republic of Moldova, Ukraine. In the cases when forecasts are given in a range, the midpoint is taken for computing the aggregates. a
As of October 2003.
b Over the same period of the previous year. c
Excluding Transdniestria.
d
Figures for Turkmenistan should be treated with caution. In particular, the deflation procedures that are used to compute officially reported growth rates are not well documented and the reliability of these figures is questionable.
countries (particularly in Kazakhstan, Russia and Ukraine) has brought about many positive changes in their economic environment. The recent consolidation of public finances in many CIS economies has contributed to greater macroeconomic stability. One important sign of the improving business climate is the recent surge of inward FDI to some of the CIS countries.36 In September 2003, the four largest CIS economies - Belarus, Kazakhstan, Russia and Ukraine, signed an agreement stipulating their intention to
Thus, in the first half of 2003, the inflow of FDI to Russia rose to $ 12.7 billion, an increase of some 50 per cent over the same period of 2002.
29
The ECE Economies in Autumn 2003
CHART 1.4.1 Quarterly changes in real GDP and industrial output in the CIS, 2000QI-2003QII (Percentage change over same period of previous year)
Source: National statistics.
create a single economic space. Building on an earlier proposal to create a free trade zone within the CIS (which is still being debated), the four countries intend to pursue not only free trade in goods and services but also free movement of capital and labour. The agreement to create a single economic space is the latest of many CIS proposals made since the breakup of the Soviet Union, aiming at closer economic integration among the successor states. The effectiveness of the latest initiative remains to be seen, however, as previous ones so far have not been very successful.37 Resumption of fast growth in Russia and Ukraine... In recent years, Russia's economy has been one of the important engines of growth for the CIS region as a whole. While this engine lost some steam in 2002, rapid economic growth resumed in the early months of 2003, led by a broad-based surge in industrial production. In the first half of the year, Russia's GDP increased by 7 per cent over the same period of 2002 (an increase that surpassed earlier expectations by a large margin), while gross industrial output rose by 6.8 per cent. Growth was predominantly
In Ukraine, reservations about the participation of the country in the envisaged customs union, common currency arrangement and supranational decision-making bodies have already been expressed by opponents to the proposal.
driven by the continuing expansion of domestic demand (table 1.4.2) but fuel exporters also benefited from increases in world market prices. While private consumption remained the main driving force of domestic demand in the first half of the year (with real retail sales rising by almost 9 per cent year-on-year table 1.4.3), fixed investment also increased sharply, real outlays being some 12 per cent higher than a year earlier. Notably, domestic producers managed to benefit from rising domestic demand and most manufacturing branches reported solid growth in the early months of the year. Although some parts of the country were affected by droughts, the impact of adverse weather conditions on Russia's agricultural output was not very significant. Russia's economy is much stronger now than it was several years ago: public finances are in order (and during the last several years the budget has been in surplus); Russia's financial markets are not the target of speculative capital flows; the banking system has been strengthened; and monetary circulation is back to normal (payments arrears have fallen substantially). Equally important, the authorities accelerated the pace of systemic and structural reforms after the 1998 crisis and this has helped to revitalize the Russian economy. An important confirmation of these positive developments is the recent upgrading of Russia's sovereign credit rating by Moody's Investors Service to investment grade.
30
_ Economic Survey of Europe, 2003 No. 2
TABLE 1.4.2 Major demand components of GDP in selected CIS economies, 2002-2003
(Percentage change over the same period of the preceding year) Private consumption expenditure a 2002
Armenia Belarus Kazakhstan Kyrgyzstan Republic of Moldova Russian Federation Ukraine
Government consumptbn expenditure b
2003
HI
HII
HI
HI
6.1 12.4 12.2 5.7 13.9 8.3 5.6
10.8
8.7 8.0
-5.2 0.8 -2.4 -14.4 16.8 1.8 7.2
9.9 3.6 5.3 4.5 8.7 4.2
14.9
8.3 12.0
7.6 13.4
2002 HII 9.6 0.7 -6.3
6.5 18.3
2.9 -0.9
2003
HI
HI
26.8
21.0 6.1 14.5 1.2 12.0 2.7 6.5
-0.8 11.4 -1.0
1.2 2.3 12.2
Total domestic expenditure c
Gross fixed capital formation
Net exports
2002 HII
2003
HI
HI
HII
HI
22.6
43.3
15.1
13.3
5.8 9.7
12.3
1.1 -7.7 -1.0
1.3 3.1 6.2
3.5 -2.2 31.3 11.6 18.2
2002
10.4
0.8 13.1
4.6 3.8
2002 HI
HII
2003 HI
2.9
-1.1 2.3 13.6 -2.8 2.0 -1.1 3.8
-10.9 -4.4 4.9 -4.9 -8.4 -0.3 -3.2
2003
5.2 0.4 3.6 4.6 6.7 -0.6
8.9
-3.4
2.6
11.2
5.2 11.9
8.8
-3.8 -9.7 -0.4
12.7
d
2.1
Source: National statistics; CIS Statistical Committee data; direct communications from national statistical offices to UNECE secretariat. a
Expenditures incurred by households and non-profit institutions serving households.
b Expenditures incurred by the general government on both individual consumption of goods and services and collective consumption of services. c
Total consumption expenditure plus gross capital formation.
d Percentage point contribution to GDP growth.
Economic growth in Ukraine has also accelerated in the first half of 2003 and was considerably above the expectations, with GDP rising by 8.6 per cent yearon-year. An export-led upturn in key manufacturing sectors (particularly in steel and chemicals, which benefited from increased external demand and favourable prices) contributed to an overall surge in real industrial output, which grew by 14.6 per cent year-on-year in the period January-August. The recovery of real incomes and private consumer demand continued at a strong pace and this contributed to robust growth in other important sectors such as trade (in the first six months of the year the volume of retail sales was almost 16 per cent higher than in the same period of 2002, table 1.4.3), other services and construction. ...and continued buoyancy in other economies In the first half of the year GDP grew at doubledigit rates in Armenia, Azerbaijan, Kazakhstan and Turkmenistan38 and at rates close to 10 per cent in Georgia and Tajikistan (table 1.4.1). However, the economic situation varies considerably among these countries. The recovery in Azerbaijan and Turkmenistan is very narrowly based on the energy sector and exports of fuels. While an FDI-led reconstruction of the energy sector has contributed to the recent strong economic performance in Kazakhstan, its economy is more diversified and growth has been broadly based. The acceleration of systemic reforms in this country has contributed to a better business climate and an increasing inflow of FDI. Despite their high rates of GDP growth, the economic situation in countries such
The officially reported rates of GDP growth in Turkmenistan should be treated with caution, see the note to table 1.4.1.
as Armenia, Georgia and Tajikistan remains rather fragile.39 In these, as well as in other CIS economies, recent growth is from a very low base and so far has had little impact on living standards; widespread poverty still remains a major problem for a number of countries in the CIS. In Belarus and the Republic of Moldova growth has also been relatively strong, with GDP increasing by more that 5 per cent in the first half of 2003.40 With a 2.3 per cent rate of GDP growth Kyrgyzstan was the slowest growing CIS economy in this period; however, this marks a positive turnround in performance with the resumption of production at the Kumtor gold mine after a major accident in 2002. The mine accounts for a large share of the country's industrial output and exports. Moderate disinflation Disinflation, which started in 2000 and accelerated through 2002, slowed somewhat in the first eight months of 2003. However, this was mainly due to large increases in food prices (which had been the major source of disinflation in 2002) during JanuaryApril.41 By mid-year, the downward trend in consumer 10
Georgia has been struggling with a rising level of foreign debt and in 2003 was unable to meet all of its scheduled repayments; in addition, in September the IMF temporarily suspended funding under its Poverty Reduction and Growth Facility due to the failure of the authorities to meet the targets for reducing the public sector deficit. In July, IMF suspended its operations under the Poverty Reduction and Growth Facility in the Republic of Moldova due to considerable delays in the implementation of structural reforms that are part of the funding programme. The main factor behind this rise in food prices was the Russian government's intervention to support domestic grain prices in midNovember 2002 after they had collapsed as a result of oversupply. (Harvests were larger than usual in both 2001 and 2002 but subsequently Russia exported a large share of the surplus.) In the rest of the CIS, the depreciation of their currencies against the rouble exacerbated the impact of higher prices for grain imported from Russia, their major supplier.
31
The ECE Economies in Autumn 2003
TABLE 1.4.3
Labour markets: little change in unemployment
Volume of retail trade in the CIS, 2002-2003 (Percentage change over the same period of previous year)
In view of the continuing and strong economic recovery in the CIS, there were expectations of further improvement in labour markets in the first half of 2003. Assessing the current situation, however, is problematic due to the unreliable labour market statistics for many of these countries. So far only Kazakhstan, the Republic of Moldova, Russia and Ukraine conduct regular, quarterly labour force surveys, while registration data are the only source for unemployment data in the rest of the CIS; the latter are often inaccurate and sometimes quite misleading.44 In fact, the registered unemployment data do not indicate any notable changes in CIS unemployment rates in the 12 months to June 2003: these generally remained very low, varying mostly between 1.4 per cent (Azerbaijan) and 3.7 per cent (Ukraine), the main exception being Armenia (9 per cent) (table 1.4.5).
HI Armenia Azerbaijan Belarus Georgia Kazakhstan Kyrgyzstan Republic of Moldova Russian Federation Tajikistan Ukraine Uzbekistan
2(102 HII
14.2 8.9 14.3 0.9 8.9 6.2 21.4 8.7 19.2 17.1 5.7
16.4 10.1 11.9 6.6 8.4 9.7 9.7 15.3 15.2 -2.1
2002
Ql
2003 Qll
HI
15.6 9.6 12.9 3.7 8.6 8.2 22.3 9.2 17.4 16.1 1.7
10.7 9.5 11.1 4.6 8.8 10.6
13.8 10.1 6.4 5.7 11.1 9.6
12.4 9.8 8.6 5.2 9.9 10.1
8.5 35.1 13.2 -0.2
9.3 30.4 18.5 0.8
8.9 32.6 15.9 0.3
Source: National statistics; CIS Statistical Committee; direct communications from national statistical offices to UNECE secretariat. Note: In Kazakhstan and the Russian Federation, retail trade covers mainly goods; in other CIS countries, it comprises goods and catering. The coverage in 20022003, based on current reporting, may differ from the coverage in annual statistics. The quarterly and half-year figures in the table are based on reported monthly data.
price inflation resumed its rapid pace thanks to the seasonal fall of prices for fresh produce coupled with significant gains in industrial labour productivity. Their combined effect appears to have been sufficient to offset the inflationary pressure generated by the rapid growth in average nominal wages, which continued to grow at double-digit rates - table 1.4.4. In fact, for the first time since 2000, measured labour productivity in the first half of 2003 rose faster than real product wages42 in the industrial sector. Ceteris paribus, this suggests some recovery in operating surpluses, which is indispensable for raising fixed investment, particularly in those countries where bank lending is scarce and FDI inflows are limited to the few sectors related to natural resources. As consumer price inflation was less than the rise in average nominal net wages, real household disposable incomes continued to increase strongly, with the exception of Belarus, where real wage growth slowed down and total employment declined. Thus, for the third consecutive year, consumer demand generally remained strong in most of the CIS region. The ensuing pressure on prices prompted anti-inflationary measures by some governments.43 Nonetheless, the sustained strength of consumer demand in most CIS economies is likely to continue to put pressure on prices in the remaining months of 2003 and a further resurgence of inflation cannot be ruled out. Nominal wages deflated by the producer price index. 43
Thus, in the Russian Federation tighter control over administered prices helped to contain the rate of service price inflation; in addition, the nominal appreciation of the rouble in the first eight months of the year also had an anti-inflationary effect. In Ukraine, there was a presidential ruling in the spring against price increases for medicine, food and public utilities.
The available data from labour force surveys suggest much higher rates and, in some cases, somewhat different trends of unemployment than those based on registration data. Thus, according to the LFS data, unemployment rates in the second quarter of 2003 varied between some 7 per cent in the Republic of Moldova and 9 per cent in Ukraine (table 1.4.5). hi Kazakhstan and Ukraine, LFS-based unemployment rates continued to decline, albeit slowly, for a third consecutive year, and in the second quarter of 2003 they were about one half of a percentage point below those of a year earlier. In contrast, unemployment in the Republic of Moldova and in the Russian Federation increased slightly in this period. But in Russia, the recent data are somewhat erratic and confusing. While the unemployment rate has been declining steadily since the beginning of 2000, this was reversed in the closing months of 2002 and in February 2003 the LFS unemployment rate was 1 percentage point higher than a year earlier. Although the rate started to decline after February, in August it was still 0.4 percentage points higher than in August 2002. While there was some slowdown in economic activity in the second half of 2002, the rise in unemployment is somewhat surprising, given the strong rate of growth in the first half of 2003. Some analysts believe that it may reflect an unspecified methodological change in estimating unemployment.45
A large proportion of the jobless, although willing to work, do not register as unemployed. This proportion varies in different countries between 50 and 80 per cent of total unemployment. Among the main reasons for this are the low unemployment benefits (often paid in arrears), and undeveloped employment services, as well as the inefficient operation of local labour offices. For a more detailed discussion see UNECE, Economic Survey of Europe, 2003 No. 7, pp. 197-198. Economist Intelligence Unit, Country Report: Russia (London), September 2003.
32
Economic Survey of Europe, 2003 No. 2
TABLE 1.4.4 Consumer prices, industrial producer prices and labour costs in industrya in selected CIS economies, 2002-2003 (January-June over the same period of previous year, percentage change) Consumer
Armenia Azerbaijan Belarus Georgia Kazakhstan Kyrgyzstan Republic of Moldova Russian Federation Tajikistan Ukraine
Nominal gross wages c
Producer price index
price index b
Labour productivity
Real product wagesd
2002
2003
2002
1.6 2.4
3.2 1.9
11.3
19.3
16.4
10.5
-2.2
22.7
21.5
20.8
24.3
-1.5
-1.7
37.4
42.2
69.4
32.2
23.3
-7.1
7.2
19.6
14.3
27.9
14.5
18.3
45.4
2.6
29.4
5.9 5.8 1.6 5.9
3.9 6.6 2.7 8.3
16.6
14.3
10.7
16.6
1.8
7.8 -6.4
5.1 7.5 7.8 4.5 0.9
3.9
2002
2003 2.5
2003
2002
2002
2003
8.5
Unit labour costs f
e
2003
2002
5.4
23.7
14.7
58.0
19.3
2003
0.7 10.8
1.8 15.7
-1.2
10.1
10.5
29.3
32.7
20.2
18.3
37.8
24.6
27.8
15.7
41.2
33.8
35.1
15.6
-12.7 4.8 2.0 8.8
22.8
24.6
21.6
15.9
-4.6
7.0 8.1
7.5
8.9
22.8
5.4
6.2 1.8
8.7
7.6
31.2
16.2
23.3
13.4
35.2
16.2
12.2
29.8
19.3
18.5
28.7
5.2
17.1
7.3
Source: UNECE secretariat estimates, based on national statistics and direct communications from national statistical offices. a
Industry = mining + manufacturing + utilities.
b January-August over same period of previous year. c
Gross wages in total economy.
d Nominal gross wages deflated by producer price index. e
Gross industrial output deflated by industrial employment.
f
Nominal wages deflated by productivity. TABLE 1.4.5 Registered and labour force survey unemployment in selected CIS economies, 2002-2003 (Per cent of labour force) Registered unemployment 2002
Labour force survey unemployment 2003
2002
Jun.
Sep.
Dec.
Mar.
Jun.
2.4
2.3
2.3
2.8
2.5
Armenia
9.5
9.3
9.1
9.1
9.0
Azerbaijan
1.3
1.3
1.3
1.4
1.4
Belarus ...
2.6
2.9
3.0
3.3
3.2
Kazakhstan
3.6
2.9
2.6
2.6
2.4
Kyrgyzstan
3.3
3.2
3.1
3.1
3.1
CIS3
Ql
QIl
2003 Qlll
Georgia
QIV
Ql
Oil
12.3" 8.8
10.7
8.3
10.2
9.3
8.3
9C
Republic of Moldova
1.9
1.8
1.5
2.2
1.8
7.9
6.3
5.8
7.3
9.8
6.9
Russian Federation
1.7
1.7
1.8
2.3
2.2
8.2
7.7
7.6
8.8
8.9
8.0
Tajikistan
2.7
2.7
2.7
2.5
2.6
Ukraine
3.7
3.6
3.8
4.0
3.7
10.6
9.7
9.2
11.2
9.4
8.8
Source: National statistics and direct communications from national statistical offices to UNECE secretariat. a
The regional aggregate of registered unemployment excludes Georgia, Turkmenistan and Uzbekistan.
b
Estimate by the National Bank of Georgia; average for the year as a whole.
c
Economist Intelligence Unit estimate.
Another possible explanation may be a more intensive shedding of excess labour as, according to anecdotal evidence, a number of Russian firms have stepped up the process of restructuring under the pressure of increased competition in the domestic product markets. However, the information available at the time of writing this Survey was not sufficient to draw any firm conclusions about recent changes in the Russian unemployment rate.
Expansion of international trade In the first six months of 2003, the dollar value of total merchandise exports from the CIS increased by almost a third, year-on-year, largely due to higher commodity prices (table 1.4.6).46 Imports were driven
In comparison with the first half of 2002, prices of key natural resources such as crude oil, natural gas and cotton were higher by 25-40 per cent (while there were smaller increases for metals and gold).
33
The ECE Economies in Autumn 2003
TABLE 1.4.6
International trade and external balances of the CIS economies, 2001-2003 (Rates of change and shares, percent) Merchandise exports in dollars (growth rates) 2001
CISb
-0.1
Armenia Azerbaijan Belarus Georgia Kazakhstan Kyrgyzstan Republic of Moldova Russian Federation Tajikistan Turkmenistan Ukraine Uzbekistan Memorandum items: CIS without Russian Federation b ... Caucasian CIS countries b Central Asian CIS countries b Three European CIS countries b ....
2002 5.9
13.7
48.4
32.6
-6.3
1.6 -3.0 -5.2 -5.6 20.9 -2.1
-16.9 8.0
8.7 1.6 12.3
2.5 16.8
5.1 13.0
5.6
2003 Hla
Merchandise imports in dollars (growth rates)
2001 2002 8.4
29.2
15.8
39.5
-0.8
13.0
48.5
22.1
16.4
57.8
6.2 25.3
5.8
-4.6
4.3
9.8 6.1 2.0
-11.2 -11.6
-15.5
-211
13.2
18.2
0.6 -6.2 -22.1 -23.8
-9.1
-32.7
17.2
18.8
25.6
10.5
25.6
15.6
17.3
30.6
29.3
22.1
11.5
20.1
19.2
-1.5
-3.4
-0.6
1.9
26.9
26.4 13.0
4.4 -5.8
6.9 1.3 0.8
2.9
1.5 5.9 2.4 2.1
29.0
5.2
24.6
2.1
2.9
48.0
-0.1
-3.2
26.9 19.5
4.8
7.7
28.9
10.0
0.8 5.4
11.9
10.3
13.0
36.1
17.2
-3.3
26.4
10.3
7.6 6.0 -18.9
10.4
10.0
-435
6.6
8.7
-5.3
-8.3
6.5
8.6
-1.1
29.9
-3.1
9.0 2.3
-201
-52
1402 -113
4.0 -13.1
-980
8.3
12.9 -1.2
2003 HI
-464
-1389 872
Current account (per cent of GDP)
2001 2002 7.8
2003 HI
6.7
8.9 -13.5 -12.6 -26.0 -7.1
-168
-119
-9.5
-768
-730
-0.9
-378
-114
-3.5
-2.6
-1.5
-230
-223
-6.6
-6.8
-5.0
-2.8
-12.2 3.7
-1.2
-2.2
-6.4
-6.0
-696 492 -1 109 -19 -35 -97 -65 -95 33572 29905 20381 -74 -15
10.1
-0.5
2002
32592 31 174 22467
-7.1
26.0
18.8
15.2
-6.2
-5.9
31.5 27.0
13.6
2001
-32.9
-15.7
-14.8
8.5
14.8
2003 HI
Current account (million dollars)
-25.3 -20.4 8.2 15.5
-0.2
-3.7
-3.5
22.3
2001 2002
50.2
11.6
25.3
2003 Hla
Trade balance (per cent of GDP)
3173
1815
10.8
8.6
-7.0
-1.3
-8.6 10.6
7.7
9.2
-0.9
1.1
-4.2
-9.8
3.5 -19.4
-3.2
-0.5
3.7 -1.0
1268 2086 -1 167 -1072 -264 1 522
2699
1 636
1.7
4.7
5.7 5.8
Source: UNECE secretariat calculations, based on national statistics and direct communications from national statistical offices. Note: Foreign trade growth is measured on current dollar values. Trade balances are related to GDP at current prices, converted from national currencies at current dollar exchange rates. GDP values are in some cases estimated from reported real growth rates and consumer price indices. a
Over the same period of the previous year.
b Totals include UNECE secretariat estimates for Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan.
by strong demand for consumer and investment goods, as well as by exchange rate appreciations against the dollar in some CIS economies, which provided a strong incentive to increase imports from the non-CIS area.47 Increased intra-CIS trade - up by a quarter in value - also contributed to the higher dollar value of total imports (table 1.4.7). The large increase in the dollar value of CIS exports was mainly due to several individual countries with very substantial increases ranging between 20 and 50 per cent. Among them were all the commodity exporters except Azerbaijan, Kyrgyzstan and Tajikistan. In addition to higher commodity prices, Russian oil producers increased the volume of crude oil and oil products shipped by 11 and 7 per cent, respectively. In Ukraine, the substantial growth in the dollar value of exports reflected foreign demand for steel products and chemicals. Exports of steel and chemicals, which account for almost half of the Ukraine's foreign earnings, rose by a third in value compared with the first six months of 2002. In Turkmenistan and Uzbekistan, where the reliability of
However, all CIS currencies depreciated in real terms against the euro. Thus, expressed in euros, CIS exports increased by 5 per cent, while imports declined by 1 per cent.
official data is uncertain, the total value of exports is also reported to have increased substantially (by 25 and 20 per cent, respectively). The value of Turkmenistan's exports of natural gas increased by almost 20 per cent, exports of oil products doubled and cotton fibre exports rose by 80 per cent. In Uzbekistan, the rise in export prices for cotton and gold contributed to the increase in total exports; exports of manufacturers are also reported to have risen. In some CIS countries (such as Armenia, Belarus and the Republic of Moldova), the large increases in the value of total exports were accompanied by relatively larger increases in exports to non-CIS markets.48 In contrast, the composition of exports from Kyrgyzstan shifted towards traditional CIS markets due to flat gold sales to non-CIS countries and lower 48
In Belarus, in the first five months of 2003, the value of exports to Russia - the country's dominant trade partner - increased by 18 per cent, while exports to non-CIS markets increased by 30 per cent. The Republic of Moldova's exports to non-CIS markets also outpaced sales to traditional export markets within the CIS (by a factor of six). In Armenia exports of processed precious stones and metals to Belgium and Israel have continued to drive aggregate exports. However, because of the inward processing of diamonds and precious metals, the large increase in exports of jewellery is usually accompanied by a corresponding increase in imports.
34
_ Economic Survey of Europe, 2003 No. 2
TABLE 1.4.7
CIS countries' trade with CIS and non-CIS countries, 2001-2003 (Value in million dollars, year-on-year, growth rates in per cent) Export growth Import growth 2002 2003* 2002 2003* Armenia Non-CIS 61.8 10.3 CIS Azerbaijan Non-CIS -8.0 9.4 CIS Belarus Non-CIS 23.0 -0.7 CIS Georgia Non-CIS -5.1 CIS 9.6 Kazakhstan 24.4 Non-CIS -15.5 CIS Kyrgyzstan 3.8 Non-CIS 0.1 CIS Republic of Moldova 36.9 Non-CIS 3.9 CIS Tajikistan 24.7 Non-CIS -11.4 CIS Turkmenistan 5.4 Non-CIS 5.7 CIS Ukraine 17.2 Non-CIS -6.4 CIS Uzbekistan -4.9 Non-CIS -34.0 CIS Total above 15.7 Non-CIS -6.4 CIS Russian Federation 6.1 Non-CIS 6.8 CIS CIS total Non-CIS CIS
8.4
38.6 43.4
4.0 40.0
Trade balances
2001
2002
2003a
51.6
-406
-276
-181
40.9
-129
-208
-109
89.3
1 106
33.5
46.1
18.4
-222
29.5
11.8
20.7
485 -1215
3.0
2.9
762 -1 312
-252
-274
-190
-107
-121
14.5
2958
4026
2839
24.0
-673
-807
-434
36.6
12.5
3.1
36.2
-1.7
11.2
13.6
57.0
13.2
29.5
-8.3
-4.8
25.6
11.7
10.6
25.7
9.6
52.4
8.6 16.2
-39.8 63.3
15.1
18.7
20.7
50.8
15.5
18.3
97 -88 -333
6 290
1.3
-7.7
-326
-1.4
-22.7
-100
1.2
-12.9
25.7
15.3
-51 376 -358
-10 740
-167
-64 185 -207
400 360
31.8
4646 -4157
5571
3112
-4591
-2668
130 -40
-200
430 -50
11314 -7910
-4910
26.6
22.9
-19.3 -18.2
-11.8
8.5 2.4
21.4
8621
27.6
-6402
20.8
-335
25 -85
550
1.5
32.7
55 -154
-92
66.7
30.8
10.8
98 -249
872 -1754
8.9
21.5
909 -407
-2.1
400
7313
28.5
17.1
19.3
54672
33.8
-8.7
22.8
3416
54625 5376
32562 3482
29.6
13.8
20.1
27.4
-1.3
26.1
63294 -2986
65939 -2534
39875 -1428
Source: CIS Statistical Committee (Moscow); UNECE estimates for Turkmenistan and Uzbekistan. 3
output growth in the region. In all CIS countries, except Tajikistan, Turkmenistan and Uzbekistan, increases in the value of imports ranged from 11 to 58 per cent. Russian imports continued to increase rapidly as a result of robust growth in fixed investment and consumption. In the first half of 2003, imports of machinery and equipment rose by 25 per cent, yearon-year, and capital goods are expected to continue to be the most important component of Russian imports. In other countries, the continued modernization of the capital stock and investment in the new productive capacity have also contributed to increased imports. In Azerbaijan they rose by almost 60 per cent due to increased spending on the pipeline infrastructure and further exploration and development of the country's oil and natural gas fields. Similarly, in Georgia increased purchases of pipe and the rising prices of energy, contributed to the increased value of total imports. In Kazakhstan, imports of machinery, equipment and transportation vehicles increased by almost a half and accounted for 40 per cent of total imports. In a number of countries, the increased dollar value of imports was closely related to the higher prices for crude oil and natural gas.49
January-June.
sales of aviation fuel to foreign military bases stationed in the country. In Kyrgyzstan, as well as Tajikistan, the value of total exports was broadly unchanged from a year earlier. In the latter, higher prices and export volumes of aluminium and cotton fibre in the first half of 2003 were offset by much lower values of exports of transportation equipment (down by 90 per cent) and electricity (24 per cent lower). Georgia's exports rose by 6 per cent mainly owing to traditional shipments of metals to Turkey and wine and beverages to Russia. The dollar value of total CIS merchandise imports increased by 22 per cent year-on-year in the first half of 2003, on the strength of the continuing
Current account balances of commodity exporters improve In the first half of 2003, the combined current account surplus of the CIS countries continued to rise (table 1.4.6). While its growth in the second quarter slowed down somewhat compared with the first three months - owing, to some extent, to the dip in crude oil prices in April - it is widely expected that the continuing strength in commodity prices will ensure solid current account surpluses in the largest natural resource exporting CIS countries in 2003 as a whole. According to preliminary balance of payments data, Kazakhstan, Russia, Turkmenistan, Ukraine and Uzbekistan all had surpluses in the first six months of the year. Most of the countries with current account deficits - these are either economies not endowed with natural resources or engaged in extensive upgrading of their capital base by purchasing investment goods abroad - do not appear to have had major difficulties in financing them. In some of the resource-rich CIS countries, FDI remains a major source of financing the deficits.50 However, other countries (especially the
For example, Belarusian imports increased by a third not only because of increased volumes of oil and natural gas from Russia, but also because of sharply increased contract prices, while Ukraine imported 60 per cent more oil in value. Rising mineral product prices also raised the value of imports in Kyrgyzstan and the Republic of Moldova. For example, in Azerbaijan, the country with the largest current account deficit in the region (26 per cent of GDP) for January-June 2003, FDI inflows were equivalent to 31 per cent of GDP and there was a very large increase in investment outlays (64 per cent, year-on-year).
35
The ECE Economies in Autumn 2003
heavily indebted ones) were facing balance of payment constraints.51 The aggregate current account surplus of the CIS was almost $23 billion in the first half of 2003, the Russian economy contributed over 90 per cent of it. Merchandise exports, particularly of crude oil and natural gas, accounted for most of the Russian surplus, which averaged 11.2 per cent of GDP in the first half of 2003 (against 9.5 per cent in the same period of 2002).
1.5 The short-term economic outlook (i)
Western Europe and North America
Most forecasters expect a continuing recovery in the United States in the second half of 2003, driven mainly by expansionary monetary and fiscal policies and the gain in price competitiveness stemming from the depreciation of the dollar. For the year as a whole, real GDP in the United States is forecast to increase by some 2.5 per cent in 2003. The stronger cyclical momentum will carry over into 2004, when real GDP is expected to rise by some 4 per cent (table. 1.5.1). Against this background, baseline forecasts assume a gradual withdrawal of the sizeable monetary stimulus in the course of 2004. In the euro area, economic activity is expected to remain very sluggish in the second half of 2003. This reflects persistently weak domestic demand and the restraining effects on exports of the sizeable real appreciation of the euro in an international economic environment, which is still relatively weak. Forecasts of growth in the euro area have been lowered to a mere 0.5 per cent in 2003. This very modest outcome reflects not only persistent economic stagnation in Germany but also a pronounced cyclical slowdown in France and Italy and in several of the smaller economies in the euro area (table.1.5.1). Economic growth in the remaining three EU members outside the euro area should remain significantly above the euro area average. Taking into account the performance of the non-EU economies, real GDP in western Europe is expected to increase by just 1 per cent in 2003. Overall, the prospect is for a relatively lacklustre cyclical upturn, supported by low interest rates, the favourable impact of falling inflation on real personal disposable incomes and household spending, some inventory rebuilding, and the expected gradual improvement of the external environment. Given the weak rate of output growth, however, the situation in the labour markets will hardly improve and this will dampen consumer confidence. Against this background,
Thus, as noted earlier, by mid-year Georgia was technically in default on its foreign debt, having failed to make all its scheduled debt service payments.
TABLE 1.5.1 Changes in real GDP in the developed market economies, 2002-2004 (Percentage change over previous year) 2002
2003
2004
France Germany Italy Austria Belgium Finland Greece Ireland Luxembourg Netherlands Portugal Spain Euro area
1.2 0.2 0.4 1.0 0.7 2.2 4.0 6.0 1.1 0.2 0.4 2.0 0.9
0.2 0.4 0.6 0.8 1.3 3.7 2.7 1.5
2.1 0.5
1.8 1.5 1.6 1.7 1.8 2.6 3.9 3.9 4.0 1.3 1.6 2.8 1.8
United Kingdom Denmark Sweden European Union
1.9 1.6 1.9 1.1
1.7 1.0 1.5 0.7
2.5 2.1 2.3 2.0
2.2
2.0 2.3 0.7 2.8 0.6
Cyprus Iceland Israel Malta Norway Switzerland Turkey Western Europe
-0.5 -0.5
1.0 1.5 0.2 7.8 1.4
-0.4
5.3 0.9
3.8 3.7 2.1 3.8 2.3 1.3 5.0 2.1
Canada United States North America
3.3 2.4 2.5
2.0 2.6 2.6
3.0 3.7 3.6
Japan
0.1
2.5
1.9
Total above
1.7
1.8
2.8
0.8
0.5
1.8
2.0
1.7
2.9
-0.5 -1.0
Memorandum items: 4 major west European
economies3 Western Europe and North America
Source: National statistics; Eurostat; UNECE secretariat estimates; Consensus Forecasts, September 2003; IMF, World Economic Outlook, September 2003; The Economist, 4 October 2003. Note: All aggregates exclude Israel. Data for 2003 and 2004 are projections or forecasts. a
France, Germany, Italy, United Kingdom.
current forecasts are for only a moderate acceleration of economic growth in the euro area in 2004, to an average annual growth rate of somewhat less than 2 per cent. For western Europe as a whole, the national forecasts add up to an aggregate growth rate of 2 per cent, reflecting the continuing stronger cyclical momentum outside the euro area. Can the recovery be sustained? The improved global economic outlook is dependent on the United States maintaining its role as the engine of growth for the world economy. As was pointed out earlier52 the problem with this scenario is
UNECE, Economic Survey of Europe, 2003 No. /, chap. 1.
36
that it will accentuate the already huge external imbalance of the United States and increase the risks of disruptive adjustments of capital flows and exchange rates of the major currencies. This points to the need to create a more conducive environment for growth of domestic demand in the rest of the world to better accommodate the external adjustment process in the United States. While the depreciation of the dollar is part and parcel of the necessary adjustment required of the United States, the burden has so far fallen disproportionately on the euro area, given the exchange rate policies pursued in Asian economies.53 On the other hand, persistent weakness of euro zone domestic demand also puts disproportionate emphasis on the dollar exchange rate as a means of adjustment. There are several other important downside risks facing the United States economy. The recovery has so far not led to any significant improvement in the labour market, and a continued "jobless recovery" could erode consumer confidence and dampen household spending, which has been the mainstay of economic growth even during the cyclical downturn. Consumer spending could also be adversely affected by a further rise in long-term interest rates, especially given the very high levels of household debt. This could trigger an end to the housing boom with concomitant downward pressure on house prices and adverse wealth effects.54 In any case, rising interest rates are bound to restrain consumer spending, inter alia, because of their adverse effects on mortgage refinancing, which has been a major source of additional spending power over the past few years. Rising long-term interest rates would also affect business investment, the future strength of which is in any case uncertain because of the considerable margins of excess capacity. A weaker than expected recovery would also risk frustrating the currently optimistic profit expectations, reflected in the surge in equity prices during the first three quarters of 2003, with associated risks of negative wealth effects on aggregate demand. In the United States, both monetary and fiscal policy have responded forcefully to the progressive weakening of economic activity. The federal funds rate is now only 1 per cent and it is clear that the margin for conventional monetary policy measures to stimulate economic activity is now largely exhausted. The fiscal position has deteriorated significantly, leaving little scope for additional expansionary
? " On this issue, see also the Statement ofG-7 Finance Ministers and Central Bank Governors (Dubai), 20 September 2003 [www.g7.utoronto.ca]. ? In western Europe, there are similar risks of a downturn in housing markets following a surge in house prices, especially in the United Kingdom, but also in Ireland, the Netherlands, Spain and Sweden.
_ Economic Survey of Europe, 2003 No. 2
measures and raising concerns about its sustainability in the medium and longer term. There is also the persistent risk of adverse reactions in the capital markets to the large "twin deficits" with concomitant negative effects on interest-sensitive expenditure. In the euro area, there is still scope for a further relaxation of monetary policy, and this is desirable in view of the moderate outlook for growth, forecasts of inflation falling below 2 per cent, and the fact that the earlier relaxation of monetary policy was largely offset by the sizeable real appreciation of the euro. As regards fiscal policy, at the current juncture it would be counterproductive to prevent the automatic stabilizers from operating fully and to enforce procyclical policies. Although it has to be acknowledged that insufficient effort was made during the good years to bring public finances in line with the Maastricht criteria, and so provide a cushion against adverse shocks, the present is hardly an appropriate time to make up for previous sins of omission. (ii) Eastern Europe and the CIS Having demonstrated resilience to the global slowdown, eastern Europe and especially the CIS are poised to remain the most dynamic parts of the ECE region. However, the outlook for 2003 as a whole in eastern Europe has deteriorated somewhat since the assessments made at the beginning of the year. The more optimistic expectations about the economy of the euro area have failed to materialize and in some east European economies growth has fallen below expectations. As discussed above, growth in many of the region's economies in 2003 was predominantly consumption-led but this may prove to be unsustainable unless the recent modest recovery in business fixed investment gains momentum and leads the way to a healthier structure of output growth accompanied by further productivity improvements and job creation. There are uncertainties about export growth in the short run in view of the dim prospects for a west European recovery and the increasingly strong competitive pressures coming from Asian producers. In addition, the adverse effects of the poor harvests will only be fully apparent in the second half of the year and in some cases, especially in the more agricultural countries, they may pull down the overall rates of output growth. At the time of writing this Survey, aggregate GDP in the east European region was forecast to increase by 3.6 per cent in 2003 as a whole, compared with the 3.9 per cent expected at the beginning of the year. This mainly reflects the lowering of forecasts in some of the central European economies, in particular the Czech Republic, Hungary and Slovenia (prompted, in turn, by their worse than expected performance in the first half
The ECE Economies in Autumn 2003
of the year). Growth forecasts were lowered also in Estonia and Romania. In other countries such as Bosnia and Herzegovina and Serbia and Montenegro, GDP growth for the year as a whole is also expected to fall short of earlier forecasts. In contrast, Poland's economy (with a considerable weight in aggregate regional output) has been recovering faster than expected, and there has been a slight upward revision in the GDP forecast for the year as a whole. Similarly, the official forecasts for Lithuania and for Latvia have also been raised. The speed of the recovery in the CIS region in the early months of 2003 has prompted upward revisions of growth forecasts. According to the official forecasts available in mid-October, aggregate GDP in the CIS was expected to grow by 6.3 per cent in 2003 as a whole, substantially above the 4.4 per cent forecast at the beginning of the year. According to the latest forecasts, Russia's GDP is expected to grow by some 6 per cent in 2003, which is 1.5 percentage points above the January forecast. Growth forecasts have been raised in many of the other CIS countries, in particular Armenia, Kazakhstan and Ukraine, among others. If the present rates of growth continue through the end of the year, the growth of aggregate GDP in the CIS in 2003 as a whole may well exceed these revised forecasts. The east European forecasts for 2004 generally assume a more favourable external environment than in 2002 and 2003, and in particular a more solid recovery in western Europe. Consequently, the rate of growth of the region's aggregate GDP is expected to rise to 4.4 per cent. In central Europe it is expected that the strengthening of west European import demand, coupled with the positive effects of EU accession on business and consumer sentiment may well lead to stronger growth next year. The Polish budget for 2004 envisages an acceleration of GDP growth to some 5 per cent, based on the assumption of a further strengthening of the export-led recovery in the manufacturing sector and a notable revival of private fixed investment. In Hungary, the strengthening of GDP growth (to 3.5 per cent) forecast by the authorities presupposes improved competitiveness and profitability resulting from wage moderation and rapid productivity growth, leading to a stronger recovery of business investment and a revival of FDI inflows. The forecast also assumes a significant tightening of fiscal policy - in order to deal with the twin deficit problem - while rising net exports are expected to offset the expected deceleration of private and public consumption. In Slovakia solid growth is expected to continue next year building on dynamic external demand, the confidence-enhancing effects of EU membership, and structural reforms focused on improving the fiscal position and providing better
37
work incentives. The forecast of GDP growth in the Czech Republic in 2004 is more cautious (2.8 per cent) in view of the difficult policy choices related to the threat of unsustainable twin deficits. The forecasts for the Baltic states in 2004 are sanguine, with rates of GDP growth expected at around 6 per cent, comparable to those in recent years. According to official forecasts, growth in south-east Europe is expected to pick up to 4.6 per cent, although differences in performance among the individual countries are likely to remain considerable. There are, however, serious downside risks to these rather optimistic forecasts. In the short run, the most serious risk for east European growth in general would be another delay to recovery in western Europe. In addition, if the efforts to consolidate public finances in central Europe fail to arrest the current fiscal expansion, this may provoke a tightening of monetary policy (driven by the policy effort of meeting the Maastricht targets), with negative consequences on economic activity. In the longer term, growth in the region will be decisively influenced by the progress achieved in implementing key structural reforms, particularly of the financial, labour and product markets. In the CIS, some moderation of growth rates is expected in 2004, with aggregate GDP increasing by some 5 per cent. This reduction in the average rate of GDP growth reflects expectations of some slowdown in the region's largest economies (in the first place, Russia), which, in turn, is largely related to uncertainties surrounding the external environment. Thus, the government agencies responsible for preparing economic forecasts for Russia have produced a range of scenarios for 2004, with the expected rate of GDP growth ranging from 3.8 per cent to 5.2 per cent, depending on the future of world oil prices. Russia's budgetary framework for 2004 is based on the high projection which envisages a GDP growth rate of 5.2 per cent. Russia's public finances are expected to continue to remain in surplus (which as of next year will be allocated to a special stabilization fund), while monetary policy will remain moderately expansionary, trying to strike a balance between the policy goals of gradual disinflation, on the one hand, and the prevention of a strong real appreciation of the rouble, on the other. Ukraine's budget for 2004 is based on the assumption that real GDP will grow by 4.8 per cent, which is at the lower end of the earlier range of official forecasts. Economic growth is expected to remain strong in Kazakhstan, albeit at a somewhat slower pace than in the period 2001-2003: the macroeconomic framework for the 2004 budget envisages a rate of GDP growth of some 7 per cent. Rates of GDP growth ranging between 4 and 7 per cent are expected for most of the other CIS economies.
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PART TWO SUSTAINABLE DEVELOPMENT IN THE ECE REGION PAPERS FROM THE ECE SPRING SEMINAR, MARCH 2003
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41
INTRODUCTION AND SUMMARY OF DISCUSSION Economic Analysis Division, UNECE
This part of the Survey consists of contributions to the sixth Spring Seminar, held in Geneva on 3 March 2003 and focusing on sustainable development in the ECE region. Sustainable development is difficult to define in non-tautological terms and even harder to analyse, as any long-term process involves qualitative change with unforeseen consequences. The Seminar presentations focus primarily on the quantitative relationships between economic growth and the natural environment in a number of ECE countries at the economy-wide and industry levels. The environmental effects of growth are analysed with the aid of applied models that estimate the links between income and emission levels, energy prices and intensities, etc. This kind of "technical" analysis involves important efficiency versus equity choices that permeate the contributions, sometimes explicitly and often implicitly. The two-session seminar opened with a paper on "Economic growth and the environment" by Theodore Panayotou, of Harvard University and Cyprus International Institute of Management. The author argues that there exists an inverted U-shaped relationship between economic development and environmental degradation, known in the literature as the environmental Kuznets curve (EKC). The EKC implies that the relationship between economic growth and environmental deterioration is positive (i.e. pollution increases with growth) up to a certain level of per capita income and inverse (i.e. pollution declines with growth) beyond this threshold. The paper examines empirical evidence for the advanced economies, and this appears to be broadly consistent with the EKC hypothesis in some instances (e.g. sulphur dioxide or SO2 emissions) and inconclusive in others (e.g. carbon dioxide or CO2 emissions). It then describes how the partial decoupling of economic growth from environmental deterioration, observed in recent decades within the ECE region, has resulted from shifts in economic activity from the goodsproducing sectors to services. In the advanced economies, this structural change has co-existed with a growing use of less pollution-intensive technology, stimulated either directly through emission standards and other mandatory rules or indirectly through taxadjusted prices that better reflect the social opportunity
costs of production and consumption activities. In contrast, environmental progress in the transition economies of the ECE region in the 1990s reflected mainly a rapid decline of traditional material-intensive manufacturing and mining sectors and a gradual deregulation of the administered prices that had encouraged the excessive use of energy in the past. The author also reviews research into the determinants of environmental policies. Tentative results indicate that democratic societies achieve better environmental outcomes than dictatorial regimes. In the concluding part of Panayotou's paper, a number of recommendations are proposed to encourage environment-friendly patterns of structural and technological changes. Some of them are standard policy recommendations, including the use of economic instruments (e.g. taxes) to align better the private and social costs of goods and services with strong externalities. Another recommendation calls for the preservation of the consumption possibilities of everyone affected by this relative price adjustment, something that could perhaps be accomplished with the aid of transfers financed from the additional revenues raised by environmental taxes. Other recommendations include a reduction of income inequality and social exclusion as well as the strengthening of democracy and the rights of citizens, although it is not shown how such outcomes might be achieved. Some of the recommendations in the paper may be difficult to achieve in the light of the trade-offs between environmental goals and equity objectives. For instance, consider the imposition of an excise tax on gasoline to achieve optimal final prices that reflect the negative external effects of combustion. This environment-friendly measure affects both rich and poor car drivers, reducing their consumption possibilities. But if the extra revenue is used to compensate all those affected by the tax hike, how will the reduction of income inequality, advocated by Panayotou, be financed? Richard Herd (OECD) makes three substantive points in his comments on Panayotou's paper. First, recent research questions the validity of EKC estimates both on empirical and methodological grounds. Contrary to the EKC hypothesis, the relationship between income and pollution is sometimes U-shaped
42
and in some instances there appears to be no clear-cut correlation. In some of the OECD countries investigated, estimates based on individual time series fail to identify any turning point, in others it appears at much higher levels than implied by earlier investigations, and so on. Second, although emissions of a number of harmful substances declined or stabilized over the last two decades, the generation of municipal waste and greenhouse gases (GHGs) has continued to grow. Third, Herd suggests that the failure to break the link between growth and GHG emissions may be due to the continued absence of abatement technology with a favourable cost-benefit ratio and the lack of significant changes in consumption and production patterns. Tomasz Zylicz (Warsaw University) points out that Panayotou's paper fails to address one important issue, namely the possibility of pollution shifts through international trade. Indeed, it would be desirable to know more about the environmental effects of massive changes in the multinational supply chain driven by foreign direct investment in low-cost economies. If foreign investors take advantage of less stringent or non-existent emission standards in host countries, then the question is what level of abatement is optimal and how it can be achieved. Another shortcoming of Panayotou's paper, according to Zylicz, is the failure to explore the Porter hypothesis that strict environmental regulations are more conducive to business development than weak ones. Finally, Zylicz emphasizes the need for cost-effective environmental policies in transition economies, taking full advantage of the market mechanism through environmental taxes and tradeable permits. Kaj Barlund (UNECE) notes that Panayotou's reflections on the relevance of institutions such as democratic structures are important for policy makers. He also claims that consumption patterns in advanced countries are unsustainable as they generate increasing amounts of waste leading to further environmental degradation and must be changed through better education. The second session started with a presentation of a paper entitled "Sectoral dimensions of sustainable development: energy and transport" by David Newbery of Cambridge University. In his paper he describes an historical shift in advanced economies from traditional energy policy, aiming to ensure the security of supply with the aid of state owned or state controlled utilities, to market-friendly regulation allowing for competition among partly or fully privatized energy producers and distributors. He points out that this kind of liberalization is compatible with environmental objectives, providing that the regulators ensure that energy users pay full-cost prices, i.e. prices that internalize negative external effects. The most straightforward method to reduce the amount of energy-related pollutants to a socially optimal level
_ Economic Survey of Europe, 2003 No. 2
is to impose excise taxes that correct market prices to levels that include all external costs. In practice, some externalities can be measured more reliably than others, and so standards also have a role to play in the new energy policy. Newbury demonstrates the paramount importance of pricing on energy use in a number of ECE countries. While it may be obvious that real energy prices are inversely related to energy intensities, it is less intuitive that energy price elasticities increase significantly (in absolute terms) in the long run. The adjustment of an economy to changing relative prices is slow because it takes a long time to rebuild capital stocks; this point is well illustrated by the experience of transition economies that continue to use significantly more energy per unit of GDP than their advanced counterparts. Newbery emphasizes that sustainability can be achieved more efficiently by targeted taxes on harmful pollutants associated with energy use than by continued increases of the relative price of energy. His paper examines the actual experience of ECE countries with environmental taxes and standards pertaining to diverse pollutants and concludes that market-oriented policies are preferable to government controls. Newbery notes that in many cases relative prices in the energy sector are still not in harmony with the objective of sustainable development. For instance, policy makers in some advanced and many transition economies have been reluctant to abolish energy subsidies to households. Similarly, many ECE countries continue to tax diesel at preferential rates and subsidize coal production for power generation, despite adverse environmental effects. Although the thrust of Newbery's policy recommendations is straightforward, some important questions concerning their implementation remain open. For instance, if governments in the less advanced transition economies were to allow the internal energy prices faced by households to rise rapidly to world market levels, as advocated by Newbery, there would be a significant reduction in the living standards of a large part of the population. Some form of compensation would therefore have to be provided to avoid widespread destitution and the risk of social unrest, but it is unclear how this could be done effectively in the absence of a competent bureaucracy and reliable statistical information. Thomas B. Johansson (Lund University) emphasizes in his brief reflection on Newsbury's contribution that the principal challenge is to move away from the dependence on oil and argues that market solutions can be relied on to improve energy efficiency only to a limited extent, given the presence of moral hazard problems. George Kowalski (UNECE) observes that the decoupling of economic
Introduction and Summary of Discussion
growth from energy consumption and CO2 emissions in the developed market economies resulted from both declining energy intensity and inter-fuel substitution, a point also made in Newbury's paper. According to Kowalski, these gains have been diminishing since the 1980s. The principal challenge to policy makers is to stabilize concentrations of CO2 in the atmosphere. To achieve this objective, he advocates the use of economic instruments such as emissions trading and stricter efficiency standards in the short run as well as strong public investment in research and development in the long run. The last two contributions focus on the transport sector. Inge Mayeres (Catholic University Leuven) shows in her comments that the ideal solution of optimal taxes on emissions is unattainable sensu stricto but some taxing and pricing schemes evidently result in significant welfare gains and are superior to a further tightening of emission standards. Furthermore, she points out that governments ought to consider the full impact of their transport policies on overall efficiency and equity objectives. For instance, if one is more concerned with efficiency (equity), then one should use the extra revenue raised from charges on transport-related emissions to reduce the taxation of labour (increase social transfers). Jose Capel Ferrer (UNECE) points out that ECE motor vehicle regulations, implemented both inside and outside the ECE region, have significantly reduced the emission of diverse pollutants. This remarkable success was achieved with the aid of cost-effective abatement technology. However, such technology is not available for all pollutants, while tighter safety regulations have resulted in increased vehicle weight and thus higher
43
fuel consumption. Capel Ferrer agrees with Newbury that additional net social benefits from lower pollution can be achieved with the aid of targeted taxes and road pricing, but he also advocates measures to promote public transport and improve land use planning. To sum up, all the contributing participants seem to agree that, whenever feasible, the use of economic instruments is preferable to administrative measures (controls and commands). Most would also agree that efficient abatement ought to balance carefully marginal costs and benefits to achieve socially optimal outcomes. Provided that the external costs of economic activities can be estimated with reasonable accuracy, then excise taxes can be fairly efficient instruments to correct prices. If the authorities target efficiency rather than equity, then the best policy for sustainable development would be to use the extra revenue generated by the charges on polluting activities to cut the tax burden on labour that remains heavy in many ECE countries, including the transition economies. This, coupled with labour market and welfare reforms, should stimulate higher levels of employment, including of low-skilled adults suffering from social exclusion. That could accelerate the growth in per capita income and, perhaps, lessen pollution if the EKC becomes more relevant as a result of technical progress improving the cost-benefit ratio of abatement. The underlying catchup process with full employment would be consistent with a more equitable income distribution in transition countries where the share of labour in national income remains well below the levels in the more advanced economies.
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CHAPTER 2 ECONOMIC GROWTH AND THE ENVIRONMENT Theodore Panayotou 2.1 Introduction Will the world be able to sustain economic growth indefinitely without running into resource constraints or despoiling the environment beyond repair? What is the relationship between a steady increase in incomes and environmental quality? Are there trade-offs between the goals of achieving high and sustainable rates of economic growth and attaining high standards of environmental quality? For some social and physical scientists such as GeorgescuRoegen55 and Meadows et al.,56 growing economic activity (production and consumption) requires larger inputs of energy and material, and generates larger quantities of waste by-products. Increased extraction of natural resources, accumulation of waste and concentration of pollutants will therefore overwhelm the carrying capacity of the biosphere and result in the degradation of environmental quality and a decline in human welfare, despite rising incomes.57 Furthermore, it is argued that degradation of the resource base will eventually put economic activity itself at risk. To save the environment and even economic activity from itself, economic growth must cease and the world must make a transition to a steady-state economy. At the other extreme, are those who argue that the fastest road to environmental improvement is along the path of economic growth: with higher incomes comes increased demand for goods and services that are less material intensive, as well as demand for improved environmental quality that leads to the adoption of environmental protection measures. As Beckerman puts it, "The strong correlation between incomes, and the extent to which environmental protection measures are adopted, demonstrates that in the longer run, the surest way to
N. Georgescu-Roegen, The Entropy Law and the Economic Process (Cambridge, Harvard University Press, 1971). 56 D.H. Meadows, D.L. Meadows, J. Randers and W. Behrens, The Limits to Growth (London, Earth Island Limited, 1972).
H. Daly, Steady-state Economics (San Francisco, Freeman & Co., 1977); Second Edition (Washington, D.C., Island Press, 1991).
improve your environment is to become rich".58 Some went as far as claiming that environmental regulation, by reducing economic growth, may actually reduce environmental quality.59 Yet, others60 have hypothesized that the relationship between economic growth and environmental quality, whether positive or negative, is not fixed along a country's development path; indeed it may change sign from positive to negative as a country reaches a level of income at which people demand and afford more efficient infrastructure and a cleaner environment. The implied inverted-U relationship between environmental degradation and economic growth came to be known as the "environmental Kuznets curve," by analogy with the incomeinequality relationship postulated by Kuznets.61 At low levels of development, both the quantity and the intensity of environmental degradation are limited to the impacts of subsistence economic activity on the resource base and to limited quantities of biodegradable wastes. As agriculture and resource extraction intensify and industrialization takes off, both resource depletion and waste generation accelerate. At higher levels of development, structural CO
W. Beckerman, "Economic growth and the environment: whose growth? whose environment?", World Development, Vol. 20, No. 1, April 1992, pp. 481-496, as quoted by S. Rothman, "Environmental Kuznets curves - real progress or passing the buck? A case for consumption-based approaches", Global Economics, 1998, p. 178. S9
B. Barlett, "The high cost of turning green", Wall Street Journal, 14 September 1994. N. Shafik and S. Bandyopadhyay, Economic Growth and Environmental Quality: Time-Series and Cross-Country Evidence, World Bank Policy Research Working Paper, No. 904 (Washington, D.C.), June 1992; T. Panayotou, Empirical Tests and Policy Analysis of Environmental Degradation at Different Stages of Economic Development, ILO Technology and Employment Programme Working Paper, WP238 (Geneva), 1993; G. Grossman and A. Kreuger, "Environmental impacts of a North American free trade agreement", The U.S.-Mexico Free Trade Agreement (Cambridge, MA, The MIT Press, 1993); T. Selden and D. Song, "Environmental quality and development: is there a Kuznets curve for air pollution emissions?", Journal of Environmental Economics and Management, Vol. 27, Issue 2, September 1994, pp. 147-162. S. Kuznets, Economic Growth and Structural Change (New York, Norton, 1965) and Modern Economic Growth (New Haven, Yale University Press, 1966).
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CHART 2.1.1 The environmental Kuznets curve: a development-environment relationship
change towards information-based industries and services, more efficient technologies, and increased demand for environmental quality result in levelling-off and a steady decline of environmental degradation,62 as seen in chart 2.1.1. The issue of whether environmental degradation i) increases monotonically, ii) decreases monotonically, or iii) first increases and then declines along a country's development path, has critical implications for policy. A monotonic increase of environmental degradation with economic growth calls for strict environmental regulations and even limits on economic growth to ensure a sustainable scale of economic activity within the ecological life-support system.63 A monotonic decrease of environmental degradation along a country's development path suggests that policies that accelerate economic growth lead also to rapid environmental improvements and no explicit environmental policies are needed; indeed, they may be counterproductive if they slow down economic growth and thereby delay environmental improvement. Finally, if the environmental Kuznets curve hypothesis is supported by evidence, development policies have the potential of being environmentally benign over the long run (at high incomes), but they are also capable of significant environmental damage
T. Panayotou, Empirical Tests and Policy Analysis..., op. cit. 63
K. Arrow, B. Bolin, R. Costanza, P. Dasgupta, C. Folke, C. Holling, B. Jansson, S. Levin, K. Ma'ler, C. Perings and D. Pimental, "Economic growth, carrying capacity and the environment", Science, Vol. 268, 1995, pp. 520-521.
in the short-to-medium run (at low-to-medium-level incomes). In this case, several issues arise: i) at what level of per capita income is the turning point? ii) How much damage would have taken place, and how can it be avoided? iii) Would any ecological thresholds be violated and irreversible damage take place before environmental degradation turns down, and how can they be avoided? iv) Is environmental improvement at higher income levels automatic, or does it require conscious institutional and policy reforms? And v), how to accelerate the development process so that developing and transition economies can attain the same improved economic and environmental conditions enjoyed by developed market economies? The objective of this paper is to examine the empirical relationship between economic growth and the environment at different stages of economic development and explore how economic growth might be decoupled from environmental pressures. Particular attention is paid to the role of structural change, technological change and economic and environmental policies in the process of decoupling and the reconciliation of economic and environmental objectives. I then examine the experience of the ECE region in fostering environmentally friendly growth, whether and how it has been possible to decouple economic growth from environmental pressures in the ECE region. What has been the role of structural change, technological change and policy instruments in this decoupling for the two major groups of countries that constitute the ECE region, the developed market economies and the economies in transition?
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2.2 Empirical models of environment and growth The environment-growth debate in the empirical literature has centred on the following five questions. First, does the often-hypothesized inverted-U-shaped relationship between income and environmental degradation, known as the environmental Kuznets curve, actually exist, and if so how robust and general is it? Second, what is the role of other factors, such as population growth, income distribution, international trade and time-and-space-dependent (rather than income-dependent) variables? Third, how relevant is a statistical relationship estimated from cross-country or panel data to an individual country's environmental trajectory and to the likely path of today's developing countries and transition economies. Fourth, what are the implications of ecological thresholds and irreversible damages for the inverted-U-shaped relationship between environmental degradation and economic growth? Can a static statistical relationship be interpreted in terms of carrying capacity, ecosystem resilience and sustainability? Finally, what is the role of environmental policy both in explaining the shape of the income-environment relationship, and in lowering the environmental price of economic growth and ensuring more sustainable outcomes? Empirical models of environment and growth consist usually of reduced form single-equation specifications relating an environmental impact indicator to a measure of income per capita. Some models use emissions of a particular pollutant (e.g. SO2, CO2 or particulates) as dependent variables, while others use ambient concentrations of various pollutants as recorded by monitoring stations; yet other studies employ composite indexes of environmental degradation. The common independent variable of most models is income per capita, but some studies use income data converted into purchasing power parity (PPP), while others use incomes at market exchange rates. Different studies control for different variables, such as population density, openness to trade, income distribution and geographical and institutional variables. The functional specification is usually quadratic, log quadratic or cubic in income and environmental degradation. They are estimated econometrically using cross-section or panel data and many test for country and time-fixed effects. The ad hoc specifications and reduced form of these models turn them into a "black box" that shrouds the underlying determinants of environmental quality and circumscribes their usefulness in policy formulation. There have been some recent efforts to study the theoretical underpinnings of the environment-income relationship and some modest attempts to decompose the income-environment relationship into its
constituent scale, composition and abatement effects. However, as Stern64 has concluded, there has been no explicit empirical testing of the theoretical models and still we do not have a rigorous and systematic decomposition analysis. I proceed with an overview of the theoretical microfoundations of the empirical models, followed by a survey of studies whose primary purpose is to estimate the income-environment relationship. I then survey attempts at decomposition analysis followed by studies that focus on mediating or conditioning variables, such as international trade, as well as on ecological and sustainability considerations and issues of political economy and policy. Finally, I review the experience of the ECE region in terms of the growth and environment relationship and efforts to decouple the two.
2.3 Theoretical underpinnings of empirical models The characteristics of production and abatement technology, and of preferences and their evolution with income growth, underlie the shape of the incomeenvironment relationship. Some authors focus on shifts in production technology brought about by the structural changes accompanying economic growth.65 Others have emphasized the characteristics of abatement technology.66 And yet others have focused on the properties of preferences and especially the income elasticity for environmental quality.67 A few authors have formulated complete growth models with plausible assumptions about the properties of both technology and preferences from which they derive environmental Kuznets curves (EKCs).68 In this section, I shall briefly review the main theoretical strands of the Kuznets curve literature.
D. Stern, "Progress on the environmental Kuznets curve?". Environment and Development Economics, Vol. 3, 1998, pp. 173-196. G. Grossman and A. Kreuger, "Environmental impacts...", op. cit.; T. Panayotou, Empirical Tests and Policy Analysis..., op. cit. T. Selden and D. Song, op. cit.; J. Andreoni and A. Levinson, The Simple Analytics of the Environmental Kuznets Curve, NBER Working Paper, No. 6739 (Cambridge, MA), September 1998. K. McConnell, "Income and the demand for environmental quality", Environment and Development Economics, Vol. 2, November 1997, pp. 383-400; B. Kristrom and P. Riera, "Is the income elasticity of environmental improvements less than one?", Environmental and Resource Economics, Vol. 7, Issue 1, pp. 45-55, January 1996; J. Antle and G. Heidebrink, "Environment and development: theory and international evidence", Economic Development and Cultural Change, Vol. 43, April 1995, pp. 603-625. R. Lopez, "The environment as a factor of production: the effects of economic growth and trade liberalization", Journal of Environmental Economics and Management, Vol. 27, Issue 2, September 1994, pp. 163184; T. Selden and D. Song, op. cit.
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The model by Lopez69 consists of two production sectors, with weak separability between pollution and other factors of production (labour and capital), constant returns to scale and technical change and prices that are exogenously determined. When producers free ride on the environment or pay fixed pollution prices, growth results inescapably in higher pollution levels. When producers pay the full marginal social cost of the pollution they generate, the pollutionincome relationship depends on the properties of technology and of preferences. With homothetic preferences pollution levels still increase monotonically with income; with non-homothetic preferences, the faster the marginal utility declines with consumption levels and the higher the elasticity of substitution between pollution and other inputs, the less pollution will increase with output growth. Empirically plausible values for these two parameters result in an inverted-U-shaped relationship between pollution and income. This tends to explain why in the case of pollutants such as SO2 and particulates, where the damage is more evident to consumers and, hence, pollution prices are near their marginal social costs, turning points have been identified at relatively lowincome levels. In contrast, turning points are found at much higher income levels, or not at all, for pollutants such as CO2, from which damage is less immediate and less evident to consumers, and hence underpriced, if priced at all. Selden and Song,70 using Forster's71 growth and pollution model with a utility function that is additively separable between consumption and pollution, derive an inverted-U path for pollution and a J-curve for abatement that starts when a given capital stock is achieved; that is, expenditure on pollution abatement is zero until "development has created enough consumption and enough environmental damage to merit expenditures on abatement".72 Two sets of factors contribute to an early and rapid increase in abatement: i) on the technology side, large direct effects of growth on pollution and a high marginal effectiveness of abatement, and ii) on the demand side (preferences), rapidly declining marginal utility of consumption and rapidly rising marginal concern over mounting pollution levels. To the extent that development reduces the carrying capacity of the environment, the abatement effort must increase at an increasing rate to offset the effects of growth on pollution. R. Lopez, op. cit. 70
T. Seldon and D. Song, op. cit.
B. Forster, "Optimal capital accumulation in a polluted environment", The Review of Economic Studies, Vol. 39, 1973, pp. 544547. T. Selden and D. Song, op. cit., p. 164.
A number of empirical EKC models have emphasized the role of the income elasticity of demand for environmental quality as the theoretical underpinning of the inverted-U-shaped relationship between pollution and income.73 Arrow et al.74 state that because the inverted-U-shaped curve "is consistent with the notion that people spend proportionately more on environmental quality as their income rises, economists have conjectured that the curve applies to environmental quality generally". A number of earlier studies75 found income elasticities for environmental improvements greater than one. Kristrom76 reviewed the evidence from contingent valuation method (CVM) studies77 that found income elasticities for environmental quality much less than one. Does the finding of a low-income elasticity of demand for environmental quality present a problem for EKC models? McConnell78 examines the role of the income elasticity of demand for environmental quality in EKC models by adapting a static model of an infinitely lived household in which pollution is generated by consumption and reduced by abatement. He finds that the higher the income elasticity of demand for environmental quality, the slower the growth of pollution when positive, and the faster the decline when negative, but there is no special role assigned to income elasticity equal to or greater than one. In fact, pollution can decline even with a zero or negative income elasticity of demand, as when preferences are non-additive or pollution reduces output (e.g. reduced labour productivity because of damage to health, material damage due to acid rain or loss of crop output due to agricultural externalities). He concludes that preferences consistent with a positive income elasticity of demand for environmental quality, while helpful, are neither necessary nor sufficient for an inverted-Ushaped relationship between pollution and income. McConnell found little microeconomic evidence in non-valuation studies that supports a major role for the
W. Beckerman, op. cit.; J. Antle and G. Heidebrink, op. cit.; S. Chaudhuri and A. Pfaff, "Household income, fuel choice and indoor air quality: microfoundations of an environmental Kuznets curve", Columbia University Department of Economics, 1998, mimeo. 74
K. Arrow et al., op. cit., p. 520.
T. Boercherding and R. Deacon, "The demand for the services of non-federal governments", American Economic Review, Vol. 62, 1972, pp. 891-901; T. Bergstrom and R. Goodman, "Private demands for public goods", American Economic Review, Vol. 63, No. 3, 1973, pp. 280-296; A. Walters, Noise and Prices (Oxford, Oxford University Press, 1975). B. Kristrom and P. Riera, op. cit. R. Carson, N. Flores, K. Martin and J. Wright, Contingent Valuation and Revealed Preference Methodologies: Comparing the Estimates for Quasi-public Goods, University of California, Department of Economics, Discussion Paper No. 94-07 (San Diego), 1994. K. McConnell, op. cit.
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responsiveness of preferences to income changes in macroeconomic EKC models. Kristrom,79 interpreting the EKC as an equilibrium relationship in which technology and preference parameters determine its exact shape, proposed a simple model consisting of: a) a utility function of a representative consumer increasing in consumption and decreasing in pollution; and b) a production function with pollution and technology parameters as inputs. Technological progress is assumed to be exogenous. He interprets the EKC as an expansion path resulting from maximizing welfare subject to a technology constraint at each point in time; along the optimal path the marginal willingness to pay for environmental quality equals its marginal supply costs (in terms of forgone output). Along the expansion path the marginal utility of consumption, which is initially high, declines and the marginal disutility of pollution (marginal willingness to pay for environmental quality) is initially low and rises. Technological progress makes possible more production at each level of environmental quality, which creates both substitution and income effects. The substitution effect is positive for both consumption and pollution. The substitution effect dominates at low-income levels and the income effect dominates at high-income levels producing an inverted-U-shaped relationship between pollution and income. Of course, the exact shape of the relationship and the turning point, if any, depend on the interplay of the technology and preference parameters, which differ among pollutants and circumstances. In overlapping generation models80 pollution is generated by consumption activities and is only partially internalized as the current generation considers the impact of pollution on its own welfare but not on the welfare of future generations. In these models, the economy is characterized by declining environmental quality when consumption levels are low, but given sufficient returns to environmental maintenance, environmental quality recovers and may even improve absolutely with economic growth. Andreoni and Levinson81 derived inverted-Ushaped pollution-income curves from a simple model
with two commodities, one good and one bad, which are bundled together. Rising income results in increased consumption of the good, which generates more of the bad. This presents consumers with a trade-off: by sacrificing some consumption of the good they can spend some of their income on abatement to reduce the ill effects of the bad. When increasing returns characterize the abatement technology highincome individuals (or countries) can more easily achieve more consumption and less pollution than low-income individuals (or countries), giving rise to an optimal pollution-income path that is inverted-U shaped. The abatement technology is characterized by increasing returns when it requires lumpy investment or when the lower marginal cost technology requires large fixed costs (e.g. scrubbers or treatment plants); poor economies are not large enough or polluted enough to obtain a worthwhile return on such investments and end up using low fixed-cost, high marginal-cost technologies, while rich economies are large enough and polluted enough to make effective use of high fixed-cost, low marginal-cost technologies. Different pollutants have different abatement technologies and correspondingly the incomeenvironment relationship may or may not be an inverted-U shape. The authors argue that similar results are obtained from other "good-bad" combinations, e.g. driving a vehicle associated with a mortality risk that can be abated by investments in safety equipment: "both the poor who drive very little and the rich, who invest in safe cars face lower risk from driving than middle-income people". Indeed, empirically, Khan82 found such an inverted-U-shaped relationship between hydrocarbon emissions and household income in California, and Chaudhuri and Pfaff3 between indoor pollution and household income in Pakistan. In conclusion, while many of the models used in econometric estimations of the environmental Kuznets curve have been ad hoc formulations, there has been no scarcity of theoretical microfoundations of an inverted-U-shape relationship between income and pollution, ranging from production structure, to abatement technology and consumer preferences.
2.4 The basic environmental Kuznets curve 79
B. Kristrom, "On a clear day, you might see the environmental Kuznets curve". Camp Resources (Wilmington, NC), 12-13 August 1999 and "Growth, employment and the environment", Swedish Economic Policy Review, 2000, forthcoming. SO
A. John and R. Pecchenino, "An overlapping generations model of growth and the environment", The Economic Journal, Vol. 104, 1994, pp. 1393-1410; A. John, R. Pecchenino, D. Schimmelpfennig and S. Schreft, "Short-lived agents and the long-lived environment", Journal of Public Economics, Vol. 58, Issue 1, September 1995, pp. 127-141. J. Andreoni and A. Levinson, op. cit.
The 1990s saw the advent of the environmental Kuznets curve hypothesis and an explosion of studies that tested it for a variety of pollutants. In this section, I review the basic EKC studies that focus on the
82
M. Kahn, "A household level environmental Kuznets curve", Economics Letters, Vol. 59, Issue 2, May 1998, pp. 269-273. 83
S. Chaudhuri and A. Pfaff, op. cit.
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income-environment relationship; in subsequent sections I review studies that focus on mediating or conditioning variables. The annex table summarizes 32 empirical studies of the EKC hypothesis and the annex chart depicts these findings in diagrammatic form. The first set of empirical studies appeared independently in three working papers: by Grossman and Krueger84 in an NBER working paper as part of a study of the likely environmental impacts of NAFTA; by Shafik and Bandyopadhyay85 for the World Bank's 1992 World Development Report; and by Panayotou86 in a working paper as part of a study for the International Labour Office. It is reassuring that these early studies found turning points for several pollutants (SO2, NOX and SPM) in a similar income range of $3,00045,000 per capita. Grossman and Krueger87 estimated EKCs for SO2, dark matter (smoke) and suspended particles using the Global Environmental Monitoring System (GEMS) data for 52 cities in 32 countries during the period 1977-1988; per capita GDP data were in purchasing power parity (PPP) terms. For SO2 and dark matter, they found turning points at $4,000$5,000 per capita; suspended particles continually declined even at low-income levels. However, at income levels over $10,000-$ 15,000 all three pollutants began to increase again, a finding which may be an artifact of the cubic equation used in the estimation and the limited number of observations at high-income levels. Shafik and Bandyopadhyay88 estimated EKCs for 10 different indicators of environmental degradation, including lack of clean water and sanitation, deforestation, municipal waste, and sulphur oxides and carbon emissions. Their sample includes observations for up to 149 countries during 1960-1990 and their functional specification includes log linear, log quadratic and logarithmic cubic polynomial forms. They found that the lack of clean water and sanitation declined uniformly with increasing incomes and over time; water pollution, municipal waste and carbon emissions increase; and deforestation is independent of
G. Grossman and A. Kreuger, Environmental Impacts of a North American Free Trade Agreement, NBER Working Paper, No. 3914 (Cambridge, MA), November 1991. 85
N. Shafik and S. Bandyopadhyay, op. cit.
T. Panayotou, Empirical Tests and Policy Analysis of Environmental Degradation at Different Stages of Economic Development, ILO Technology and Employment Programme Working Paper, WP238 (Geneva), 1993. G. Grossman and A. Kreuger, "Environmental impacts...", op. cit. and "Economic growth and the environment", Quarterly Journal of Economics, Vol. 110, Issue 2, May 1995, pp. 353-377. 88
income levels. In contrast, air pollutants conform to the EKC hypothesis with turning points at income levels between $300 and $4,000. Panayotou, using cross-section data and a translog specification, found similar results for these pollutants, with turning points at income levels ranging from $3,000 to $5,000.89 (The lower figures are due to the use of official exchange rates rather than PPP rates.) Panayotou also found that deforestation also conforms to the EKC hypothesis, with a turning point around $800 per capita; controlling for income, deforestation is significantly greater in tropical and in densely populated countries. Cropper and Griffiths,90 on the other hand, using panel data for 64 countries over a 30-year period, obtained a turning point for deforestation in Africa and Latin America between $4,700 and $5,400 (in PPP terms). These turning points are a multiple of those found in the Panayotou and Shafik and Bandyopadhyay studies, a possible consequence of Cropper and Griffith's use of panel data. A study by Antle and Heidebrink,91 which used cross-section data, found turning points of $1,200 (1985 prices) for national parks and $2,000 for afforestation. On the other hand, Bhattari and 92 Hammig, who used panel data on deforestation for 21 countries in Latin America, found an EKC with a turning point of $6,800. Furthermore, earlier studies have controlled for macroeconomic factors, such as the level of indebtedness and for the quality of institutions, which were found to have the expected signs, negative and positive, respectively.93 Returning to urban environmental quality, the mid-1990s saw a large number of studies focusing on airborne pollutants. Selden and Song94 estimated EKCs for SO2, NOX, and SPM and CO using longitudinal data on emissions in mostly developed countries. They found turning points of $8,700 for SO2, $11,200 for NOX, $10,300 for SPM, and $5,600 for CO. These are much higher levels than those found by Grossman and Krueger, a difference that the Oft
T. Panayotou, Environmental Kuznets Curves..., op. cit.; Empirical Tests and Policy Analysis..., op. cit.; "Environmental degradation at different stages of economic development", in I. Ahmed and K. Doeleman (eds.), Beyond Rio (The Environmental Crisis and Sustainable Livelihoods in the Third World) (Basingstoke, MacMillan, 1995). 90
M. Cropper and C. Griffiths, "The interaction of population growth and environmental quality", American Economic Review, Vol. 84, 1994. 91
J. Antle and G. Heidebrink, op. cit.
92
M. Bhattarai and M. Hammig, "An empirical investigation of the environmental Kuznets curve for deforestation in Latin America", paper presented at the SAEA meeting (Lexington, Kentucky), January 2000. 93
Ibid.
94
N. Shafik and S. Bandyopadhyay, op. cit.
T. Seldon and D. Song, op. cit.
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authors explain in terms of the reduction of emissions lagging behind the reduction in ambient concentrations. However, this reasoning does not explain the large difference between their results and those of Panayotou, who also uses emissions data; the use of longitudinal versus cross-section data may help explain part of the difference. Cole, Rayner and Bates95 estimated income-environment relationships for many environmental indicators, including total energy use, transport emissions of SO2, SPM and NO2, nitrates in water, traffic volumes, chlorofluorocarbons (CFC) emissions and methane. They found invertedU-shaped curves only for local air pollutants and CFCs and concluded that "meaningful EKCs exist only for local air pollutants, while indicators with a more global, more indirect, environmental impact either increase with income or else have high turning points with large standard errors". This conclusion would lead one to expect that CO2, the global pollutant par excellence, would increase monotonically with income, at least within any observable income range since the impacts of global warming are (totally) externalized to other countries and future generations. Indeed, earlier studies96 obtained such a result. HoltzEakin and Selden97 estimated EKCs for CO2 using panel data, and found that CO2 emissions per capita do not begin to decline until income per capita reaches $35,000, a result that confirms earlier findings by Shafik.98 However, more recent studies, using better data and more sophisticated estimation techniques, have obtained turning points for CO2 emissions that, while higher than those of local pollutants, are still within the range of observable income levels. Schmalensee, Stoker and Judson99 using a spline regression with 10 piece-wise segments and the Holtz-Eakin and Selden data, obtained an inverted-U-shaped relationship between CO2 emissions and income per capita in 1985 PPP dollars. They found negative CO2 emission elasticities with respect to income per capita at the lowest and highest income splines, and a turning point in the range of $10,000 to $17,000 per capita. Galeotti
95 M. Cole, A. Rayner and J. Bates, "The environmental Kuznets curve: an empirical analysis", Environment and Development Economics, Vol. 2, Issue 4, 1997, pp. 401-416.
N. Shafik and S. Bandyopadhyay, op. cit. 97
D. Holtz-Eakin and T. Selden, "Stoking the fires? CO2 emissions and economic growth", Journal of Public Economics, Vol. 57, Issue 1, May 1995, pp. 85-101. 98
N. Shafik, "Economic development and the environmental quality: an econometric analysis", Oxford Economic Papers, Vol. 46, 1994, pp. 757-773. 99 R. Schmalensee, T. Stoker and R. Judson, "World carbon dioxide emissions: 1950-2050", The Review of Economics and Statistics, Vol. 80, Issue 1, February 1998.
and Lanza100 tested alternative functional specifications for the CO2-income relationship, including Gamma and Weibrill functions as well as quadratic and cubic functions. They found turning points between $15,000 and $22,000 depending on the specification and sample. Another recent study by Sachs, Panayotou and Peterson,101 using a 10 segment piece-wise spline function and panel data for 150 countries during 19601992, found results similar to those of Schmalensee et al. The income elasticity of emissions was low at the lowest income spline, and rose to a maximum at around $11,500 per capita (turning point) and turned negative at incomes of about $17,500. Finding an inverted-U-shaped relationship for an invisible pollutant with much delayed effects and ample scope for fee-riding behaviour is a bit puzzling, but fully explainable by the structural changes that accompany economic growth: from agriculture, to industry, to services, three sectors with different carbon emission intensities. 2.5 Decomposition of the income-environment relationship The income-environment relationship, as specified and tested in much of the literature, is a reduced form function that aims to capture the "net effect" of income on the environment. Income is used as an omnibus variable representing a variety of underlying influences, whose separate effects are obscured. For this reason, some authors have termed the reduced form specification as a "black box" that hides more than it reveals; "without explicit consideration of the underlying determinants of environmental quality, the scope of policy intervention is unduly circumscribed".102 In order to understand why the observed relationship exists, and how it might be influenced, more analytical and structural models of the income-environment relationship are needed. As a first step, it must be recognized that the observed environmental quality is the outcome of the interplay of emissions and abatement within a specific location, and an attempt has to be made to identify the different effects of economic development on environmental quality transmitted through the income variables. 100
M. Galeotti and A. Lanze, "Richer and cleaner? A study on carbon dioxide emissions in developing countries", proceedings from the 22nd IAEE Annual International Conference (Rome), 9-12 June 1999. J. Sachs, T. Panayotou and A. Peterson, Developing Countries and the Control of Climate Change: A Theoretical Perspective and Policv Implications, CAER II Discussion Paper, No. 44 (Cambridge, MA), November 1999. T. Panayotou, "Demystifying the environmental Kuznets curve: turning a black box into a policy tool", Environment and Development Economics, Vol. 2, Issue 4, November 1997, p. 469.
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Panayotou,103 and Islam, Vincent and Panayotou104 identify three distinct structural forces that affect the environment: i) the scale of economic activity; ii) the composition or structure of economic activity; and iii) the effect of income on the demand and supply of pollution abatement efforts. They name the respective effects on the environment: the scale or level effect, the structure or composition effect and the pure income or abatement effect. (Kaufman et al.105 have identified analogous effects.) Algebraically: Ambient pollution level
GDP per unit of area
X
Composition of GDP
X
Abatement efforts
The scale effect on pollution, controlling for the other two effects, is expected to be a monotonically increasing function of income since the larger the scale of economic activity per unit of area the higher the level of pollution, all else equal. The structural change that accompanies economic growth affects environmental quality by changing the composition of economic activity toward sectors of higher or lower pollution intensity. At lower levels of income, the dominant shift is from agriculture to industry with a consequent increase of pollution intensity. At higher incomes, the dominant shift is for industry to services with a consequent decrease in pollution intensity. Hence, the changing share of industry in GDP may be taken to represent structural change. The composition effect is then likely to be a non-monotonic (inverted-U) function of GDP, i.e. as the share of industry first rises and then falls, environmental pollution will first rise and then fall with income growth, controlling for all other influences transmitted through income. Stripped of its scale and composition effects, the income variable represents the "pure" income effect on the demand and supply of environmental quality. On the demand side, at low incomes, increases in income are directed towards food and shelter, and have little effect on the demand for environmental quality; at higher income levels, rising income leads to increased demand for environmental quality since the latter is a normal (if not a superior) good. The Engel's curve for environmental quality translates into an inverted-J curve 103
Panayotou108 specified a cubic functional form for all decomposition effects, and included variables representing population density, the rate of economic growth and a policy variable (quality of institutions). The model was tested with a panel data set for 30 countries, SO2 data being taken from GEMS and PPPadjusted GDP figures from Summers and Heston.109 The decomposition of the income variable into its constituent channels improved the overall fit dramatically, compared with the reduced form equation. The scale of the economy increases SO2 concentrations monotonically, but at a diminishing rate, and it is particularly strong up to income levels of $3 million per square kilometre. The composition effect leads to monotonically increasing SO2 emissions with the increasing share of industry (from 20 per cent to 43 per cent) up to per capita income of $8,000; beyond this level and up to $17,000, the industry share levels off and declines slightly (to 37 per cent) with analogous effects on emissions. (A "tail" effect of rising industry share and SO2 emissions at even higher income levels may be due to the very few observations of countries at this level of income.) Income per capita, stripped of its scale and composition effects, captures only the abatement effect on ambient emissions, which is expected to be negative, at least up to income levels of about $13,000 per capita (again a "tail" upturn is difficult to explain because there are too few observations at the high end of income levels).
Ibid., pp. 465-484.
N. Islam, J. Vincent and T. Panayotou, Unveiling the Incomeenvironment Relationship: An Exploration into the Determinants of Environmental Quality, Harvard Institute for International Development, Development Discussion Paper No. 701, May 1999. 105
relating income and environmental degradation,106 that is, once the scale and composition effects of income growth are controlled for, pollution is a non-increasing function of income reflecting the non-negative elasticity for environmental quality. On the supply side, higher incomes make available the resources needed for increased private and public expenditures on pollution abatement, and induce stricter environmental regulations that internalize pollution externalities. The income variable (stripped of its scale and composition effects) captures the locus of the equilibrium abatement levels, where demand and supply, both income-dependent, are equal. Hence, the abatement effect is expected to be a monotonically decreasing function of income. Chart 2.5.1 depicts these three effects based on Islam, Vincent and Panayotou.107
R. Kaufmann, B. Davidsdottir, P. Pauly and D. Garnham, "The determinants of atmospheric SO2 concentrations: reconsidering the environmental Kuznets curve", Ecological Economics, Vol. 25, Issue 2, May 1998, pp. 209-220.
106
T. Selden and D. Song, op. cit.
107
N. Islam, J. Vincent and T. Panayotou, op. cit.
10
T. Panayotou, curve...", op. cit.
"Demystifying the
environmental
Kuznets
109 R. Summers and A. Heston, "The Penn World Table (Mark 5): an extended set of international comparisons, 1950-1988", Quarterly Journal of Economics, Vol. 106, Issue 2, May 1991, pp. 327-368.
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Panayotou: Economic Growth and the Environment
CHART 2.5.1 Decomposition of income effects on the environment
Aside from being able to explain a larger percentage of the variation in ambient emissions, what is the policy significance of such a decomposition? Panayotou110 demonstrates how a policy variable interacts with the abatement effect of income growth to reduce ambient emissions: a 50 per cent improvement in the efficacy of environmental policies/institutions at income levels between $10,000 and $20,000 reduces ambient SO2 by half; at much lower income levels, the same policy change does not yield the same improvement because the demand (and supply) for environmental quality are relatively dormant. Panayotou concludes that "higher incomes tend to be associated with improved monitoring possibilities and hence, accelerate the speed of social adjustments, which, in turn, lowers the gap between the speed of environmental change and social change".
2.6 International trade An alternative explanation for the downward sloping segment of the inverted-U-shaped relationship between certain pollutants and income per capita may be found in the hypothesized propensity of countries as they get richer to spin-off pollution-intensive products to lower income countries with lower environmental standards, either through trade or direct investment in these countries. If this is true, the past is not a good predictor of the future: developing countries, as Grossman and Krueger111 noted, "will not always be able to find still poorer countries to serve as havens for the production of pollution-intensive goods". There is
T. Panayotou, "Demystifying curve...", op. cit, p. 482.
the
environmental
Kuznets
G. Grossman and A. Kreuger, "Economic growth and the environment", Quarterly Journal of Economics, Vol. 110, No. 2, 1995, pp. 353-377.
little evidence, however, that either the patterns of trade or the location of investment are significantly influenced by different environmental standards among countries.112 This is not to say that environmental dumping does not take place, but that it has not been significant enough to explain the observed reductions of pollution in developed countries, where economic growth has continued. Hettige, Lucas and Wheeler113 observed that there is some evidence of an "industrial displacement effect" for the dirtier industries as a result of the tightening of environmental regulations in the industrialized countries since 1970. Another contributing factor has been "import protection" in developing countries.114 Thus, countries with high tariffs and quota on chemicals, for example, have had faster rates of growth of toxic intensity in their industrial production mix than those that followed outward oriented policies.115 International trade obscures the link between income and environment in a given country by delinking consumption from production within the country. This has led some authors to take a
J. Tobey, "The effects of domestic environmental policies on world trade: an empirical test", Kyklos, Vol. 43, 1990, pp. 191-209; G. Grossman and A. Kreuger, "Environmental impacts...", op. cit.; A. Jaffe, S. Peterson, P. Portney and R. Stavins, "Environmental regulation and the competitiveness of U.S. manufacturing: what does the evidence tell us?", Journal of Economic Literature, Vol. 33, No. 1, March 1995, pp. 132163; T. Panayotou and J. Vincent, "Consumption and sustainable development", Science, Vol. 276, 1997, pp. 53-55 (also published in Harvard Institute for International Development, Development Discussion Paper No. 567, January 1997). 113 H. Hettige, R. Lucas and D. Wheeler, "The toxic intensity of industrial production: global patterns, trends and trade policy", American Economic Review, Vol. 82, 1992, pp. 478-481. 114
Ibid., p. 480.
115 G. Grossman and A. Kreuger, "Environmental impacts...", op. cit.
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consumption, rather than a production, approach to the income-environment relationship; income changes are seen to drive environmental degradation. Ekins116 argues that when consumption patterns do not change to match shifts in the pattern of production, environmental effects are displaced from one country to another, an opportunity that may not be available to today's least developed countries. Ekins117 tested the EKC hypothesis using a consumption-based aggregate indicator of environmental impacts developed by the OECD to include: local and global pollutants, access to water and sanitation, imports of tropical timber, energy intensity, private road transport, water abstraction, nitrate fertilizer application and threatened species, among others. He found no support for the EKC hypothesis, which is not surprising since the aggregation of so many dissimilar indicators may have eliminated any systematic co-variation with income. Clearly, more work needs to be done to fully understand the role of international trade in mediating the relationship between environment and economic growth. On the one hand, there appears to be little evidence in support of the pollution haven hypothesis; instead, there is increasing evidence that open economies tend to be cleaner than closed economies. On the other hand, a growing body of the ecological economics literature provides evidence that, while the production patterns of developed countries may have grown cleaner over time, their consumption patterns continue to be as environmentally burdensome as ever. To resolve these issues, we need more analytical and disaggregated structural models than the standard reduced-form specifications.
2.7 Thresholds, irreversibility and the quest for sustainability The finding of an environmental Kuznets curve or inverted-U-shaped relationship between income per capita and environmental degradation for a subset of pollutants seems to suggest that countries can outgrow their environmental problems by simply emphasizing economic growth without the need for special attention to the environment itself. While the environment is certain to get worse before it gets better, it seems that channelling a country's limited resources to achieve rapid economic growth and move quickly through and out of the environmentally unfavourable stage of development makes good environmental sense, as well as good economic sense. P. Ekins, "The Kuznets curve for the environment and economic growth: examining the evidence", Environment and Planning, Vol. 29, No. 5, 1997, pp. 805-830. 117
Ibid.
However, the EKC, despite its theoretic microfoundations, is ultimately an empirical relationship, which has been found to exist for some pollutants but not for others. There is nothing inevitable or optimal about the shape and height of the curve. First, the downturn of EKC with higher incomes may be delayed or advanced, weakened or strengthened by policy intervention. It is not the higher income per se which brings about the environmental improvement but the supply response and policy responsiveness to the growing demand for environmental quality, through the enactment of environmental legislation and development of new institutions to protect the environment. Second, since it may take decades for a lowincome country to cross from the upward to the downward sloping part of the curve, the accumulated damage in the meantime may far exceed the present value of higher future growth, and a cleaner environment, especially given the higher discount rates of capital constraint on low-income countries. Therefore, active environmental policy to mitigate emissions and resource depletion in the earlier stages of development may be justified on purely economic grounds. In the same vein, current prevention may be more cost effective than a future cure, even in present value terms; for example, safe disposal of hazardous waste as it is generated may be far less costly than future clean ups of scattered hazardous waste sites. Third, the height of the EKC reflects the environmental price of economic growth: the steeper its upward section, the more environmental damage the country suffers for each increment in its income per capita. While this depends in part on income level (stage of development), the efficiency of markets and policies largely determines the height of the EKC curve. Where markets are riddled with failures (externalities, ill-defined property rights, etc.), or distorted by subsidies of environmentally destructive inputs, outputs and processes, the environmental price of economic growth is likely to be significantly higher than otherwise. Economic inefficiency and unnecessary environmental degradation are two consequences of market and policy failures that are embodied to different degrees in empirically estimated EKCs. Perhaps more importantly, the higher the EKC, the more likely it is that critical ecological thresholds will be crossed and irreversible changes take place.118 For example, tropical deforestation, the loss of biological diversity, extinction of species and destruction of fragile ecosystems and unique natural sites are either physically irreversible or prohibitively costly to reverse. Similarly, the economic and social consequences of 118
T. Panayotou, Empirical Tests and Policy Analysis..., op. cit.
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Panayotou: Economic Growth and the Environment
CHART 2.7.1 The income-environment relationship under different policy and institutional scenarios
Source: T. Panayotou, Empirical Tests and Policy Analysis of Environmental Degradation at Different Stages of Economic Development, ILO Technology and Employment Programme Working Paper, WP238 (Geneva), 1993; "Environmental degradation at different stages of economic development", in I. Ahmed and K. Doeleman (eds.), Beyond Rio (The Environmental Crisis and Sustainable Livelihoods in the Third World) (Basingstoke, MacMillan, 1995); "Demystifying the environmental Kuznets curve: turning a black box into a policy tool", Environment and Development Economics, Vol. 2, Issue 4, November 1997. Note: The environmental Kuznets curve is flattened out by removing environmentally harmful subsidies, internalizing externalities and ensuring a clear definition of and enforcement of property rights over natural resources.
damage to mental development and learning capacity from high lead levels in the blood of school-age children (due to lead emissions) are not easy to reverse, and they are certainly not reversed by switching to unleaded gasoline at later stages of development. Panayotou119 argued that, while an inverted-Ushaped relationship between environmental degradation and income per capita is an empirical reality for many pollutants and an inevitable result of structural and behavioural changes accompanying economic growth, it is not necessarily optimal: "In the presence of ecological thresholds that might be crossed irreversibly, and of complementarities between environmental protection and economic growth, a steep EKC (implying high rates of resource depletion and pollution per unit of incremental GDP per capita) is neither economically nor environmentally optimal, because more of both could be obtainable with the same resources, if better managed".120 In order to reduce the environmental price of economic growth and lower the EKC below ecological thresholds, as
Ibid, and T. Panayotou, "Environmental degradation at different stages...", op. cit. T. Panayotou, "Environmental degradation at different stages...", op. cit., p. 30.
seen in chart 2.7.1, the author recommends the removal of environmentally harmful subsidies (e.g. on energy and transport), better-defined and enforced property rights, full-cost pricing of resources to reflect growing scarcities and the internalization of environmental costs (e.g. through pollution taxes and tradeable permits). Munasinghe is concerned that structural adjustment policies and other economy-wide reforms aimed at accelerating economic growth in poor countries might produce environmental impacts that exceed safe ecological limits. He recommends an "adjustment of the timing and sequencing of policy reforms and complementary measures to address specific distortions and 'tunnel through' the EKC, while cautioning against the temptation of making major changes in economy-wide policies merely to achieve minor environmental (and social) gains".121 Arrow et al.122 drew attention to the everexpanding scale of economic activity, as a result of economic growth, against the finite limits of the
M. Munasinghe, "Making economic growth more sustainable", Ecological Economics, Vol. 15, 1995, pp. 121-124. K. Arrow et al., op. cit.
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carrying capacity of the planet, while recognizing that these limits are neither fixed nor static. In the absence of endogenously generated signals of increasing scarcity (e.g. rising environmental resource prices), economic activity may expand at a pace and scale that overwhelms the much slower expansion of the carrying capacity of the planet, resulting in irreversible damage to the productivity of the resource base, and the unsustainability of economic growth itself. Sustainability of economic activity may also be undermined by the loss of ecosystem resilience that results from growth-driven reductions in the diversity of organisms and the heterogeneity of ecosystems. Discontinuous changes in ecosystem functions, irreversible loss of future options, new uncertainties and increased vulnerability to natural disasters are a few avenues through which reduced ecosystem resilience may impair economic Sustainability. Arrow et al.123 argue for a better understanding of ecosystem dynamics, and recommend reforms to improve the signals received by economic agents, including better-defined property rights and institutions that "provide the right incentives for protecting the resilience of ecological systems". However, given the inherent uncertainties and discontinuities, they also counsel the use of precautionary measures to maintain diversity and the resilience of ecosystems. The EKC relationship, being unidirectional and without feedbacks from the environment to the economy, does not address Sustainability concerns, which would involve long lags and require a dynamic model with reciprocal causality. Moreover, as de Bruyn, van den Bergh and Opschoor pointed out, "the outcomes of statistical analysis cannot be interpreted in terms of ecosystems resilience or carrying capacity".124 They make a modest attempt to introduce dynamics by formulating a growth model based on "intensity-ofuse" analysis, which they estimate for CO2, NOX and SO2 in the Netherlands, the United Kingdom, the United States and west Germany. They find that the time pattern of emissions is correlated with economic growth and any reductions in emissions are attributed to structural and technological change. They then define "sustainable growth" as the rate of economic growth that leads to zero growth in emissions, i.e. any increase in emissions due to scale expansion is offset completely by structural change and technical progress.
TABLE 2.7.1 Sustainable growth rates using income levels of 1990
Netherlands United Kingdom United States West Germany
CO,
NOX
1.8
2.1 1.2 2.6 4.5
1.8 0.3 2.9
SO,
11.2
2.4 3.8 5.2
Source: S. de Bruyn, J. van den Bergh and J. Opschoor, "Economic growth and emissions: reconsidering the empirical basis of environmental Kuznets curves", Ecological Economics, Vol. 25, Issue 2, May 1998, pp. 161-175.
Sustainable growth rates were calculated for each pollutant for the four countries (table 2.7.1). With few exceptions, these rates are significantly lower than the 3 per cent annual growth rate for developed countries and 5 per cent for developing countries that the Bruntland Report125 considered sustainable.
2.8 Political economy and policy Despite a general recognition that the empirical relationship between environmental degradation and income is neither net of policy effects nor immune to policy intervention, very few researchers have attempted to include policy variables into either reduced form or structural models. This is probably due to the lack of data on policy variables in general and environmental policy in particular. For example, Panayotou,126 in one of the few studies that have attempted to incorporate policy variables, used the quality of institutions as proxies for environmental policies. He experimented with a set of five indicators, obtained from Knack and Keefer, of the quality of institutions in general: respect for and enforcement of contracts; efficiency of the bureaucracy; the rule of law; the extent of government corruption; and the risk of appropriation.127 Enforcement of contracts and a composite index of all five variables worked best. It was found that improvements in the quality of institutions (policies) by 10 per cent resulted in a reduction of SO2 emissions by 15 per cent. Having found a much smaller emissions elasticity with respect to economic growth and the density of population, the author argues that the efforts of proenvironment reforms should focus on improving the quality of institutions and policies rather than attempting to slow down economic or population growth. Indeed, Panayotou found that improvements in policy institutions
World Commission on Environment and Development (WCED), Our Common Future (Bruntland Report) (Oxford, Oxford University Press, 1987). 123
Ibid., p. 521.
S. de Bruyn, J. van den Bergh and J. Opschoor, "Economic growth and emissions: reconsidering the empirical basis of environmental Kuznets curves", Ecological Economics, Vol. 25, Issue 2, May 1998, pp. 161-175.
T. Panayotou, curve...", op. cit.
"Demystifying
the
environmental
Kuznets
S. Knack and P. Keefer, "Institutions and economic performance: cross country tests using alternative institutional measures", Economics and Politics, Vol. 7, November 1995, pp. 207-227.
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Panayotou: Economic Growth and the Environment
are likely to have higher payoffs at higher income levels, which also tend to be associated with improved monitoring possibilities. Bhattarai and Hammig,128 using indicators of socio-political institutions from the Freedom House and from Knack and Keefer,129 found that the quality of government institutions has statistically significant negative effects on deforestation, especially in developing countries with publicly managed forests. Strengthening of property rights institutions, such as security of tenure and enforcement of contracts was also found to reduce deforestation pressures, all else equal. While the study of the role of policy in mediating the environment-growth relationship is still in its infancy, the question arises as to what determines environmental policy itself. If it is not simply income dependent but at least in part exogenous, what explains the difference in environmental policies of countries at similar levels of economic development? Torras and Boyce130 examine how various indicators of democracy affect the formation of preferences and mediate between individual preferences and public policy. They show, for example, that when democracy variables are included, income loses some of its significance in explaining variations in emissions. Deacon131 showed that the income-environment relationship varies across political systems and environmental quality tends to be lower in nondemocratic regimes. Since only the elite-specific costs and benefits are usually considered in setting policies in such regimes, one would expect underinvestment in environmental quality and other public goods characterized by non-excludability of benefits. Deacon finds strong empirical evidence for his hypothesis in public investments in roads, public education, access to safe water and sanitation, and unleaded gasoline in a cross-section of 118 countries. Controlling for differences in income (undemocratic countries tend to be poorer) Deacon found statistically significant differences in the provision of public goods and environmental protection between the most democratic regime and each of the other regimes in 56 out of 65 cases, consistent with his hypothesis. Military and police expenditures are the major exceptions among public goods, as they tend to be higher in dictatorial regimes, apparently because they 128
129
M. Bhattarai and M. Hammig, op. cit. S. Knack and P. Keefer, op. cit.
M. Torras and J. Boyce, "Income, inequality and pollution: a reassessment of the environmental Kuznets curve", Ecological Economics, Vol. 25, Issue 2, May 1998, pp. 147-160. R. Deacon, The Political Economy of Environmental Development Relationships, University of California, Department of Economics, Preliminary Framework Working Paper (Santa Barbara), 1999.
are viewed as conferring protection to the privileges of the elite. While Deacon's results are preliminary, they do suggest that political systems and political economy have an autonomous influence on environmental quality, or at any rate they mediate the incomeenvironment relationship. The recent trends towards democratization should have beneficial effects on environmental quality (through a more complete accounting of benefits from public goods), as well as on economic growth, through the introduction of the rule of law and more secure property rights, factors that may also benefit the environment.
2.9 The ECE region The ECE region consists of 55 member countries evenly divided between developed market economies and economies in transition. In terms of level of development as represented by income per capita (an admittedly crude indicator), they range from very poor central Asian countries such as Tajikistan with per capita incomes under $1,000 to very wealthy countries in Europe and North America with incomes in excess of $30,000. In general, transition economies have incomes below $10,000 and developed market economies above $15,000. It can thus be said that economies in transition find themselves to the left of the turning point of the environmental Kuznets curve, that is, on the rising segment of the curve where growth comes at the price of increased environmental damage. In contrast, developed market economies find themselves to the right of the turning point and hence on the falling segment of the EKC (chart 2.9.1). However, it is also possible for low-income countries to improve their environment if they succeed in decoupling environmental pollution and resource use from economic growth. This can be done through structural, technological or policy change, or a combination of all three. The systemic change that the formerly planned economies are undergoing involves a process of decoupling as previously unpriced or mispriced resources are brought into the domain of markets, but this is only temporary. Sustained decoupling can only take place with full-cost pricing that is inclusive of environmental externalities. In an analogous manner, developed market economies often recouple environment and growth through environmentally harmful subsidies to sectors such as energy and transport (chart 2.9.2). The above caveat notwithstanding, developing and transitional economies are bound to pay a higher environmental price for economic growth than developed economies if for no other reason because a) their rate of population growth is generally higher since their demographic transition is not yet complete; and b) their rate of economic growth tends to be higher because
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CHART 2.9.1 Positioning the ECE developed market economies on the environmental Kuznets curve
chart 2.92 dECOUPLING(a)ANDRECOUPLING(b)OFENVIRONMENTANDGROWTHINTRANSITIONANDDEVELOPEDECONOMIESRESPECTIVELY
they are in a process of convergence (catching up with more advanced countries). The process of convergence does involve significant technological and structural changes. However, the decoupling effect of these changes may be offset by scale effects, unless it is reinforced by conscious and aggressive
environmental policies. The demand for such policies, however, tends to be income elastic and thus in low-income ECE countries such demand is likely to be limited. Hence, some form of exogenous inducement (e.g. aid from developed ECE countries) may be necessary to induce a faster rate of decoupling
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Panayotou: Economic Growth and the Environment
of income growth and environment in low-income countries. A similar dichotomy between ECE economies in transition and ECE developed market economies exists with regard to technological change. While developed economies are adopting emerging technologies that contribute to the decoupling of economic growth from pressures on the environment and natural resources, transition economies are still catching up with the environment-intensive technologies of the past, which dominate the transport, energy and industry sectors and cause many environmental problems. Again, in the same way that developed ECE counties can help to reinforce the slow shift of consumer's preference in transitional ECE countries away from environmentintensive products towards more environmental protection, they can also help to accelerate their transition to new environment-friendly technologies such as renewable energy and transport. Ultimately, however, the extent to which more efficient technologies will be adopted depends on the relative prices of different sources of energy, types of fuels and modes of transport, which are determined by markets and governments policies.
2.10 The state of growth and environment in the region
Improvements in energy efficiency in the developed market economies in the ECE region are being offset by the growth of demand for energy, which is satisfied mostly by polluting fossil fuels and only to a small extent by renewable sources. Economies in transition, in contrast, have huge potential for reducing energy intensity and increasing energy efficiency. Restructuring industrial production could improve energy efficiency, reduce pollution and gradually replace obsolete technology. Technology transfer from the advanced market economies can play a key role in this regard. Transport in the ECE developed market economies is characterized by increasing congestion and car-related pollution and an environmentally harmful shift from rail and other public transport to car and air travel. Low road transport prices and inefficient public transport systems discourage behavioural changes towards more sustainable modes and patterns of transport. In the ECE economies in transition the earlier scarcity of private cars and the reliance on public transport is being increasingly replaced by the growing use of cars (many of which are older and more polluting than later models) at the expense of cleaner rail and other less energy-intensive public transport systems.
2.11 Policy response
In the last decade, the developed market economies of the ECE region have had significant growth in GDP per capita and in industrial production accompanied by structural changes and a shift from energy and material-intensive industries to services, leading to a reduction of emissions and energy intensity per unit of GDP by more than 25 per cent in the past 20 years. The economies in transition are beginning to recover from the economic collapse of the 1990s and to grow again but at varying rates. Despite improvements in energy efficiency and levels of energy consumption per capita lower than in the developed market economies, their energy intensities of GDP are three to four times higher due to the large shares of heavy industry and obsolete technology in their economies.
There has been a strong decoupling of energy use from economic growth over the past 20 years, with the economy growing by 17 per cent between 1980 and 1998 and energy use falling by about the same proportion. At the same time, in the OECD countries there has also been a marked decoupling of emissions of local air pollutants from economic growth. Water and resource use continued to grow but more slowly than GDP growth reflecting a relatively weak decoupling of the two. Thus, the decoupling of emissions in OECD and generally in the developed ECE countries has been accomplished through a combination of technological change and strong environmental policies. The latter have included "greening" of fiscal policy, the removal of subsidies to environmentally harmful activities, and the use of economic instruments to internalize environmental cost.
Environmental pressures from increasing consumption are expected to intensify in the coming years despite the shift from heavy industry to services and a reduction in the energy and material intensity of consumer goods. The consumption patterns of economies in transition are expected to follow the same path as that in the developed market economies. Technology cooperation can help to exploit the large potential for the introduction of cleaner technology and less damaging patterns of production.
A number of EU policy initiatives, such as the Broad Economic Policy Guidelines, introduced in 2001, among others, are promoting a gradual but steady and credible change in the level and structure of the tax rates with the aim of ensuring that external costs are fully reflected in prices, thereby addressing most of the fundamental structural problem in the developed countries, the unsustainable patterns of production and consumption. In the energy markets these guidelines aim to use taxes and other market-
60
based instruments to rebalance prices in favour of renewable energy sources and technologies. Other EU initiatives in this direction are the European Climate Change Programme (ECCP), the directive establishing an EU framework for emissions trading, and the Integrated Product Policy (IPP). All the initiatives aim to realign relative prices and stimulate investments in new technologies to promote sustainable development. Member states are encouraged to improve market functioning by addressing market failures such as externalities through the "increased use of marketbased systems in pursuit of environmental objectives as they provide flexibility to industry to reduce pollution in a cost-effective way, as well as encourage technological innovations". Economic instruments, such as gradual but steady and credible changes in the level and structure of tax rates until external costs are fully reflected in prices, are promoted as the most efficient means of decoupling economic growth from pollution, as thereby they drive changes in technology and consumer behaviour (preferences) that lie behind the growth-environment relationship. As exemplified by the energy and transport sectors, the EU decoupling policy consists of demand management through fullcost pricing and the development of more environmentally friendly alternatives by promoting technological innovations. Since 1990 all the economies in transition have made efforts to restructure their energy and transport sectors according to market principles and to raise energy prices closer to economic and international levels. Because of the political sensitivity of energy pricing, however, and the slow pace of reform in many transition economies a gap of 20-85 per cent continues to persist between energy prices in the transition economies and world market prices. For example, electricity prices for households in eastern Europe are only 50 per cent of those in the European Union; for industrial consumers, electricity prices are closer to their economic and international levels, being 20 per cent lower than those of the EU. The United Nations Economic Commission for Europe has repeatedly called upon its members to raise the prices of various energy sources to reflect their true economic costs and to adopt economic instruments to internalize the costs to human health and the environment arising from energy production and consumption. The aim is to decouple emissions from energy use and energy use from economic growth.
2.12 Conclusion The ECE region includes many of the most developed market economies in the world and most of the economies in transition. These two groups of countries are at different stages and levels of development and economic and environmental policy
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integration, yet both groups, for different reasons, have achieved a degree of decoupling of environment and growth. In the developed market economies this has been the result of structural change towards a service economy, of technological change towards less material- and energy-intensive production, and the adoption of new economic and environmental policies to internalize environmental externalities. In the economies in transition, decoupling has been largely the result of industrial restructuring and market reforms to bring the prices of energy, material and other resource inputs closer to their economic and international costs. Despite significant progress towards sustainable development, developed countries still have unsustainable consumption patterns as evidenced by the continued growth of municipal waste and CO2 emissions. As transition economies begin to recover and grow again their emissions and resource use are also increasing although less than proportionately. Their energy intensity of GDP, although declining, continues to be several times higher than that of the developed countries, while their consumption patterns are following those in the more developed economies. A further decoupling of growth and environment, and thus progress towards sustainable development, calls for action on many fronts by both groups of countries as well as cooperation between them especially in the area of technology transfer: • Adoption of an effective mix of economic instruments such as taxes, charges and tradeable permits to correct market and policy failures, internalize environmental and social costs and induce changes in the composition of consumption and production; • Improvements in the efficiency of resource use and the "dematerialization" of the economy; • Changes in the content of economic growth that will involve adjustment costs, which will tend to be greater the faster the rate of change in relative prices; in particular, those who lose need to be compensated by those who benefit; • Introduction of specific policies to preserve the living standards of those directly affected by the required adjustment and to avoid unemployment and social disruption; issues of inequality and social exclusion must be addressed; • Education to encourage industrial and collective responsibility and thereby induce behavioural changes that will support sustainable development; • Strengthening democracy and citizens' rights so that there is a free expression of preferences that will enable civil society to play a full and active role in the formulation of policies, which will induce changes in consumption and production patterns.
Panayotou: Economic Growth and the Environment
The experience of the developed market economies in the ECE region holds valuable lessons for the east European and central Asian economies in transition. First, the transition from a trade-off to a complementary relationship between economic growth and environmental quality is both a long process and one that requires active policy interventions in terms of i) the integration of economic and environmental policies (e.g. the greening of fiscal policy), and ii) the phasing out of environmentally harmful subsidies and the introduction of policy instruments to internalize environmental costs. Second, the battle that can be won on the production side through structural change and technological progress can be lost on the consumption side through wasteful and unsustainable consumption patterns, which are slow to change when environmental damage is remote in space or time, as in the case of climate change. Third, industrial restructuring and market pricing do not guarantee the decoupling of economic growth from environmental pressures; in the presence of environmental
61
externalities, pricing in sectors such as energy and transport (but also agriculture and industry) should reflect not only economic and international costs but also the social costs that have been traditionally ignored by markets and international trade. Last, while command and control regulations have been quite effective in decoupling environment and growth and bringing about significant improvements in environmental quality in the developed market economies of the ECE region, this has been accomplished at an unnecessarily high cost in terms of both the inflexibility of response and the slowness of adjustment to change as well as the lack of incentives for innovation and for going further than just compliance. As the more recent experience of OECD countries demonstrates, combining command and control regulations with a healthy dose of economic instruments is a more cost effective and flexible means of decoupling economic growth from environmental pressures and ensuring sustainable development.
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Economic Survey of Europe, 2003 No. 2
ANNEX CHART Selected estimates of the empirical relationship between income per capita (IPC) and selected indicators of environmental degradation (IED)
(For source and notes see end of chart.)
Panayotou: Economic Growth and the Environment
63
ANNEX CHART (concluded)a Selected estimates of the empirical relationship between income per capita (IPC) and selected indicators of environmental degradation (IED)
Source: N. Shafik and S. Bandyopadhyay, Economic Growth and Environmental Quality: Time-Series and Cross-Country Evidence, World Bank Policy Research Working Papers, No. 904 (Washington, D.C.), June 1992; T. Panayotou, Empirical Tests and Policy Analysis of Environmental Degradation at Different Stages of Economic Development, ILO Technology and Employment Programme Working Paper, WP238 (Geneva), 1993; G. Grossman and A. Kreuger, "Environmental impacts of a North American free trade agreement", The U.S.-Mexico Free Trade Agreement (Cambridge, MA, The MIT Press, 1993); N. Shafik, "Economic development and the environmental quality: an econometric analysis", Oxford Economic Papers, Vol. 46, 1994; T. Selden and D. Song, "Environmental quality and development: is there a Kuznets curve for air pollution emissions?", Journal of Environmental Economics and Management, Vol. 27, Issue 2, September 1994; G. Grossman and A. Kreuger, "Economic growth and the environment", Quarterly Journal of Economics, Vol. 110, Issue 2, May 1995; M. Cole, A. Rayner and J. Bates, "The environmental Kuznets curve: an empirical analysis", Environment and Development Economics, Vol. 2, Issue 4, 1997; R. Schmalensee, T. Stoker and R. Judson, "World carbon dioxide emissions: 1950-2050", The Review of Economics and Statistics, Vol. 80, Issue 1, February 1998; J. Vincent, R. All, et al, Environment and Development in a Resourcerich Economy: Malaysia under the New Economic Policy (Cambridge, MA, Harvard University Press, 1997); R. Carson, Y. Jeon and D. McCubbin, "The relationship between air pollution emissions and incomes: US data", Environment and Development Economics, Vol. 2, Issue 4,1997; S. de Bruyn, J. van den Bergh and J. Opschoor, "Economic growth and emissions: reconsidering the empirical basis of environmental Kuznets curves", Ecological Economics, Vol. 25, Issue 2, May 1998; N. Islam, J. Vincent and T. Panayotou, Unveiling the Income-environment Relationship: An Exploration into the Determinants of Environmental Quality, Harvard Institute for International Development, Development Discussion Paper No. 701, May 1999; J. Sachs, T. Panayotou and A. Peterson, Developing Countries and the Control of Climate Change: A Theoretical Perspective and Policy Implications, CAER II Discussion Paper, No. 44 (Cambridge, MA), November 1999. a
The studies on this page did not cover lack of clean water, lack of urban sanitation or deforestation.
_ Economic Survey of Europe, 2003 No. 2
64
ANNEX TABLE A summary of empirical studies of the environmental Kuznets curve (EKC) hypothesis Author and explanatory indicator 1
Dependent variable II
Linear downward Linear downward Quadratic Quadratic U-inverted Quadratic Quadratic U-inverted Quadratic Quadratic Quadratic U-inverted
Shafik and Bandyopadhyay (1992) GDP/per capita $1 985 PPP
Lack of clean water Lack of urban sanitation Level of particulate matters S02 Changes in forest area Annual rate of deforestation Dissolved oxygen in rivers Municipal waste per capita Carbon emissions per capita
Hettige, Lucas and Wheeler (1992) GDP/per capita $1985
Quadratic U-inverted Toxic intensity of GDP Toxic intensity of industrial output Quadratic
Panayotou (1993) GDP/per capita $1985
S02 NOX SPM Deforestation rate
Grossman and Krueger (1993) GDP/per capita $1985 PPP
Shafik (1994) GDP/per capita $1985 PPP Time series
Selden and Song (1994) GDP/per capita $1985 Population density
Turning point (GDP/per capita) IV
Relation shape III
Remarks V
Declines monotonically Declines monotonically n.a. 3000 n.a. 2000 n.a. n.a. 4000
Sample includes 149 countries for the period 1960-1 990
12790 n.a.
Global; toxic intensity of 80 countries; logarithm
Quadratic U-inverted Quadratic U-inverted Quadratic U-inverted Quadratic U-inverted
3000 5500 4500 1200
Global; emissions per capita; deforestation
S02 SPM Smoke
Cubic N-normal Cubic N-normal Cubic N-normal
a) 4 107; b) 14 000 Decreasing a) 5 000; b) 10 000
Global; GEMS data; urban concentration of pollutants
Lack of safe water Lack of urban sanitation Annual deforestation Total deforestation Dissolved oxygen in rivers Fecal coliform in rivers Ambient SPM Ambient S02 Municipal waste per capita Carbon emission per capita
Linear downward Linear downward Quadratic U-inverted Quadratic U-inverted Linear downward Cubic N-normal Quadratic U-inverted Quadratic U-inverted Linear upward Linear upward
n.a. n.a.
n.a. a)1 375; b) 11 500 3280 3670 n.a. n.a.
Global; World Bank data (World Development Report (WDR) 1992, environmental data appendix); linear, quadratic and cubic logarithm are tested
Cubic N-normal Cubic N-normal Cubic N-normal Cubic N-normal
10700 9600 21800 19100
Cubic N-normal Cubic N-normal Cubic N-normal Cubic N-normal
8900 9800 12000 6200
Quadratic, Africa, U-inverted Latin America, U-inverted Asia, n.a.
4760 5420 n.a.
Quadratic U-inverted Cubic N-normal
35400 28010
Estimation by random effect: S02 SPM NOX CO Estimation by fixed effect: S02 SPM NOX CO
Cropper and Griffiths (1994) GDP/per capita $1985 Wood price Density of rural population
Deforestation rate
Holtz-Eakin and Selden (1995) GDP/per capita $1985
C02
Antle and Heidebrink (1995) GDP/per capita $1985
Total area of parks and protected Quadratic U-inverted areas Quadratic U-inverted Deforestation Quadratic U-inverted Afforestation Total forest area
U-shape pattern U-shape pattern U-shape pattern
Global; data from World Resources Institute (WRI) World Resources 1990-1 991 ;3Q countries in the sample
Regional; 64 countries in the sample; deforestation observed during 1961 -1991; FAQ data
Global; emissions per capita
Data from WDR 1987, environmental data appendix and from WRI World Resources 1990-1991 (For source see end of table.)
65
Panayotou: Economic Growth and the Environment
ANNEX TABLE (continued) A summary of empirical studies of the environmental Kuznets curve (EKC) hypothesis Author and explanatory Indicator
Dependent variable
Relation shape
Turning point (GDP/per capita)
Remarks
1
II
III
IV
V
Grossman and Krueger (1995) GDP/per capita $1985
S02 Smoke Heavy particles Dissolved oxygen Biological oxygen demand Chemical oxygen demand Concentration of nitrates Fecal coliform Total coliform Concentration of lead Cadmium Arsenic Mercury Nickel
Cubic N-normal Cubic N-normal Cubic N-normal Cubic N-normal Cubic N-normal Cubic N-normal Cubic N-normal Cubic N-normal Cubic N-normal Cubic N-normal Cubic N-normal Cubic N-normal Cubic N-normal Cubic N-normal
a) 4 053; b) 14 000 6151 Decreasing 2703 7623 7853 10524 7955 3043 1887 11 632 4900 5047 4113
Global; GEMS data; pollutant concentration in cities and rivers
Panayotou (1997) GDP/per capita $1985 PPP Population density; industrial share; GDP growth; policy
S02
Cubic N-normal
a) 5 000; b) 15 000
The sample includes 30 developed and developing countries for the period 19821994
Roberts and Grimes (1997) GDP/per capita $1987
C02
Quadratic U-inverted
n.a.
World Bank data and Carbon Dioxide Information and Analysis Center data
Cole, Rayner and Bates (1997)
NOX S02 SPM CO NOX of transport sector S02 of transport sector SPM of transport sector Nitrates C02 Energy consumption CFCs and halons Methane (NH4) Municipal waste Transport energy use Traffic volume
Quadratic U-inverted Quadratic U-inverted Quadratic U-inverted Quadratic U-inverted Quadratic U-inverted Quadratic U-inverted Quadratic U-inverted Quadratic U-inverted Quadratic U-inverted Quadratic U-inverted Quadratic U-inverted Quadratic U-inverted Quadratic U-inverted Quadratic U-inverted Quadratic U-inverted
15100(14700) 5 700 (6 900) 8100(7300) 10100(9900) 15100(17600)
Cross-country/regional data from OECD countries
n.a. n.a. 400 000 (4 million) 108200(65300)
Vincent (1997) GDP/per capita Malaysian ringgit 1978 Population density
SPM Biochemical oxygen demand Chemical oxygen demand Ammoniac nitrogen pH Solid particles in rivers
Cubic N-inverted Cubic N-inverted Cubic N-inverted Cubic, n.a. Cubic, n.a. Cubic, n.a.
n.a. n.a. n.a. n.a. n.a. n.a.
Hettige, Mani and Wheeler (1997)
Industrial water pollution
Linear upward
n.a.
Factor level data on industrial water pollution from 12 countries
Carson, Jeon and McCubbin (1997) GDP/per capita $1982
Greenhouse gases Air toxics, 1990 CO NOX S02 Volatile organic carbon Paniculate matter Air toxics, 1988-1994
Linear downward Linear downward Linear downward Linear downward Linear downward Linear downward Linear downward Linear downward
Decreasing Decreasing Decreasing Decreasing Decreasing Decreasing Decreasing Decreasing
Data from 50 states of the United States
Moomaw and Unruh (1997) GDP/per capita $1985
C02 (panel) C02 (for each country)
Cubic N-normal Linear downward
12813; 18333 n.a.
Oak Ridge National Laboratory data and Penn World Tables
9 400 (9 800) 15000(18000) 15600(25000) 25100(62700) 22 500 (34 700) 15400(12600)
(increasing) (decreasing) (increasing) (no form) (no form) (no form)
Malaysia; used data set with observations from late 1970s to early 1990s
(For source see end of table.)
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_Economic Survey of Europe, 2003 No. 2
ANNEX TABLE (continued) A summary of empirical studies of the environmental Kuznets curve (EKC) hypothesis Author and explanatory indicator 1
Dependent variable II
Turning point (GDP/percapita) IV
Relation shape III
Remarks V
Komen, Gerking and Folmer (1997) GDP/per capita $1991
Environment R&D
Linear upward
n.a.
19 countries of the OECD
Ravallion, Heil and Jalan (1997) GDP/per capita $1 985 PPP
Carbon emissions
Cubic N-normal
U-shape pattern
Data are from the Oak Ridge National Laboratory and United Nations Statistical Division
Schmalensee, Stoker and Judson (1998) GDP/per capita $1985 PPP
C02
Log linear
10000
National level panel dataset for 47 countries from 1950 to 1990
Torras and Boyce (1998) GDP/per capita $1985 PPP
S02 Smoke Heavy particles Dissolved oxygen Fecal coliform Access to safe water Access to sanitation
Cubic N-normal Cubic N-normal Cubic N-normal Cubic N-normal Cubic N-normal Cubic N-normal Cubic N-normal
3890 4350 Decreasing Increasing Increasing 11255 10957
GEMS data cover the period 1977-1991
Unruh and Moomaw (1998) GDP/percapita $1985 PPP
C02 emissions
Cubic N-normal
n.a.
Data obtained from Summers and Heston (1991), for 16 countries
Suri and Chapman (1998) GDP/per capita $1985 PPP
Consumption of primary commercial energy per capita, expressed in terms of oil equivalents
Quadratic U-inverted
55000
Data consist of observations of 33 countries over the period 1971-1990; IEA data
Linear logarithm Linear logarithm Linear logarithm
n.a. n.a. n.a.
Data from the Netherlands, United Kingdom, United States and west Germany for various time intervals between 1960 and 1993
de Bruyn, van den Bergh and C02 Opschoor NOX (1998) S02 Economic growth rate Rothman (1998) GDP/per capita $1985 PPP
Food, beverages and tobacco Garment and footwear Gross rent, fuel and power Medical care and services Other commodities
Quadratic U-inverted Quadratic U-inverted Quadratic U-inverted Quadratic U-inverted Quadratic U-inverted
12889 35263 23278 47171
United Nations International Comparison Programme data
Kaufman, Davidsdottir, Pauly and Garnham (1998) GDP/per capita $1985
S02 (cross-section) S02 (fixed effects) S02 (random effects)
Quadratic U-inverted Quadratic U-inverted Quadratic U-inverted
11 577 12500 12175
United Nations Statistical Yearbook 7993 data; panel of international data for 23 countries
Chaudhuri and Pfaff (1998)
Indoor air pollution
Quadratic U-inverted
n.a.
Micro data from the Pakistan Integrated Household Survey 1991
Kahn (1998)
Vehicle hydrocarbon emissions Quadratic U-inverted
35000
Data from the Random Roadside Test, created by the California Department of Consumer Affairs, Bureau of Automotive Repairs
Quadratic U-inverted
n.a.
GEMS data on suspended particulate matter; data contain 901 observations from 23 countries for the period 1977-1988
Quadratic U-inverted
12000
The study combined time series and cross-section national level data to construct a panel with 3,869 observations for the period 1960-1992
Islam, Vincent and Panayotou SPM (1999)
Sachs, Panayotou and Peterson (1999) GDP/per capita $1985 PPP
C02
(For source see end of table.)
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Panayotou: Economic Growth and the Environment
ANNEX TABLE (concluded) A summary of empirical studies of the environmental Kuznets curve (EKC) hypothesis
Author and explanatory indicator I
Dependent variable II
Turning point (GDP/per capita) IV
Relation shape III
Remarks V
Galeotti and Lanza (1999)
C02
Quadratic U-inverted
13260
New data set developed by IEA that covers the period between 1960-1995
Bhattarai and Hammig (2000) GDP/per capita $1998 PPP
Deforestation
Quadratic U-inverted
6800
Data from FAQ, WRI and UNEP for 1980, 1990 and 1995. National income, exchange rates and trade data taken from Penn World Tables, Summers and Heston(1991).
Source: N. Shafik and S. Bandyopadhyay, Economic Growth and Environmental Quality: Time-Series and Cross-Country Evidence, World Bank Policy Research Working Papers, No. 904 (Washington, D.C.), June 1992; H. Hettige, R. Lucas and D. Wheeler, "The toxic intensity of industrial production: global patterns, trends and trade policy", American Economic Review, Vol. 82,1992; T. Panayotou, Empirical Tests and Policy Analysis of Environmental Degradation at Different Stages of Economic Development, ILO Technology and Employment Programme Working Paper, WP238 (Geneva), 1993; G. Grossman and A. Kreuger, "Environmental impacts of a North American free trade agreement", The U.S.-Mexico Free Trade Agreement (Cambridge, MA, The MIT Press, 1993); N. Shafik, "Economic development and the environmental quality: an econometric analysis", Oxford Economic Papers, Vol. 46, 1994; T. Selden and D. Song, "Environmental quality and development: is there a Kuznets curve for air pollution emissions?", Journal of Environmental Economics and Management, Vol. 27, Issue 2, September 1994; M. Cropper and C. Griffiths, "The interaction of population growth and environmental quality", American Economic Review, Vol. 84,1994; D. Holtz-Eakin and T. Selden, "Stoking the fires? C02 emissions and economic growth", Journal of Public Economics, Vol. 57, Issue 1, May 1995; J. Antle and G. Heidebrink, "Environment and development: theory and international evidence", Economic Development and Cultural Change, Vol. 43, April 1995; G. Grossman and A. Kreuger, "Economic growth and the environment", Quarterly Journal of Economics, Vol. 110, Issue 2, May 1995; T. Panayotou, "Demystifying the environmental Kuznets curve: turning a black box into a policy tool", Environment and Development Economics, Vol. 2, Issue 4, November 1997; J. Roberts and P. Grimes, "Carbon intensity and economic development 1962-1991: a brief exploration of the environmental Kuznets curve", World Development, Vol. 25, Issue 2, February 1997; M. Cole, A. Rayner and J. Bates, "The environmental Kuznets curve: an empirical analysis", Environment and Development Economics, Vol. 2, Issue 4,1997; J. Vincent, R. All, et al, Environment and Development in a Resource-rich Economy: Malaysia under the New Economic Policy (Cambridge, MA, Harvard University Press, 1997); H. Hettige, M. Mani and D. Wheeler, "Industrial pollution in economic development: Kuznets revisited", World Bank Development Research Group (Washington, D.C.), December 1997; R. Carson, Y. Jeon and D. McCubbin, "The relationship between air pollution emissions and income: US data", Environment and Development Economics, Vol. 2, Issue 4, 1997; W. Moomaw and G. Unruh, "Are environmental Kuznets curves misleading us? The case of C02 emissions", Environment and Development Economics, Vol. 2, Issue 4, 1997; M. Komen, S. Gerking and H. Folmer, "Income and environment R&D: empirical evidence from OECD countries", Environment and Development Economics, Vol. 2, Issue 4, 1997; M. Ravallion, M. Heil and J. Jalan, "A less poor world, but a hotter one? Carbon emissions, economic growth and income inequality", World Bank, 15 October 1997; R. Schmalensee, T. Stoker and R. Judson, "World carbon dioxide emissions: 1950-2050", 7776 Review of Economics and Statistics, Vol. 80, Issue 1, February 1998; M. Torras and J. Boyce, "Income, inequality and pollution: a reassessment of the environmental Kuznets curve", Ecological Economics, Vol. 25, Issue 2, May 1998; G. Unruh and W. Moomaw, "An alternative analysis of apparent EKC-type transitions", Ecological Economics, Vol. 25, Issue 2, May 1998; V. Suri and D. Chapman, "Economic growth, trade and energy: implications for the environmental Kuznets curve, Ecological Economics, Vol. 25, Issue 2, May 1998; S. de Bruyn, J. van den Bergh and J. Opschoor, "Economic growth and emissions: reconsidering the empirical basis of environmental Kuznets curves", Ecological Economics, Vol. 25, Issue 2, May 1998; S. Rothman, "Environmental Kuznets curves - real progress or passing the buck? A case for consumption-based approaches", Global Economics, 1998; R. Kaufmann, B. Davidsdottir, P. Pauly and D. Garnham, "The determinants of atmospheric S02 concentrations: reconsidering the environmental Kuznets curve", Ecological Economics, Vol. 25, Issue 2, May 1998; S. Chaudhuri and A. Pfaff, "Household income, fuel choice and indoor air quality: microfoundations of an environmental Kuznets curve", Columbia University Department of Economics, 1998, mimeo; M. Kahn, "A household level environmental Kuznets curve", Economics Letters, Vol. 59, Issue 2, May 1998; N. Islam, J. Vincent and T. Panayotou, Unveiling the Income-environment Relationship: An Exploration into the Determinants of Environmental Quality, Harvard Institute for International Development, Development Discussion Paper No. 701, May 1999; J. Sachs, T. Panayotou and A. Peterson, Developing Countries and the Control of Climate Change: A Theoretical Perspective and Policy Implications, CAER II Discussion Paper, No. 44 (Cambridge, MA), November 1999; M. Galeotti and A. Lanza, "Richer and cleaner? A study on carbon dioxide emissions in developing countries", Proceedings from the 22nd IAEE Annual International Conference (Rome), 9-12 June 1999; M. Bhattarai and M. Hammig, "An empirical investigation of the environmental Kuznets curve for deforestation in Latin America", paper presented at the SAEA meeting (Lexington, Kentucky), January 2000; R. Summers and A. Heston, "The Penn World Table (Mark 5): an extended set of international comparisons, 1950-1988", Quarterly Journal of Economics, Vol. 106, Issue 2, May 1991.
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DISCUSSANTS'
_ Economic Survey of Europe, 2003 No. 2
COMMENTS
2.A Richard Herd My remarks on the paper by Professor Panayotou are divided into three sections: first, I would like to mention a few recent papers that throw some doubt on the hypothesis of the environmental Kuznets curve (EKC), at least in its application to carbon dioxide emissions; second, I would like to report briefly on a recent OECD study that looks at the movement of various environmental indicators over the past decade; and, finally, I would like to discuss why such a relationship has not emerged for greenhouse gas (GHG) emissions. Turning to the first area, my remarks are those of a non-specialist in the area of the environmental Kuznets curve. One striking feature of this literature is its focus on very straightforward reduced form equations, what could really be described as "data illustration" regressions. It is only recently that a theoretical account of the process behind the observations has appeared in the literature. Another feature is that much of the literature focuses on what Professor Panayotou calls the "human metric" of environmental damage. The result is a focus on air pollution variables that has also been extended recently to carbon dioxide. Given that the regressions are essentially undertaken for data-illustration purposes, what use can an economist make of these curves? Do they describe a fundamental technological relationship, or are they the result of decisions taken by policy makers? To be useful to an economist advising on policy these curves need to have more content. Another key aspect of the literature is the optimistic conclusion that any link between economic growth and environmental damage will eventually end, and the environment will start to improve, as income rises. The three-way split into scale, structure and income, introduced by Professor Panayotou is welcome in that it starts to give more content to the curves. However, I wonder whether the interpretation of the downward sloping income component is correct. Suppose that the cost of retro-fitting sulphur abatement technology is constant across all countries, being determined by capital equipment prices in world trade. Then, if policy makers are rational, the degree of desired abatement will be greater at higher incomes. This would not be because of the supposed income superiority of a clean environment but simply because the benefits of avoiding morbidity and mortality rise with incomes but the cost of abatement remains
constant. This analysis would suggest that above a certain level of income, stringent abatement regulations would be rational. This view is supported by the fact that the EKC literature does not offer incontrovertible evidence of a negative relationship between income and environmental damage, beyond a certain income level. From a brief review of the literature, it would appear that most attention has focussed on air pollutants (sulphur dioxide, nitric oxides, suspended particles and ozone) with an extension to emissions of carbon dioxide. It is not surprising that the best relationships are with sulphur dioxide emissions and also with suspended particles. These are areas where the public benefits are well known and where technology is available to obtain clean production processes. Even so, the evidence for the existence of EKCs for NOX and ozone are less than convincing. In the developed world, emissions and concentrations of these gases are closely linked to the use of motor cars. So the evidence of Kahn132 that there is an inverted Ucurve for hydrocarbon emissions in California could be seen as grounds for optimism. However, a more recent study by Khanna133 casts doubt on this result. In this study concentrations of air pollutants at individual monitoring sites in the United States were linked to census data for the areas around them. For NOX, the data suggest not an inverted U-curve but rather a Ushaped curved. For carbon monoxide and ozone, however, there was no evidence of any correlation between such concentrations and income. Varying results have been obtained for carbon dioxide. These emissions are clearly related to energy demand and so one might have expected the EKC literature to focus on the standard literature on energy demand, which itself has pin-pointed the role of price in determining energy demand. This literature has always paid careful attention to specifying the dynamics of such relationships. An article by Agras and Chapman134 illustrates the importance of allowing
M. Kahn, "A household level environmental Kuznets curve", Economics Letters, Vol. 59, Issue 2, May 1998, pp. 269-273. " N. Khanna, "The income elasticity of non-point source air pollutants: revisiting the environmental Kuznets curve", Economics Letters, Vol. 77, Issue 3, November 2002, pp. 387-392. J. Agras and D. Chapman, "A dynamic approach to the environmental Kuznets curve hypothesis", Ecological Economics, Vol. 28, 1999, pp.267-277.
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Panayotou: Economic Growth and the Environment
for dynamic properties: they found that allowing for an autoregressive structure in the residuals could double the estimate of the turning point for carbon dioxide emissions. They also focussed on the need to include the price of energy in the standard specification of EKC functions. The inclusion of both price and dynamics leads to substantial changes in the estimates of the turning point. Incidentally, the predictions of some of the earlier EKC studies on carbon dioxide135 have to be seen against the continuing growth of carbon emissions in the United States. More worrying for the EKC literature is a recent paper by Dijkgraaf and Vollebergh.136 Their work casts some doubt on the estimation methodology used in most of the EKC literature. Typically the literature mixes cross-country time series with panel data. This assumes that the income relationship is homogenous across all countries. The authors claim that across OECD countries, the homogeneity assumption is not supported by the data. A turning point is still found when cross-country heterogeneity is allowed for, but it appears at higher income levels. Moreover, when panel-based estimates are replaced by estimates based on individual country time series, half of the country equations do not show any turning point. In the second part of my comments, I would like to summarize briefly a recent OECD study of changes of a number of variables that are generally thought to have negative impacts on the environment. Here the objective was markedly less ambitious than estimating pooled cross-section time series panel equations. Rather, the objective was to look at a number of environmental measures and try to determine whether they were continuing to grow and, if so, whether they were growing faster or slower than GDP. The conclusions of the study were as follows: • NOX emissions fell 3 per cent against GDP growth of 63 per cent, in the period 1980 to 1999; • SO2 emissions fell by 50 per cent in the period 1980 to 1999; • Particulate emissions fell in the United Kingdom and United States, but for OECD as a whole data are not available; • Volatile organic compound emissions fell by 15 per cent in the 1900s; • Water abstractions exhibited no growth;
D. Holtz-Eakin and T. Selden, "Stoking the fires? CO2 emissions and economic growth", Journal of Public Economics, Vol. 57, Issue 1, May 1995, pp. 85-101. E. Dijkgraaf and H. Vollebergh, A Note on Testing Environmental Kuznets Curves with Panel Data, OCFEB Research Memorandum 0103, Working Paper Series 7 (Rotterdam), May 2001.
• Forest cover expanded; • Pollution of water by nitrogen from stabilized;
farms
• Pollution of water by phosphate from households fell; • Pesticide use in agriculture fell and became less toxic. There were two areas where stability was not achieved: • Municipal waste generation continues to rise but less rapidly than private consumption; • Greenhouse gas emissions grew 4 per cent in the 1990s against GDP growth of 23 per cent. The two areas where there is still concern, waste generation and greenhouse gases, are those that Professor Panayotou mentions in his paper. These two areas, though, have markedly different consequences for the environment. The OECD is currently looking at member country policies in a number of environmental areas, in the context of its Economic Surveys. For waste, the emerging conclusions are that disposing of waste in correctly managed landfill sites is neither particularly expensive nor does it cause appreciable environmental externalities. The same can be said of incineration, although its cost is greater than that of land filling. Some argue that because we are running out of natural resources, recycling should be encouraged. Our studies show that, on the contrary, it is quite easy for recycling to use more resources than burning or tipping the waste. For example, land-filling waste in compliant sites costs just ^40 per tonne in Denmark, while across the border in Germany recycling plastic waste costs ^5900 per tonne (after deducting the value of the recycled material). Unfortunately, such differentials are not isolated examples. Finally, I would like to turn to the question of why countries have been able to break the link between GDP growth and pollution in so many areas, but not to the same extent in greenhouse gas emissions, where the gains in the past decade have been mainly due to the restructuring of industries and changes in fuel use. The answer seems fairly clear. Where there is an available technology that allows emissions to be controlled with a reasonable costbenefit ratio and without fundamental changes in consumption and production patterns, then the techniques will be adopted, although not always in the most cost efficient way. However, for greenhouse gases, there is as yet no "end-of-pipe" technology available. Achieving the goals for reduction through prices or regulation is very costly as they entail replacement of capital stock and changes in
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_ Economic Survey of Europe, 2003 No. 2
consumption patterns. As a result, scenarios for reducing emissions all require carbon prices that are high or even higher than some estimates of the benefits.
and economic pressure on the environment. Or, to put it differently, environmental degradation is not a "child's sickness" that everyone has to go through in the early stages of development.
There are some signs of change in this area. In Europe, countries appear to be willing to adopt carbon trading policies that will give considerable incentives to finding end-of-pipe technologies. Indeed, there is growing interest in the development of technology to collect and then to sequester carbon emissions. My personal view is that it is only through such developments that an EKC will emerge for GHG emissions.
Thorough research into the EKC demonstrates that the quality of socio-political institutions may have a crucial impact on the timing of the turning point for a given variable. Of course, the quality of institutions often depends on income as well, and so richer countries are likely to have more professionally run governments. Nevertheless, there is no deterministic trend and efforts are needed at all levels of affluence to make sure that socio-political institutions are adequate to meet the challenges. Democracy matters too. There is evidence that democratic societies reach turning points earlier than totalitarian ones. This is another interesting and perhaps somewhat unexpected outcome of studying EKCs.
2.B Tomasz Zylicz This paper addresses the important questions surrounding the so-called environmental Kuznets curve (EKC). Its review of dozens of relevant papers confirms the characteristic inverted "U" trend for various pollutants. However, while a lot of research confirms that many environmental characteristics first deteriorate and then eventually improve once a sufficiently high-income level has been reached, the underlying mechanisms are uncertain. Several explanations of the phenomenon have been advanced, but their validity is usually confined to limited data sets. Professor Panayotou decomposes the EKC into i) scale or geographical intensity of the production, ii) the structure of production and iii) abatement. Every EKC is a product of these three factors. By making simple mathematical assumptions regarding the shape of each of them, he explains why and when a given environmental variable is likely to pass its "turning point" and start improving as the economy grows. The only area that seems to be left out in this model is international trade. At least theoretically, it is possible to improve the local environment by "exporting" pollution to somewhere else. It has been claimed that this is how the richest countries have achieved lower pollution levels. By the same token, poor countries are doomed to serve as "pollution havens". Despite a number of attempts, these claims have never been satisfactorily tested empirically. Professor Panayotou's review would have been more comprehensive and policy relevant if the trade question had been fully addressed. Nevertheless, the paper conveys an important message for environmental policy makers, namely that "policies matter". It is apparent from the paper that none of the decomposition variables - scale, structure and abatement - can be explained solely in terms of income or GDP per capita. In other words, there is no mechanistic relationship between personal incomes
The good news for those concerned with environmental protection and, more generally, with achieving sustainable development, is provided by a number of successful "decoupling" stories. The aim of environmentalists is to decouple certain goods from bads; for instance, to decouple welfare from material consumption, energy from fossil fuels or economic growth from pollution. Having passed the respective turning points many countries have indeed been able to decouple environmental degradation from GDP. The fact that these decouplings and turning points occurred at very different income levels once again demonstrates that there is no automaticity in this process and that policies matter. An interesting question which is not explored in Panayotou's paper is whether transition economies are likely to replicate the EKCs of their neighbours whose market institutions were not destroyed after the First or Second World Wars. A more general question is whether low-income economies are doomed to repeating the trajectories and mistakes of the rich countries? The answer expected by many - and supported by some EKC analyses - is "no", but many governments in developing and transition economies continue to stress the need for growth even at the expense of the environment. Although decoupling can be accelerated by good policies and international assistance, the overwhelming evidence is that transition economies are not taking advantage of the experience of others. Apparently one can only learn from one's own mistakes. Another unexplored question is the so-called Porter hypothesis. This asserts that strict environmental regulations help entrepreneurs to develop more efficiently than their competitors who are subject to weaker regulation. The hypothesis has never been rigorously tested, but numerous success
Panayotou: Economic Growth and the Environment
stories suggest that it cannot be easily rejected. It would be fascinating to combine the Porter hypothesis with EKC research in order to see if rigorous policies designed to speed up the process of reaching turning points retard or accelerate economic growth. One conclusion which emerges from studying the transition economies, although it is not highlighted in Professor Panayotou's review, is the need for cost effective environmental policies. All developing and transition economies are being pressed to behave in a more environmentally responsible way than developed market economies did when they were at comparable income levels some decades ago. At that time, however, environmental awareness was not so high as it is now, and consumers and firms were subject to less stringent regulations. Consequently the regulatory burden on economies is now much higher than it used to be. In the past the question of what instruments should be used to make economic agents comply with regulations was of secondary importance, but now it is crucial that agents are regulated in ways that make the compliance as inexpensive as possible. It has been known for some time that economic instruments such as taxes and marketable permits can be cost effective. Analyses of EKCs may be able to contribute to a better understanding of how policies using alternative instruments can influence the relationship between wealth and environmental degradation.
2.C Kaj Barlund I agree with much of what Professor Panayotou has to say in his paper. I will not go into the more theoretical background in the first parts of his paper. Instead I would like to focus on the concluding parts, where it touches upon some of the practical implications of the analysis. Economic development in a market economy is a pretty wild horse that drags along the political decision makers in the liberalized trade and financial markets. Political decisions still set a framework for the developments, but the tools to implement the framework are becoming more scarce than before. Part of the framework consists of regulations and other internationally agreed measures to protect the environment. Some of Professor Panayotou's reflections on the importance of institutional factors are of particular interest to those of us who are involved in environmental policy on a daily basis. He notes that improvements in the quality of institutions and policies have an important impact on the environment. Likewise, he refers to the findings that democratic structures and procedures have beneficial effects on the environment.
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In the context of ECE these are, of course, crucial findings. In particular, as part of their transition from centrally planned economies to market economies, many ECE member countries have faced different challenges in reforming their institutions of governance. In many cases there has been a move from strong state structures to a situation where the public administration is very weak both in terms of legal status and resources. This is often the case also for institutions concerned with environmental protection. Environmental problems were very prominent in the political debates during the first years of the transition process. The previous social system had produced enormous environmental problems, which was one reason for changing that system. When the system changed, however, the political focus on the environment lost some of its prominence as it became one of the many problems that had to be tackled in the transition process. But the democratic spirit could not be put back into the bottle. New legislation was adopted and an environmental civil society started to develop. Even if the road towards fully-fledged democracies proved to be bumpier than had been expected, these societies continued to move - perhaps with some exceptions in a more democratic direction. I believe that the ECE has made an important contribution to the process of democratization, in particular in the environmental sphere. The Aarhus Convention on environmental information and public participation in decision-making is a landmark instrument in this regard. Its full implementation is on its way, but much work still needs to be done. One can assert without exaggeration, however, that the Aarhus Convention has changed the scene in terms of promoting democratic procedures. As a result of broad international cooperation it has introduced a legally binding tool for implementing environmental democracy. Returning to Professor Panayotou's paper, I think that the ECE has contributed to the reduction of environmental harm by promoting democracy. This is, of course, a long and slow process, but it is one that has the potential to spill over to other areas of society beyond the environment. Thus, it would strengthen democratic thinking in a broader context, which, again, would be beneficial for the environment. Environmental education is part and parcel of environmental democracy. Environmental problems are often complex and they sometimes appear only after a long lapse of time, the obvious example being global warming. If the population is confronted with these problems without any basic knowledge of their causes, the possibilities for real participation in decision-making
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are limited. Of course the media also have an important role in this regard: they can make or break public debates on environmental issues. But a solid educational basis for the population is crucial. Therefore I feel that the initiative for better environmental education, to be submitted to the May 2003 Kiev Ministerial Conference "Environment for Europe", is worthy of as much political support as possible. From environmental education we need to take only a short step to our habits of consumption. Panayotou's paper notes that production patterns in most ECE countries have improved over the last 20 or so years. Technology has improved and fewer resources are used per unit of output. But on the consumption side there have been few improvements, despite consumers nowadays tending to be more aware of the impact of their choices on the environment. The accumulation of waste as an end result of current consumption habits is steadily growing. In this regard consumers in the richer parts of the region have a particular responsibility. We cannot make a strong case for more sustainable consumption patterns in the poorer countries if the richer ones cannot manage to show an example. This is part of the problem of decoupling economic growth from environmental impacts. On present trends, continuing economic growth is leading to increasing environmental pressures, not to a decoupling.
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This seems to be the case for example with road transport. Technological improvements have been overtaken by an enormous surge in road traffic at the expense of more environmentally friendly modes of transport. In most countries, investments in transport networks have favoured roads, while railways, walking and cycling facilities have received little investment. This pattern, prevalent in the developed market economies, is now spreading rapidly to the emerging market economies. Once again, economic growth, as such, is more at the root of the problem than a solution. In this particular case, moreover, we have to deal with a number of unwelcome impacts such as air and noise pollution, the loss of biodiversity and undisturbed natural urban space, congestion, accidents and the loss of transport alternatives for those with little choice. Professor Panayotou's paper is thought provoking and inspirational. It shows that there are options for decoupling economic growth from environmental damage and that promising results have been obtained in several instances. On the other hand it also reveals that a laissez-faire approach is not an option. We should feed the wild horse of the market economy with environmentally friendly grass, while cautiously but firmly trying to change its direction towards a more sustainable future.
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CHAPTER 3 SECTORAL DIMENSIONS OF SUSTAINABLE DEVELOPMENT: ENERGY AND TRANSPORT David M. Newbery
3.1 Introduction Energy use is an important source of environmental pollution. Reducing emissions per unit of energy consumed and reducing the energy intensity of economic growth are therefore important components of sustainable development. Faced with this challenge, informed observers range from very pessimistic, to positively optimistic. The resulting debate has been acrimonious, passionate and not always illuminating, as the recent controversies surrounding Lomborg's book The Skeptical Environmentalist demonstrate.137 Environmental pessimists argue that pollution is inexorably linked to fossil energy consumption and that individually selfish countries see little benefit in reducing fossil energy intensity. Economic pessimists are prepared to accept that pollution could be reduced by intelligent tax policies, but that governments invariably choose very much less efficient policies that are likely to cost considerably more than the benefits. Thus, Nordhaus and Boyer138 argue that the costs of the Kyoto Protocol are seven times the benefits, and almost eight times more than a cost-effective strategy. The high and unjustified level of cost in turn will lead to the policies being abandoned, rather than being replaced by more efficient alternatives. Optimists take up from where the pessimistic economists leave off. They accept that policies are frequently poorly designed, but take encouragement from a number of positive trends. They accept that tax or price-guided solutions to addressing the external costs of environmental pollution are normally superior
B. Lomborg, The Skeptical Environmentalist (Cambridge, Cambridge University Press, 2001); see the critique in Scientific American, January 2002, and the resulting debate partly reported on Lomborg's website (www.lomborg.org). 1 ^S
W. Nordhaus and J. Boyer, "Requiem for Kyoto: an economic analysis", Energy Journal, special issue on "The costs of the Kyoto Protocol: a multi-model evaluation", 1999, pp. 93-130.
to quantity controls or standards, and that policy makers have a preference for controls and standards. They note that predictions of the costs of imposing standards often turn out to be too high, as unforeseen innovations allow these standards to be met at modest and acceptable cost. Faced with a challenging quantitative target, rather than a tax that can be passed on to final consumers, technologists redirect and concentrate their creative efforts to deliver surprising improvements, while managers make cost-effective investments or change production practices. A second defence of a more optimistic assessment is that where current solutions appear inefficient and poorly directed, there is an incentive first to improve the estimates of costs and benefits, and then to encourage benefit-cost tests of proposed remedies. In the United Kingdom, measures to address emissions have shifted from a requirement to install BAT (best available technology) to BATNEEC (best available technology not entailing excessive cost). Excessive cost logically means costs that outweigh the benefits, creating a demand for a quantification of the benefits of emissions reduction. This trend has been reinforced by a parallel trend towards electricity and gas liberalization (often associated with privatization) and hence a replacement of energy policy based on physical planning with the need for market-friendly alternatives, such as taxes or tradeable permits. If taxes are to be set, or if quota prices feed through to final energy prices, then voting consumers will be able to judge the cost of meeting environmental objectives. That in turn is likely to force a reappraisal of whether the costs are justified, as well as stimulating developments to lower the cost of delivering those benefits. This should lead to a better balance between the costs of reductions and the benefits of improved environmental quality. Optimists also expect that the cost of reducing emissions per unit of useful energy delivered may not be as high as feared, providing sufficient time is given for adapting the capital stock and developing new
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technologies. Long-run energy price elasticities are notoriously hard to estimate,139 but in some sectors (e.g. transport) could be above unity (in absolute terms). Emissions price elasticities are necessarily higher than energy price elasticities, and for many pollutants are considerably higher. Large reductions may be possible for modest tax increases, and the environmental taxes should allow other distortionary taxes (ultimately on labour supply) to be beneficially reduced. The optimists are optimistic because they believe that improving the social efficiency of energy use (reducing emissions to cost-justified levels) requires reasonably well-defined policies, and that ultimately the political process will be forced to make more rather than less efficient policy choices. Economic pessimists believe that the difficulties of reaching efficient multilateral agreements make this unlikely. Both, however, agree that well-designed policies can substantially reduce the costs of meeting any given level of environmental improvement. This paper will therefore concentrate on identifying what such policies would look like, and how they may be quantified and implemented. We start with a brief review of the evolution of energy policy, and the determinants of energy use at the economy and sectoral level. This leads to the link between energy use and environmental pollution. The last part addresses the design of policy to achieve efficient energy use, and the extent to which countries are moving towards such policies.
3.2 The evolution of energy policy Traditionally, energy policy was primarily concerned with security of supply and accessibility at acceptable prices to the population. These concerns remain, and are reflected in requirements to carry fuel stocks, provide adequate gas storage, and adequate electricity capacity. Universal service obligations and concerns over fuel poverty continue to influence energy taxation and pricing in often perverse ways. Security concerns were given fresh impetus by the 1973 oil embargo, that also precipitated the next major concern - that of the finiteness of energy resources. The Club of Rome's doom-laden predictions of imminent scarcity seemed to be supported by the sharp increase in the oil price.140 Natural resource economists appealed to Hotelling and argued that the scarcity rent of exhaustible resources would rise inexorably at the rate of interest, so that projections of future oil prices made in the 1970s reached alarming levels when projected to the end of the century. The United States
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embarked on a major research programme to develop alternative sources of energy, ranging from exploiting tar sands to exotic methods of developing electricity by photovoltaics, magneto-hydrodynamics or fusion reactors. Several countries launched major nuclear programmes with France proceeding furthest down this route. The shift from oil as the marginal fuel for electricity generation back to coal and the rapid penetration of gas depressed demand for oil and softened prices. Oil prices halved in 1986 when Saudi Arabia reasserted its position as swing producer and controller of world oil prices. In OECD countries as a whole, the share of oil in total primary energy supply (TPES) fell from 53 per cent in 1973 to just under 41 per cent in 2000. About three fifths of oil is now used in transport (overwhelmingly road transport) with only a fifth used in industry and a fifth in all other sectors (where two thirds goes to residential use). In OECD Europe the pattern of oil consumption is similar but the oil share in TPES has fallen even more rapidly from 54.5 per cent in 1973 to 38.8 per cent in 2000.141 Falling oil prices, rapid gas development and the delayed resumption of economic growth after the oil shocks and international financial crises of the 1970s and early 1980s raised new concerns. If oil did not appear to be running out, reserves of gas appeared large and growing, coal appeared abundant and increasingly internationally traded, and concerns about the environment rose rapidly up the political agenda. Environmental pollution was not new, and most industrial countries suffered heavy and damaging pollution from smoke until various clean air laws were enacted. Controls on particulate emissions from power stations and the shift from coal to gas in the domestic sector led to dramatic environmental improvements in OECD countries, if not in the Soviet bloc. Concern shifted to acid rain, primarily from power stations, and smog, primarily from nitrogen oxides (NOX) produced by road transport. Transboundary pollutants, particularly sulphur dioxide (SO2), were addressed in a series of international agreements and translated into national emission limits. As a result, sulphur dioxide emissions have been dramatically cut, partly by flue gas desulphurization, and partly by the shift from coal to gas in electricity generation. Similarly, increasingly stringent tailpipe emissions limits have dramatically reduced pollution from road transport, to the point that some of the worst affected areas such as Los Angeles now enjoy cleaner air despite massively greater traffic than in the early postwar years.
T. Barker, P. Ekins and N. Johnstone (eds.), Global Warming and Energy Demand (London, Routledge, 1995). 140 D.H. Meadows, D.L. Meadows, J. Randers and W. Behrens III, Limits to Growth (New York, Universe Books, 1972).
OECD, Energy Balances of OECD Countries 1999-2000 (Paris, OECD, 2002).
Newbery: Sectoral Dimensions of Sustainable Development: Energy and Transport
The health effects of air pollution have been carefully studied and quantified.142 The challenge, which is increasingly accepted, is to encourage socially efficient levels of abatement. Whether this is best achieved by taxes or standards, or some combination, depends on the fuel, the use and the type of user. The implication is that abatement measures must pass a social cost-benefit test, which requires an estimate of the monetary value of the damage caused.143 Although internalizing these pollution costs still presents an important challenge to the energy and transport sectors, and will be discussed below, concerns have shifted towards a more pervasive and difficult pollutant, carbon dioxide, CO2. The potential of increased levels of carbon dioxide to cause global warming has moved from scientific theory to widely accepted fact, reflected in the Kyoto Protocol to reduce such emissions in the near term, and to contemplate more dramatic reductions over the next 50 years. Carbon dioxide emissions are far more intractable than other air pollutants, as it is difficult and extremely expensive to prevent or reduce CO2 emissions from fuel combustion. The only practical methods for reducing CO2 emissions are to shift to less carbonintensive energy sources (and renewables, hydro,144 wind, and nuclear have essentially zero emissions) and/or to reduce energy consumption.
3.3 Sustainable development The watchword for energy policy is now not just security but sustainability, aptly defined by the Brundtland Commission as "development that meets the needs of the present without compromising the ability of future generations to meet their own needs". This concern with sustainability also reflects earlier worries about the exhaustion of fossil fuels; and for transport fuels, oil exhaustion is probably a more imminent concern than excessive global warming. Coal reserves dwarf oil and gas reserves, and in that sense oil and gas are potentially smaller contributors to likely future greenhouse gas emissions, although nonetheless significant.
For recent estimates, see the papers presented at the UNECE symposium, The Measurement and Economic Valuation of the Health Effects of Air Pollution (London), 19-20 February 2001 (www.unece.org/env/nebei/health_benefits_workshop.htm). The EU has commissioned a series of studies to estimate the social costs of various emissions, and a recent set of marginal external cost estimates are provided in BeTa, the Benefits Table Database listed on the EC DG Environment website. Large-scale hydro can, by inundating plant matter, lead to decomposition and the release of methane, a far more potent greenhouse gas than CO2. Renewables absorb CO2 from the air and release it again when burned and so produce no net emissions provided they are replaced and not mined.
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Old-style energy policy shared many of the characteristics of Soviet planning, being quantity driven and not particularly susceptible to rational economic calculations. State owned electricity industries built plants under central guidance, domestic coal was protected by a complex web of taxes and contracts with the electricity industry, gas was denied to electricity generators (as a noble fuel too valuable for simply raising steam), and in some countries district heating schemes were built by diktat or with massive subsidies. All this started to change following Alfred Kahn's successful attack145 on regulation in the airline industry and the liberalization of traditional utilities, first telecoms and then gas and electricity. Privatization in Europe, unbundling and increasing attempts to use competitive markets rather than regulation for setting prices unleashed dramatic changes in the energy sector and forced a reappraisal of energy policy. This became clear in Britain soon after the electricity supply industry was restructured and privatized in 1989-1990. To ensure a satisfactory sale and to provide a smooth transition to an unregulated electricity wholesale market, the government put in place three-year contracts for the purchase of coal and the sale of electricity. As the end of these contracts approached, it became clear to an increasing number of observers (and finally to the government) that there would be a dramatic decrease in the price and quantity of British coal that would be purchased in future, partly because imported coal was cheaper, but mainly because the "dash for gas" was well underway. The government was criticized for not acting to protect the coal industry (i.e. the powerful miners) and for lacking any energy policy. Energy policy in Britain, as in most countries, is almost by definition politicized, for to leave the choice of fuel to an undistorted market is thought to indicate the lack of an energy policy. The government felt the need to defend its unprecedently non-interventionist stance after the collapse of the coal market in 1992 by arguing that: "the aim of the government's energy policy is to ensure secure, diverse and sustainable supplies of energy in the forms that people and businesses want, and at competitive prices".146 "The government's energy policy therefore centres on the creation of competitive markets."147 Concerns over the possible tension between liberalization and sustainability (the new concern of energy policy) have been expressed in various A. Kahn, Letting Go: Deregulating the Process of Deregulation, Institute of Public Utilities and Network Industries, Michigan State University (East Lansing), 1998. Department of Trade and Industry, The Prospects for Coal: Conclusions of the Government's Coal Review, Cm 2235, HMSO (London), 1993, p. 12. 147
Ibid., p. 3.
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International Energy Agency (TEA) reports148 as well as by the European Commission. Thus, one of the criticisms levelled at electricity liberalization is that "if the internal market causes electricity and gas prices to fall, this in turn would probably lead to an increase in consumption" causing an increase in pollutant emissions and hindering attempts to honour commitments made in Kyoto.149 Economists and, increasingly, public bodies advocating more market-friendly policies and interventions, argue that there is no inevitable tension between liberalization and sustainability, providing that market prices are corrected by taxes to reflect all external costs, in this case those that cause social and environmental damage. Thus the British government, in its report Sustainable Development: The UK Strategy interpreted sustainability for transport as requiring that "users pay the full social and environmental cost of their transport decisions, so improving the overall efficiency of these transport decisions for the economy as a whole and bringing environmental benefits".150 The same holds not just for transport, but for any decisions involving fuel. If users must pay the full social cost of their decisions, society will be compensated for the environmental damage done, and can use the funds to make other environmental improvements, or to accumulate more physical and human capital, making the next generation richer and better able to address environmental issues. The benchmark that users should pay the full social and environmental cost is therefore central to the idea of a decentralized and noncoercive approach to dealing with environmental problems. It is completely compatible with liberalized energy markets, providing that the social costs are reflected in market prices, normally best done by corrective taxes. At this point it is useful to .distinguish between stock and flow pollutants. Flow pollutants cause damage while they are being produced, and the damage ceases when emissions stop. The larger part of the social and environmental cost of SO2 and NOX is the health damage caused by inhalation. Reducing emissions of these pollutants has an immediately beneficial effect on air quality as it affects health. Stock pollutants in contrast add to the stock of the pollutant, and it is the size of this stock rather than the rate of addition that causes the damage. Acid rain damages the eco-system by increasing the acidity of 148
IEA, Energy Policies oflEA Countries, 1998 Review (Paris), 1998.
Opinion of the Economic and Social Committee, Official Journal of the European Communities, C 36 E, 8 February 2002, pp. 10-19. 150 HMSO, Sustainable Development: the UK Strategy, Cm 2426 (London), 1994, pp. 6 and 169.
the environment, while CO2 emissions add to the total stock of atmospheric CO? that is the main cause of global warming. Flow pollutants are in principle easier to price than stock pollutants, as we only need to know their instantaneous rate of damage, normally through doseresponse relationships, in ways illustrated below, hi contrast, the damage done by stock pollutants endures over time, and will need an accounting of the damage done at each future period (that is likely to depend on future emissions as well and also on the discount rate). Future emissions are hard to predict and will likely depend on future technical progress, while the choice of a discount rate is also controversial. The practical implications of this is that some energy-related pollutants lend themselves better than others to market solutions such as taxes (although standards may also be important where measuring emissions is difficult). Carbon dioxide is an interesting case for, on the face of it, it is the pollutant for which a tax solution is best fitted, as the damage done is directly proportional to the carbon content of the fuel to be burned, and does not depend on where or how that fuel is burned. Contrast that with NOX, emissions of which depend on the temperature at which the fuel is burned, how it is burned, whether it is subject to tailpipe clean up, and where the damage caused depends on when and where it is released. Nevertheless, the correct or appropriate carbon tax to levy depends on reaching agreement across country borders, as well as on future CO2 emissions. Not surprisingly, the range of estimates of the appropriate carbon tax is embarrassingly wide. That suggests breaking the question of how to identify the right energy policy for sustainable development into a number of separate components. The first question to examine is what determines the demand for energy (and of different fuels), as other things being equal, a reduction in energy used will reduce the problem. If it appears that energy intensities can be significantly reduced, then the gains from intelligent policy are likely to be large. The second stage is whether and to what extent it is possible to reduce pollutants per unit of energy, since these are the ultimate source of the damage. Even if we cannot reduce energy use beyond a certain point, if it is possible to reduce the pollution per unit of energy, then it should be possible to go considerably further towards sustainable development. Once the potential for improvement has been established, the next step is to encourage socially efficient choices (of energy and emissions abatement). That requires three conditions - first, that decision makers confront the right relative prices; second, that decision makers can identify and access the efficient
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choice; and finally, that technical progress is directed to delivering the best future choices. Getting the prices right means correcting for the social costs of the choices, as well as avoiding tax-induced or other distortions. Ensuring that decision1 makers choose efficiently if prices are right is more complex. It requires that agents are well-informed, rational and have the right incentives to make efficient choices. Failures here may be identified by benchmarking companies (or other decision-making units in the public or domestic sector) against best practice, and may be explained by a lack of information or a lack of incentive. Agents may not be aware of the energy efficiency of the products they buy, or of the full costs of their operation. If they delegate decisions, their agents may not have sufficiently strong incentives for efficient choices, particularly where the benefits are hard to measure and occur with a lag. A large part of the sustainability policy agenda is directed to providing information, benchmarking, auditing and stimulating research in promising directions. However, if the prices facing decision makers systematically diverge from their socially efficient level, much of this effort will be undermined, including the incentives to develop appropriate new technologies. The main thrust of this paper will therefore be on the rationality of the economic signals facing agents when making energy and pollution abatement decisions.
3.4 Energy use and growth Chart 3.4.1 graphs the relationship between energy use - measured in thousands of tonnes of oil equivalent (ktoe) - and GDP at constant 1995 dollars, using World Bank data.151 The approach taken in this paper is to concentrate on certain countries and groups of countries that span the range of UNECE countries (with the intentional exception of Japan). The main emphasis is on Europe, where we distinguish the EU countries as a group as well as some member states, Norway, several of the accession transition economies (Hungary, Poland, and sometimes also the Czech Republic), Russia and the United States. Each point in the graph is the energy use in a particular year for that country or group, and the graphs therefore show the evolution over time of the relationship between energy use and GDP. The graph is double logarithmic and the country slopes give the elasticity of energy use with GDP. The line of 0.18 kilogram (kg) oil equivalent per 1995 dollar (which is the average over the period for the EU) indicates a unit elastic relationship in
The data are available in electronic form in the World Bank's World Development Indicators Database, summaries of which are published annually in the World Development Report.
CHART 3.4.1 Energy use in relation to real GDP, 1972-1999 ($1995)
Source: World Bank online database (www.WDrldbank.org/data/).
which a 1 per cent increase in GDP would lead to a 1 per- cent increase in energy consumption; It is clear that GDP is a main determinant of energy use, but it is also clear that some countries, particularly the transition economies and the United States, are notably more energy intensive than the EU countries. It is less obvious from the graph that in most countries energy intensity (toe/$) has been falling slowly (by 1.2 per cent per annum in the EU and 1.9 per cent per annum in the United States), while the variation in energy intensity across the EU as well as the United States has also been decreasing, indicating some convergence to a common energy intensity. Chart 3.4.2 shows the relationship between energy use and real GDP (RGDP) at international prices or purchasing power parity (PPP).152 This is arguably a better measure of relative standards of living, and corrects for the lower cost of non-tradeable goods in poorer countries (and some of the distortions caused by taxes and tariffs). This chart covers a longer period than chart 3.4.1 (from 1960 for most countries against 1972 in chart 3.4.1). For almost every country except Russia the ratio of RGDP to $GDP is roughly constant from 1972-1999, although it varies widely
? Taken from Penn World Tables. The latest version can be accessed at (datacentre2.chass.utoronto.ca/pwt/).
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CHART 3.4.2
CHART 3.4.3
Energy use in relation to real GDP at purchasing power parity, 1960-1999 ($1996, PPP)
Energy use per head in relation to real GDP per head, 1972-1999
Source: World Bank online database (www.worldbank.org/data/). Source: World Bank online database (www.worldbank.org/data/). 153
across countries. The result is to move the transition economies closer to the unit elastic line drawn through the EU average intensity.
CHART 3.4.4 Energy use per head in relation to real GDP per head at purchasing power parity, 1960-1999
Charts 3.4.3 and 3.4.4 show energy use per capita in relation to the two measures of income per capita, this time on arithmetic scales. Again, the longer graphs in chart 3.4.4 reflect the longer time period covered (except for the central European countries). Lines of constant slope through the origin represent constant energy intensities (ktoe/$) and the graph for Russia (as in charts 3.4.1 and 3.4.2) shows decreasing energy use with a fall in income over time, in contrast to all other countries where income per capita typically increases. These two figures show the dramatic fall in energy use in the United States from 1978 to 1983 (due to the second oil shock and recession). The difference between the two measures for the transition economies is clearly dramatic: at market exchange rates, Russia is 10 times as energy intensive as the EU, but only three times at PPP. Similarly, the energy intensities of the Czech and Slovak Republics and Romania are more than three times as high at market exchange rates than at PPP, and those of Hungary and
For eastern European countries real (i.e. PPP) GDP is between two and four times $GDP (i.e. GDP at market exchange rates); the United States is defined as unity, while the EU countries range between 75 per cent and 123 per cent (Portugal).
Source: World Bank online database (www.worldbank.org/data/).
Poland are more than twice as high. This raises the obvious question of which measure is the better one for understanding energy demand and, more importantly, for estimating the potentials for reducing energy intensity. Eastern Europe was notorious for subsidizing
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energy (and other consumer goods, many of which were rationed), and collecting taxes directly from enterprises rather than from consumers or workers. Consumers' purchasing power was therefore greater than appeared at market exchange rates (which in any case were heavily distorted by the COMECON system of trade), and by that measure real income was higher than at market exchange rates. The important question to which we turn next is whether the transition to a market economy, in which ultimately prices will be less distorted, will reduce the energy intensity, however measured. Over time (and the direction of movement may not always be apparent in the figures) the transition economies do seem to be moving towards the line of average energy intensity, supporting this hypothesis. As inefficient and resource-intensive heavy industry has been confronted with world market prices, so much of it has contracted, gone out of business or improved its efficiency. Nevertheless, the process of moving effective energy prices (that buyers actually pay) towards world market levels has been painfully slow in many countries, so this adjustment is likely to take some considerable time. To summarize briefly on the relevance of measuring income levels at PPP, where there are larger differences than might be expected purely in terms of per capita income levels, the reason is likely to lie with highly distorted price structures, which in many cases are part of the reason for profligate and inefficient energy use. Using PPP exchange rates to deflate local energy prices may give a better impression of how expensive energy is to domestic consumers, but is not an adequate reason for subsidizing energy to those consumers, given that (most) energy is internationally tradeable, and therefore its price should be linked to the international price at the market exchange rate. For the rest of the discussion I shall therefore only use market exchange rates when making comparisons.
3.5 Sectoral energy use In OECD Europe in 2000, 35 per cent of energy was consumed by industry, 20 per cent in transport, 25 per cent in the residential sector and 20 per cent in other sectors.154 In the United States, the shares were more equal at 27, 26, 24 and 23 per cent. In both cases, the absolute amounts of energy (tonnes of oil equivalent) consumed in industry have remained remarkably stable since 1973, but transport use has
This includes the fuel used for generating electricity, which is consumed by the end-use sectors. OECD, op. cit.
TABLE 3.5.1 Index of industrial energy intensity, 1971-2000 (1995=100)
1971
EU-15
1980
1990
1997
2000
98.70 102.60 109.63 93.31 97.71 98.72 95.40 107.56 82.10 99.83 89.65 96.45 100.07 99.91 95.60 100.67
94.60 90.10 114.75 80.40 81.62 88.54 90.57 100.47 54.60 98.19 77.55 96.49 108.70 106.34 82.22 99.70
-45 -71 -18 -3 -17 -44 -52
89.69 102.51
-59
Austria Belgium Denmark Finland France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Spain Sweden United Kingdom
176.70 151.79 218.27 112.84 159.42 161.03 115.85
136.40 151.70 119.72 164.16 100.79 130.11 154.50 108.05 275.45 132.50 230.72 128.75 102.45 112.45 131.10 143.45
105.00 110.90 95.43 103.33 113.19 94.01 111.45 99.68 145.50 108.13 135.62 113.73 105.95 93.78 106.05 105.42
Norway
249.76 202.41
125.02
179.47 265.35 118.08 111.71 128.51 147.64 209.69
Bulgaria Czech Republic Hungary Poland Romania Slovakia Russian Federation .... United States
;220.65
Percent change 1971-2000
84.10 179.83 144.31 124.12
77.57 87.28 85.83
64.17 57.51 58.39
164.31
88.90
93.33
176.48 112.05
90.28
80.11
-47 -49 -24 -63 -28 -44 -44 -13
-64
Source: OECD, Energy Balances 2000 (Paris), 2000. Note: The figure for EU-15 for 1971 is an estimated weighted average of the 15 individual countries.
grown rapidly (nearly doubling), and other sectors have increased by about 20 per cent. The share in industry has therefore fallen over time. What is perhaps rather surprising is that the energy intensity of industry is very similar to the economy as a whole (that is, total energy, including inputs into electricity consumed, per dollar of value added).155 Table 3.5.1 shows that industrial energy intensity has fallen by nearly 50 per cent in EU countries since 1971, and by 64 per cent in the United States, considerably faster than economy-wide energy intensities (shown in table 3.5.2), which fell by 28 per cent from 1972-1999 in the EU and by some 40 per cent in the United States. Estimating industrial energy intensities in transition economies is more difficult, particularly given the different system of national accounting and the distorted price structure, but there is some evidence that the sector energy intensities are also similar to the economy-wide intensities. That in turn
Estimating sectoral energy intensities requires finding comparable coverage of sectors for both energy and value added, which is time consuming. The estimates here rely on World Bank data for the share of industry in GDP, and OECD energy balance data for energy consumption by sector, but the coverage may not be exactly the same.
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TABLE 3.5.2 Energy intensity relative to average EU energy intensity, 1972-1999 (Market exchange rates, $1995, percent)
1972 Austria Belgium Denmark Finland France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Spain Sweden United Kingdom
..1.19 ..0.84 .. r.48 ..0.90 ..1.44 ..1.00 ..1.18 ..0.76 ..1.52 ..1.11 ..3.06 ..1.35 ..0.72 ..0.78 ..1.30 ..1.70
Norway
..1.20
EU-15
Bulgaria Czech Republic Hungary ..3.39 Poland Romania Slovakia Russian Federation . United States
..2.46
1980
1990
1999
1.07
0.92
0.85
0.75
0.66
0.61
Percent change 1972-1999
1.18
1.11
1.40
1.14
1.02
-28 -27 -27 -38 -18 -17 -39 49 -46 -27 -72 -36 48 26 -18 -40
1.08
0.98
0.89
-26
10.73
8.74
1,23
1.05
1.08
0.79
0.61
0.56
1.44
1.20
1.19
0.91
0.85
0.83 0.72
1.10
0.87
0.85
1.10
1.13
1.28
1.10
0.82
0.94
0.82
0.80
2.24
1.42
0.85
1.20
0.99
0.87
0.80
0.93
1.06
0.93
0.92
0.98 1.06
13.56 3.59 9.21
4.83
4.05
3.15
2.72
4.88
3.31
8.80
6.30
5.65
4.56
-20
10.18 2.11
1.64
1.46
-41
Source: World Bank, World Bank Development Indicators (Washington, D.C.), various issues. Note: Annual figures are relative to the energy intensity of the EU-15, averaged over the period 1972-1999.
implies that energy intensities are far higher than in market economies, reflecting the inefficient resource use associated with central planning and distorted prices. The rapid growth in the use of energy in transport is primarily the result of the rapid growth in vehicle kilometres (km) travelled (VKT). In Britain, energy use per VKT has fallen from 104 grams (gm) oil equivalent/km in 1980 to 89 grams oil equivalent/km in 2000, or an increase in energy efficiency of 15 per cent.156 Looking across countries, fuel efficiency varies - in large part because of variations in transport fuel taxes and hence prices. Thus, in the United States fuel consumption per kilometre is 40 per cent higher than in the EU, but transport fuel taxes and hence prices are significantly lower than in the EU.
3.6 The effect of price on energy use The natural explanation for the considerable variation in energy intensity across countries and the
relatively slow decrease in energy intensity with time is that prices vary more across countries than over time. In addition, energy use responds slowly to price changes, as the energy-using capital stock takes time to adjust to different energy prices - decades in the case of power stations and buildings, and maybe a decade for vehicles and machinery. Very simple crosscountry econometrics suggests an economy-wide energy price elasticity of about -I.157 More detailed studies of particular sectors suggest a similar aggregate figure, although the sector levels may be higher or lower. Estimates of gasoline price elasticities in transport are around -1 from cross-section studies, but range up to -2.3 for the long-run elasticity estimated from time series.158 Industrial energy price elasticities may be lower (-0.3 to -0.5), but output elasticities are also below unity, suggesting a trend growth of energy efficiency even without price changes.159 In all cases the short-run elasticities are much lower than in the long run, typically around -0.1 to -0.2. Chart 3.6.1 illustrates the cross-country relationship between average energy price ($/toe, weighted by fuel share and sector) and average economy-wide energy intensity, for the OECD countries for the period 1993-1999, using data from OECD.160 The constant elastic regression line is fitted for non-transition economies, and suggests, that the energy intensity of transition economies is higher than expected given their energy prices. That is consistent with other factors (e.g. central planning) influencing energy use. Note that in chart 3.6.1 the assumption that the GDP elasticity of energy use is unity has been maintained. Once again, the cross-section price elasticity is -1.0 with a standard error of 0.14, consistent with the other evidence. This economy-wide elasticity of about -1 is probably reflecting other policies as well as those associated with price changes, for when oil prices rose sharply countries often imposed additional incentives to reduce oil imports and energy consumption. Thus, prompted by the oil price shocks, the United States imposed corporate average fuel economy (CAFE)
P. Hoeller and M. Wallin, Energy Prices, Taxes and Carbon Dioxide Emissions, IEA Working Paper, No. 106 (Paris), 1991; T. Barker, P. Ekins and N. Johnstone (eds.), Global Warming and Energy Demand (London, Routledge, 1995); A. Cooper, S. Livermore, V. Rossi, J. Walker and A. Wilson, "Economic implications of reducing carbon emissions: the Oxford Model", Energy Journal, special issue on "The costs of the Kyoto Protocol...", op. cit, pp. 335-366. I CO
M. Franzen and T. Sterner, "Long-run demand elasticities for gasoline", in T. Barker et al. (eds.), Global Warming..., op. cit., chap. 4. Calculated from data for total vehicle kilometres and total energy use in Department for Transport, Transport Statistics, 2002 and earlier years. The rate of increase of efficiency from 1979-1981 is rapid, and then stabilizes until 1985 before continuing to improve, so the results are sensitive to the starting date chosen.
159 L. Vouyoukas, "Elasticities for OECD aggregate final energy demand", in T. Barker et al. (eds.), Global Warming..., op. cit., chap. 6.
Average prices and energy intensities are used as energy use responds slowly to price changes. OECD, op. cit.
Newbery: Sectoral Dimensions of Sustainable Development: Energy and Transport.
CHART 3.6.1
Cross-section relation between average energy intensity and average energy price, 1993-1999
81
inexorable growth of energy use with economic growth. Extremists have gone further and argued that economic growth itself should be curtailed. Simple energy taxes alone, however, do not make sense, as it is the harmful emissions that are the reason for action, not energy consumption per se. The time has come to switch attention from the determinants of energy use to those of the resulting environmental pollutants.
3.7 Policy to increase the efficiency of energy use
Source: World Bank online database (www.worldbank.org/data/). 3
Standard error = 0.14; R2 = 0.69 (excluding central and eastern Europe).
requirements on motor manufacturers to meet fleet average fuel efficiency standards. It could also be argued that these associated policies were primarily aimed at encouraging a more rapid adjustment of the capital stock to future expected prices, and is therefore one of the routes by which price changes feed through to final energy choices. The implication is that energy prices and possibly other complementary policies can have powerful effects on total energy use (and even more powerful effects on the choice of fuels in individual sectors, such as heating, steam raising, electricity generation, and the choice between gasoline and diesel for vehicles). To put this into perspective, if the price elasticity is -1, and the GDP energy elasticity is 1 (i.e. energy intensity is invariant to income levels), and GDP grows at 3 per cent per annum, then energy use would not increase if prices rose at 3 per cent per annum in real terms (i.e. relative to all other prices). This would mean a price increase of 80 per cent over 20 years. Not surprisingly, most attempts to decouple energy use from GDP growth involve steady increases in real energy prices. For oil and eventually gas, such price rises are consistent with resource depletion (and were the default price forecast in the 1970s), but for coal and tar sands, stocks are too large for resource depletion alone to drive steady price increases. Some analysts have therefore argued that energy taxes should be steadily increased to depress the otherwise
Sustainable energy use requires that market prices are corrected by taxes (or their equivalent) to reflect all external costs. How much the current generation bequeaths to the future can then be determined by the amount of capital accumulated, where capital includes not only physical capital, but also human, social, environmental and natural resource capital. The revenue from these corrective taxes can be used to purchase not just further reductions in these pollutants, but other services that may yield larger increases in welfare. If emissions of sulphur dioxide reduce life expectancy, then sulphur emission taxes may be able to buy more quality-adjusted years by transfers to the health service than being spent on increasingly expensive sulphur abatement. More generally, charging according to damage done, and allocating the revenues to where the greatest benefit occurs, is more efficient than forcing pre-specified levels of abatement. The four main pollutants associated with fossil energy consumption are particulates (black smoke) from incomplete combustion, the acid rain precursors sulphur dioxide and nitrogen oxides, and green house gases, particularly carbon dioxide. We first discuss their relation to energy use, and the extent to which they can be or have been decoupled from energy use, and then discuss the design of appropriate ways of confronting energy users with their social costs. (i)
Carbon dioxide emissions
Carbon dioxide (CO?) is released in direct proportion to the carbon content of the fuel, and is the main cause of climate change (global warming). Fuels vary in the carbon content per unit of useful energy, measured for example by tonnes of carbon per tonne oil equivalent (tC/toe), or tonnes CO2/toe as in chart 3.7.1.161 Thus, bituminous coal has 1.1 tC/toe, gasoline 0.8 tC/toe, HFO 0.88 tC/toe and natural gas 0.64 tC/toe, while nuclear energy, renewables and hydroelectricity
161
The ratio of tonnes CO. to tonnes C is 44:12 or 3.67:1.
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CHART 3.7.1 Carbon dioxide content per tonne of oil equivalent, 1960-1999
Source: World Bank online database (www.worldbank.org/data/).
have zero values.162 The wide range of values in chart 3.7.1 reflects at one extreme Norway's heavy dependence on hydroelectricity (also used for domestic heating) and at the other the heavily coal-dependent Poland. The rapid decrease in CO2 intensity in the United Kingdom reflects the switch from coal and oil to natural gas and the development of nuclear energy. The larger fall in France reflects the more complete penetration of nuclear power in electricity generation that has moved France from near Poland's intensity to that of Norway. Clearly then, CO2 intensities can be reduced by fuel switching, particularly to non-carbon based electricity. Norway and France demonstrate, however, that the gains from switching are limited by the overwhelming dependence of transport on oil. (ii) Emissions of other pollutants Climate change policy, if not concern, is relatively recent, and the Kyoto Protocol has still not been signed by key countries such as the United States. In order to judge how effective environmental policy can be, it is useful to look at the dramatic successes of earlier policies towards other air pollutants. In each case, once the damage had been recognized, local action was taken. Where the damage spilled over national frontiers, a surprising degree of international
Taken from IE A, CO2 Emissions from Fuel Combustion 19712000 (Paris), 2002. Note that tC/tonne of fuel may be quite different, e.g. only 0.67 tC/tonne of bituminous coal.
agreement and action followed. Economists have criticized some of these agreements and legislation as inefficient, or unjustified on narrow social cost-benefit terms,163 but judged purely in quantitative terms their impact has been impressive. The evidence below is taken mainly from British sources, but the same results could be found in most developed countries. For most pollutants, policy acts at two levels. Typically the source of the problem is addressed by imposing emission limits, at the national and/or at the source level, for total emissions and/or emissions per kilometre travelled or per kilowatt-hours (kWh) generated. Early legislation concentrated more on controlling emissions, while later legislation addresses the resulting air quality standards. Thus in the EU, the Framework Directive 96/62/EC requires a preliminary assessment of air quality by certain dates for each pollutant, and hence is in a position to detect excessive levels. (iii) Particulates The first major environmental pollutant to attract attention and legislation was smoke from burning coal. Londoners in the twelfth century complained about the noxious fumes from burning sea coal, and the corrosive effects of sulphur dioxide, SO2, dissolved in
See e.g. D. Newbery, "Acid rain", Economic Policy, Vol. 11, October 1990, pp. 297-346; R. Crandall, H. Gruenspecht, T. Keeler and L. Lave, Regulating the Automobile (Washington, D.C., Brookings, 1986).
83
Newbery: Sectoral Dimensions of Sustainable Development: Energy and Transport
rain has been well understood for at least a century. In Britain, policies to address the harmful effects started with the Smoke Abatement Acts of 1853-1856, and via various other measures to the landmark Clean Air Act of 1956, followed by a second Clean Air Act in 1968. Concentrations of SO2 in London fell from 900|Ltg/m3 in 1850 to 25|ig/m3 in 2000.164 The proximate cause for this later legislation was the very obvious health hazards associated with the unregulated burning of coal, and in particular the large number of people, estimated at 4,000, who died in the great London smog of December 1952. The incomplete combustion of coal (and oil) produces fine suspended particulates that are damaging to health, and increase mortality and morbidity. The severity of the risk increases with the concentration of fine particulate matter, which is measured by the concentration of particles of less than 10 microns (PM10). The combined effect of legislation, which prompted the development of smokeless fuels to replace coal in designated areas, and the gradual replacement of open coal fires by central heating (now mainly gas-fired) in domestic use, dramatically reduced PM10 emissions, as shown in chart 3.7.2. Total emissions fell by 46 per cent in the decade 19701980, while emissions from the domestic sector (which are the most damaging as they come from low level sources in densely populated areas) fell by 58 per cent.165 The rate of decrease continued, with domestic emissions falling 49 per cent in the decade 1980-1990 and a further 47 per cent from 1990-2000. Over the whole period 1970-2000 total emissions fell by 74 per cent. Domestic emissions now only account for 20 per cent of a much smaller total, compared with 42 per cent in 1970. Similarly, power station emissions have fallen dramatically, by 81 per cent per kilowatt-hours from 1970 and by 76 per cent in the period 1990-1999 (primarily as a result of the switch from coal to gas), while emissions per kilometre travelled by road transport have fallen 73 per cent since 1970 and by 57 percent since 1990. Records of emissions and concentrations in other countries typically cover shorter time periods.166 Thus in Germany, if the data are to be believed,167 total emissions fell from 2,059 kilotons (kt) (thousand Lomborg, op. cit., p. 165 for sources, which for 1850 are derived from coal imports. Department of the Environment, Digest of Environmental Statistics, No. 17 (London, HMSO, 1995). Particulate emissions before 1980 are measured by black smoke, which correlates closely with PM|0. See (europa.eu.int/comm/environment/air) and the detailed studies on individual pollutants accessible from there. See (europa.eu.int/comm/environment/air/pdf/pp_pm.pdf), table, p. 65. Presumably the dramatic fall from 1990 to 1991 reflects the rapid restructuring of east Germany after reunification.
CHART 3.7.2 Emission of particulates in the United Kingdom, 1970-2000
Source: Department for Environment, Food and Rural Affairs, Digest ol Environmental Statistics, March 2003.
tonnes) in 1990 to 864 kilotons in 1992, a drop of 58 per cent in just two years. (iv) Sulphur dioxide Sulphur dioxide, primarily from burning coal and oil, is a prime contributor to acid rain, and when released from high stacks can travel considerable distances as an aerosol, causing damage downwind and in other countries. The fact that the damage might be done to other countries and could not therefore be addressed by national action alone, was a prime factor leading to international agreements and protocols. Different countries responded to different facets of the pollution problem. The Scandinavian countries were troubled by the death and disappearance of fish from lakes and rivers. Germans worried about dying trees in their forests. Glasnost revealed the full extent of the environmental disasters in eastern Europe, and provided the focus for local hostility to the environmental insensitivity of central planning. The debate on acid rain and on appropriate responses has been conducted in two different forums. The initial pressures came from the UNECE Convention on Long-range Transboundary Air Pollution (LRTAP) that has 34 members from Europe and North America. Much of the pressure here was exerted by the Scandinavian countries and Canada, which are both large net importers of acid rain because
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of their unfortunate downwind locations. In 1982, Norway and Sweden pressed for the signatories to reduce SO2 emissions to 30 per cent below 1980 levels by 1993. This led to an informal "30 per cent Club" founded in Ottawa in March 1984, and, in July 1985, 21 countries, but not including the United States and the United Kingdom, signed a protocol at the third meeting of the UNECE LRTAP Convention in Helsinki. Whereas the Scandinavians were initially primarily concerned with the acidification of lakes and streams and consequent loss of fish, west Germans were worried about the impact their own industry was having on the environment, concerns which were reflected in the growing political power of Green parties in the early 1980s. An emotive campaign in 1982 drew attention to the problem of Waldsterben or forest death, in which official estimates showed that over half the forest area had suffered damage, attributed to acid rain. For a variety of political reasons described in more detail in Berkhout et al.,168 a Large Combustion Plant Ordinance (Grossfeuer-ungsanlagen-Verordnung or GFAVo) was enacted in June 1983, under which flue gas desulphurization equipment would be fitted to 37 GW169 of coal-fired power stations, and a further 12 GW would be subject to early closure. Not surprisingly, industry protested that the costs of this programme, which were to be borne by electricity consumers, would harm west Germany's competitive position in international markets, and this led the government to press for similar standards being adopted by the whole of Europe. The European Commission proposed a Large Combustion Plant (LCP) Directive based on the GAFVo in December 1983, calling for a cut of 60 per cent in SO2 emissions by 1995, to 40 per cent of their 1980 level. After much debate,170 the United Kingdom finally agreed to reduce SO2 emissions from existing large plants to 20 per cent below their 1980 level by 1993, to 40 per cent below by 1998 and to 60 per cent below by 2003; nitrogen oxides (on the same basis) would be cut by 15 per cent by 1993 and 30 per cent by 1998. The Directive also provides for stringent emission standards for new large combustion plants, which the United Kingdom accepted.171 In November 1988, the United Kingdom Environment Minister signed a United Nations protocol in Sofia committing
F. Berkhout, S. Boehmer-Christiansen and J. Skea, "Deposits and repositories: electricity wastes in the UK and west Germany", Energy Policy, April 1989, pp. 109-115. 169
the United Kingdom and most leading industrial countries to freeze the level of nitrogen oxides at 1987 levels until 1994 and by 1996 to agree to further reductions based on critical levels. In due course the Second Sulphur Protocol was signed and has had a significant effect on efforts to reduce sulphur dioxide emissions. Britain reduced SO2 emissions by 82 per cent between 1970 and 2000, and although the decadal decrease was only 24 per cent until 1990, from then the impact of international agreements (and their translation into national limits) has been dramatic, with an overall decrease of 69 per cent from 1990-2000, and a 76 per cent decrease in SO2/kWh in power production (which in 1990 accounted for just under 80 per cent of total emissions). Britain emitted only 76 per cent of the 1998 LCP ceiling by the deadline date, and in 1999 was emitting only 87 per cent of the substantially more stringent 2003 limit. Detailed data on emissions from European countries is available from the European Monitoring and Evaluation Programme (EMEP). This was set up in 1978 to monitor the movement of pollutants, and to determine where the pollutants released from each source were deposited. For the EU, emissions fell 20 per cent between 1980 and 1990, and are forecast to fall by a further 60 per cent to 91 per cent between 1990 and 2010. The decline in other European countries (which account for as much as the EU) is similarly forecast at between 29 per cent and 86 per cent over the same period.172 Among the transition economies SO2 fell by more than 35 per cent in the CIS countries (but as energy use fell by 28 per cent, emissions per toe fell by 28 per cent), and by 25 per cent in central Europe, the Baltic states and southeastern Europe, the latter as a result of lower emissions per toe.173 (v) Nitrogen oxides Nitrogen oxides, NOX, are produced from the air involved in combustion processes, rather than in pollutants contained in the fuel itself, as with SO2. As with SO2, country level data on NOX emissions are available from the EMEP. In Europe as a whole in 1994, 57 per cent of total NOX emissions came from transport, and 39 per cent from stationary combustion sources.174 In the EU in 1995, 62 per cent of such emissions came from transport and 34 per cent from stationary sources. In the United States, the original
Gigawatts, 1 GW = 1 million kW.
Described in J. Skea, "UK policy on acid rain: European pressures and emission prospects", Energy Policy, June 1988, pp. 252-269.
" See (europa.eu.int/comm/environment/air/pdi7pp_so2.pdf), p. 9. 173
Department of the Environment, Our Common Future: A Perspective by the UK on the Report of the World Commission on Environment and Development (London, HMSO, 1988).
174
EBRD, Transition Report, 2001 (London), p. 93.
CORJJMAIR, Summary Report No. 1 - Final Draft, under contract to the European Environment Agency, 1995.
Newbery: Sectoral Dimensions of Sustainable Development: Energy and Transport
impetus to address the problem was the deteriorating air quality in urban areas such as Los Angeles and Washington, D.C., where photochemical smog led to high levels of ozone. This was traced to exhaust emissions- of hydrocarbons and nitrogen oxides and California led the way in introducing successively tighter emission controls on vehicles. These have been adopted in other countries in their emission standards for vehicles (where international trade is a powerful mechanism for standardization). In Europe, acidification was again one of the major forces for policy change. (In terms of acidification, NOX is counted as 70 per cent as damaging per tonne as SO2.) As with SO2, the approach was to impose limits on emissions from large combustion plants (and on emissions in grams per kilometre for vehicles). The EC Large Combustion Plants Directive 88/609/EC required that emissions in 1998 be 40 per cent below those of 1980. Again the evidence from Britain is instructive, and covers a longer time period than for most other countries. Total emissions fell by 40 per cent between 1970 and 2000, but as they rose by 10 per cent between 1970 and 1990, the fall in the subsequent decade was a more dramatic 45 per cent. Emissions from road transport per kilometre travelled fell by 58 per cent between 1990 and 2000, and those from power stations (which accounted for 28 per cent of the total in 1990) fell by 60 per cent per kilowatt-hour over the same period. By 1998 Britain was producing only 55 per cent of the LCP target for that year. Thus, Britain demonstrates that once the problem is recognized as important, and is systematically addressed by standards (for vehicles) and emission limits (for large plants), dramatic reductions can be achieved. In the case of vehicles, as the proportion of vehicles meeting the more recent tighter limits increases, so emissions per kilometre and in total are forecast to continue falling.
3.8 Designing efficient energy pollution policies At one level, CO2 is conceptually the simplest pollutant, for the damage done does not depend on where the emission occurs, and is directly proportional to the carbon content of the fuel. A fuel tax per tonne of carbon is therefore the logical instrument, and one that has been adopted by a number of Scandinavian countries (none of which has an indigenous coal industry to protect). The obvious problem is that the benefits of reducing CO2 emissions in one country are overwhelmingly captured by other countries, so the incentive for any one country to unilaterally tax CO2 is minimal. The second problem is that it is difficult to quantify the present discounted total global benefits to
85
reducing emissions of CO2 now. There are long lags between emissions and their impacts on global temperatures, and then on ecological, climatic and sea level changes. These impacts have very different effects on different countries, with the adverse impacts falling disproportionately on poorer tropical developing countries. Indeed, some calculations suggest that for modest global warming, some richer countries might even benefit, or at least lose only to a limited extent.175 The damage done will depend on the direct costs of the damage and the cost of measures taken to avoid damage (better sea-level defences, etc.), both of which will depend on the future state of technology. Even the discount rate to use is controversial, as normal commercial discount rates evaluate damages a century hence of negligible present value. Thus, the present value of $1 million in 100 years time at a 5 per cent per annum discount rate is only $7,600. Lower discount rates can be defended if future income levels are substantially lower than at present, but most forecasts do not predict that outcome. Finally, the cost of reducing CO2 emissions in the future depends on technical progress, which is also uncertain. That affects the optimum (costminimizing) path of CO2 reductions, and hence the time path (and present level of) carbon taxes. Uncertainty is no excuse for inaction (although it may be a cause for delaying irreversible and costly actions if information can be improved), and considerable effort is being deployed to determine the global optimum climate change policy and the implied level of taxes. In practical political terms it is most improbable that a uniform global level of carbon taxes can be agreed, but the Kyoto Protocol suggests a feasible and equivalent alternative. If global limits on CO2 emissions can be agreed and quotas allocated to countries, and if these carbon quotas are freely tradeable, then in a competitive trading environment a global carbon permit price should emerge.176 If energy users had to obtain these CO2 permits in proportion to fuel purchased, then the external cost (at least of global warming) would be efficiently internalized. The main objection to the presently formulated Kyoto Protocol is that it does not foster global (as opposed to regionally restricted) carbon trading, as most developing countries are exempt. Another major objection is that by itself the Protocol will only delay 173
J. McCarthy, O. Canziani, N. Leary, D. Dokken and K. White (eds.), Climate Change 2001: Impacts, Adaptation and Vulnerability-, contribution of Working Group II to the Third Assessment Report of the Intergovernmental Panel on Climate Change (IPCC) (Cambridge, Cambridge University Press, 2001. The qualification is important, for if major CO2 emitting countries such as the United States (with 24 per cent of the world total), Russia (with a likely large trade surplus of permits) or China were to use their market power, the internal and world prices would not be equilibrated.
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CHART 3.8.1 The benefits of emissions trading
century-hence levels of atmospheric CO2 by about six years, and so a whole sequence of future CO2 restrictions will be needed. As a result the costs of compliance could be many times higher than the least costly global trading solution (eight times, according to an estimate of Nordhaus and Boyer).177 It is easy to see why. Chart 3.8.1 shows the marginal cost (MC) of reducing CO2 emissions by one tonne in two different countries, at the pre-trade levels of allowed emissions, OQ. The extra cost of reducing emissions in country A is QA, considerably higher than that in country B, QB. If country A could purchase a quota from country B, the cost saving would be (approximately) QA-QB, which could be many times the value QB (and also many times the equilibrium price with free trade between these two countries, QE). Global trading in carbon permits combined with country quotas for every country (and monitoring for compliance) would create the right conditions for selecting the efficient choices from those available, but would not guarantee that the right technologies would be produced. RD&D (research, design and 7 W. Nordhaus and J. Boyer, op. cit. Nordhaus's model, however, suffers from serious methodological problems (T. Barker, review of Managing the Global Commons: The Economics of Global Change, by W. Nordhaus in Energy and Environment, Vol. 7, No. 1, pp. 85-88); and the costs of mitigation depend sensitively on how the tax revenues are recycled (and the size of the "double dividend"), how far carbon reductions lead to additional reductions of other pollutants, as well as the extent of trade. T. Barker and P. Ekins, "The costs of Kyoto for the US economy", Cambridge Department of Applied Economics, 2003, mimeo, compare the range of cost estimates presented in R. Watson (ed.), Climate Change 2001: Synthesis Report, contribution of Working Groups I, II and III to the Third Assessment Report of the IPCC (Cambridge, Cambridge University Press, 2001) for differing degrees of trading. The ratio of the costs of mitigation with no trade compared to global trading range from 2.3 to 22, with most estimates between 5-7. The ratio of the costs with trade limited to annex I countries to global trading cluster around 3. All these figures are affected by revenue recycling and ancillary benefits.
development) is a quasi-public good (even with good patent protection), and the learning spillovers from developing and producing new carbon-saving technologies are likely to be large. That is a prime argument for subsidizing low-carbon technologies, and an argument for international agreements to fund such research and set targets for their introduction, in order to stimulate their development and deployment. Fortunately, it seems somewhat easier to persuade individual governments to support local initiatives than economists, fearful of free-riding, might have expected. Support for low-carbon energy is even more important if developing countries lack economic incentives to reduce CO2 emissions, for if these technologies become competitive against traded fossil fuel, then these countries will have an incentive to use these rather than carbon-intensive fuels. If governments appear to be taking the development of low-carbon energy substitutes reasonably seriously, the same cannot yet be said for pricing carbon, at least in most countries. Britain, for example, has introduced a Climate Change Levy, which is a pure energy tax (with exemptions for renewables, good quality combined heat and power (CHP), but not for nuclear electricity). Households, whose energy is already subsidized though a reduction in VAT of 12.5 per cent, are exempt, although improving household energy efficiency is probably one of the least-costly ways of lowering overall energy use. A more logical approach would be for each government to levy the carbon tax needed to meet its Kyoto commitment (or, on an optimistic view, at the level of the future equilibrium price of traded carbon permits). If carbon permits become tradeable, then the government can replace the carbon tax by the requirement to buy carbon permits, ideally at the same rate as the tax. Carbon dioxide emissions are not the only reason for taxing fuels, but if we inquire how energy is actually taxed, it is hard to relate taxes to potential damage, as the next section demonstrates.
3.9 The current pattern of energy taxes and subsidies Different fuels are taxed at very different rates in almost all OECD countries, and the same fuel is taxed at very different rates across the OECD. Chart 3.9.1 gives the average mineral oil tax rates in 1997 across EU countries, defined as total tax revenue (excluding VAT) divided by the final consumption of oil products. To gain a rough sense of the tax rates, the pre-tax price of oil products in 1997 probably averaged about €100/tonne oil equivalent, so the taxes as a percentage of product prices were high (substantially greater than 100 per cent). In contrast, coal is normally untaxed (except in Denmark and Finland), as is gas for industry (with a few more exceptions).
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CHART 3.9.1 Average mineral oil tax rates, 1997
Source: European Commission, Excise Tax Duty Tables, July 2001, ranked by tax rate.
CHART 3.9.2 Tax rates on industrial fuels in the EU, excluding VAT, 1997
Source: International Energy Agency, Energy Prices and Taxes (Paris), ranked by tax on light fuel oil.
Hydrocarbon taxes are also fiscally important. On average they contribute 2 per cent of GDP to the budget (as shown on the right hand scale of chart 3.9.1), or about 5 per cent of tax revenue. The United Kingdom stands out as having heavy oil taxes,
primarily but not solely arising from the heavy taxation of road fuels. The ratio of hydrocarbon taxes to total United Kingdom government revenue has risen from 4.5 per cent in 1989 to 6.7 per cent in 1999, and the real tax receipts grew at 6.2 per cent per annum
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over this decade. More to the point, hydrocarbon taxes account for a significant share of indirect taxes - 20 per cent of all indirect tax revenue (including VAT) in the United Kingdom, and 46 per cent of indirect taxes if VAT and import duties are excluded.
CHART 3.9.3 Effective tax rates on domestic fuel in the EU, net of standard VAT,
1997
The variation of EU tax rates (as a percentage of the pre-tax price, and again excluding VAT) for different fuels for the industrial sector is shown in chart 3.9.2. Light fuel oil (LFO) stands out as heavily taxed in some countries, notably Italy, Portugal and Greece, presumably where there are difficulties in preventing tax evasion on the even more heavily taxed road diesel fuel, for which kerosene can readily be substituted. Heavy fuel oil (HFO) is relatively heavily taxed in Austria and Sweden, while Denmark appears to have the most uniform tax system across fuels, as the base is primarily carbon content. Chart 3.9.3 shows the taxes on fuel consumed in the EU domestic sector (excluding road fuel, which is shown in chart 3.9.2). LFO is primarily used for central heating, as is gas, but they are taxed at very different rates (except in Denmark), again probably to prevent road fuel tax evasion. The variation across countries is considerably larger than for industrial use, as one might expect on efficiency grounds. The average tax rates are typically higher than for industry, again as expected. Chart 3.9.4 completes the picture by comparing taxes on road fuel across the EU. The tax rates were more than 250 per cent of the pre-tax price on average, and over 300 per cent for France and the United Kingdom. Taxes for the United States (which vary by state) are half the lowest EU taxes (in Portugal and Greece). Note that chart 3.9.4 is ordered by increasing rates of diesel tax rate, where the average rate is high at about 190 per cent (but again over 300 per cent in the United Kingdom). Road fuel taxes contribute the overwhelming proportion of energy taxes, and raise the greatest conceptual issues, as a considerable part of these taxes are more properly considered as road user charges. Describing and quantifying levels of fuel taxation in transition economies is more difficult, at least for non-accession countries and for all countries before 1990. Commodity taxation was primarily designed to adjust for price differences between COMECON trading partners, and to extract rents or provide transfers, rather than guide resource allocation. It is difficult collecting prices relative to the efficient level for most sectors, but as a guide, residential electricity prices were only half the long-run marginal cost (LRMC) for transition economies in 2000.178 Similarly,
Source: International Energy Agency, Energy Prices and Taxes (Paris).
the price of heating was significantly below the LRMC in most transition economies, and the relative pattern of industrial to domestic prices is highly distorted. The second problem which continues to affect most of these countries is that the proportion of energy bills actually paid in cash is frequently low - in 2000 only 15 per cent in Azerbaijan, 25 per cent in Uzbekistan, 35 per cent in Georgia, 45 per cent in Romania, although it had risen to 85 per cent in Russia from levels as low as 20 per cent.179 Commercial losses (non-billed consumption) are also high. If consumers do not have to pay the quoted price, they are effectively further subsidized. The special case of coal Coal is nominally untaxed in the EU (and most other OECD countries) except in Denmark and Finland, neither of which mine coal. Coal production has until recently been heavily subsidized in most significant European coal producing countries, and until recently the protection was provided by a combination of hydrocarbon taxes and above world market domestic prices. In the early 1990s, Germany had the largest indigenous coal industry in the EU, and one of the most protected in Europe, as measured by the producer subsidy equivalent (PSE) per tonne.180 179 180
178
EBRD, op. cit., p. 96.
Ibid.
EA estimates Germany's PSE at $105/tonne coal produced in 1992. TEA, Energy Policies oflEA Countries; 1992 Review (Paris), 1993, p. 38.
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CHART 3.9.4 Road fuel taxes in the EU, 2001
Source: International Energy Agency, Energy Prices and Taxes (Paris), various issues.
Germany also paid the highest prices for coal for power generation, and had the highest industrial electricity price. The United Kingdom had the lowest PSE/tonne of the European coal producers ($18/tonne of coal in 1992) but one of the highest coal prices for electricity generation. Interestingly, it also had one of the lowest industrial electricity prices of coal-intensive countries, as British coal was protected by high contract prices with the generators that were passed on primarily to non-industrial customers. Spain had an even more protected coal industry. I have estimated that the PSE raised the effective domestic price for coal producers by about 450 per cent above import parity in Spain (compared with the lEA's estimate of 100 per cent), about 250 per cent in Germany, and about 50 per cent in the United Kingdom.181 Since then, the system of supporting coal producer prices in Germany has changed so that industrial consumers (mainly power stations) can buy at import prices. Coal-backed contracts have ended in the United Kingdom, so many of the past distortions have disappeared. On the other hand, the Climate Change Levy in Britain has been carefully designed not to be a carbon tax, but an energy tax, and electricity is taxed on production, not inputs, to protect coal. Coal escapes carbon taxes (except in Denmark). Clearly coal is still treated rather leniently compared with most other fuels.
181
D. Newbery, "Removing coal subsidies: implications for European electricity markets", Energy Policy, Vol. 23, June 1995, pp. 523-533.
3.10 Explaining current fuel taxes Looking at the considerable dispersion of tax rates for the same fuel in similar countries, and across similar fuels in the same country, it is hard to accept that fuel taxes have been set to internalize external costs, or to improve the efficiency of energy use. The simplest explanation is that gasoline and road diesel are mainly taxed as a means of charging for road use, as discussed below. That in turn often makes high taxes on kerosene necessary to prevent diversion to road use. Heavy oil is taxed to protect indigenous coal in some countries (e.g. the United Kingdom), and coal production (although not normally consumption) is frequently subsidized to protect coal-mining jobs. In cold climates the concept of "fuel poverty" influences domestic fuel taxation; in Britain fuel poverty is defined as spending more than 10 per cent of income on energy (a problem that in the mid-1990s affected perhaps 20 per cent of households). Thus Britain levies a lower VAT rate on domestic fuel use (5 per cent instead of the standard 17.5 per cent). In warmer southern climes, it is politically easier to tax domestic gas and electricity. Finally, and especially in countries with poor tax compliance, fuel taxes are cheap and easy to collect and often attractive on those grounds. Where municipal authorities receive the income from domestic electricity and gas sales, prices are often raised (and the fuels therefore implicitly taxed) to pay for municipal services (as in Germany). Where competition and/or falling fuel prices have driven
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down wholesale electricity prices, some countries (Germany, the Netherlands) have imposed additional taxes to collect these rents (often in the guise of ecotaxes, to encourage a switch to green or renewable electricity). In other countries, notably the United Kingdom, energy taxes are politically so salient that they have been reduced while liberalization drove down wholesale prices.182 Nevertheless, EU countries are increasingly adapting energy taxes to address environmental concerns and defending them on those grounds. Several countries have introduced comprehensive "green" tax reforms, in which environmental taxes have been raised and the revenue normally used to reduce other taxes or support renewable energy. The IEA183 gives more details, but briefly, Finland and Denmark introduced "carbon" taxes in 1990 and 1992, although with extensive rebates for industry and power. Norway effectively introduced a "carbon" tax in 1991, although confined to mineral oil and again with some rebates. Italy planned much the same in 1998, but oil price increases have delayed their introduction. Sweden rebalanced its energy taxes in 1991 to concentrate them on carbon and sulphur. Belgium increased energy taxes on private consumption, and Austria has imposed them on gas and electricity since 1996. The Netherlands introduced a general fuel tax and specific eco-taxes in 1995. France's attempts at restructuring environmental taxes were eventually ruled unconstitutional, while the Swiss rejected two proposals for green taxes in a referendum in 2000. Britain's Climate Change Levy has already been mentioned. As the IEA notes, "even if these levies are often labelled 'CO2 taxes', the tax rates facing different polluters hardly reflect the carbon content of the fuels they are using".184
3.11 Designing an efficient set of fuel taxes Energy taxes are primarily input taxes and, as such, fall on production as well as consumption. Standard tax theory185 argues that distortions should be confined to final consumption, leaving production undistorted. In the absence of externalities or other market failures, that suggests that all indirect taxes
The fossil fuel levy, originally set at 10 per cent of the pre-levy final price, is an interesting example of a tax designed to collect revenue to finance nuclear decommissioning. Because it was hypothecated to that purpose, it was not called a tax and hence not subject to the normal political bargaining. 183 1 84
IEA, Energy Prices and Taxes, First Quarter 2002 (Paris), 2002. Ibid., p. xxvi.
P. Diamond and J. Mirrlees, "Optimal taxes and public production I: production efficiency", American Economic Review, Vol. 61, 1971, pp. 8-27.
should be value added taxes. However, externalities are prevalent, and there are good reasons for reflecting their social costs in corrective taxes. The simplest cases are where the damage done is proportional to the pollutant in the fuel. Carbon is the best example, with sulphur raising minor additional problems. Countries that have signed the Kyoto Protocol have a choice between two equivalent efficient policies, either a carbon tax at the same rate on all fuels proportional to their carbon content, or a requirement to buy carbon permits to cover the carbon content of all fuel purchases (or use). The problem in setting the tax is that there are wide differences between various estimates of the appropriate level. The original EU energy tax was $10/barrel, of which half was to be on the carbon content of the fuel, the rest on the energy content. If it were all allocated to carbon it would amount to about $75/tonne carbon (tC). Maddison et al.186 estimated the shadow prices of controlling the last unit of carbon dioxide released assuming optimal abatement and a marginal cost of $5.9/tC at constant 1993 dollars. This is only slightly less than the cost assuming "business as usual", calculated as $6.1/tC. ECMT187 cites estimates ranging from $2-$10/tC, considerably below the EU's original proposed carbon tax discussed above. Tol et al.188 review various estimates and argue for marginal damage costs below $50/tC. The United Kingdom's Department of the Environment, Transport and the Regions decided in early 2001 to take as their working assumption a central estimate of $80/tC, with a range of $40 to $160. It is worth noting that a carbon tax of $80/tC would amount to $75/tonne of coal, or 215 per cent of the EU import price of $35/tonne in 2000. The Danish carbon tax introduced in 1992 was at a rate of DKKlOO/tonne CO2 or $38/tC, while Finland levied a carbon tax on all energy at about FMK500/tC or $70/tC, roughly twice as high. Parry and Small189 review the literature and select a central figure of $25/tC, with a range of $0.7$100/tC. Even their modest list of citations suggests a range of almost 100:1, with preferred estimates differing perhaps by 10:1. Emissions trading of carbon would allow a better estimate of the marginal cost of D. Maddison et al., Blueprint 5, The True Costs of Road Transport (London, Earthscan, 1996). I 07
European Conference of Ministers of Transport (ECMT), Efficient Transport for Europe: Policies for Internalization of External Costs (Paris, OECD, 1998), p. 70. 188 R. Tol, S. Fankhauser, R. Richels and J. Smith, "How much damage will climate change do? Recent estimates", World Economics, Vol. 1, Issue 4, December 2000, pp. 179-206.
I. Parry and K. Small, "Does Britain or the United States have the right gasoline tax?" (Washington, D.C.), 2001, mimeo. See also Resources for the Future website (www.rff.org/~parry/Papers/01/gas_tax.pdf)-
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abatement, if not the marginal damage done by emissions. A tax of $25/tC would raise the cost of gas-fired electricity generation in new combined cycle gas turbine (CCGT) plants by $2.5/megawatt-hours (MWh), or 10 per cent of the average total cost, but by $6.5/MWh for coal-fired generation, or by 35 per cent or more of its avoidable cost. Such a tax would probably not be sufficient to make new nuclear power competitive against gas-fired generation at current gas prices, nor would it be likely to make most renewables competitive, although it would advance the date at which they are likely to be competitive. The same carbon tax applied to transport fuel would amount to less than €0.02/litre, small in comparison with the taxes shown in chart 3.9.4 (i)
Sulphur taxes and sulphur trading
Sulphur in fuel produces SO2 but unlike CO2 it can be largely removed by scrubbing or by flue gas desulphurization. In addition, the sulphur content of otherwise equivalent fuels varies, and sulphur can be removed from some fuels at the production stage (in oil refineries, for example). The damage done also depends on the location and height of release and the direction and strength of the wind. These complicate the task of confronting users with the correct marginal social cost of the damage they cause, and so relatively cruder methods are needed. Under the various international agreements, each country is now limited in the amount it can release, and the logical policy to meet this limit is one of "cap and trade". Under this policy, the government issues or auctions permits up to the cap, that is, the total amount allowed. Some part of this total may be allocated to existing polluters as "grandfathered" entitlements. Trading then determines the market-clearing price, and allocates them efficiently (provided, as seems to be the case, that transaction costs and market power are low). Energy users can then choose whether to buy lowsulphur fuel, install clean-up technologies, or buy permits. The evidence190 suggests that the resulting costs of meeting the cap are lower than anticipated, and that the cost of abatement technology falls as it becomes subject to market forces and is no longer mandated (which before gave the suppliers substantial monopoly power). The main objection to this approach is that there is no guarantee that the level of the cap is justified on a social cost-benefit test. I have noted that the limits were set to avoid exceeding environmentally determined critical loads, rather than addressing the
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larger damage to health.191 If the environmental damage could be given a monetary value, then average damage costs per tonne SO2 could be estimated for each country, and the permits replaced by a tax on the sulphur content of the fuel burned (with rebates for subsequent abatement, which would be easy to measure by the volume of sulphur removed from the combustion gases). Denmark offers the choice of taxing the sulphur content of fuel (at €2.7/kg) with rebates for sulphur not released as SO2 (e.g. bound in the ash), or charging emissions at €1.35/kg SO2. Norway and Sweden also impose sulphur taxes (or taxes on sulphur-containing fuels in proportion to their sulphur content) at rates between €2.5-€4/kg. (ii) Particulates Unburned carbon particles, or particulates, measured by PMio, are the most damaging and socially costly combustion products, although SO2 and NOX also give rise to particulates with similar damaging effects. Large Combustion Plants are subject to emissions standards and can be taxed on their emissions, as in Denmark. Domestic emissions are now primarily controlled by prohibiting the more polluting fuels in certain areas (smokeless zones). The main problem is dealing with transport emissions, as their damage depends on when and where they are released. In most developed countries tailpipe emission standards on new vehicles have resulted in a dramatic reduction in the total levels of road transport emissions, despite the continuing increase in traffic. The cost of meeting these standards means the "the polluters pay", but not necessarily in proportion to the damage done, as increasingly tighter standards are only applied to new vehicles. This can have the perverse effect of discouraging users from replacing older more polluting vehicles by newer versions which, because they are cleaner, are more expensive. Britain addresses this problem for trucks by charging a lower annual licence fee on newer and cleaner vehicles. A sensible tax regime for this form of pollutant might therefore be to levy a tax equal to the average damage of older and more inefficient vehicles (or other sources), and give rebates on the annual licence fee for improved performance. Fines for excessive emissions can be used to target more accurately the emission charge on the small number of gross polluters. The next question is to determine the correct level for the particulate tax. Newbery192 argues for estimating the social costs of the health effects of
D. Newbery, "Acid rain", op. cit. 190
A. Ellerman, Analysis of the Bush Proposal to Reduce the SO? Cap, MIT CEEPR Working Paper, WP-2002-002, February 2002 (web.mit.edu/ceepr/www/abstracts.htm#2002002).
D. Newbery, Fair Payment from Road-users: A Review of the Evidence on Social and Environmental Costs, report published by the Automobile Association, 1998.
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pollution by estimating the number of quality adjusted life years (QALYs) lost through premature mortality and morbidity. These costs should then be compared with what it costs the taxpayer to enable the National Health Service (in the United Kingdom or its counterpart in other countries) to achieve an extra year of quality life. The numbers used in the evaluation of transport should be consistent with numbers used elsewhere in health economics. This would enable the money raised in green taxes (which are mainly the costs of health damage) to be allocated to the National Health Service, which should be able to compensate for the quality life years lost through pollution by an equal saving of quality life years gained from improved health services. Recent work presented in UNECE193 suggests an encouraging convergence in estimates of the mortality effects of the more damaging pollutants. Severe urban pollution reduces life expectancy, and a permanent increase in air pollution of 10 pig/m3 of PM10 is estimated to raise the daily mortality rate by 1 per cent. That in turn would reduce average life expectancy in Britain by 34 days (weighted by the British age distribution and based on current age-specific mortality rates). In order to relate the loss of QALYs to the annual consumption of fuel, the correct calculation is the total loss of QALYs for a one-year increase in emissions, leaving future mortality rates at the zero emission level. Road transport may be responsible for 4.4^i g/m3 of PM]0 in Britain, reducing the loss of life expectancy per person exposed to 0.21 days per year of exposure.194 If we err on the high side and suppose that QALYs do not decrease with age (as they do), and take the exposed population as all 58 million people, the total number of QALYs lost by one year's traffic particulate emissions is 34,000.195 The United Kingdom's Department for Transport assumes the value of a statistical life saved (VoSLS) in traffic accidents to be £1.44 million. The weighted average age of a traffic accident if all are equally exposed is 38, and life expectancy is then 40 years. We can therefore take a statistical life as 40 QALYs, making the value of a QALY £36,000. The United Kingdom's National Institute of Clinical Excellence was reported196 as tentatively accepting a figure of
UNECE symposium, Valuation..., op. cit.
The
Measurement
and
£30,000 per QALY, suggesting a convergence on the valuation side. At £36,000/QALY, the cost of traffic pollution is £1.2 billion/year, negligible compared with road taxation of £27.5 billion in fiscal year 2000/01 (excluding all VAT). Most (89 per cent in Britain) of this cost is attributable to diesel vehicles, and would amount to 5.6p/litre of diesel (€100/tonne, or 0.9p/km), and 0.45p/litre of petrol (€10/tonne or 0.04p/km). Note that for pre-1993 vehicles the particulate tax should be 40-50 per cent higher than this average value, and for post-1997 vehicles 50-80 per cent lower (with diesel cars showing the greater improvement). These figures do not include the cost of morbidity (which is likely to be a modest fraction of mortality costs). (iii) Nitrogen oxides Similar principles can be used to determine standards for, and taxes on, NOX emissions, as these share many of the same attributes as PMio and SO2. The United States has a regional cap and trade system for NOX, which contributed to dramatically increased wholesale electricity prices in California in the summer and autumn of 2000. There the price of tradeable NOX permits rose to unprecedented levels as the annual quota became inadequate, with permits trading at $80,000/ton at their peak, compared with $400/ton on the east coast.197 If this approach is to be adopted the permit price itself needs to be capped at a sensible estimate of the marginal social damage done in adverse conditions (e.g. summer temperature inversions). While the United States SO2 programme appears to have been a considerable success, the NOX programme clearly needs modification, but it does not undermine the general claim that market-based systems have the potential to lower compliance costs considerably compared with command and control solutions.
3.12 Taxing transport fuels Transport fuel prices in most EU countries are set at high levels as road user charges, not to reflect environmental externalities. I have set out the principles for designing a set of road user charges, and the likely levels of fuel tax required in the absence of road pricing,198 estimating that an appropriate level for the United Kingdom in 2000 would be €0.60/litre for gasoline and €0.67/litre for diesel.199 Chart 3.9.4
Economic 197
D. Newbery, "Road user and congestion charges", in S. Cnossen (ed.), The Economics and Ethics of Excise Taxation, 2003, forthcoming.
R. Laurie, "Distributed generation: reaching the market just in time", The Electricity Journal, March 2001, pp. 87-94.
Compare this with the estimate in BeTa, the Benefits Table Database listed on the EC DG Environment website, which assumes, without evidence, that the number of life years lost to the chronic effects of particles on mortality is five years.
D. Newbery, "Pricing and congestion: economic principles relevant to pricing roads", Oxford Review of Economic Policy, Vol. 6, Issue 2, Summer 1990, pp. 22-38 and D. Newbery, Fair Payment from Road-users, op. cit.
196
Times (London), 10 August 2001.
198
199
D. Newbery, "Road user and congestion charges", op. cit.
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shows that in the EU in 2001, only Denmark, Finland, France, Germany, Italy, the Netherlands and Sweden were levying gasoline taxes above €0.50/litre, while the United Kingdom was charging some 25 per cent more than was justified. The only OECD country charging the target level or above for diesel was the United Kingdom.
3.13 Concluding remarks Energy prices have a considerable effect on energy consumption, but targeted taxes on environmental pollutants are considerably more effective at encouraging sustainable energy use. The wide range of energy intensities, and the even wider range of emissions per unit of activity (GDP, vehicle km, kWh) suggest that suitable taxes and standards can have powerful effects on environmental emissions. The transition economies have dramatically reduced energy use and emissions, although in most cases this was a result of the collapse of economic activity rather than improved efficiency. Nevertheless, as energy prices are gradually adjusted to world market levels, and new environmental standards accepted (often as part of EU accession agreements), incentives for efficiency improvements are being introduced. Liberalization and privatization make market instruments (permit trading and eco-taxes) increasingly preferable to command and control solutions, and in turn create a constituency for measuring the damage caused by pollutants and relating taxes to that damage. International agreements for the control of transboundary acid rain pollutants have been surprisingly successful,
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given their very asymmetric cost distribution and the slender economic basis for the agreed levels. Combined with cap and trade markets, the marginal costs of abatement in each country should become clearer, and with it perhaps a move to trade across boundaries to equalize these prices, potentially offering large cost reductions. Full carbon trading might, according to some estimates, reduce compliance costs by a factor of eight. The transport sector is the fastest growing source of CO? emissions, and also attracts the highest rates of tax. In some countries these high and growing transport fuel taxes are defended as necessary on environmental grounds, but a careful assessment casts doubt on this claim, except in North America (where such claims are in any case absent). Transport taxes in most European countries are higher than emissions taxes alone would suggest, although (with the exception of the United Kingdom) below the combination of road user charges and emissions taxes. Diesel fuel is normally and inefficiently less heavily taxed than gasoline. The energy uses that stand out as under-taxed in most countries are coal (with notable exceptions in countries that have introduced carbon taxes), and households, where distributional concerns obstruct incentives for improved energy efficiency. Pessimists (and economists) continue to criticize the irrationality of energy tax policy, but optimists can point to the steady improvement in our understanding of the costs and benefits of reducing pollution, and the resulting improvement in the design of emissions policy.
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DISCUSSANTS'
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COMMENTS
3.A Inge Mayeres David Newbery's paper gives an excellent overview of the issues at stake. Given my research background, I shall concentrate my comments on transport policies. The structure will be as follows: • First, I shall elaborate somewhat on the use of environmental measures in the transport sector; • Second, environmental problems are not the only problems present in the transport sector. I shall briefly review the implications of this; • Third, I shall argue that the design and evaluation of transport policies should take into account not only the transport sector, but also their impacts on the economy as a whole. Environmental measures in the transport sector The best solution would be a perfect emissions tax, with the tax rate depending on the level, location and time of emissions. The last two characteristics are important because the damage from emissions is site and time specific. For instance, the formation of tropospheric ozone from VOC and NOX emissions depends strongly on sunlight, temperature and wind direction. Recent studies have also shown that emissions of paniculate matter in large urban areas cause much greater damage than emissions in rural areas. Recent technological advances in the measurement of vehicle emissions may justify the use of an emissions tax. But Fullerton and West argue that this technology is still expensive and that it could also be tampered with by car owners. Therefore they investigated the extent to which the optimal Pigovian tax can be mimicked by a tax on fuel and on car characteristics such as engine size, vintage or the presence of pollution control equipment. They find that such instruments do have such a potential. They show that 71 per cent of the welfare gain under the Pigovian tax can be obtained with a combined tax on size, fuel and vintage; 62 per cent is obtainable via the fuel tax alone. Note that they assume only one 20ft
externality. I shall discuss the more realistic case of several externalities later on. These results are in line with other studies. Mayeres and Proost investigated related issues in a paper on the relative taxation of diesel and gasoline driven cars. Since fuel taxes do not distinguish users of the fuel (cars versus trucks, vehicles with different emission technology, private versus professional use, and so on) and since fuel "tourism" occurs, especially in small countries, there is a role for vehicle ownership taxes. These aspects are also analysed in De Borger203 who derives optimal rules for the taxation of car ownership and car use in the presence of externalities. His analysis shows that if there are no restrictions on tax instruments, taxes on car ownership mainly raise revenue rather than correcting for external effects. However, when there are restrictions on tax instruments, the taxes on car ownership become crucial in responding to external cost differences between vehicle types. The tax differential between two vehicle types is then shown to be a complex function of the relationship between variable taxes and marginal external costs and of the various price elasticities that determine the budgetary implications of the tax adjustments. Up to now I have abstracted from the fact that environmental damage can be time and location specific. Kolstad204 examines the use of uniform or differentiated regulation when damage is variable. The optimal uniform regulation is shown to depend on the relative slopes of the marginal abatement cost curve and the marginal damage curve. Uniform regulation can lead to more or less emissions than a differentiated approach. He also analysed the inefficiencies associated with uniform regulation and showed that the least inefficiency is associated with perfectly elastic marginal cost and benefit functions and that the inefficiencies associated with uniform regulation increase as the marginal cost and benefit functions become more steeply sloped.
I. Mayeres and S. Proost, "Should diesel cars in Europe be discouraged?", Regional Science and Urban Economics, Vol. 31, Issue 4, July 2001, pp. 453-470.
D. Fullerton and S. West, Tax and Subsidy Combinations for the Control of Car Pollution, NBER Working Paper, No. 7774 (Cambridge, MA), July 2000.
B. De Borger, "Discrete choice models and optimal two-part tariffs in the presence of externalities: optimal taxation of cars", Regional Science and Urban Economics, Vol. 31, Issue 4, July 2001, pp. 471-504.
That is, a tax levied on the producer of an emission at a rate which would equalize the private costs (as calculated by the producer) and social costs of the activity.
C. Kolstad, "Uniformity versus differentiation in regulating externalities", Journal of Environmental, Economics and Management, Vol. 14, 1987, pp. 386-399.
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Newbery: Sectoral Dimensions of Sustainable Development: Energy and Transport
Environmental costs of transport versus other externalities of transport Transport generates other externalities besides air pollution, congestion, accidents and noise being the principal ones. A good policy design requires that these aspects be considered together. Table 3.A.1 shows the marginal external costs that can be expected from using a car in Brussels in 2005 under a business-as-usual scenario. Congestion is the most significant external cost, at least in peak periods. In off-peak periods, accidents are the most important costs of using non-diesel vehicles. The air pollution costs of diesel vehicles are higher than those of gasoline vehicles. Proost and Van Dender205 examine the welfare gains from adopting different types of regulation, including both pricing instruments and technology standards. This is done on the basis of a partial equilibrium model (TRENEN)206 for approximately 20 transport markets, calibrated for Brussels in 2005. The results are shown in table 3.A.2, which considers four types of measure: an improved technology standard, a higher fuel efficiency standard, a fuel tax and time varying cordon pricing. The welfare effects of these measures are compared with the welfare gain from full external cost pricing. The results underline the fact that it is important to conduct an integrated analysis which considers all transport externalities simultaneously. In this particular case study, imposing improved car emission technology does not yield any welfare gains. This is because the exercise starts from a baseline which incorporates current EU abatement standards for new vehicles, which already reduce emissions considerably. Policies to regulate emissions may have reached the point of strongly increasing marginal abatement costs. This explains why further emissions reductions via a higher technological standard reduce welfare, because the marginal costs of further reductions are quite high. Some caveats are in place. First of all, it should be noted that the study is carried out in a EU country, and that the results are not necessarily valid in countries with less stringent emission standards. Second, the authors point to a number of other caveats, concerning the number of measures included in the emission standard, the type of
S. Proost and K. Van Dender, "The welfare impacts of alternative policies to address atmospheric pollution in urban road transport", Regional Science and Urban Economics, Vol. 31, Issue 4, July 2001, pp. 383-411. An analytical model developed for the European Commission to optimize the European transport pricing policies under a variety of constraints.
TABLE 3.A.1 Marginal external costs of car use in Brussels, 2005 (Euros/vehicle kilometres) Gasoline car
Congestion Air pollution Accidents Noise Total
Diesel car
Peak
Off-peak
Peak
Off-peak
1.856 0.004 0.033 0.002 1.895
0.003 0.004 0.033 0.008 0.047
1.856 0.042 0.033 0.002 1.932
0.003 0.026 0.033 0.008 0.068
Source: S. Proost and K. Van Dender, "The welfare impacts of alternative policies to address atmospheric pollution in urban road transport", Regional Science and Urban Economics, Vol. 31 , Issue 4, July 2001 , pp. 383-41 1 . TABLE 3.A.2 The welfare effect of transport policy reforms, 2005 (Percentage) Percentage of welfare gain obtained under full external cost pricing Improved emission technology standard Higher fuel efficiency standard Fuel tax Time varying cordon pricing
0.0 -17.1 5.3 52.3
Source: As for table 3.B.1.
vehicle for which they are imposed, and the size of the city considered in their study. Finally, it might be that in other parts of the transport sector, such as inland navigation, there is still scope for obtaining benefits from better emission technology. Imposing higher fuel efficiency standards on cars leads to a welfare loss, for similar reasons to those in the case of emission standards. A fuel tax performs better. It gives some incentive for increasing the fuel efficiency of vehicles, but its main benefit is that it reduces traffic and therefore congestion. However, it is not differentiated according to time of travel so its welfare gain is less than that of a time varying cordon pricing scheme. The time varying cordon pricing scheme can - in a somewhat rough manner - impose both a congestion charge and an emissions tax. It can achieve 52 per cent of the welfare gains of a perfect charging system, and is therefore relatively efficient. The conclusion is that reducing emissions in the EU transport sector by means of standards that are stricter than those currently planned may not be a wise policy. This also holds for CO2 reduction: one should be careful not to go too far in the transport sector. Greenhouse gases have to be reduced, but this should be done in a way that is least costly for society as a whole. As there is already a high fuel tax, and therefore implicitly a high greenhouse tax on car use,
96
fuel efficiency is already relatively high in the transport sector. There will be cheaper options in other sectors for reducing greenhouse gas emission reductions. Of course there may still be some cheap options for emission reduction in the transport sector (for instance, inland navigation). Moreover, some transport volumes are too large because external congestion or accident costs have not yet been internalized by the transport users. A better transport policy will reduce these flows, thereby generating side benefits in the form of lower emissions. Transport policy in a more general setting Governments' objectives are not confined to controlling transport externalities. They also need to raise revenue in order to be able to provide public services. They have to use distortionary taxes for this. Moreover, they have equity objectives. In general these two objectives cannot be separated. Indeed, the very presence of a distortionary tax such as the labour income tax reflects equity concerns. All this implies that transport instruments should not be viewed on their own, but as part of the global set of a government's policy instruments. The full welfare impact of transport policies can be assessed only if the rest of the economy is taken into account.207 The imposition of a higher tax in the transport sector may have impacts outside the sector. For instance, labour taxes distort the economy by subsidizing leisure. If, for example, one increases the tax on road use, this may further exacerbate the labour market distortion. This needs to be taken into account when choosing between transport instruments, and when setting their level. The literature also highlights the point that in order to evaluate a given transport policy, such as an air pollution tax, one needs to consider how the extra revenue will be spent, which will depend on equity objectives. For instance, if only efficiency is important, a good policy would be to use the extra revenue to reduce the labour income tax rather than, for example, to increase social security transfers. However, when equity is more important, the opposite may be true. Equity issues also play a role in determining the level of transport taxes: if the government wants to give a higher weight to low income groups, the level of I. Mayeres, "The efficiency effects of transport policies in the presence of externalities and distortionary taxes", Journal of Transport Economics and Policy, Vol. 34, Part 2, May 2000, pp. 233-260 and Equity and Transport Policy Reform, ETE Working Paper Series, No. 2001-14, Centre for Economic Studies, K.U. Leuven, July 2001.
Economic Survey of Europe, 2003 No. 2
tax will depend on the extent to which the services of transport are consumed by these income groups and on the extent to which they value the reduction in the externalities.
3.B Thomas Johansson Thomas Johansson considered some of the constraints on policy choices implied by Professor Newbery's paper. According to Johansson, the main challenge of the future is to move away from dependence on conventional oil. The magnitude of this challenge is enormous, given the hitherto dominant security aspects of energy supply, and the fact that about one third of the world population does not yet have access to electricity. Furthermore, there are systematic boundaries to the evaluation of the problem: actually, we know very little about the health effects of emissions. Due to the stock character of the greenhouse effect, huge reductions in emissions are necessary, and these may not be achievable by tax correctives alone. Such considerations might eventually involve more room for hydrogen-technology, or nuclear energy, while natural gas may provide an important bridge in the shift away from oil. However, technological improvements or new technologies are highly policy sensitive. Technological decisions are linked to market behaviour and performance, where a lot remains to be done to create real competition and induce private sector investment: currently, subsidies amount to some 10 per cent of energy sales worldwide. Taxes can help to improve energy efficiency, but only to a very limited extent. Overall, there are many small opportunities and it is the task of policy to integrate them. Many of these involve moral hazard problems, such as the landlord-tenant problem, where the landlord decides whether or not to introduce improvements in energy efficiency but the tenant bears the costs of the decisions. Such situations call for appropriate policies to avoid inefficient solutions. Sometimes, market solutions, such as markets for energy use or emission certificates, can internalize the problem and bring about efficiency improvements. Although government spending on R&D is declining everywhere, the most important challenge is to initiate an "innovation chain" of new technologies. This might involve subsidizing demonstration projects to reap the benefits from learning before making new technologies available to the private sector, which otherwise might be unwilling to bear the risk of investing in them. The power generating sector has some very specific features. In particular the fact that electricity cannot be stored and must be consumed at the moment
Newbery: Sectoral Dimensions of Sustainable Development: Energy and Transport
it is produced has serious implications for competition that tend to keep alternative technologies out of the market. To ensure a wider dissemination of new technologies certificate markets can make a difference. Other instrumental public policies in this respect are capacity building issues, such as training, and the creation, analysis and dissemination of knowledge.
3.C George Kowalski
97
would provide them with a source of financing to modernize their economies. Over the long term, the main policy response should consist of strong investment in research and development, mainly in: • More competitive renewables; • Safer nuclear power, including a solution for the disposal of nuclear waste; • Zero emission fossil fuels technologies through fuel cells and CO2 sequestration and storage.
George Kowalski noted that after the first oil price shock (in 1973) there was a decoupling of economic growth from energy consumption and CO2 emissions in the developed market economies thanks to the combination of two processes: i) declining energy intensity per unit of output and ii) inter-fuel substitution away from carbon-intensive fuels. However, since the 1980s (i.e. after the second oil shock) the gains on these two accounts have steadily decelerated largely due to two factors:
In the next 50 years fossil fuels will be in plentiful supply and will continue to be a major source of energy (even for hydrogen cells). Therefore it is necessary to develop ways to use them in a more environmental-friendly way.
• Real energy prices for end-users have declined persistently since the early 1980s, a development supported by tax policies;
Jose Capel Ferrer commented on the sectoral dimension of sustainable development from the perspective of the transport sector, focusing mainly on motor vehicles.
• Expenditure on energy as a share of disposable income has been declining since the mid-1980s. The Kyoto Protocol sets quite timid goals but even if these are achieved they will not result in a significant long-term environmental improvement. The main problem is to stabilize concentrations of CO2 in the atmosphere. But this requires a 60 per cent reduction of CO2 emissions in developed market economies between 2000 and 2050 (assuming the same rate of GDP growth as between 1971 and 1999). This, however, contrasts with the fact that at present 2 billion people in other parts of the world do not have access to commercial energy. They will do so, however, as their economic growth proceeds, and this will have an enormous impact on fuel consumption. Policies should respond to these challenges in different time frames. Over the short to medium term a mix of the following policy instruments is required: • Economic instruments: enforcement of the Kyoto mechanisms (including emissions trading, which could give rise to a large market) and the use of fiscal measures; • Command and control measures, particularly efficiency standards and mandated levels of use of renewables. The implementation of such policies would give transition economies (which still have an excessively high energy intensity) the opportunity to apply Kyoto mechanisms at a lower cost, and emissions trading
3.D Jose Capel Ferrer
He noted that the number of motor vehicles in the world is currently estimated at about 800 million, and that the number is expected to climb to 1.1 billion by 2020. A major part of this growth will take place in developing countries. These figures point to an area of utmost economic, social and environmental importance. It is also one in which the UNECE plays a special role and where it makes a practical contribution to sustainable development. Capel Ferrer explained that the UNECE Transport Division provides the secretariat to the World Forum for Harmonization of Vehicle Regulations (WP.29), which is the international regulatory and standard setting body for motor vehicles, working in the framework of the UNECE. It administers three major international agreements, including the 1958 Agreement and the 1998 global Agreement, in the framework of which it develops international regulations on the safety and environmental aspects of motor vehicles, including emissions. The 1998 Agreement is too recent to have produced concrete results, but it is worth noting that all regulatory activities on vehicle emissions are now being carried out at the global level in the framework of this Agreement. The 1958 Agreement, however, has already produced tangible results. Altogether 115 ECE regulations have been developed in its framework and are widely implemented, not only in the ECE region, but also in many other countries. A number of these regulations establish pollutant emissions and energy
98
consumption requirements for all types of road vehicles, including private cars and commercial vehicles. ECE regulations on vehicle emissions, through successive amendments to incorporate the best available technology, have greatly reduced the emission limits of the various pollutants, reducing them by a factor of more than 20. In addition to reducing emissions by petrol and diesel vehicles, WP.29 has also developed regulations to provide for the safe use of two other fuels, liquid petroleum gas (LPG) and compressed natural gas (CNG), which appear to have environmental benefits compared with traditional ones. It has also regulated electric vehicles and it is expected that in future other fuels will be added to the list. The substantial reduction in the emission limits of motor vehicles, and their mandatory introduction through regulation, was possible because the technology was available to provide efficient solutions at low cost. However, the issue of energy consumption and CO2 emissions, as Professor Newbery rightly says in his paper, is more pervasive. Firstly, technological research has not been able so far to provide the means for achieving the same level of abatement as for other pollutants. Secondly, increased safety requirements and other types of equipment have led to heavier and therefore more energy consuming vehicles. As a result, regulation has so far not been of much help in
_ Economic Survey of Europe, 2003 No. 2
substantially reducing energy consumption and CO2 emissions. Nevertheless, ECE continues to closely monitor new technological developments that may bring about significant reductions in energy consumption and CO2 emissions. There are interesting possibilities for technical regulation in future, including of various types of hybrid vehicles and, in a more distant future, of fuel cell technology. The latter, when developed, may have the potential to solve most of the environmental problems created by vehicles, including fossil fuel consumption and CO2 emissions. By using hydrogen as a fuel, vehicles equipped with fuel cells would only release steam from their exhaust pipes. In view of its potential, and in order to prepare the regulatory work required to introduce that technology, WP.29 has incorporated fuel cells into its work programme. In the meantime, governments will have to apply a wide array of other measures to obtain additional environmental benefits. These include taxation, traffic demand and traffic management measures; measures to improve urban transport, including road pricing and the promotion of public transport; and measures to reduce travel needs and travel distances, including better land-use planning. Some of these measures will be developed in the framework of the UNECE's Transport, Environment and Health Pan-European Programme.
PART THREE STATISTICAL APPENDIX For the user's convenience, as well as to lighten the text, the Economic Survey of Europe includes a set of appendix tables showing time series for the main economic indicators over a longer period. The data are presented in two sections, following the structure of the text: Appendix A provides macroeconomic indicators for the market economies in western Europe, North America and Japan for 1988-2002, Appendix B does the same for the east European countries and the Commonwealth of Independent States for 1980-2002. Re-estimated historical series are not yet available for all the transition economies, and longer time series could in some instances be obtained only by splicing older data with the new statistics (as explained in the notes to the tables). Historical series for the former Czechoslovakia, SFR of Yugoslavia and Soviet Union can be found in previous issues of this Survey. For the economies of western Europe and North America data for the more recent years may also be subject to revision as more comprehensive benchmark figures become available. Data were compiled from international and national statistical sources. Details on recent changes in national accounts methodology were provided in chapter 7 of the Economic Survey of Europe, 2000 No. 1. Aggregates are UNECE secretariat calculations, using PPPs obtained from the 1996 European Comparison Programme. Greece became a member of the euro area at the beginning of 2001. In order to ensure continuity of time series and comparability with the text tables, Greece has been included in the euro area aggregates for all years shown in the appendix tables. The figures for 2002 are based on data available in early October 2003.
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101
Statistical Appendix_
APPENDIX TABLE A.1
Real GDP in western Europe, North America and Japan, 1988-2002 (Percentage change over preceding year) 1988
1989
1990
1991
1992
4.6
2.6 3.2 2.0 4.7 3.1
1.0 2.8 1.4 3.3 1.8
1.5 2.2 0.8 2.3 1.5
3.4 8.4 3.1 2.1 4.1
4.2 3.5 2.9 4.2 3.5 4.8 3.8 5.8 9.8 5.0 6.4 4.8 3.9 2.2 0.2 2.7 3.5 7.9 0.3 1.4 8.2 1.0 4.3 0.3 3.4
5.0 4.2 4.2
2.6 3.5 3.4
Japan
6.5
5.2
5.2
Total above
4.5
3.7
2.6
Memorandum items: 4 major west European economies'1
4.3
3.2
2.3
1.2
1.3
4.2
3.4
2.2
0.4
2.1
3
France Germany" Italy Austria Belgium Finland Greece Ireland Luxembourg Netherlands Portugal Spain Euro area0 United Kingdom Denmark Sweden3
European Union d Cyprus Iceland Israel3 Malta Norway3 Switzerland Turkey
Western Europe 3
Canada United States 3 North America
3.7 3.9 3.4 4.7 4.7 4.3 5.2 8.5 3.0 7.5 5.1 4.2 5.2 1.2 2.6 4.3 8.5 -0.1
-0.3
-6.4
8.5 5.2 4.1 4.0 3.8 2.9 0.8 1.0 1.1 2.5 7.4 1.2 6.3 6.3 2.1 3.7 9.3 2.8
-1.1
0.2 1.8 1.6
-0.5
3.1 1.9 8.6 2.5 4.4 2.5 2.0 -1.4
1.1 1.4 0.6 0.1 5.7 6.3 3.6 -0.8
-3.8
0.7 3.3 1.8 1.7 1.1 0.9 1.5 0.2 0.6 -1.7
1.2 9.8 -3.3
6.8 4.7 3.3 -0.1
1993 -0.9 -1.1 -0.9
0.4 -1.0 -1.2 -1.6
2.7 4.2 0.9 -2.0 -1.0 -0.8
2.5 1.1 -0.3
0.7 0.8 3.4 4.5 2.7 -0.5
1994
1995
1996
1997
1998
1999
2000
2001
2002
2.1 2.3 2.2 2.6 3.2 3.9 2.0 5.8 3.8 2.6 1.0 2.4 2.3 4.7 5.5 4.2 2.8 5.9 4.0 6.9 5.7 5.3 0.5
1.1 0.8 1.1 2.0 1.2 3.9 2.4 8.1 3.3 3.0 3.5 2.4 1.5 2.6 2.5 1.3 1.7 1.9 5.2 4.5 4.0 5.3 0.3 7.0 1.9
1.9 1.4 2.0 1.6 3.6 6.3 3.6 8.3 3.8 4.0 4.0 2.4 3.4 3.0 2.4 2.6 2.5 4.7 3.3 4.9 5.2 1.7 7.5 2.8
3.4 2.0 1.8 3.9 2.0 5.0 3.4 8.8 6.9 4.3 4.6 4.3 2.9 2.9 2.5 3.6 2.9 5.0 5.5 2.7 3.4 2.6 2.4 3.1 2.9
3.2 2.0 1.7 2.7 3.2 3.4 3.6
2.4
1.7 1.7 2.9 1.6 2.4 3.4 2.1 9.9 1.4 3.0 4.3 2.8 2.3 2.9 2.8 4.0 2.5 6.1 0.1 8.3 6.2 4.4 0.5 7.2 2.6
2.5
3.8 2.9 3.1 3.5 3.7 5.1 4.2 10.0 8.9 3.3 3.7 4.2 3.5 3.1 2.9 4.4 3.5 5.2 5.5 6.4 6.4 2.8 3.2 7.4 3.6
2.1 0.6 1.8 0.7 0.8 1.2 4.1 5.7 1.2 1.3 1.6 2.7 1.6 2.1 1.4 1.1 1.7 4.1 2.9 -0.9 -1.2 1.9 0.9 -7.5 1.3
1.2 0.2 0.4 1.0 0.7 2.2 4.0 6.0 1.1 0.2 0.4 2.0 0.9 1.9 1.6 1.9 1.1 2.2 -0.5 -0.8 1.0 1.0 0.2 7.8 1.3
4.8 4.0 4.1
2.8 2.7 2.7
1.6 3.6 3.4
4.2 4.4 4.4
4.1 4.3 4.3
5.5 4.1 4.2
5.3 3.8 3.9
1.9 0.3 0.4
3.3 2.4 2.5
10.9
11.1
8.7 4.0 3.8 4.2 2.8 2.4 2.6 4.6 2.8 4.8 3.9 2.6 4.1 2.1 1.5
6.0 1.4
8.0 0.1
0.9 3.0 2.9
2.3 2.7 2.6
3.3
1.0
0.3
1.0
1.9
3.4
1.8
-1.1
0.1
2.8
0.4
0.1
0.8
1.9
1.2
2.9
2.5
2.8
3.4
2.9
2.9
3.6
0.8
1.7
2.7
2.2
1.3
2.1
2.5
2.3
3.2
1.5
0.9
3.3
2.6
2.7
3.6
3.6
3.4
3.7
0.8
1.9
0.9 1.3 -2.1 -0.6
-0.3
-5.5
-4.7
Western Europe and North America
1.3
Source: Eurostat, New Cronos Database; OECD, National Accounts (Paris), various issues; national statistics. Note: All aggregates exclude Israel. Growth rates of regional aggregates have been calculated from constant price series, base 2000. (These were computed by summing over all participant countries of the national series rescaled to the price level of the common reference year 2000 and then converted into dollars using 2000 purchasing power parities of GDP.) a
Annual changes are calculated from chained national currency series.
b
West Germany, 1988-1991.
c
Twelve countries above.
d Fifteen countries above. e
France, Germany, Italy and the United Kingdom.
102
_ Economic Survey of Europe, 2003 No. 2
APPENDIX TABLE A.2 Real private consumption expenditure in western Europe, North America and Japan, 1988-2002 (Percentage change over preceding year)
3
France Germany6 Italy Austria Belgium Finland Greece Ireland Luxembourg Netherlands Portugal Spain Euro area0 United Kingdom Denmark Sweden 3 European Union d Cyprus Iceland Israel 3 Malta Norway3 Switzerland Turkey Western Europe 3
Canada United States 3 North America
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
200?
2.7 2.7 4.0 3.1 3.3 5.4 6.1 4.5 6.0 0.6 6.8 4.9 3.4 7.5
3.0 2.8 3.7 4.3 3.3 5.3 6.3 6.5 4.8 3.3 2.9 5.4 3.6 3.3
2.7 5.4 2.1 4.5 3.2
0.7 5.6 2.9 2.5 3.0
0.9 2.7 1.9 3.0 1.9
-0.4
1.2 1.1 1.5 2.4 2.4 2.5 1.9 4.4 4.0 0.9 1.0 1.1 1.3 3.3 6.5 1.9 1.7 5.0 2.9 9.5 2.3 3.3 0.5
1.2 2.1 1.7 2.6 1.6 4.1 2.5 3.6 1.8 1.9 0.6 1.7 1.8 1.9 1.2 1.1 1.8
0.2 0.6 3.2 1.7 2.1 3.4 2.7 7.2 3.9 3.0 3.3 3.2 1.8 3.8 2.9 2.7 2.2 4.0 5.1 3.9 1.6 3.2 1.8 8.5 2.5
3.4 1.8 3.2 2.7 3.0 4.3 3.5 7.7 6.6 4.9 5.0 4.4 3.1 3.8 2.3 3.0 3.2 8.5
3.2 3.7 2.6 2.3 2.1 3.5 2.9 9.3 2.4 4.8 5.1 4.7 3.5 4.5 0.7 3.8 3.7 0.8 7.3 3.2 6.1 3.3 2.3
2.6 1.4 2.7 3.3 3.4 3.1 2.6 9.0 4.8 3.3 2.6 3.9 2.6 5.2
2.8 1.5 1.0 1.5 0.9 2.0 2.9 5.0 4.5 1.2 1.2 2.5 1.8 4.1 0.4 0.2 2.2 4.8
-2.1
2.6 4.0 10.5 -3.8
4.5 9.0 -2.0
1.4 1.3 3.7
-0.1
1.2 3.4 6.9 -4.2
0.4 9.2 -0.6
2.7 -1.1
-1.1
2.6 1.4 3.5 3.9 6.4 3.5 3.6 1.0 0.1 -0.4
3.0 9.0 0.5 5.6 3.8 0.7 1.0 13.3
3.2
3.3
4.3 4.0 4.1
3.4 2.7 2.7
1.2 1.8 1.8
-3.8
2.9 1.8 7.0 2.7 4.2 2.9 3.2 -1.5
1.6 1.0 2.3 9.9 2.9 7.2 3.8 2.3 1.9 2.7 2.3 -1.6 -0.2 -0.3
-4.0
2.3 2.9 -2.3
0.8 4.7 2.2 2.0 0.6 1.9 -1.3
1.7 3.2 -3.1
8.0 4.3 2.2 3.2 1.7
0.1 -3.7
0.8 -0.4 -3.8 -0.8
2.9 2.1 0.5 1.1 -1.9 -1.0
3.2 0.5 -3.0 -0.4 -4.8 -4.7
7.3 0.8 2.4 -1.7
8.6 -
1.4
4.8 1.9
1.3 1.0 1.2 3.2 1.1 3.7 2.4 6.5 4.4 4.0 3.0 2.2 1.6 3.8 2.5 1.6 2.0 3.6 5.4 5.2 7.1 6.5 0.3 8.5 2.3
2.1 3.0 2.9
2.6 3.2 3.1
4.6 3.6 3.6
-5.4
1.5 2.9 2.8
1.8 3.4 3.2
3.0 3.8 3.7
10.3
2.2 5.8 10.5
3.7 -0.4
10.2
4.3 2.5 2.7 2.6 0.4 3.1 2.8 4.8 4.6
-1.9
4.9 3.0 10.1
3.3
4.0 6.6 7.4 3.9 2.4 6.1 3.2
3.8 4.9 4.9
4.0 4.4 4.3
-3.0
-3.0
3.2 2.0 2.6 2.0
2002
1.2 -0.6
0.4 0.9 1.1 1.5 2.5 2.4 2.9 0.9 0.6 1.9 0.6 3.7 2.1 1.3 1.2 2.5 -1.2
1.6
0.1 2.7 3.6 0.4 1.9 1.2
2.6 2.5 2.5
3.4 3.1 3.1
-9.2
Japan
5.0
4.7
4.5
2.9
2.6
1.4
2.7
1.8
2.4
0.9
0.2
1.0
1.7
1.4
Total above
4.0
3.2
2.8
1.2
2.3
1.6
2.6
2.4
2.7
2.8
3.4
3.6
3.5
2.0
2.2
Memorandum items: 4 major west European economies6 Western Europe and North America
4.1
3.2
3.0
2.3
1.7
1.7
1.8
1.8
1.8
2.9
3.5
2.9
2.3
1.1
3.9
2.9
2.5
1.0
2.2
2.6
2.4
2.8
3.1
3.9
4.1
3.8
2.1
2.3
-0.2
1.7
Source: Eurostat, New Cronos Database; OECD, National Accounts (Paris), various issues; national statistics. Note: See appendix table A.1. a
Annual changes are calculated from chained national currency series.
b
West Germany, 1988-1991.
c
Twelve countries above.
^ Fifteen countries above. e
France, Germany, Italy and the United Kingdom.
-0.1
103
Statistical Appendix,
APPENDIX TABLE A.3 Real general government consumption expenditure in western Europe, North America and Japan, 1988-2002
(Percentage change over preceding year) 1988 a
France Germany b Italy Austria Belgium Finland Greece Ireland Luxembourg Netherlands Portugal Spain Euro area0 United Kingdom Denmark Sweden3
European Union d Cyprus Iceland Israel3 Malta Norway a Switzerland Turkey Western Europe
3.2 2.2 4.0 1.1 -0.7
2.0 -5.5 -5.0
4.3 1.8 8.6 3.6 2.6 0.2 -0.2
1.1 2.1 10.5
4.7
1989
1990
1991
1992
1993
1994
1.6
2.5 2.3 2.5 2.3
2.7 0.8 1.7 3.2 3.6 1.9
3.8 5.0 0.6 3.5 1.5
4.6 0.1
0.7 2.4
-1.3
0.2 1.7 1.1 2.3 5.4 -1.3
8.2 1.9 6.4 8.3 1.1 1.0 -0.8
3.0 1.1 1.9 3.0
-0.4
4.2 0.6 5.4 6.7 2.2 4.2 6.3 2.7 2.2 -0.2
2.5 2.5 17.4
2.1
2.1 5.4 0.8 1.2
4.4 7.7 5.7 5.3 5.4 8.0 2.7
4.6 1.6 1.9
2.8 2.5 2.5
Japan
3.7
Total above
Canada3 United States North America
2.7 4.0 3.0 9.6 6.0 2.4 3.0 0.6 3.4 2.5 3.9 3.1 4.1
-3.0
3.0 3.2 2.9 -0.9
3.5 2.9 0.7 0.8 0.2 2.4 13.8 -0.7
5.4 3.5 3.7 2.5
1.4 8.9 5.6 0.7 3.6 2.5
3.5 2.5 2.6
2.9 1.3 1.5
1.0 0.4 0.4
2.7
2.6
3.4
2.6
2.2
1.9
2.7
2.2
2.4
0.2
2.4
2.0
1.8
2.7
-2.5
6.0 0.2 4.5 -1.1
a
-1.5
-2.5
-8.6 12.7
10.9
-0.2
3.7 -0.2 -4.2
2.6 0.1 5.2 1.6 -0.2
2.7 1.5 -0.7
4.1 6.6 1.4 -14.3
2.3 4.2 6.0 2.7 -0.1
-0.9
3.0 1.4 0.8 -1.1
4.1 1.0 1.5 4.3 0.5 1.1 1.0 3.0 -0.8
1.0 4.1 4.0 -0.2
6.4 1.5 2.0
8.6 1.5
-5.5
-
-1.2
0.9
1995 -0.1
1.5 -2.2
1.3 1.3 2.0 5.6 3.9 4.8 1.5 1.0 2.4 0.6 1.7 2.1 -0.4
0.7 2.9 1.8 1.8 8.5 1.5 -0.1
6.8 0.9 -0.6
-
1996
1997
1998
1999
2000
2.3 1.8 1.0 1.2 2.4 2.6 0.9 3.5 5.6
2.1 0.3 0.2
-0.1
2.0 1.0 1.3 3.1 3.6 1.4 1.6 6.7 7.1 2.5 5.6 4.2 2.0 3.1 2.0 1.7 2.2
2.8 1.2 1.6 2.3 2.0 7.6 5.1 1.9 4.0 5.0 2.2 2.1 1.1
-0.4
3.4 1.3 1.6 1.2 3.4 0.7 1.6 12.6
1.2 5.3 8.4 3.1 2.0 8.6 1.8 -1.2
-1.5
0.2 2.9 3.0 5.1 3.0 3.2 2.2 2.9 1.3 0.1 0.8 -0.9
1.9 0.2 2.8 1.0 2.0 1.7 6.5 1.3 3.6 4.1 3.7 1.4 1.5 3.1 3.4 1.6 7.3 3.4 2.4
-1.1
3.3 1.3 7.8 1.7
3.2 1.2 6.5 2.3
2.1 0.2 3.8 1.1 5.4 1.3 2.1 7.1 2.2
1.8 1.5
3.2 1.4 1.6
2.1 2.9 2.8
2.6 2.8 2.8
1.0 4.0 2.5 1.8 -1.1
2.5 4.1 1.1 -1.0
-4.0
-7.7
4.6 3.1 -0.6
2001
2002
2.0
4.1 1.5 1.7 1.3 0.2 4.0 6.2 8.4 5.3 3.7 2.9 3.8 2.7 3.3 1.0 2.1 2.8 3.1 3.1 5.7 2.5 3.2 1.9 5.4 2.8
3.7 3.7 3.7
3.0 4.4 4.3
2.9 0.8 3.6 -0.5
2.2 2.2 -0.9 10.5
6.5 3.1 3.4 3.1 2.4 2.5 2.1 0.9 2.3 11.5
2.9 3.4 3.0 2.7 2.4 -8.5
-0.3
0.2 -
-0.1
0.5 0.3
3.2
2.7
4.2
2.9
1.0
2.1
4.4
4.7
2.6
2.3
1.7
1.0
0.8
0.9
1.4
1.2
1.7
2.8
2.8
2.7
3.3
2.0
2.8
1.0
1.0
0.3
1.6
0.7
0.9
1.8
1.9
2.3
2.7
2.1
1.5
0.7
0.5
0.4
1.1
1.3
1.7
2.5
2.5
2.8
3.5
-0.3
Memorandum items: 4 major west European economies8
Western Europe and North America
Source: Eurostat, New Cronos Database; OECD, National Accounts (Paris), various issues; national statistics. Note: See appendix table A.1. a
Annual changes are calculated from chained national currency series.
b
West Germany, 1988-1991.
c
Twelve countries above.
^ Fifteen countries above. e
France, Germany, Italy and the United Kingdom.
104
_ Economic Survey of Europe, 2003 No. 2
APPENDIX TABLE A.4
Real gross domestic fixed capital formation in western Europe, North America and Japan, 1988-2002 (Percentage change over preceding year) 1988
1989
1990
1991
1992
1993
1994
9.5 4.6 6.7 7.4
7.3 5.6 4.2 4.1
3.3 9.0 4.0 6.2 8.5
-1.5
-1.6
-6.4
1.5 4.0 0.1 4.6 0.4
3
France Germany b Italy Austria Belgium Finland Greece Ireland Luxembourg Netherlands Portugal Spain Euroareac United Kingdom Denmark Sweden3
16.1
11.6
11.7
12.5
2.6 5.2 11.5
5.3 14.8 13.6
7.8 14.9
Canada a United States North America
6.9 5.1 3.7 12.0
6.7 6.0
-3.2
-0.6
6.4 8.5
12.1
European Union a Cyprus Iceland Israel3 Malta Norway a Switzerland Turkey Western Europe
6.1 10.1
6.6
10.6
20.0
-0.2
-7.9
1.6 6.1 -1.8
a
3.4 2.5 7.6 6.5 5.7
-10.9 -0.9
-4.2
0.6 1.0
-18.5
-16.4
-15.2
4.2
-3.5
-3.1
4.1
-5.1
11.8
15.3
15.8
-15.1
20.6
0.7 4.5
-3.2
0.4 3.3 1.7 2.7
-4.1
0.1
-5.5 -8.9 -6.4
0.3
-8.2
-0.9
-3.4
-2.1
-3.8
-8.6
-11.6
-10.3
-2.8
3.0
1.0 -1.6
3.3
-0.3
-5.7
16.2
-11.2
-12.8 -11.4
5.2
5.3
-6.9
-10.8
-3.0
-1.1
3.8
-2.9
-6.6
41.9
-
-0.2
2.1 2.7 1.9 2.2 4.7 7.7 6.6 2.6 -2.5
-2.7
0.6 8.4 8.5 5.3 6.5
11.1
6.5
0.4 0.8
26.4
-16.0
-0.2
-4.2
1.8
-4.0
-5.5
-2.7
-2.0
-0.2
-5.5
-0.6
-5.5
7.5 7.3 7.4
15.9
4.5
8.6
8.1
7.1
5.6
3.5
Memorandum items: 4 major west European economies e
8.1
5.8
4.3
5.9
4.9
2.2
11.2
-4.0
-2.2
0.2 4.3
-3.6
6.0 1.3 3.4
-
17.9
5.6 2.9 3.2
-2.5
2.0 -0.6
-7.0
1.0
9.4 2.8 3.5 12.1
-1.4
-2.6
Total above
Japan
-4.4
25.3
7.9
-1.0
4.5 13.4
4.5
-2.2
5.3 2.2 6.2
8.1
-4.6
9.8 1.0 6.6
1995
6.4
5.3 4.5
5.8 5.1
-1.5
3.9 6.6 7.7 2.9 3.1 11.6
9.9 3.2 -1.7 -1.0
6.6 17.8
3.9 1.8 9.1 3.4
1996
_ -0.8
3.6 2.2 0.9 6.7 8.4 16.8
3.8 6.3 5.7 2.1 1.7 4.7 3.9 4.5 2.1 7.4 26.0
9.0
1998
1999
2000
-0.1
7.0 3.0 4.0 3.9 3.0 8.4
8.3 4.1 5.0 2.1 4.3 2.5 6.2
7.7 2.5 7.1 5.9 4.1 4.1 8.0 7.0
0.6 2.1 2.0 7.2 13.8
6.8
10.6
18.1
14.8
14.0
12.7
11.8
14.8
6.6 13.9
5,0 2.8 6.9 10.9 -0.3
3.4 -4.5
9.8
4.2 11.5 10.0
5.5 12.8 10.0
7.8 6.6 8.0 39.4
-0.9
-3.6
-8.4
-4.5
-3.4
10.3
15.5
13.1
-2.4 14.1
2.7
5.4 4.8
4.4 8.4 8.0
-2.1
1997
1.5 14.8
4.1 15.2
4.5 -3.9
7.8 6.4 8.7 6.0 0.6 1.4 8.2 5.2 -1.4 -5.4
0.4 4.0 -5.6
2.7 -15.7
-3.8
3.5 4.4 5.7 5.2 1.9 8.6 6.6 4.8 4.1 17.0
1.1
2007
2002
2.3
-0.6
-5.3
2.6 -2.2
0.5 4.3 5.9 -0.4
4.8 -0.8
0.1 3.2
-6.7
0.5 -4.8 -2.7 -4.0
6.7 -0.1 -1.7 -3.7 -5.1
1.4
-0.1
-2.2
1.0 2.1 0.8 0.1 2.5
-1.0
-7.9
0.1 -2.5 -2.0 10.1
-12.6
-4.8
-9.2
17.4
-11.2
-4.2
-3.6
-4.2
-3.6
5.8
-3.3
-4.1
-31.5
-0.8
-1.5
-2.0
16.9
6.1
3.9
5.2
2.4
7.3 7.9 7.8
5.5 5.5 5.5
-2.7
-1.8
-2.1
-1.6
8.8 9.3
10.2
-3.9
9.6
4.3
1.3
-2.4
-2.8
0.7
6.4
0.9
2.7
-0.9
-4.8
0.8
-0.8
3.0
3.4
5.4
5.4
5.5
4.7
4.9
-1.7
-2.3
1.8
0.9
-5.6
2.7
1.9
1.3
1.9
5.9
4.5
4.5
-0.6
-2.5
-1.9
1.7
-0.3
4.3
4.1
5.2
6.6
7.8
5.9
5.3
-1.8
-1.8
2.3 -1.0
-1.5
-0.9
Western Europe and North America
Source: Eurostat, New Cronos Database; OECD, National Accounts (Paris), various issues; national statistics. Note: See appendix table A.1. a
Annual changes are calculated from chained national currency series.
b
West Germany, 1988-1991.
c
Twelve countries above. d Fifteen countries above. e France, Germany, Italy and the United Kingdom.
105
Statistical Appendix _
APPENDIX TABLE A.5 Real total domestic expenditures in western Europe, North America and Japan, 1988-2002 (Percentage change over preceding year)
1988
1989
1990
1991
1992
4.7 3.6 4.1 3.3 4.9 6.5 5.9 1.9 7.8 2.2
3.9 2.7 3.1 3.7 4.1 6.3 5.3 6.9 6.4 5.0 4.9 7.3 3.9 2.9
2.8 4.8 2.7 4.4 3.3
0.5 6.2 2.1 3.5 1.6
0.8 2.8 0.9 2.3 1.7
3
France Germany" Italy Austria Belgium Finland Greece Ireland Luxembourg Netherlands Portugal Spain Euro area c United Kingdom Denmark Sweden 3 European Union d Cyprus Iceland Israel a Malta Norway a Switzerland Turkey Western Europe
10.1
6.8 4.4 8.1 0.2 3.1 4.9 11.3 -0.7
2.5 11.5 -2.9
2.4
4.0 3.7 9.7 -4.4 -2.8
8.3 -2.0
4.5
4.3 1.4 3.6
5.4 3.3 3.4
4.1 2.8 2.9
-1.0
Canada a United States a North America
-0.1
-0.8
2.2 6.3 4.8 3.4 5.3 4.6 3.6
-7.8
3.5 0.2 8.6 2.2 6.1 3.0 3.0
-0.3
-2.5
-0.7
-0.1
0.8 2.9 6.3 1.5 9.3 7.6 -0.4
3.8 14.2
3.2 -0.3
1.4 1.3
-2.0
2.0 5.1 3.9 12.1
4.9 1.4 -0.5 -0.6
1.8 -1.9 -1.0 -1.1
1993
1994
1995
1996
1997
1998
1999
2000
-1.6
1.6 1.7 2.0 2.6 1.5 2.7 3.5 6.5 0.7 3.5 4.1 3.1 2.1 2.0 4.2 2.2 2.1 7.8 2.2 6.7 9.5 4.6 1.2
0.7 0.6 2.7 1.5 2.8 4.8 3.5 9.5 6.5 3.9 5.1 3.5 1.9 3.9 4.9 1.1 2.3 2.2 5.5 2.0
4.0 2.4 3.1 2.9 2.9 4.2 4.6
3.6 2.8 3.2 2.9 2.4 2.0 2.8 7.7 6.6 4.3 5.9 5.6 3.6 3.6 0.1 3.3 3.5 0.9 4.0 4.9 5.8 0.4 1.4
4.1 1.8 2.3 2.7 3.6 2.5 3.9 8.8 4.0 2.7 3.1 4.4 3.0 3.9 1.9 3.8 3.1 5.8 6.7 3.4
-1.5
2.1 2.3 1.7 3.5 2.3 3.0 1.1 5.1 2.4 2.0 1.5 1.5 2.0 3.8 7.0 3.2 2.4 7.4 2.1 5.3 5.9 4.1 2.3
13.3
-12.2
-1.0
1.8
2.5
0.7 0.3 0.9 1.9 0.9 3.8 3.3 7.7 5.0 2.8 3.0 1.9 1.1 3.1 2.2 0.9 1.4 3.4 7.2 5.7 2.8 4.4 0.2 7.3 1.7
3.3 4.4 4.3
1.8 2.5 2.5
1.3 3.7 3.5
-1.1 -5.1
0.6 -0.9
-6.1
-5.4
-0.5
-1.0
-0.1 -4.1
1.2 3.4 1.0 1.4 0.9 0.9 -2.0
1.3 9.3 -4.6
5.3 0.1 2.1 -2.8
6.1 1.4 0.5 3.1 2.9
1.0 4.6 -1.6 -2.1 -3.3 -2.3
2.2 -0.3 -2.1 -1.6 -9.5 -3.9
6.8 4.8 3.2
1.5 3.2 3.1
11.5
-0.1
10.9
7.3 4.8 6.7 5.7 3.7 5.0 4.0 4.3 3.9 9.1 13.4
1.2 -1.1
6.6 1.5 8.9 2.6
5.7 4.4 0.8 3.8
6.1 4.7 4.8
2.5 5.5 5.2
10.8
3.1
2.3 3.1 9.8 3.4
4.2 5.1 5.0
4.7 4.4 4.4
-3.8
2001
2.0 -0.8
1.8 -0.1
0.5 1.9 3.1 4.8 3.8 1.4 1.3 2.7 1.1 2.6 0.9 0.1 1.3 4.1 -3.6
1.6 -5.8
0.4 1.2
2002
1.0 -1.5
1.1 -0.4
1.0 0.3 3.9 2.4 0.2 -0.1 -0.5
2.2 0.4 2.9 1.0 0.7 0.8 4.1 -2.5 -0.7
0.2 2.1 -2.2
0.5
9.1 1.1
1.6 0.3 0.4
3.7 3.0 3.0
-17.5
Japan
7.3
5.6
5.2
2.9
0.6
0.2
1.2
2.5
3.9
0.9
0.2
2.4
1.1
Total above
4.5
3.6
2.7
0.8
1.9
0.9
2.8
2.5
2.8
3.3
3.6
3.5
3.7
0.5
1.7
Memorandum items: 4 major west European economies8 Western Europe and North America
4.9
3.1
2.7
2.1
1.5
2.4
1.8
1.1
1.8
3.5
3.3
2.9
1.2
0.7
4.0
3.2
2.3
0.4
2.1
3.0
2.5
2.6
3.7
4.5
4.1
3.9
0.4
2.1
-1.5
1.0
Source: Eurostat, New Cronos Database; OECD, National Accounts (Paris), various issues; national statistics. Note: See appendix table A.1. a
Annual changes are calculated from chained national currency series.
b
West Germany, 1988-1991.
c
Twelve countries above.
d Fifteen countries above. e
France, Germany, Italy and the United Kingdom.
-1.5
-0.6
106
_ Economic Survey of Europe, 2003 No. 2
APPENDIX TABLE A.6
Real exports of goods and services in western Europe, North America and Japan, 1988-2002 (Percentage change over preceding year)
a
France Germany b Italy Austria Belgium Finland Greece Ireland Luxembourg Netherlands Portugal Spain Euro area c United Kingdom Denmark Sweden a
European Union d Cyprus Iceland Israel3 Malta Norway a Switzerland Turkey Western Europe
1989
1990
8.7 5.1 5.1 9.8 9.6 3.1
10.0
4.8 0.5 7.5 7.8 4.6 1.5
-2.1
9.0 11.1
8.9 8.2 3.8 6.5 0.6 11.2
2.8 5.7 13.5 -3.6 -1.5
6.1 6.4 7.0 18.4
6.0
a
Canada United States North America
1988
8.9 3
16.1 14.0
9.8 7.8 9.7 8.3 3.0 1.9 10.3 12.6
7.9 12.2
1.4 8.5 4.5 4.2 3.2 7.7 16.8
2.9 4.0 10.7 11.0
6.9 -0.3
7.6
-3.5
8.7 5.0 5.0 9.5 4.7 3.9 5.4 6.2 1.8 4.1 7.9 2.0 13.3
8.6 2.6 2.6 4.1
1991
1993
1994
1995
1996
1997
1998
1999
7.7 7.6 9.8 5.6 8.4
7.7 5.7
3.5 5.1 0.6 5.2 2.9 5.7 3.5
11.8
8.3 7.0 3.4 8.1 5.9 9.2 5.3
4.3 5.6 0.1 8.5 5.0 6.5 8.0
5.9
5.4
_
-2.9
-0.8
-5.5
-1.4
7.3 1.5 3.6
-1.4
5.2 3.1 -7.4
4.1 5.7 9.2 5.6 1.2 8.2 1.5 -0.1
6.1 -1.9
1.3
9.0 -0.4
10.1
16.3
10.0
-2.6
13.9
2.7 2.4 3.2 7.5 3.5 4.3 -0.9
2.2 3.5
9.7 4.8 5.7 -3.3
7.8 1.2 4.4 -1.5
8.3 1.7
-8.4
18.7
-1.3
-5.9
-2.0
-2.6
14.1
7.5 6.1
9.7 4.7 3.6
6.5 9.9 5.3 3.2 2.6 7.7 1.9
-2.5
3.7 1.4
8.8
4.7 8.7 7.7
1.8 6.5 5.4
1.0 11.8
1992
11.0
3.7 7.2 6.2 6.4
10.8
3.3 5.1
13.6
7.4 15.1
7.7 9.7 8.4 16.7
9.2 9.2 7.0 14.1
9.2 7.9 9.5 12.8
7.1 8.4 2.2 15.2
9.1 12.7
8.9 9.9
12.6
3.0 5.2 8.5 3.0 20.0
4.6 8.8 8.8 9.4 8.0 9.0 2.9 11.5
8.2 4.6 -2.3
8.4 5.4 4.9 2.4 8.0 7.9 8.5 10.3
9.8
12.2
5.8 4.6 7.1 10.4
4.4 8.2 4.3 3.7 4.9 4.1 9.9 4.9 -5.9 10.2
3.0 22.0
11.2
6.4 12.4
6.1 13.7 20.0
2000 12.6 13.7 11.7 13.4
8.2
-1.6
15.2
20.6
14.1
14.4
16.7
5.1 2.9 7.7 5.1 5.3
10.9
10.4
8.3 4.1 13.8 10.1
0.8 5.4 8.0 4.0 7.7 8.7 19.1
5.3
10.2
5.6 8.2 7.5
12.3
8.3
-2.4
2.0 6.6 8.1 0.6 5.3 12.0
6.6
11.3
9.1 2.1 3.8
12.3
7.4 5.4 6.3 4.0 11.6
8.2 2.8 6.2 -7.0
5.0 10.7
3.4 5.3
1.5 2.6
-0.8
21.0
15.3
1.6 5.0 1.1 7.4 1.1
19.3
14.8
7.4 9.1 8.2 7.2 3.0 4.3 8.6 6.7
2002
19.7
17.4
8.8 7.1
2007
8.0 10.1 12.5 10.1 13.0
6.7 3.4 1.7 1.9 3.4 2.9 0.9 3.0
-1.0
2.6 -0.4
4.9 -4.5
4.3 -0.5 -1.4
2.1 1.4 1.1 -0.9
3.6 0.4 0.9
11.3
-0.8
12.1
2.6 4.0 7.9
-5.0
-11.5
-3.0
-4.9
-4.7
4.1
-0.5
9.3 5.0 23.9
5.6 4.0 11.7 19.2 12.1
8.8 9.7 9.5
-0.9
7.4 2.6
2.9
0.5 11.0
1.1
-3.1
-0.1
-5.4
-1.6
-4.8
-1.2
-6.1
8.2
Japan
5.9
9.1
7.0
4.1
3.9
-0.1
3.5
4.1
6.5
11.3
-2.3
1.5
12.4
Total above
7.9
8.0
5.2
2.6
4.4
2.6
8.9
8.1
6.0
10.6
5.2
4.8
11.4
-
1.0
4.8
8.4
3.6
3.1
0.6
8.4
8.4
4.4
5.6
4.1
12.3
2.6
0.9
8.0
7.9
5.1
4.4
2.8
9.4
8.5
6.0
5.8
5.0
11.3
0.5
0.5
Memorandum items: 4 major west European economies6 Western Europe and North America
-0.3
2.5
Source: Eurostat, New Cronos Database; OECD, National Accounts (Paris), various issues; national statistics. Note: See appendix table A.1. Data on national accounts basis. a
Annual changes are calculated from chained national currency series.
b
West Germany, 1988-1991.
c
Twelve countries above. Fifteen countries above. France, Germany, Italy and the United Kingdom.
d e
9.6 10.6
107
Statistical Appendix_
APPENDIX TABLE A.7
Real imports of goods and services in western Europe, North America and Japan, 1988-2002 (Percentage change over preceding year)
3
France Germany b Italy Austria Belgium Finland Greece Ireland Luxembourg Netherlands Portugal Spain Euro area0 United Kingdom Denmark Sweden3
European Union a Cyprus Iceland Israel3 Malta Norway3 Switzerland Turkey Western Europe 3
Canada United States 3 North America Japan Total above
Memorandum items: 4 major west European economies6 Western Europe and North America
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
8.8 4.9 5.9 9.3
8.0 7.8 8.9 8.0 9.6 9.1
5.5 5.2
3.1 9.6 2.3 5.8 2.8
1.8 1.5 7.4 1.4 4.1 0.5 1.1 8.2
-3.7
8.2 7.4 8.1 8.2 7.2
8.0 5.6 9.7 5.6 4.0 7.4 8.9
1.6 3.1
6.9 8.3
10.4 10.6
7.3 4.9 10.5
6.9 18.0 16.1
7.8 12.8
8.3 4.5 8.3
10.5 13.5
9.1 8.2 5.9 17.7
9.0 7.4 4.1 7.7 8.7
13.4
20.4
-4.6
-10.3
-2.8
-5.0
11.1
11.1
-2.4
4.7 -4.5
7.7 13.5
3.8 5.9 19.5
2.2 6.6 6.9 8.5 5.9 3.9 4.4 15.7
11.5
6.9 4.8 -0.6
8.4 5.1 4.6 3.6 14.5
9.6 6.6 0.5 1.2 0.7 5.5 5.8 1.0 9.5 15.7
2.5 2.8 33.0
5.9
-12.9
5.8 2.4 9.1 5.1 7.2 10.3
5.5 -4.5
3.0 -4.9
3.8 2.2 5.3 16.0
5.4 0.5
-3.1
1.4 10.7
6.8 3.4 6.8 -0.4
1.5 3.7 18.2 -6.0
8.8 3.0 1.6
-5.5
-10.9 -1.1 -0.4
1.5 0.6 7.5 5.2 0.7 -3.3 -5.2 -4.3
3.3
12.4
1.5 15.5
6.7 9.4 8.8 11.4
8.3 5.7
-2.7
12.3
-2.2
12.2
-3.3
-18.1 -7.8 14.1
5.9 4.9
8.1 8.2 4.1 10.9
16.4
4.2 10.6
7.4 11.1
7.7 5.4 7.3 7.2 7.4 11.5
3.9 4.5
-0.3
4.9 2.5 5.9 7.0 12.5
7.6 4.4 4.9 8.0 3.3 9.6 3.5 3.0 4.1 7.0 16.5
7.7
-1.4
-4.7
-0.4
7.5 5.8 8.0
-5.2
10.9
35.8
-21.9
-2.1
7.0
7.9
4.6
8.0
5.7 8.2 7.6
5.1 8.6 7.9
3.4
3.6
2.5
4.7 6.6 6.2
2.0 3.8 3.4
-0.5
7.0
-1.1
0.2
-0.7
7.9
7.8
5.3
2.2
4.0
7.6
8.0
5.6
3.7
3.8
7.2
7.2
5.2
2.5
4.3
7.4 9.1 8.7 -1.4
0.8
-4.6
1.0
12.0 11.1
7.8
10.0
29.6
5.7 4.5
12.8
-5.9
8.8 2.7 20.5
13.2
8.2
8.1
6.2
7.3
6.9
3.4
8.3
7.8
5.7
Source: Eurostat, New Cronos Database; OECD, National Accounts (Paris), various issues; national statistics. Note: See appendix table A. 1. Data on national accounts basis. a
Annual changes are calculated from chained national currency series.
b
West Germany, 1988-1991.
c
Twelve countries above.
^ Fifteen countries above. e
France, Germany, Italy and the United Kingdom.
10.1 12.0
5.1 11.2 14.2
1998 11.6
9.1 8.9 5.7 7.5 7.9 9.2
1999
6.2 8.5 5.6 9.0 4.1 3.5 3.8
2000 14.6 10.5
8.9 11.6
8.4 16.9 14.5
16.8
25.8
12.0
21.2
13.9
15.3
13.3
14.1
9.5
8.5
10.0
14.2
13.2
13.2
9.3 9.7 10.0 12.5
9.4 0.4 7.7 3.3 -1.7 12.4
8.3 22.4
9.9 14.2
10.1
9.6 8.9 11.3 10.0
6.6 23.4
1.7 2.5 8.5 10.8
2.3 9.7 5.1
5.8 8.5 12.7
7.4 8.7 5.5 4.9 7.5 -1.9
4.2
10.6
5.4 10.6 11.2 11.7 11.3 11.5 11.2 10.2
8.0
2001
1.3 1.0 1.0 5.9 0.8 0.2 -3.4
6.1 5.4 1.9 0.9 3.5 1.7 2.3 1.9 -3.5
1.6 3.9
0.6 -1.3 -2.1 -0.5
2.2 -0.3
2.1 2.5 -2.7
-0.4 -2.4 -2.3
10.1
10.4
-9.6
-5.5
-1.8
5.7 -3.7
6.9 7.8
2.7
0.9 -0.1
-4.9
25.4
-24.8
15.7
11.6
0.6
8.0
-5.0
13.8
10.3
10.3
12.2
-3.3
3.0
1.7
11.2
-2.9
11.1
1.3 -2.7
-4.5
13.2
8.7
-0.1
-9.0
10.9
-6.8
1.5 -
12.2
11.8
1.2
0.6 -2.1
14.8
13.7
10.4
2002
9.5
8.8
7.7
11.7
9.7
7.4
11.3
9.9
8.0
11.8
0.1 -0.7
1.3 -0.7
0.4 0.6 3.7 3.1 2.0 1.3
0.1 1.3
108
_ Economic Survey of Europe, 2003 No. 2
APPENDIX TABLE A.8 Industrial output in western Europe, North America and Japan, 1988-2002 (Percentage change over preceding year)
France Germany3 Italy Austria Belgium Finland Greece Ireland Luxembourg Netherlands Portugal Spain Euroareab United Kingdom Denmark Sweden European Union c Israel Norway Switzerland Turkey Western Europe Canada United States North America
1988
1989
1990
1991
4.6 3.6 6.9 4.4 5.8 4.3 5.1
3.7 4.9 3.9 5.8 3.4 2.4 1.8
3.1 5.2
-0.2
10.7
8.7 0.1 3.8 3.2 3.5 5.2 5.5 1.3 3.8 -3.1
2.9 7.8 1.6 3.8 6.6 4.8 5.0
11.6
7.8 5.1 6.7 5.1 4.7 2.1 0.5 3.7 4.1 -1.6
9.3 1.5 3.6 4.1 -0.3
-1.7
6.8 1.5
3.5 -1.0
1.9 -1.9
-1.6
-8.7
-2.5
-1.0
4.7 2.6 2.4 9.0 -0.4
3.5 0.8 6.9 2.7 8.0 2.5 4.8 9.5 3.0 -2.7
0.8 0.7
0.8 0.5
Japan
9.4
5.8
4.2
Total above
5.4
3.3
2.4
Memorandum items: 4 major west European economies'1 Western Europe and North America
4.9
3.8
2.0
4.3
2.6
1.9
3.3 0.4 1.8 -0.6
0.6 -3.3
0.2
1992
1993
-1.0
-3.8
-2.4
-7.9
-0.9
-2.2
-1.2
-1.5
-0.4
-5.1
0.8 -1.1
9.1
5.5 -2.9
5.6
-0.8
-4.3
-0.2
-1.1
-2.3
-5.2
-3.9
-4.7
-1.6
-4.8
0.4 3.1
2.1
-0.3
-1.2
-3.3
-0.2 -3.6 -1.6 -1.8
1.9 -0.3
0.3 -0.9
5.0 -0.9
1.3 2.7 2.5
1997
1998
1999
2000
4.2 3.2 5.9 4.0 2.1
2.3 0.8 5.7 4.9 6.5 6.1 1.8
0.9 0.7
3.9 3.7 3.8 6.4 4.7 8.6 1.3
5.1 4.1 1.3 8.2 3.4 9.2 7.1
2.0 1.5 6.0 0.9 5.7 3.9
3.5 6.2 4.0 8.9 5.3
11.3
1.3 11.9
5.9 4.9 -0.2
7.8 4.6 5.2
6.9 3.6 -1.8
8.0 -2.7
4.8 3.3 3.4
20.5
2.0 4.1 11.6
4.9 3.4 1.8 4.0 8.8 3.2 8.4 5.9 2.0
-1.7
1.0 0.5 2.9 1.2 8.1 0.1 2.4 5.3 -1.2
4.7
3.6
0.4 1.2 1.4 0.9 0.6 5.4 5.4 7.5 0.9
6.2 5.3 5.4
4.6 4.8 4.8
11.7
-0.1
-1.0
1996
10.3
-1.6
8.2 5.6
1995
-3.8
-5.1
6.8 2.5 0.5 2.6
1994
5.2 7.4 7.0 4.3 -6.1
12.7
17.5
5.8 0.2 2.6 7.1 4.2 1.1 4.9 5.5 3.7 1.8 3.4 4.7
19.8
14.8
-0.1
11.5
2.2 5.7 5.4 4.3 1.0 2.9 4.0 3.7 2.8
0.5 15.4
4.3 4.0 -1.9
4.4 5.3 1.7 5.4 6.8 4.7 10.1
1.1 0.5 -1.2
0.8 -2.1
0.1 1.4 10.2
1.8 1.4 3.1 -1.3
0.5 -2.2
1.6 -1.1
-
-1.3
0.1 1.5 1.7 0.4 7.8 1.0 -2.1 -0.2
0.1 -0.5 -3.5
1.4 -0.7 -1.0 -1.3
-0.7
-5.1
5.1 4.3 4.3
5.7 4.6 4.7
-3.4
5.6 7.3 7.2
-1.1
-0.3
3.5 5.6 5.5
1.2 4.3 4.1
3.5 -3.7
-1.0
-0.3
1.4
4.1
-0.2
2002
-5.5
2.9 8.4 6.0 4.8
-0.6
3.6 1.3 3.5
11.5
1.4 3.0 2.7 1.9 0.8 0.3 3.3 1.6 1.4
11.8
2001
-8.7 -0.4
9.4 -0.7
1.7
-3.5
-0.8
-3.5
-0.6
-5.7
-3.5
1.3
3.3
2.3
3.5
-6.2
0.3
5.6
-6.4
-3.4
-0.9
-0.8
4.2
4.0
2.4
5.1
2.3
2.3
4.9
-2.7
-1.1
-1.2
-3.8
4.4
2.5
0.3
3.2
3.0
1.1
4.2
-0.3
-1.6
-0.1
5.0
4.2
2.4
5.5
4.4
2.8
4.8
-1.9
-0.6
0.6
Source: National statistics; Eurostat, New Cronos Database; OECD, Main Economic Indicators (Paris), various issues; UNECE secretariat estimates. Note: Except for the EU and the euro area, industrial output indices for regional aggregates have been calculated as weighted averages of the indices of the constituent countries; the EU and euro region aggregates are provided by Eurostat. Weights were derived from 1995 value added originating in industry converted from national currency units into dollars using 1995 GDP purchasing power parities. a
West Germany, 1988-1991.
b
Twelve countries above.
c
Fifteen countries above.
d France, Germany, Italy and the United Kingdom.
109
Statistical Appendix,
APPENDIX TABLE A.9 Total employment in western Europe, North America and Japan, 1988-2002 (Percentage change over preceding year)
France Germany3 Italy Austria Belgium Finland Greece Ireland Luxembourg Netherlands Portugal Spain Euro area b United Kingdom Denmark Sweden European Union0 Cyprus" Iceland d Israel Malta6 Norway Switzerland Turkey Western Europe
1988
1989
1990
1991
0.9 0.8 1.1 0.4 1.7 1.0 1.3 0.6 3.0 1.9 2.5 3.5 1.3 4.3
1.7 1.5 0.7 1.3 1.2 0.9 0.6 1.0 3.5 2.6 1.9 3.6 1.5 2.4
0.8 3.0 1.6 1.6 0.9
0.1 2.5 1.9 1.4 0.1
-0.7
1.4 1.8 4.7 -3.0
3.5 2.5 -0.5
-0.7
1.5 1.6 3.9 -1.5
0.5 0.9 -2.8
-0.4
0.6 2.7 4.1 3.0 1.9 3.8 2.1 0.3 -0.7
1.0 1.7 2.8 -1.1
2.1 0.8 -0.8
-5.6 -1.7 -0.3
4.2 1.9 2.8 1.2 1.3
1992
1993
1995
0.1
0.9 0.2
-0.6
-1.3
-1.5
-1.4
-0.2
-0.5
-2.5
-1.5
-0.6
-0.1
-0.5
-0.8
-0.4
-7.0
-6.0
-1.4
0.2
1.4 0.3 2.0 1.3
0.8 1.4 1.0 0.3
1.9 3.2 3.4 0.6
-1.6
-2.0
-1.0
-1.4
-2.8
-0.5
-0.9
-1.7
-0.3
-3.0
-2.1
-1.5
-0.6
-0.8
-1.5
0.7 1.4
-1.5
-4.5
-4.9
-0.9
-1.2
-1.7
-0.2
0.4 0.6 6.1 2.5 -0.9
4.5 -1.6
4.2 0.8 -0.2
-0.1 -0.8
6.1 0.8 0.5
2.6 1.5 1.7
2.7 2.6 1.8
3.2 1.7 1.7
3.5 2.3 2.4
2.3 2.0 2.1
0.4 1.3 1.2
Japan
1.2
1.5
1.7
2.0
Total above
1.9
1.8
1.5
0.3
-0.1
-0.1
Memorandum items: 4 major west European economies' Western Europe and North America
1.7
1.6
1.6
0.5
-1.2
-1.6
2.0
1.9
1.5
-0.4
-0.2
Canada United States North America
1994
1.9 1.7 0.6 -1.9 -0.9 -1.0
-0.1
-1.6
0.2 -1.0
-0.8
0.2 -1.4
-0.1
4.3 2.0 0.9 4.4 1.9 2.3 -0.2
2.8 0.2
1.9 0.5 1.4 1.3 1.5 0.7 4.4 0.8 5.2 3.1 2.1 0.3 3.7 1.2
2.4 0.8 6.9 0.8 1.4 -0.3
1997
1998
1999
2000
2007
2002
0.4
0.5
1.5 1.1 1.0 1.0 1.7 2.0 7.5 8.6 4.9 2.6 2.7 3.9 1.8 1.2 1.6 1.5 1.7 1.0 3.1 1.6 2.5 1.0 2.8 1.9
2.0 1.2 1.1 1.4 1.3 2.5 0.1 6.0 4.6 2.6 1.8 3.5 1.8 1.4 1.2 2.1 1.7 1.4 3.0 3.1 0.7 0.8 0.7 2.2 1.7
2.6 1.8 1.9 0.7 1.9 2.2 0.3 4.7 5.6 2.2 2.3 3.4 2.1 1.6 0.5 2.5 2.0 2.7 2.2 4.0 0.7 0.4 1.2 2.7 2.1
1.8 0.4 1.9 0.7 1.4 1.5 -0.3 3.0 5.7 1.8 1.6 2.4 1.4 1.0 0.4 1.9 1.3 2.0 0.7 2.0 1.5 0.5 6.2 -1.0 1.1
0.8 -0.6 1.4 -0.4 -0.2 0.4 0.1 1.3 3.2 0.9 0.7 1.3 0.4 0.7 -0.6 0.2 0.4 0.3 -0.7 0.9 0.1 0.4 0.2 0.4
1.5 1.1
2.3 2.3 2.3
2.6 1.5 1.6
2.8 1.5 1.7
2.6 2.5 1.4
1.1 -
0.3 -0.3 -0.5
1996
0.4 -0.3
0.6 -0.6
0.3 1.3 -0.5
3.6 2.3 2.3 -5.9
1.3 0.5 1.2 1.0 -0.9
0.6 1.1 2.4 2.4 1.5 2.0 0.1 2.0 0.5
-0.2
0.4 0.5 0.9 3.3 -2.2
5.6 3.2 3.2 1.7 2.9 0.8 1.9 1.2 -1.3
0.9 -0.3
1.6 1.4 3.0 0.1 -2.5
0.7 0.5
1.7 1.5 1.5
2.0 2.3 2.3
1.4 1.5 1.5
1.1
0.4
0.1
0.2
0.5
1.1
-0.7
-0.8
-0.1
-0.5
-1.2
0.9
1.1
0.7
1.3
1.3
1.3
1.5
0.5
-0.1
0.6
0.4
0.6
1.2
1.4
1.9
1.1
0.4
1.3
0.8
1.3
1.8
1.7
1.8
0.6
0.1
-0.6
-0.2
1.1
-2.5
Source: Eurostat, New Cronos Database; OECD, National Accounts and Economic Outlook, latest issues; national statistics; UNECE secretariat estimates. Note: Total employment is defined as the number of persons engaged in some productive activity within resident production units (national accounts concept). The labour force survey concept (based on resident household surveys) is used for Greece, Iceland, Ireland, Luxembourg, Portugal, Spain, Sweden and the United Kingdom (up to 1989) and Turkey (up to 1999). All aggregates exclude Israel. a
West Germany, 1988-1991.
b Twelve countries above. c
Fifteen countries above.
d Full-time equivalent. e
Full-time occupied at the end of the year, 1988-1989.
f
France, Germany, Italy and the United Kingdom.
110
_ Economic Survey of Europe, 2003 No. 2
APPENDIX TABLE A.10 a
Standardized unemployment rates in western Europe, North America and Japan, 1988-2002 (Per cent of civilian labour force) 1988
France Germany'' Italy Austria Belgium Finland Greece Ireland Luxembourg Netherlands Portugal Spain Euro area0 United Kingdom Denmark Sweden
9.6 6.2 9.7 3.6 8.8 4.2 6.8 16.2
2.0 7.2 5.8 15.9
1989
9.1 5.6 9.7 3.1 7.4 3.1 6.7 14.7
1.8 6.6 5.2 13.9
1990
8.6 4.8 8.9 3.2 6.6 3.2 6.4 13.4
1.7 5.8 4.8 13.1
Cyprus6 Iceland Israel f Malta a Norway Switzerland Turkey"1 Western Europe
9.6 8.5 5.7 1.8 9.1 2.8 0.6 6.4 6.2 2.9 0.6 8.4 8.3
8.9 7.1 6.8 1.6 8.3 2.3 1.6 8.9 5.7 4.9 0.5 8.7 7.7
8.2 6.9 7.2 1.7 7.7 1.8 1.8 9.6 6.0 5.2 0.5 8.2 7.2
Canada United States North America
7.8 5.5 5.7
7.6 5.3 5.5
8.1 5.5 5.8
Japan
2.3
2.3
Total above
6.4
European Union d
1991
9.1 4.2 8.5 3.5 6.4 6.6 7.1 14.7
1.6 5.5 4.2 13.2
8.2 8.6 7.9 3.1 8.2 3.0 2.6 10.6
5.7 5.5 1.9 7.9 7.3
1992
1993
1994
1995
1996
1997
1998
1999
2000
2007
2002
10.0
11.3
11.8
11.3
11.9
11.8
11.4
10.7
9.3 7.8
8.5 7.8 9.4 3.6 6.7 9.1
8.8 8.6 9.0 4.3 7.3 9.1
6.4 8.7 3.6 7.1 11.7
7.9 15.4
2.1 5.3 4.3 14.9
8.8 9.8 8.6 5.6 8.9 1.8 4.3 11.2
6.3 5.9 3.0 7.9 8.4
7.7 10.1
4.0 8.6 16.3
8.6 15.6
2.6 6.2 5.6
8.2 11.0
3.8 9.8 16.6
8.9 14.3
3.2 6.8 6.9
8.0 11.5
3.9 9.7 15.4
9.2 12.3
2.9 6.6 7.3
8.7 11.5
4.4 9.5 14.6
9.6 11.7
2.9 6.0 7.3
9.7 11.6
4.4 9.2 12.7
9.8 9.9 2.7 4.9 6.8
9.1 11.7
4.5 9.3
10.2 11.8
7.5 2.7 3.8 5.1
19.8
18.8
18.1
17.0
15.2
10.8
10.6
10.8
10.8
10.2
9.6 9.1 10.1
2.6 5.3 10.0
7.3 6.0 3.9 7.6 9.6
10.5
4.1 5.4 7.8 6.7 5.4 3.9 8.1 9.9
3.9 8.6
10.9
10.1
9.3 7.7 9.4
11.3
11.4
18.6 10.0
8.4
5.6 2.4 3.2 4.5 12.8
10.4
3.7 6.9 9.8 11.0
4.3 2.3 2.8 4.1 11.3
10.4
3.9 2.1 2.4 4.1 10.6
9.4 5.9 4.8 6.7 8.7 5.5 2.1 8.9 8.1 3.2 3.0 7.6 8.3
8.5 5.4 4.4 5.6 7.8 5.2 2.3 8.8 7.0 3.4 2.7 6.6 7.5
8.0 5.0 4.3 4.9 7.4 4.4 2.3 9.4 6.7 3.6 2.6 8.5 7.3
10.0
4.4 2.8 2.7 5.1 11.3
8.4 5.1 4.5 4.9 7.7 3.8 3.2
4.0 4.9 6.9 5.9 4.9 3.5 6.9 9.5
4.7 3.8 6.7 7.0 4.8 3.9 6.1 9.5
5.2 3.9 7.7 7.7 4.0 4.2 6.4 9.4
6.2 4.9 8.2 9.4 5.2 2.7 8.5 7.8 3.2 3.6 6.8 8.9
9.6 5.4 5.8
9.1 4.9 5.3
8.3 4.5 4.9
7.6 4.2 4.5
6.8 4.0 4.3
7.2 4.8 5.0
7.7 5.8 6.0
8.5 6.7 8.8 10.1
8.0 6.3 9.6 10.2
6.9 5.2 9.9 10.0
10.3
7.4 3.9 3.1 10.4
7.8
6.7 7.1
7.4 7.8
6.8 7.3
6.1 6.5
9.4 5.6 6.0
2.1
2.1
2.2
2.5
2.9
3.1
3.4
3.4
4.1
4.7
4.7
5.0
5.4
6.0
5.8
6.4
7.2
7.6
7.6
7.2
7.2
6.9
6.6
6.4
5.9
6.1
6.8
8.4
7.7
7.1
7.2
8.5
9.5
9.8
9.5
9.8
9.8
9.4
8.9
8.0
7.6
7.9
7.2
6.8
6.6
7.2
8.1
8.6
8.5
8.0
7.9
7.6
7.1
6.7
6.1
6.3
7.0
10.3
11.2
11.4
10.4
Memorandum items: 4 major west European economies'
Western Europe and North America
Source: OECD, Main Economic Indicators and Quarterly Labour Force Statistics (Paris), latest issues; Eurostat, New Cronos Database; national statistics; UNECE secretariat estimates. Note: All aggregates exclude Israel. Comparisons with previous years are limited by changes in methodology in Austria (1993), Iceland (1991), Israel (1995), Norway (1989), Switzerland (1991) and the United States (1994). a Eurostat-OECD definition except for Austria (1988-1992), Cyprus, Iceland (1988-1990), Israel, Malta, Switzerland (1988-1990) and Turkey (1988-1999). b
West Germany, 1988-1991.
c
Twelve countries above.
d Fifteen countries above. e
Registered unemployment rate, average of monthly data.
f Definitions comply with ILO guidelines but do not follow the Eurostat-OECD standards. 9 Registered unemployment rate at the end of the year. h Definition follows the Eurostat-OECD standards as of 2000. '
France, Germany, Italy and the United Kingdom.
111
Statistical Appendix _
APPENDIX TABLE A.11
Consumer prices in western Europe, North America and Japan, 1988-2002 (Percentage change over previous year)
France Germany3 Italy Austria Belgium Finland Greece Ireland Luxembourg Netherlands Portugal Spain Euro area b United Kingdom Denmark Sweden
European Union ° Cyprus Iceland Israel Malta Norway Switzerland Turkey Western Europe Canada United States North America
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2.7 1.3 5.1 1.9 1.2 5.1
3.5 2.8 6.3 2.6 3.1 6.6
3.5 2.7 6.5 3.3 3.4 6.1
3.2 4.1 6.3 3.3 3.2 4.3
2.4 5.1 5.3 4.0 2.4 2.9
2.1 4.4 4.6 3.6 2.8 2.2
1.7 2.7 4.1 3.0 2.4 1.1
1.8 1.7 5.2 2.2 1.5 0.8 8.9 2.5 1.9 1.9 4.2 4.7 3.0 3.4 2.1 2.9 3.0 2.6 1.6
2.0 1.4 4.0 1.5 2.1 0.6 8.2 1.7 1.3 2.0 3.1 3.6 2.5 2.5 2.1 0.8 2.5 2.9 2.3
1.2 1.9 2.0 1.3 1.6 1.2 5.5 1.6 1.4 2.2 2.3 2.0 1.9 3.1 2.2 0.9 2.1 3.6 1.8 9.0 3.3 2.6 0.5
0.8 0.9 2.0 0.9 0.9 1.4 4.8 2.4 1.0 2.0 2.8 1.8 1.4 3.4 1.8 0.4 1.8 2.2 1.7 5.4 2.2 2.3 -
0.5 0.6 1.7 0.6 1.1 1.2 2.6 1.6 1.0 2.2 2.3 2.3 1.2 1.6 2.5 0.3 1.3 1.7 3.2 5.2 2.1 2.3 0.8
1.7 1.5 2.5 2.3 2.5 3.0 3.2 5.6 3.2 2.4 2.9 3.4 2.2 2.9 2.9 1.3 2.3 4.3 5.1 1.1 2.4 3.1 1.6
1.6 2.0 2.8 2.6 2.5 2.6 3.4 4.9 2.7 4.2 4.3 3.6 2.5 1.8 2.4 2.6 2.4 2.0 6.4 1.1 2.9 3.0 1.0
13.5
2.1 1.4 0.7 9.7 4.8 2.9 4.9 4.5 6.1 3.3 3.4
13.7
4.1 3.4 1.1 12.6
6.8 4.2 7.8 4.8 6.6 4.9 3.8
20.4
3.3 3.3 2.4 13.4
6.7 4.5 9.5 2.6 10.4
5.4 4.5
25.7
20.8
15.5
16.3
20.2
17.2
0.9 6.7 1.9 100.0
0.9 4.5 3.1 50.0
3.0 4.1 5.4 66.7
19.5
3.2 3.1 3.2 10.5
5.9 4.8 5.9 2.4 9.7 5.0 5.0 6.8 19.0
2.5 3.4 5.9 80.0
15.9
3.1 3.2 3.2 9.5 5.9 4.6 3.7 2.1 2.6 4.4 6.5 4.0 12.0
1.6 2.3 4.0 77.8
14.4
1.4 3.6 2.6 6.7 4.6 4.0 1.6 1.3 4.7 3.5 4.9 4.1 11.0
4.1 2.3 3.3 62.5
10.9
2.4 2.2 2.8 5.4 4.7 3.2 2.5 2.0 2.4 3.0 4.7 1.6 12.3
4.1 1.4 0.9 103.8
10.1
4.0 2.4 1.8 88.7
11.3
2.1 1.3 0.8 80.0
86.1
84.5
65.0
54.9
54.4
2002
1.9 1.4 2.5 1.8 1.6 1.6 3.6 4.7 2.1 3.3 3.6 3.1 2.2 1.6 2.4 2.4 2.1 2.8 5.2 5.7 2.2 1.3 0.6 45.0
3.3
4.8
5.4
5.0
4.3
3.5
3.0
3.0
2.4
2.0
1.7
1.3
2.3
2.4
2.1
4.1 4.1 4.1
5.0 4.8 4.8
4.8 5.4 5.4
5.6 4.2 4.3
1.5 3.0 2.9
1.9 3.0 2.9
0.2 2.6 2.4
2.2 2.8 2.8
1.6 3.0 2.9
1.6 2.3 2.2
1.0 1.6 1.5
1.7 2.2 2.2
2.7 3.4 3.3
2.5 2.8 2.8
2.2 1.6 1.6
Japan
0.7
2.3
3.1
3.2
1.7
1.3
0.7
0.1
1.7
0.7
Total above
3.3
4.4
5.0
4.4
3.3
2.9
2.4
2.5
2.3
2.1
1.5
1.5
2.4
2.2
1.5
Memorandum items: 4 major west European economies" Western Europe and North America
3.1
4.7
5.2
4.8
4.2
3.3
2.7
2.9
2.4
2.1
1.7
1.0
2.1
2.0
1.8
3.8
4.8
5.4
4.6
3.5
3.2
2.6
2.9
2.7
2.2
1.6
1.8
2.9
2.6
1.8
-0.1
-0.3
-0.7
-0.7
-0.9
Source: National statistics. Note: All aggregates exclude Israel and Turkey. Consumer price indexes for regional aggregates have been calculated as weighted averages of constituent country indices. Weights were derived from 2000 private final consumption expenditure converted from national currency units into dollars using 2000 purchasing power parities. a
West Germany, 1988-1991.
b Twelve countries above. c
Fifteen countries above.
d
France, Germany, Italy and the United Kingdom.
112
.Economic Survey of Europe, 2003 No. 2
APPENDIX TABLE B.1 Real GDP/NMP in eastern Europe and the CIS, 1980,1989-2002 (Indices, 1989=100)
Eastern Europe Albania Bosnia and Herzegovina Bulgaria Croatiaa Czech Republic Estonia Hungary Latvia Lithuania Poland Romania Serbia and Montenegro a Slovakia Slovenia The former Yugoslav Republic of Macedonia
2000
2001
2002
94.1
97.8
97.1
104.6 280.7
100.8 111.4 293.3
103.9 116.6 304.3
76.4
79.6
83.3
79.6
82.6
86.9
103.1
105.1
1980
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
100.0 100.0
93.4
83.2
78.2
76.9
79.6
84.5
88.0
90.4
92.6
79.4
90.0
64.8
60.1
65.9
71.4
80.9
88.2
79.1
89.2
100.0
154.2
210.7
243.1
266.3
100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
90.9
83.3
77.2
76.1
77.5
79.7
72.2
68.2
70.9
72.5
92.9
73.3
64.7
59.5
63.0
67.3
71.3
76.2
78.1
77.4
98.8
87.3
86.9
86.9
88.9
94.1
98.2
97.4
96.4
96.9
100.0
91.9
82.7
71.0
65.0
63.7
66.4
69.0
75.7
79.2
78.7
84.5
89.9
95.3
96.5
85.0
82.4
81.9
84.4
85.6
86.7
90.7
95.1
99.1
104.2
108.2
111.8
102.9
89.9
61.1
54.1
55.3
54.7
56.8
61.5
64.4
66.3
70.8
76.4
81.1
96.7
91.2
71.8
60.2
54.3
56.1
58.7
62.8
67.4
66.2
68.8
73.3
78.3
88.4
82.2
84.4
87.6
92.1
98.6
104.5
111.7
117.1
121.8
126.7
128.0
129.8 88.2
76.2 99.0 74.5 86.3 68.5 64.7 91.1
94.4
82.2
75.0
76.2
79.2
84.8
88.2
82.8
78.8
77.9
79.6
84.2
92.1
81.4
58.7
40.6
41.7
44.2
46.8
50.3
51.5
42.4
45.1 |
47.6
49.4
97.5
83.3
78.0
75.1
79.0
84.1
89.0
94.0
97.7
99.0
98.9
100.0 100.0 100.0
91.9
83.7
79.1
81.4
85.7
89.3
92.4
96.6
100.3
105.5
101.2 110.4
104.5 113.5
109.1 116.9
93.3
100.0
89.8
84.3
78.7
72.8
71.6
70.8
71.6
72.6
75.1
78.4
81.9
78.2
78.8
CIS"
77.5
91.0
78.3
70.7
60.5
57.1
55.1
55.9
54.1
56.9
62.0
65.7
68.9
73.5
100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
96.9
Armenia Azerbaijan Belarus Georgia Kazakhstan Kyrgyzstan Republic of Moldova c Russian Federation Tajikistan Turkmenistan Ukraine Uzbekistan
94.5
83.5
48.6
44.3
46.7
49.9
52.9
54.6
58.6
60.5
64.1
70.2
79.3
88.3
87.7
67.9
52.2
41.9
37.0
37.4
39.6
43.6
46.8
52.0
57.1
63.1
98.1
96.7
87.4
80.8
71.4
63.9
65.7
73.2
79.4
82.1
86.8
91.0
95.2
84.9
67.0
36.9
26.1
23.4
24.0
26.7
29.5
30.3
31.2
31.8
33.3
35.2
99.0
88.2
83.5
75.8
66.2
60.8
61.1
62.1
60.9
62.6
68.7
78.1
85.5
104.8
96.5
83.2
70.3
56.2
53.1
56.9
62.5
63.9
66.2
69.8
73.5
73.2
88.5 95.7
79.6 65.7 79.4 87.0 69.1
97.6
80.5
57.2
56.5
39.0
38.5
36.2
36.8
34.4
33.2
34.0
36.0
38.6
97.0
92.2
78.8
71.9
62.8
60.2
58.1
58.9
55.7
59.2
65.2
68.5
71.4
100.2 101.8
91.7
62.1
52.0
40.9
35.8
29.8
30.3
32.0
33.1
35.9
39.5
43.1
97.0
82.5
83.7
69.2
64.2
68.5
60.7
65.0
76.0
83.6
90.3
98.4
96.4
88.0
79.3
68.0
52.4
46.0
41.4
40.2
39.4
39.3
41.6
45.5
47.7
99.2
98.7
87.7
85.7
81.2
80.5
81.9
86.1
89.9
93.9
97.6
102.0
106.3
100.0
95.8
88.7
78.3
72.5
66.2
65.2
64.8
66.1
65.5
67.9
72.6
76.1
79.3
97.7
89.1
68.3
59.2
56.5
57.7
60.2
65.0
68.9
68.7
72.6
77.6
82.6
93.2
84.0
83.7
85.0
88.5
93.5
97.9
102.4
106.0
109.3
113.6
116.1
118.6
89.0
100.0 100.0 100.0
92.9
80.8
70.7
66.8
69.2
74.4
76.5
74.9
74.6
73.1
75.8
79.5
83.1
76.4
100.0
96.6
88.8
77.3
68.3
56.2
51.1
49.4
50.1
50.9
52.3
55.7
60.4
64.2
78.6
100.0
87.7
77.7
51.1
39.3
34.3
33.0
34.9
37.3
39.8
41.8
44.7
48.3
52.9
81.9
100.0
99.9
92.6
82.7
76.9
67.5
63.4
64.2
65.2
66.3
69.7
75.0
82,0
88.0
73.4
100.0 100.0
96.7
89.1
79.7
69.6
54.9
48.6
45.2
45.4
45.7
46.1
48.7
52.5
55.1
84.5
68.3
73.3
80.1
87.9
91.9
94.9
96.7 I
97.7
99.0
100.0
99.9
100.0
72.1 78.1 80.8 80.7 75.0 76.0
Total above Memorandum items: Baltic states (BS-3) Central Europe (CE-5) South-east Europe (SEE-7) .... CIS without Russian
Federation (CIS-11) Caucasian CIS countries (CCIS-3) Central Asian CIS countries (CACIS-5) Three European CIS countries (ECIS-3) Former GDR d
67.8
Source: UNECE Common Database, derived from national and Interstate Statistical Committee of the CIS statistics; DIW, Wochenbericht, No. 1-2/2003 (Berlin), 2001 for the former GDR since 1998. Note: Data for the east European countries are based on a GDP measure, except where otherwise mentioned. For the countries of the former Soviet Union, NMP data for 1980-1990 were chain-linked to GDP data from 1990. Country indices were aggregated with previous year PPP-based weights obtained from the European Comparison Programme for 1996. a
b
Gross material product (1980-1989 for Croatia, 1980-2000 for Serbia and Montenegro). Serbia and Montenegro: since 1999, without Kosovo and Metohia.
Net material product for 1980-1990 (until 1992 in the case of Turkmenistan). c Excluding Transdniestria since 1993. d Excluding the former east Berlin since 1998.
Statistical Appendix
113
APPENDIX TABLE B.2 Real total consumption expenditure in eastern Europe and the CIS, 1980, 1989-2002 (Indices, 1989=1 00 or earliest year available thereafter) 1980
Bulgaria Croatia Czech Republic Estonia Hungary Latvia Lithuania Poland Romania Slovakia Slovenia The former Yugoslav Republic of Macedonia
1989
.. ..
100.0 100.6 100.0 104.9 100.0 ..
92.2
108.0 83.9
..
Armenia Azerbaijan Belarus Georgia Kazakhstan Kyrgyzstan Republic of Moldova Russian Federation Ukraine
1990
1991
1992
1993
1994
1997
1998
1999
2000
2001
2002
92.3
89.4
86.2
82.3
80.7
74.1
67.1
69.8
75.9
80.2
83.8
87.2
100.0
87.2
85.3
92.0
106.6
85.5
88.4
117.1 104.3 122.7
117.4 101.8 128.1
116.0 103.7 126.9
118.8 105.4 133.5 100.1
121.1 109.7 138.8 105.4
126.2 114.5 150.3 113.6
90.2
94.5
97.2
100.0
101.9
109.0
106.5 103.7 115.7
97.3
92.2
92.8
97.9
95.6
89.3
86.4
88.4
91.8
95.8
76.7
49.2
46.5
47.4
47.0
50.6
52.4
53.7
55.2
57.9
61.4
65.0
100.0 110.5 105.5
105.4 118.4 112.9
111.3 125.6 108.1
116.9 130.8 109.3
117.0 136.6 106.5
123.9 140.0 108.1
127.6 142.4 114.6
134.6 146.4 118.0 100.2 135.0
94.9
98.2
103.0
107.0
96.0
90.7
91.8
95.3
76.9
75.6
74.2
72.6
75.1
83.6
85.8
92.4
92.5
91.6
95.5
91.6
88.8
99.1
102.6
110.2
112.7
116.3
120.9
127.7
129.5
133.1
84.2
89.7
95.9
94.3
96.5
98.5
101.8
105.6
114.0
110.0 108.5
60.4
..
100.0
93.9
..
100.0
97.4
.. ..
1996
100.0
100.0 88.3 100.0 108.9 100.0 103.3 .. 100.0
.. .. .. ..
1995
100.0 100.0 100.0 100.0 100.0 100.0
84.9
66.4
68.9
74.5
76.8
81.7
85.4
86.6
93.3
100.0
77.4
62.2
60.4
65.3
72.2
80.4
88.1
96.9
93.5
84.1
78.8
70.0
63.4
65.7
72.4
81.0
87.8
94.3
100.0 105.6 107.3
79.2
77.1
45.4
42.4
46.1
96.8
96.2
84.9
67.7
55.0
51.3
51.8
50.4
51.1
53.2
57.5
83.5
72.8
64.3
51.8
43.4
46.2
42.4
48.8
49.3
47.9
48.6
50.2
100.0
82.6
90.3
99.7
111.5
109.3
92.0
107.8
112.5
123.3
116.5
93.9
89.0
88.1
85.4
83.1
80.9
83.1
81.4
80.4
84.9
90.8
97.2
94.7
88.7
72.1
65.1
62.7
57.5
56.4
56.4
54.3
55.4
60.5
63.1
1999
2000
200?
2002
104.0 190.7 126.2 174.7 138.3
113.7 210.0 127.0 202.9 146.4
Source: UNECE Common Database, derived from national and Interstate Statistical Committee of the CIS statistics.
APPENDIX TABLE B.3 Real gross fixed capital formation in eastern Europe and the CIS, 1980, 1989-2002 (Indices, 1989=1 00 or earliest year available thereafter) 1980
Bulgaria Croatia Czech Republic Estonia Hungary Latvia Lithuania Poland Romania Slovakia Slovenia The former Yugoslav Republic of Macedonia Armenia Azerbaijan Belarus Georgia Kazakhstan Kyrgyzstan Republic of Moldova Russian Federation Ukraine
1989
.. .. 114.7
124.6 163.7
100.0
1990
100.0 97.9
100.0 92.9 .. 100.0 100.0 75.2 100.0 64.4 .. 100.0 .. 100.0
1991
1992
1993
1994
61.2
61.9
71.8
56.6
44.7
60.5
73.1
84.4
88.5
94.5
93.6
71.1
82.8
148.8 117.3 123.2 94.9
183.5 113.9 144.8 103.6
188.2 114.7 161.1 117.3
180.8 113.5 137.4 124.2
173.9 119.6 155.7 133.7
83.0
90.5
100.0
106.3
108.2 108.5 110.6
83.1
81.0
82.6
92.9
88.9
36.1
25.7
21.6
21.8
23.7
29.0
35.0
50.4
48.4
58.0
67.9
75.0
100.0
143.4 140.1
174.7 160.0
164.0 170.9
149.3 175.6
169.5 160.2
184.3 149.4
71.9
73.6
75.7
82.6
96.2
115.2 115.2
44.0
48.9
52.9
63.9
68.3
72.2
73.4
69.2
65.9
69.5
75.9
82.2
74.8
71.5
67.7
66.0
67.1
87.9
92.0
77.1
85.4
97.4
113.8
123.9
111.5 153.9
90.9
88.5
100.4 138.2
183.2
183.6
100.8 182.9
185.4
79.9
73.6
67.3
74.1
79.0
75.6
73.6
72.5
70.2
64.2
10.5
10.7
12.0
12.1
14.0
94.5
199.8
333.7
410.5
402.2
412.7
497.7
46.1
56.2
61.8
59.4
60.7
59.3
61.2
95.8
100.0
67.0
100.0 100.0
1998
74.1
100.0
.. ..
1997
80.0
..
100.0 100.0 100.0 100.0
1996
100.0
..
.. .. .. ..
1995
8.6
7.9
11.5
115.3
9.5
14.8
99.9
18.1
100.0
61.0
104.2
84.8
78.3
67.6
47.6
67.3
49.2
18.5
133.4
219.9
74.2
61.9
44.2
39.2
24.3
18.5
19.1
17.8
17.9
20.7
26.0
26.8
89.4
63.2
49.4
35.1
56.4
49.1
34.6
34.0
43.6
55.3
54.3
54.1
100.0
56.5
50.8
63.8
60.4
66.0
50.8
46.4
54.4
56.6
84.5
49.4
36.7
27.1
25.1
19.6
17.7
15.5
16.8
19.6
21.7
22.3
79.1
67.4
46.8
27.6
19.1
14.8
15.1
15.5
15.5
17.4
18.5
19.6
Source: UNECE Common Database, derived from national and Interstate Statistical Committee of the CIS statistics.
114
.Economic Survey of Europe, 2003 No. 2
APPENDIX TABLE B.4
Real gross industrial output in eastern Europe and the CIS, 1980,1989-2002 (Indices, 1989=100) 1980
1989
1990
1991
1992
82.2
87.5
71.9
60.0
55.7
86.7
50.4
35.2
31.7
101.8
76.9
25.5
83.2
66.4
54.2
48.8
54.0
56.4
88.7
63.4
54.2
51.0
49.6
49.7
96.6
75.7
69.8
66.1
67.4
73.3
100.0
92.8
59.8
48.6
47.1
48.0
90.3
100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
72.1
CIS Armenia Azerbaijan Belarus Georgia Kazakhstan Kyrgyzstan Republic of Moldova Russian Federation Tajikistan Turkmenistan Ukraine Uzbekistan
73.6
Total above
Eastern Europe Albania Bosnia and Herzegovina Bulgaria Croatia Czech Republic Estonia Hungary Latvia Lithuania Poland Romania Serbia and Montenegro Slovakia Slovenia The former Yugoslav Republic of Macedonia
Memorandum items: Baltic states Central Europe South-east Europe CIS without Russian Federation .... Caucasian CIS countries Central Asian CIS countries Three European CIS countries Former GDR
77.0
106.0 71.3 88.7 81.5 78.5
1993
2.0
1995
1996
1997
58.2
62.5
65.8
25.8
23.9
18.1
1994
1.7
5.2
2.8
|
1998
1999
2000
2001
2002
68.2
68.8
68.5
73.9
76.9
79.5
18.6
22.7
26.1
29.2
23.4
25.9
10.5
11.8
12.9
44.1
44.8
45.1 63.6
7.0
8.7
9.6
59.3
48.4
44.3
51.3
54.8
56.8
56.0
57.0
60.4
74.8
78.1
79.4
76.9
81.1
86.4
90.5
49.4
56.6
59.0
57.0 | |
65.3
71.1
75.3
142.7
40.8
90.7
74.0
66.8
69.5
76.2
79.7
82.4
91.5
103.0
113.7
134.3
139.1
100.8
100.2
65.6
44.6
40.1
38.7
40.8
46.4
47.9
45.3
47.4
51.8
54.8
97.4
94.0
65.8
43.2
31.7
33.4
35.0
36.5
38.4
44.6
45.8
75.8
69.7
71.7
76.3
85.5
93.8
101.6
| 41.3 113.3 117.3
121.5
129.6
130.4
132.2
81.9
63.3
49.4
50.1
51.7
56.6 | |
60.1
55.8
48.1
47.0
50.3
54.5
57.8
88.0
72.5
57.0
35.7
36.2
37.6
40.4
44.2
45.8
35.2
39.2
39.2
39.9
94.0
75.9
68.6
66.1
69.3
75.1
76.9
77.9
80.9
79.3
85.9
92.5
98.7
89.5
78.4
68.1
66.1
70.4
71.8
72.5
73.2
75.9
75.6
80.2
82.6
84.6
100.0
89.4
74.0
62.3
53.7
48.0
42.9
44.3
45.0
47.0
45.8
47.4
45.9
43.5
99.6
92.7
76.8
66.7
51.9
49.0
47.5
48.5
46.9
51.2
57.3
61.1
64.0
92.5
85.4
44.2
39.5
41.6
42.2
42.8
43.2
42.3
44.6
47.4
49.9
57.0
93.7
85.4
59.4
47.7
35.9
28.2
26.3
26.4
27.0
28.0
29.9
31.4
32.6
102.1
101.1
91.8
83.2
71.0
62.7
64.9
77.1
86.7
95.6
103.0
109.1
114.0
94.3
73.0
39.6
25.0
15.2
13.2
14.1
15.2 |
15.0
15.7
16.7
16.5
17.3
99.2
98.3
84.7
72.2
51.9
47.7
47.8
49.7
48.5
49.8
57.5
65.5
71.9
68.5
100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
76.3
72.0
92.9 72.5 70.0 86.3 76.9 80.0 76.7
76.3 76.1 61.1 70.6 72.4 66.7 68.7 74.4 72.9 75.4 72.6
84.9 80.8 71.7 74.3 72.1 70.3 75.2
36.2
99.4
99.1
73.5
56.3
35.5
26.7
27.8
38.8
40.9
39.1
41.4
43.7
38.0
103.2
91.7
66.9
67.1
48.5
46.6
43.6
43.6
37.0
32.7
35.3
40.1
44.3
99.9
91.9
75.4
64.7
51.2
49.5
47.5
48.5
46.0
51.0
57.1
59.9
62.1
101.2 103.2
97.6
73.9
68.1
50.8
43.9
33.4
32.7
35.4
37.4
41.1
47.2
51.1
108.2
92.0
95.7
72.1
67.5
81.0
63.1
64.4
74.1
84.4
93.7
103.1
99.9
95.1
89.0
81.9
59.5
52.4
49.7
49.6
49.1
51.0
57.8
66.0
70.6
101.8
103.3
96.4
99.9
101.5
101.6
104.2
108.5
112.4
118.8
125.8
135.4
146.9
100.0
95.9
86.3
71.6
63.3
53.9
53.2
53.2
54.6
53.7
56.5
62.4
66.0
68.8
100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
98.6
95.3
64.8
44.4
36.2
37.0
38.7
41.9
45.7
41.9
44.9
50.6
52.7
87.1
73.4
69.9
70.4
75.9
82.1
86.2
93.0
96.9
99.0
107.1
110.5
113.7
86.3
66.7
48.7
41.6
42.7
45.3
48.1
45.6
42.3
39.9
42.7
44.9
46.9
99.0
94.6
80.2
71.5
53.7
47.9
47.5
48.6
49.2
51.7
57.7
64.1
68.6
93.8
81.2
51.3
39.3
29.6
24.6
23.8
24.3
24.5
25.5
27.2
28.2
29.8
100.1 100.4
100.2
85.2
76.2
57.3
52.8
54.6
54.5
54.6
57.2
64.6
72.3
78.3
96.1
88.8
81.6
61.3
54.1
52.4
54.5
55.7
58.7
65.5
73.2
77.8
72.7
37.0
34.7
34.9
38.1
39.9
41.7
44.6
48.2
51.7
57.2
59.4
61.8
Source: UNECE Common Database, derived from national and Interstate Statistical Committee of the CIS statistics. Note: For the countries of the former Soviet Union, Soviet data for 1980-1990 were chain-linked to national or CIS data from 1990. Country indices were aggregated with previous year PPP-based value added weights on the basis of data obtained from the European Comparison Programme for 1996.
Statistical Appendix
/15
APPENDIX TABLE B.5
Total employment in eastern Europe and the CIS, 1980,1988-2002 (Indices, 1989=100)
1980 3
1988
1990 1989
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2007 84.9
2002
Eastern Europe
95.1
99.9 100.0
97.2
93.0
87.7
84.7
84.2
83.7
86.8
87.8
88.3
86.7
85.3
Albania Bosnia and Herzegovina Bulgaria Croatia Czech Republic Estonia Hungary b Latvia Lithuania Poland Romania c Serbia and Montenegro Slovakia d Slovenia The former Yugoslav Republic of Macedonia
77.9
97.6 100.0
99.2
97.5
76.0
72.7
80.7
80.4
77.5
76.9
75.4
74.0
74.2
72.3
38.0
17.0
15.7
17.4
38.8
59.2
62.7
64.6
65.1
64.5
62.5 68.6
CIS Armenia Azerbaijan Belarus Georgia Kazakhstan Kyrgyzstan .. Republic of Moldova e Russian Federation Tajikistan Turkmenistan Ukraine Uzbekistan
Total above
a
Memorandum items: Baltic states Central Europe South-east Europe a
CIS without Russian Federation .... Caucasian CIS countries Central Asian CIS countries Three European CIS countries
.. 100.0 100.0
102.4 100.0 87.4 100.4 100.0 95.3 99.4 100.0 .. 97.6 100.0 104.2 100.7 100.0 97.0 100.5 100.0 93.4 99.8 100.0 102.0 100.1 100.0 94.6 98.7 100.0 83.4 998 1000 90.8 998 1000 84.0 101.3 100.0 81.2
99.7 100.0
98.8 100.0 101.4 100.0 62.7 75.2 100.0 95.4 99.5 100.0 92.7 101.1 100.0 86.2 96.0 100.0 819 987 1000 93.8
86.6
93.9
81.6
75.0
73.8
74.3
75.2
75.3
72.3
72.2
70.7
68.3
68.0
97.1
89.2
79.3
76.6
74.8
73.9
74.5
73.9
86.0
85.1
82.9
82.4
83.1
99.1
93.6
91.2
89.7
90.4
92.8
93.4
91.6
90.4
88.1
87.9
88.2
87.8
98.6
96.3
90.9
83.4
80.6
75.6
73.9
73.7
72.4
69.1
68.3
68.9
69.9
96.7
86.7
78.1
73.2
71.8
70.4
69.8
69.8
70.7
72.9
73.6
73.8
74.0
100.1
99.3
92.0
85.6
77.0
74.3
67.5
70.4
70.1
68.8
66.7
68.2
70.3
97.3
99.7
97.5
93.4
88.0
86.4
87.2
87.7
87.0
86.6
73.4
71.0
73.9
95.8
90.1
86.3
84.3
85.1
86.7
88.3
90.8
92.9
90.4
88.3
87.8
87.0
99.0
98.5
95.5
91.9
91.5
86.7
99.9
101.0
99.1
98.4
98.3
97.7
89.7
97.0
94 1
909
88.3
865
85.3
84.8
89.9
89.7
82.4
80.2
80.4
79.0
98.2
85.9
86.8
87.7
84.0
85.7
88.6
88.1
87.8
85.1
83.9
84.8
84.9
96.1
88.7
83.8
81.3
79.3
79.1
78.7
78.6
78.7
80.2
81.2
82.3
82.8
98.2
90.7
86.4
81.5
76.6
69.0
65.8
61.8
60.1
61.1
60.3
57.7
54.2
100.2 98.8 96.6 102.4 105.0 99.2 100.9 101.7 101.4
94.2
91.4
90.2
89.7
88.6
87.3
87.0
97.0
93.5
92.8
90.2
86.2
84.0
81.6
80.3
79.5
80.5
101.2
98.9
98.4
100.5
100.7
100.9
100.9
100.9
101.2
101.5
99.1
96.6
94.1
92.9
90.4
84.8
84.0
84.1
85.0
85.5
85.4
85.0
84.3
102.3 101.3
93.3
73.5
66.4
64.8
64.1
75.4
82.7
64.1
64.2
68.1
69.5
68.1
1005
100.1 996
98.3
89.9
85.4
85.0
84.6
84.0
79.5
79.2
80.5
86.9
87.1
1056
96.6
946
944
950
971
98.0
101 5
101.7
102.8
104.3
97.3
98.9 100.0
99.1
99.0
98.0
80.7
80.4
80.0
79.4
78.7
78.5
71.5
72.5
71.7
72.0
96.9
99.9 100.0
99.6
97.7
95.3
93.7
90.6
87.8
87.2
85.6
84.4
84.6
85.1
85.6
86.5
76.7
92.9
97.3
98.9 84.1
75.4
96.9 100.0 101.2 100.0 100.0 100.0 95.9 100.0
94.2
99.1 100.0
75.8
996 1000 100.1 100.0 99.7 100.0 97.4 100.0 89.2 100.0 96.7 100.0 99.8 100.0
79.8 99.7
99.7 92.3 89.9 77.6 80.5 98.8
103.2 104.9 101.6 103.4 107.0 110.5 100.0 98.3 96.4 104.2 108.3 108.5 99.3
97.1
94.0
98.7
98.7
98.6
92.1
95.3
95.6
92.5
114.0
118.5
122.5
124.7
127.2
128.8
133.6
87.9
85.9
94.2
90.6
93.3
91.4
88.9
108.3
109.9
110.8
112.3
113.8
91.4
89.3
88.3
88.9
88.4
86.9
98 9
943
88.8
828
80.1
778
79.0
78.3
77.0
70.1
69.7
71.8
89.8
85.8
83.6
83.5
84.7
85.8
86.8
87.9
86.3
85.2
85.1
84.7
97.6
96.5
89.2
85.6
85.5
82.9
89.9
90.9
90.8
89.2
88.2
87.6
101.0 100.3 98.1 101.7 99.5 91.5 102.6 104.0 103.9
94.8
92.4
93.2
92.8
92.3
90.8
89.9
88.6
86.3
85.7
89.9
91.7
85.0
84.6
85.7
86.1
86.0
99.9
98.9
99.4
99.3
100.4
99.5
100.1
93.1
89.9
91.1
89.4
87.5
86.8
84.9
83.2
82.1
83.4
99.8
98.1
96.1
Up to 1990, excluding Bosnia and Herzegovina.
D
End of year, up to 1992; since 1992, annual average.
c
End of year, up to 1996; since 1996, annual average, labour force survey data.
Excluding Transdn iestria since 1993.
82.4
119.8
98.5
Source: UNECE Common Database, derived from national and Interstate Statistical Committee of the CIS statistics.
e
87.6
83.7
117.8
96.7
a
^ End of year, up to 1993; since 1993, annual average.
115.4 116.5
116
Economic Survey of Europe, 2003 No. 2
APPENDIX TABLE B.6
Employment in industry in eastern Europe and the CIS, 1990-2002 (Indices, 1989=100) 1990 3
Eastern Europe Albania Bosnia and Herzegovina Bulgaria Croatia Czech Republic Estonia Hungary Latvia Lithuania Poland Romania'' Serbia and Montenegro Slovakia Slovenia The former Yugoslav Republic of Macedonia CIS Armenia Azerbaijan Belarus Georgia Kazakhstan Kyrgyzstan Republic of Moldova c Russian Federation Tajikistan Turkmenistan Ukraine Uzbekistan
Total above a Memorandum items: Baltic states Central Europe South-east Europe8 CIS without Russian Federation .... Caucasian CIS countries Central Asian CIS countries Three European CIS countries
95.6
1991 88.0
1992
1993
78.7
73.7
1994
1995
1996
1997
1998
2001
2002
71.4
69.7
70.5
69.7
68.6
64.9
62.0
61.0
60.0
85.6
76.9
79.8
75.6
74.1
52.6
66.6
63.1
100.0
38.7
13.7
15.2
31.1
36.5
44.5
47.9
48.0
48.0
45.7
44.7
91.0
74.7
64.8
59.5
57.3
56.0
55.4
53.0
50.8
46.1
43.5
42.9
43.0
102.4
84.8
70.3
70.4
67.3
59.5
59.0
56.6
60.0
58.3
56.7
55.9
55.8
95.8
92.2
85.1
80.9
76.6
77.0
76.4
76.1
74.9
72.5
71.4
72.0
67.7
99.0
94.8
87.0
73.6
69.5
74.2
70.3
65.2
63.7
59.9
61.5
61.6
58.7
97.0
85.4
77.3
69.1
66.0
62.5
61.9
63.0
65.9
66.4
65.6
66.8
66.8
97.0
92.1
81.4
69.0
56.3
53.1
51.1
50.9
51.6
47.9
47.9
46.2
47.9
96.7
99.0
91.4
78.0
64.5
59.5
57.0
57.1
56.5
55.7
49.6
48.0
50.1
93.7
86.1
76.7
74.4
73.8
76.2
75.6
75.8
75.0
69.5
65.3
62.8
61.1
96.5
91.6
79.5
73.0
69.4
65.4
71.7
69.9
66.3
62.0
58.1
57.2
58.2
100.9
92.1
87.2
85.0
82.7
80.6
78.8
76.3
77.8
70.5
67.1
64.8
60.2
95.7
88.2
78.7
74.0
71.7
71.6
71.6
70.2
67.3
65.4
63.3
63.9
64.1
95.1
85.2
84.6
78.1
75.1
72.2
71.5
68.5
67.8
66.7
66.3
66.7
67.3
95.3
87.3
81.6
77.5
72.9
63.1
59.0
54.4
52.5
55.4
52.9
56.6
51.3
100.0 102.6
98.3
93.3
89.4
80.4
74.3
70.3
64.6
62.3
61.5
95.0
84.0
75.2
73.7
62.8
52.9
47.5
43.4
40.5
37.3
35.2
35.6
97.1
94.9
88.9
81.1
77.4
72.9
58.6
50.1
52.0
53.6
51.6
51.1
52.1
98.6
96.9
92.1
88.5
84.4
75.2
74.4
74.5
75.5
76.2
75.9
75.0
72.4
104.2
92.6
66.0
56.5
51.6
46.8
33.6
25.8
28.1
25.7
25.9
98.5
99.9
96.2
83.6
76.9
69.6
66.9
59.0
57.8
57.9
54.7
53.1
52.7
99.9
92.7
89.5
80.5
72.0
61.2
54.6
51.2
50.1
47.4
44.0
43.8
43.4
102.4 100.7 102.5 104.2
95.1
93.1
55.0
52.1
44.7
43.8
42.9
40.8
35.9
36.1
37.0
38.4
98.9
94.1
91.8
82.0
75.7
72.2
65.8
62.5
63.1
64.2
64.8
64.1
100.8 100.8
98.2
86.1
81.9
71.9
71.1
62.5
60.1
52.2
47.7
48.2
47.9
101.0
110.7
110.5
115.4
119.9
132.9
150.2
152.9 55.0
98.1
97.3
92.7
87.9
78.3
72.2
66.8
61.2
59.3
54.4
51.3
49.4
101.5
99.6
96.9
98.6
90.1
92.3
93.5
93.7
94.1
94.9
96.7
98.0
98.6
94.9
88.5
84.1
77.4
72.9
70.6
66.5
64.6
62.8
97.2
95.9
87.3
74.2
62.8
60.3
57.7
56.7
56.3
54.0
51.4
50.1
94.9
87.5
79.1
75.1
73.0
73.6
73.1
73.1
72.6
69.2
66.5
65.7
63.9
96.4
91.1
78.3
72.3
70.7
67.5
70.4
68.6
66.7
62.2
58.6
57.8
57.4
52.9
57.0
99.1
97.3
92.1
85.7
78.1
72.0
67.5
62.9
62.0
59.1
101.4 100.2
94.1
79.2
70.4
67.0
60.3
47.8
40.6
40.7
39.4
99.2
96.1
89.7
82.8
78.7
77.4
73.5
73.6
73.2
98.4
97.2
92.6
86.6
78.1
71.5
67.0
62.5
61.1
57.1
Up to 1993, excluding Albania; up to 1990, excluding Bosnia and Herzegovina.
b End of year, up to 1996; since 1996, annual average, labour force survey data. c
2000
100.0
Source: UNECE Common Database, derived from national and Interstate Statistical Committee of the CIS statistics. a
1999
Excluding Transdniestria since 1993.
51.1
37.8 54.6
117
Statistical Appendix_
APPENDIX TABLE B.7 Registered unemployment in eastern Europe and the CIS, 1990-2002 (Per cent of labour force, end of period)
Eastern Europe Albania Bosnia and Herzegovina Bulgaria Croatia Czech Republic Estonia" Hungary Latvia Lithuania Poland Romania Serbia and Montenegro b Slovakia Slovenia The former Yugoslav Republic of Macedonia
1.6
3.0
17.9
20.8
22.6
23.1
11.7
13.4
13.1
12.3
11.7
11.5
12.3
14.3
27.0
22.0
18.0
12.9
12.3
14.9
17.6
18.2
39.0
38.7
15.3
16.4
12.8
11.1
12.5
13.7
12.2
17.8
16.6
17.3
17.6
15.9
17.6
18.6
2.6 1.6 12.3
14.3
8.2
3.5 5.0 12.1
5.8 3.4 16.4
3.2 5.1 10.9
6.5 4.5 16.0
2.9 5.0 10.4
6.6 7.3 14.9
9.5
3.5 5.6 10.5
7.2 6.2 13.2
6.6
5.2 4.6 10.4
7.0 6.7 10.3
8.8
7.5 5.1 9.1 9.2 6.9 10.4
9.4 6.7 9.6 9.1
8.8 7.7 8.6 7.8
8.9 7.7 8.0 7.7
10.0
12.6
12.9
13.1
15.1
17.5
8.8
10.4
10.9
10.3
11.5
10.5
21.0
24.6
24.0
23.9
24.7
26.1
25.6
27.2
27.4
26.6
27.9
11.8
10.4
14.4
14.8
13.1
12.8
12.5
15.6
19.2
17.9
18.6
10.1
13.3
15.5
14.2
14.5
14.4
14.8
14.6
13.0
12.0
11.8
17.4 11.3
24.5
26.2
27.7
30.0
36.6
38.8
41.7
41.4
45*
42*
45.3
7.1 1.2 2.1
6.4 9.8 1.3 2.3
6.5 9.1 1.3 3.0
2.8 3.1 1.7 8.7 2.6
2.6 3.1 1.5 8.8 2.7
3.7
3.8
CIS Armenia Azerbaijan Belarus Georgia Kazakhstan Kyrgyzstan Republic of Moldova Russian Federation c Tajikistan Turkmenistan Ukraine Uzbekistan
Memorandum items: Baltic states Central Europe South-east Europe Russian Federation d Former-GDR
39.9
17.9
2000
2.3 3.5 12.2
39.4
16.0
1999
14.1
6.5 1.3
39.0
15.5 15.8 42.7 16.3 21.5 9.8 6.8 8.0 8.5 10.9 18.1 8.1
1998
11.1
7.4
14.6
1997
9.2
1.7
15.3
16.9
1996
9.5
4.1
14.8
1995
1992
0.7
2002
1994
1991
1.8
2001
1993
1990
2.7 3.5 0.2 0.5 0.3 0.4 0.1 0.7 5.2 0.4
3.8 6.3 0.7 1.3 2.0 0.6 0.2 0.7 6.1 1.1
4.6 6.0 0.9 2.1 3.8 1.0 0.8 1.0 7.8 1.8
5.8 8.1 1.1 2.7 3.4 2.1 3.0 1.4 9.0 1.8
0.3 0.1
0.4 0.2
0.3 0.3
0.6 0.3
2.1 9.7 9.3
4.5
5.3
6.6
6.6 9.7 1.1 4.0 3.2 4.1 4.5 1.5
2.9
3.1
1.5 0.3
2.8 0.3
4.3 0.4
4.3 0.5
4.2 0.6
6.4
6.4 9.8
12.0
11.2
14.2
15.1
14.6
13.6
13.3
1.1
2.1
15.4
13.5
14.9
1.2 2.0 5.6 3.9 3.0 2.1
10.9
2.8
12.9
13.5
8.3 11.5
2.4
10.0
13.3
3.2
1.3 2.8 8.0 3.9 3.1 1.7
9.0 8.9 1.4 2.3 4.2 3.7 3.1 1.9
3.7 3.1 1.8 9.8 3.0
11.3
0.8
7.6 11.0
44*
3.4 15.9
11.2
15.0
2.8 19.4
13.3
7.3
12.2
9.1
10.1
10.2
10.3
12.5
13.4
14.7
16.1
17.8
17.8
17.2
2.7 17.4
1.7 17.7
1.4 17.2
1.6 17.6
9.4 15.1 17.2 1.8 18.4
Source: UNECE Common Database, derived from national and Interstate Statistical Committee of the CIS statistics. Note: Aggregates for eastern European countries until 1997 exclude Bosnia and Herzegovina. a
Job seekers until October 2000, thereafter - registered unemployed as percentage of the labour force.
*> Since 1999, excluding Kosovo and Metohia. c
Based on Russian Federation Goskomstat's monthly estimates according to the ILO definition, i.e. including all persons not having employment but actively seeking work.
d Registered unemployment.
118
Economic Survey of Europe, 2003 No. 2
APPENDIX TABLE B.8
Consumer price indices in eastern Europe and the CIS, 1990-2002 (Annual average, percentage change over preceding year)
1990 Albania Bosnia and Herzegovina Bulgaria Croatia Czech Republic Estonia Hungary Latvia Lithuania Poland Romania Serbia and Montenegro Slovakia Slovenia The former Yugoslav Republic of Macedonia Armenia Azerbaijan Belarus Georgia Kazakhstan Kyrgyzstan Republic of Moldova Russian Federation Tajikistan Turkmenistan Ukraine Uzbekistan
594.0 23.8
597.1
9.9
1991
1993
85.0 35.5 193.1 116.2 64218.3 38 825.1 338.5 72.9 91.3 124.2 663.6 1 516.6 56.7
18.0
202.0
28.9
35.0
10.9
172.2 216.4
9.1
1992
11.1
1 078.2 23.0
951.2 1 020.5
1994
1995
33.1 11.8
96.2
62.0
1 058.3
3.6 8.9
3.7 8.4
97.5
2.0 9.1
18.7
5.2 10.6
-0.6
2.6 3.5 2.1 3.5
2001
2002
— 1.7
3.1 1.8 7.3 4.7 4.7 5.8 9.2 2.4 1.5 5.5
5.3 0.9 5.8 1.8 1.8 3.5 5.4 1.9 0.4 1.9
10.2
5.4 3.9 3.9 9.9 2.8 1.0
10.0
89.6
47.9
28.9
23.1
11.1
10.6
22.6
19.1
28.5
23.6
18.4
14.2
109.1 410.1
35.7
25.0
17.7
72.0
39.5
24.7
8.5 8.8
36.9
33.2
28.1
19.8
15.1
11.7
32.2
38.8
154.9
59.3
45.9
45.7
34.5
22.5
71.8
90.5
23.2
30.4
44.1
77.5
90.4
19.3
10.5
12.0
9.0
7.0 8.6
3.3 7.6
6.6
5.2
2.3
3.2 1.5
1.0 2.8
61.2
10.2
23.1
13.4
10.0
551.6
115.0
207.3
31.7
21.0
596.6
110.8
1511.0
352.0
126.6
6.9 6.1 4.7 4.2 5.6 5.5 5.7 5.2 5.9 5.7 5.4 5.8
174.1 106.6
728.7 3731.8 4 964.0 175.5 912.6 1 129.7 1 663.9 411.5 709.3 971.2 1 190.9 2219.6 261.4 1 176.9 4 084.9 22 286.1 176.3 1 504.3 1 662.7 1 880.1 278.1 42.9 854.6 1 208.7 486.4 29.9 1 308.0 1 751.0 309.0 1 528.7 197.4 875.0 682.1 350.3 822.0 2 884.8 483.2 3 128.4 2562.1 1 105.3 376.7 891.2 1 485.8 4 734.9 76.5 414.5 1231.8 1 550.0
97.3
4.9
2000
20.8
10.4
94.0
-0.1
12.7
-21.2 121.7
580.0
88.5
20.3
8.0
70.3
114.5 113.9 114.4 160.0 112.9
1999
-12.1
170.2 122.0
94.1
1998
21.5
5.1
78.7
1997
553.5
585.8
45.3
1996
137.1 256.2 210.7 8 926.0 2.2E+14 7.9E+10
13.5
6.1 9.9
6.1 8.4
16.4
2.5
0.9
18.7 19.8
13.8
3.6
52.7
63.9
39.4
7.1
39.2
17.5
31.3
23.4
23.5
11.8
4.7 5.1
6.7 8.1 -1.4
10.1
2.4 0.8 7.4
6.3 -1.3
10.2
8.7
0.7
-0.8
-8.6
1.8
73.2
293.7
168.9
19.3
4.2
3.5 7.3 10.3
7.7
8.4
-0.8
13.4
35.7
18.7
39.3
31.3
61.4
4.6 8.5 7.0 9.8
42.8
5.7 6.0 2.1 5.3
47.8
14.7
27.8
85.7
20.8
21.6
16.0
422.4 714.0
85.4
43.1
27.5
32.9
38.6
12.2
83.7
16.8
80.2
15.9
10.6
22.7
28.2
12.0
0.8
54.0
58.8
17.7
29.0
24.9
Source: UNECE Common Database, derived from national statistics. Note: From 1992 onwards indices derived from monthly data except for Armenia, Georgia, Hungary, Slovenia and Yugoslavia (from 1993), Turkmenistan (from 1995) and Uzbekistan (from 1996).
119
Statistical Appendix,
APPENDIX TABLE B.9
Producer price indices in eastern Europe and the CIS, 1990-2002 (Annual average, percentage change over preceding year) 1990 Albania Bosnia and Herzegovina Bulgaria Croatia Czech Republic Estonia Hungary Latvia Lithuania Poland Romania Serbia and Montenegro Slovakia Slovenia The former Yugoslav Republic of Macedonia Armenia Azerbaijan Belarus Georgia Kazakhstan Kyrgyzstan Republic of Moldova Russian Federation Tajikistan Turkmenistan Ukraine Uzbekistan
14.7
455.3
2.5
1991
129.5 296.4 146.3 70.4
19.3
208.4
22.0
32.6
192.0 148.2
1992
1993
70 374.7 10967.6 56.1
826.0 10.8
1 208.0 12.3
1 310.0 1 510.0
28.3
1 510.4
9.3
1994
1 184.8 59.1 77.7
5.1
1996
1997
1998
68.7
-4.8
3.2
3.6
50.7
132.7
971.0
16.6
1.3 4.9
3.7 5.1 8.8
-1.5
1995
0.8 7.7
5.0
-5.4
6.4 0.7 1.3
17.0
9.6 5.1 4.9
2.3 3.6 3.4 3.0 4.5 5.7 1.6
-0.5 -1.0
0.8
14.1
12.3
28.5
22.3
117.1 391.7
17.0
12.0
13.8
44.7
28.7
16.5
32.6
31.0
26.0
13.4
12.2
35.3
50.0
144.0
33.2
41.2
53.4
41.0
24.6
75.7
88.8
20.6
25.9
43.3
105.4
84.4
10.9
468.0
5.2
68.9
5.3
17.0
10.0
9.1
390.4
124.1
215.7
23.3
17.8
12.4
394.0
112.0
2193.5
258.6
88.6
2.0
120.0 179.5 151.1
947.0 7453.6 1 939.2
892.0 1 974.0 1 536.3
3.9
11.4
4.9 0.9
14.7
40.9
140.7 165.0 184.8 8 993.0 1.4E+13 7.9E+10
2465.1 1 664.0 1 210.9 3 280.0 1 316.5 994.0 4 128.5 1 296.0
-1.3
2002
25.5
220.1 124.0
193.0 160.0 130.0 240.0 163.0 211.0 163.4 147.0
4.9 4.1
2001
36.1
26.9
2.1
4.3 3.3 2.5 1.1
2000
75.2
622.4
28.0
1999
4.7
4 394.4 187.8 3 971 .6 1 340.1 3362.1 538.6
1 042.8 2918.5 831.0 72.9 711.7 1 078.5 340.0 900.0 665.5 1 080.0 911.0 1 610.0 9 667.5 1 134.5 1 119.0 2 162.6
20.9
4.3 6.0
2.0 -3.8
7.2
-4.0
1.7 5.7
11.4
0.8 15.8
7.8
-2.9
1.7
-1.1
1.0 -2.8
1.1
4.0 6.7
4.6 6.1
3.3 6.0
3.7 2.2
9.8 7.7
5.9 9.0
-
4.0
3.5
-
9.1
2.7
-0.6
4.1
-0.4
1.1
3.7 3.3
6.0
36.3
21.7
70.6
11.4
-5.5
-1.3
9.4
-2.6
35.7
89.4
72.8
355.7
185.6
71.7
15.5
5.8
139.7
23.8
15.6
34.0
29.1
27.1
52.2
30.2
14.9
237.6 351.7 296.5 488.9 792.5
50.8
15.0
340.7 2 974.9 52.1
128.5
103.7 260.6
7.8 53.9
2.2 0.8 8.7 9.7 7.0
19.0
38.0
52.0
29.8
3.6 0.4 9.1
2.0 5.3
40.6
6.0 0.3 5.7 8.0
47.1
33.6
12.6
59.1
46.5
19.1
45.6
39.0
25.1
9.1
13.2
31.1
20.8
8.6
3.1
40.0
38.0
61.1
28.4
11.8
-30.5
Source: UNECE Common Database, derived from national statistics. Note: From 1994 onwards indices derived from monthly data except: Bosnia and Herzegovina, Croatia, Czech Republic, Poland, The former Yugoslav Republic of Macedonia (from 1992), Hungary, Romania, Slovakia, Slovenia (from 1993), Turkmenistan, Yugoslavia (from 1995).
120
.Economic Survey of Europe, 2003 No. 2
APPENDIX TABLE B.10
Nominal gross wages in industry in eastern Europe and the CIS, 1990-2002 (Annual average, percentage change over preceding year)a 1990
1991
6
Albania Bosnia and Herzegovina c .... Bulgaria Croatia6 Czech Republic Estonia d Hungary h Latvia Lithuania Poland c Romania c Serbia and Montenegro ° Slovakia" Slovenia The former Yugoslav Republic of Macedonia c Armenia Azerbaijan Belarus Georgia Kazakhstan Kyrgyzstan Republic of Moldova Russian Federation Tajikistan Turkmenistan Ukraine Uzbekistan
1992
145.3 20.8
175.5
453.7
40.7
132.8 466.7
3.0
16.5
21.0
122.2
570.3
1993 73.0
1994
1995
54.9
34.1
1997
1998
1999
2000
2001
2002
15.1
14.2
34.8
10.7
20.4
10.4
17.7
253.6
50.8
31.1
15.4
12.1
53.9
57.7
90.4
882.9
34.5
130.5
44.0
11.8
16.3
10.6
22.6
16.9
18.3
17.7
11.9
10.7
93.3
72.2
35.7
23.5
19.6
55.1
1 444.1
9.9
10.1
6.7 4.7
7.9 7.2 15.9
7.7 6.9 7.9
6.0 10.0
27.2
33.4
24.3
24.9
23.3
19.1
21.7
21.8
15.0
14.4
609.8 632.5
112.0 246.1
60.0
24.1
14.9
21.6
6.5
4.0
3.2
5.1
6.3
15.3
104.5 183.9
70.0
43.2
34.0
21.7
12.0
-0.4
-0.7
6.8
5.3
365.5
64.0
9.7
125.0
400.0
100.6
2.4
17.2
361.5
16.6
13.5
9.6
37.8
39.8
30.1
25.8
19.9
14.1
10.5
204.2 -62.5
135.6 229.6
54.7
53.9
98.1
57.9
42.0
43.4
74.1
74.5
41.7
39.6
24.6
113.5
16.9
23.1
17.7
15.2
14.6
68.4
196.7
45.1
27.1
17.1
14.0
433.6
79.2
1 083.7
454.0
105.8
11.1
3.6
5.9 4.4
31.8
352.3 870.4 910.9 457.3 1 053.1 773.1 815.0 1 065.7 550.2 1 010.1 1 419.0 706.1
14.1
6.0 11.0
0.5
82.9
112.1 33.9 80.5 62.1
14.2
90.1
13.0
94.9
8.0
76.2 83.8
39.0
107.9 82.3
41.2
173.5 4 886.4
3 640.2 739.1 575.7 700.8 1 073.8 69.6 2117.2 23 300.5 993.1 1 542.5 615.1 176.3 284.4 773.0 798.2 260.2 142.2 917.5 1 467.7 622.2 2 286.1 737.8 1 159.3 806.8
210.9 354.8 618.7 112.6 178.2
Net wages in industry. Poland (for 1990-1992) and Romania. Manufacturing for 1991 -1993.
2.3
10.7
3.1
7.9 9.3
11.6
1.5
6.2
9.3
62.3
41.7
20.5
15.2
19.5
53.0
58.2
19.8
18.1
33.3
197.1
58.5
96.8
109.4
323.9
145.4
12.7
26.8
23.2
7.8
10.9
13.5
101.8
48.5
60.3
20.0
43.2
43.8
32.2
24.9
16.6
22.5
31.8
20.9
131.4 145.2 686.2 408.5 278.4
64.3
21.6
14.3
52.2
48.8
46.8
425.3 915.3
71.9
96.4
26.4
31.5
51.1
121.5
27.1
28.6
75.7
53.0
71.5
13.5
18.1
42.7
35.2
99.8
76.3
60.3
50.0
26.1
0.9
7.3 9.9
22.3
22.5
5.9
21.6
10.2
29.1
Calculated from reported annual average wages.
d
12.1
9.7
30.9
c Gross wages in total economy. Hungary for 1990-1992, Slovakia for 1990-1991. c
9.3
12.5
39.8
54.8
Source: UNECE Common Database, derived from national statistics. a
1996
15.5 18.1
9.3 22.0 31.4
Statistical Appendix.
727
APPENDIX TABLE B.11
Merchandise exports of eastern Europe and the CIS, 1992-2002 (Billion dollars)
Eastern Europe Albania Bosnia and Herzegovina Bulgaria Croatia Czech Republic Estonia Hungary Latvia Lithuania Poland Romania Serbia and Montenegro Slovakia Slovenia The former Yugoslav Republic of Macedonia CIS total of which: non-CIS Armenia Non-CIS Azerbaijan Non-CIS Belarus Non-CIS Georgia Non-CIS Kazakhstan Non-CIS Kyrgyzstan Non-CIS Republic of Moldova Non-CIS Russian Federation a Non-CIS Tajikistan Non-CIS Turkmenistan Non-CIS Ukraine Non-CIS Uzbekistan Non-CIS
1992
1993
1994
61.472 0.072
66.872 0.123
77.261 0.139
3.992 4.353 8.767 || 0.444 10.681 0.843 0.852 13.187 4.363 2.539 3.500 6.681
3.769 3.709 14.463 0.802 8.921 1.401 1.994 14.202 4.892
1.199
1.055
51.242 0.026 1.484 0.754
52.547 0.156 0.029 0.725 0.351
1.194
0.789
0.068
0.069
1.398 0.317 0.077 0.470 0.166
1.501 0.396 0.112 0.483 0.178
42.376 0.193 0.109
44.297 0.350 0.227
0.908 7.415 3.297
1.049 7.817 3.223
0.869
0.721
5.458 6.083
Total above
1995
1996
1997
1998
127.933 107.084 115.895 100.621 0.207 0.137 0.213 0.202 0.352 0.193 0.058 0.024 4.194 4.940 4.890 5.345 3.935 4.541 4.171 4.512 4.633 4.260 15.882 26.351 22.779 22.180 21.273 3.236 2.934 2.079 1.305 1.838 23.005 19.100 12.867 | 15.704 10.701 1.812 1.673 1.443 1.304 0.988 3.711 3.860 3.355 2.031 | 2.705 25.756 | 28.229 24.440 22.887 17.240 8.302 8.085 8.431 7.910 6.151 2.858 2.677 1.846 1.531 8.822 | 6.714 10.775 9.640 8.585 9.050 8.310 8.369 8.316 6.828
1999
2000
141.886 125.523 0.352 0.260 0.675 0.518 4.006 4.825 4.302 4.432 29.052 26.265 3.176 2.938 | 28.092 25.012 1.723 1.865 3.004 3.809 31.651 27.407 8.487 10.367 1.493 1.723 10.277 11.908 8.732 8.546
2007
2002
157.275 0.305 0.752 5.113 4.666 33.397 3.307 30.498 2.001 4.583 36.085 11.385 1.903 12.704 9.252
178.809 0.330 0.733 5.688 4.899 38.402 3.423 34.337 2.279 5.518 41.010 13.869 2.275 14.532 10.357 1.158
1.086
1.204
1.147
1.237
1.311
1.191
1.319
1.323
90.929 61.751 0.216 0.058 0.653 0.378 2.510 1.031 0.156 0.039 3.231 1.357 0.340 0.117 0.565 0.159 67.800 52.100 0.492 0.399 2.145 0.494 10.272 4.653 2.549 0.966
113.172 79.800 0.271 0.101 0.637 0.352 4.707 1.777 0.154 0.057 5.250 2.366 0.409 0.140 0.746 0.279 82.419 65.400 0.749 0.497 1.881 0.951 13.128 6.168 2.821 1.712
125.647 88.922 0.290 0.162 0.631 0.341 5.652 1.888 0.199 0.070 5.911 2.732 0.505 0.112 0.795 0.252 90.600 72.000 0.770 0.439 1.682 0.610 14.401 6.996 4.211 3.321
123.181 86.539 0.233 0.138 0.781 0.403 7.301 1.922 0.240 0.102 6.497 3.515 0.604 0.285 0.875 0.267 86.895 67.800 0.746 0.473 0.751 0.300 14.232 8.646 4.026 2.689
106.160 76.657 0.221 0.140 0.606 0.374 7.070 1.910 0.193 0.085 5.436 3.266 0.514 0.283 0.632 0.203 74.444 58.700 0.597 0.394 0.594 0.442 12.637 8.435 3.218 2.425
106.030 83.146 0.232 0.175 0.929 0.718 5.909 2.287 0.238 0.131 5.592 4.100 0.454 0.271 0.464 0.211 75.551 63.600 0.689 0.374 1.190 0.700 11.582 8.329 3.200 2.250
145.928 116.681 0.301 0.227 1.745 1.510 7.331 2.927 0.330 0.198 9.126 6.750 0.505 0.297 0.472 0.196 105.033 90.800 0.784 0.411 2.500 1.200 14.573 10.075 3.230 2.090
144.460 113.803 0.342 0.253 2.314 2.091 7.448 2.957 0.320 0.176 8.648 6.016 0.476 0.308 0.570 0.223 101.615 86.400 0.652 0.440 2.700 1.300 16.265 11.589 3.110 2.050
153.054 122.395 0.507 0.409 2.168 1.924 8.098 3.637 0.325 0.167 9.709 7.486 0.488 0.319 0.666 0.306 106.900 90.700 0.736 0.549 2.850 1.370 17.957 13.580 2.650 1.950
168.190
213.793
232.730
239.076
234.093
231.557
287.814
301.734
331.863
4.324 57.365
5.846 73.928 20.848 30.753 11.110 1.062 18.581
6.877 79.456 20.751 35.047 13.079 1.120 20.848
8.467 85.644 21.785 36.286 12.625 1.253 22.408
8.759 97.410 21.764 31.716 10.358 1.019 20.339
7.665 97.508 20.350 30.479 11.125 1.399 17.955
8.851 109.436 23.599 40.895 16.145 2.376 22.375
9.891 121.937 25.447 42.845 15.586 2.976 24.283
11.221 138.637 28.951 46.154 16.433 3.000 26.721
Memorandum items:
Baltic states Central Europe South-east Europe CIS without Russian Federation .... Caucasian CIS countries Central Asian CIS countries Three European CIS countries
2.139 42.816
4.197 49.127
23.129 8.757 1.025 13.347
Source: UNECE secretariat calculations, based on national statistical publications and direct communications from national statistical offices. Note: Trade flows reported include the "new trade" among members of the dissolved federal states: former Czechoslovakia (from 1993) and the former SFR of Yugoslavia (from 1992); and the former USSR: for the Baltic states (from 1992) and for the CIS. Data excluding the "new trade" were shown in earlier issues of this publication. Changes in the method of recording trade are reflected from 1993 in data for the Czech Republic (inclusion of OPT transactions, etc.), from 1995 in Latvia (imports registered c.i.f.) and Lithuania (change from special to general system), from 1996 in Hungary (inclusion of trade flows of free trade zones), from 1997 in Slovakia (inclusion of OPT transactions, etc.) and from 2000 in Estonia (change from general to special trade system). All trade values are expressed in dollars at prevailing market exchange rates. a Russian Goskomstat data including trade flows not crossing the Russian borders such as off-board fish sales and estimates of value of goods exported or imported by individuals within an approved duty-free quota.
122
.Economic Survey of Europe, 2003 No. 2
APPENDIX TABLE B.12 Merchandise imports of eastern Europe and the CIS, 1992-2002 (Billion dollars)
Eastern Europe Albania Bosnia and Herzegovina Bulgaria Croatia Czech Republic Estonia Hungary Latvia Lithuania Poland Romania Serbia and Montenegro Slovakia Slovenia The former Yugoslav Republic of Macedonia CIS: total of which: non-CIS Armenia Non-CIS Azerbaijan Non-CIS Belarus Non-CIS Georgia Non-CIS Kazakhstan Non-CIS Kyrgyzstan Non-CIS Republic of Moldova Non-CIS Russian Federation a Non-CIS Tajikistan Non-CIS Turkmenistan Non-CIS Ukraine Non-CIS Uzbekistan Non-CIS
1997
1992
1993
1994
70.190 0.524
80.386 0.421
4.530 4.346 10.368 || 0.406 11.123 0.794 0.602 16.141 6.260 3.859 3.889 6.141
5.120 4.166 14.617 0.896 12.648 0.961 2.244 18.758 6.522
159.004 173.259 145.996 125.033 0.650 0.795 0.913 0.620 1.204 0.524 1.555 2.120 4.957 5.074 4.932 4.272 5.638 9.104 7.788 5.229 7.510 8.383 17.427 27.919 27.563 25.265 28.789 3.231 4.441 2.540 1.659 4.786 21.234 14.554 25.706 15.466 || 18.144 2.724 1.240 3.189 2.320 1.818 5.644 2.352 | 5.794 4.559 3.649 37.137 42.314 | 47.054 29.043 21.566 11.435 11.280 10.278 7.109 11.838 4.830 4.113 4.826 2.665 11.112 || 11.622 8.777 6.634 13.006 9.367 9.492 7.304 9.421 10.098
1.206
1.199
42.297
6.332 6.501
0.050 0.940 0.333
33.696 0.255 0.087 0.629 0.241
0.843
1.119
0.228
0.167
0.469 0.421 0.071 0.640 0.179
0.494 0.448 0.112 0.628 0.184
36.984 0.254 0.132
26.807 0.630 0.374
0.030 6.892 2.049
0.501 9.533 2.652
0.929
0.958
Total above
1995
1996
1998
91.379 0.549
2001
2002
185.473 167.553 1.059 0.903 2.290 2.431 6.507 5.515 7.887 7.799 32.183 28.126 4.256 4.108 || 32.080 28.008 3.189 2.946 5.457 4.834 45.911 48.940 10.557 13.055 3.711 3.290 12.660 11.265 10.116 10.083
202.087 1.317 2.463 7.261 9.147 36.472 4.291 33.682 3.507 6.353 50.275 15.552 4.837 14.689 10.148
226.270 1.489 2.758 7.897 10.713 40.757 4.779 37.612 4.040 7.768 55.113 17.857 6.320 16.544 10.929
1.776
2.085
2.094
1.694
1999
2000
1.484
1.719
1.627
1.779
74.976 44.899 0.394 0.188 0.778 0.292 3.066 0.974 0.338 0.066 3.561 1.384 0.317 0.107 0.659 0.183 50.500 36.500 0.547 0.314 1.468 0.782 10.745 2.907 2.603 1.202
95.470 56.861 0.674 0.340 0.668 0.440 5.564 1.887 0.385 0.231 3.807 1.154 0.522 0.168 0.841 0.272 62.603 44.300 0.810 0.332 1.364 0.619 15.484 5.488 2.748 1.630
107.587 63.607 0.856 0.578 0.961 0.621 6.939 2.369 0.687 0.417 4.241 1.295 0.838 0.351 1.072 0.420 68.000 47.200 0.668 0.285 1.011 0.450 17.603 6.427 4.712 3.195
112.731 71.815 0.892 0.593 0.794 0.443 8.689 2.872 0.944 0.603 4.301 1.969 0.709 0.273 1.172 0.567 71.983 53.400 0.750 0.268 1.183 0.531 17.128 7.249 4.186 3.047
95.162 61.760 0.902 0.672 1.077 0.673 8.549 2.995 0.884 0.617 4.350 2.290 0.842 0.401 1.024 0.584 58.015 43.700 0.711 0.265 1.008 0.530 14.676 6.779 3.125 2.256
70.542 44.571 0.811 0.624 1.036 0.711 6.674 2.385 0.602 0.377 3.687 2.089 0.600 0.341 0.587 0.345 39.537 29.200 0.663 0.148 1.500 1.000 11.846 5.103 3.000 2.250
81.786 47.881 0.885 0.711 1.172 0.797 8.574 2.551 0.651 0.423 5.051 2.295 0.554 0.256 0.776 0.517 44.862 31.400 0.675 0.115 1.780 1.100 13.956 5.916 2.850 1.800
94.389 59.481 0.877 0.659 1.431 0.986 8.178 2.472 0.679 0.428 6.363 3.057 0.467 0.210 0.897 0.557 53.764 40.700 0.688 0.150 2.250 1.400 15.775 6.943 3.020 1.920
103.251 68.582 0.991 0.685 1.665 1.015 8.980 2.764 0.720 0.441 6.491 3.460 0.587 0.264 1.052 0.641 60.500 48.200 0.718 0.173 2.120 1.380 16.977 8.009 2.450 1.550
166.355
220.503
253.584
271.735
268.421
238.100
267.259
296.476
329.520
5.251 67.485
8.006 88.043 28.984 32.867 9.251 1.727 21.889
10.110 103.733 32.154 39.587 11.470 2.503 25.614
12.809 112.100 34.095 40.748 11.129 2.630 26.989
13.768 124.653 34.838 37.147 10.034 2.864 24.249
11.888 123.393 32.271 31.005 9.449 2.449 19.107
12.901 135.979 36.593 36.924 10.910 2.708 23.307
14.151 145.266 42.670 40.625 12.788 2.987 24.850
16.587 160.954 48.728 42.751 12.365 3.377 27.009
1.915
Memorandum items:
Baltic states Central Europe South-east Europe CIS without Russian Federation .... Caucasian CIS countries Central Asian CIS countries Three European CIS countries
1.802 47.663
4.101 58.856
24.476 8.496 1.510 14.470
Source: UNECE secretariat calculations, based on national statistical publications and direct communications from national statistical offices. Note: See appendix table B.11. a Russian Goskomstat data induding trade flows not crossing the Russian borders such as off-board fish sales and estimates of value of goods exported or imported by individuals within an approved duty-free quota.
123
Statistical Appendix _
APPENDIX TABLE B.13
Balance of merchandise trade of eastern Europe and the CIS, 1992-2002 (Billion dollars) 1992
Eastern Europe Albania Bosnia and Herzegovina Bulgaria Croatia Czech Republic Estonia Hungary Latvia Lithuania Poland Romania Serbia and Montenegro Slovakia Slovenia The former Yugoslav Republic of Macedonia CIS: total of which: non-CIS Armenia Non-CIS Azerbaijan Non-CIS Belarus Non-CIS Georgia Non-CIS Kazakhstan Non-CIS Kyrgyzstan Non-CIS Republic of Moldova Non-CIS Russian Federation a Non-CIS Tajikistan Non-CIS Turkmenistan Non-CIS Ukraine Non-CIS Uzbekistan Non-CIS
1993
1994
-13.514 -0.298
-14.118 -0.410
1996
1997
1998
2001
2002
-43.587 -42.030 -0.800 -0.551 -1.615 -1.913 -1.683 -1.509 -3.455 -3.496 -3.131 -1.861 -1.170 || -1.079 -3.988 -2.996 -1.323 -1.223 -1.647 -1.831 -18.504 -17.289 -2.688 -2.070 -1.797 -1.988 -0.752 -0.988 -1.384 -1.537
-44.812 -1.012 -1.710 -2.148 -4.481 -3.075 -0.984 -3.184 -1.506 -1.770 -14.190 -4.167 -2.934 -1.985 -0.895
-47.460 -1.159 -2.024 -2.209 -5.815 -2.355 -1.356 -3.275 -1.761 -2.250 -14.103 -3.988 -4.045 -2.012 -0.572
2000
1999
-0.538 0.007 -1.601 | 0.038 -0.442 0.049 0.250 -2.955 -1.897 -1.320 -0.389 0.540
-1.352 -0.457 -0.154 -0.094 -3.727 0.440 -0.250 -4.555 -1.630 -0.874 -0.418
-45.327 -24.411 -38.913 -43.109 -0.701 -0.483 -0.589 -0.448 -1.146 -1.362 -1.768 -0.500 -0.184 -0.294 0.008 -0.763 -0.336 -3.842 -2.877 -3.276 -4.933 -0.969 -4.784 -3.992 -5.739 -2.438 -1.545 -1.152 -1.507 -0.702 -1.550 -0.353 -2.134 -2.701 -2.599 | -2.440 -3.853 -0.877 -1.051 -1.377 -0.515 -0.252 -1.204 -1.784 -0.322 | -0.944 -2.083 -12.697 -16.558 | -18.825 -6.156 -4.326 -2.849 -3.351 -3.536 -2.368 -0.958 -2.267 -2.149 -1.972 -1.134 -0.192 -2.290 | -1.983 -2.231 0.080 -0.998 -1.048 -1.176 -0.476 -1.111
-0.007
-0.144
-0.398
-0.515
-0.480
-0.542
-0.604
-0.585
-0.766
-0.771
-0.536
8.945 -0.024 0.544 0.421
18.851 -0.099 -0.058 0.096 0.110
0.351
-0.330
-0.160
-0.098 1.007 -0.052
5.392 -0.061 -0.023
17.490 -0.280 -0.147
0.878 0.523 1.248
0.548 -1.716 0.571 -0.237
18.059 25.315 -0.566 -0.416 -0.330 -0.280 -1.287 -0.481 -0.488 -0.347 1.670 1.437 -0.333 -0.239 -0.277 -0.168 22.600 24.800 0.102 0.154 0.670 0.160 -3.202 0.569 -0.501 0.126
10.450 14.725 -0.660 -0.455 -0.013 -0.040 -1.388 -0.950 -0.704 -0.501 2.196 1.547 -0.105 0.012 -0.297 -0.300 14.912 14.400 -0.004 0.205 -0.432 -0.231 -2.896 1.397 -0.159 -0.358
10.999 14.897 -0.682 -0.532 -0.471 -0.299 -1.480 -1.085 -0.692 -0.532 1.086 0.976 -0.328 -0.118 -0.392 -0.381 16.429 15.000 -0.114 0.129 -0.414 -0.088 -2.038 1.657 0.093 0.169
35.488 38.575 -0.580 -0.449 -0.107 0.007 -0.765 -0.098 -0.364 -0.246 1.906 2.011 -0.146 -0.070 -0.123 -0.134 36.014 34.400 0.026 0.225 -0.310 -0.300 -0.265 3.227 0.200
-0.060
17.702 22.939 -0.403 -0.239 -0.031 -0.088 -0.857 -0.110 -0.231 -0.174 1.443 1.212 -0.113 -0.028 -0.095 0.007 19.816 21.100 -0.061 0.165 0.517 0.332 -2.356 0.680 0.073 0.082
-
64.142 68.800 -0.584 -0.484 0.573 0.713 -1.244 0.376 -0.321 -0.226 4.075 4.456 -0.050 0.041 -0.305 -0.321 60.171 59.400 0.109 0.295 0.720 0.100 0.617 4.159 0.380 0.290
50.071 54.321 -0.536 -0.406 0.883 1.106 -0.730 0.485 -0.359 -0.252 2.285 2.958 0.009 0.097 -0.327 -0.333 47.851 45.700 -0.036 0.290 0.450 -0.100 0.490 4.646 0.090 0.130
49.803 53.814 -0.484 -0.276 0.502 0.909 -0.882 0.872 -0.395 -0.274
0.929 -0.104 0.005 -0.170 -0.013
15.953 16.852 -0.178 -0.130 -0.125 0.086 -0.556 0.057 -0.182 -0.027 -0.330 -0.027 0.023 0.010 -0.094 -0.024 17.300 15.600 -0.055 0.085 0.677 -0.288 -0.473 1.746 -0.054 -0.236 1.835
-6.709
-20.853
-32.659
-34.328
-6.543
20.555
5.259
2.343
-0.927 -10.120
-2.160 -14.115 -8.136 -2.114 1.859 -0.665 -3.308
-3.232 -24.277 -11.403 -4.541 1.608 -1.383 -4.766
-4.343 -26.456 -12.311 -4.462 1.496 -1.377 -4.581
-5.009 -27.243 -13.074 -5.430 0.324 -1.845 -3.909
-4.224 -25.885 -11.921 -0.526 1.675 -1.050 -1.152
-4.050 -26.543 -12.994 3.971 5.235 -0.332 -0.932
-4.260 -23.329 -17.223 2.220 2.798 -0.011 -0.567
-5.367 -22.317 -19.777 3.403 4.068 -0.377 -0.288
-8.718 -0.452
-0.145 -0.006
Total above Memorandum items: Baltic states Central Europe South-east Europe CIS without Russian Federation .... Caucasian CIS countries Central Asian CIS countries Three European CIS countries
1995
0.337 -4.847
0.096 -9.729
-1.347 0.261 -0.485 -1.123
3.219 4.026 -0.099 0.055 -0.386 -0.335 46.400 42.500
0.018 0.376 0.730 -0.010 0.980
5.571 0.200 0.400
Source: UNECE secretariat calculations, based on national statistical publications and direct communications from national statistical offices. Note: See appendix table B.11. a
Russian Goskomstat data including trade flows not crossing the Russian borders such as off-board fish sales and estimates of value of goods exported or imported by individuals within an approved duty-free quota.
Economic Survey of Europe, 2003 No. 2
124
1980
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Exports World Eastern Europe and the CIS CIS Eastern Europe Developed market economies Developing economies
100.0 48.5 27.1 21.4 35.7 15.8
100.0 38.1 22.3 15.8 49.5 12.4
100.0 28.5 17.9 10.6 59.8 11.7
100.0 23.0 12.4 10.7 63.0 14.0
100.0 30.7 11.4 19.3 57.5 11.8
100.0 28.5 10.0 18.5 61.9 9.6
100.0 28.6 9.8 18.7 62.6 8.8
100.0 28.5 10.0 18.5 63.5 8.0
100.0 28.6 10.6 18.0 63.6 7.8
100.0 24.7 7.4 17.3 68.3 7.0
100.0 20.8 4.2 16.6 73.4 5.8
100.0 20.7 4.1 16.6 73.1 6.2
100.0 21.4 4.7 16.7 72.9 5.7
100.0 21.1 4.6 16.5 72.7 6.2
Imports World Eastern Europe and the CIS CIS Eastern Europe Developed market economies Developing economies
100.0 42.0 26.8 18.8 38.7 19.3
100.0 26.6 18.3 14.3 53.3 20.1
100.0 25.5 20.2 8.1 58.3 16.1
100.0 24.7 17.9 6.8 64.4 10.9
100.0 29.9 16.5 13.4 61.2 8.9
100.0 26.2 14.0 12.2 65.2 8.6
100.0 25.8 13.0 12.9 65.6 8.5
100.0 24.7 12.0 12.7 66.2 9.1
100.0 23.1 11.0 12.1 66.7 10.2
100.0 20.0 8.6 11.4 70.2 9.8
100.0 20.6 8.5 12.1 69.7 9.7
100.0 23.6 11.4 12.2 66.7 9.7
100.0 23.1 10.8 12.3 66.3 10.6
100.0 22.1 9.7 12.4 65.4 12.5
Eastern Europe, to and from:
Former Soviet Union/Russian Fedcjration. to and from: Exports World Eastern Europe Developed market economies Developing economies
100.0 34.5 42.2 23.3
100.0 21.8 49.5 28.7
100.0 25.9 56.5 17.6
100.0 22.3 57.9 19.8
100.0 18.1 59.7 22.2
100.0 15.1 66.6 18.3
100.0 16.8 60.6 22.6
100.0 18.2 58.1 23.7
100.0 19.5 58.6 21.9
100.0 18.1 60.0 21.9
100.0 17.8 57.8 24.4
100.0 20.0 55.6 24.4
100.0 19.3 55.0 25.7
100.0 17.5 55.6 26.9
Imports World Eastern Europe Developed market economies Developing economies
100.0 31.5 46.4 22.1
100.0 24.7 52.9 22.4
100.0 26.0 58.1 15.9
100.0 15.9 62.4 21.7
100.0 10.6 60.6 28.8
100.0 14.1 70.3 15.6
100.0 15.5 69.5 15.0
100.0 12.6 67.8 19.6
100.0 13.7 68.3 18.0
100.0 12.0 68.2 19.8
100.0 9.6 68.3 22.1
100.0 10.9 69.3 19.8
100.0 10.1 67.7 22.2
100.0 10.3 66.1 23.6
Source: UNECE Common Database, derived from national statistics. Note: Data for 1980-1990 refer to the east European CMEA countries (Bulgaria, Czechoslovakia, German Democratic Republic, Hungary, Poland and Romania) and to the former Soviet Union. Trade data in national currencies were revalued at consistent rouble/dollar cross-rates (see the note to appendix table B.11). As from 1991, the second panel reflects non-CIS trade of the Russian Federation only. In the first panel, reporting group "eastern Europe" covers Bulgaria, former Czechoslovakia, Hungary, Poland and Romania in 1991-1992; in 1993-1995 it covers Albania, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia and The Former Yugoslav Republic of Macedonia while Bosnia and Herzegovina and Serbia and Montenegro are included only from 1996. Partner country grouping has been recently revised with subsequent revisions back to 1980. The "eastern Europe" partner group now covers Albania, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Serbia and Montenegro, Slovakia, Slovenia and The former Yugoslav Republic of Macedonia.
125
Statistical Appendix _
APPENDIX TABLE B.15 Exchange rates of eastern Europe and the CIS, 1980,1991-2002 (Annual averages, national currency units per dollar) Unit8
Albania Bosnia and Herzegovina Bulgaria Croatia Czech Republic Estonia Hungary Latvia Lithuania Poland Romania Serbia and Montenegro Slovakia Slovenia The former Yugoslav Republic of Macedonia Armenia Azerbaijan Belarus Georgia Kazakhstan Kyrgyzstan Republic of Moldova Russian Federation Tajikistan Turkmenistan Ukraine Uzbekistan
1980
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
lek .. 24.20 75.03 102.06 94.62 92.70 104.50 148.93 150.63 137.69 143.71 143.48 139.93 con.marka" .. 1.433 1.505 1.734 1.760 1.836 2.120 2.185 2.080 levac 0.86 17.45 23.42 27.85 54.13 67.08 177.88 1681.87 1760.371 1.836 2.123 2.185 2.079 kunad .. 24.00 264.30 3 577.421 6.033 5.230 5.434 6.101 6.362 7.112 8.276 8.340 7.869 koruna .. 29.42 28.29 29.15 28.79 26.54 27.14 31.70 32.28 34.57 38.60 38.04 32.74 kroon6 .. .. 12.11 13.22 12.99 11.46 12.03 13.88 14.07 14.69 16.98 17.49 16.63 forint 32.64 74.73 78.98 91.93 105.16 125.68 152.65 186.79 214.40 237.15 282.18 286.49 257.89 latsf .. .. 0.68 0.67 0.56 0.53 0.55 0.58 0.59 0.59 0.61 0.63 0.62 litas g .. .. 1.78 4.34 3.98 4.00 4.00 4.00 4.00 4.00 4.00 4.00 3.68 zloty h 3.05 10576 13627 18136 22723| 2.42 2.70 3.28 3.49 3.96 4.35 4.09 4.08 leu 4.47 76.39 307.95 760.05 1 655.09 2 033.28 3 084.22 7 167.94 8 875.58 15 332.93 21 708.73 29 060.87 33 055.43 dinar'' .. 19.73 750.00 .. 1.55 4.74 4.96 5.70 11.07 22.84 54.74 67.67 64.19 koruna .. 29.56 28.30 30.77 32.05 29.72 30.66 33.62 35.23 41.36 46.04 48.35 45.33 tolar .. 27.57 81.29 113.24 128.81 118.52 135.37 159.69 166.13 181.77 222.66 242.75 240.25 denar' dram manat roublek lari' tenge som leu rouble7" samoni" manat hryvnia0
.. .. .. .. .. .. .. .. 0.65 .. .. ..
196.90 508.07 .. .. ..
.. .. ..
.. .. .. 4.422 1.74 192.75
..
..
23.26
43.26
37.88
39.98
50.00
54.46
9.11 288.65 405.91 414.04 490.77 504.92 99.98 1 570.23 4413.54 4301.26 3985.38 3 869.08| 3160| 4652 11538 13472 26729 58971 1.661 1.291| 1.263 1.297 1.390 35.54 60.95 67.30 75.44 78.30 .. 10.86 10.82 12.81 17.36 20.84 4.448 4.475 4.497 4.604 4.624 5.370 993.02203.64558.6 5120.9 5784.8| 9.705 107.59 293.82 560.64 778.30 14.1 116.7 3594.6 4142.9 4592.4 4796 3170 14728| 1.829 1.862 2.450
sum P
10.691
30.12
40.66
66.02
94.79
56.90
65.90
68.04
64.82
535.06 539.53 555.08 573.35 4120.17 4474.07 4656.53 4860.99 274512| 882 1390 1785 2.026 1.976 2.072 2.196 119.52 142.13 146.74 153.30 39.01 47.70 48.38 46.94 10.517 12.433 12.867 13.570 24.620 28.129 29.169 31.349 1225.961 1.83 2.39 2.76 5200.0 5200.0 5200.0 5200.0 4.130 5.440 5.372 5.327 124.64
236.58
423.08
774.09
Source: UNECE Common Database, derived from national, IMF and CIS statistics. Annual averages are unweighted arithmetic averages of monthly values. Change or redenomination of currency is indicated by a vertical bar. Note: Under the central planning system with its state foreign trade monopoly, exchange rates served primarily statistical and accounting purposes (notably the conversion of foreign trade values for statistics expressed in domestic currency), without direct impact on domestic price formation. Market-based exchange rates and a meaningful link to domestic currency values emerged only with the transformations from 1989 onward. The official exchange rates of the earlier period are therefore not suitable for the conversion to dollars of macroeconomic and other data of these countries expressed in domestic currency. These strictures should be kept in mind in the interpretation and use of the data for 1980 shown above. a
Currency unit of the last period shown. For prior periods, see footnotes.
b BAM (convertible marka), the official rate is pegged to the euro. Prior to January 1999, the official rate was pegged to the deutsche mark at a 1:1 rate. c
The leva was redenominated at 1:1,000 from 5 July 1999.
d The kuna replaced the Croat dinar on 3 May 1994 at 1:1,000; the 1994 average is shown in kuna terms. e
The kroon replaced the Soviet rouble in June 1992 with a peg to the deutsche mark (8:1); the average shown for 1992 refers to June-December.
f The lats replaced an earlier Latvian rouble at 1:200 on 18 October 1993; the 1993 average is shown in lats terms. 9 The litas replaced the earlier talonas at 1:100 on 1 June 1993; the 1993 average is shown in litas terms. h
The zloty was redenominated at 1:10,000 from 1 January 1995.
' The dinar was further redenominated on 1 July 1992 (1:10), 1 October 1993 (1:1 million), 1 January 1994(1:1 trillion) and 24 January 1994 (1:13 million). Average annual exchange rates not available for 1993. Estimated market exchange rates for 1998-2000. I
The denar (which had replaced the Yugoslav dinar 1:1 on 26 April 1992) was redenominated 1:100 on 1 May 1993; the 1993 average is shown in terms of that unit.
k
The Belarus rouble was redenominated 1:10 on 10 August 1994; the 1994 average here assumes this applied to the entire year. The Belarus rouble was further redenominated at 1:1,000 since January 2000. Annual averages were calculated from end-of-period monthly rates, and the period average since January 1999. / The lari replaced the lari-kupon on 25 September 1995; the annual average for 1994 is shown in million lari-kupon, and the average for 1995 in lari. m
1980-1991: Soviet rouble/dollar rate used in the conversion of foreign trade data for statistical purposes. The rouble was redenominated at 1:1,000 from 1 January 1998.
" A new currency, the samoni, was put into circulation on 30 October 2000 (1:1,000). 0
The hryvnia replaced the former karbovanets on 2 September 1996 at 1:100,000; the average for 1996 is shown in hryvnia terms.
P The sum replaced the sum-kupon in June 1994 (1:1,000).
126
.Economic Survey of Europe, 2003 No. 2
APPENDIX TABLE B.16 Current account balances of eastern Europe and the CIS, 1990-2002 (Million dollars)
Eastern Europe Albania Bosnia and Herzegovina Bulgaria Croatia3 Czech Republic Estonia Hungary b Latvia Lithuania Poland" Romania Serbia and Montenegro Slovakia Slovenia a The former Yugoslav Republic of Macedonia a CIS0 Armenia Azerbaijan Belarus Georgia Kazakhstan Kyrgyzstan Republic of Moldova Russian Federation " Tajikistan Turkmenistan Ukraine Uzbekistan
1998
2001
1991
1992
1993
-118
-168
-51
19
-1710 -621 -122
-77 -589 1708
123
267
716 -3337
-1359 -1012
-360 329 -456 36 325 191 321 -269 -1564
-1098 637 456 22 -3455 417 -86 -2868 -1 174
-767 518
-786 129
173 926
-532 192
-3304 31 -177 -32 711 -787 -167 -3911 201 -94 677 -428 -400 759 575
-409
-259
-19
-83
-263
-299
-340
-286
-270
-32
-72
-244
-325
-538 -50 488 131 -248 -1900 -61 -152 1 142 -53 926 -526 -236
10266 -67 -160 -435 -354 -641 -88 -155 12792 -208 776 -765 -429
4696 -104 -121 -444 -277 -905 -84 -82 7844 -170 84 -1 163 118
3741 -218 -401 -458 -363 -213 -235 -95 6963 -89 24 -1 152 -21
4934 -291 -931 -516 -570 -751 -425 -192 10847 -75 2 -1 185 -980
-6448 -307 -916 -859 -514 -799 -138 -275 -80 -61 -580 -1 335 -584
-7229 -403 -1 365 -1017 -276 -1236 -364 -335 219 -120 -935 -1296 -103
23459 -307 -600 -194 -200 -236 -184 -68 24616 -36
48305 -278 -168 -338 -269 675 -80 -97 46839 -62
32592 -201 -52 -435 -211 -1 109 -19 -95 33572 -74
31 174 -168 -768 -378 -230 -696 -35 -97 29905 -15
1658 -126
1481 216
1402 -113
3173
853 -10122 -25112 -28 661
-1 637
25737
10696
5542
153
-1300
-6300
2500
-308
447
Total above c Memorandum items: Baltic states Central Europe South-east Europe CIS without Russian Federation c ... Caucasian CIS countries Central Asian CIS countries c Three European CIS countries
1996
1990
1994
1392
469
-41
548 698
353 -6207
-1680 190 -1324 -547
-2526 -581 -590 -1355
-59 -2687 -557 -3148 -502 -957 -1689
1995
1997
1999
2000
2002
-2888 -15056 -18664 -21 432 -25 096 -22 568 -21 896 -25 632 -407 -254 -62 37 -65 -133 -163 -218 -2137 -1 194 -1564 -748 -1 060 -1 161 -1459 -193 -679 -652 -704 -842 164 -61 1046 -198 -1407 -459 -725 -1606 -956 -2512 -1 453 -1397 -1 369 -4121 -3564 -1255 -1462 -2718 -3273 -4415 -801 -247 -294 -563 -158 -339 -478 -398 -676 -2223 -2435 -2900 -1 754 -2655 -1 605 -1 146 -647 -732 -654 -345 -16 -650 -493 -279 -734 -574 -614 -675 -981 -1298 -1 194 -723 -6700 5310 -1 371 -4309 -6841 -1 1 553 -9952 -7166 -1437 -2104 -1774 -2917 -1 355 -2223 -1573 -2571 -528 -1388 -764 -1037 -660 -339 -600 -1279 -1939 -1982 -702 -1746 -1827 -980 511 -1960 375 -118 -548 31 51 -698 56 -75
-788 2772 -4871 -3222 -983 -534 -1705
-2426 -2095 -1462 -1 644 -2182 -1 400 -1890 -8543 -10325 -12418 -17128 -16819 -13908 -15335 -5113 -6449 -6587 -5874 -4287 -6343 -8115 1268 1466 -980 -5913 -6368 -7448 -1 156 -464 -1 167 -2043 -1106 -715 -1791 -1736 -264 1 135 -1389 -2229 -2162 -2757 -1446 2699 872 1396 1 046 -1893 -2469 -2647
Source: National balance of payments statistics; IMF, Balance of Payments Statistics (Washington, D.C.), various issues and Staff Country Reports (www.imf.org); UNECE secretariat estimates. a
Excludes transactions with the republics of the former SFR of Yugoslavia: Croatia (1990-1992), Slovenia (1990-1991) and The former Yugoslav Republic of Macedonia (1990-1992). & Convertible currencies. Hungary until 1995; Poland until 1992. c
Totals include estimates for Turkmenistan and Uzbekistan.
d
1990-1992 exclude transactions with the Baltic and CIS countries.
127
Statistical Appendix,
APPENDIX TABLE B.17
Inflows of foreign direct investmenta in eastern Europe and the CIS, 1990-2002 (Million dollars) 1990 Eastern Europe Albania 6 Bosnia and Herzegovina Bulgaria'' Croatia Czech Republic Estonia Hungary6 Latvia Lithuania Poland 6 Romania Serbia and Montenegro Slovakia Slovenia The former Yugoslav Republic of Macedonia"
CIS" Armenia6 Azerbaijan6 Belarus6 Georgia6 Kazakhstan Kyrgyzstan Republic of Moldova 6 Russian Federation Tajikistan 6 Turkmenistan6 Ukraine Uzbekistan6
4
1991
56
1993
20
68
41
82
40 120 654 162
53 105 117 869 215
1471
2339
29 8
45 30 580 94
16 132 311
10
513
1459
117 40
1994
1992
1 004
284 77
1995
CIS without Russian Federation d .... Caucasian CIS countries Central Asian CIS countries'1 Three European CIS countries
1997
1998
1999
2000
200?
2002
8756
11374
17547
20136
21830
22940
25315
70 90 114
90 109 511
48 505 533
45 67 537 932
41 177 819
143 146
207 125 813
135 293 600 981
2562
1428
1 300
202
151
1 146
4815
214 31 542 341
3718
1467 6324
1002 1089 4986
1561 5641
267
581
305
387
542
2364
2229
2083
2012
1697
2599
180 73
382 152
521 355
357 926
347 486
410 379
164 446
1 132
2768
419
3077 1 215
5130 2031
6474 1041
8293 1 037
6995 1 157
740 220 334
113 684 216
112 390 107
25
165
1925
1579
136
503
1 865
9305
285 858 382 732 4119
18 4
82 65
100 111
195 113
269 117
308 151
263 353 174
-
-
-
-
24
9
11
30
128
33
175
442
80
..
1 777
1876
1770
4064
5313
9035
6780
6720
5400
7001
8528
7
1 60 18 228 10 14
8 22 11 8 635 38 12 690 12 103 159 73
25 330 15 6 964 96 67
18 627 105 40
52
221
1 125
1023
352 243
203 265
122 510 444 82
104 129 119 131
70 227 96 110
1 137
1321
1 152
1472
1 283
2835
2583
47 24
83 79
109 76
44 38
-2 129
5 156
5 111
2065
2579
4865
2761
3309
2714
2469
3009
20 233 267 -24
18 108 521 90
18 108 623 167
25 62 743 140
21
24
9
36
496 121
595 75
792 83
693
14069
20408
24327
26856
27230
29941
33843
1 142 7161 3070 4170 1419 1697 1053
1863 11831 3853 4019 1509 1488 1022
1 139 15307 3690 3410
1 176 17038 3616 2686
1 152 1399 17318 20160 4471 3756 4532 5518
.. 100
.. 25 100
17 1 454
1 211
9 11 170 9
9 79 198 48
Total above " Memorandum items: Baltic states Central Europe South-east Europe
1996
476
2 236
119
238
460
454
685
2 970
3880
2942
8967
7087
323 -
665 61 374 229
1080
1999
2734
38 861 181
361
685
1289
1 400
349
649
984
129 194
715
365
406
1718
1479
978
843
3082 1044
1 106
562 4012
111 1392
247 165
1668
2799 1 051
Source: National balance of payments statistics; IMF, Balance of Payments Statistics (Washington, D.C.), various issues and Staff Country Reports (www.imf.org); UNECE secretariat estimates. Note: Changes in coverage are available in UNECE, Economic Survey of Europe, 2001 No. 1, chap. 5, box 5.3.1. a
Inflows into the reporting country.
* Net of residents' investments abroad. Bulgaria, 1990-1994; Poland, 1990-1992; The former Yugoslav Republic of Macedonia, 1990-1998, Belarus, 1990-1996; Georgia, 1990-1998; Republic of Moldova, 1990-1994. c
Excludes reinvested profits.
d Totals include estimates for Turkmenistan and Uzbekistan.
128
OTHER RECENT PUBLICATIONS OF ECONOMIC ANALYSIS FROM THE UNITED NATIONS ECONOMIC COMMISSION FOR EUROPE •
Economic Survey of Europe, 2003 No. 1, Sales No. E.03.II.E.26 (April) This issue contains the secretariat's review of recent macroeconomic developments in the ECE region and an assessment of the outlook for 2003. Special studies deal, inter alia, with corporate governance in the ECE region; progress in systemic reforms in the CIS; the impact of EU enlargement on non-candidate countries in eastern Europe and the CIS; and international trade of the CIS.
•
Economic Survey of Europe, 2002 No. 2, Sales No. E.02.II.E.8 (December) In addition to an assessment of the macroeconomic situation in the ECE region in the autumn of 2002, this issue contains the papers presented at the Spring Seminar of May 2002 on Labour Market Challenges in the ECE Region. Included are papers by Tito Boeri, Herbert Briicker, Richard Jackman and Alena Nesporova, together with the comments of the discussants and a summary of the general discussion.
•
Economic Survey of Europe, 2002 No. 1, Sales No. E.02.II.E.7 (April) This issue reviews economic developments in 2001 and discusses the outlook for 2002. Special chapters focus on technological activity in the ECE region during the 1990s; alternative policies for approaching EMU accession by central and east European countries; and new forms of household formation in central and eastern Europe: are they related to newly emerging value orientations?
•
Economic Survey of Europe, 2001 No. 2, Sales No. E.01.II.E.26 (December) In addition to an assessment of the macroeconomic situation in the UNECE region in the autumn of 2001, this issue contains the papers presented at the Spring Seminar of May 2001 on Creating a Supportive Environment for Business Enterprise and Economic Growth: Institutional Reform and Governance. Included are papers by William Lazonick, Paul Hare, Shang-Jin Wei, Antoni Kamiriski and Bartlomiej Kamiriski, together with the comments of the discussants and a summary of the general discussion.
•
Economic Survey of Europe, 2001 No. 1, Sales No. E.OO.II.E. 14 (April) This issue contains the secretariat's annual review of developments in 2000 and the outlook for 2001. Special chapters focus on domestic savings in the transition economies, the relationship between foreign direct investment and economic growth and the impact of economic transformation in the transition economies on their exchange rate.
•
Economic Survey of Europe, 2000 No. 2/3, Sales No. E.OO.II.E.28 (December) The papers presented at the Spring Seminar of May 2000 on The Transition Process After Ten Years, are gathered in this issue, together with the comments of discussants and a summary of the general discussion. The papers cover long-run developments (Ivan Berend), macroeconomic policies and achievements (Stanislaw Gomulka), changes in production structures (Michael Landesmann) and the social costs and consequences (Michael Ellman). More details about other publications and activities of the United Nations Economic Commission for Europe, which pay special attention to issues concerning the transition economies, can be found at the secretariat's website: http://www.unece.org *
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