germany, italy, and russia

Germany, Italy, and Russia

Comparative economyMa, Lin & Xu, Hanqing

What will be covered?6 institutional frameworks of

three countries Allocation Mechanism, Forms of Ownership

of Land and Capital , Role of Planning , Types of Incentives , Income Redistribution , Role of Politics

9 criterions economic analyze of three countries

Conclusion & Policy recommendation

Backgrounds of Germany, Italy, & Russia Germany:Area: 357,114 sq. kmPopulation : 82,329,758.Government: Federal republic Italy: Area: 301,225 sq. kmPopulation : 60.3 millionGovernment: Republic since June 2, 1946 Russia: Area: 17 million sq. kmPopulation : 139.4 millionGovernment: Federation

1st Criterion: Allocation Mechanism

Germany: “Social Market” Historical experience to choose “market” after Nazi & EU member. Command: Redistributing gap between wealth and poor people— “social”. West German CapitalistEast German Influenced by Russia of socialism Italy: Pure Market Categorized as a country with high freedom for business, investment and

tradeModerate command economy Agriculturally based economy the world's fifth-largest industrial economy

(after WWII)Russia: Partial Free Market Has being transitioned from command economyCommand + Market : Socialism & CapitalismMany state-owned enterprises that have been privatized

2nd Criterion: Forms of ownership of land and capitalGermany: Resources are owned by private individuals or group of individualsStrong business & investment freedom indexEncourage investment of foreign investorsItaly:Resources are owned by private individuals or group of individualsNorthern part: developed industrial, dominated by private

companiesSouth part: less developed, welfare dependent, and mostly

agriculturalRussia:The freedom of property right of Russia is still too low only 25

(2011 Index)Govn’t has built a lot nontransparent regulations inefficiency

3rd Criterion: Role of planningGermany: Market economy--- avoid central planningThe largest trade country in European Union and in

the top 5 in the world.Italy:Planned market economy government does have

much control over what can be tradedRussia:Transform from state planning to the “market based

economic”Primary production of raw material, government

gradually give hands off the controls of export and import.

4th Criterion: Types of IncentivesGermany:Material: High wage rate of labor. And highly

skilled workers improve production.Social welfare (health care, pensions)Italy:Material: government funded business

assistancesupport the small firm nexusesR & D spendingincrease to encourage

innovationRussia:Material: attach important to tax incentive

5th Criterion: Income RedistributionGermany:Tax system to limit gap between poor and richIndividual’s income tax is progressivehigh income tax rate with the range of income tax

from 15.8% to 47.5% in 2010 Italy: less redistribution and risk sharing through its

welfare and tax system different structuresRussia:comparatively low individual income tax, while

Russia has many state-owned enterprises role of suppliers of welfare services

6th Criterion: Role of politicsGermany:

business and Investment freedom are strong the world’s most powerful and dynamic economy. (support industries)

member in EU’s Common Agricultural Policy subsidizes, and distorts the prices of agriculture

Italy:Economic freedom is low (labor freedom, property rights), but Business, investment, and trade freedom very high which are

77.3/64.3 avg. 75/50.2 avg. 87.6/74.8 avg. Items subject to price controls at the national level include drinking

water, electricity, gas, highway tollsCommon Agriculture PolicyRussia: Only transitioned about half size of former Soviet economy, and has

operated nearly 60 years based on central planning rely on state control.

Evaluating the Economies Based Upon the 9 Criterions

Level of output

2000 2001 2002 2003 2004 2005 2006 2007 2008 20090.00

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

30,000.00

35,000.00

40,000.00

45,000.00

50,000.00

GDP per capital

ItalyGermanyRussia

U.S

. $

Germany & Italy: growth slowed down in terms of the risk of recession in 2008.

Russia: economy of Russia has not been as seriously affected by the global financial crisis

GDP growth

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-10.00

-5.00

0.00

5.00

10.00

15.00

GDP per capital growth

ItalyGermanyRussia

Annu

al g

row

th (

%)

Russia: significant annual growth from 2000 to 2007

Germany & Italy: the annual GDP growth of Italy was higher than Germany from 2000 to 2002. After that, the annual GDP growth of Germany was higher than Italy.

All of them reached negative in 2009

Composition of Output

Country

(percentage)

Agriculture

(1999-2008)

Military

(1999-2008)

Health

(1997-2006)

Imports

(1999-2008)

Exports

(1999-2008)

Italy 2.449095 1.919059 8.27 26.10095 26.57778

Germany 1.05793 1.396353 10.45 34.68825 38.80025

Russia 5.713896 3.796362 5.82 23.10177 35.89977

Degree of Static Efficiency

1999 2000 2001 2002 2003 2004 2005 2006 2007 20085.00

6.00

7.00

8.00

9.00

10.00

11.00

12.00

13.00

14.00

Unemploymenat Rate (%)

ItalyGermanyRussia

Italy & Russia: the unemployment rate were declining from 1999 to 2007.

Germany: the unemployment rates was fickle during these ten years.

Degree of Static Efficiency

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201140

45

50

55

60

65

70

75

Economic Freedom Index (100=Free)

ItalyGermanyRussia

CurrentlyItaly: 60.3Germany: 71.8Russia: 50.5

Degree of Dynamic Efficiency

GDP growth-all three countries have similar GDP growthUnemployment-Italy and Russia have had the lowest

unemployment rates - Germany has fickle unemployment ratesWastefulness in economy-Germany: strong Deutsche Mark before-Italy: high costs of the welfare system,

widespread corruption -Russia: lack of industry associations, powerful

lobby and certification authorities

Ranking (highest to least)-Germany-Italy-Russia

Macroeconomic Stability

GDP per capita-From 2000 to 2008, Germany had

the highest GDP per capital and highest GDP per capital growth.

-Russia had a bad performance over time

Unemployment-Germany had the weakest

stability because of the volatile unemployment rate

inflation rate-Russia had an extremely unstable

inflation rate, especially in 1999, which reached 72.39%.

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

-10

0

10

20

30

40

50

60

70

80

Inflation Rate (GDP deflator)

ItalyGermanyRussia

exchange rate volatility-Ruble has been relatively stable

against the dollar.Country

(against

dollars)

2004 2005 2006 2007 2008 2009 2010 2011

Italy

(Euro)

1.26 1.35 1.20 1.32 1.46 1.39 1.44 1.33

Germany

(Euro)

1.26 1.35 1.20 1.32 1.46 1.39 1.44 1.33

Russia

(Ruble)

0.033 0.033 0.033 0.034 0.034 0.034 0.033 0.033

labor force participation rate-Italy had the lowest labor force

participation rate which was around 48%.

2000 2001 2002 2003 2004 2005 2006 2007 200840.00

45.00

50.00

55.00

60.00

65.00

LFPR (% of pop. ages 15+)

ItalyGermanyRussia

Rankings (highest to least)-Germany-Russia-Italy

Economic Security of the Individual

Income per person

2000 2001 2002 2003 2004 2005 2006 2007 2008 20090

5000

10000

15000

20000

25000

30000

35000

Income per person (GDP/per capita, inflation adjusted)

ItalyGermanyRussia

U.S

.$

income growth per person

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

-4

-2

0

2

4

6

8

10

12

Income growth per person

ItalyGermanyRussia

Perc

enta

ge C

hang

e

life expectancy in years

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 200960

65

70

75

80

85

Life Expectancy in years

ItalyGermanyRussia

infant mortality rate

1999 2000 2001 2002 2003 2004 2005 2006 2007 20080.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

Infant Mortality Rate (deaths per 1,000 live births)

RussiaGermanyItaly

Ranks (highest to least)-Italy-Germany-Russia

Degree of Income or Wealth Equality

Gini coefficients-Germany: 28.3-Italy: 36-Russia: 43.7Rankings (highest to least)-Germany-Italy-Russia

Degree of Economic Freedom

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201140

45

50

55

60

65

70

75

Economic Freedom Index (100=Free)

ItalyGermanyRussia

Germany: gradual increase in economic freedom.

Russia: lowest in the three countries. (corruption and limited respect for property rights hinder the development of economic activity that is free from government control or influence.)

Ranking (highest to least)-Germany-Italy-Russia

Conclusion & Policy recommendation

Germany-GDP, income level, economic

freedom are the best in the three countries.

But,-unemployment is higher than

other two countries.

Suggestions-resist the minimum wages-keep the past policies, and combine

with the current fiscal policies to a stable growth in GDP.

Russia-growth of GDP is the highest in the

three countries

But, -economic freedom is low-depend heavily on the revenue of

these natural resources

Suggestions-increase the transparency (state

owned enterprises share the most parts in market, so the regulations are important and necessry)

-improve the industries (beyond the natural resources)

Italy-relatively common

But, -labor market is the worst-unemployment rate is high

Suggestions-make rules to hire more employees-regulation -tax cuts to low the labor costs

Thanks!