Example Of Term Paper On Macroeconomic Variable Over Minimum Of 25 Years Dating Up To 2014
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The Effects of the Economic Crises and Recessions on Russia’s GDP Growth Rate since the Past 25 Years
Introduction on Macroeconomic Indicators
There are many factors that an economist, analyst, or even business strategists can use to describe the relative health or status of a country’s economy. Some of the most commonly used economic indicators in assessing the current economic situation in a country include but may not be limited to the annual GDP growth rate (i.e. real, nominal, or on a per capita basis), the unemployment rate, the volatility indexes in the financial and commodities market, the debt to GDP ratio, and the outstanding monetary and fiscal policies in the national and international markets.
In general, these factors can be divided into two categories: macroeconomic and microeconomic indicators. Microeconomic factors pertain to statistics, ratios, and other nominal values that encompass a specific group, population, or individual only. It may also pertain to the study of the different decisions—that are most likely related to the field of business and economics that people and business managers make with regards to the allocation of resources towards the production of certain goods and or services, or basically any part of their core business process that needs direction. Microeconomics may also deal with the way how organizations pay for tax and earnings-related issues.
Macroeconomics, on the other hand, is almost similar to microeconomics only that it encompasses a larger group of people or organizations. It may pertain to statistics, ratios, and values that may be applicable to an entire country’s economy. It is the field of economics that aims to describe the state and at some point, the trend and general behavior of the economy, and not just of specific individuals, group of people, or companies. Values used in the field of microeconomics may be applicable to an entire industry, or even the entire economy. Examples of indicators or values that are often used specifically in the area of microeconomics include the GDP (Gross Domestic Product) growth rate, the GNP growth rate (Gross National Product), and the annual changes in the economy’s unemployment rate.
In countries like the U.S. the number of people that are filing for jobless claims have also been observed to be a commonly used macroeconomic indicator used in gauging the real unemployment rates in the country, after finding out that the traditional method of assessing current unemployment rates often create false findings because of the complexities that are unique only to the economy of the United States. It is important to note that while these two studies in the field of economics may appear to be about different aspects of analyzing the overall economy, they are, in reality, just interdependent and may in fact be used by analysts in a complementing manner because of the existing overlapping issues between them. One example would be the macroeconomic effect of higher inflation rates on the prices of raw materials (which is already within the jurisdiction of microeconomics).
The objective of this paper is to discuss the effects of the economic crises and recessions on Russia’s GDP since the past 25 years. In this paper, only the economic crises and recessions that have been globally relevant will be discussed such as the crash of the financial and lending markets in 1989, the Russian economic recession during the mid to late 1990s, particularly a few years after the collapse of the Soviet Union, the Asian Financial Crisis itself, and the global financial crisis or meltdown that happened in 2008. The objective is to examine the correlations between the country’s GDP and the significant global economic events that may have triggered it. Basically, the hypothesis is that Russia’s economy, or at least its microeconomic indicators, particularly its annual GDP growth rates, are heavily dependent on existing global events and the constraints that are created by such events.
The research question being attempted to be solved here is the effect of the economic crises and recessions that Russia has faced on its GDP since the past 25 years at least. In that case, the independent variable would be the economic crises and recessions would serve as the independent variable because they are the ones that the researchers hypothesize to have a direct effect on the changes in the country’s annual GDP growth rate, be it positive or negative.
That makes the Russian annual GDP growth rate for the past 25 years the dependent variable because based on the theoretical framework created by the formation of the research question, Russia’s annual GDP growth rate is, at least hypothetically at this point, dependent on the global economic events such as the economic recessions and crises that happened in the past 25 years. 25 years would also be the time frame that will be used in looking for the economic crises and recessions that may have caused the disturbances and volatility in Russia’s annual GDP growth rates.
Interpretation and Analysis
Information on Russia’s annual GDP growth rate from the year 1989 to the year 2014 will be obtained from the World Bank’s website, which is one of the most credible sources of macroeconomic indicators not only for Russia but for other countries as well. GDP growth, according to the World Bank is the “aggregate measure of production equal to the sum of the gross values added of all resident and institutional units that are engaged in any form of production activities plus any taxes, minutes any subsidies on the products not included in the qualified list of outputs” . This basically means that GDP is the total value of the outputs that are produced by an entire country. From a smaller perspective, this is basically the total value of products that a factory has produced, within the setting of the manufacturing industry.
The table above shows the GDP values computed for the Russian Federation for the past 25 years. Data for the year 2014 was not yet available from World Bank’s books because we assume that they are not yet finished finalizing the figures considering that this paper was written at the spring of the year 2015. Computation of macroeconomic indicators requires a tremendous amount of time, especially for a macroeconomic indicator that is as large scale as the country’s gross domestic product. Nonetheless, all the accurate GDP values from the year 1989 up to 2013 were provided.
A graph was also drawn in order for the readers to have a clearer and bigger picture of what is happening to the Russian Federation’s economy, particularly in terms of the movements of its GDP. This was also done in order to establish a trend and determine whether the country’s economy is facing an uptrend, a downtrend, or merely a stage of consolidation. Based on the movement of the line in the line graph, it can be said that Russia’s economy, at least for the past 25 years, has been on a stage of consolidation. If the perception that it is indeed on a 25-year range of economic consolidation, then it can be said that it is on a slight uptrend or that it is somewhere between the classification of a clear uptrend and an economic consolidation.
What makes it hard to establish a clear economic trend using the GDP as the primary economic indicator in Russia’s case is the fact that it has suffered tremendous economic losses during the cold war, during the Latin American debt crisis, the bank stock crisis of 1983, the United States Savings and Loan crisis that covered the span of three years from 1989 to 1991, the collapse of the Japanese asset price bubble in 1990, the European banking crisis (particularly Sweden and Finland), the Asian Financial Crisis of 1997 and the Russian Financial Crisis of 1998; and beginning the 21st century, the bursting of the dot com bubble in 2001, and the global financial crisis that happened in 2007 to 2008. It is important to note that these global economic events are the not only ones that happened or existed during that period. Not all economic and or financial crises were included because only those that may potentially have direct consequences on the dependent variable were selected.
Notice that from the year 1989 to 1998, there has only been a single year where the Russian Federation’s GDP turned positive and that was on 1997 when the country’s GDP grew to a tiny amount of 1.4% for that entire fiscal year. All the years that passed from 1989 to 1998 were negative, at least from a GDP-centered perspective. The question now would be what caused or triggered those negative annual GDP growth rates, especially for a resource-rich country such as Russia.
There can be many reasons behind this. First, it may be caused by the fact that the late 20th century was also the time when the Soviet Union (the country that is believed to be Russia’s predecessor at least before it officially collapsed) and the United States were engaged in a cold war, one of the costliest and longest wars in history as it involved a lot of proxy wars being fought by and in foreign territories. During that time, both the United States and Russia spent a lot of resources just so they would not lose the war because losing that war meant giving up on the very ideologies about democracy (United States) and communism (the Soviet Union or the Russian Federation), that they were trying to fight for. Because the Russian government has been too much focused on spending its resources on wartime efforts and in engaging in a military showdown with countries in the west, it has effectively taken its economic policies for granted, as evidenced by the clear downtrend on the country’s GDP growth from 1989 even up to the late 1990s.
This is, in fact, a common problem in managing a country’s economy. A mistake that has led to the development of a crisis would often create damaging effects, so damaging that it may take several years for the country to be able to fully recover . This is exactly what happened to the Russian economy in the aforementioned period. However, things with regards to the management of its economy even got more complicated when a stream of economic corrections swathed across the West during the early 1990s that even existed until the end of the 20th century. That was a time when the world was starting to shift from an individualized approach in managing an economy towards a more globalized and interconnected one. In a globalized world economy, everything gets so interconnected that an economic problem in one part of the world would tend to create a ripple effect that would also lead to the creation of an almost the same extent of damage to other countries that are considered a part of the chain .
The following economic recessions in the west that followed further contributed to the development of a recession in Russia. The Russian Federation experienced the largest drop in GDP growth rate in 1992. That year, the Russian economy is believed to have contracted by a staggering 14.5%, putting it between the boundaries of a recession and a depression.
However, if the year on year charts of the Russian federation would be viewed from 1989 up to the end of the 20th century, one would definitely see one of the major characteristics of a major depression. Some of the global economic events that the authors of this paper believe to have greatly contributed to that outcome in the Russian economy were the United States Savings and Loan crisis that covered the span of three years from 1989 to 1991, the collapse of the Japanese asset price bubble in 1990, the European banking crisis (particularly Sweden and Finland), the Asian Financial Crisis of 1997 and the Russian Financial Crisis of 1998; and beginning the 21st century, the bursting of the dot com bubble in 2001—although this last one was still on the developing stages.
There are many economic theories that can support the fact that GDP growth rate can be a reliable indicator of real economic growth. The classical growth theory would perhaps be the linear choice because it argues that economic growth leads to a temporary increase in real GDP on a per capita basis. However, what is not mentioned by proponents of the classical growth theory is that boosts in GDP, especially over the long term, can lead to explosion in population, which would make the resources of an economy scarce, consequently leading to a long term decrease in population until equilibrium levels in the economy are once again reached.
This rather describes a cycle which most people do not actually see because it happens very slowly like in a vicious cycle. Another relevant economic theory that may aid in explaining the effects of the different economic crises in the world economy since the past 25 years and its effects on the Russian economy would be the Keynesian Theory of economics. Basically, it suggests that the equilibrium in a country’s GDP is dependent on income and expenditure levels, noting that higher levels of expenditure would most likely fuel a higher level of GDP growth as well .
During times of economic crisis or recessions, people and businesses are reluctant to spend; what these entities do is store their resources in a safe have, such as banks, or if they do not trust banks enough for fears of illiquidity and bank bankruptcies, they resort to keeping their money themselves. As a result, consumer spending, one of the key drivers of corporate earnings decreases significantly. This leads to lower earnings for corporations. These corporations would then be forced to cut jobs and cap their expenditures for future expansion plans, leading to a net decrease in economic spending. That net decrease in economic spending, according to the Keynesian theory of economics is what is going to cause the low aggregate GDP growth rates.
It can be argued that this is what happened to the Russian economy since 1990 to the mid-2000 specifically up to the time of the great financial crisis. The economy, crippled with war, and left with a lot of problems that it inherited from the collapse of the Soviet Union, was further bombarded with economic problems brought about by the steady stream of economic crisis and recessions overseas. If liquidity in the global economy would be reduced, then it only makes sense for the Russian economy to suffer from low levels of liquidity as well because after all, everything gets interconnected in a highly globalized world.
Conclusions and Recommendations
In summary, based on the individual year on year information about the Russian Federation’s GDP, the short term, medium, and twenty five year trends that it set, and the record of significant global economic crises and recessions that happened in the past 25 years, there indeed appears to be a strong correlation between the independent and dependent variables. Whenever there was a crisis, especially between 1989 and the first two years of the 21st century, there was a significant increase in the country’s GDP growth rate, the biggest of which was in 1992 with a drop of 14%.
However, at times of relative economic stability, it would still be possible for the GDP growth rate to be negative (i.e. signaling an economic contraction) because most of the effects of a recession or economic crisis are long term. In the case of the Russian Federation, for example, it took the country years to finally be able to solve the economic woes that the collapsed Soviet Union left them and make the necessary adjustments so that they can shift from a centrally planned economy into one that is more based, although not entirely unlike the western country, on capitalism. It was after the government accomplished these things that the country’s GDP growth rate went into positive territory for the first time in over a decade. However, the positive streak of GDP growth was not maintained because of newly developed economic crises. Nonetheless, it has been well established that there is indeed a correlation between the country’s GDP growth rate and the presence of economic crisis in other countries or regions.
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