It is a commonly accepted view that corruption is bad for economic growth. It leads to an inefficient allocation of resources by contradicting the rules of fair competition and by setting wrong incentives. Patronage and bribery are two components that define the notion of corruption and which cause the inefficiencies associated with it. Patronage often leads to the unfair delegation of the power of decision making to economic agents who do not posess the relevant skills to make good decisions. In the absence of patronage, ceteris paribus, the power of de...
ISET Economist Blog
A blog about economics in the South Caucasus.
Feb
15
Feb
13
The Consumer Confidence Index (CCI) attempts to capture the expectations of consumers about the future development of the economy. According to economic theory, optimistic consumers are willing to spend more money and reduce their savings, while pessimistic consumers do the opposite. This is consistent with the intuition that consumption activity and saving behavior are driven by the expectations of the future. Beyond that, the CCI can be a powerful indicator of the well-being of the economy.
WHY?
If indeed the consumption behavior is driven b...
Jan
25
Georgia is among a few countries in the world that does not have a deposit insurance system in place. Does the country need to have such a system? Or is deposit insurance likely to do more harm then good? The answer is not as clear-cut as it may seem.
Deposit insurance is a relatively new phenomenon in international banking. For example, in 1974 only 12 countries had explicit deposit insurance schemes, while in 2003 the number already rose to 87. United States was one of the first countries in the world to establish such as scheme. The Federal Deposit In...
Jan
18
Is inequality bad for economic development? There has been a lively debate on this issue. Some economists argue that inequality is necessary for economic growth, while others are against it. Relatively recent empirical studies have found that in countries with relatively low per capita income inequality hampers growth. One of the main ways in which high inequality negatively affects economic growth is social turmoil. Social discontent is translated into socio-political instability, raising political and economic uncertainty in a country, which in turn im...
Jan
17
Wages and productivity levels differ across countries. For instance, in 2011 the average yearly income in the US was about $53 000, whilst the same indicator was $250 in Madagascar. Clearly then, Madagascar has a competitive advantage in labor cost over the US. But the issue is not so simple because workers in the US operate in a completely different environment (with better capital facilities, more educated colleagues, higher level of technologies, etc.) that determine a much higher productivity level. Higher wages can positively affect productivi...
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