Posts Tagged ‘Economics#8217;


Brazil 2014 is about much more than football

Written on April 17, 2014 by Dirk Hopfl in Academics

IE Focus | By Antonio Montes, Director of International Development, IE University

This year Brazil is facing a much greater challenge than having to organize the World Cup. It also has to lay the foundations that will enable it to really become the world’s fifth greatest economic power.

It would appear that all the analysts, both Brazilian and foreigners, agree that 2014 will be a crucial year for Brazil, and not just because it will be hosting the world cup.

The country is in a particularly delicate situation, due to several factors. First we have the revaluation of the American dollar, which has worsened Brazil’s already deficient trade balance, and which has also made it more difficult to control inflation. Second, there is the fact that Europe is beginning to emerge from the crisis as a result of significant sacrifices which comprise more than just downsizing, and include reforms that have made Europe-based industry much more competitive, highlighting much that is lacking in Brazil’s industrial sector. Thirdly, the country is facing problems that are intrinsic to its economy and Brazilian policies of recent years.

Brazil has changed drastically over the course of the last decade, to become the world’s 7th power thanks to the high rate of growth of its GDP. Brazil currently has a newly created middle class that makes up around 55% of the population, some 10 million people who consume and demand goods that they hitherto could not afford. All this has had an equally significant impact on inflation, although it still stands at the reasonable rate of approximately 5%. However, neither industry nor infrastructures have grown to the kind of levels needed to meet the growing demands of new consumers.

This is one of the greatest challenges that Brazil’s new government will have to face after the upcoming elections in October. Although she has not yet confirmed that she will be up for re-election, President Dilma Roussef, seems to be the favorite, and there is even speculation that from the first round she would have enough support to govern without having to go on to a second round.

The president has had her ups and downs, particularly during the popular protests last June, partly caused by the feeling that public money was being wasted on useless infrastructures for the world cup when there were many other things lacking that should have been attended to. Nevertheless, she made an excellent comeback, and now enjoys the support of 56% of the electorate, having responded to popular demand with specific measures, such as the hiring of 6,700 foreign doctors to improve the healthcare system, concessions to address some of Brazil’s urban transport problems, and, particularly, a recognition that things were not working well. Also, although it may seem incredible, the result achieved by Brazil’s national football team in the world championship will also play a decisive role in the electoral result.

When all is said and done, it is clear the policies adopted to date, which yielded results in the early years of her mandate, is not what is needed to meet the country’s future needs. A far more firm and decisive commitment is needed to support the private sector in such a way that it will make it possible to carry our infrastructure projects, which are so badly needed for the country’s development, and to which the treasury allocated 18% of GDP, which is not sufficient by any means (India, another member of the BRIC club, allocated 36% of its GDP to infrastructure). Brazil needs new highways, airports, ports, high-speed train networks, etc. It is way behind, and unless it able to attract major investment in the form of private capital, it will be impossible to carry out work that is not only needed, but was also promised.

Moreover, the new government will have to promote the necessary means to develop Brazilian industry and make it more competitive. Not only are labor costs very high in Brazil in comparison with other countries, but it will also have to make a major effort in terms of training if it is to have enough skilled labor, which is something else that is greatly lacking in the country.

Finally, Brazil needs to regain credibility in fiscal terms. The market sees this government has followed an expansionist policy, without limits or goals, often scaring entrepreneurs, and making them look to other, less demanding markets. Predictions of a drop in the quality of its debt currently abound in Brazil.

This year will have to be a year of cutbacks, internationalization, solution of structural problems, in order to attract and retain capital, slow down inflation, and help lower tax rates while consolidating a modern and dynamic economy with constant growth. It is the only way to reposition Brail definitively as one of the world’s great countries , and meet its aim of becoming the world’s 5th largest economy.

Via@IEBusiness, EL PAÍS


Economics Journalism in Asia: IE Competition

Written on May 17, 2013 by Dirk Hopfl in IE News

IE Business School has announced the fifteen finalists of the first edition of its Prize for Economic Journalism in Asia. Entries for the competition comprised 130 articles, reports, interviews and other media formats from more than 60 media organizations in the region. The competition is sponsored by CAF- Development Bank of Latin America.

The entries that have made it through to the finals of this first edition of the competition were published by media from China, the Philippines, Thailand, India, Pakistan and Singapore, where the business press is continuously exploring issues related not only to the global economy, but also the economies of Spain and Latin America. The overriding aim of the competition is to increase the flow of economic information between Asia and the Latin America region in order to forge closer economic links and interests.

Prize giving ceremony – June 20, Casa de América
The judges’ panel that will select the winning entries is comprised mainly of journalists from América Economía, El País, CNN Expansión and International Herald Tribune, along with business experts from IE Business School and CAF – Development bank of Latin America. Further members of the panel include organizations like International Enterprise Singapore, other companies operating in the region like Brightstar and Finnair, and Saudi Arabia’s Effat University.

The prize giving ceremony will take place on June 20 at the Casa de América building in Madrid. The event will also include the presentation of the prizes for the second edition of the IE Business School Prize for Economic Journalism in Latin America.


  1. Tehelka (India) “Our BRIC mindset will ruin us”   Karan Mehrishi
  2. Dawn (Pakistan) “Democratisation of capital” Aftshan Subohi
  3. Forbes (India) “Bric countries hit a wall” Shisihr Prasad, Dinesh Narayanan and Pravin Palande
  4. The Straits Times (Singapore)  “Latin America beckons for Singapore firms” Himaya Quasem
  5. Business World (Philippines)  “Philippines told to invest” Diane Claire J. Jiao
  6. SME Times (India) “Export diversification: where we are lacking”  Bikky Khosla
  7. SME Times (India) “High taxes for the “super-rich” a poor idea”  Bikky Khosla
  8. China Daily (China) “Deeper sino-latin American trade cooperation urged” Li Jiabao
  9. The Strait times  (Singapore) “Singaporeans wanted in Latin America” Melissa Tan
  10. Berita Harian  (Singapore) “More executives to be trained for the Latin American market” Oleh Norhaiza
  11. Business Times (Singapore) “Manpower push for firms expanding in Latin America”   Malminderjit Singh
  12. Live Mint (India) “India needs a restart”  V. Anantha Nageswaran
  13. Strait Times (Singapore)  “Mexico means opportunity, says President Calderon” Himaya Quasem
  14. The Economic Times (India) “Corporate chiefs on how they survived their greatest crisis”  Dibeyendu Ganguly
  15. Bangkok Post. (Thailand) “Good soil or good fertilizer? Nanchanok Wongsamuth



World economy: 3 risks that hardly anyone talks about

Written on August 20, 2012 by Dirk Hopfl in IE News

IE Focus | By Ignacio de la Torre, Professor at IE Business School

The threat of a new recession in the US, the drop in the price of raw materials, and decisions taken by the ECB, might just bring about a turnaround in the world economy.

The traveler Javier Reverte once commented how when he set out on a trip to places he did not know he made a mental provision for scams, so that when a taxi driver overcharged him he didn’t get angry, given that he had already factored the “surcharge” into his provision. Now that we are over the hurdle of the recent European summit, in which for the first time political leaders adopted that old market practice of affording a false sense of happiness by means of pre-martyrdom (i.e. by lowering expectations and then subsequently announcing measures that are not quite that bad), it’s time to shed some light on other sources of basic risk for the world economy, so that we can set up our own mental provisions.  Given that I have always criticized market players for only seeing black swans in the economy, in spite of the fact that the majority of swans are white, I am going to talk about three risks – one negative, one ambivalent, and one positive, because they are the type of risks that will allow us to think that things are not really quite so bad if they do actually happen. Read more…


A reflection on international labor markets

Written on August 15, 2012 by Dirk Hopfl in IE News

IE Focus | By Gayle Allard, Professor at IE Business School

We keep hearing about “flexible” and “rigid” labor markets, but what do these terms mean exactly? Does any one model work better than others?

We are hearing a great deal lately about “flexible” and “rigid” labor markets. What exactly does this mean? Is there any particular labor market model that works better than the rest?

Generally speaking a rigid labor market is one in which it is difficult to hire and/or fire workers, because such changes are subject to strict regulations and tend to be extremely expensive exercises. In Spain, up until the labor reform implemented earlier this year, it could take four years for a company to fire a worker who had worked there for many years. These norms seemed to put companies off hiring in general and created a “dual market” where some people were permanent and enjoyed too much protection, while the rest were in a far more precarious position, as well as earning considerably less.  A situation like this tends to reduce a country’s rate of productivity, given that permanent workers have no incentives to be more productive, and temporary employees are unable to produce more because the firm is not willing to invest in training them. Read more…


What if … Spain leaves the Euro!

Written on August 6, 2012 by Dirk Hopfl in IE News

IE Focus | By Patricia Gabaldón, Professor at IE Business School

The hypothetical decision to bring back the peseta would not address the real problems currently dragging Spain down, namely its level of competitiveness. All it would do is put off the inevitable, and meantime we have a lot to lose.

As with any kind of decision we have to make in our lives, before embarking on a definitive path we have to consider the pros and cons of the different options and compare the costs and benefits of an alternative economic environment. The option of leaving the euro and returning to our respective currencies, which seemed all but impossible just a few months ago, is now quite feasible. Many alternatives have been broached in economic circles, but let’s take another look at what the single currency actually gives us, and what it would mean for Spain if it were to leave the monetary union.

The main advantage of forming part of a monetary union is the resulting free trade among member countries. The simple idea of sharing the same currency reduces the level of uncertainty surrounding transactions by removing transaction costs for traders. The fundamental premise of the free movement of goods, services, people and capital (although in reality it has not proved quite as efficient as it looked on paper) plays a key role in economic growth driven by trade. The idea of unemployment offset by the need for workers in another part of the EU is difficult to implement but not impossible, and provides an enormous advantage for EU citizens as well as member countries.

The second big advantage of belonging to the Union is clearly the monetary stability it has provided over the last twenty years, because we should not forget that during this time we have enjoyed particularly low rates of interest and inflation under the management of the European Central Bank, which would have been very difficult to achieve with any other travel companions. This has had some very positive effects on Spain, particularly the rise in business investment and the entry of foreign capital investment. Moreover, the principle of EU solidarity has meant that the transfer of funds – structural, social, agricultural, etc., has strengthened social and economic structures and raised Spaniards’ standard of living. All this plus the growth of the Spanish economy on a global scale. Since Spain joined the EEC in 1986, its economy has been modernized and the number of workers and businesses have increased, along with living standards. The downside is that along the way we have lost control of our monetary policy along with the ability to use the exchange rate as a economic policy tool, and our fiscal policies have been subject to spending limits, which may have hindered our growth rate in the years leading up to the crisis.

The return to the peseta would afford greater flexibility to implement competitive devaluations that would adjust currency values to the real situation of our economy. Devaluation would make us more competitive vis-a-vis other countries, placing us in a more advantageous position to effect a probable increase in productivity and bring down unemployment levels. Nevertheless, having our own currency would almost certainly have a negative effect on Spanish trade, given that it would impose the uncertainty of exchange rate fluctuations on cross-border transactions, coupled with a return of all the costs associated with trading in a different currency. If we take this same line of analysis further, we can also see that an increase in country risk would probably result in higher rates of interest, which would have a negative effect both on investors and anyone who has debts that are subject to variable rates of interest. And the fact that Spain would no longer be subject to the strict inflation controls imposed by the ECB would mean that possible external pressures on the currency would more than likely increase the rate of inflation. All this without taking into account a possible flight of capital out of Spain resulting from a lack of confidence in the new currency, or in the process that led to it.

And yet even if this currency control were effective and efficient, it would merely mask the solution to the real problem. The possibility of competitive devaluation is interesting in such an uncertain environment and amid sporadic attacks on the currency of a country, but in our case rather than solving the very real problems of competitiveness, it would simply defer them. The euro has given us much and has brought about deep-rooted change in Spain, but there are still many flanks that need attacking, and although this may not be the environment in which to do it, we cannot just close our eyes and pretend that the problems do not exist. The solution, as has been stated repeatedly in recent times, is more Europe not less. It’s time to look toward the objective, not go back to square one.


IE Webinar – After the crisis: the world at a crossroads

Written on July 25, 2012 by Dirk Hopfl in IE News

We are very happy to invite you to this IE Webinar where IE Economics professor Gayle Allard who will be discussing the world economics after the crisis. During this Webinar you will be able to have a real class experience while you are in your office, at home or at the coffee shop next door.

Date: July 27, 2012
Time: 15.00 Singapore time (GMT+8)
Registration: IE Event Page

About the Webinar
The financial crisis and long-term demographic trends have transformed the future of the developed world. In the short term, petroleum price trends, a definitive solution to the eurozone crisis and the outcome of the U.S. elections will determine the economic performance of the world´s leading economies. But over the longer term, events in the developing nations, especially the resolution of their institutional issues and the pace of globalization, will be decisive for the future of the developed world. What are the prospects for the United States and the eurozone over the next few years, and what new opportunities will their future open up for the rest of the world, particularly for Asia?

About the Speaker

Gayle Allard

Gayle Allard is a native of California who has lived and worked in Spain for more than 20 years. She is a professor of Economic Environment and Country Analysis at the IE Business School in Madrid and has also served as Vice-Chancellor for Research for IE University. She worked previously for JP Morgan, as research economist for Spain and Europe, and for The Economist Intelligence Unit, as a research economist and author of special reports on Spain. Gayle has a PhD in Economics from the University of California, Davis, where her dissertation explored how labor-market institutions and policies have generated unemployment in Europe since World War II. Her most recent research continues to focus on labor market institutions, the welfare state and proposals for reform, most particularly in the Spanish case.



Supply and Demand on the go – for techie economists!

Written on June 25, 2012 by Dirk Hopfl in IE News

The IE Multimedia Content Development team (Learning Innovation) has launched an iPhone App for understanding and applying the Supply and Demand Model (Economics).Click here to see the app.

If you are interested in downloading the app it is available on iTunes:

The purpose of this interactive app is to help students to understand the effects of changes in the variables of supply and demand in a microeconomic market, assuming perfect competition. The app is made for iPhone (iOS 5.0 or later).

With this app students can interact with both curves and see the equilibrium process in terms of price and quantity exchanged. The program assumes that students are familiar with the underlying concepts of a graph that shows a market in a state of perfect competition.

There are also simple exercises that enable students to test their understanding of how the market works and check their answers by interacting with the graph and receiving feedback.


IE Ideas || 2012, a year of decisions

Written on June 8, 2012 by Dirk Hopfl in IE News

The world economy will not recover this year. All qualified observers forecast lower growth, unusually high unemployment levels and continued financial tension. The fearsome “double-dip” recession is a reality. But there is no reason for chronic pessimism.

A new reality characterised by the movement of economic activity -production, consumerism, investment and employment- from the North Atlantic to other areas of the world, especially but not exclusively Asia. But also because we have abandoned the world of cheap money and credit abundance and will be away from it for some time. A structural change that gives rise to an understandable feeling of malaise in developed countries, whose populations refuse to accept that the future will not necessarily always be rosier, that they will have to give up some of what they considered as inalienable rights and reform their welfare states to make them sustainable. Simply because we are witnessing the end of the exceptional condition of the West. Emerging countries now produce more than 50% of the world GDP, but they consume only 30%… a proportion that can only rise and which will undoubtedly improve the standard of living of humanity. However, it is a process that needs to be handled intelligently.

We are facing a historic opportunity that is not exempt from risk. Imperial transitions and changes in the relative power of the different states have always been solved by war. This time, it can and must be different. The price system, macroeconomic coordination, financial globalisation and international institutions are poised to ensure a peaceful transition, which does not mean that there will be no cost or tension. The world managed to avoid protectionism after the dramatic events that followed the burst of the financial bubble in the United States. The commercial world maintained its strength, and general policies for making your neighbour poorer were avoided. Regardless of how virulent its death throes may seem in Europe owing to the fact that it coincides with the questions being asked of the monetary union, it would be a paradox now that we are at the end of the crisis if we were to forget the lessons taught by history. Read more…


By Fernando Fernandez, professor at IE Business School

Forget about short cuts and soft measures: Europe’s problem is that it has lost the market’s confidence, and in order to get it back it will have to take some hard measures.It’s a well worn phrase which is why I have permitted myself a certain amount of poetic license, because it seems to go perfectly with the confusion that is rife among markets and analysts following recent events. The feeling of insecurity is such that we are desperately seeking a lifeline to cling to. Someone is always up for the job of throwing said lifeline and public opinion seems to have honed in on two specific groups: governments comprised of technocrats and the European Central Bank (ECB). The former are expected to bring the required level of sanity and the ECB is supposed to start buying up debt with no thought for expenses. But once again it’s the wrong diagnosis.

The European Commission, according to its vice president Olli Rehn, has decided that the key lies in restoring confidence in fiscal sustainability and the financial system, and in speeding up reforms that stimulate growth potential. Hence we have to change our tune or we have to take notice of the Commission, but either way we should not be looking for short cuts.

The European problem is a simple one. Investors have lost confidence in the Euro, not just in Italy. Let’s not confuse the symptoms of this particular illness. They have done it for a series of institutional reasons – the well-known design faults of the Monetary Union – and mistakes made in the way the crisis has been managed. In my opinion they include two particularly big mistakes. The first was to declare that European sovereign debt is restructurable – albeit only Greek debt, but who on earth believes that at this stage – without having the necessary financial resources or legal instruments to effect an immediate exchange, and the second was to punish banks for their sovereign debt holdings without having the necessary resources to fill the hole created. Both decisions have had consequences that were impossible to recover from in the short-term: they have made sovereign debt a credit asset, a financial instrument that competes with emerging debt, and have eroded the credibility of the European banking system, which has been forced to divest its sovereign debt.  Read more…


Take your seat… Why the Euro is here to stay!

Written on December 13, 2011 by Dirk Hopfl in IE News

By Rolf Strom-Olsen, Director of Studies and Professor at IE University

Articles and media reports predicting the imminent demise of the Euro have become so commonplace over the last months that I suspect the next release of Microsoft Word will include it as a new document template: blank page, letter, CV, “Euro is doomed” article. A quick search on Google for the exact phrase “the euro is doomed” produces so many results (over 65,000), that I cannot even be bothered to look for variants. Pundits and politicians, bloggers and journalists, have all climbed aboard the euro-is-doomed train and cannot wait to tell us all about the destination which is envisioned, variously, as end-of-Euro land, end-of-Europe-itself land, global-financial-Armageddon land (for the real enthusiasts), etc….

Muh. Send us a postcard when you arrive.

That is a postcard I don’t expect to receive. Why not? Simply put because the so-called euro crisis is the product of a narrative gone wild. It has swept up otherwise sober-minded people and produced a wave of incessant hysterical shrieking, fulfilling that deep lizard-brain desire to really enjoy a catastrophe.

Except that catastrophe is largely an artefact of a market-, media- and punditry-driven narrative, increasingly divorced from the underlying reality of what is going on.

What we are really looking at is a sovereign debt crisis rephrased into a “euro-is-doomed” narrative. How sustainable is that? About as sustainable as Greek borrowing patterns. Read more…

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