Why Nations Fail?#recommended

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The town of Nogales is divided by a fence: on the north side is the United States, and on the south side, Mexico. And the inhabitants on the northern side face lower crime rates, live longer and earn three times as much as their southern neighbours.

Leading academics Daron Acemoglu and James A.Robinson set out to answer how two places-which share an ethnic background, a geographical location and a climate- could be so different.Their compelling and elegantly argued new theory reveals thatt to prosper, citizens need ‘inclusive instituions’ which create virtuous circles of innovation, economics expansion and more widely-held wealth. Based on fifteen years of research, and answering the competing arguments of authors ranging from Jeffrey Sachs to Jared Diamond, Why Nations Fail blends economics, politics and history to provide a powerful and persuasive way of understanding wealth and poverty.

 

Current Account to GDP in Eurozone

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The IMF data are estimates updated for the October 2015 report, derived from 2014 data. These graphs indicate the european countries which have current account deficit or surpluses  in proportion to their gross domestic product (GDP) in 2015. According to the graphs above; Germany, Netherlands, Luxembourg, Slovenia run large current account surpluses compare to the rest of european countries.We know that if an economy is running a current account surplus it is absorbing less than it is PRODUCING.This means it is SAVING. Current account deficit is the main problem for Eurozone. Germany should be true model for them, she always runs surpluses on current account because, as a country, it spend less than they earned.

Notes to Myself

 

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Usually, countries recording a strong current account surplus have an economy heavily dependent on exports revenues, with high savings ratings but weak domestic demand.On the other hand, countries recording a current account deficit have strong imports, a low saving rates and high personal consumption rates as a percentage of disposable incomes.

Brazil recorded a current account deficit of 4.17 percent of the country’s Gross Domestic Product in 2014. Turkey recorded a current account deficit of 5.70 percent of the country’s Gross Domestic Product in 2014.

As we see from the graphs, Turkey’s current account deficit is widened more than Brazil’s. Brazil and Turkey recorded a net capital flows deficit in September of 2015. Brazil’s exports are heavily commodity-dependent that’s why external shocks from the commodities market, China’s slowdown and the Fed’s rate hike ambiguity have together caused by an excessive loss of speed Brazil’s economic growth engine.Thus, Brazil’s economy is loosing blood in recent years.In Turkey, even though current account deficit has shrunk, foreign capital flow is weak to finance and this leads to make him more riskier  and the most vulnerable country to external shocks compare to other emerging economies. Uncertainty, political instability and unsteady fiscal reforms are killing Brazil’s and Turkey’s economies.

FinLand

 

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As we can see from the graphs, The Gross Domestic Product (GDP) in Finland contracted 0.60 percent in the third quarter of 2015 over the previous quarter more than Greece. Finland GDP annual growth rate reached a record low of -9.50 percent in the first quarter of 2009 because of the global financial crisis which happened in 2008.

Finland is the fourth most competitive country in Europe. According to World Economic Forum, its R&D spending per capita is among the highest in the world.  International trade makes a third of Finland’s GDP. With respect to foreing trade, the key economic sector is manufacturing in Finland. Manufacturing Production in Finland averaged 2.55 percent from 1991 until 2015, reaching an all time high of 24.20 percent in February of 1995 and a record low of -26 percent in January of 2009 after the global financial crisis. Moreover, when the decline of Nokia which is of the country’s major exporting company , Finland’s GDP and retail sales dramatically started to fall. Finland has also very high labour costs and government spending compare to the rest of Europe in recent years. Finland Government Bond 10Y was quoted at 0.65 on Friday November 20. The Finland Government Bond 10Y averaged 4.92 from 1991 until 2015, reaching an all time high of 13.55 in September of 1992 and a record low of 0.19 in April of 2015. We know that decrease bond yields might include high rates of unemployment and slow economic growth or recession. Lastly, government bond yields 10y started to decline in 2015 in Finland.

 

CDS Spreads

Credit default swaps (CDS) allow sellers to take on, or buyers to reduce, the default risk on a bond.The pricing of CDS measures how much a buyer needs to pay to purchase, and how much a seller demands to sell, protection against default of an issuer’s debt. CDS spreads therefore are ONE WAY the market rates creditworthiness.Widening spreads suggest increasing RISKFalling or narrowing spreads indicate the perceived risk of default is falling. Rising or widening spreads indicate the perceived risk of default is rising.

As we see below, CDS 5Year Spreads seem extremely high in emerging markets between 2014 and 15, especially in Brazil.Brazil’s risk of default continue to rise. Italy and Spain have high CDS spreads and their default of risk is also rising in recent years compare to  CDS spreads of Germany and France.

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Source: Market Data Center and Deutsche Bank