Classification of Countries by Economic Models

The Institute of Economics Azerbaijan National Academy of Sciences Prof. Nazim Muzaffarli CLASSIFICATION OF COUNTRIES BY THEIR ECONOMIC MODELS Chinese Academy of Social Sciences Beijing, China, May 14, 2019 economics.com.az

The Institute of Economics Azerbaijan National Academy of Sciences GOVERNMENT INTERVENTION IN THE ECONOMY & ECONOMIC MODELS Economic models of different countries differ in the extent to which the state (government) intervenes in the economy BUT Not all the forms of government intervention in the economy give it the properties of liberalism or dirigisme Those forms that give the economy such properties, we call the model-shaping forms of government intervention in the economy economics.com.az Chinese Academy of Social Sciences, Beijing - 2019

The Institute of Economics Azerbaijan National Academy of Sciences MODEL-SHAPING FORMS OF THE GOVERNMENT INTERVENTION IN THE ECONOMY: are main criteria to distinguish different economic systems (models of market economy). For example, import restrictions reduce the freedom of foreign trade, and by implication the level of liberty of the economy in general. Meanwhile, anticorruption measures of government do not make the economy more liberal or more dirigiste are bipolar. For example, the freedom of imports on one pole and domestic market protection on another are two objectives pursued by the regulation of foreign trade that exclude each other are subjects for political competition. For example, for the left-wing political groups (parties, organizations, think tanks) a higher priority is, as a rule, the internal market protection, while for the right-wing groups the freedom of foreign trade economics.com.az Chinese Academy of Social Sciences, Beijing - 2019

The Institute of Economics Azerbaijan National Academy of Sciences LEFTNESS-RIGHTNESS OF THE ECONOMY The leftness and rightness are features of real economies too not only of ideologies. In any country and at any given time, the economy acquires certain degree of leftness (rightness) depending on the extent of model-shaping forms of the government intervention in economy. The higher the level of these forms of government intervention, the lefter the economy, and vice versa, relative rightness of the economy indicates lower intervention. The leftness-rightness of economy is measurable and can be assessed by the Index of Leftness (Rightness) of Economy proposed by the ANAS Institute of Economics. If to be accurate, the leftness-rightness of the economy is not identical with its liberalism- dirigisme, but in this presentation I use them as synonyms to simplify the perception economics.com.az Chinese Academy of Social Sciences, Beijing - 2019

The Institute of Economics Azerbaijan National Academy of Sciences INDEX OF LEFTNESS (RIGHTNESS) OF ECONOMY is measured as weighted average of 6 Sub-indices: Public Finance Sub-Index (PF) indexed share of budget expenditures in GDP + Business Tax Burden Index Price Regulation Sub-Index (PR) indexed ratio of country s GDP with PPP to GDP in current US dollars Foreign Trade Sub-Index (FT) Foreign Trade Freedom Index + Economic Value of Imports Index + Trade Freedom Index Licensing Sub-Index (L) Licensing Time Index + Licensing Cost Index Employment Regulation Sub-Index (ER) Rigidity of Employment index (2/3) + Redundancy Cost (1/3) Minimum Wage Sub-Index (MW) indexed share of legal minimum wage in GDP per capita (both with correction for PPP) IL(R)Ei= 0.30*PFi+ 0.14*PRi+ 0.14*FTi+ 0.14*Li+ 0.14*ERi+ 0.14*MWi economics.com.az Chinese Academy of Social Sciences, Beijing - 2019

The Institute of Economics Azerbaijan National Academy of Sciences IL(R)E 2017: LATEST RESULTS (95 countries) Relative Center (0.283) 0.500 0.450 0.400 0.350 0.300 0.250 0.200 0.150 0.100 Venezuela (0.400) New Zealand (0.246) Iran (0.391) Argentina (0.465) Qatar (0.183) Ireland (0.216) France (0.375) Singapore (0.113) Russia (0.296) UAE (0.145) Azerbaijan (0.310) Georgia (0.170) USA (0.228) Denmark (0.196) Sweden (0.259) China (0.357) Serbia (0.329) Austria (0.271) Turkey (0.344) economics.com.az Chinese Academy of Social Sciences, Beijing - 2019

The Institute of Economics Azerbaijan National Academy of Sciences IL(R)E vs REAL GDP CUMULATIVE GROWTH (2012-2017, 94 COUNTRIES, 2012 = 100%) 60.0 Ireland 50.0 India Malta Kamboca Cumulative Growth of Real GDP 40.0 Tajikistan China Philippines 30.0 (%, IMF Statistics) Iran 20.0 R = 0.0154 Singapore 10.0 R = 0.0749 Switzerland Denmark Cyprus 0.0 Argentina Italy Greece Brazil Azerbaijan -10.0 Ukraine -20.0 0.500 0.450 0.400 0.350 0.300 Index of Leftness (Rightness) of Economy GDP p/c > 35 000. Int. doll. 0.250 0.200 0.150 0.100 GDP p/c < 35 000. Int. doll. economics.com.az Chinese Academy of Social Sciences, Beijing - 2019

The Institute of Economics Azerbaijan National Academy of Sciences IL(R)E s INTERVALS OF OPTIMALITY There is not any overall (universal for all economies) optimal value of IL(R)E. The optimality limits of Index are individual for each country and are subject to change over time. Countries with a liberal or dirigiste economy can be equally successful. Some countries achieve the greater social and economic success due to the rightness of their economy, while the others to its leftness. Each country tries (should try) to establish the effective balance between self-regulation of the economy and its state regulation. The Effect of the Model-Shaping Forms of Government Intervention in the Economy on the Economic Growth // China Finance and Economic Review, 2018, Vol. 7, No. 1 economics.com.az Chinese Academy of Social Sciences, Beijing - 2019

The Institute of Economics Azerbaijan National Academy of Sciences DISTRIBUTION OF COUNTRIES BY IL(R)E AND BY INTERVALS OF REAL GDP CUMULATIVE GROWTH IL(R)E Ranges (2017) Number of Countries 0,100 0,149 0 0 0 0 2 0 0 0 0 0,150 0,199 0 0 0 2 1 3 0 0 0 0,200 0,249 0 0 0 3 9 1 2 1 1 0,350 0,399 0 0 1 2 3 1 1 2 0 0,400 0,449 1 0 0 0 0 0 0 0 0 0,450 0,500 0 0 0 1 0 0 0 0 0 0,250 0,299 0 0 0 8 19 3 5 1 0 0,300 0,349 0 1 1 6 8 4 2 0 0 -40 - -30 - 20 -10,0 -9,9 0 0 9,9 10 19,9 20 29,9 30 39,9 40 49,9 50 - 60 Number of Countries Average Cumulative Growth (%) 1 1 2 Intervals of Real GDP Cumulative Growth (2012-2017, %) 22 42 12 10 4 1 2 6 17 10 1 1 95 36 22 19,7 16,9 16,8 15,0 -36,1 3,1 16,6 19,9 20,0 economics.com.az Chinese Academy of Social Sciences, Beijing - 2019

The Institute of Economics Azerbaijan National Academy of Sciences GENERAL DIRECTION OF ECONOMIC REFORMS IN AZERBAIJAN By IL(R)E, Azerbaijan (0.310) belongs to the central group. The cumulative GDP growth of 6.7% in 2013-2017 (8.2% in 2012-2016, and 12.4% in 2011-2015) is lower than the average of the countries with the medium values of IL(R)E. Azerbaijan s IL(R)E deviated from its optimal value to the left and the liberal economic reforms is the urgent task for the next years. Price Regulation Sub-index was major "contributor" to this deviation. After two devaluations of the Azerbaijani manat in 2015, the government for the social protection purposes prevented the consumer prices increase. Azerbaijani manat fell against the US dollar almost twice but domestic prices increased insignificantly: in 2016 inflation was only 12.4%. Liberalization of pricing is the top priority. economics.com.az Chinese Academy of Social Sciences, Beijing - 2019

The Institute of Economics Azerbaijan National Academy of Sciences IL(R)E INTERVALS and PROPOSED ECONOMIC MODELS IL(R)E interval Economic model 0.000 Pure market economy 0.001-0.199 Liberal economy 0.200-0.269 Predominantly liberal economy 0.270-0.319 Intermediate economic model 0.320-0.389 Predominantly dirigiste economy 0.390-0.999 Dirigiste economy 1.000 Pure administrative economy economics.com.az Chinese Academy of Social Sciences, Beijing - 2019

The Institute of Economics Azerbaijan National Academy of Sciences CLASSIFICATION OF ECONOMIES (81 countries, 2017) Liberal Economies Predominantly Liberal Economies Intermediate Economies Predominant- ly Dirigiste Economies Belgium Bosnia-Herz. Brazil China France Greece India Indonesia Oman Serbia Turkey Dirigiste Economies Bahrain Denmark Georgia Iceland Qatar Singapore Switzerland UAE Armenia, Bulgaria, Canada, Chile, Cyprus, Estonia, Finland, Ireland, Israel, Kazakhstan, Kuwait, Luxembourg, Macedonia, Malaysia, New Zealand, Norway, Panama, Philippines, South Africa, Sweden, Taiwan (China), Thailand, UK, USA Albania, Australia, Austria, Azerbaijan, Croatia, Czech Rep., Egypt, Germany, Hungary, Italy, Japan, Jordan, Kyrgyzstan, Latvia, Lithuania, Malta, Mexico, Moldova, Montenegro, Morocco, Netherlands, Peru, Poland, Portugal, Romania, Russia, Saudi Arabia, Slovakia, Slovenia, South Korea, Spain, Tunisia, Ukraine, Uruguay Argentina Iran Venezuela economics.com.az Chinese Academy of Social Sciences, Beijing - 2019

The Institute of Economics Azerbaijan National Academy of Sciences THANK YOU FOR LISTENING economics.com.az Chinese Academy of Social Sciences, Beijing - 2019