How Did Economic Growth Compare In France
Abstract This paper analyses the economic growth in France and Indonesia over the period of 30 years whilst exploiting similarities and differences in data and theory of the two economies. Firstly the demographics of both France and Indonesia are analyses to introduce the two countries in a bit more depth to the reader. This will be followed by four key concepts, out of ten possibilities presented by Ashrams (201 1), carefully chosen to develop similarities and differences relative to economic growth between the two countries.
Economic freedom between the two countries is compared to see whether this has had any impact on the economic growth within the two regions. The role of entrepreneurship will then be analyses to further develop the comparison and bring together more data. Furthermore technological progress is another key concept, which alongside the concept of investment opportunities presented in France and Indonesia.
Keywords: France, Indonesia, Entrepreneurship, Economic growth, Technological progress, investment, Economic freedom, Key concept How Did Economic Growth Compare In France and Indonesia From 1980-2010 and To What Extent Do Technological Progress, Entrepreneurship, Investment and Economic Freedom Explain Any Differences Or Similarities In Economic Growth? In the past and present day there have been many economic researchers
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Gap, short for gross domestic product, is the total amount of goods and services produced by the country in one year. Gap growth can occur most simply when the amount of goods and services a country produces is increased, or a growth in gap could be the result of an increase in the prices of produce. Factors like an increase in the price of produce which lead to increasing the total amounts of goods and services available, is called an increase in real gap. The concept of real gap is widely used when analyzing economic growth and prosperity within an economy.
In this sense economic growth can be understood through the definition of How Did Economic Growth Compare In France and Indonesia From 1980-2010 By Andy to analyses economic growth within countries. In this paper four key concepts, taken from the ten key concepts presented by Ashrams (201 1), “rule of law (law and order), income distribution (income inequality), economic freedom, culture, specialization, comparative advantage, innovation/technological progress, entrepreneurship, increasing returns to scale (internal and external), production function/production factors, investment” (p. 0), will be mentioned and analyses in this paper in relation to economic growth in France and Indonesia in the period from ! 980 to 2010, a period of thirty years: Economic freedom, technological progress, entrepreneurship and investment. The paper aims to be used for in-depth analyses of the four key incepts, however also could also be used by researchers as a source of scientific relevance and referenced information because of the specificity of the topics for the French and Indonesian economic growth over the thirty year period.
The graphs created in the paper could also be useful as an extra data source to practitioners whilst developing further analyses amongst this topic. The problem statement will be answered in five chapters. To start the paper off, the first chapter will entail comparative statistical evidence of the economic growth in France and Indonesia from 1980-2010. This will be followed by the four key concepts in separate chapters whilst analyzing the similarities and differences in the two economies.
Comparison between the French economy and the Indonesian economy from the period 1980-2010, with relation to economic growth The French economy has been and still is one of the strongest and wealthiest economies in the world and the second largest economy in Europe following its closest competition, Germany. With a population size of 64. 37 million in 2009 and an economically active population of 27. 1 million as well as a stable infrastructure their economy comes as no surprise of being so developed (COED, 2011 a).
The Indonesian economy, on the other hand, has been a developing economy and a noticeable one, being a member of the 6-20 major economies in the world (Wisped, 2011). The Indonesian economy is one that is largely controlled and owned by its government which could affect businesses and economic growth in Indonesia. Moreover, Indonesia is an emerging market economy where foreign investors have recently been keen to enter. Graph 1 shows that there have been relatively mild fluctuations in growth whereas also the growth percentage has not exceeded 5% for the last 30 years.
France’s gap growth per capita declined from 2008-2009 periods. France’s largest spike of gap growth per capita was around 1988, where it reached approximately 4%, in comparison to the last 30 years of their gap per capita growth, which is roughly an average of 2% growth. Indonesia, on the other hand, has not had a very stable growth period. Graph 1 shows that the Indonesian gap per capita growth is consistently higher than the French, excluding 1992 and 1998 where there were two sharp drops.
In 1992 Indonesia dropped to 1% negative growth whilst France was growing at 2%. Also in 1998, Indonesia had a sharp decrease to 14% negative growth whereas France was stable at 3-4% positive been two large negative gap growth per capita, one more severe than the other. The largest decline in Indonesian gap growth per capita, meant that the people in Indonesian were receiving and producing around 17% less than the previous year where it dropped from 3% positive growth to 14% negative growth.
Graph 1: GAP growth per capita (in %) in Indonesia and France from 1980-2010 Source: World Bank, (201 IA) Lastly Graph 2 shows a large difference between France’s and Indonesian gap Roth per capita in thousands of IIS$ which puts the graph above in more perspective by comparing the growth percentages as a ratio of the value in IIS$. From 1987 to 1993 France had a larger growth spurt then returned to a gradual growth stage, here France reached a peak of 1,180,000 (thousand US$) compared with Indonesia at the time having only 100,000 (thousand IIS$).
We can see that France was more dominating, where its gap growth per capita has been constantly increasing since 1980 reaching a more recent peak in 2008 at 1,500,000 (thousand US S), compared with Indonesia at the time, 220,000 (thousand IIS$). We can see that Indonesia have not been increasing as significantly as France have, however, they have still increased from around 50,000 (thousand US$) to 280,000 (thousand US$) in the last thirty years as Graph 2 shows.
Graph 2: GAP per capita (constant 2000 US$) in Indonesia and France from 1980-2010 source: world sank, (BIBB) Graph 3: GAP growth (in %) in Indonesia and France from 1980-2010 Source: World sank, (201 Between the two graphs the pattern of fluctuations is very similar and the negative gap growth periods for both countries are at the same period. France’s gap Roth has not exceeded 5% as a maximum whereas Indonesia has reached 9% which is a significant amount more. Generally it is evident that the gap growth for Indonesia is consistently higher than France’s growth with a few exceptions such as in 1998 and 1999.
In this period Indonesia suffered 13% negative growth which should have disturbed their economy, however, in the following year the statistics show that they went from negative 13% gap growth to a positive 5% which at the time was roughly 1. 5% larger than France’s gap growth. Towards 2008-2010 the Indonesian gap growth percentage was above 5% showing they only suffered a mild rope in the gap growth whereas France suffered a much sharper decline from 3% in late 2007 to a growth in 2009.
Graph 4 below shows the value in millions ($) of both the French and Indonesian Graph 2, French gap is much larger than Indonesian gap. The French gap has been growing rapidly since 1980 with a mild decline, from $1. 5 billion US to $1. 45 billion US during 2008, however after this period the gap climbed to $1,485 billion US. Graph 3 shows that the Indonesian economy is growing faster than the French. But even though Indonesian gap growth is greater than French gap growth, Indonesian gap as only reached a value of $274 billion US in 2010.
Graph 4: GAP (in constant 2000 US) in Indonesia and France from 1980-2010 source: world sank, (201 ID) A comparison of economic freedom in France and Indonesia from 1980-2010 The level of economic freedom can be measured in a variety of different ways. For example, the property rights approach to economic freedom studied by Lucian and Demesne (1973) described the ways in which property rights contributed to economic freedom.
Furthermore this chapter focuses on the comparison of two concepts of economic freedom as well as a general comparison of all factors of economic freedom: Freedom to trade internationally and property rights freedom. Wealthy or developing countries rely on trading, importing and exporting with other countries to aid economic growth. As France is currently one of the wealthiest economies, the question which arises is: how did the French economy become the way it is today. A part of this could be explained through international trade.
The French economy “ranks sixth in the world in terms of export volumes and 5th when it comes to imports” (Economy watch, 2011). This suggests that France is a serious reader with the rest of the world and with statistics from Graph 5 it is evident that France’s trading sector, relative to economic freedom, is substantial. French imports in 2010 were “$532. 2 billion and exports at $456. 8 billion”, exporting to countries such as UK or Spain and largely to Germany (14. 3%) (Economy watch, 2011). 008 source : world sank, (2011 E) Han and Strum (2000) suggested that there was a relation between economic freedom and economic growth. On the other hand there are some researchers such as Levine and Rennet who have analyses data, for example exports around the world n 1975, and found that coefficients were not significant with the level of economic growth suggesting that in some cases economic freedom, specifically international trade, is not necessarily linked directly with levels of economic growth.
International trade is a very broad concept that has many underlying factors, such as taxation’s/ trade barriers that influence investors and businesses decisions when trading with a country which interlinks with economic growth. Graph 5 shows that in 2000 both France and Indonesia had the greatest level of freedom to trade internationally, 8. And 7. 7 out of 10. The standard deviation of economic freedom relative to international trade in France is 0. 428 and in Indonesia it is 0. 491. Indonesia has only a slightly greater average change in international trade compared with France.
Since French import and export volumes are greater than Indonesian there must be other factors of economic freedom which are affecting Indonesian economic growth, such as property rights. Property rights are provided by the government which allow an individual to use their own property as they wish with protection from the government. Lucian and Demesne mention that when property rights were first introduced, it worked on a first come, first serve’ basis which would inhibit economic growth because people would “exercise these rights in ways that ignore the full consequences of their actions”.
A possible set-back for countries like Indonesia, which do not exercise property rights to a certain norm as a result of corruption, is that it would drive away foreign investors who would directly aid economic growth. Graph 6 shows there is a divide between the figures for France and Indonesia. France, in 1995 and again in 2007 entered into the 9-10 bracket, whereas Indonesia has maximally managed 4-5. This suggests there is a possibility that as a result of a more lenient handling of property rights in Indonesia, economic growth could be suffering.
If property contracts cannot be handled objectively and governments are refraining from corruptive behaviors, it is reasonable to see why investors escape such high risks in these countries like Indonesia (Andrew McIntyre). Graph 6 : Property rights freedom (out of 10) in France and Indonesia from 1980-2008 source: world sank: (201 IF) For Indonesia to experience greater economic growth, the level of leniency would deed to increase whereas corruption would need to be handled, so that foreign investors are not repelled and more gain confidence and will to invest.
The renowned concept of creative destruction, developed by Schumacher (1883-1950) can be linked to economic growth and relates to entrepreneurs and their activities. As Schumacher wrote, “the entrepreneur (is) the risk taker who sets in motion new and more-efficient ways of making old or new products, and so produces an economy in constant change” which suggests that entrepreneurs contribute to creative destruction. Furthermore entrepreneurs are seen as innovators which evolve products more efficiently and profitable therefore that “elevates the entire economy’, therefore economic growth.
The relation between economic growth and entrepreneurship can be analyses through different indicators: business owners and rate of entrepreneurship development in a country. The number of business owners in France amounts up to approximately 2. 3 million in 1999 (MIM, 2000). If we consider France’s fugue (8. 3), with the rest of the world, the rate of entrepreneurship in France is relatively low. For example the US or I-J is approximately 1. 5 to 2. 5 times greater than France: 18. 2 and 10. (MIM, 2000). This means that there is a lag in the rate and capacity of innovation in France which would be inhibiting economic growth.
Furthermore results from a survey conducted in 1996 showed that 78% of respondents found that entrepreneurship was satisfactory and insufficient in France compared with other nations of similar size (Letdowns, 1996). Graph 7 : Investments of entrepreneurs: foreign branches and agencies in France from 1983-2007 source : COED, Bibb Graph 8 : Self-employed in Indonesia from 1997-2010 Source : World Bank, 2011 Graph 7 shows that gradually over time the investments related to entrepreneurs in France have been increasing after 1999.
In 2001 86 million euros came from entrepreneurship which is an increase from 1991 where it was only 32. 92 million euros. If we compare Graph 7 with Graph 4 for France, the spikes in gap occurred in 2001 and 2007, which could be related with the increase in entrepreneurship therefore leading to a greater rate of economic growth at the time. It is often the case that a lack of entrepreneurship has been the main cause for a decrease in economic growth in Indonesia. The development of entrepreneurship, related to economic development, is a current issue which the government is strongly sousing on in Indonesia. (Tanana, 2007).
Data for Indonesia from APACE (2003) showed that Indonesia is the biggest economy with respect to a total number of Seems: 17,000,000 in the non-agricultural sector which suggests that most of their biggest economy in Asia with respect to a total number of Seems, it is not comparable to the number of Seems in France. Indonesia has underlying factors that prohibit economic growth, in relation to entrepreneurship and labor, such as a large labor productivity gap as well as a lack of skilled workers and an undeveloped infrastructure. The government is persistently thriving to drive foreign entrepreneurial investments into the country.
There is contradicting evidence to suggest that there are many entrepreneurs in Indonesia compared with France. In 2006, 19. 3% of the working population in Indonesia either owned a business or were a nascent entrepreneur whereas in France at this period only 4. 4% were nascent entrepreneurs or owners of businesses (GEM, 2010). Comparing France and Indonesia, the gap between skilled labor and infrastructure as well as other variables is large. Entrepreneurs examine certain aspects in a country such as transportation/transportation costs, communication, availability of workforce and more.
France is a developed economy which has a stable infrastructure with developed transport links and educated labor forces, therefore entrepreneurs are methodically more likely to invest in France. Whereas Indonesia is a developing economy with a lack of certain environments entrepreneurs seek such as an undeveloped transportation system and a lack of skilled labor. As a result, fewer amounts of entrepreneurs are willing to take the opportunity to invest, however, this is not always the case and entrepreneurs have slowly begun to invest in Indonesia.
Similarities and differences for investment in the French and Indonesian Economies Investment is a broad concept with many different factors which can all be linked to economic development. In this chapter foreign investment and investment in infrastructure in France and Indonesia will be compared. Foreign firms looking to set up businesses in countries usually contribute to economic growth through the purchase of property/land, labor and capital these foreign firms are contributing to economic growth in these countries. Foreign direct investment is not necessarily beneficial to every country.
For instance, new firms entering a market where there is only domestic competition could monopolize the market or gain a large market share which means domestic businesses cannot compete therefore a loss of Jobs occurs and economic growth could turn negative. For a weaker, growing market economy like Indonesia these restricting factors could be inhibiting greater economic growth. Graph 9: Foreign direct investment (% of GAP) in France and Indonesia from 1980-2010 Source: World Bank, 2011 H whereas in France is has been increasing gradually from 1980 with a few fluctuations in 1995 and 2004.
Once again there was no foreign investment in Indonesia in the periods from 1998-2004. Only after this period Indonesia did start receiving investment at 1. 3% of the gap from foreign firms. For Indonesia this was good for economic growth because infrastructure, unemployment rates as well as skilled labor need to be improved, as we have seen in the previous chapter, and this can be achieved through investments from foreign firms.
However, Indonesia is a developing economy and therefore lacks certain qualities which foreign investors look for therefore making it more difficult to attract these multinationals. Compared with France the amount of investment which Indonesia receives is very small. In 2000, whilst Indonesia received no foreign investments France was topping 13. 2% from only foreign investors; this is excluding domestic investors and private equity firms.
Possible reasons for such a difference in investments between the two countries, other than resources, could be that Indonesia is a newly developing economy with certain corruption problems making investors hesitant to invest. On the other hand, France is a stable, developed economy which would provide investors with confidence. One major benefit of Indonesian rise in foreign investment, in the last 6 years, are that foreign firms are constantly bringing new ideas and perseverance for domestic firms, encouraging them to invest more through expansion schemes or increased trade, all leading to economic growth.
The development of technological progress/innovation in France and Indonesia from Technological progress is dependent amongst many factors within an economy which, if at a standardized level can result in economic growth. Technological progress can rely a lot on the education of the labor force as well as the amount of investment put into research and development, leading to ‘radical’ technological innovations. Furthermore patents relate to technological progress by showing innovative perseverance.
Technological innovation can be defined as radical or incremental innovations leading to new and improved products (Subhuman, 2005). Graph 10: High-tech exports (% of manufactured exports) in France and Indonesia from 1988-2009 Source : World Bank, (20111) Graph 10 shows that generally French high-tech exports are greater than Indonesian high-tech exports however, Indonesia seems to be following a very similar trend to France.
This data suggests that the greater the percentage of exported technology, the more the country is investing in producing high-tech goods; therefore technological progress is advancing conclusively contributing to economic growth. 1% to 11. 5%, followed by fluctuations too maximum of 16. 3% in the next 10 years. In 2007 there was a drop for both France and Indonesia with a slight increase in the following years. Jordan (2001) described these fluctuations as being common, eventually leading to a technological revolution which contributes to economic growth.
Graph 12: Research and development expenditure (% of GAP) in France and Indonesia from 1996-2008. Source: World Bank (201 IS) Graph 13: Patent applications of residents and non-residents in France and Indonesia from 1980-2009 source: world sank, (KICK) A comparison of Graph 10, 11 and 12 for France shows that generally the government and foreign investors invest more and innovate at a greater pace with the amount of patent applications reaching 17000 whereas a maximum number of patents in Indonesia were only Just over 4000 which is 4 times less than in France.
A problem for Indonesia is that residents and domestic firms are lacking to innovation. From Graph 13 it seems that only foreign firms are innovating, which means they are not producing their own technology therefore cannot progress in technological advancements because they would be importing more than they are exporting (World Bank, 2011 1). In the Centenarians tradition, economic growth was linked with technological progress through entrepreneurship and innovation. Both the neo- classical and endogenous growth models of economic growth acknowledge the importance of technological innovation in stimulating growth, through generating technological progress and raising productivity’ (Wong, 2005). This suggests that for Indonesia to increase economic growth from a technologically progressive aspect, the government would need to either attract more foreign investment (entrepreneurs) which will bring commercialese, radical technology with them, or give incentives to business to create technological innovations.
According to data sources France seems to be exporting and innovating new technology according to the markets as we have seen from Graph 11, 12 and 13 whereas Indonesia is struggling to increase R&D and patent applications which could be holding them back from greater economic From 1980-2010 economic growth in France and Indonesia has been affected through the development of technological innovations, expansion of markets through entrepreneurship, investment from public and private sectors, and the leniency of economic freedom. These four key variables relative to economic growth are all interlinked.
Technological innovations depends upon inward investment from a country as well as foreign entrepreneurs who bring commercialese technology, which then relates to the degree of economic freedom conclusively leading to economic growth. It is evident there is a large difference between the French and Indonesian economies in terms of development and growth. We have seen that economic freedom in Indonesia has recently been climbing up closer to French standards; attempting less corruption so that economic freedom can influence greater economic growth.
Indonesia experiences a slow but gradual increase in entrepreneurship which reflects from the small number of FED compared to France. The scarcity of entrepreneurs could be seen to possibly affect the amount of high- tech exports, if there was more entrepreneurs and businesses investing, Indonesia could be exporting high-tech equipment at the same level as France. The main preference of economic growth in France and Indonesia, relative to the four aspects, is that French economic growth has been more stable whereas more fluctuate and unpredictable in Indonesia.
As well as that conclusion drawn, this paper only analyses four out of the 10 possible key concepts which leave a lot of unanswered areas that could account for economic growth. Moreover the reliability of data, as well as the gaps in data for certain years contributes to a lack of resource which has made it difficult to draw concrete conclusions. Overall the paper provides similarities and differences of economic growth in France and Indonesia from 980-2010 using four key concepts; it is not a concrete solution to where each country needs improvement only an observation of data which can be analyses further.