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History of France Economics over the Past 20 Years Research Paper


Demographics

France consists of a population of 65,312,249 with 64.7% of the inhabitants lying between the ages of 15 and 64. It has a population growth rate of 0.5%. The main and official language in the country is French. It is spoken by one hundred percent of the population. However, some regional dialects do exist such as Breton and Provencal. Previously, France used to use the French Franc as its major currency.

However, after entering the Euro zone, it adopted the Euro as its official currency. In 2011, the official exchange rate for the Euro against the dollar was 0.755; this was an increase from the previous year of 0.434 Euros. France is a republican government. It operates under its own constitution and that of the European Union.

The country has a chief of state or President called Nicholas Sarkozy. It has a Prime Minster who is the head of government as well as a cabinet that the president appoints in consultation with the prime minister. Elections in France are done after five years; subsequently the president must appoint the Prime Minister.

The country has a bicameral parliament and this has assisted in maintaining a balance between the executive as well as the legislative arm. The predominant industries in France include energy or power generation, retail as well as tourism. France is the third strongest country in the global tourism sector.

In terms of the economic indicators, the Nominal growth rate of 2010/2011 was reported as 2.145 trillion. This was an increase of 34 trillion US dollars from the previous year.

Furthermore the GDP per capita was 1.5% and this was an improvement from the previous year which grew by -2.5%. It should be noted that the country’s economy was adversely affected by the global economic crisis in 2009. It had an adverse decrease in almost all economic indicators.

Unemployment rates were at 9.3%, which was an increase of 0.2% from the previous year. Additionally, the country’s budget deficit was at 0.18 trillion dollars. This emanated from revenues of 1.26 trillion US dollars and expenditures of 1.44 trillion US dollars. In terms of percentage comparisons to the GDP, the budget deficit was -7% of the GDP. The balance of payment accounts was 54.4 billion dollars as of 2011.

The country is ranked 193rd in the world owing to these figures. Inflation currently stands at 2.5%; this was an increase from the previous year which recorded an inflation rate of 1.7%. It should be noted that the current figures reflect the economic crisis and the government stimulus efforts that the French government is undertaking. It is experiencing one of its worst budget deficits and public debts in the decade. Therefore the government has embarked on a serious expenditure freeze to prevent further increases in debt levels.

Behavior of the same economic indicators over the past 20 years

The nominal GDP growth rates for France have largely been increasing over the past two decades. Some minor exceptions have arisen between 2008 and 2009, but most of them have been positive. In the early 1990s, the nominal GDP growth rates stood at 2.645 on the mid 1990s, they were at 2.248.

The nominal GDP continued to rise and peaked at 3.871 in 200. It then started decreasing; in 2003 to become 0.888. In the next year, a dramatic increase occurred when the nominal GDP increased by 2.346. These increases continued until 2007 when the country’s rate was at 2.31.

However it began reducing to -0.213, -2.632 in 2008 and 2009. Nonetheless, this increased in 2010 to 1.384. On the other hand the GDP per capita was a different account. In 1990, it stood at 1.4% percentage points. In 1995, it was 1.4 also, in 2000, the figures were 1.9 while in 2003 they reduced to 1.6. In 2009 they reduced by 0.2% while in 2010 they increased to 2.5%; this was equivalent to $33,100.

Unemployment in France has been at an average of 9.5 percent in 1990, the country underwent a percent decrease in unemployment, which stood at -4.48% from the previous year. In 1993, unemployment figures increased from the previous year by 12.86%. They eventually reduced in ’95 to -4.56%. In 2000, unemployment went down by -13.155. In 2002, there was an increase of 6.15% from the previous year.

In 2003, this figure corresponded to 0.94%. In 2006, the trend again changed to a decrease of -0.62. Later on in 2008, there was a percentage decrease of -6.68%. In 2009, the country had landmark increases in unemployment levels. There was a 21.67% increase from 2008.

In 2001, unemployment stood at 9.787, which was an increase of 3.02% from the previous year. In the past 20 years, the highest unemployment rate occurred in 1996 and this corresponded to 11.583 while the lowest figures were in 2001 corresponding to 8.392. Overly, France’s unemployment levels have never gone beyond 12% over the past two decades.

The budget deficits have always been a problem for this country in the past twenty years (OECD, 2005). In the late 1990s, they stood at -2.6. In 2000, they reduced to -1.8. The country had -1.5, -4.1, -2.9, -2.7, -7.5 in 2002, 2004, 2006, 2008 and 2010 respectively. It should be noted that these figures are quoted as percentages of the GDP.

The balance of payments in France was quite strong in the 1990s but dramatically weakened in the 2000s. In the early 1990s, the country boasted of a surplus of 31 billion Francs. This trend continued to the mid 1990s where the country kept exporting commodities to European countries.

In 1995, the country had about 11,175 million US dollars worth of a trade surplus. The surpluses stopped in 2001 when the country reported a deficit. Later on in 2002, this changed again into a surplus of approximately 4.1 billion US dollars. In 2005, this started reducing and became a deficit of 12, 395 million US dollars.

From that year onwards, France’s balance of payments has remained negative. In 2010 it had a budget deficit of 56.13 billion and in 2011, the balance of payment figures were at -54.4 billion. This is the reason why the country is struggling to control these figures through minimal government stimulus plans as well as expenditure freezes.

The lowest inflation rates ever recorded by France were in 2009 where they stood at -0.7%. Over the past twenty years. Inflation rates in this country have been at an average of 4.93. In the early 2000s, they were maintained at between 1-3%. They started decreasing between 2007 and 2008 and reached the record low of -0.7%. In 2010, the figures stood at 1.7% while in 2011 they were at 2.5%.

Historical relationships between the following Variables

Real GDP and labor productivity

These figures are directly related; real GDP has grown in proportion to labor productivity in France. This is especially true for the period between 1995 and 2002. It should be noted that the numbers are not as high as they are in other developed nations such as the United States. The relationship between real GDP and productivity in this country also mirrors the performance of other EU countries (Artige & Nicolini, 2006).

Real economic growth and labor productivity

In the early 1990s, the economic growth rate stood at an average of 1.5% while the labor productivity was at 1.7%; the figures were quite close to one another. In the mid nineteen nineties, economic growth was at an average of 2.1% while labor productivity figures stood at 2.5%, which also corresponded to one another.

In the early 2000s, labor productivity was at 3.5% while economic growth was at 3.871%. In 2005, labor productivity was 1.5% while economic growth was 1.866. In 2010, economic growth rates were at 1.384 while labor productivity was at 1.7%. There is a relationship between these variables as increases in one variable cause an increase in another with a factor difference of 0.4%.

Real GDP and unemployment

The following Growth rates were reported for real GDP in 1990, 1995, 2000, 2005 and 2010 respectively: 2.645, 2.248, 3.871, 1.866 and 1.384. These were the unemployment growth rates in the same years: -4.48%, -4.56%, -13.15%, 0.73% and 3.2%. A graph of these two variables indicates a minimal relationship between these two outcomes as high increases in GDP sometimes leads to increases in unemployment growth rates and sometimes they lead to decreases.

Economic theory

Economic theory can explain the relationship between real GDP and labor productivity as well as real economic growth and labor productivity. The neo classical school of thought explains that real GDP will grow as labor productivity if there is an increase in workforce. This is likely to have occurred in France.

Historical analysis between

Inflation and real economic growth

Inflationary figures have been inconsistent with the real economic growth of France. In 2008, the real economic growth rates stood at -0.213. In 2009 they decreased to -2.632 and then increased in 2010. Conversely, the inflation rates were at -0.7 in 2009, 1.7 in 2010 and 2.5 in 2011. There is an inverse relationship between inflation rates and economic growth rates in France. When economic growth rates decrease, then there is an increase in inflation rates

Inflation and money supply growth

Data on inflation rates in France indicate that the inflations rates are sometimes inconsistent with money supply growth rates data. The same pattern has been in existence in other European countries that belong to the EU, thus indicating that macroeconomic factors in the region are affecting all the stakeholders involved in the area.

Unemployment and money supply growth

The level of money supply growth has also been inconsistent with regard to unemployment over the past twenty years because in certain periods, it seems as though there is a positive correlation and in other scenarios, this changes into a negative correlation (Lowrey, 1995).

Economic theory

Economists in the Keynesian school of thought hold that when unemployment does not correspond to inflation, then there is no problem for consumers because even though they have to pay three times for their commodities, their paycheck has also increased by three times.

However, this is rarely the case, most times, inflation through money supply growth rates causes increases in commodities, but no increases in salaries; eventually, it leads to high unemployment. Therefore, high inflation causes high unemployment. This should have been the case in instances where there is a positive relationship between the two variables.

Accounts in the balance of payments, average interest rates and government budget balance

Balance of payments and government budget balances have been closely related in France over the past twenty years. However, average interest rates sometimes follow a totally different pattern. These divergent differences have arisen owing to the structural weaknesses in the country’s trading system.

Sometimes the government has failed to invest as much as it should in new capital. In other circumstances divergent patterns have been created by the increased prevalence of imports from Euro zone countries. In other scenarios, exchange rates have been decreasing and this has given France a poor framework to compete with other formidable economies thus maintaining high balance of payments irrespective of interest rates.

Economic theory holds that when there a balance of payment trade deficit then a country is dealing with circular expenditure and a high outflow of income (Sullivan & Sheffrin, 2003). This is usually manifested through high levels of budget balances as witnessed in France.

The accounts of balance of payments, therefore, track the country’s transactions. Interest rates have a profound effect on the balance of payments and budget deficits because they affect inflationary pressures. When low inflation rates exist, then the Central Bank might be encouraged to minimize interest rates so as to enhance economic activity. Those are the relationships between the three variables.

References

Artige, L. & Nicolini, R. (2006). Labor productivity in Europe: Evidence from a sample of regions. Web. Available from

Lowrey, M. (1995). France and the CFA: price and money supply growth determination. Journal of Afr. Econ.. 4(2), 225-242

OECD (2005). France: Country notes. Economic policy reforms, 92, 64

Sullivan, A. & Sheffrin, S. (2003). Economics: principles in action. NJ, Pearson Publishers

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IvyPanda. 2019. "History of France Economics over the Past 20 Years." August 20, 2019. https://ivypanda.com/essays/france-economics-research-paper/.

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IvyPanda. (2019) 'History of France Economics over the Past 20 Years'. 20 August.

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