Macro and Micro Economics: Comparison of the UAE and France - Essay Example

Macro & Micro economics: Comparison of the U.A.E and France Introduction The economy of France is one of the strongest economies of Europe. The French economy is a member of multiple global organizations like, the European Union, United Nations Security Council, NATO, G8, G20 and European Union. The economic integration of the country with Europe has become one of the central factors to have contributed towards economic growth. The French government has privatized most of the industries, except those related to defence, public transport and power. The total population of the country is 66,259,012 and 88% of them are Roman Catholics. The tourism sector of the country is very well-developed. The country enjoys the third largest income from this sector (CIA, 2014). The economy of the United Arab Emirates (U.A.E.) is also a global member of multiple organizations like, OPEC, United Nations and Gulf Cooperation Council. The population of the country is 5,628,805 and 76% of the population is Muslim. The economic growth of the U.A.E. could be mainly attributed to its oil sector. However, recently, the government is trying to promote industries other than oil and involvement of private sector in the economy has increased. The financial crisis of 2008 had affected economic growth of the country in recent times (CIA, 2014). The purpose of this paper is to compare these two countries on terms of key economic indicators like, GDP growth rate, GDP per capita, level of unemployment, level of investment and balance of payment position, besides analyzing causes of difference in the level of their performance. Data and Comparison In order to compare the level of growth of two countries, GDP growth has been used. Rate of GDP growth is widely employed as an indicator to measure the level of economic growth in a country. GDP can be considered as a summary measure of overall performance of an economy and can facilitate international comparison. The following table tabulates the GDP growth rate of France. Table 1: France GDP growth rate (Source: The World Bank, 2014) Figure 1: GDP growth rate (Source: Author’s creation) The above graph plots the GDP growth rate of France. It can be seen that the country has been adversely affected by the financial crisis, thereby experiencing negative growth rate in 2008 and 2009. The economy has begun to recover since 2010. However, there is still volatility in the GDP growth. Table 2: U.A.E. GDP growth rate (Source: The World Bank, 2014) GDP and GDP growth rate of the U.A.E. are plotted in the table above. The pictorial representation of the figures is shown in the graph below. Figure 2: GDP growth rate (Source: Author’s creation) It is seen that the level of GDP growth in the U.A.E. has been adversely impacted by the financial crisis in 2008. A negative growth rate in the GDP is noticed in 2009. From comparing the values in above two figures, absolute level of GDP in France is found to be higher than that of the U.A.E.; but in terms of GDP growth rate, the U.A.E. has an overall better performance (shown in Appendix). GDP per capita of countries helps in the comparison of living standards prevalent. As the GDP per capita measures overall goods and services produced in the country relative to its population, it is argued to represent the level of overall welfare of the population. The following table shows the level of GDP per capita for France. Table 3: GDP per capita of France (Source: The World Bank, 2014) Figure 3: GDP per capita of France (Source: Author’s creation) The above graph indicates that the level of GDP per capita of France has constantly increased until 2007, prior to the crisis. Following this, the country had experienced a drop in 2008 and reached its minimum value in the previous decade in 2009. Since 2010, recovery has begun. Similarly, GDP per capita of the U.A.E. has been plotted in the table below. Table 4: GDP per capita of U.A.E. (Source: The World Bank, 2014) Figure 4: GDP per capita of U.A.E. (Source: Author’s creation) The above graph shows that GDP per capita of the U.A.E. was very high towards beginning of the new millennium, which peaked in 2004. After that, growth had slowed down and since 2004, the value has fallen consistently. GDP per capita of U.A.E. was higher than that of France until 2007; following which, the value has fallen below that of France. Foreign Direct Investment can be considered as another important variable, which can be treated as an indicator for the overall level of development in a country. FDI inflows in a country can be regarded as a source of financing capital requirement of a country. FDI can also act as a source of technology transfer, which fosters benefits for the local firms. Hence, economic growth is often correlated to positive FDI inflows of a country. The following table shows the level of FDI inflows in France. Table 5: FDI flows France (Source: The World Bank, 2014) Figure 5: FDI flows (Source: Author’s creation) The above graph suggests that FDI as a percentage of GDP in France has fallen over years. Lower this value, worse it is for the country. Similarly, the table below shows FDI as a percentage of GDP for the U.A.E. Table 6: FDI flows U.A.E. (Source: The World Bank, 2014) Figure 6: FDI flows (Source: Author’s creation) The overall level of FDI inflows in the U.A.E. and France is quite strong. However, in case of the U.A.E., the level of FDI as a percentage of GDP is higher than that of France. External balance of goods and services or balance of trade of a country helps in understanding its trade position. It is argued that that if the value is negative during recession, then it is a bad indicator for the economy; but not so, if the economy is in an expansionary mode. The external balance of payments in the U.A.E. is shown in the graph below, which points out that the country has always maintained a positive balance of payments, thereby implying that its volume of exports is higher than that of imports. Hence, the value is positive. Figure 7: External Balance on goods and services of U.A.E. (Source: Trading Economics, 2014) In case of France, it can be seen that the external balance on goods and services has been negative since 2004, indicating that the country imports more than exports made. Figure 8: External balance of goods and services of U.A.E. (Source: Trading Economics, 2014) Finally, unemployment status of the U.A.E. and France are compared. Higher unemployment in the economy indicates that with lower participation of the labour force in productive work, level of output in the economy falls and the workers lose their purchasing power. Persistent high unemployment is detrimental for the economy. Table 7: Unemployment rates of U.A.E. and France (Source: The World Bank, 2014) Figure 9: Graphical representation of Unemployment (Source: Author’s creation) These figures compare the level of unemployment rates in the U.A.E. and France. It can be seen that total unemployment in the U.A.E. is lower than that of France for the entire period under study. Analysis The weaker growth of the French economy in past decade compared to other countries of the European Union could be attributed to its economic difficulties and structural problems. It has been observed that France had invested less in technology and infrastructure compared to other developed countries like, the U.S.A. or Germany. As a consequence of increasing reliance on traditional sectors like, the automobile industry, growth of France has been less impressive (Miotti and Sachwald, 2004). An analysis of living standards in France has revealed that in comparison to the U.S.A., former had experienced a weaker growth. On overall comparison with other countries of the European Union, it has been found that France ranks among one of the best performers in terms of Better Life Index indicators. The GDP per capita of the country is one of the highest not only in Europe, but also in entire world. Access of the population to health services and social security in the country has improved over past few years so as to enhance its living standard (OECD, 2014). In case of the U.A.E., phenomenal growth has been observed in the past thirty years. The discovery of oil sector has mainly fuelled economic growth. The country has followed a consistent strategy of maximizing its economic growth based on heightening revenues from its oil sector. The high global demand of oil has pushed up fuel price, which has ensured major gains to the economy. However, the global financial crisis has adversely affected the level of economic growth and presently, the growth is shrinking. This is mainly because oil price is falling due to shortfall in global demand and weaker growth of energy intensive products has slowed down that of the U.A.E. In order to improve the situation, the government is increasingly promoting other sectors of the economy like, technology and infrastructure, in order to diversify the sources of economic growth. It has been pointed out that living standard of the U.A.E. is very high compared to that of other emerging countries like, India and China. The previous section have discussed that the level of GDP per capita in the country has fallen in previous decade, yet the standard of living is quite high. The U.A.E. can be considered as a middle-income country with basic benefits of health care, hygiene and living standard compared to that of a developed nation (Oxford Business Group, 2008). The previous decades have experienced very high flow of foreign direct investment between developed countries of the world. Countries and continents worldwide consider attracting foreign investment as an important strategy for generating economic development. France has been regarded as one of the countries to have consistently attracted foreign investments. The Central Bank of France has mentioned that rise in FDI could be attributed to intra-group loans that emphasizes on the role of special purpose entities. The French government has maintained a degree of openness towards foreign investment, which in turn has been successful in attracting FDI (IFA, 2012). In order to effectively attract foreign investment in the U.A.E., the department of planning and investment have estimated to spend more than $200 billion on infrastructure of the country. Liberalization of sectors, like, construction, had created massive inflows of foreign investment in the country. Passing of legislations like, 100% foreign ownership of business properties, have compelled a large number of companies to enter the U.A.E. (Pradhan, 2009). One of the major reasons for the growing trade deficit of France is its trade relations with China. China has become the biggest cause for the source of deficit in France, along with the largest trading partner. It has been estimated that France had incurred a trade deficit of $7 billion on account of China. Imports of electronic equipments, consumer electronics and textile and garments in France from China have raised the level of debt for the latter (Wang, 2008). Nevertheless, in case of the U.A.E., trade surplus has been registered. The basic reason behind this phenomenon is increasing diversification strategies within the country. Also, the level of non-oil exports and re-exports from the country has been rising, which has improved the trade surplus (Istaitieh, Hugo and Husain, 2007). A major factor for the rise in unemployment in France is heightening level of youth unemployment. Restricted mobility of the labour force is noticed both in terms of geographical mobility and vocational mobility. The social security net of the country is very strong, which reduces the incentive to find new jobs. These reasons have collectively increased the level of unemployment (Gineste, 2012). The major difference between the U.A.E. and France is that former has very low level of unemployment when compared to France or any other country. The main reason for the existing level of unemployment in the U.A.E. is low level of education prevalent and inadequate level of skills among individuals. A major characteristic of the labour force of the U.A.E. is that workforce majorly comprises foreign expatriates (Albuainain, 2010). In terms of future growth, conditions for France are anticipated to be favourable in the forthcoming years. Presently, political leaders are not being able to comprehend the country’s economic crisis, thereby further slowing down recovery of the economy. Trend analysis based on GDP growth forecasts has been done, which revealed that prospects for France would improve after 2020 (Figure 13 in appendix). France is likely to become one of the biggest economies of the European Union, provided it adopts adequate reforms in technology and innovation sectors. For the U.A.E., trend analysis has suggested that growth is expected to decline after 2020 (Figure 12 in appendix). One of the main reasons here is the fall in global oil demand and a paradigm shift towards alternative sources of energy. Therefore, in order to sustain the level of economic growth, the government should take adequate reforms for lessening reliance on oil sector of the economy, thereby paying more attention to non-oil sectors. Summary France U.A.E. Rate of GDP growth is lower in France. Standard of living of France is high. Youth unemployment in the country is very high and this has been a persistent problem even before the global economic crisis. Trade deficit of France is very high. Rate of GDP growth is higher in U.A.E. U.A.E. has considerably lower level of unemployment. Trade deficit of U.A.E. is not so high. Standard of living of France is high. Reference List Albuainain, R. M., 2010. Unemployment rate in the United Arab Emirates: The case of Abu Dhabi. [pdf] The General Women Union. Available at: [Accessed 25 June 2014]. CIA, 2014. The World Factbook. [online] Available at: [Accessed 25 June 2014]. Gineste, S., 2012. EEO Review: Long-term unemployment, 2012. [pdf] European Employment Observatory. Available at: [Accessed 25 June 2014]. IFA, 2012. France attractiveness scoreboard. [pdf] IFA. Available at: [Accessed 25 June 2014]. Istaitieh, A., Hugo, S. and Husain, N., 2007. UAE macroeconomic report. [pdf] Data Management and Business Research Department. Available at: [Accessed 25 June 2014]. Miotti, L. and Sachwald, F., 2004. The innovation challenge. [pdf] IFRI. Available at: [Accessed 25 June 2014]. OECD, 2014. OECD Better Life Index. [online] Available at: [Accessed 25 June 2014]. Oxford Business Group, 2008. The report: Dubai 2008. Oxford: Oxford Business Group. Pradhan, S., 2009. The UAE’s economic policy and the current global meltdown: An appraisal. [pdf] Gulf Research Center. Available at: [Accessed 25 June 2014]. The World Bank, 2014. Databank. [online] Available at: [Accessed 25 June 2014]. Trading Economics, 2014. External Balance on goods and services. [online] Available at: < http://www.tradingeconomics.com/france/external-balance-on-goods-and-services-us-dollar-wb-data.html> [Accessed 25 June 2014]. Wang, C., 2008. France‐China economic relations- Trade and investment. [pdf] CEIBS. Available at: [Accessed 25 June 2014]. Appendix Figure 10: Comparison of GDP of France and U.A.E. in absolute terms Figure 11: Comparison of GDP per capita of France and U.A.E. Figure 12: GDP forecast of U.A.E. Figure 13: GDP forecast of France Read More