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The vulnerability of small firms to price shocks may partly explain why fossil fuel subsidy removals in developing countries are so difficult to implement. This paper analyzes the effects of fuel and electricity price increases on profits of micro- and small-sized enterprises in Mexico. Using representative cross-sectional data, simulations of profit losses hint at potentially large short-term effects. First-order profit losses of a 1 per cent price increase are 0.2 per cent for fuels and 0.07 per cent for electricity, but are higher than 1 per cent for fuels in the transport sector. These effects are larger for formal than for informal firms, with energy-using low-profit firms being most vulnerable. Second-order impacts - predicted using estimated input-demand elasticities - indicate that firms react to price shocks by substituting labor for energy, while the self-employed appear to increase their own labor input. Reduced-form regressions show that some firms pass on higher fuel costs to customers.

AbstractThe vulnerability of small firms to price shocks may partly explain why fossil fuel subsidy removals in developing countries are so difficult to implement. This paper analyzes the effects of fuel and electricity price increases on profits of micro- and small-sized enterprises in Mexico. Using representative cross-sectional data, simulations of profit losses hint at potentially large short-term effects. First-order profit losses of a 1 per cent price increase are 0.2 per cent for fuels and 0.07 per cent for electricity, but are higher than 1 per cent for fuels in the transport sector. These effects are larger for formal than for informal firms, with energy-using low-profit firms being most vulnerable. Second-order impacts – predicted using estimated input-demand elasticities – indicate that firms react to price shocks by substituting labor for energy, while the self-employed appear to increase their own labor input. Reduced-form regressions show that some firms pass on higher fuel costs to customers.

Anthropogenic climate change, caused by greenhouse gas (GHG) emissions, will have negative if not catastrophic consequences for the livelihoods of many across the globe. With the Paris Agreement in 2015, most countries have pledged to reduce territorial GHG emissions. Per-capita emission levels are highest in today's rich countries, and many have started reducing their emissions. Current middle-income economies such as China, Ghana, India or Indonesia have experienced rapid economic, population, and emission growth in recent years, and today's poor countries are projected to be responsible ...

Anthropogenic climate change, caused by greenhouse gas (GHG) emissions, will have negative if not catastrophic consequences for the livelihoods of many across the globe. With the Paris Agreement in 2015, most countries have pledged to reduce territorial GHG emissions. Per-capita emission levels are highest in today's rich countries, and many have started reducing their emissions. Current middle-income economies such as China, Ghana, India or Indonesia have experienced rapid economic, population, and emission growth in recent years, and today's poor countries are projected to be responsible ...

With the inauguration of Joe Biden, the United States once again extends its hand to - relieved but wary - traditional partners and embraces the concept of strategic competition with Russia and China. The European Union sees more room for cooperation especially with China, which may, however, come with significant long-term costs. The hardening of fronts between democratic and authoritarian countries seems likely.
Even though the US wants to "earn back its position of trusted leadership," the EU and other partners have become wary of the North American country's reliability, as the political forces that brought Donald Trump to the presidency remain strong. Further, even though the US is pushing for a tougher stance against China, the EU is rather divided and has vested interests in continuing cooperation.
China and Russia have become increasingly aggressive, as the Crimea annexation, building of artificial islands with military bases in the South China Sea, and border clashes between Indian and Chinese military all showcase. China is increasingly weaponizing its economic power to exert influence on foreign countries such as Australia and continues to deny the existence of human rights abuses at home.
Selective decoupling by the US, and to some extent by the EU, has started. The latter for example recently established the European Raw Materials Alliance to become less dependent on imports.
The search for values-based alliances has begun as well. For instance, France and Germany initiated the Alliance for Multilateralism in 2019 to strengthen the rules-based international order. Partnerships with non-traditional allies from the Global South are crucial to help the multilateral liberal order survive, although it may lead to bloc-building between democratic and authoritarian regimes.
The rise of China will be the key determinant of international politics for decades to come. Continuing to cooperate with the country may come at great risk, as it helps an authoritarian regime to attain the status of global superpower - one that does not share democratic values and dismisses international law. The EU - but also other countries - will likely need to choose between emphasising a values-based or an all-inclusive multilateralism.

Mit dem Amtsantritt von Joe Biden reichen die Vereinigten Staaten von Amerika ihren traditionellen Partnern erneut die Hand und treten in strategischen Wettbewerb mit Russland und China. Die Europäische Union sieht mehr Raum für eine Zusammenarbeit vor allem mit China, die jedoch langfristig mit hohen Kosten verbunden sein kann.
Auch wenn die USA ihre "vertrauenswürdige Führungsposition" zurückgewinnen wollen, bleiben die EU und andere Partner misstrauisch, da die politischen Kräfte, die Donald Trump zur Präsidentschaft verholfen haben, weiterhin stark sind. Obwohl die USA auf eine härtere Gangart gegenüber China drängen, ist die EU eher gespalten und hat vor allem ökonomische Interessen an einer weiteren Zusammenarbeit.
China und Russland sind zunehmend aggressiver geworden, wie die Annexion der Krim, der Bau von künstlichen Inseln mit Militärstützpunkten im Südchinesischen Meer und die Grenzkonflikte zwischen dem indischen und dem chinesischen Militär zeigen. China setzt zudem seine wirtschaftliche Macht zunehmend als politisches Druckmittel ein und leugnet weiterhin die Menschenrechtsverletzungen im eigenen Land.
Die USA und bis zu einem gewissen Grad auch die EU haben mit einer selektiven Abkopplung der Wirtschaftsbeziehungen begonnen. Letztere hat beispielsweise vor kurzem die Europäische Rohstoffallianz gegründet, um weniger abhängig von Importen zu werden.
Auch die Suche nach wertebasierten Allianzen hat begonnen, wie zum Beispiel mit der von Frankreich und Deutschland im Jahr 2019 initiierten Allianz für Multilateralismus. Partnerschaften mit nichttraditionellen Verbündeten aus dem globalen Süden sind für das Überleben der multilateralen liberalen Ordnung entscheidend, auch wenn dies zu einer Blockbildung zwischen demokratischen und autoritären Regimen führen kann.
Der Aufstieg Chinas wird die internationale Politik in den kommenden Jahrzehnten entscheidend prägen. Die Fortsetzung der Zusammenarbeit kann mit großen Risiken verbunden sein, da sie einem autoritären Regime hilft, den Status einer globalen Supermacht zu erlangen. Dies, obwohl sie die demokratischen Werte nicht teilt und das Völkerrecht missachtet. Die EU, aber auch andere Länder werden sich wohl entscheiden müssen, ob sie den Schwerpunkt auf einen wertebasierten oder einen allumfassenden Multilateralismus legen.