Location: Global
Exposure to Violence and Prosocial Attitudes
This policy brief examines the academic literature on the impact of conflict exposure on pro-social behavior, a crucial component of resilience and societal cohesion. It also explores potential implications for public opinion, particularly in relation to Ukraine’s prospective EU accession and foreign relations.
Introduction
Since the full-scale invasion of Ukraine began on February 24, 2022, Russian forces have launched daily attacks with varying intensity. Living in a conflict zone profoundly affects individuals in multiple dimensions, including physical and mental health, as well as economic and social conditions. While reports often focus on the destruction of physical and human capital, social capital is equally affected by violence, influencing community resilience, cohesion, and cooperation. In conflict settings, identity can become more pronounced, particularly in distinguishing allies from adversaries.
This policy brief overviews the academic literature on this topic; the impact of conflict exposure on pro-social behavior broadly defined. This literature primarily examines post-conflict settings within the broader discourse on sustaining peace. It focuses on individuals directly engaged in combat or civilians directly affected by violence, particularly regarding the reintegration of former combatants and the rehabilitation of affected populations. As discussed below, results vary, depending on indicators used and the specific context. There is more consistent support for an impact on cooperation than on trust for instance. Another key finding in the literature is the differential behavior towards in-group members – those with whom individuals identify – versus out-group members, raising important questions about national identity and attitudes towards foreign allies. Based on this literature, the brief proceeds to discuss potential implications for public attitudes in Ukraine, focusing on Ukraine’s prospective EU accession.
Literature Overview
This review focuses on the empirical literature, though the theoretical basis spans psychology and the social sciences. Post-traumatic growth theory posits that adversity can foster positive change, whereas post-traumatic withdrawal theory suggests that violence exposure leads to distrust and social withdrawal. Economic arguments emphasize the need for rebuilding, enhanced safety concerns, or reduced time constraints for civic participation due to economic disruptions. Other perspectives highlight the detrimental effects of fragmented communities, given that trust and cooperation take time to develop, or suggest that individuals directly involved in violence may face social ostracization (see Fiedler 2023 for a detailed discussion).
Empirical studies on pro-social behavior employ diverse methodologies and data, including survey responses, indicators of political engagement, and controlled experiments measuring cooperation and trust. Methodology and research design vary, but most studies compare those with direct exposure to violence (treatment group) to those indirectly exposed (control group) within a post-conflict context. It is thus important to note that even the control group experiences some degree of conflict-related impact, meaning that studies specifically capture the effects of direct exposure.
Fiedler (2023), in a recent overview, categorizes the impact of violence into three main domains: personalized and political trust, cooperation, and political engagement. Most studies suggest a negative effect on trust, as seen in Kosovo (Kijewski & Freitag, 2018) and across Europe, the South Caucasus, and Central Asia post-World War II (Grosjean, 2014). Bauer et al. (2016) conducted a meta-analysis of 16 early studies measuring the effects of war violence on social participation, cooperation, and trust. When it came to trust, no significant impact of exposure to violence was found. Cassar et al. (2013) found that Tajik civil war survivors exhibited lower trust in close neighbors but not distant villagers, suggesting that intra-community political divisions played a role. However, a small number of studies report positive effects, such as Hall & Werner (2022), who found that victimized Syrian and Iraqi refugees in Turkey exhibited higher generalized trust.
In terms of cooperation, early studies overwhelmingly support a positive effect, including the meta-analysis of Bauer et al. (2016). For example, Bauer et al. (2014) held experimental games in Sierra Leone and Georgia, demonstrating that those directly exposed to violence exhibited greater altruism and inequality aversion. More recent work has come to different conclusions, however. Hager et al. (2019) found that Uzbek victims of violence in Kyrgyzstan were less cooperative in experimental games with both in-group and out-group members. Similarly, Cecchi & Duchoslav (2018) found that violence-exposed caregivers in Uganda contributed less in public goods games.
When it comes to political engagement, most studies find a positive effect, including the meta-analysis by Bauer et al. (2016) looking at participation in social groups and political engagement. Early and influential studies by Bellows & Miguel (2006, 2009), found that individuals in Sierra Leone with direct war exposure were more likely to participate in community meetings, elections, and social or political groups. Interestingly, while Kijewski & Freitag (2018) found that violence reduced trust in Kosovo, Freitag et al. (2019) found increased political participation in the same setting. Grosjean (2014) also reported a negative effect on trust but found that conflict victims were more likely to engage in civic organizations and collective action. These findings suggest that broad measures of prosocial behavior may be overly simplistic.
A common, and important, finding in much of the literature is with regards to differential behavior towards in-groups and out-groups. Bauer et al. (2014) found that exposure to violence increased altruism and inequality aversion only when interactions occurred within the in-group. Similar findings emerge in studies on soccer players in Sierra Leone (Cecchi et al., 2016) and trust experiments in Colombia (Francesco et al., 2023). Calvo et al. (2019) found that in conflict-affected areas of Mali, participation increased in kinship-based groups while it decreased in more inclusive organizations. Similarly, Mironova & Whitt (2016) found that Kosovars exhibited greater altruism and cooperation when interacting with in-group members. These findings align with research on parochial altruism in general, where cooperation and altruistic behavior are evolutionarily linked to in-group solidarity in response to external threats (e.g. Bernhard et al., 2006, Tajfel et al., 1979). There is thus a risk that social identity becomes more based on a narrow in-group (defined by ethnicity, religion, or language) potentially exacerbating societal divisions.
Implications for Ukraine
What do these insights imply for Ukraine? Given the context-dependent nature of the literature, definitive conclusions are challenging. Two studies on conflict exposure in eastern Ukraine offer preliminary insights. Mironova & Whitt (2021) examined fairness preferences among young Ukrainian men in Donbas, finding that, while no bias against ethnic Russians existed at the onset of violence in 2014, such bias increased after a year of conflict – particularly among non-combatants, contradicting typical patterns in the literature. Coupe & Obrizan (2016) used survey data from November 2014, showing that direct exposure to violence affected political behavior: physical damage reduced voter turnout, while property damage increased support for Western-leaning parties and stronger opposition to Russian aggression.
The strong effect on non-combatants in Mironova & Whitt (2021) highlights a key limitation in the literature – findings on direct exposure may not generalize to entire populations under invasion. Comparing directly and indirectly exposed individuals does not capture the broader societal impact, potentially leading to an overly optimistic view of conflict-induced prosocial behavior. If everyone is negatively affected, those with direct exposure to violence may simply be impacted a little less.
Of particular interest is how the war shapes national identity, in-group perceptions, and political preferences. These dynamics matter for domestic cohesion, interethnic relations, and Ukraine’s foreign policy trajectory. Focusing on the latter, the EU and the U.S. have provided substantial support during the full-scale invasion but delays and insufficiencies in aid may influence perceptions of these allies. EU accession presents economic benefits but entails lengthy and costly reforms with uncertain outcomes. Additionally, shifting U.S. policies and emerging geopolitical alignments may alter Ukrainian attitudes toward Western institutions.
Terror management theory (Landau et al., 2004) suggests that fear strengthens support for charismatic leadership, which, in fragile democratic settings, may favor more authoritarian tendencies. If Western democratic institutions lose appeal, this could negatively impact Ukraine’s political engagement, trust in allies, and willingness to align with European values, which are crucial for successful EU integration.
Conclusions
This review examined the literature on exposure to violence and prosocial behavior, discussing implications for Ukraine’s societal resilience and international alignment. The findings suggest no universal relationship between conflict exposure and prosociality; instead, effects vary depending on the recipient of trust, cooperation, and engagement. Generally, prosocial behavior increases within in-groups, while attitudes toward out-groups may remain unchanged or worsen. In the Ukrainian context, this has ramifications for internal cohesion and external diplomatic relations, particularly regarding the country’s path toward EU membership.
vReferences
- Bauer, M., Blattman, C., Chytilová, J., Henrich, J., Miguel, E., & Mitts, T. (2016). Can War Foster Cooperation? Journal of Economic Perspectives, 30(3), 249–274.
- Bauer, M., Cassar, A., Chytilová, J., & Henrich, J. (2014). War’s Enduring Effects on the Development of Egalitarian Motivations and In-Group Biases. Psychological Science, 25(1), 47–57.
- Bellows, J., & Miguel, E. (2006). War and Institutions: New Evidence from Sierra Leone. American Economic Review, 96(2), 394–99.
- Bellows, J., & Miguel, E. (2009). War and Local Collective Action in Sierra Leone. Journal of Public Economics, 93(11–12), 1144–57.
- Bernhard, H., Fehr, E., & Fischbacher, U. (2006). Group Affiliation and Altruistic Norm Enforcement. American Economic Review, 96(2), 217–221.
- Calvo, T., Lavallée, E., Razafindrakoto, M., & Roubaud, F. (2019). Fear Not for Man? Armed Conflict and Social Capital in Mali. Journal of Comparative Economics, 48(2), 251–76.
- Cassar, A., Grosjean, P. A., Khan, F. J., & Lambert, M. (2022). Mothers, Fathers and Others: Competition and Cooperation in the Aftermath of Conflict. UNSW Business School Research Paper.
- Cecchi, F., Duchoslav, J. (2018). The Effect of Prenatal Stress on Cooperation: Evidence from Violent Conflict in Uganda. European Economic Review, 101, 35–56.
- Cecchi, F., Leuveld, K., & Voors, M. (2016). Conflict Exposure and Competitiveness: Experimental Evidence from the Football Field in Sierra Leone. Economic Development and Cultural Change, 64(3), 405-435.
- Coupé, T., & Obrizan, M. (2016). Violence and political outcomes in Ukraine—Evidence from Sloviansk and Kramatorsk. Journal of Comparative Economics, 44(1), 201-212.
- Fiedler, C. (2023). What Do We Know about How Armed Conflict Affects Social Cohesion? A Review of the Empirical Literature. International Studies Review.
- Francesco, B., Gómez, C., & Grimalda, G. (2023). Crime-related exposure to violence and prosocial behavior: Experimental evidence from Colombia. Journal of Behavioral and Experimental Economics, 104.
- Freitag, M., Kijewski, S., & Oppold, M. (2019). War Experiences, Economic Grievances, and Political Participation in Postwar Societies: an Empirical Analysis of Kosovo. Conflict Management and Peace Science, 36(4), 405–24.
- Grosjean, P. (2014). Conflict and Social and Political Preferences: Evidence from World War II and Civil Conflict in 35 European Countries. Comparative Economic Studies, 56(3), 424–51.
- Hager, A., Krakowski, K., & Schaub, M. A. X. (2019). Ethnic Riots and Prosocial Behavior: Evidence from Kyrgyzstan. American Political Science Review, 113(4), 1029–44.
- Hall, J., & Werner, K. (2022). Trauma and Trust: How War Exposure Shapes Social and Institutional Trust among Refugees. Frontiers in Psychology, 13, 786838.
- Kijewski, S., & Freitag, M. (2018). Civil War and the Formation of Social Trust in Kosovo: Post-traumatic Growth or War-Related Distress? Journal of Conflict Resolution, 62(4), 717–42.
- Landau, M. J., Solomon, S., Greenberg, J., Cohen, F., Pyszczynski, T., Arndt, J., Miller, C. H., Ogilvie, D. M., & Cook, A. (2004). Deliver us from Evil: The Effects of Mortality Salience and Reminders of 9/11 on Support for President George W. Bush. Personality and Social Psychology Bulletin, 30(9), 1136–1150.
- Mironova, V., & Whitt, S. (2016). Social Norms after Conflict Exposure and Victimization by Violence: Experimental Evidence from Kosovo. British Journal of Political Science, 48(3), 749–65.
- Mironova, V., & Whitt, S. (2021). Conflict and parochialism among combatants and civilians: Evidence from Ukraine. Journal of Economic Psychology, 86.
- Tajfel, H., Turner, J. C., Austin, W. G., & Worchel, S. (1979). An integrative theory of intergroup conflict. Organizational Identity: A Reader, 56-65.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Ukraine’s Fight Is Our Fight: The Need for Sustained International Commitment
We are at a critical juncture in the defense of Ukraine and the liberal world order. The war against Ukraine is not only a test of Europe’s resilience but also a critical moment for democratic nations to reaffirm their values through concrete action. This brief examines Western support to Ukraine in the broader context of international efforts, putting the order of magnitudes in perspective, and emphasizing the west’s superior capacity if the political will is there. Supporting Ukraine to victory is not just the morally right thing to do, but economically rational from a European perspective.
As the U.S. support to the long-term survival of Ukraine is becoming increasingly uncertain, European countries need to step up. This is a moral obligation, to help save lives in a democratic neighbor under attack from an autocratic regime. But it is also in the self-interest of European countries as the Russian regime is threatening the whole European security order. A Russian victory will embolden the Russian regime to push further, forcing European countries to dramatically increase defense spending, cause disruptions to global trade flows, and generate another wave of mass-migration. This brief builds on a recent report (Becker et al., 2025) in which we analyze current spending to support Ukraine, put that support in perspective to other recent political initiatives, and discuss alternative scenarios for the war outcome and their fiscal consequences. We argue that making sure that Ukraine wins the war is not only the morally right thing to do, but also the economically rational alternative.
The International Support to Ukraine
The total support provided to Ukraine by its coalition of Western democratic allies since the start of the full-scale invasion exceeded by October 2024 €200 billion. This assistance, that includes both financial, humanitarian and military support, can be categorized in various ways, and its development over time can be analyzed using data compiled by the Kiel Institute for the World Economy. A summary table of their estimates of aggregate support is provided below.
A particularly relevant aspect in light of recent news is that approximately one-third of total disbursed aid has come from the United States. The U.S. has primarily contributed military assistance, accounting for roughly half of all military aid provided to Ukraine. In contrast, the European Union—comprising both EU institutions and bilateral contributions from member states—stands as the largest provider of financial support. This financial assistance is crucial for sustaining Ukraine’s societal functions and maintaining the state budget.
Table 1. International support to Ukraine, Feb 2022 – Oct 2024
Source: Trebesch et al. (2024).
Moreover, the EU has signaled a long-term commitment to provide, in the coming years, an amount comparable to what has already been given. This EU strategy ensures greater long-term stability and predictability, guaranteeing that Ukraine has reliable financial resources to sustain state operations in the years ahead. Consequently, while a potential shift in U.S. policy regarding future support could pose challenges, it would not necessarily be insurmountable.
What is crucial is that Ukraine’s allies remain adaptable, and that the broader coalition demonstrates the ability to adjust its commitments, as this will be essential for sustaining the necessary level of assistance moving forward.
Putting the Support in Perspective
To assess whether the support provided to Ukraine is truly substantial, it is essential to place it in context through meaningful comparisons. One approach is to examine it in historical terms, particularly in relation to past instances of large-scale military and financial assistance. A key historical benchmark is the Second World War, when military aid among the Allied powers played a decisive role in shaping the outcome of the conflict. Extensive resources were allocated to major military operations spanning multiple continents, with the United States and the United Kingdom, in particular, dedicating a significant share of their GDP to support their allies, including the Soviet Union, France, and other nations. As seen in Figure 1, by comparison, the current level of aid to Ukraine, while substantial and essential to its defense, remains considerably smaller in relation to GDP.
Figure 1. Historical comparisons
Source: Trebesch et al. (2024).
Another way to assess the scale of support to Ukraine is by comparing it to other major financial commitments made by governments in response to crises. While the aid allocated to Ukraine is significant in absolute terms, it remains relatively modest when measured against the scale of other programs, see Figure 2.
A recent example is the extensive subsidies provided to households and businesses to mitigate the impact of surging energy prices since 2022. Sgaravatti et al. (2021) concludes that most European countries implemented energy support measures amounting to between 3 and 6 percent of GDP. Specifically, Germany allocated €157 billion, France and Italy each committed €92 billion, the UK spent approximately €103 billion. These figures represent 5 to 10 times the amount of aid given to Ukraine so far, with some countries, such as Italy, allocating even greater relative sums. On average, EU countries have spent about five times more on energy subsidies than on Ukraine aid. Only the Nordic countries and Estonia have directed more resources toward Ukraine than toward energy-related support. Although not all allocated funds have been fully disbursed, the scale of these commitments underscores a clear political and financial willingness to address crises perceived as directly impacting domestic economies.
Figure 2. EU response to other shocks (billions of €)
Source: Trebesch et al. (2024).
Another relevant comparison is the Pandemic Recovery Fund, also known as Next Generation EU. With a commitment of over €800 billion, this fund represents the EU’s comprehensive response to the economic consequences of the Covid-19 pandemic. Again, the support to Ukraine appears comparatively small, about one seventh of the Pandemic Recovery Fund.
The support to Ukraine is also much smaller in comparison to the so-called “Eurozone bailout”, the financial assistance programs provided to several Eurozone member states (Greece, Ireland, Spain and Portugal) during the sovereign debt crisis between 2010 and 2012. The programs were designed to stabilize the economies hit hard by the crisis and to prevent the potential spread of instability throughout the Eurozone.
Overall, the scale of these commitments underscores a clear political and financial willingness and ability to address crises perceived as directly impacting domestic citizens. This raises the question of whether the relatively modest support for Ukraine reflects a lack of concern among European voters. However, this does not appear to be the case. In survey data from six countries – Belgium, Germany, Hungary, Italy, the Netherlands, and Poland – fielded in June 2024, most respondents express satisfaction with current aid levels, and a narrow majority in most countries even supports increasing aid (Eck and Michel, 2024).
A further illustration comes from the Eurobarometer survey conducted in the spring of 2024 which asked: “Which of the following [crises] has had the greatest influence on how you see the future?”. Respondents could choose between different crises, including those mentioned above, and the full-scale invasion of Ukraine.
Figure 3 illustrates the total commitments made by EU countries for Ukraine up until October 31, 2024, compared to other previously discussed support measures, represented by the blue bars. The yellow bars, on the other hand, show a counterfactual allocation of these funds, based on public priorities as indicated in the Eurobarometer survey. Longer yellow bars indicate that a higher proportion of respondents perceived this crisis as having a greater negative impact on their outlook for the future. By comparing the actual commitments (blue bars) with this hypothetical allocation (yellow bars)—which reflects how resources might have been distributed if they aligned with the population’s stated priorities—it becomes evident that there is substantial public backing for maintaining a high level of support for Ukraine. The results show that the population prioritizes the situation in Ukraine above several other economic issues, including those that directly affect their own personal finances.
Figure 3. Support to Ukraine compared to other EU initiatives – what do voters think?
Source: Trebesch et al. (2024); Niinistö (2024); authors’ calculations.
The Costs of Not Supporting Ukraine
When discussing the costs of support to Ukraine it is important to understand what the correct counterfactual is. The Russian aggression causes costs for Europe irrespective of what actions we take. Those costs are most immediately felt in Ukraine, with devastating human suffering, the loss of lives, and a dramatic deterioration in all areas of human wellbeing. Also in the rest of Europe, though, the aggression has immediate costs, in the economic sphere primarily in the form of dramatically increased needs for defense spending, migration flows, and disruptions to global trade relationships. These costs are difficult to determine exactly, but they are likely to be substantially higher in the case of a Russian victory. Binder and Schularik (2024) estimate increased costs for defense, increased refugee reception and lost investment opportunities for the German industry at between 1-2 percent of GDP in the coming years. As they put it, the costs of ending aid to Ukraine are 10-20 times greater than continuing aid at Germany’s current level.
Any scenario involving continued Russian aggression would demand substantial and sustained economic investments in defense and deterrence across Europe. Clear historical parallels can be drawn looking at the difference in countries’ military spending during different periods of threat intensity. Average military spending in a number of Western countries during the Cold War (1949-1990) was about 4.1 percent of GDP, much higher in the U.S. but also in Germany, France and the UK. In the period after 1989-1991 (the fall of the Berlin Wall, the dissolution of the Soviet Union), the amounts fell significantly. The average for the same group of countries in this period is about 2 percent of GDP and only 1.75 percent if the U.S. is excluded.
Also after 1991 there is evidence of how perceived threats affect military spending. Figure 4 plots the change in military spending over GDP between 2014-2024 against the distance between capital cities and Moscow. The change varies between 0 (Cyprus) and around 2.25 (Poland) and shows a very clear positive correlation between increases in spending and proximity to Moscow. There has also in general been a substantial increase in military spending after 2022 in several European countries, but in a scenario where Russia wins the war, these will certainly have to be increased further and maintained at a high level for longer. An increase in annual military expenditure in relation to GDP in the order of one to two percentage points would mean EUR 200-400 billion per year for the EU, while the total EU support to Ukraine from 2022 to today is just over €100 billion.
Figure 4. Increase in military expenditures in relation to distance to Moscow
Source: SIPRI data, authors’ calculations.
A Russian victory would also have profound consequences for migration flows, with the most severe effects likely in the event of Ukraine’s surrender. The Kiel Institute estimates the cost of hosting Ukrainian refugees at €26.5 billion (4.2 percent of GDP) for Poland, one of the countries that received the largest flows. Beyond migration, a Russian victory would also reshape the global geopolitical order. Putin has framed the war as a broader conflict with the U.S. and its democratic allies, while an emerging alliance of Russia, Iran, North Korea, and China is positioning itself as an alternative to the Western-led system. A Ukrainian defeat would weaken the authority of the U.S., NATO, and the rules-based international order, potentially driving more nations in the Global South toward authoritarian powers for military and economic support. This shift could disrupt global trade, affect access to food, metals, and energy. Estimating the full economic impact of such a shift is difficult, but comparisons can be drawn with other global shocks. The European Union’s GDP experienced a significant contraction due to the Covid-19 pandemic, 5.9 percent contraction in real GDP according to Eurostat, 6.6 percent according to the European Central Bank. While the economy rebounded relatively quickly from the pandemic, a permanent geopolitical realignment caused by a Russian victory would likely have far more severe and lasting economic consequences.
Given that Ukraine is at the forefront of Russia’s aggression, its resilience serves as a critical test of Europe’s ability to withstand potential future threats. Thus, strengthening our own security and economic stability in the long term is inseparable from strengthening Ukraine’s resilience now. The fundamental difference lies in the long-term trajectory of these investments. In a scenario where Ukraine is victorious, military and financial aid during the war would eventually transition into reconstruction efforts and preparations for the country’s integration into the EU. This outcome is undeniably more favorable—both economically and in humanitarian terms—not only for Ukraine but for Europe as a whole. Therefore, an even more relevant question is whether the level of support is enough for Ukraine to win the war.
Is Sufficient Support Feasible?
Is it even reasonable to think that we in the West could be able to support Ukraine in such a way that they can militarily defeat Russia? Russia is spending more on its war industry than it has since the Cold War. In 2023, it spent about $110 billion (about 6 percent of GDP). By 2024, this figure is expected to have increased to about $140 billion (about 7 percent of GDP). These amounts are huge and represent a significant part of Russia’s state budget, but they are not sustainable as long as sanctions against Russia remain in place (SITE, 2024). For the EU, on the other hand, the sacrifices needed to match this expenditure would not be as great. The EU’s GDP is about ten times larger than Russia’s, which means that in absolute terms the equivalent amount is only 0.6-0.7 percent of the EU’s GDP. If the U.S. continues to contribute, the share falls to below 0.3 percent of GDP.
Despite the economic advantage of Ukraine’s allies over Russia, several factors could still shift the balance of power in Russia’s favor. One key issue is military production capacity—Russia has consistently outproduced Ukraine’s allies in ammunition and equipment. While Western economies have the resources to manufacture superior weaponry, actual production remains insufficient, requiring both increased capacity and political will. Another challenge is cost efficiency. Military purchasing power parity estimates suggest that Russia can produce approximately 2.5 times more military equipment per dollar than the EU, giving it a cost advantage in volume production. However, this does not fully compensate for its overall economic disadvantage, particularly when factoring in quality differences.
Manpower is also a critical factor. Russia’s larger population allows for sustained mobilization, but at a steep financial cost. Soldiers are recruited at a minimum monthly salary of $2,500, with additional bonuses bringing the first-year cost per recruit to three times the average Russian annual salary. Compensation for injured and fallen soldiers further strains state finances, with estimated payouts reaching 1.5 percent of Russia’s GDP between mid-2023 and mid-2024. Over time, these costs limit Russia’s ability to fund its war effort, making mass mobilization financially unsustainable.
Overall, advanced Western weaponry and superior economic capacity can match Russia’s advantage in manpower if the political will is there. Additionally, Russia’s already fragile demographic situation is deteriorating due to battlefield losses and wartime emigration. Any measure that weakens Russia’s economic capacity—particularly through sanctions and embargoes—diminishes the strategic advantage of its larger population and serves as a crucial complement to military and financial support for Ukraine.
Conclusion
Ukraine’s western allies have provided the country with substantial military and financial support since the onset of the full-scale invasion. Yet, relative to the gravity of the risks involved, previous responses to economic shocks, and citizens’ concerns about the situation, the support is insufficient. The costs of a Russian victory will be higher for Europe, even disregarding the human suffering involved. With U.S. support potentially waning, EU needs to pick up leadership.
References
- Becker, Torbjörn; and Anders Olofsgård; and Maria Perrotta Berlin; and Jesper Roine. (2025). “Svenskt Ukrainastöd i en internationell kontext: Offentligfinansiella effekter och framtidsscenarier”, Commissioned by the Swedish Fiscal Policy Council.
- Binder, J. & Schularick, M. (2024). “Was kostet es, die Ukraine nicht zu unterstützen?” Kiel Policy Brief No. 179.
- Eck, B & Michel, E. (2024). “Breaking the Stalemate: Europeans’ Preferences to Expand, Cut, or Sustain Support to Ukraine”, OSF Preprints, Center for Open Science.
- Niinistö, S. (2024) .“Safer Together – Strengthening Europe’s Civilian and Military Preparedness and Readiness” European Commission Report.
- Sgaravatti, G., S. Tagliapietra, C. Trasi and Zachmann, G. (2021). “National policies to shield consumers from rising energy prices”, Bruegel Datasets, first published 4 November 2021.
- SITE. (2024). “The Russian Economy in the Fog of War”. Commissioned by the Swedish Government.
- Trebesch, C., Antezza, A., Bushnell, K., Bomprezzi, P., Dyussimbinov, Y., Chambino, C., Ferrari, C., Frank, A., Frank, P., Franz, L., Gerland, C., Irto, G., Kharitonov, I., Kumar, B., Nishikawa, T., Rebinskaya, E., Schade, C., Schramm, S., & Weiser, L. (2024). “The Ukraine Support Tracker: Which countries help Ukraine and how?” Kiel Working Paper No. 2218. Kiel Institute for the World Economy.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Road Congestion Pricing with A Public Transport Cashback Mechanism
Traffic jams are a major problem in cities leading to wasted time, air pollution, reduced accessibility, and, in turn, lower economic activity. Transport economists widely agree that charging drivers fees for using busy roads during rush hours (congestion pricing) is the best answer to road congestion problems. However, such a policy is rarely used, mostly because people see it as unfair in how it affects different income groups. We propose an innovative personalized public transport cashback mechanism to make congestion pricing more acceptable. Recent surveys in Riga and Vienna show that people are more willing to support the introduction of congestion pricing when it includes a cashback component.
Road Congestion Pricing and Its Discontent
Road Congestion Pricing
Traffic jams happen when too many cars at the same place and at the same time use a road of a limited capacity. Building new roads or lanes is expensive, especially in cities, and it only provides short- and medium-term traffic improvements, with little impact on congestion in the long term (Ossokina et al., 2023; Hymel, 2019). Duranton and Turner (2011) show that when major roads are expanded, more people start using them and, over time, congestion returns to the same level as before. Meanwhile, a travel mode shift from cars to public transport and bicycles also requires investments and is difficult to implement in practice.
Dynamic congestion pricing, when road tolls vary based on the time of day, is designed to spread out traffic flow over time without the need to expand road infrastructure (Small and Verhoef, 2007). Notably, this approach does not aim to reduce the total number of cars on the road. Instead, it encourages them to spread their travel times more evenly, ensuring that the road capacity can handle the traffic without congestion.
Dynamic congestion pricing typically works as follows: there is no charge at night, the toll is small in the early morning, then it gradually increases during the morning until it reaches its peak. The toll then decreases in the afternoon before rising again during the evening. This system works in a congestion zone, which is usually the busiest areas of a city. When a car enters the zone, video cameras automatically identify it without stopping the car. There are no toll booths on the streets – an electronic system calculates the toll based on the time of day and charges the driver automatically through a linked account. Cities can tailor the system to fit their specific geography and infrastructure, offering exemptions for certain vehicles and pass-through traffic (for practical examples, visit the Swedish Transport Agency’s website to learn more about congestion pricing in Stockholm and Gothenburg).
By reducing the number of cars during congested hours, such dynamic pricing benefits both the city and its residents:
- (i) Drivers enjoy faster travel times as road toll allows them to gain time in exchange for money. For example, in the morning, drivers can leave for work later as they no longer need to account for time spent in traffic jams.
- (ii) Non-drivers enjoy congestion-free neighborhoods with improved air quality and overall higher quality of life.
- (iii) The city can tackle congestion without making large investments in new roads. The funds collected from drivers not only cover the toll system maintenance, but also contribute to the cost of the infrastructure they use. The funds may also be used to improve public transportation.
Low Public Acceptability
In light of the benefits of congestion pricing, it seems surprising that very few cities actually use it. Notable examples include London, Singapore, Stockholm and Gothenburg. New York City introduced its congestion charge on the 5th of January 2025, the first in the US. This stands in stark contrast to paid on-street parking, another transport policy measure that has been successfully implemented in almost every large city across Europe. The disparity arises because the general public often sees congestion pricing as an additional tax, believing it unfairly affects lower-income individuals. Presumably, low-income individuals have less flexible work schedules and fewer travel choices, making it harder for them to avoid traveling during high-toll periods (Selmoune et al., 2020). Moreover, they would spend a larger share of their income on road tolls compared to wealthier drivers, which makes congestion pricing a regressive policy.
Even though congestion pricing is not a tax and is not meant to redistribute funds, it may still appear as such to the public. This perception leads to vocal public resistance to road pricing which, in turn, discourages politicians from implementing the policy. Another reason for public skepticism is a lack of trust in politicians and municipal officials to manage the collected funds effectively, with concerns that the money may not be spent in ways that benefit the city.
Public Transport Cashback
Cashback Mechanism
To address the perceived unfairness of congestion pricing and fears about the misuse of collected funds, we propose a personalized public transport cashback mechanism – a novel approach that has not yet been implemented anywhere. Instead of collecting the tolls, we suggest immediately transferring the money back to drivers in the form of public transport vouchers or cashback. That is, when a driver pays road toll, almost the entire amount is credited directly to their personal public transport account/card as cashback, while a small portion of the toll is retained to cover maintenance costs of the road pricing system. The cashback can only be used to pay for public transport. Since the road toll is returned to drivers in the form of public transport cashback, there is no need for money redistribution by public authorities.
Our pricing mechanism retains the core feature of conventional dynamic road pricing: the road toll motivates drivers to adjust their travel times, helping to prevent traffic jams. The toll values are likely to be different though, as the toll now has additional value to drivers who might use the cashback for public transport. While this feature reduces the efficiency of the toll compared to conventional congestion pricing, the cashback mechanism also introduces a new beneficial property. By motivating some drivers to occasionally switch to public transport, it further reduces car use and helps ease congestion. The interplay between these two factors ultimately determines the required congestion toll values.
The cashback can be accumulated over several years and is non-transferable to prevent drivers from using their cars more often. The cashback mechanism would likely work for private cars only, though exceptions and specific features can be adjusted to local circumstances. Public transport companies are likely to benefit from additional revenue through increased ticket sales and unused, expired cashback. However, since public transport ticket prices do not always cover the full cost of providing the service, it is important to balance the additional costs of implementing the cashback mechanism with the expected revenue gains. This could potentially be done by reducing the cashback portion relative to the toll share retained for system maintenance.
However, congestion pricing with a cashback mechanism is not a standalone solution or a silver bullet. It works best when combined with improvements of the public transport network, as this encourages drivers to make regular use of their cashback.
Transport Survey Data
The key idea behind the cashback mechanism is that it gives drivers direct and transparent control of their money, which is expected to make road pricing policy more acceptable. Whether this holds true or not is an empirical matter. This was tested by considering the means of a representative survey conducted in Riga (Latvia) and Vienna (Austria) in the summer of 2024. The survey includes 1,000 residents in both capitals and their respective surrounding municipalities. It features questions about respondents’ socio-demographic characteristics, current travel options, commute patterns (including accompanying trips with children), and their political and social attitudes. It also includes two stated-choice experiments exploring the acceptability of congestion pricing and potential changes in travel behaviour if such pricing is introduced. While detailed data analysis is still ongoing, this policy brief highlights some intriguing preliminary insights.
In the survey, we ask the respondents whether they would vote in a referendum in favor of congestion pricing under four different scenarios for using the collected toll funds: (i) transferring them as a public transport cashback, (ii) sharing them equally among all city inhabitants, (iii) leaving the allocation decisions to local politicians, or (iv) using them to support eco-friendly transport. Respondents were familiarized with the topic before answering the question by participating in a stated-choice experiment about congestion pricing acceptability. The experiment included a detailed explanation of how congestion pricing works, along with a potential congestion zone map. Figure 1 shows responses from Riga, and Figure 2 from Vienna.
Figure 1. Responses from Riga. “Would you support congestion pricing in a referendum if the collected toll funds were used this way?”
Source: Representative survey in Riga in summer 2024.
Figure 2. Responses from Vienna. “Would you support congestion pricing in a referendum if the collected toll funds were used this way?”
Source: Representative survey in Vienna in summer 2024.
In Riga, the cashback option is the most popular, with more participants supporting than opposing it. The overall positive attitude towards congestion pricing with the cashback option suggests that Riga might already be ready to implement it. In Vienna, the cashback ranks a close second after the green transport option. This result shows that cashback might be a viable option also in Vienna.
Conclusion
To overcome public skepticism towards road congestion pricing, we propose a cashback mechanism. It involves returning toll money back to drivers as public transport cashback. The cashback mechanism has several benefits: drivers retain some control of their money, there is no need to redistribute collected toll funds, and it helps reduce congestion without major investments in road infrastructure. Surveys in Riga and Vienna in 2024 show support for the cashback option. While the specifics of such a solution should be tailored to each city’s needs, many cities struggling with congestion could benefit from implementing road congestion pricing with a public transport cashback mechanism.
Acknowledgment
This policy brief is based on a collaborative research effort by economists Sergejs Gubins from Riga (BICEPS) and Stefanie Peer and Martina Reggerova from Vienna (WU) as part of the “Tolls That Work” project, supported by the ERA-NET research grant. Agreement No ES RTD/2023/11. See project updates on the webpage:
https://www.wu.ac.at/en/spatialeconomics/projects/city-tolls-that-work
References
- Duranton, G., & Turner, M. A. (2011). The fundamental law of road congestion: Evidence from US cities. American Economic Review, 101(6), 2616–2652. https://doi.org/10.1257/aer.101.6.2616
- Hymel, K. (2019). If you build it, they will drive: Measuring induced demand for vehicle travel in urban areas. Transport Policy, 76, 57–66. https://doi.org/10.1016/j.tranpol.2018.12.006
- Ossokina, I. V., van Ommeren, J., & van Mourik, H. (2023). Do highway widenings reduce congestion? Journal of Economic Geography, 23(4), 871–900. https://doi.org/10.1093/jeg/lbad025
- Selmoune, A., Cheng, Q., Wang, L., & Liu, Z. (2020). Influencing factors in congestion pricing acceptability: A literature review. Journal of Advanced Transportation, 2020, 4242964, 11 pages. https://doi.org/10.1155/2020/4242964
- Small, K. A., & Verhoef, E. T. (2007). The economics of urban transportation. London: Routledge.
- The Swedish Transport Agency. https://www.transportstyrelsen.se/en/road/vehicles/taxes-and-fees/road-tolls/congestion-taxes-in-stockholm-and-gothenburg
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
How Social Assistance Shapes Election Outcomes: The Case of Georgia
This policy brief investigates the relationship between social assistance programs and election outcomes in Georgia, focusing on the 2024 parliamentary elections. Our regression analysis establishes a statistically significant link between an increase in social assistance beneficiaries and the vote share obtained by the incumbent Georgian Dream party. The results raise critical questions about the potential use of social assistance programs as a strategic political tool. Specifically, a 1 percentage point increase in targeted social assistance beneficiaries as a share of the population lead to an, on average, 0.5 percentage point increase in the Georgian Dream’s vote share, even after controlling for poverty-related factors. The findings recognize the dual impact of social assistance programs – alleviating poverty while shaping political behavior. They also underscore the need for ensuring that social assistance remains focused on addressing the needs of vulnerable populations without exerting undue political influence.
Introduction
The relationship between social assistance programs and electoral outcomes has gathered significant attention in both academic and policy circles, especially in the last decade. Social assistance programs, designed to support vulnerable populations, often carry political implications, particularly in developing democracies where incumbent governments may leverage these programs to secure voter loyalty. In Georgia, one of the largest components of social assistance is the targeted living allowance program, which, unlike other types of social assistance – such as those for individuals with special needs, internally displaced people, or elderly population –relies on assessing the beneficiaries’ poverty levels through proxy means testing (PMT). This makes subsistence allowance benefits vulnerable to biased, favorable selection by those in power. Allegations exist that the government may have strategically used this program, including increasing the number of beneficiaries in the lead-up to elections to secure votes or threatening existing beneficiaries with the withdrawal of their assistance based on their disclosed political preferences (Shubladze (2024); Japaridze (2023); Social Justice Center (2024)).
This policy brief explores the impact of social assistance on electoral outcomes in Georgia, specifically assessing whether increases in the number of targeted subsistence allowance beneficiaries during the 2020-2024 period influenced the votes received by the incumbent party in the 2024 parliamentary elections.
This analysis is especially important given the recent developments in Georgia’s political landscape. The 2024 parliamentary elections marked a critical juncture, with the Georgian Dream claiming to have secured 53.93 percent of the votes. Concerns over the fairness and transparency of the elections have been widespread. The Organization for Security and Co-operation in Europe’s (OSCE) Office for Democratic Institutions and Human Rights (ODIHR) reported systematic election irregularities, including pressure on voters, media bias, unequal campaign conditions, and election-day practices that compromised the ability of some voters – including public sector employees and recipients of social assistance – to cast their ballots without fear of retribution.
Our regression analysis documents a positive relationship between the number of living allowance beneficiaries and the votes garnered by the incumbent party across Georgian municipalities, raising further concerns about the integrity of the electoral process, and the allocation of state funds.
Political Implications of Social Assistance Programs: A Global Perspective
The link between social assistance and electoral outcomes has been widely studied. Social assistance programs often serve a dual purpose: they alleviate poverty and provide tangible support to vulnerable citizens while also shaping political behavior, particularly voting patterns. These programs can enhance incumbents’ electoral support by fostering gratitude among recipients, signaling government competence in addressing social needs, or creating concerns among beneficiaries that their political preferences if exposed, may influence the government’s decisions when choosing the beneficiaries of social assistance.
Research by De La O (2013) provides a compelling case in the context of Mexico. Examining the Progresa/Oportunidades conditional cash transfer program, De La O find that the program led to an increase in both voter turnout and incumbent vote share.
Zucco (2013) contributes further evidence from Brazil, where the Bolsa Família conditional cash transfer program emerged as a cornerstone of electoral strategy. Zucco demonstrates that municipalities with higher proportions of cash transfer beneficiaries tended to favor incumbent candidates in three different presidential elections, establishing a clear link between social assistance and voting behavior.
Adding to this body of work, Layton & Smith (2015) provide further insight into the nuanced ways in which targeted social assistance programs influence voter behavior in Latin America. The authors theorize that such programs simultaneously mobilize non-voters and convert opposition supporters, with variations based on country-level political and programmatic differences.
In addition, recent research from Indonesia further illustrates the impact of social assistance budgets on electoral outcomes. A study by Dharma, Syakhroza, and Martani (2022) examines 212 regencies and cities in Indonesia where incumbents participated in local elections. The findings reveal a direct positive effect of social assistance spending on incumbent votes. The authors further claim that high political competition counteracts incumbents’ advantages and mitigates the effectiveness of such spending.
The international literature thus provides valuable motivation for exploring the Georgian case, where social assistance may play a similar role in shaping voting behavior.
The Georgian Context
The deeply controversial October 26, 2024, parliamentary elections in Georgia mark a pivotal moment in the country’s political history. According to the Central Election Committee of Georgia, the ruling party, the Georgian Dream, secured 53.93 percent of the votes, maintaining its dominant position in Georgian politics. However, the elections were accompanied by widespread allegations of electoral malpractice, casting a shadow over their legitimacy and raising concerns about the future of democratic governance in the country.
OSCE’s ODIHR provided a comprehensive observation of the electoral process, noting both positive aspects and critical shortcomings. While the elections were generally well-administered, ODIHR’s final report emphasized significant concerns related to the broader political environment. Key issues included the adoption of legislation that undermined fundamental freedoms, restrictions on civil society, and a pervasive atmosphere of voter intimidation. Specific election-day practices, such as pressuring voters and leveraging administrative resources, were highlighted as undermining the integrity of the process. The report also mentions instances in 16 municipalities where public sector employees and economically vulnerable groups, particularly those reliant on social assistance, faced pressure to support the ruling party. Such fear of losing social benefits or facing retribution at work creates an atmosphere where voters struggle to form independent opinions and vote independently.
Further scrutiny from independent analysts has shed light on systematic irregularities that suggest the elections may not have reflected the genuine will of the Georgian electorate. Gutbrod (2024) suggests that tactics such as vote buying, mass intimidation, and direct manipulation of electoral outcomes were employed, leading to statistical anomalies. Specifically, the Georgian Dream’s support increased disproportionately in precincts linked to reported violence and irregularities. Additionally, social assistance beneficiaries were identified as a target group for snowball mobilization, organized by individuals affiliated with the Georgian Dream – a method where participants are encouraged to mobilize or identify a certain number of additional people to expand voter outreach and engagement.
Social Assistance in Georgia
The Law of Georgia on Social Assistance outlines several types of social welfare programs aimed at addressing the needs of vulnerable populations. These include living allowance, reintegration assistance, foster care allowance, adult family member care allowance, non-monetary social assistance, and social package. Among these, the targeted social assistance program, commonly referred to as the “living allowance“, holds particular significance. This program is designed to provide financial support to families living in extreme poverty. Eligibility for the living allowance is determined through a proxy means test that evaluates the socioeconomic conditions of applicants, ensuring that the assistance reaches those most in need. For this policy brief, the focus will be on beneficiaries of the living allowance (hereafter social assistance beneficiaries), as their numbers and electoral behavior present a unique opportunity to analyze the intersection of social assistance and voting patterns in Georgia.
As of October 2020 (previous parliamentary elections’ date) 142,870 families in Georgia received social assistance, benefiting a total of 510,343 individuals. The total amount of social assistance transfers during this period amounted to 28,825,259 GEL. Over the next four years, leading up to the 2024 Parliamentary Elections, social assistance grew significantly. By October 2024, the number of families receiving assistance had increased by 25 percent to 178,107 families, while the number of individual beneficiaries rose by 34 percent, reaching 684,432. The most notable expansion occurred in the total amount of social assistance transfers, which surged by 143 percent to 69,936,512 GEL. This corresponds to a cumulative annual growth rate of 25 percent (Social Service Agency of Georgia, 2024).
In 2022, an important modification was introduced for social assistance beneficiaries aged 18 years to retirement age and without disabilities or serious health conditions, offering employment opportunities mainly, in the public sector with a salary of up to 300 GEL per month. These wages did not affect recipients’ existing social assistance benefits. Participants had the option to take suitable public sector jobs, formalize any informal employment, or, if formally employed in the private sector, provide necessary documentation. The modification covered also new beneficiaries who were not already formally employed. Notably, families or individuals enrolled in the program were guaranteed eligibility for a living allowance for four years, as their social assistance status would not be reassessed during this period.
As of October 2024, 50,962 families were enrolled in the program with guaranteed social assistance, accounting for 28.6 percent of all families receiving social assistance. The monthly spending of social assistance transferred to these families amounted to 22,766,706 GEL, representing 33 percent of the total social assistance transfers.
The significant increase in social assistance beneficiaries and the introduction of the 2022 program for employing social assistance recipients, guaranteeing them four years of social assistance transfers, highlight the growing scope and influence of targeted social welfare initiatives in Georgia. While these developments may have addressed pressing socioeconomic challenges, they also raise important questions about the potential political motivations. Specifically, the substantial increase in the number of beneficiaries and the guaranteed eligibility linked to employment programs could be interpreted as mechanisms to foster voter loyalty and mobilization in favor of the ruling party.
Methodology and Results
To examine the relationship between the increase in social assistance beneficiaries and electoral outcomes, particularly the votes garnered by the incumbent Georgian Dream party, we employ a regression analysis framework. This statistical method allows us to explore whether and to what extent the growth in social assistance recipients is associated with the changes in the vote share of the incumbent party. Since social assistance depends on the varying levels of poverty across municipalities, we incorporate control variables that isolate the effect of economic well-being, minimizing potential confounders.
The study utilizes data from two primary sources: information on social assistance recipients, including families, and individuals, and the total amount of transfers across municipalities, was retrieved from the Social Service Agency of Georgia. This dataset covers 64 municipalities (and self-governing cities) in Georgia. From 2022, data includes families and individuals guaranteed to retain their socially vulnerable status for four years under the State Program for Promoting Public Employment. Second, election data was sourced from the Central Election Commission of Georgia, covering both the 2024 and 2020 parliamentary elections. The 2024 data covers the results from both electronic and non-electronic voting. Key variables include the number of registered voters, total votes cast, and votes obtained by the Georgian Dream and opposition parties. This election data is also aggregated at the level of the 64 municipalities (and self-governing cities).
Information on poverty levels in Georgian municipalities is not publicly available; therefore, we utilize control variables for employment and economic activity with the latter proxied by either the municipalities’ tax revenues or the value added generated in the private sector. Information on employment and value added are gathered from the National Statistics Office of Georgia, while data on tax revenues is retrieved from the Ministry of Finance.
The following table describes the results of the regression analysis.
Table 1. Regression analysis results
Source: Author’s calculations.
Note: The values in parentheses indicate the p-value. *Significant at the 10 percent level; **Significant at the 5 percent level; ***Significant at the 1 percent level.
The first regression (column 1) investigates the relationship between the change in social assistance beneficiaries as a share of the population and the change in the Georgian Dream party’s vote shares, displaying a significant relationship between the two. Specifically, the coefficient (0.49) is significant at the 5 percent level, suggesting that a 1 percentage point increase in social assistance beneficiaries as a share of the population, increases the vote share for the Georgian Dream by approximately 0.49 percentage points.
To control for the effect of poverty, we first use employment rates in 2023 (the latest available data) as a proxy for poverty. Column 2 presents these results. In this specification, the coefficient for the change in social assistance beneficiaries remains significant at 5 percent level and its value (0.47) remains consistent with the previous specification. The model further suggests that poverty is also positively and significantly (at the 1 percent level) associated with incumbent votes – the higher the poverty (lower employment) in municipalities, the higher the Georgian Dream vote share.
In the next step (column 3), we model the relationship between the change in the Georgian Dream’s vote share, change in employment as a share of the population, mobilized local tax revenues per capita, and the change in number of social assistance beneficiaries as a share of the population. Change in employment, calculated as the difference between 2019 and 2023 employment levels (as a share of the population), is used as a proxy for change in poverty. Tax revenues per capita for 2023 reflect economic activity across municipalities and self-governing cities, serving as a proxy for well-being. As seen in the table, change in employment is not statistically significant, however, the amount of tax revenues mobilized across municipalities is modestly significant. The coefficient for change in social assistance beneficiaries is once again statistically significant and consistent with the other specifications in terms of magnitude (at 0.51).
As a robustness test (column 4) we replace the previously used proxy for economic well-being (tax revenues), with the private sector value added per capita for 2023, which significantly (at the 1 percent level) correlates with an increase in the vote share for the incumbent party. Changes in employment remain insignificant. Importantly, the coefficient for change in social assistance beneficiaries remains positive (0.53) and statistically significant at the 1 percent level.
The discussed regression models were tested for a different dependent variable as well. In addition to observing the impact of change in vote shares, we also analyzed the impact on the number of votes cast for the Georgian Dream party between the 2020 and 2024 Parliamentary Elections. Changes in social assistance beneficiaries remain a significant explanatory variable in this specification as well.
The estimated impact of social assistance is consistent across all models, both in magnitude and significance, reinforcing the finding that increases in living allowance beneficiaries are strongly associated with higher vote shares for the Georgian Dream party, underscoring the critical role of social assistance in shaping electoral outcomes.
Conclusion
The analysis demonstrates a strong and statistically significant relationship between the increase in social assistance beneficiaries and the vote share obtained by the incumbent Georgian Dream party in the 2024 parliamentary elections. Even after controlling for poverty and economic well-being, the results highlight the impact of social assistance in shaping electoral outcomes. The findings suggest that a 1 percentage point rise in social assistance beneficiaries as a share of the population translates into a 0.47–0.53 percentage point increase in the Georgian Dream’s vote share. When contextualized within the overall election results, these estimates suggest that the expansion of the targeted social assistance program may have garnered the Georgian Dream an additional 45 ,500 to 50,000 votes, representing 2.2–2.5 percent of the total votes.
The results raise critical questions about the potential use of social assistance programs as a strategic political tool. The robustness of the relationship across multiple models suggests that the observed trends are not merely byproducts of economic conditions but reflect a deliberate link between social assistance expansion and electoral outcomes. The implications are significant for democratic governance in Georgia. The strategic use of social welfare programs risks undermining public trust in the electoral process and highlights the need for greater transparency and accountability in the implementation of social assistance policies. Recognizing the dual impact of these programs – alleviating poverty while potentially shaping political behavior – will be critical in fostering fairer electoral conditions and ensuring that social assistance remains focused on addressing the needs of vulnerable populations without undue political influence.
References
- De La O, A. L. (2013). “Do conditional cash transfers affect electoral behavior? Evidence from a randomized experiment in Mexico”, American Journal of Political Science, 57(1), 1-14.
- Dharma, F., Syakhroza, A., & Martani, D. (2022). “Does the social assistance budget realization affect incumbents’ votes? (Study in Indonesia Local Election)”, International Journal of Professional Business Review, 7(6), e0636-e0636.
- Gutbrod, H. (2024). “A dozen daggers: How Georgia’s 2024 elections were rigged”.
- Japaridze, T. (2023). “Social Policy in contemporary Georgia: liberal narratives, intervention and welfare state”, King’s College London.
- Law of Georgia on Social Assistance (2024). Parliament of Georgia.
- Layton, M. L., & Smith, A. E. (2015). “Incorporating marginal citizens and voters: the conditional electoral effects of targeted social assistance in Latin America”, Comparative Political Studies, 48(7), 854-881
- OSCE Office for Democratic Institutions and Human Rights (ODIHR), (2024). “Georgia Parliamentary Elections: Final Report”, Organization for Security and Co-operation in Europe.
- Shubladze, R. (2024). “Targeted Social Assistance Program in Georgia and Its Link to Electoral Outcomes”, Social Justice Center.
- Social Justice Center (2024). “What are the challenges in the livelihood support system, and what changes are necessary for its improvement?”.
- Social Service Agency of Georgia. (2024). https://ssa.moh.gov.ge/index.php?lang=1&v=0
- Zucco Jr, C. (2013). “When payouts pay off: Conditional cash transfers and voting behavior in Brazil 2002–10”, American journal of political science, 57(4), 810-822.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Behavior and Information: Does Media Promote Consumerism?
Consumer behavior is well recognized as a vital component in dealing with climate change. In this regard, it is important to understand both which mechanisms promote pro-environmental behavior, and which instruments stimulate unsustainable consumer activities. This policy brief summarizes the results from a study on how media use can promote consumerism. Based on a 2022 online-survey of Belarus’s urban population, the study empirically assesses how exposure to information promoting overconsumption can impact unsustainable actions. The findings show that consumerism media use has a positive effect on unsustainable consumption behavior. To mitigate the impact and promote sustainable behavior, media could be obligated to provide information about the negative footprint of unsustainable consumption.
Introduction
Consumer behavior holds large potential when it comes to climate change and other environmental problems. According to Moran et al. (2020), changes in consumer behavior could lead to a European Union (EU) carbon footprint reduction by approximately 25 percent.
There are two conflicting streams of literature on the effects of media use on consumer behavior. The first strand states that media use exerts a positive effect on pro-environmental attitudes and behavior (Holbert et al. 2003; Wang & Hao, 2018) while the second declares that media use (in particular, the Internet) promotes consumerism (Simeone & Scarpato, 2020).
The objective of the study underlying this policy brief is to contribute to this debate by exploring whether media use positively affects unsustainable consumption behavior, drawing on data from a nationally representative online survey in Belarus.
Behavior and its Determinants
The study’s conceptual approach rests on the Attitude-Behavior-Context (ABC) theory (Guagnano et al., 1995; Gardner and Stern, 1996; Stern, 2000) which states that behavior is a product of attitudinal variables (norms, beliefs, values), contextual factors (e.g., interpersonal influences, media, community expectations, monetary incentives and costs) and personal capabilities (e.g., knowledge and skills).
With the ABC theory in mind, and also driven by prior empirical studies (e.g., Huang, 2016), the study explores how unsustainable consumption behavior can be affected by materialistic values, environmental self-efficacy (in the study perceived as a combination of values and personal knowledge), and consumerism media use.
We define unsustainable consumption behavior as conspicuous buying, which describes acquiring expensive, and luxury goods or services in order to impress others and gather prestige through objects (Rook, 1987; Pellegrino & Shannon, 2021).
Media use in general means exposure or attention to both traditional media, such as newspapers, TV, and radio, and the Internet (Huang, 2016). Consumerism media use in our study refers to the exposure on these media channels to information promoting a luxurious lifestyle and the idea that buying more leads to happiness.
According to Hurst et al. (2013), materialism can be more easily targeted and changed than personality traits, which are more stable. Besides, theoretical and empirical evidence suggests that materialistic values are negatively associated with pro-environmental behavior. To measure materialism as a value we employ the short version of the Materialistic Values Scale (Richins, 2004), which assesses beliefs about the importance of material possession.
Environmental self-efficacy, also known as perceived consumer effectiveness, refers to an individual’s belief in their ability to make a meaningful impact through their efforts (Ellen et al., 1991). We hypothesize that environmental self-efficacy should be negatively associated with unsustainable consumption behavior.
To operationalize the above constructs (see Table 1), the study uses data from a nationally representative online survey among the urban Belarusian population aged 18-75, conducted in April 2022 by MIA Research on behalf of BEROC. The sample size includes 1029 participants.
Table 1. Descriptive statistics of each construct’s indicators
Note: a Four-point Likert scale (1=never, 4=always). b Four-point Likert scale (1=never; 4=very often; 0=I do not use this type of media). c Five-point Likert scale (1=strongly disagree, 5=strongly agree).
As seen in Table 1, consumers in Belarus are mostly exposed to the information promoting luxurious lifestyle and buying more goods to be happy on the Internet, relative to other media channels. Another interesting outcome is that Belarusian consumers are more likely to perceive material possessions as a source of happiness compared to the other domains of the classical material value triad; success, centrality, and happiness (Richins and Dawson (1992) and Richins (2004), where success refers to using possessions to evaluate the success of oneself and others centrality refers to the central role of possessions in a person’s life, and happiness reflects the belief that happiness and life satisfaction are achieved through possessions and their acquisition.
Assessment of the Unsustainable Consumption Behavior Model
The study estimates the structural equation model for unsustainable consumption behavior. The main hypothesis of the study is that consumerism media use might exert a positive influence on unsustainable consumption behavior. Materialistic values as well as environmental self-efficacy can also affect unsustainable consumption behavior. As both our values and beliefs may to some extent determine the context in which we live, we assume that materialistic values and environmental self-efficacy might impact consumerism media use. Additionally, we assume that materialistic values can have a negative influence on environmental self-efficacy. Figure 1 details the path diagram with maximum-likelihood estimates of fully standardized coefficients.
Figure 1. Path diagram of the structural equation model explaining unsustainable consumption behavior
Note: standardized coefficients; solid line denotes significant path; dashed line denotes insignificant relationships. *** p<0.001, ** p<0.01; *p<0.05
The results show that consumerism media use has a positive, and significant effect on unsustainable consumption behavior (0.124; standard deviation change). The possible channel leading to these findings is the emotions at play. Advertisements promoting a luxurious lifestyle and buying more things to be happy can elicit quite strong emotions in consumers related to happiness and success in life. Around two decades ago a large body of literature in consumer research emerged on the role of emotions in decision-making (for an overview see Laros & Steenkamp, 2005). Recent experimental studies about adoption of sustainable innovations (e.g. Contzen et al., 2021 (a); Contzen et al., 2021 (b)) also prove the role emotions play in consumer behavior.
Materialistic values are another significant contributor to unsustainable actions (0.249 standard deviation change). As expected, materialistic values also exert a positive and statistically significant effect on consumerism media use (0.165 standard deviation change). However, contrary to our expectations, environmental self-efficacy does not exert a direct negative impact on unsustainable behavior (dashed line in Figure 1).
Conclusion
The results from the structural equation model show that consumerism media use exerts a positive moderate effect on unsustainable consumption behavior of the urban population in Belarus. This effect is statistically significant.
To reduce the negative environmental impact of unsustainable behavior, policymakers should, thus, target regulation that downplays the emotional appeal of ads promoting excessive consumption and stresses the adverse environmental effects of consumerism. This could include, for example, policies requiring ads to contain information about the environmental footprint of the product, from production to its full lifecycle.
References
- Contzen, N., Handreke, A. V., Perlaviciute, G., & Steg, L., 2021 (a). ‘’Emotions towards a mandatory adoption of renewable energy innovations: the role of psychological reactance and egoistic and biospheric values’’. Energy Research & Social Science, 80, 102232. https://doi.org/10.1016/j.erss.2021.102232.
- Contzen, N., Perlaviciute, G., Sadat-Razavi, P., & Steg, L., 2021 (b). ‘’Emotions toward sustainable innovations: A matter of value congruence’’. Frontiers in Psychology, 12. https://doi.org/10.3389/fpsyg.2021.661314
- Ellen, P. S., Wiener, J. L., & Cobb-Walgren, C., 1991. ‘’The role of perceived consumer effectiveness in motivating environmentally conscious behaviors”. Journal of public policy & marketing, 10(2), 102-117. https://doi.org/10.1177/074391569101000206.
- Gardner, G. T., & Stern, P. C., 1996. “Environmental problems and human behavior”. Allyn & Bacon.
- Guagnano, G. A., Stern, P. C., & Dietz, T., 1995. “Influences on attitude-behavior relationships: A natural experiment with curbside recycling”. Environment and behavior, 27(5), 699-718. https://doi.org/10.1177/0013916595275005
- Holbert, R. L., Kwak, N., & Shah, D. V. (2003). Environmental concern, patterns of television viewing, and pro-environmental behaviors: Integrating models of media consumption and effects. Journal of Broadcasting & Electronic Media, 47(2), 177-196. https://doi.org/10.1207/s15506878jobem4702_2.
- Huang, H., 2016. “Media use, environmental beliefs, self-efficacy, and pro-environmental behavior”. Journal of Business Research, 69(6), 2206-2212. https://doi.org/10.1016/j.jbusres.2015.12.031.
- Hurst, M., Dittmar, H., Bond, R., & Kasser, T., 2013. “The relationship between materialistic values and environmental attitudes and behaviors: A meta-analysis”. Journal of Environmental Psychology, 36, 257-269. https://doi.org/10.1016/j.jenvp.2013.09.003.
- Laros, F. J., & Steenkamp, J. B. E., 2005. “Emotions in consumer behavior: a hierarchical approach”. Journal of business Research, 58(10), 1437-1445. https://doi.org/10.1016/j.jbusres.2003.09.013.
- Pellegrino, A., & Shannon, R., 2021. “Materialism’s Influence on Unsustainable Consumption Across Social Networking Sites: A Systematic Review”. International Journal of Business and Economics Research, 10(4), 125. https://doi.org/10.11648/j.ijber.20211004.13.
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- Rook, D. W., 1987. “The buying impulse”. Journal of Consumer Research, 14, 189-199.
- Simeone, M., & Scarpato, D. (2020). Sustainable consumption: How does social media affect food choices?. Journal of Cleaner Production, 277, 124036. https://doi.org/10.1016/j.jclepro.2020.124036.
- Stern, P. C., 2000. “New environmental theories: toward a coherent theory of environmentally significant behavior”. Journal of social issues, 56(3), 407-424.
- Wang, Y., & Hao, F. (2018). Does internet penetration encourage sustainable consumption? A cross-national analysis. Sustainable Production and Consumption, 16, 237-248. https://doi.org/10.1016/j.spc.2018.08.011.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Gender Gap in Life Expectancy and Its Socio-Economic Implications
Today women live longer than men virtually in every country of the world. Although scientists still struggle to fully explain this disparity, the most prominent sources of this gender inequality are biological and behavioral. From an evolutionary point of view, female longevity was more advantageous for offspring survival. This resulted in a higher frequency of non-fatal diseases among women and in a later onset of fatal conditions. The observed high variation in the longevity gap across countries, however, points towards an important role of social and behavioral arguments. These include higher consumption of alcohol, tobacco, and fats among men as well as a generally riskier behavior. The gender gap in life expectancy often reaches 6-12 percent of the average human lifespan and has remained stubbornly stable in many countries. Lower life expectancy among men is an important social concern on its own and has significant consequences for the well-being of their surviving partners and the economy as a whole. It is an important, yet under-discussed type of gender inequality.
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Gender Gap in Life Expectancy and Its Socio-Economic Implications
Today, women on average live longer than men across the globe. Despite the universality of this basic qualitative fact, the gender gap in life expectancy (GGLE) varies a lot across countries (as well as over time) and scientists have only a limited understanding of the causes of this variation (Rochelle et al., 2015). Regardless of the reasons for this discrepancy, it has sizable economic and financial implications. Abnormal male mortality makes a dent in the labour force in nations where GGLE happens to be the highest, while at the same time, large GGLE might contribute to a divergence in male and female discount factors with implications for employment and pension savings. Large discrepancies in life expectancy translate into a higher incidence of widowhood and a longer time in which women live as widows. The gender gap in life expectancy is one of the less frequently discussed dimensions of gender inequality, and while it clearly has negative implications for men, lower male longevity has also substantial negative consequences for women and society as a whole.
Figure A. Gender gap in life expectancy across selected countries
Source: World Bank.
The earliest available reliable data on the relative longevity of men and women shows that the gender gap in life expectancy is not a new phenomenon. In the middle of the 19th century, women in Scandinavian countries outlived men by 3-5 years (Rochelle et al., 2015), and Bavarian nuns enjoyed an additional 1.1 years of life, relative to the monks (Luy, 2003). At the beginning of the 20th century, relative higher female longevity became universal as women started to live longer than men in almost every country (Barford et al., 2006). GGLE appears to be a complex phenomenon with no single factor able to fully explain it. Scientists from various fields such as anthropology, evolutionary biology, genetics, medical science, and economics have made numerous attempts to study the mechanisms behind this gender disparity. Their discoveries typically fall into one of two groups: biological and behavioural. Noteworthy, GGLE seems to be fairly unrelated to the basic economic fundamentals such as GDP per capita which in turn has a strong association with the level of healthcare, overall life expectancy, and human development index (Rochelle et al., 2015). Figure B presents the (lack of) association between GDP per capita and GGLE in a cross-section of countries. The data shows large heterogeneity, especially at low-income levels, and virtually no association from middle-level GDP per capita onwards.
Figure B. Association between gender gap in life expectancy and GDP per capita
Source: World Bank.
Biological Factors
The main intuition behind female superior longevity provided by evolutionary biologists is based on the idea that the offspring’s survival rates disproportionally benefited from the presence of their mothers and grandmothers. The female hormone estrogen is known to lower the risks of cardiovascular disease. Women also have a better immune system which helps them avoid a number of life-threatening diseases, while also making them more likely to suffer from (non-fatal) autoimmune diseases (Schünemann et al., 2017). The basic genetic advantage of females comes from the mere fact of them having two X chromosomes and thus avoiding a number of diseases stemming from Y chromosome defects (Holden, 1987; Austad, 2006; Oksuzyan et al., 2008).
Despite a number of biological factors contributing to female longevity, it is well known that, on average, women have poorer health than men at the same age. This counterintuitive phenomenon is called the morbidity-mortality paradox (Kulminski et al., 2008). Figure C shows the estimated cumulative health deficits for both genders and their average life expectancies in the Canadian population, based on a study by Schünemann et al. (2017). It shows that at any age, women tend to have poorer health yet lower mortality rates than men. This paradox can be explained by two factors: women tend to suffer more from non-fatal diseases, and the onset of fatal diseases occurs later in life for women compared to men.
Figure C. Health deficits and life expectancy for Canadian men and women
Source: Schünemann et al. (2017). Note: Men: solid line; Women: dashed line; Circles: life expectancy at age 20.
Behavioural Factors
Given the large variation in GGLE, biological factors clearly cannot be the only driving force. Worldwide, men are three times more likely to die from road traffic injuries and two times more likely to drown than women (WHO, 2002). According to the World Health Organization (WHO), the average ratio of male-to-female completed suicides among the 183 surveyed countries is 3.78 (WHO, 2024). Schünemann et al. (2017) find that differences in behaviour can explain 3.2 out of 4.6 years of GGLE observed on average in developed countries. Statistics clearly show that men engage in unhealthy behaviours such as smoking and alcohol consumption much more often than women (Rochelle et al., 2015). Men are also more likely to be obese. Alcohol consumption plays a special role among behavioural contributors to the GGLE. A study based on data from 30 European countries found that alcohol consumption accounted for 10 to 20 percent of GGLE in Western Europe and for 20 to 30 percent in Eastern Europe (McCartney et al., 2011). Another group of authors has focused their research on Central and Eastern European countries between 1965 and 2012. They have estimated that throughout that time period between 15 and 19 percent of the GGLE can be attributed to alcohol (Trias-Llimós & Janssen, 2018). On the other hand, tobacco is estimated to be responsible for up to 30 percent and 20 percent of the gender gap in mortality in Eastern Europe and the rest of Europe, respectively (McCartney et al., 2011).
Another factor potentially decreasing male longevity is participation in risk-taking activities stemming from extreme events such as wars and military activities, high-risk jobs, and seemingly unnecessary health-hazardous actions. However, to the best of our knowledge, there is no rigorous research quantifying the contribution of these factors to the reduced male longevity. It is also plausible that the relative importance of these factors varies substantially by country and historical period.
Gender inequality and social gender norms also negatively affect men. Although women suffer from depression more frequently than men (Albert, 2015; Kuehner, 2017), it is men who commit most suicides. One study finds that men with lower masculinity (measured with a range of questions on social norms and gender role orientation) are less likely to suffer from coronary heart disease (Hunt et al., 2007). Finally, evidence shows that men are less likely to utilize medical care when facing the same health conditions as women and that they are also less likely to conduct regular medical check-ups (Trias-Llimós & Janssen, 2018).
It is possible to hypothesize that behavioural factors of premature male deaths may also be seen as biological ones with, for example, risky behaviour being somehow coded in male DNA. But this hypothesis may have only very limited truth to it as we observe how male longevity and GGLE vary between countries and even within countries over relatively short periods of time.
Economic Implications
Premature male mortality decreases the total labour force of one of the world leaders in GGLE, Belarus, by at least 4 percent (author’s own calculation, based on WHO data). Similar numbers for other developed nations range from 1 to 3 percent. Premature mortality, on average, costs European countries 1.2 percent of GDP, with 70 percent of these losses attributable to male excess mortality. If male premature mortality could be avoided, Sweden would gain 0.3 percent of GDP, Poland would gain 1.7 percent of GDP, while Latvia and Lithuania – countries with the highest GGLE in the EU – would each gain around 2.3 percent of GDP (Łyszczarz, 2019). Large disparities in the expected longevity also mean that women should anticipate longer post-retirement lives. Combined with the gender employment and pay gap, this implies that either women need to devote a larger percentage of their earnings to retirement savings or retirement systems need to include provisions to secure material support for surviving spouses. Since in most of the retirement systems the value of pensions is calculated using average, not gender-specific, life expectancy, the ensuing differences may result in a perception that men are not getting their fair share from accumulated contributions.
Policy Recommendations
To successfully limit the extent of the GGLE and to effectively address its consequences, more research is needed in the area of differential gender mortality. In the medical research dimension, it is noteworthy that, historically, women have been under-represented in recruitment into clinical trials, reporting of gender-disaggregated data in research has been low, and a larger amount of research funding has been allocated to “male diseases” (Holdcroft, 2007; Mirin, 2021). At the same time, the missing link research-wise is the peculiar discrepancy between a likely better understanding of male body and health and the poorer utilization of this knowledge.
The existing literature suggests several possible interventions that may substantially reduce premature male mortality. Among the top preventable behavioural factors are smoking and excessive alcohol consumption. Many studies point out substantial country differences in the contribution of these two factors to GGLE (McCartney, 2011), which might indicate that gender differences in alcohol and nicotine abuse may be amplified by the prevailing gender roles in a given society (Wilsnack et al., 2000). Since the other key factors impairing male longevity are stress and risky behaviour, it seems that a broader societal change away from the traditional gender norms is needed. As country differences in GGLE suggest, higher male mortality is mainly driven by behaviours often influenced by societies and policies. This gives hope that higher male mortality could be reduced as we move towards greater gender equality, and give more support to risk-reducing policies.
While the fundamental biological differences contributing to the GGLE cannot be changed, special attention should be devoted to improving healthcare utilization among men and to increasingly including the effects of sex and gender in medical research on health and disease (Holdcoft, 2007; Mirin, 2021; McGregor et al., 2016, Regitz-Zagrosek & Seeland, 2012).
References
- Albert, P. R. (2015). “Why is depression more prevalent in women?“. Journal of Psychiatry & Neuroscience, 40(4), 219.
- Austad, S. N. (2006). “Why women live longer than men: sex differences in longevity“. Gender Medicine, 3(2), 79-92.
- Barford, A., Dorling, D., Smith, G. D., & Shaw, M. (2006). “Life expectancy: women now on top everywhere“. BMJ, 332, 808. doi:10.1136/bmj.332.7545.808
- Holden, C. (1987). “Why do women live longer than men?“. Science, 238(4824), 158-160.
- Hunt, K., Lewars, H., Emslie, C., & Batty, G. D. (2007). “Decreased risk of death from coronary heart disease amongst men with higher ‘femininity’ scores: A general population cohort study“. International Journal of Epidemiology, 36, 612-620.
- Kulminski, A. M., Culminskaya, I. V., Ukraintseva, S. V., Arbeev, K. G., Land, K. C., & Yashin, A. I. (2008). “Sex-specific health deterioration and mortality: The morbidity-mortality paradox over age and time“. Experimental Gerontology, 43(12), 1052-1057.
- Luy, M. (2003). “Causes of Male Excess Mortality: Insights from Cloistered Populations“. Population and Development Review, 29(4), 647-676.
- McCartney, G., Mahmood, L., Leyland, A. H., Batty, G. D., & Hunt, K. (2011). “Contribution of smoking-related and alcohol-related deaths to the gender gap in mortality: Evidence from 30 European countries“. Tobacco Control, 20, 166-168.
- McGregor, A. J., Hasnain, M., Sandberg, K., Morrison, M. F., Berlin, M., & Trott, J. (2016). “How to study the impact of sex and gender in medical research: A review of resources“. Biology of Sex Differences, 7, 61-72.
- Mirin, A. A. (2021). “Gender disparity in the funding of diseases by the US National Institutes of Health“. Journal of Women’s Health, 30(7), 956-963.
- Oksuzyan, A., Juel, K., Vaupel, J. W., & Christensen, K. (2008). “Men: good health and high mortality. Sex differences in health and aging“. Aging Clinical and Experimental Research, 20(2), 91-102.
- Regitz-Zagrosek, V., & Seeland, U. (2012). “Sex and gender differences in clinical medicine“. Sex and Gender Differences in Pharmacology, 3-22.
- Rochelle, T. R., Yeung, D. K. Y., Harris Bond, M., & Li, L. M. W. (2015). “Predictors of the gender gap in life expectancy across 54 nations“. Psychology, Health & Medicine, 20(2), 129-138. doi:10.1080/13548506.2014.936884
- Schünemann, J., Strulik, H., & Trimborn, T. (2017). “The gender gap in mortality: How much is explained by behavior?“. Journal of Health Economics, 54, 79-90.
- Trias-Llimós, S., & Janssen, F. (2018). “Alcohol and gender gaps in life expectancy in eight Central and Eastern European countries“. European Journal of Public Health, 28(4), 687-692.
- WHO. (2002). “Gender and road traffic injuries“. World Health Organization.
- WHO. (2024). “Global health estimates: Leading causes of death“. World Health Organization.
- Łyszczarz, B. (2019). “Production losses associated with premature mortality in 28 European Union countries“. Journal of Global Health.
About FROGEE Policy Briefs
FROGEE Policy Briefs is a special series aimed at providing overviews and the popularization of economic research related to gender equality issues. Debates around policies related to gender equality are often highly politicized. We believe that using arguments derived from the most up to date research-based knowledge would help us build a more fruitful discussion of policy proposals and in the end achieve better outcomes.
The aim of the briefs is to improve the understanding of research-based arguments and their implications, by covering the key theories and the most important findings in areas of special interest to the current debate. The briefs start with short general overviews of a given theme, which are followed by a presentation of country-specific contexts, specific policy challenges, implemented reforms and a discussion of other policy options.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Russia in Africa: What the Literature Reveals and Why It Matters
Following the full-scale invasion of Ukraine in February 2022, Russia has become increasingly isolated. In an attempt to counter Western powers’ efforts to suppress its economy and soft power impacts, Russia has tried to increase its influence in other parts of the world. In particular, Russia is increasingly active in Africa, having become a key partner to several African regimes, typically operating in areas with weak institutions and governments. Additionally, Russia’s approach has a different focus and objectives compared to other foreign actors, which may have both short and long term consequences for the continent’s development. Deepening our understanding of Russia’s distinct approach alongside those of other global actors, as well as the future implications of their involvement on the continent is, thus, of crucial importance.
Introduction
The new Foreign Policy Concept, adopted by the Russian government in March 2023, dedicates, for the first time, a separate section to Africa. The previous versions of the policy grouped North Africa with the Middle East and contained only a single paragraph, kept unchanged over time, about Sub-Saharan Africa. In the midst of its war against Ukraine, Russia is getting serious about Africa. What do we know about the reasons for and implications of this trend?
A relatively large literature in economics, political science, international relations, and other related fields has dealt with the Soviet Union’s engagement with African regimes (see overviews in Morris, 1973 and Ramani, 2023). However, the number of studies following the evolution of these relations since the collapse of the Soviet Union is significantly smaller, reflecting Russia’s strategic withdrawal from the region between 1990 and 2015. Following the full-scale invasion of Ukraine, Russia’s increased interest in and engagement on the African continent has been increasingly discussed by security analysts and think tanks (see for instance Siegel, 2021; Stanyard, Vircoulon and Rademeyer, 2023; Jones, et al., 2021). Primarily highlighted are Russia’s interest in mineral deposits, its large-scale arms’ exports to African regimes, its dominance on the nuclear energy market with resulting dependency on Russian nuclear fuels, and its ambition to undermine Western capacities by the spread of Russian propaganda and anti-Western sentiments (Lindén, 2023). Each of these dimensions carries potentially profound and far-reaching implications for the continent’s development, as underscored by various strands of literature. Research contributions on this specific new trend are however still very limited and predominantly of a qualitative and exploratory nature.
There is, however, substantial general knowledge about the various forms that foreign interests can take, including trade, investment, development aid, propaganda, election interference, and involvement in conflicts, and their potential consequences for development. This brief presents an overview of selected literature that most closely relates to foreign influence in Africa.
Background: Theories of Foreign Policy
Two contrasting approaches are used to describe the way countries engage with the international community. The first one is the so-called realist perspective, which emphasizes the role of power, national interests, and security in shaping foreign policy (Mearsheimer, 1995). In this model, countries act in their self-interest, and often in competition or even conflict with other countries. Strategic alliances and a willingness to use force to advance one’s interests are contemplated under this perspective. The second approach is the idealist perspective, in which foreign policy is used to promote democratic values, human rights, and international cooperation, prioritizing tools such as diplomacy, international law, and multilateral institutions (Lancaster, 2008). For countries at the receiving end of major powers’ foreign policy agendas, and particularly for developing countries, the implications from the contrasting approaches will be widely different. While even a realist foreign policy may ostensibly incorporate concerns about the welfare and development of its allies, these are often not more than a thin disguise for the ultimate objective of buying political support and commercial advantages. A genuine interest in the welfare and development of receiving partners only finds a place under the idealist perspective, although even idealism is at times claimed to “greenwash” state actors’ own interests (Delmas and Burbano, 2011). While this claim has some substance to it, such accusations can also stem from the anti-western rhetoric typically pursued by Russia and aimed at undermining the credibility of actors with good intentions.
In practice, most countries’ foreign policies incorporate elements of both realism and idealism, although the balance between the two may vary. Some countries may have a predominantly realist approach, while others may prioritize idealist goals. Additionally, the same country may shift its approach over time, depending on changing circumstances and priorities. Idealism may be more prominent during periods of stability and prosperity, when countries have the resources and political will to pursue more ambitious foreign policy goals. Realism tends to become more prominent in times of crisis, when countries face serious threats to their national security or economic well-being. Historical examples of the latter are the aftermath of World War II, the Cold War, and even the 2008 global financial crisis (Roberts, 2020).
Comparative Analysis of Foreign Influence
A few studies, recent enough to encompass Russia’s renewed interest in Africa post-2015 but not enough to cover the current day resurgence, explicitly compare the strategy of different actors and their long-term influence. Trunkos (2021) develops a new soft power measure for the time-period 1995–2015, to test the commonly accepted claim in the political science literature that American soft power use has been declining while Russian and Chinese soft power use has been increasing. In the author’s own words, “the findings indicate that surprisingly the US is still using more soft power than Russia and China. The data analysis also reveals that the US is leading in economic soft power actions over China and in military soft power actions over Russia as well.”
Castaneda Dower et al. (2021) take a longer-term perspective and categorize African countries into two blocs one Western-leaning and one pro-Soviet, based on a game-theoretical model of alliances. This categorization aligns well with UN voting patterns during the Cold War, but it does not predict alignment as effectively in the post-Cold War period. The study finds no significant difference in average GDP growth between the two blocs for the period from 1990 to 2016. However, the bloc with Western-like characteristics shows higher levels of inequality and greater reliance on the market economy – as opposed to the planned one. It also has higher human capital, more gender parity (in education), and better democracy scores, but lower infrastructure capital compared to the other bloc.
Another strand of literature has looked into the deep changes that have occurred over time within the global development architecture, highlighting changes in donor and partner motivations after the end of the Cold War (Boschini and Olofsgård, 2007; Frot, Olofsgård and Perrotta Berlin, 2014), through the Arab Spring (Challand, 2014), and more recently under the emergence of new actors, chiefly China (Blair, Marty and Roessler, 2021). Studies in this area aim to highlight what implications the varying ideologies and motivation for cooperation in the donor countries have for countries at the receiving end. Competing aid regimes generate soft power through public diplomacy, often in the form of branding (for instance through putting origin “flags” on aid projects or investments). This type of positive association has been shown to generate ‘positive affect’ toward donors (Andrabi and Das, 2010), and to strengthen recipients’ perceptions of the models of governance and development that such donors promote – liberal democracy, for example, or free market capitalism (Blair, Marty and Roessler, 2021).
Emerging Players on the African Stage
An extensive literature has examined the various facets of established power actors’ presence on the continent, spanning foreign aid, diplomatic relations, and military involvement, revealing significant impacts on local economic development through multiple channels. The United States, along with other former colonial powers and major Western donors, plays a particularly prominent role in this context. Against this background, recent research has increasingly focused on the rise of new actors, and in particular China’s expanding role as a donor and investor in Africa (Bluhm, 2018; Brautigam, 2008; Brazys, Elkink and Kelly, 2017; Dreher et al. 2018). While the consensus is still unclear on whether China’s approach to aid attracts support among African citizens (Lekorwe et al. 2016; Blair, Marty, and Roessler, 2021), recent research also shows that Chinese aid exacerbates corruption and undermines collective bargaining in recipient countries (Isaksson and Kotsadam 2018a; 2018b).
As mentioned, there are as yet very few recent articles concerned with the reasons for Russia’s renewed interest in Africa (see Marten, 2019; Akinlolu and Ogunnubi, 2021; Ramani, 2023), and even fewer analyzing the potential impacts from it. One working paper, not citable due to the authors’ wishes, has quantitatively mapped and explicitly analyzed the impact of Russian military presence (in particular, of the Wagner Group) in Africa. The study found that the infamous paramilitary group faces fewer repercussions for human rights violations and commits more lethal actions than the state actors that employ them. In another recent study on the Central African Republic (CAR), Gang et al. (2023) found not only mortality levels in CAR to be four times higher than what estimated by the UN but also that Wagner mercenaries have contributed to “increased difficulties of survival” for the population in affected areas. Pardyak, M. (2022) explores the communication strategies employed by the key actors in the war, specifically focusing on how these strategies are received in African societies. Based on the analysis of over 140 media articles published in several African countries up to 15 October 2022, complemented by street surveys in Cairo, and in-depth interviews with Egyptians and Sudanese migrants, the study concludes that Russia’s multipolar perspective on the international order is more widely supported in Africa than Western strategies.
When viewed in a historical context, however, Russia’s actions reflect a longstanding adherence to a realist approach in its foreign policy endeavors. Throughout its trajectory, Russia has consistently prioritized national security and economic interests, frequently leveraging military and economic means to safeguard these interests (Tsygankov and Tsygankov, 2010). Presently, amid mounting pressures from the Western democratic world following the full-scale invasion of Ukraine in February 2022, Russia finds itself increasingly reliant on a realist approach. While the Chinese engagement in Africa is also characterized by realist principles, it’s important to emphasize that the Russian approach diverges from that of China. China is focused on a long-term presence, infrastructure building and investments. It has no interest in democracy and human rights, is efficient and cheap though not always loved (Isaksson and Kotsadam, 2018b). Russia’s interest is more short term and opportunistic, seeking out countries rich in natural resources with unstable governments and weak institutions, such as Libya, Sudan, Mozambique, the Central African Republic, Mali, Burkina Faso and Madagascar. Russia typically targets undemocratic elites or military juntas, offering political support, military equipment sales, and security cooperation (in particular through the Wagner Group) in exchange for access to natural resources, concession rights and influence. State of the art research on a previous period (Berman et al., 2017, spanning 1997 to 2010), although not exclusively focused on Russia, finds that rents from mineral contracts, captured by swings in global mineral prices for a causal interpretation, lead to a higher likelihood of local conflicts, and furthermore that the control of mining areas by rebel groups can escalate violence beyond the local level.
Russia is pursuing a range of strategic goals that include diplomatic legitimization, media influence, military presence, elite influence, arms export, and shaping voting patterns in international organizations (Lindén, 2023). Like China, Russia is uninterested in democracy or human rights. Moreover, what Russia stands for is in stark contrast to the Western model. Russia embodies autocracy and backward revisionist values (for instance in areas such as attitudes to gender equality and the sustainability agenda) while the West generally promotes democracy and progressive inclusive solutions (Lindén, 2023). What also especially characterizes Russia is the particular attraction towards the presence of anti-West sentiment, which it fuels through populistic anti-colonial disinformation and propaganda. This approach has been criticized for potentially weakening democratic norms and sidelining African agency (Akinlolu and Ogunnubi, 2021). Additionally, Russia’s disregard for the socio-political realities in Africa, typically associated with a self-interested realist approach, can lead to ineffective engagement and unintended negative consequences, undermining the long-term sustainability of both social and economic developments in the region.
Conclusion
Many African countries find themselves in a delicate balancing act, as they cannot afford to push away Russia nor displease their historical Western partners. This attempt to balance between actors poses several risks and potentially detrimental consequences, including reduced development cooperation, slower democratization, limited progress on human rights, and increased conflicts. Additionally, Russia’s growing presence in Africa can have implications for the interests and policies of the European Union (EU) and its member states as well as global actors, including impacts on migration, terrorism, the energy sector as well as on trade and aid flows.
In light of the diverse strategies foreign powers use in their relations with African countries and the significant impact these strategies have, it is crucial to deepen our understanding of foreign engagements in Africa. By examining Russia’s distinct approach alongside those of other global actors, we can gain valuable insights into the complex dynamics shaping the continent’s political, economic, and social landscape, both now and in the future. Expanding research in this area is not only desirable but essential for informing policy and development strategies.
References
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- Ramani, Samuel, Russia in Africa: Resurgent Great Power or Bellicose Pretender? (2023; online edn, Oxford Academic, 28 Sept. 2023), https://doi.org/10.1093/oso/9780197744598.001.0001
- Roberts, A. (2020). “Whatever It Takes”: Danger, Necessity, and Realism in American Public Policy. Administration & Society, 52(7), pp. 1131-1144. https://doi.org/10.1177/0095399720938550
- Siegel, J. (2021). Herd, P. G. (ed). Russia’s Global Reach: A Security and Statecraft Assessment. Garmisch-Partenkirchen: George C. Marshall European Center for Security Studies. https://www.marshallcenter.org/en/publications/marshall-center-books/russias-global-reach-security-and-statecraft-assessment
- Stanyard, J., Vircoulon, T. and Rademeyer, J. (2023). The grey zone: Russia’s military, mercenary and criminal engagement in Africa. The Global Intitaive against transnational organized crime. https://globalinitiative.net/wp-content/uploads/2023/02/Julia-Stanyard-T-Vircoulon-J-Rademeyer-The-grey-zone-Russias-military-mercenary-and-criminal-engagement-in-Africa-GI-TOC-February-2023-v3-1.pdf
- Trunkos, J. (2021) Comparing Russian, Chinese and American Soft Power Use: A New Approach, Global Society, 35:3, 395-418, DOI: 10.1080/13600826.2020.1848809
- Tsygankov, A. P., & Tsygankov, P. A. (2010). Russian theory of international relations. In Oxford Research Encyclopedia of International Studies.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Why the National Bank of Georgia Is Ditching Dollars for Gold
The National Bank of Georgia (NBG) recently acquired 7 tons of high-quality monetary gold valued at 500 million dollars, constituting approximately 11 percent of the banks’ total reserves. This marked the first occasion that Georgia acquired gold for its reserves since regaining its independence. The acquisition is a significant event, prompted by the NBG’s stated aim to enhance diversification amidst increased global geopolitical risks. However, diversification is just one of the reasons many countries are extensively purchasing gold. Another reason for increasing gold reserves is to lessen one’s reliance on the US dollar and to protect against sanctions, as seen with Russia and Belarus following the annexation of Crimea. While the NBG’s gold acquisition aligns with economic rationale, recent domestic developments suggest other motives. Actions like sanctions on political figures, anti-Western rhetoric, and recent legislation (the Law of Transparency of Foreign Influence), diverging Georgia from an EU pathway call for speculation that the gold purchase is driven by fear a of potential sanctions and as a preparedness strategy.
Introduction
The National Bank of Georgia (NBG) has broken new ground by adding gold to the country’s international reserves for the first time ever. Georgia has thus become the first country in the South Caucasus to purchase gold for its reserves. In line with its Board’s decision on March 1, 2024, the NBG procured 7 tons of the highest quality (999.9) monetary gold. The acquisition, valued at 500 million US dollars, took the form of internationally standardized gold bars, purchased from the London gold bar market and currently stored in London. Presently, the acquired gold represents approximately 11 percent of the NBG’s international reserves (see Figure 1).
Figure 1. NBG’s Official Reserve Assets and Other Foreign Currency Assets, 2023-2024.
Source: The National Bank of Georgia.
The NBG emphasizes in its official statement that the acquisition of gold is not merely symbolic but rather reflects a deliberate strategy of diversifying NBG’s portfolio and enhancing its resilience to external shocks. The NBG’s decision was made during a period marked by significant economic and political events both within and outside Georgia. Key among these were global and regional geopolitical tensions that amplified concerns about economic downturns and rising inflation. The Covid-19 pandemic in 2020 led to stagflation across many countries, including Georgia. Despite some recovery in GDP, high inflation continued into 2021. Furthermore, the Russian war on Ukraine disrupted supply chains, and pushed global inflation to a 24-year high 8.7 percent in 2022. In response, stringent monetary policies aimed at controlling inflation were implemented across both developing and advanced economies. Looking ahead, there is an expectation of a shift toward more expansionary monetary policies that should help lower interest rates (and lower yields on assets held by central banks). These global conditions provide context for the NBG’s strategic focus on diversification.
However, alongside these economic events, Georgia also faces significant political challenges. Since the beginning of Russia’s war in Ukraine in 2022, political tensions in Georgia have escalated. Notable actions such as the U.S. imposing sanctions on influential Georgian figures, including judges and the former chief prosecutor, have, among other things, intensified scrutiny into the Russian influence in Georgia. Concerns about the independence of the Central Bank, which changed the rule of handling sanctions applications for Georgia’s citizens, and legislative initiatives like the Law of Transparency of Foreign Influence, which undermines Georgia’s EU accession ambitions, have triggered reactions from the country’s partners and massive public protests. Moreover, anti-Western rhetoric from the ruling party has raised concerns. In addition, the parliament of Georgia recently approved an amendment to the Tax Cide, a so-called ‘law on offshores’. The opaque nature of the law, as well as the context and speed at which it was advanced, sparked outcry and conjecture about its true purpose. These elements lead to speculation that the decision to purchase gold may be motivated by a desire for greater autonomy or a fear of potential sanctions, rather than purely economic reasons.
In the context of the above, this policy brief seeks to explore the motivations behind gold acquisitions by Central Banks, drawing on the experiences of both developed and developing countries. It aims to review existing literature that explores various reasons for gold acquisitions, providing a comprehensive analysis of economic and potentially non-economic factors influencing such decisions.
The Return of Gold in Global Finance
Over the past decade, central bank gold reserves have significantly increased, reversing a 40-year trend of decline. The shift that began around the time of the 2008-09 Global Financial Crisis is depicted in Figures 2 and 3, highlighting the transition from a pre-crisis period of more countries selling gold, to a post-crisis period where more countries have been purchasing gold.
Figure 2. Gold Holdings in Official Reserve Assets, 1999-2022 (million fine Troy ounces).
Source: IMF, International Financial Statistics.
Figure 3. Number of Countries Purchasing/Selling Monetary Gold, 2000-2021 (at least 1 metric ton of gold in a given year).
Source: IMF, International Financial Statistics.
In 2023, central banks added a considerable amount of gold to their reserves. The largest purchases have been reported for China, Poland, and Singapore, with these nations collectively dominating the gold buying landscape during the year.
China is one of the top buyers of gold worldwide. In 2023, the People’s Bank of China emerged as the top gold purchaser globally, adding a record 225 tonnes to its reserves, the highest yearly increase since at least 1977, bringing its total gold reserves to 2,235 tonnes. Despite this significant addition, gold still represents only 4 percent of China’s extensive international reserves.
The National Bank of Poland was another significant buyer in 2023, acquiring 130 tonnes of gold, which boosted its reserves by 57 percent to 359 tonnes, surpassing its initial target and reaching the bank’s highest recorded annual level.
Other central banks, including the Monetary Authority of Singapore, the Central Bank of Libya, and the Czech National Bank, also increased their gold holdings, albeit on a smaller scale. These purchases reflect a broader trend of central banks diversifying their reserves and enhancing financial security amidst global economic uncertainties.
Conversely, the National Bank of Kazakhstan and the Central Bank of Uzbekistan were notable sellers, actively managing their substantial gold reserves in response to domestic production and market conditions. The Central Bank of Bolivia and the Central Bank of Turkey also reduced their gold holdings, primarily to address domestic financial needs.
The U.S. continues to hold the world’s largest gold reserve (25.4 percent of total gold reserves), which underscores the metal’s enduring appeal as a store of value among the world’s leading economies. The U.S. is followed by Germany at 10.5 percent, and Italy and France at 7.6 percent respectively. At present, around one-eighth of the world’s currency reserves comprise of gold, with central banks collectively holding 20 percent of the global gold supply (NBG, 2024).
Why Central Banks are Buying Gold Again
A 2023 World Gold Council survey (on central banks revealed five key motivations for holding gold reserves: (1) historical precedent (77 percent of respondents), (2) crisis resilience (74 percent), (3) long-term value preservation (74 percent), (4) portfolio diversification (70 percent), and (5) sovereign risk mitigation (68 percent). Notably, emerging markets placed a higher emphasis (61 percent) on gold as a “geopolitical diversifier“ compared to developed economies (45 percent).
However, the increasing use of the SWIFT system for sanctions enforcement (e.g., Iran in 2015 and Russia in 2022) has introduced a new factor influencing gold purchases of some governments: safeguarding against sanctions (Arslanalp, Eichengreen and Simpson-Bell, 2023).
In addition, Arslanalp, Eichengreen, and Simpson-Bell (2023) conclude that central banks’ decisions to acquire gold are primarily driven by the following factors; inflation, the use of floating exchange rates, a nation’s fiscal stability, the threat of sanctions, and the degree of trade openness (see Figure 4).
Figure 4. Determinants of Gold Shares in Emerging Market and Developing Economies.
Source: Arslanalp, Eichengreen, and Simpson-Bell (2023).
Gold as a Hedging Instrument
Gold is considered a safe haven and an attractive asset in periods of significant economic, financial, and geopolitical uncertainty (Beckman, Berger, & Czudaj, 2019). This is particularly relevant when returns on reserve currencies are low, a scenario prevalent in recent years.
A hedge against inflation: Inflation presents a significant challenge for central banks, as it erodes the purchasing power of a nation’s currency. Gold has been a long-standing consideration for central banks as a potential inflation hedge. Its price often exhibits an inverse relationship with the value of the US dollar, meaning it tends to appreciate as the dollar depreciates. This phenomenon can be attributed to two primary factors: (1) increased demand during inflationary periods; and (2) gold tends to have intrinsic value unlike currencies (Stonex Bullion, 2024).
Diversification of portfolio: Diversification is a cornerstone principle of portfolio management. It involves allocating investments across various asset classes to mitigate risk. Gold, with its negative correlation to traditional assets like stocks and bonds, can be a valuable tool for portfolio diversification. In simpler terms, when stock prices decline, gold prices often move in the opposite direction, offering a potential hedge against market downturns (see Figure 5).
Figure 5. How Gold Performs During Recession, 1970-2022.
Source: Bhutada (2022).
Hedge against geopolitical risks: de Besten, Di Casola and Habib (2023) suggest that geopolitical factors may have influenced gold acquisitions for some central banks in 2022. A positive correlation appears to exist between changes in a country’s gold reserves and its geopolitical proximity to China and Russia (compared to the U.S.) for countries actively acquiring gold reserves. This pattern is particularly evident in Belarus and some Central Asian economies, suggesting they may have increased their gold holdings based on geopolitical considerations.
Low or Negative Interest Rates: When interest rates on major reserve currencies like the US dollar are low or negative, it reduces the opportunity cost of holding gold (gold is a passive asset that does not generate periodic income, dividends, and interest benefits). In other words, gold becomes a more attractive option compared to traditional investments that offer minimal or no returns. The prevailing low-interest rate environment, particularly for major reserve currencies like the US dollar, has diminished the opportunity cost of holding gold.
This phenomenon applies to both advanced economies and emerging market economies (EMDEs). Notably, EMDEs with significant dollar-denominated debt are particularly sensitive to fluctuations in US interest rates. Arslanalp, Eichengreen, and Simpson-Bell (2023) conclude that reserve managers are increasingly incorporating gold into their portfolios when returns on reserve currencies are low. Figure 6 illustrates the inverse relationship between the price of gold and the inflation-adjusted 10-year yield.
Figure 6. Gold Price and Inflation-Adjusted 10-Year Yield.
Source: Bloomberg, U.S. Global Investors.
In addition to its aforementioned advantages, gold offers central banks a long-term investment opportunity despite its lack of interest payments, unlike traditional securities. While gold exhibits short-term price volatility, its historical price trend suggests a long-term upward trajectory (see Figure 7).
Figure 7. Gold Price per Troy Ounce (approximately 31.1 grams), in USD.
Source: World Gold Council.
Gold as a Safeguard Against Sanctions
Gold is perceived as a secure and desirable reserve asset in situations where countries face financial sanctions or the risk of asset freezes and seizures (see Table 1). The decision by G7 countries to freeze the foreign exchange reserves of the Bank of Russia in 2022 highlighted the importance of holding reserves in a form less vulnerable to sanctions. Following Russia’s annexation of Crimea in 2014, the Bank of Russia intensified its gold purchases. By 2021, it had confirmed that its gold reserves were fully vaulted domestically. The imposition of sanctions on Russia, which restrict banks from engaging in most transactions with Russian counterparts and limit the Bank of Russia’s access to international financial markets, further underscores the appeal of gold as a safeguard.
While the recent sanctions imposed by G7 countries, which limit Russian banks from conducting most business with their counterparts and restrict the Bank of Russia from accessing its reserves in foreign banks, are an extreme example, similar sanctions have previously impacted or threatened financial operations of other nations’ central banks and governments. This situation raises the question of whether the risk of sanctions has influenced the observed trend of countries’ increasing their gold reserves (IMF, International Financial Statistics, 2022).
Table 1. Top 10 Annual Increases in the Share of Gold in Reserves, 2000-2021.
Source: IMF, International Financial Statistics; Global Sanctions Database (GSDB). Note: Excludes countries with central bank gold purchases from domestic producers.
As outlined in Arslanalp, Eichengreen and Simpson-Bell (2023), there were eight active diversifiers into gold in 2021, each purchasing at least 1 million troy ounces (Kazakhstan, Belarus, Turkey, Uzbekistan, Hungary, Iraq, Argentina, Qatar), exhibiting distinct international economic or political concerns. Kazakhstan, Belarus, and Uzbekistan maintain ties with Russia through the Eurasian Economic Union. Turkey has faced sanctions from both the European Union and the U.S. Iraq has experienced disputes with the U.S., while Hungary has faced similar issues with the European Union. In 2017-21, Qatar was subjected to a travel and economic embargo by Saudi Arabia and neighboring countries. Argentina may have had concerns about asset seizures by foreign courts due to sovereign debt disputes.
Furthermore, according to the Economist (2022), gold is costly to transport, store, and protect. It is expensive to use in transactions and doesn’t earn interest. However, it can be lent out like currencies in a central bank’s reserves. When lent out or used in swaps (where gold is exchanged for currency at agreed dates), it can generate returns. But banks prefer gold to be stored in specific places like the Bank of England or the Federal Reserve Bank of New York, which brings back the risk of sanctions. For instance, During the Iranian Revolution in 1979 and the subsequent hostage crisis, the United States froze Iranian assets, including the gold reserves held in U.S. banks (Arslanalp, Eichengreen and Simpson-Bell, 2023). The National Bank of Georgia intends to transport its acquired gold from England to Georgia for storage, which could potentially reduce storage costs, but further decrease liquidity.
Arslanalp, Eichengreen, and Simpson-Bell (2023) conclude that since the early 2000s, half of the significant year-over-year increases in central bank gold reserves can be attributed to the threat of sanctions. By examining an indicator that tracks financial sanctions by major economies like the United States, United Kingdom, European Union, and Japan, all key issuers of reserve currencies, the authors have confirmed a positive correlation between such sanctions and the proportion of reserves held in gold. Furthermore, their findings suggest that multilateral sanctions imposed by these countries collectively have a more pronounced effect on increasing gold reserves than unilateral sanctions. This is likely because unilateral sanctions allow room for shifting reserves into the currencies of other non-sanctioning nations, whereas multilateral sanctions increase the risks associated with holding foreign exchange reserves, thus making gold a more attractive option.
The NBG’s Historic Decision
The National Bank of Georgia’s (NBG) recent acquisition of gold for its reserves is likely motivated by a desire to diversify its portfolio and hedge against inflation and geopolitical risks. However, recent developments in Georgia raise questions about the timing of this policy decision, bringing political considerations into the picture.
Among these developments is the 2023 suspension of the IMF program for Georgia, due to concerns about the NBG’s governance (Intellinews, 2023). The amendments to the NBG law in June 2023, which created a new First Deputy and Acting Governor position – superseding the existing succession framework – contradicted IMF Safeguards recommendations and raised concerns about increased political influence (International Monetary Fund, 2024). How the recent gold purchase reflect on the future of IMF cooperation is thus a relevant question to ask.
Another ground for concern is the recent approval by the Georgian Parliament of the anti-democratic “Foreign Influence Transparency” law and the anti-Western rhetoric of the ruling party, which have sparked intensive public protests. European partners warn that the law will not align with Georgia’s European Union aspirations and that it could potentially hinder the country’s advancement on the EU pathway. Rather, the law might distance Georgia from the EU. This law has also increased the concerns for further sanctions on members of the ruling party, government officials, and individuals engaging in anti-West and anti-EU propaganda.
Furthermore, the recent amendment of the Tax Code, the so-called “offshores law” allows for tax-free funds transfers from offshore zones to Georgia. This, combined with other developments, raises questions about whether the government is preparing for potential sanctions, should its relationship with Russia continue to strengthen.
Conclusion
In conclusion, this policy brief highlights that central banks’ acquisition of gold reserves, especially in emerging economies, is motivated by a combination of economic and political factors. The economic incentives include the need for portfolio diversification and protection against inflation and geopolitical instabilities, a trend that became more pronounced following the 2008 global financial crisis. Politically, the accumulation of gold serves as a strategic move to lessen dependency on the U.S. dollar and as a defensive measure against potential international sanctions, as highlighted by the post-2014 geopolitical shifts following Russia’s annexation of Crimea.
In 2024, Georgia purchased gold for the first time since regaining its independence. While its gold purchasing strategy seems to align with these economic motives, the recent domestic political dynamics suggest a deeper, possibly strategic political rationale by the National Bank of Georgia. The imposition of U.S. sanctions on key figures, and recent legislative actions deviating from European Union standards, all amidst increasing anti-Western sentiment, indicate that the NBG’s gold acquisitions might also be driven by a quest for greater safeguard against potential future sanctions. Thus, while economic reasons for the purchase are significant, the political underpinnings in the NBG’s recent actions raise numerous unanswered questions.
References
- Arslanalp, S., Eichengreen, B., & Simpson-Bell, C. (2023). Gold as International Reserves: A Barbarous Relic No More? IMF Working Papers.
- Beckman, J., Berger, T., & Czudaj, R. (2019). Gold Price Dynamics and the Role of Uncertainty. Quantitative Finance , 663-681.
- Bhutada G. (2022). Does Gold’s Value Increase During Recessions? Elements Visualcapitalist.
- de Besten, T., Di Casola, P., & Habib M. M. (2023). Geopolitical fragmentation risks and international currencies. The international role of the euro.
- The Economist. (2022). Why gold has lost some of its investment allure. https://www.economist.com/finance-and-economics/2022/01/08/why-gold-has-lost-some-of-its-investment-allure
- International Monetary Fund (2024). Georgia: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Georgia. IMF Country Reports 24/135
- Intellinews. (2023). https://www.intellinews.com/georgia-s-national-bank-president-confirms-suspension-of-imf-programme-294545/
- StoneX Bullion (2024). Why Central Banks Buy Gold.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Stockholm Institute of Transition Economics Celebrates Its 35th Anniversary
June 15, 2024, marks a significant milestone for the Stockholm Institute of Transition Economics (SITE) as it celebrates its 35th anniversary. Over the past three and a half decades, SITE has established itself as a leading institution dedicated to economic research and the development of policies for transition economies.
From its beginnings as Östekonomiska Institutet in 1989, under the leadership of Anders Åslund, to the rebranding as SITE in 1996 with Erik Berglöf at the helm, SITE has continuously evolved as a research institution, securing a position among the world’s top think tanks in the field of economics, with a focus on Eastern Europe. In 2006, Torbjörn Becker brought his expertise from the International Monetary Fund (IMF) to lead SITE into a new era of research excellence, strengthening the focus on institution-building in the region.
Reflecting on this anniversary, Torbjörn Becker, Director of SITE, says:
“As we celebrate 35 years of economic research, policy analysis, and institution building, we are reminded of how important it is that we continue to work in this region. I am particularly proud that we are able to work with our fantastic partners in the FREE Network that make significant contributions to how their respective countries reform and develop.”
Building Institutions for Change
Since its foundation in 1989, SITE has been at the forefront of economic research and policy development in transition economies, playing a crucial role in establishing independent think tanks and academic institutions in Belarus, Georgia, Latvia, Poland, Russia, and Ukraine. These research institutes collectively established the Forum for Research on Eastern Europe and Emerging Economies (FREE Network); an umbrella organization that fosters collaboration and mutual learning among researchers, as well as administrative and institutional capacity building. As one of its key initiatives, the network publishes weekly policy briefs addressing contemporary economic policy challenges in Eastern Europe and emerging markets.
Bridging the Gap Between Research and Policy Making
SITE’s ambition for the years to come remains unchanged: to bridge the gap between leading academic research and current policy making through debate and communication. At our flagship events, such as SITE Development Day and the SITE Academic Conference, we are committed to debating topics where research can pave the way to solving global and regional challenges. In our weekly seminars and regular workshops, we remain dedicated to exchanging ideas with leading experts and policymakers. In the last decades, SITE’s research has been cited by top journals in economics, while its impact beyond academic journals has resulted in more than 30 million impressions across local and international news.
Key Milestones in SITE’s History
Succession Dynamics in Latvian Family Firms
This policy brief examines the emergence, succession, and performance of first-generation family firms in Latvia, highlighting the unique challenges and achievements of these businesses since the early 1990s. Following Latvia’s independence, many family firms were established, providing a natural setting to study succession issues. Key findings reveal that initially, nearly half of these firms did not have a majority stake held by the founding family, but within the first few years after founding, families accumulated majority ownership. It typically took seven years for family ownership to exceed 75 percent. However, 23 years later, only 16 percent of the sample firms have second-generation shareholders. Notably, around 80 percent of these firms remain majority-owned and managed by their founders. Furthermore, family firms outperform non-family firms by 3.1 percent in return on assets (ROA). The findings underscore the need for policies that support effective succession planning, incentivize family-owned business sustainability, and provide targeted training for future generations to maintain the robust economic contributions of these firms.
Introduction
Family firms, where key decisions are controlled by individuals linked by blood or marriage, are the predominant organizational form worldwide. These firms face critical challenges, (e.g. leadership transition, generational differences, emotional ties to the business, and estate planning tax considerations) particularly during ownership succession, which is the transition from the first to the second generation of family members. This issue is especially relevant in Eastern European countries like Latvia, where the shift from a planned to a market economy in the 1990s created the first generation of family firms now approaching generational change.
Understanding how family firms manage this transition is crucial for policymakers, business leaders, and researchers. This policy brief highlights the key findings of a study (Pajuste and Berzins (2024) on Latvian family firms, focusing on ownership succession patterns, the involvement of the next generation, and the impact on firm performance.
Succession Patterns and Ownership Evolution
In Latvia, many family firms began with founders holding minority stakes, reflecting financial constraints and economic uncertainties. Over time, families gradually increased their ownership stakes, demonstrating resilience and strategic planning. On average, it took seven years for family ownership to exceed 75 percent. This gradual ownership increase helped families navigate the challenges of economic transitions and limited access to external capital. The study also reveals that 23 years after being founded, only 16 percent of the sample firms have second-generation family members as shareholders.
Involvement of the Second Generation
The emergence of the second generation in family firm ownership is a pivotal phase. Succession planning and the transmission of familial values, knowledge, and entrepreneurial ethos are crucial during this period. By 2022, only 14 percent of the sample family firms had significant second-generation involvement (defined as the second generation holding a majority of the family shares and having a board seat).
More specifically, in a sample of 266 family firms, 20 percent had involved the second generation in ownership by 2022, with significant involvement in 71 percent of these cases. At the same time, 80 percent of the firms were still majority-owned and managed by the founders. This slow involvement of the second generation highlights the challenges of succession planning and the need for a strategic approach – both from a company and a legal perspective – to ensure a smooth transition from the first to second generation.
Importantly, despite this slow transition, family firms tend to perform better than non-family firms, with a 3.1 percent higher return on assets (ROA). However, within family firms, the involvement of the second generation does not significantly impact firm performance.
Policy Implications and Recommendations
The findings of this study have several important implications for policymakers, business leaders, and researchers.
Support for Succession Planning
There is a need for policies and programs that support succession planning in family firms. This includes providing resources and guidance for families to develop succession plans, ensuring the continuity of family businesses. Ensuring some form of succession, whether within the family or through external parties, is crucial to prevent these firms from closing. Facilitating succession and supporting the survival of these firms would not only protect jobs, but also have a positive economic effect as family firms outperform their non-family counterparts.
Financial Support and Access to Capital
Another way to enable smoother transition and growth for family firms is to improve their access to capital to help them overcome financial constraints. Financial institutions and government programs should focus on providing tailored financial products for family businesses. By doing so, they not only support the longevity of these businesses but also help in maintaining employment levels and preventing the economic fallout from family firm closures.
Education and Training
Educational programs and training for the next generation of family business leaders are essential. These programs should focus on leadership, management, and the unique challenges of family businesses, preparing the next generation for successful transitions.
Awareness and Best Practices
Raising awareness about the importance of succession planning and sharing best practices can help family firms navigate generational transitions more effectively.
Research and Data Collection
Continued research and data collection on family firms and their succession patterns are crucial. This helps in understanding the challenges and opportunities faced by family businesses, informing policies and practices that support their continuation and success.
Conclusion
Latvian family firms, like their counterparts worldwide, face significant challenges during ownership succession. This study highlights the gradual and strategic increase in family ownership stakes, the slow emergence of the second generation in ownership, and the need for comprehensive succession planning. Policymakers, business leaders, and researchers must work together to support family firms in navigating these transitions, ensuring their continued contribution to the economy.
Effective succession planning is crucial for sustaining family businesses across generations, preserving their legacy, and promoting economic growth. By addressing the unique challenges faced by family firms, we can create a supportive environment that fosters the longevity and success of these vital enterprises.
Acknowledgment
This brief is based on an academic article Family Firm Succession: First-generation transitions in Latvia co-authored with Janis Berzins and forthcoming in Finance Research Letters. We acknowledge financial support from the EEA research grant Global2micro (S-BMT-21-8, LT08-2LMT-K-01-073).
References
- Pajuste, A., and Berzins, J. (2024). Family firm successions: First-generation transitions in Latvia. Finance Research Letters, 64, forthcoming.
To read more policy briefs published by the BICEPS Institute, visit the Institute’s page on the FREE Network’s website.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.