Of floods and droughts : the economic and financial crisis of 2008

This paper provides an overview of the period prior to the recent global crisis, and the policies that were adopted around the world in response to the crisis. It highlights a number of key issues regarding economic and financial policies that governments have faced both globally and nationally. These are related to the management of boom and bust episodes that deserve more attention in policy circles in the future.Debt Markets,Emerging Markets,Currencies and Exchange Rates,Economic Theory&Research,Access to Finance

Micro efficiency and macro growth

This paper is about micro foundations of productivity and growth. There are several studies on productivity for advanced economies but relatively few for developing countries. Using data from the investment climate surveys of the World Bank, estimation results from 45 developing countries, complemented by extended analysis at firm and industry levels for Brazil and India for the period 2002-05, indicate the following: (i) confirmation of the importance of total factor productivity at firm, industry and national levels, but total factor productivity progressively tapersoff at each level of aggregation implying that there is a less than one-to-one relationship between micro-efficiency, sector growth, and macro growth; (ii) capital accumulation is more important at the macro level than the micro level; (iii) productivity at the micro level is driven by research and development, the capacity utilization rate, and adoption of foreign technology (all of which involve management decisions), and is negatively related to corruption and instability, tax, and financial regulations; and (iii) confirmation of the lower contribution of total factor productivity to output growth in developing countries than in developed economies. Management decisions are involved in a lot of day-to-day operations at the firm level and therefore management is an unmeasured input. In developing countries, at the firm level, there is a need to understand the contribution of quality of inputs (management quality, education and labor quality, training, experience of workers, use of computers at work) and also the role of external agglomeration (for example, location in a booming city, competitive pressures from new firms, trade competition, and regulations).Economic Theory&Research,Economic Growth,Labor Policies,Achieving Shared Growth,E-Business

Rethinking multipliers in a globalized world

This paper uses the central tool of an investment-savings and monetary-policy model with an augmented Philips curve and presents a few extensions of that model to analyze the multiplier effects of macroeconomic policies in the United States. In doing so, the authors incorporate realistic assumptions in the model related to the recent financial characteristics of the global economy. The monetary policy reaction function embeds a new augmented Taylor-rule incorporating housing and stock prices and the credit lending rate. And the household consumption and firm investment decisions incorporate housing and stock assets and the credit market frictions. The equilibrium income is derived and compared with the actual nominal gross domestic product of the United States for the period 1990 to 2009. More importantly, fiscal and trade multipliers are derived and discussed. The main finding is that government spending, tax cut, and trade multipliers are relatively smaller in size when more realistic features are incorporated in the model. The model simulation shows that the model can track actual gross domestic product reasonably well. The model should be further improved before it could be used for policy exercises.Economic Theory&Research,Debt Markets,Emerging Markets,Economic Stabilization,Access to Finance

The Impact of External Indebtednesson Poverty in Low-Income Countries

This paper explores the relationship between external debt and poverty. A number of observers have argued that high external indebtedness is a major cause of poverty. Using the first-differenced general method of moments (GMM) estimator, the paper models the impact of external debt on poverty, measured by life expectancy, infant mortality, and gross primary enrollment rates, while duly taking into account the impact of external debt on income. The paper thus endeavors to bring together the literature that links external debt with income growth and poverty. The main conclusion is that once the effect of income on poverty has been taken into account, external indebtedness indicators have a limited but important impact on poverty.Poverty;External debt;HIPC Initiative;Economic growth;mortality rate, life expectancy, debt service, infant mortality, infant mortality rate, external indebtedness, debt overhang, birth, debt relief, debt service to exports, life expectancy at birth, net present value of debt, external debt indicators, debt crisis, stock of debt, debt service payment, debt service payments, debt burden, nominal stock of debt, debt servicing, ratio of debt, debt service to export, foreign debt, external borrowings, external resources, debt sustainability, external finance, debt stocks, debt reduction, debt stock, debt problems, mortality rates, external debts, ratio of debt service to exports, infant mortality rates, number of deaths, debt data, multilateral debt relief, relief mechanisms, international debt, traditional debt relief, debt sustainability analyses, external debt burden, debt relief mechanisms, births, lower life expectancy, live birth, international lending, multilateral debt, external debt stock, traditional debt relief mechanisms, debt service reduction, relief debate