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111. Is There a Debt-threshold Effect on Output Growth?

Author:
M. Hashem Pesaran
Publication Date:
06-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper studies the long-run impact of public debt expansion on economic growth and investigates whether the debt-growth relation varies with the level of indebtedness. Our contribution is both theoretical and empirical. On the theoretical side, we develop tests for threshold effects in the context of dynamic heterogeneous panel data models with cross- sectionally dependent errors and illustrate, by means of Monte Carlo experiments, that they perform well in small samples. On the empirical side, using data on a sample of 40 countries (grouped into advanced and developing) over the 1965-2010 period, we find no evidence for a universally applicable threshold effect in the relationship between public debt and economic growth, once we account for the impact of global factors and their spillover effects. Regardless of the threshold, however, we find significant negative long-run effects of public debt build-up on output growth. Provided that public debt is on a downward trajectory, a country with a high level of debt can grow just as fast as its peers.
Topic:
Debt, Economics, Economic Growth, and Public Debt
Political Geography:
Global Focus

112. News shocks in the data: Olympic Games and their macroeconomic effects – Reply

Author:
Viktoria Langer, Wolfgang Maennig, and Felix J. Richter
Publication Date:
10-2015
Content Type:
Working Paper
Institution:
Chair for Economic Policy, University of Hamburg
Abstract:
Recent analyses relate increases in the growth rate of countries to anticipation effects caused by bidding for the Olympic Games, so called news shocks. We argue that these findings should be interpreted cautiously. First, these analyses may suffer from an omitted variable bias because they neglect key determinants of economic growth. Second, these analyses compare the bidders for the Olympic Games to all other countries in the world, which constitutes a comparison between groups that show large differences in their structural characteristics. We show that including established determinants of economic growth and comparing the bidders to a suitable control group may lead to a complete disappearance of the anticipated economic effects of Olympic Games.
Topic:
GDP, Sports, Economic Growth, Olympics, and Macroeconomics
Political Geography:
Global Focus

113. Four key areas to improve aid effectiveness

Author:
Tony Addison and Finn Tarp
Publication Date:
08-2015
Content Type:
Policy Brief
Institution:
United Nations University
Abstract:
The design and implementation of effective aid policy requires a deeper understanding of the impact of aid and the overall environment in which development aid operates. This policy brief addresses four areas which are key to understanding how aid works: the relationship between aid and economic growth, the effects of aid volatility, the benefits of co-operation, and the macroeconomic management of aid flows.
Topic:
Foreign Aid, Economic Growth, and Macroeconomics
Political Geography:
Global Focus

114. Why Give Aid to Resource-Rich Autocrats?

Author:
Mare Sarr, Chiara Ravetti, and Tim Swanson
Publication Date:
11-2015
Content Type:
Working Paper
Institution:
Centre for International Environmental Studies, The Graduate Institute (IHEID)
Abstract:
Why give aid to resource-rich autocrats? We find that the interaction between natural resources and most forms of international aid results in enhanced political instability in most autocratic countries. Interestingly, some types of government aid (notably humanitarian aid) do not have this effect, indicating that the impact of aid varies with its form. Furthermore, we find that only aid structured in the form of loans (rather than grants) is more likely to flow toward resource-rich autocracies. This combination of loans with any political instability they may induce, can create speculative rights (for the donor) in the resource-riches of the recipient country. This potential claim on resources provides one important strategic reason to give aid to resource-rich autocrats. Aid can act as a form of foreign intervention in the pursuit of regime change, and claims on resources.
Topic:
Foreign Aid, Economic Growth, Dictatorship, Autocracy, Resource Management, and Looting
Political Geography:
Global Focus

115. Ethnic Diversity, Gender, and National Leaders

Author:
Katherine W. Phillips, Nicholas A. Pearce, and Susan E. Perkins
Publication Date:
02-2014
Content Type:
Working Paper
Institution:
School of International and Public Affairs, Columbia University
Abstract:
National leaders have the ultimate responsibility to balance the needs of a diverse set of constituents in society while using their country’s unique set of resources to grow the economy and to gain comparative advantages. Salient to many observers, the United States of America, the world’s largest economy, has never had a female president or vice president and has had only forty-four women serve in the 224-year history of the U.S. Senate. Moreover, if women do make it into top-ranked government leadership positions, whether or not they perform notably different from their male counterparts still remains unknown. Though studies presented by several psychologists validate that women’s leadership styles differ from their male counterparts (i.e., more democratic, inclusive, participative and transformative), how this plays out nationally and in terms of setting national policy agendas and making key decisions for society is explained only anecdotally.[2] For example, Ellen Johnson Sirleaf, affectionately known to her countrymen as the “Iron Lady,” was said to bring a “motherly sensitivity” to her post-war torn country, Liberia; Michelle Bachelet, the Republic of Chile’s first female national leader, won in 2006 on a campaign championing “gender equality” and “inclusion;” and most recently, Park Geun-hye won the presidential election in the Republic of Korea under the political platform of “disarming vicious cycles of distrust and building peace” with the Democratic People's Republic of Korea.[3] These anecdotes all suggest an association with a gender-specific perception of governance, as well as a gender-specific expectation for substantive policy changes with a female taking the lead at the national level. To develop a better understanding of the unique contributions of female national leaders, this article uses global cross-national comparative leader data from 188 countries to explore the following questions: 1) How have global trends of national female leadership changed over time? and 2) Is there evidence that having a female—as compared to a male—leader has differential consequences for economic growth as ethnic diversity increases?
Topic:
Gender Issues, Economic Growth, Feminism, and Diversity
Political Geography:
Global Focus

116. Macroeconomic Impact of Capital Flight in Sub-Saharan Africa

Author:
John Weeks
Publication Date:
09-2014
Content Type:
Working Paper
Institution:
African Economic Research Consortium (AERC)
Abstract:
This paper assesses the impact of capital flight on growth in thirty-one sub-Saharan African countries. It first considers the “macro fundamentals” hypothesis that capital flight would be lower in a country whose government adhered to “sound” macroeconomic policies. Analytical considerations fail to support this hypothesis. Second, it develops a growth estimating equation derived from the Harrod-Domar framework. The growth estimations support the conclusion that capital flight had a major impact on growth over the last three decades, 1980–2010. The negative impact was greatest for the petroleum-exporting countries and those affected by internal conflict, but it was also substantial for the other countries, with a few exceptions.
Topic:
Economics, Markets, Global Markets, Economic Growth, Economic Policy, Macroeconomics, and Capital Flight
Political Geography:
Africa, Sudan, Nigeria, Angola, Chad, Cameroon, Global Focus, Gabon, and Republic of Congo

117. A new development era? The private sector moves to the centre

Author:
Evan Mawdsley
Publication Date:
09-2014
Content Type:
Special Report
Institution:
Norwegian Centre for Conflict Resolution
Abstract:
The last few years have witnessed the emergence of a loose but potent assemblage of ideas that have all but supplanted the recent “aid effectiveness” agenda. “Development effectiveness”, to use a term that became popular at the 2011 Busan High Level Forum on Aid Effectiveness, recentres economic growth as the principal engine of international development and foregrounds the private sector as the central driver of this growth. The concerns of good governance, social welfare and poverty reduction are not going to disappear, but their place in the sequencing and focus of many development actors and institutions is changing. Intertwined with this process is the rearticulation of foreign aid (official development assistance) as a catalyst for development, and the growing use of “blended” public and private finances to support investment and growth. If this growing trend in international development thinking and practice is to have genuine development outcomes, then (1) private-sector-led policies and programmes must actively engage with win-lose scenarios and not just assume win-win scenarios; and (2) the quality and not just quantity of economic growth must be supported by the articulation of clear and credible principles, institutional structures, and appropriate metrics and incentive mechanisms, and not simply aspirational statements.
Topic:
Development, Humanitarian Aid, Economic Growth, and Private Sector
Political Geography:
Global Focus

118. Targeting the ‘Invisible’: Improving Entrepreneurship Opportunities for Informal Sector Women

Author:
Tonia Warnecke
Publication Date:
01-2013
Content Type:
Policy Brief
Institution:
Institute for the Study of International Development, McGill University (ISID)
Abstract:
In the wake of global economic downturn, policymakers in many developing countries are turning their gaze upon two things: private sector-led strategies for economic growth and women’s potential to contribute to this growth. As a consequence, female entrepreneurship has been an area of particular interest to policymakers, businesses, and non-governmental organizations, and many female-targeted policies and programs have been implemented, ranging from microfinance and subsidized loans to training and incubator programs. However, the focus on entrepreneurship as a development strategy conceptualizes entrepreneurship in a particular way—as opportunity entrepreneurship. Opportunity entrepreneurs can identify available opportunities and exploit them; they are often highly educated, have prior managerial experience, and have solid job alternatives with good salaries. They also have access to external capital and formal business networks, and operate in the formal sector of the economy. Opportunity entrepreneurs are more likely to have high-growth and high-tech businesses, but a large portion of entrepreneurship in the developing world— street vending, for example—does not fit into this category. Necessity entrepreneurs are driven to entrepreneurship for lack of other job options; they generally operate in the informal sector and lack legal protection, and their businesses do not facilitate upward mobility. The proliferation of necessity entrepreneurship in the developing world is associated with global trends of increasing informal and flexible employment over the last few decades, and it exacerbates gender inequality. Women are more likely than men to be engaged in vulnerable, informal employment across the globe, and even within the informal sector, the highest-paid jobs are primarily held by men, while the lowest-paid jobs are primarily held by women. In nearly all countries, women are more likely to be necessity entrepreneursthan men. However, most existing entrepreneurial programs target the formal sector and neglect the informal sector, disproportionately harming women. Many government-sponsored or private sector-led programs supporting female entrepreneurship focus on highly educated, middle- or upper-income women with prior entrepreneurial experience—a small minority of women. It can be challenging to design programs that effectively meet the needs of informal workers; although international organizations and non-governmental organizations are more likely to reach out to informal sector and rural women, these programs often focus on sustenance rather than business growth. There is no one-size-fits-all approach to designing female entrepreneurship programs for the informal sector. However, improving and tailoring such programs can establish a ladder between necessity and opportunity entrepreneurship, reduce gender inequalities, improve informal sector living conditions, and increase economic dynamism and informal-formal sector linkages in developing countries around the world.
Topic:
Development, Women, Entrepreneurship, and Economic Growth
Political Geography:
Global Focus

119. When will the global economy return to rapid growth?

Author:
Marek Dabrowski
Publication Date:
12-2013
Content Type:
Policy Brief
Institution:
Center for Social and Economic Research - CASE
Abstract:
More than six years have passed since the subprime mortgage crisis began in the US in the summer of 2007. In the following year, it spread to the entire world economy. Its consequences have not been fully overcome yet. Thus it’s not surprising that economists’ attention has been largely devoted to short-term, crisis-related issues like financial deleveraging and repairing the balance sheets of governments, corporations and households. For the macroeconomic policy debate, this means concentrating on demand management by using monetary and fiscal policy tools in order to return to a pre-crisis growth path. Rarely has the question been asked of whether or not this is a realistic goal, i.e., whether post-crisis growth can return to pre-crisis levels. An analysis of growth perspectives in the medium-to-longterm calls for using the neo-classical growth theory, according to which there are three factors at play: labor, capital and total factor productivity (TFP). In this brief we will try to figure out what their expected dynamics are and how much each of them can contribute to economic growth in the foreseeable future.
Topic:
Economic Growth, Global Financial Crisis, Economic Policy, Macroeconomics, and Fiscal Policy
Political Geography:
Global Focus and Global Markets

120. Do Recessions Affect Potential Output?

Author:
Jane T. Haltmaier
Publication Date:
12-2012
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
A number of previous studies have looked at the effect of financial crises on actual output several years beyond the crisis. The purpose of this paper is to examine whether the growth of potential output also is affected by recessions, whether or not they include financial crises. Trend per capita output growth is calculated using HP filters, and average growth is compared for the two years preceding a recession, the two years immediately following a recession peak, and the two years after that. Panel regressions are run to determine whether characteristics of recessions, including depth, length, extent to which they are synchronized across countries, and whether or not they include a financial crisis, can explain the cumulative four-year loss in the level of potential output following an output peak preceding a recession. The main result is that the depth of a recession has a significant effect on the loss of potential for advanced countries, while the length is important for emerging markets. These results imply that the Great Recession might have resulted in declines in trend output growth averaging about 3 percent for the advanced economies, but appear to have had little effect on emerging market trend growth.
Topic:
Economics, Global Recession, Global Markets, and Economic Growth
Political Geography:
Global Focus