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Lessons from Recent Crises and Current Priorities for Finance Practitioners and Policy-Makers

Maria Soledad Martinez Peria's picture

On May 14-18 the World Bank held its annual Overview Course on Financial Sector Issues in Washington, DC. Geared towards mid-career financial sector policy-makers and practitioners, the objective of this one-week event was to discuss issues of current and long-run importance to the development of the financial sector. This year’s course focused on Lessons from Recent Crises and Current Priorities for Finance Practitioners and Policy-Makers. The timing was quite fitting—the course took place the same week that JP Morgan’s billion-dollar trading became public and the European crisis intensified as Greek banks suffered large deposit runs.

Perhaps not surprisingly in light of recent events affecting the financial sector in the US and Europe, three main broad themes resonated in many of the sessions of the course: (1) the need for more and better bank capital, (2) the importance of putting in place the right incentives for banks to limit the risks they take, and (3) the role of macroprodudential regulation in monitoring and limiting systemic risk.

Is Infrastructure Capital Productive?

From a theoretical and empirical standpoint, the contribution of infrastructure capital to aggregate productivity and output has been extensively researched. Public capital has been modeled as an additional input in Ramsey-type exogenous growth models and in endogenous models as well. On the empirical front, the literature has witnessed a proliferation of research over the last 20 years following Aschauer’s (1989) seminal paper on the effects of public infrastructure capital on US total factor productivity. His finding of excessively high returns to infrastructure, however, has not held up. Subsequent research using a large variety of data and more robust econometric techniques has yielded widely contrasting empirical results. For instance, Bom and Ligthart (2008) find that estimates of the output elasticity of public capital range from -0.175 to +0.917 in a wide set of empirical research for industrial countries.