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Financial Sector

Is Fiscal Activism Back?

Raj Nallari's picture

I. Rethinking Fiscal Activism

The challenge of raising aggregate demand is now a global phenomenon. To get an understanding of the underlying processes, take the case of the US. Here, the fall in the stock market and owner occupied real estate led to an erosion of household wealth by over $10 trillion by June 2009. This led to an estimated decrease in aggregate demand by about $600 annually, or about 3% of GDP, due to a fall in household spending by about $400 billion and production by $200 billion. Automatic stabilizers like a decrease in personal and corporate taxes cushion the fall in aggregate demand by about a third, but still leaving a net GDP gap of about $400 billion annually1. So the present challenge in the US alone lies in policies that could potentially raise aggregate demand by about $400 billion annually.

In many advanced countries, including the United States, the scope of monetary policy to forcefully affect demand is limited to interest rates. However, interest rates in many of these countries are already at historically very low levels, leaving little leverage for further use of this instrument. In many emerging and developing economies, though central banks have lowered interest rates, they have done so cautiously so as to maintain incentives for capital inflows and external stability. Given the extent of the downturn and the limits to monetary policy action, fiscal policy is regarded as being crucial in providing short and medium term support to the global economy. However, while a fiscal response across many countries may be needed, not all countries have sufficient fiscal space to implement it since expansionary fiscal actions may threaten the sustainability of fiscal finances. This note discusses the possible fiscal policy goals, options and the potential long term impacts.

Why We Should Favor (Slightly) Less Efficient Financial Markets

Jamus Lim's picture

Lost in many of the post-crisis financial reform proposals to rein in destructive financial innovation---such as calls to ban naked CDS, establish centralized clearinghouses for derivatives, and eliminate high-frequency trading---is the broader issue of whether these innovations could actually enhance welfa

How 'Big Data' Can Benefit the Public Good

Aleem Walji's picture

Patrick Svenburg, co-founder of Random Hacks of Kindness, tells "Developers for Development" audience: "There's no shortage of big ideas in the world.  It's the action part that's often lacking."


“Big Data” –- the billions upon trillions of bytes of digital information that are pumped into cyberspace every nanosecond –- has a single, secular mission: to keep growing. Now, software developers – the not-so-nerdy techies who keep Big Data growing at its feverish rate –- are striving to channel Big Data into the public good.

On Monday at the World Bank, developers came together with the development community -- in person and virtually through Skype video -- to figure out how to do that.

The entire "Developers for Development" can be seen on B-Span, the World Bank's webcasting service.

The afternoon event, which attracted an auditorium-ful of in-person visitors (many of them curious staffers from risk management and ICT at the World Bank) and many more via the live webcast that was offered in English, French, and Spanish, started with developers showing what's already been achieved since the first CrisisCamp about data and the public good was convened in Washington with CrisisCommons-World Bank co-sponsorship in June 2009.

The first demo was about the on-the-fly proliferation of CrisisCamps internationally in response to the earthquake that devastated Haiti in February.

Small and Medium Enterprises – What Works? What Doesn’t?

Asli Demirgüç-Kunt's picture

Development economists are obsessed with SMEs.  And for good reason: employment in SMEs – defined as enterprises with up to 250 employees – constitutes over 60 percent of total employment in manufacturing in many countries.  A large SME sector is also a characteristic of rapidly growing economies (although researchers are more skeptical of the claim that “SMEs are the engine of growth”).  Also, few disagree that SMEs face greater constraints to their growth than large firms. Not only does access to finance rank high among these constraints, but it also has a proportionally greater impact on SME growth.

Constraints

All these facts suggest SMEs deserve policymakers’ attention, but there are many questions about the efficacy of pro-SME policies in different areas. In reviewing research findings, I’ve grouped these areas roughly under four headings: institution building, financial development, interim solutions, and directed government interventions. 

Re-thinking Macroeconomic Theory and Policy

Raj Nallari's picture

If you think the US financial system is broken, then you don’t know how much more broken the macroeconomic theory is. The traditional Keynesian model of ‘depression economics’ where increasing government spending could stimulate the economy was misused by governments, particularly in developing countries, for decades during the 1950s to the 1980s.

Water and Poor People: No More Charity

Tom Grubisich's picture

When Ned Breslin, CEO for the international social company Water for People, talks, the effect can be like a splash of cold water on your face.  Development-speak is not his style.

Take this snippet from his new "Rethinking Hydro-Philanthropy" essay:

 

 

"Success will require less single-minded focus on the absolute number of people without access to water and sanitation facilities and more focus on the serious questions around long-term impact and sustainability. So that years after the cameras have left, the donor reports have been filed, and the press release circulated, the community is not forgotten."

"Sweat equity" from needy communities is not enough, Breslin argues.  "Up-front community contributions," he says, are essential to making new water -- and sanitation -- facilities sustainable.

Water for People won a US$200,000 Development Markektplace 2007 award for water facilities in Malawi, which Breslin, in this radio interview, says "has some of the worst water and sanitation problems in Africa."

Breslin's credo -- that water and sanitation in poor countries should not be viewed as a charity mission -- is being validated elsewhere.

The Greatest Financial Crisis Globally Ever?

Ihssane Loudiyi's picture

Yes, according to Former Federal Reserve Chairman Alan Greenspan in his speech to Washington on Tuesday. He added in the Bloomberg News article that the global recovery from the recent crisis will be "extremely unbalanced".

'Hot Spots,' 'Bright Spots,' and Hidden Strengths in Capacity

Tom Grubisich's picture

There is a laser-like focus on the capacity of developing countries to respond effectively to the steep challenges of their Millennium Development Goals and

Ethiopian farmer, with his children, shows newly irrigated crop to extension agent.

destructive climate change.  Capacity gaps are relentlessly pinpointed.  Sometimes national governments themselves provide the toughest evaluations, like this one from Bangladesh's Ministry of Environment and Forest on the country's climate adaptation action program:

"...institutional capacity including human resource quality [is] weak and poor and needs substantial improvement if the challenges of climate change are to be faced squarely....A lack of awareness, both of the potential gravity and the extent of the problem as well as possible actions that could be taken, is the foremost [barrier]. This lack of awareness exists at all levels from national level policy makers to sectoral and local level officials as well as amongst civil society and the most vulnerable communities themselves...."

There are, to be sure, capacity gaps in Bangladesh and other developing countries, and identifying what and where they are is the first step in closing them.  But there are also "bright spots" and, perhaps more important, underlying strengths, especially at the local level across all developing countries that can be masked by the emphasis on gaps.


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