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Future Development Forecasts 2015

Shanta Devarajan's picture

Despite their mixed record last year, Future Development's bloggers once again offer their predictions for 2015.  Eight themes emerge.
 
1. Global growth and trade. The US economy will strengthen far above predictions. Together with lower oil prices and a better business climate in emerging markets, this will create substantial positive spill-overs, including to the smaller export-oriented Asian economies, boosting the growth of their manufactured exports well above recent trends. The US will look to open new free trade agreements in Asia—India may try to join—and seek opportunities to do the same in Africa. Meanwhile, Germany will face increasing resistance to the free-trade agreement with America (TTIP), just as Angela Merkel celebrates her 10th year in office.

#5 from 2014: Politics in Development? Meet the New Institutional Economics

Kate Henvey's picture

Our Top Ten blog posts by readership in 2014.
This post was originally posted on January 29, 2014


Around the end December of every year, the pundits start coming out with their forecasts for 2014. This past December, the World Bank pundits predicted everything from girls outperforming boys in developing countries (girl power!) to the staggering idea that for Europe, 2014 will be a better year.

This year though, the World Bank’s Future Development Forecasts blog, included a prediction that caught these two political scientists by surprise— “as more and more economists point to the primary [sic] of politics in development, political scientists will wake up and wonder why they have been left out of the discussion.”

Joel Hellman, the World Bank’s Director of the Center on Conflict, Security and Development in Nairobi (OPSFN), predicted there will be a new movement of “political contextualists.” Meaning: we as development practitioners have to take a look at the broader institutional framework influencing the performance of the economy, and on development in particular. This is particularly relevant with regard to governance reform and strengthening institutions and service delivery in countries.

Politics in development, hear, hear! The World Bank’s People, Spaces and Deliberation blog has been making this case for years. Nevertheless, neither economists nor political scientists have really introduced a convincing framework for how this political contextualization would play out in development: how it influences development and how it helps us understand strategies that promote development effectiveness and the efficiency of development interventions.

Building on Central America’s Strengths

Oscar Calvo's picture



Soon will be January 1, 2015. Most of us will make New Year’s resolutions and most of us will fail to keep them. Keeping New Year’s resolutions is hard. But it turns out that we are much more likely to make good on our resolutions if we decide to build upon our strengths rather than focus on fixing what’s wrong. This insight is all the more important if we combine it with the intriguing view that it is the depth of our strengths, not the absence of weaknesses, which makes us successful. People are successful not because they are perfect but because they have deep strengths. What if this was also the case for countries?

With this in mind I turn my attention to some of the strengths of El Salvador, Guatemala, and Honduras, three countries that have recently put together their Plan of the Alliance for Prosperity in the Northern Triangle.” The Plan is in part a response to the well-known security challenges facing those countries and the challenges posed by the surge in unaccompanied migrant children but it is also an opportunity to focus on the strengths of the Northern Triangle of Central America and how to develop them even further. And when one goes beyond the headlines one discovers a variety of success stories.

Year in Review: Taking On the Toughest Challenges

Donna Barne's picture

Can the world end extreme poverty by 2030? Will it be able to avert the worst effects of climate change or stop Ebola? These challenges are among the biggest we face today. In 2014, the World Bank Group tapped its knowledge, finance, and influence to confront global problems.

1) Taking on economic growth

In the wake of the financial crisis, developing countries were the engine of the global economy. In 2014, they faced new risks: lower growth, less financing, and lower prices for their commodities. In January and again in June, the World Bank urged developing countries to get their houses in order. Countries need blueprints to maintain the kind of growth that helped cut extreme poverty nearly in half globally in the last couple of decades. With the financial crisis fading, now is the time for developing countries to strengthen their economies so they can keep reducing poverty, according to the twice-yearly Global Economic Prospects.

The Decline in Oil Prices: An Opportunity

Ivailo Izvorski's picture

A decade of elevated oil prices brought prosperity to many developing countries. Incomes rose, poverty shrank, macroeconomic buffers were rebuilt. The fiscal space for investing more in education and infrastructure increased, resulting in better sharing of prosperity. At the same time, higher commodity prices and surging global demand resulted in much more concentrated exports in all developing oil-rich countries. "Diversifying exports" became a priority for policy makers and development economists around the world. Historical experience and evidence to the contrary from successful resource rich countries notwithstanding, many widely believe that a more diversified export structure should be an important national goal and may well be a synonym for development, a goal that government can target and achieve.  And a more diversified export structure typically meant a smaller share of commodity exports in total shipments abroad or a reduced concentration – as measured by the Herfindahl-Hirschmann index – of exports.

The Ebenezer Scrooge Economy: The Dickensian Divide Between Concentrated Wealth and Intensifying Poverty

Christopher Colford's picture



Source: Branko Milanovic

If you thought the wealth gap was vast between the miser Ebenezer Scrooge and the oppressed Bob Cratchit in “A Christmas Carol,” then lend a Christmastime thought for the desperate Dickensian divide that’s now afflicting the global economy.

The biggest economic-policy issue of 2014 has certainly been the outpouring of alarm about the chronically intensifying divide between wealth and poverty – an uproar that has had a transformational effect on the worldwide debate on economic policy. As a seminar at the Center for Global Development recently discussed, the precise statistics on inequality (and the perception of inequality) are subtle, with many nuances of measurement (whether data should be derived, for example, from tax-return filings or from household surveys). Yet this year’s irrefutable interpretation among economists and business leaders has been driven by a landmark of economic scholarship: the bombshell book “Capital in the Twenty-First Century” by Thomas Piketty. “Capital” has forced economists, policymakers and scholars to reconsider the inexorable trends that are driving the modern-day economy toward an ever-more-intense concentration of capital in fewer and fewer hands.

No wonder Piketty’s “Capital” was hailed as the Financial Times/McKinsey “Business Book of the Year.” Piketty’s analysis has fundamentally changed the parameters of the public-policy debate, and many of its ideas challenge conventional economic theory.

To explore the implications of the alarming trends in income and wealth inequality, there’s no analyst more insightful than Branko Milanovic, the former World Bank economist who is now a scholar at the LIS Center (working on the authoritative Luxembourg Income Study) at the City University of New York. Milanovic has justly won acclaim for his work, “The Haves and the Have-Nots,” which pioneered the territory now being explored by Piketty.

Confirming the trends that Piketty identified in “Capital” – and taking those insights one significant step further, to measure the wealth gaps both within countries and between countries – Milanovic recently led a compelling CGD seminar on “Winners and Losers of Globalization: Political Implications of Inequality.”

The seminar’s sobering conclusion: If you think the wealth-and-incomes gap is painful now, just wait a decade or two. If allowed to go unattended, the widening economic divide will soon become a dangerous social chasm. That data-driven projection is leading many analysts to dread that inequality (whether between countries or within the same country) threatens topose a stark challenge to social stability, and even to the survival of democracy.

The breakthtaking “a-ha!” moment of Milanovic’s CGD presentation was the chart (see the illustration, above) – praised as "the Chart of the Century" by seminar chairman Michael Clemens of CGD and discussant Laurence Chandy of the Brookings Institution – that plotted-out the pattern of how globalization has exerted relentless downward pressure on the incomes of the global upper-middle class, which roughly corresponds to the Western lower-middle class.

Globalization has helped promote the prosperity of skilled workers in developing nations, Milanovic explained, with the dramatic surge of China’s economy being the greatest driver of global “convergence.” Yet globalization has had an undeniable downward effect on the wealth and incomes of low- and medium-skilled workers in developed, industrialized nations. That certainly helps explain the angry mood among voters in Western Europe and North America, whose overall incomes and wealth have been stagnating for perhaps 40 years.

At the same time – reinforcing the significance of Piketty’s iconic formula that r>g (that the returns on capital are destined to be greater than overall economic growth) – a vast proportion of the world’s wealth has been concentrated in just the very top echelons of society. Milanovic’s meticulous data (see the illustration, below) confirm the extreme concentration of global absolute gains in income, from 1988 to 2008, in the top 5 percent of the world’s income distribution. Rigorous empirical evidence from multiple sources indeed confirms that most of the global gains in wealth have accrued to the already-vastly-wealthy top One Percent. The data on increasing socioeconomic stratification are, by now, so well-established that only the predictable claque of free-market absolutists and dogmatic denierscling (with increasing desperation) to the notion that the inequality gap is merely a myth.




Source: Branko Milanovic

Reinforcing Milanovic’s analysis, yet another well-documented study – this time, by the OECD– asserted this month that economic inequality is intensifying within the world’s developed nations. That within-country trend accompanies the yawning inequality gap between developed and developing economies. The OECD thus joined the chorus that includes the World Bank Group, the International Monetary Fund, the United Nations’ Department of Economic and Social Affairs and the U.S. Federal Reserve System in sounding the alarm about the way that income and wealth disparities are becoming socially explosive. Even on Wall Street, many pragmatists are warning with increasing urgency that “too much inequality can undermine growth.”

Economic inequality – both the perception and the reality of the egregious global gap – has surely been the key economic theme of 2014, and Milanovic’s CGD presentation capped the year with what the seminar-goers recognized as authoritative data distilled into “the Chart of the Century.” Milanovic thus echoed warnings by National Economic Council chairman Jason Furman and Canadian Member of Parliament Chrystia Freeland (both of whom have led recent World Bank seminars), who cautioned Washington policymakers about the potential dangers of runaway inequality.


Energized by Milanovic’s latest calculations and analysis, scholars and development practitioners at the World Bank Group and beyond should approach 2015 with a renewed commitment to building prosperity that is truly shared – and that avoids the potential social explosion that might await many economies if runaway inequality is allowed to continue unchecked.



 

How Well did We Forecast 2014?

Shanta Devarajan's picture

A year ago, we polled Future Development bloggers for predictions on the coming year (2014).  Looking back, we find that many unforeseen (and possibly unforeseeable) events had major economic impact. 

We missed the developments in Ukraine and Russia, the spread of the Islamic State in Iraq, the outbreak of Ebola in West Africa, the collapse in oil prices and their attendant effects on economic growth.  At the same time, we picked the winner of the soccer World Cup, and got many of the technology trends right. Perhaps economists are better at predicting non-economic events.

Here’s the scorecard on the seven predictions made:
 

Debt data: how debt inflows differ among developing countries

Molly Fahey Watts's picture

The World Bank Group’s International Debt Statistics (IDS) 2015 was released today. The Bank’s flagship debt data publication features 2013 data on external debt stocks and flows, as well as other major financial indicators on the 124 developing countries that report to the World Bank’s Group’s Debt Reporting System.

The major news from this year’s IDS is that net external debt flows to developing countries rose 28% in 2013, driven by a sharp 50% increase in short-term debt inflows. Additionally, foreign direct investment in emerging economies proved to be steady and resilient, bringing net capital flows (debt and equity) to $1.2 trillion.

For more detailed analysis and trends on debt statistics, take a look at IDS's debt portal featuring online tables. Here are a few highlights I thought I'd share.

Data Group launches newly revamped Statistical Capacity Indicator website

Annette Kinitz's picture

When a country’s statistical capacity improves and policy makers use accurate statistics to inform their decisions, this results in better development policy design and outcomes. In this regard, the Statistical Capacity Indicator (SCI) serves as an essential monitoring and tracking tool, as well as helps National Statistics Offices (NSOs) worldwide to address a country’s gaps in their capabilities to collect, produce, and use data.
 
The Statistical Capacity Indicator’s Global Reach
Since 2004, the SCI continues to assess the capacity of a developing country’s ability to adhere to international statistical standards and methods, whether or not its activities are in line with internationally recommend periodicity, and whether the data are available in a timely fashion.

To this end, there are 25 indicators that annually monitor and “grade” a country’s statistical capacity progress and thus form the basis for the overall SCI score calculation.
 
While NSOs are the main users of the SCI score, the World Bank Group, international development agencies, and donor countries also refer to the SCI score for their own evaluation and monitoring purposes.

New surveys reveal dynamism, challenges of open data-driven businesses in developing countries

Alla Morrison's picture

Open data for economic growth continues to create buzz in all circles.  We wrote about it ourselves on this blog site earlier in the year.  You can barely utter the phrase without somebody mentioning the McKinsey report and the $3 trillion open data market.  The Economist gave the subject credibility with its talk about a 'new goldmine.' Omidyar published a report a few months ago that made $13 trillion the new $3 trillion.  The wonderful folks at New York University's GovLab launched the OpenData500 to much fanfare.  The World Bank Group got into the act with this study.  The Shakespeare report was among the first to bring attention to open data's many possibilities. Furthermore, governments worldwide now routinely seem to insert economic growth in their policy recommendations about open data – and the list is long and growing.

Map

Geographic distribution of companies we surveyed. Here is the complete list.
 
We hope to publish a detailed report shortly but here meanwhile are a few of the regional findings in greater detail.


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