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Global Economy

Quantifying uncertainties in global growth forecasts

Franziska Ohnsorge's picture
Figure 1. Risks to Global Growth
Upside risks to global growth have increased since January while downside risks for current-year growth have reached post-crisis highs.

A 90% confidence interval implies a 90% chance of growth falling within the given range
Source: World Bank Global Economic Prospects report June 2016.
Note: “90 percent JAN16” is the 90 percent confidence interval of a fanchart based on data available for the January 2016 Global Economic Prospects report

Assessing economic forecast uncertainty and the balance of risks to the growth outlook is critical to effective policymaking. Lower-probability but high-impact events can lead to significant deviations from baseline projections, and this  should be factored into policy design. The World Bank’s most recent Global Economic Prospects unveiled a tool to quantify uncertainty around global growth forecasts and presented it in the form of a fan charts (Figure 1)

The approach adopted in the Global Economic Prospects report consists of two steps.

First, a number of measurable risk indicators that are typical sources of forecast errors for global growth forecasts are selected. Three were chosen: equity price futures, oil price futures and bond term spreads (the difference between short and long term interest rates). For instance, greater volatility in oil price futures could be associated with rising uncertainty around global growth forecasts, while a downward trend in equity price futures could signal rising downside risks to growth.

Second, the probability distributions of forecasts for these three indicators are then mapped to the distribution of global growth forecasts. Both the degree of uncertainty and the balance of risks to the forecast are approximated by weighted averages of the standard deviation and skewness implied by the distributions of expectations for the risk indicators. The weights are estimated in a vector autoregression model (Ohnsorge, Some, and Stocker 2016). To account for potential asymmetry in the distributions of risks, a two-piece normal distribution is assumed, in line with other studies.

In Bangladesh, an experienced – yet struggling – worker becomes an entrepreneur

Tashmina Rahman's picture
Nikhil Chandra Roy, who received certification through the Skills and Training Enhancement Project (STEP),
Nikhil Chandra Roy, who received certification through the Skills and Training Enhancement Project (STEP),
Skills recognition is changing the lives of informal workers in Bangladesh

In 2014, Nikhil Chandra Roy was struggling to find and keep regular employment. He had extensive experience dating back to 1977, doing the work of an electrician. But because he had no formal training or certification, Nikhil couldn’t win the confidence of employers in Bangladesh to give him anything more than episodic, relatively low-paying work.

At age 55, just as he was giving up hope for career progress, Nikhil saw an advertisement that ended up turning his outlook and life around. The ad introduced him to the Recognition of Prior Learning (RPL) program, aimed especially at people like Nikhil, who have real skills and experience in a particular occupation but no formal, independently recognized qualifications.

Not long later, Nikhil participated in a three-day program, which entails one day of assessment and two days of training. That led to the recognition he had long awaited and needed to boost his career: a Government-endorsed skills certification from the Bangladesh Technical Education Board (BTEB) in electrical installation and maintenance.
 
A blog series to celebrate Bangladesh’s progress
toward #ProsperBangladesh 


“From that point on,” Nikhil said, “there was no looking back. With my years of experience, knowledge and now skills certification, I was ready to progress my career from just an electrician to an entrepreneur.

Nikhil was one of the many vulnerable informal sector workers in Bangladesh who have no regular jobs and who work on ad hoc opportunities, making it difficult to sustain livelihoods. These workers, with enough experience to perform the technical work well but not the credential many jobs require, improve their employability and bargaining power in job markets when they get the proper certification. And with that certification, workers gain social status in their communities.

The RPL program, which evaluates the skills level of workers and issues government certification to workers who pass an assessment, has operated since 2014 as a pilot activity under the Skills and Training Enhancement Project (STEP). STEP aims to give more Bangladeshis the technical skills they need to compete successfully in domestic and international labor markets.

The demand for RPL certification has been enormous. Since its inception, RPL has assessed more than 9,000 applicants from all over Bangladesh. Every month, RPL offers 600 applicants certification trainings in electrical installation and maintenance; IT support; block, boutique and screen printing; sewing machine operation; tailoring and dress making; motorcycle servicing; plumbing; and welding.

Quote of the Week: Dani Rodrik

Sina Odugbemi's picture
“The main constraint on the global economy right now is not that it is not sufficiently open. It’s very open. The main constraint is really that the system lacks legitimacy."
 

Dani Rodrik, a Turkish economist and Ford Foundation Professor of International Political Economy at the John F. Kennedy School of Government at Harvard University. He was formerly the Albert O. Hirschman Professor of the Social Sciences at the Institute for Advanced Study in Princeton, New Jersey. He has made significant contributions and published widely to the areas of international economics, economic development, and political economy. He is best known for his work on industrialization, growth policies, and political economy of globalization. His works include Economic Rules: The Rights and Wrongs of the Dismal Science and The Globalization Paradox: Democracy and the Future of the World Economy. He is also joint editor-in-chief of the academic journal Global Policy.

Was the resource boom more akin to a resource curse for Africa?

Sudharshan Canagarajah's picture

The IMF’s Regional Economic Outlook (REO – April 2016) notes that the region’s dependence on primary commodities has increased since the 1980s with nearly half of the countries in the region subject to commodity price fluctuations. These economies, which contribute 70 percent of the GDP of Sub-Saharan Africa are facing a sharp slowdown in real growth, with many also having to undertake large fiscal retrenchments and/or seek balance of payments support from the IMF.

We review the economic performance of Sub-Saharan Africa’s (henceforth Africa) non-renewable resource producers since the early 2000s, the start of the commodity price boom contrasting this with the economic performance of Africa’s non-commodity exporters over the same period. The negative economic impact of the current slump in commodity prices is indisputable, but it is worth asking whether Africa’s non-renewable resource producers realized any tangible benefits from the commodity price boom. Our conclusion is that they did not, at least in terms of real per capita growth. And here’s why.

A rebuttal to the “elephant graph” discussion - or “elephants are tough animals...”

Christoph Lakner's picture

Recently, a discussion erupted over our paper and the so-called “elephant graph”. This graph (reproduced below) is the anonymous growth incidence curve, which shows how each percentile of the global income distribution has grown between 1988 and 2008. The discussion was sparked by a report by the Resolution Foundation’s Adam Corlett. Whether or not this was Corlett’s intention, some commentators have used his results to (erroneously) claim that our empirical results are not robust and/or that the policy implications  drawn from our research are unwarranted  – for example, see this Financial Times article.

Can the middle class really guarantee good governance?

Sina Odugbemi's picture
When social scientists and historians look back on the transformation in the quality of governance that took place in, first, Great Britain and, later, much of Europe in the course of the long 19th century, one explanatory factor often stands out: the rise of a large enough middle class.  What is large enough is, of course, a question of fact, and varies depending on the particular country context. This explanation is often contested, but it has stuck. People refer, for instance, to the revolts against monarchies that occurred across Europe around 1848 as the middle class revolutions. The sense that this explanation makes sense is so strong that when you attend seminars on improving governance in developing countries at some point or the other someone is bound to say: “Let’s be patient folks. Once these countries have a large enough middle class the pressure for improved governance will be unstoppable.”

I write about this now because I have just read an essay by Nancy Birdsall of the Center for Global Development that restates the view with some sophistication. Please see: “Middle –Class Heroes: The Best Guarantee of Good Governance.” The essay is worth reading in full. I am going to focus only on her core case. Key quote:
Having a large middle class is also critical for fostering good governance. Middle-class citizens want the stability and predictability that come from a political system that promotes fair competition, in which the very rich cannot rely on insider privileges to accumulate unearned wealth. Middle-class people are less vulnerable than the poor to pressure to pay into patronage networks and are more likely to support governments that protect private property and encourage private investment. When the middle class reaches a certain size – perhaps 30 percent of the population is enough – its members can start to identify with one another and to use their collective power to demand that the state spend their taxes to finance public services, security, and other critical public goods. Finally, members of a prospering middle class are unlikely to be drawn into the kinds of ethnic and religious rivalries that spur political instability. (Italics mine.)
 

Making South Asian Apparel Exports More Competitive

Ritika D’Souza's picture

Apparel workers in Bangladesh

There is now a huge window of opportunity for South Asia to create more apparel jobs, as rising wages in China compel buyers to look to other sourcing destinations.  Our new report – Stitches to Riches?: Apparel Employment, Trade, and Economic Development in South Asia  –  estimates that the region could create 1.5 million new apparel jobs, of which half a million would be for women. And these jobs would be good for development, because they employ low-skilled workers in large numbers, bring women into the workforce (which benefits their families and society), and facilitate knowledge spillovers that benefit the economy as a whole.

But for these jobs to be created, our report finds that apparel producers will need to become more competitive – chiefly by (i) strengthening links between the apparel and textile sectors; (ii) moving into design, marketing, and branding; and (iii) shifting from a concentration on cotton products to including those made from man-made fibers (MMFs) – now discouraged by high tariffs and import barriers. These suggestions recently drew strong support from panels of academics and representatives from the private sector and government when the report was launched mid-year in Colombo, Delhi, Dhaka, and Islamabad. South Asia is now moving on some of these fronts but a lot more could be done.

Moving up the apparel value chain
Stitches to Riches? finds that South Asia’s abundant low-cost labor supply makes it extremely cost competitive (except for possibly Sri Lanka). But rapidly rising living costs in apparel manufacturing hubs, coupled with international scrutiny, are increasing pressure on producers to raise wages. Plus, countries like Ethiopia and Kenya, who enjoy a similar cost advantage, are entering the fray, and some East Asian countries already pose a big challenge. The good news is that the policy reforms needed to keep the apparel sector competitive would likely benefit other export industries and transform economies (view end of the blog).

#ItsPossible to End Poverty

Christine Montgomery's picture

Ending poverty is within our reach. The percentage of people living in extreme poverty has more than halved since 1990, thanks to the sustained efforts of countless individuals, organizations and nations. 

Show us how #ItsPossible.

The world’s top 100 economies: 31 countries; 69 corporations

Duncan Green's picture

The campaigning NGO Global Justice Now (formerly World Development Movement) have done us all a favour by updating the table comparing the economic might of the largest countries and corporations. Headline finding? "The number of businesses in the top 100 economic entities jumped to 69 in 2015 from 63 in the previous year’ according to the Guardian’s summary.

The last such table that I know of was produced by the World Bank, and became one of FP2P’s all time most read posts (it included cities as well as countries, which made it even more interesting).

People complained that the Bank table compared apples and pears – national GDP and corporate turnover. GJN have tried to do a better job by comparing government revenues (from the CIA World Factbook) and corporate turnover (Fortune Global 500 – ditto). That reduces the country figure – in the case of Argentina, revenues come to about 30% of GDP, generally a higher slice for developed, and lower for poorer countries, and so boosts the relative importance of transnationals. Is that a fairer comparison? Over to the number crunchers on that one.


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