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.
New Year’s resolutions are always of the lofty – but often short-lived kind. I will go to the gym more often, lose more weight, or volunteer more often than I do now. One resolution made by a number of us in the Research Group of the Bank – and elsewhere, has been to find a way to get more people excited about investing in data collection and analysis on trade. I recognize this is not the most glamorous of topics at any time of the year – but nonetheless a resolution as important as any made each year for decades as the calendar turns another page.
Here is why 2011 is different and resolutions made can be kept, however, and why data and research should be high on anyone’s development and trade agenda.
There were a number of high level dialogues in 2010 and 2011 related to global finance, trade, and development issues. These included the High Level Summit on the MDG’s in September 2010 and the G20 Summit in Seoul in November 2010. These events provided important opportunities -- in the post-crisis environment – to inform priorities going forward on aid effectiveness and trade. The President of the Bank, Mr. Zoellick, outlined in October 2010 -- in a very high profile speech at Georgetown University – a new vision of development economics which included new ways of looking at and advancing research tied to make aid more effective and inclusive.
As snow covers ground in Washington, D.C., debt markets swoon, and another year comes to a close, it seems like a good time to look at what actually happened to international capital flows to developing countries last year and what that might portend for flows in 2010, as this year’s numbers will be finalized in coming months.
At a time when the global economy has seen the most severe slowdown since the end of WWII, capital flows to the developing world—including private flows (debt and equity) and official capital flows (loans and grants from all sources)—are in an overall slump, well below their level in 2007 ($1.1 trillion). According to the just-published Global Development Finance: External Debt of Developing Countries, which contains detailed data on the external debt of 128 developing countries for 2009, net capital flows to these countries fell by 20 percent from $744 billion in 2008 to $598 billion in 2009.
(Also available in Spanish)
Many observers predict that this week’s G-20 Summit in Seoul will be remembered mainly as a dance of high diplomacy aimed at persuading members to refrain from competitive devaluation of currencies and to reign in excessive current account imbalances.
If most headlines from Seoul are about spats over currencies and whose deficit or surplus is most harmful, then leaders will have missed the Seoul of the Matter.
Indeed, such an outcome would be a setback for developing countries and could potentially erode the legitimacy of the G-20 as an inclusive broker of financial and economic cooperation in the global economy.
This post kicks off a special blog series on the Microfinance Institution, SKS and it's IPO launch in coordination with CGAP. Over the coming weeks we’ll be featuring a variety of voices on the issues raised by the IPO. We welcome your participation in this discussion through comments.
A rare microfinance occurrence took place in late July this year. The Indian microfinance institution, SKS, became the second pure microfinance institution (MFI) globally to go public by listing its shares on the stock market. SKS is one of the largest microfinance institutions in the world with almost 6 million clients, mostly poor women living in rural areas. It has also been one of the fastest growing MFIs over the past few years, with a compound annual growth rate of 165% since 2004.
From one perspective, the IPO was a great success. It was 13 times oversubscribed, the company valuation reached the top of the offer band price (valuing the company at $1.5 billion), and the share price rose 42% in the first five weeks of trading. In the process SKS raised $155 million in fresh capital that will allow it to grow and serve far more people than it reaches now.
Innovations in development happen where traditional markets fail. The open discussion that followed the presentation I made on Monday to nearly 100 colleagues inside and outside the World Bank Group spurred the first of what I hope are many conversations on the role the World Bank Group and others can p
China’s massive stimulus spending has raised widespread concerns about local government finances. Local governments have ramped up infrastructure spending since late 2008, while they are also under pressure to spend more on health, education, and social security, for which they are in large part responsible. With monetary conditions likely to become tighter this year and land revenues possibly slowing down or even declining, local government finances may become strained.
At the heart of the concerns are local government investment platforms. These are state-owned-enterprise (SOE)-type entities set up to finance infrastructure construction and urban development—sometimes also called Urban Development and Construction Companies. Set up in part to circumvent rules prohibiting local governments from borrowing, their investment activities are mainly financed by land sale revenue and bank financing, often using as collateral land requisitioned from local residents.
Global attention is mounting about this year's Annual Meetings of the Bank and the Fund in Turkey. From Egypt, where I am on MIGA business on my way to Turkey, the discussion is around whether the meetings will advance the G20 communiqué in terms of substance and specific implementation measures.
I spent two days earlier in the week with global private equity investors. Their anxiety mostly revolves around how financial sector regulation will evolve over the coming months. They feel the cold wind of oversight, and the discussion revolves around two competing plans for financial regulation, one emanating from Brussels and the other from Washington. But everyone accepts that an overhaul of financial sector regulation is the unfinished business from last year's financial crisis, even though views differ on the extent and content of the changes needed. My own concerns are whether the world's piecemeal international governance system will enable a coherent global regulatory structure to emerge from the wreckage of last year's financial meltdown.
In Istanbul I'm looking forward to taking the temperature of the financial world. I hope and expect the meetings to be more subdued than in past years, because we have some serious business to do; and many players who were around at the Singapore meetings are no longer with us (Lehman, Bear Stearns, Merrill, AIG...).
It's a new world.
Every year, the World Development Report focuses on a different topic of global importance, and, as part of its preparatory activities, consults with various groups around the world. The 2010 World Development Report on Development and Climate Change is no exception. This report has required unique attention to varying points of view because climate change affects different countries in drastically different ways. Over the past year, as we approached the task of putting together a report on such a significant topic, we sent our team of authors all over the world to consult with representatives from over 40 countries. We listened to stories about how climate change is affecting them, and sought their views on our report’s evolving messages, which I described in an earlier blog post. We compiled this feedback as it was received, and have posted summaries of these consultations on our website.
Proposals aiming to boost innovative climate change solutions often include some form of publicly-supported global venture capital (VC) fund. The rationale for such a fund is that government funding is generally available for R&D and private financing is available for the commercialization of mature technologies; but funding is unavailable for entrepreneurial activities—such as proof-of-concept, piloting, firm-building, and marketing—that happen between these two stages. Given this situation, a global climate change VC fund could have a decidedly stimulating effect. Of course, it would also be important for governments not to put all their eggs in this basket, since the VC instrument could quickly reach its limits.
The financing gap is particularly severe for climate change mitigation and adaptation technologies for a number of reasons. Not only is the market for these technologies still at a very early stage of development but it is also driven by regulation. Both of these factors represent significant risks for investors. In addition, low carbon technologies tend to be more capital-intensive and require much more start-up financing than other typical VC investment sectors like information technology. The funding gap is particularly deep in the developing world, which presents a riskier business environment and a more fragmented market for investors.
Several VC-style climate-change funds have recently been launched. The Carbon Trust, established by the British government, already invests in clean-technology firms based in the UK. In partnership with the Qatar Investment Authority, the Carbon Trust plans to set up a £250 million fund called the Qatar-UK Clean Technology Investment Fund, to be supported by both governments. The fund will primarily invest in the UK, but also to some extent in continental Europe and the Gulf Region. This will be the first major publicly-supported climate change VC fund of its size involving more than one country.