In 2014, the World Bank issued a highly relevant and timely report titled Risk and Opportunity: Managing Risk for Development. This report analyzed the growing number of heterogenous risks and opportunities affecting developing countries. A clear challenge in finding a consistent risk management strategy stems from the sharp differences in the risks faced by developing countries; for example, commodity price shocks, financial crises, and natural disasters have all different defining characteristics. While we could tailor risk management strategies to each one of these types of risks, not having the benefit of a unifying framework can lead to mistakes and mismanagement of the scarce resources available to developing nations to deal with these potentially disastrous events. Five years after the publication of the report, in a time of growing macroeconomic headwinds for emerging markets and higher exposure to natural disasters, understanding the risks faced by these economies and how to effectively manage them continues to be a key policy challenge.
Latin America & Caribbean
Capital flows to emerging market economies are deemed volatile, driven more by external than domestic factors. Surges in capital flows often generate macroeconomic imbalances in emerging markets, resulting in rapid credit growth, asset price inflation, and economic overheating. Reversals are disruptive too, often causing financial volatility, economic slowdown, and in some cases distress in the banking and corporate sectors.
In the wake of the Global Financial Crisis (GFC), many wondered whether the strong pre-crisis trend toward greater internationalization in banking would be reversed and, more immediately, whether local state-owned banks had to assume a larger role in restoring banking stability and ensuring the delivery of credit. We revisit those conjectures in the light of new data on bank ownership and research on the post-Crisis period (Cull, Martinez Peria, and Verrier, 2018).
Real activity indicators in Brazil improved markedly in 2017
Brazil’s recovery is expected to solidify in 2018. The economy is anticipated to grow 2 percent as improving labor conditions and low inflation support private consumption, and as policy conditions become more supportive of investment.
Sources: Haver Analytics, World Bank.
Notes: Lines show 3-month moving averages using non-seasonally-adjusted data. Last observation is October 2017.
“If you cannot measure it, you cannot improve it” Lord Kelvin
Despite the recent proliferation of standardized testing in education, there is still a significant number of countries that oppose it. I’ve heard many arguments against standardized testing from policy makers, teachers and school directors, but two of them seem persuasive at first glance. The first one is that the test’s main purpose is to hold teachers and school directors accountable, that is, to reward and punish them based on students’ performance and—per tests’ opponents—this is unfair. The second is that since standardized testing assesses few subject areas, it redistributes attention and resources to these subjects in detriment of other equally important areas of the curriculum. These are valid points, but, as I argue below, they do not justify incurring the very high cost of not testing.
“Test and punish”?
There’s a debate raging in American schools today: how (and how much) should children be tested?
The No Child Left Behind (NCLB) Act created a system where all children in all schools from grades 3 to 8 must be tested each year. Critics refer to this accountability architecture as “test and punish,” with stakes such as school funding (or closings!), bonuses for teachers, or grade promotion for students all riding on performance. There is evidence that NCLB improved learning outcomes, but improvements came at a high cost: In addition to teaching to the test, this approach can lead to a number of perverse incentives, like keeping weaker students at home on test day, narrowing the curriculum, or downright cheating. Worse, some have said they can serve to mask and contribute to the structural race and class inequalities in the United States.
Regionalism can have three dimensions: trade integration, regulatory cooperation and infrastructural coordination. In a thought provoking blog, Shanta Devarajan argues for a drastic shift in focus, away from trade and towards infrastructure.
Regional trade agreements do sometimes divert not just trade but attention from other beneficial forms of cooperation. And what type of integration makes economic and political sense, in what sequence, differs across regions. But it would be wrong to exclude trade, to focus only on one dimension, and to ignore important new constraints and old questions.
The World Bank forecasts that global economic growth will strengthen to 2.7 percent in 2017 as a pickup in manufacturing and trade, rising market confidence, and stabilizing commodity prices allow growth to resume in commodity-exporting emerging market and developing economies. Growth in advanced economies is expected to accelerate to 1.9 percent in 2017, a benefit to their trading partners. Amid favorable global financing conditions and stabilizing commodity prices, growth in emerging market and developing economies as a whole will pick up to 4.1 percent this year from 3.5 percent in 2016. Nevertheless, substantial risks cloud the outlook. These include the possibility of greater trade restriction, uncertainty about trade, fiscal and monetary policy, and, over the longer term, persistently weak productivity and investment growth.
Download the June 2017 Global Economic Prospects report.
Global growth is projected to strengthen to 2.7 percent in 2017, as expected. Emerging market and developing economies are anticipated to grow 4.1 percent – faster than advanced economies.
Long one of the world’s most unequal countries, Brazil surprised pundits by recording a massive reduction in household income inequality in the last couple of decades. Between 1995 and 2012, the country’s Gini coefficient for household incomes fell by seven points, from 0.59 to 0.52. (For comparison, all of the inequality increase in the United States between 1967 and 2011 amounted to eight Gini points – according to this study.)