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Financial Sector

Spending on bling: What explains the demand for status goods?

Martin Kanz's picture

When people spend money, their decisions are often influenced by the desire to signal wealth and attain social status. This insight is not entirely new – even Adam Smith, in the Wealth of Nations, complains that his contemporaries spend too much on “status goods” that are not a necessity of life, and which they most likely can’t afford.

Social signaling motives in consumption seem to be present in many different economic settings, and may in fact be so widespread that they can be linked to larger economic phenomena, such as inequality and persistent poverty. Studies using household surveys show, for example, that the poor around the world spend a strikingly large share of their income on visible expenditures, which may have negative implications for asset accumulation, household indebtedness, and investments in education.The same pattern has been shown to hold for ethnic minorities in the Unites States – so much so, that a recent study argues that differences in conspicuous consumption may account for as much as one third of the wealth gap between Whites and African Americans

Energy prices rose almost 3 percent in April: Pink Sheet

John Baffes's picture

Energy commodity prices rose 2.7 percent in April as the crude oil average rose 2.5 percent, according to the World Bank’s Pink Sheet.

Non-energy prices declined 2.4 percent as agriculture fell 1.4 percent, food and beverages prices dipped by 2.1 percent and 1 percent, respectively, and raw materials rose 0.3 percent. Fertilizer prices declined 6 percent.

Metals and minerals prices slid 4.3 percent, led by an almost 20 percent tumble in iron ore. Precious metals eased 2.7 percent.

The Pink Sheet is a monthly report that monitors commodity price movements.

Energy, metals commodity prices seen strengthening

John Baffes's picture

Prices for most industrial commodities, notably energy and metals, are projected to rise in 2017 while agricultural prices are expected to remain stable, the World Bank says in its April 2017 Commodity Markets Outlook.

Closely watched crude oil prices are forecast to rise to an average of $55 per barrel (bbl) over 2017 from $43/bbl in 2016, climbing to $60/bbl next year. The forecast is unchanged since October and reflects the balancing effects of production cuts agreed by the Organization of Petroleum Exporting Countries (OPEC) and other producers on one side and a faster-than-expected rebound in the U.S. shale oil industry on the other. World oil demand is growing strongly, although at a slower pace than the 2015 spike triggered by lower oil prices.

Are capital flows fickle? And does the answer still depend on type?

Poonam Gupta's picture

According to conventional wisdom, capital flows are fickle. They are fickle more or less independent of time and place. But different flows exhibit different degrees of volatility: FDI is least volatile, while bank-intermediated flows are most volatile.  Other portfolio capital flows rank in between, and within this intermediate category debt flows are more volatile than equity-based flows. 

Investment slump clouds growth prospects

Franziska Ohnsorge's picture

Investment growth in emerging market and developing economies has tumbled from 10 percent in 2010 to 3.4 percent in 2015 and was below its long-term average in nearly 70 percent of emerging an developing economies in 2015. This slowing trend is expected to persist, and is occurring despite large unmet investment needs, including substantial gaps in infrastructure, education, and health systems.

Can mobile money increase investment by businesses?

Asif Islam's picture

Investment is one of the pillars of private sector development. The acquisition of assets enables firms to increase their capacity and improve their efficiency, unlocking avenues of growth. Promoting firms’ growth is especially critical in Sub-Saharan African countries that have predominantly low levels of economic development and high rates of poverty. Against this backdrop, there has been a rapid increase in mobile money use - that is the use of mobile phones for financial transfers. At the end of 2015, mobile money services were available in 93 countries -with a total of over 411 million registered accounts and 134 million active users (GSMA, 2015). Many of these users are firms that increasingly rely on mobile money to pay bills, suppliers, and salaries or to receive payments from customers. While numerous advantages of the permeation of mobile money has been explored,  including lower transaction costs, little research has been done to investigate the far-reaching benefits that lowering transaction costs could entail, such as increasing firm investment. To fill this void, we recently completed a study on the effect of mobile money use on firm investment in three countries – Kenya, Tanzania and Uganda.

What did we learn from real-time tracking of market prices in South Sudan?

Utz Pape's picture

Economic shocks can be painful and destructive, especially in fragile countries that can get trapped into a cycle of conflict and violence. Effective policy responses must be implemented quickly and based on evidence. This requires reliable and timely data, which are usually unavailable in such countries. This was particularly true for South Sudan, a country that has faced multiple shocks since its independence in 2011. Recognizing the need for such data in this fragile country to assess economic shocks, the team developed a real-time dashboard to track daily exchange rates and weekly market prices (click here for instructions how to use it).

Financial inclusion has a big role to play in reaching the SDGs

Leora Klapper's picture

Scan the United Nations’ 17 Sustainable Development Goals (SDGs). You’ll see inclusive growth, clean water and greater equality, among other objectives. But you won’t see this: Giving people access to savings accounts, loans, insurance and other financial services.

The effects of benchmarks on international capital flows: The problems of passive investing

Sergio Schmukler's picture

The categorisation of countries into relevant international benchmark indices affects the allocation of capital across borders. The reallocation of countries from one index to another affects not only capital flows into and out of that country, but also the countries it shares indices with. This column explains the channels through which international equity and bond market indices affect asset allocations, capital flows, and asset prices across countries. An understanding of these channels is important in preventing a widening share of capital flows being impacted by benchmark effects.

Managing sudden stops

Poonam Gupta's picture

The recent reversal of capital flows to emerging markets has pointed to the continuing relevance of the sudden stop problem when capital inflows dry up abruptly.

In a recent paper  as well as a  Vox column, we analyze these episodes in emerging markets over the past quarter century. We contrast their incidence, impact, correlates, and policy response before and after 2002, and establish similarities as well as differences.

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