A rising number of people is living in fragile countries whose weak institutions fail to deliver ... more A rising number of people is living in fragile countries whose weak institutions fail to deliver on decent work and poverty reduction. The chapter discusses to what extent external financial flows, such as remittances, foreign direct investment or official development aid, can substitute for weak institutions. Fragility matters: fragile countries receive different amounts of financial flows than their non-fragile peers, and these flows affect them differently. Fragility lowers the effect of financial flows on growth, living standards and inequality. Foreign direct investment (FDI) has a moderate impact on poverty alleviation, albeit concentrated on employment gains in mining and natural resources. Remittances provide some weak relief for the poor, with less pernicious effects on growth and labour supply than in non-fragile countries. ODA does not improve social outcomes but rather exacerbates fragility. Policymakers should focus on improving upon the positive contribution of FDI and...
The potential for Blue Carbon ecosystems to combat climate change and provide co-benefits was dis... more The potential for Blue Carbon ecosystems to combat climate change and provide co-benefits was discussed in the recent and influential Intergovernmental Panel on Climate Change Special Report on the Ocean and Cryosphere in a Changing Climate. In terms of Blue Carbon, the report mainly focused on coastal wetlands and did not address the socio-economic considerations of using natural ocean systems to reduce the risks of climate disruption. In this paper, we discuss Blue Carbon resources in coastal, open-ocean and deep-sea ecosystems and highlight the benefits of measures such as restoration and creation as well as conservation and protection in helping to unleash their potential for mitigating climate change risks. We also highlight the challenges—such as valuation and governance—to marshaling their mitigation role and discuss the need for policy action for natural capital market development, and for global coordination. Efforts to identify and resolve these challenges could both maint...
This paper explores the relationship between remittances and financial inclusion for a sample of ... more This paper explores the relationship between remittances and financial inclusion for a sample of 187 countries over the period 2004-2015, using cross-country as well as dynamic panel GMM regressions. At low levels of remittances-to-GDP, these flows act as a substitute to formal financial channels, thereby reducing financial inclusion. In contrast, when remittance-to-GDP ratio is high, above 13% on average, they tend to complement formal access and usage channels, thus enhancing financial inclusion. This “U shaped” relationship highlights the role of remittance flows in financing household consumption at low levels, while raising formal household bank savings and allowing for more intermediation, at high levels of remittance-to-GDP.
This paper argues that the speed of financial risks, rather than the speed of regulators, is the ... more This paper argues that the speed of financial risks, rather than the speed of regulators, is the key cause of financial crises. Our argument contradicts a common claim in the literature that financial crises arise because regulators cannot keep up with fast-paced changes in financial markets. We divide financial risks into two main types—fast-moving and slow-moving risks—and argue that most crises have been caused by slow-moving risks that regulators could have mitigated. The global financial crisis, however, showed that the mixing of fast-moving and slow-moving risks also leads to financial instability. This paper thus provides a novel argument for limiting risk-taking, potentially including the separation of financial institutions by the types of risk they manage.
Libya’s popular revolution of 2011 has unleashed the potential for more diverse and inclusive gro... more Libya’s popular revolution of 2011 has unleashed the potential for more diverse and inclusive growth. In the short term, the country faces the complex and costly tasks of rebuilding its economy, infrastructure, and institutions, and responding to the demands of its population, especially for improved governance. The conflict that accompanied the revolution had a severe impact on the economy, which is heavily dependent on hydrocarbons, but the contraction is expected to be temporary. The restoration of hydrocarbon production is already well advanced, and reconstruction efforts will boost non-hydrocarbon output growth in the coming years. Libya’s wealth opens a choice of paths for the future: it can fall into the trap of many resource-rich countries that have become overly reliant on revenues from finite natural resources and failed to diversify their economies, or it can pursue a course of sustainable, inclusive development led by increased private-sector activity.
We use a unique data set for 115 countries, from 2000–18, and 5-year non-overlapping averages to ... more We use a unique data set for 115 countries, from 2000–18, and 5-year non-overlapping averages to explore the impact of technical assitance on revenue mobilization. To the authors’ knowledge this is the first such effort to determine a direct relationship between technical assistance and the improvement in tax revenues. The paper finds that technical assistance significantly and positively increases tax revenues. Both income per capita and openness were found to positively improve the tax ratio in line with findings in the literature. Dynamic estimations also uncovered a long-run relationship among technical assistance, income per capita, openness, and tax revenues. This result further underscores that it takes time to build capacity and institutional resilience.
We develop a dynamic model of a BHC that encompasses both a trading desk and a loan desk, and exp... more We develop a dynamic model of a BHC that encompasses both a trading desk and a loan desk, and explore the role of risk attitude and overleveraging by the trading desk. We trace the impact of monetary policy and market innovations on bank behavior in the presence of Basel III type regulations. We show that the value of the BHC is enhanced by operating both desks. We explore alternative regulatory remedies to ongoing efforts to ring-fence the proprietary trading business, and show that regulations that target bank governance can mitigate possible rogue trading and the overleveraging problem.
Libya is highly dependent on exhaustible and volatile hydrocarbon resources, which constitute the... more Libya is highly dependent on exhaustible and volatile hydrocarbon resources, which constitute the bulk of government revenues. Although resource wealth provides the means to promote socio-economic development, procyclical fiscal policies threaten macroeconomic stability as well as fiscal sustainability and intergenerational equity. In three parts, this paper provides an assessment of the cyclically adjusted fiscal stance, analyzes fiscal sustainability according the permanent income framework, and simulates various fiscal policy rules with the objective of developing a rule-based fiscal strategy that would delink the economy from oil price fluctuations, improve the management of resource wealth, and safeguard macroeconomic stability.
This paper empirically investigates the effectiveness of monetary policy transmission in the Gulf... more This paper empirically investigates the effectiveness of monetary policy transmission in the Gulf Cooperation Council (GCC) countries using a structural vector autoregressive model. The results indicate that the interest rate and bank lending channels are relatively effective in influencing non-hydrocarbon output and consumer prices, while the exchange rate channel does not appear to play an important role as a monetary transmission mechanism because of the pegged exchange rate regimes. The empirical analysis suggests that policy measures and structural reforms—strengthening financial intermediation and facilitating the development of liquid domestic capital markets—would advance the effectiveness of monetary transmission mechanisms in the GCC countries.
Whereas most of the literature related to the so-called “resource curse” tends to emphasize on in... more Whereas most of the literature related to the so-called “resource curse” tends to emphasize on institutional factors and public policies, in this research we focus on the role of the financial sector, which has been surprisingly overlooked. We find that countries that have financial systems with more depth, as well as those that actively manage their central banks’ balance sheets experience less exchange-rate appreciation than countries that do not. We analyze the relationship between these two findings and suggest that they appear to follow separate mechanisms.
This chapter describes the state of financial development in fragile states. Our analysis primari... more This chapter describes the state of financial development in fragile states. Our analysis primarily relies on indicators from the World Bank Global Financial Development Database, which have been used extensively in the literature to capture the degree to which financial services and activities are present in an economy (depth) and the extent to which they are disseminated and made available to the population (inclusion). We find that financial depth in fragile states is underdeveloped and financial inclusion is low, but with significant heterogeneity among fragile states. We conduct empirical exercises which suggest that fragility is negatively related to financial development, both in terms of depth and especially in terms of inclusion, and exercises that also point to certain aspects of fragility most associated with financial underperformance. Finally, we use a benchmarking exercise to estimate how much financial underdevelopment in fragile states is costing them, in terms of ec...
We develop a framework for natural resource valuation that directly addresses the fundamental col... more We develop a framework for natural resource valuation that directly addresses the fundamental collective action problem in environmental protection. Our framework uses the lessons of behavioral economics to create values that individual decision makers find credible and relatable, in addition to stimulating excitement or concern that is essential to prompting action. We then apply this framework to value forest elephants in Africa and great whales that are found off the coasts of Brazil and Chile. The values we estimate for individual members of these species are significant: $1.75 million per forest elephant and an average of $2 million per whale. We discuss how our valuations lead to new designs for environmental preservation and restoration policies.
A rising number of people is living in fragile countries whose weak institutions fail to deliver ... more A rising number of people is living in fragile countries whose weak institutions fail to deliver on decent work and poverty reduction. The chapter discusses to what extent external financial flows, such as remittances, foreign direct investment or official development aid, can substitute for weak institutions. Fragility matters: fragile countries receive different amounts of financial flows than their non-fragile peers, and these flows affect them differently. Fragility lowers the effect of financial flows on growth, living standards and inequality. Foreign direct investment (FDI) has a moderate impact on poverty alleviation, albeit concentrated on employment gains in mining and natural resources. Remittances provide some weak relief for the poor, with less pernicious effects on growth and labour supply than in non-fragile countries. ODA does not improve social outcomes but rather exacerbates fragility. Policymakers should focus on improving upon the positive contribution of FDI and...
The potential for Blue Carbon ecosystems to combat climate change and provide co-benefits was dis... more The potential for Blue Carbon ecosystems to combat climate change and provide co-benefits was discussed in the recent and influential Intergovernmental Panel on Climate Change Special Report on the Ocean and Cryosphere in a Changing Climate. In terms of Blue Carbon, the report mainly focused on coastal wetlands and did not address the socio-economic considerations of using natural ocean systems to reduce the risks of climate disruption. In this paper, we discuss Blue Carbon resources in coastal, open-ocean and deep-sea ecosystems and highlight the benefits of measures such as restoration and creation as well as conservation and protection in helping to unleash their potential for mitigating climate change risks. We also highlight the challenges—such as valuation and governance—to marshaling their mitigation role and discuss the need for policy action for natural capital market development, and for global coordination. Efforts to identify and resolve these challenges could both maint...
This paper explores the relationship between remittances and financial inclusion for a sample of ... more This paper explores the relationship between remittances and financial inclusion for a sample of 187 countries over the period 2004-2015, using cross-country as well as dynamic panel GMM regressions. At low levels of remittances-to-GDP, these flows act as a substitute to formal financial channels, thereby reducing financial inclusion. In contrast, when remittance-to-GDP ratio is high, above 13% on average, they tend to complement formal access and usage channels, thus enhancing financial inclusion. This “U shaped” relationship highlights the role of remittance flows in financing household consumption at low levels, while raising formal household bank savings and allowing for more intermediation, at high levels of remittance-to-GDP.
This paper argues that the speed of financial risks, rather than the speed of regulators, is the ... more This paper argues that the speed of financial risks, rather than the speed of regulators, is the key cause of financial crises. Our argument contradicts a common claim in the literature that financial crises arise because regulators cannot keep up with fast-paced changes in financial markets. We divide financial risks into two main types—fast-moving and slow-moving risks—and argue that most crises have been caused by slow-moving risks that regulators could have mitigated. The global financial crisis, however, showed that the mixing of fast-moving and slow-moving risks also leads to financial instability. This paper thus provides a novel argument for limiting risk-taking, potentially including the separation of financial institutions by the types of risk they manage.
Libya’s popular revolution of 2011 has unleashed the potential for more diverse and inclusive gro... more Libya’s popular revolution of 2011 has unleashed the potential for more diverse and inclusive growth. In the short term, the country faces the complex and costly tasks of rebuilding its economy, infrastructure, and institutions, and responding to the demands of its population, especially for improved governance. The conflict that accompanied the revolution had a severe impact on the economy, which is heavily dependent on hydrocarbons, but the contraction is expected to be temporary. The restoration of hydrocarbon production is already well advanced, and reconstruction efforts will boost non-hydrocarbon output growth in the coming years. Libya’s wealth opens a choice of paths for the future: it can fall into the trap of many resource-rich countries that have become overly reliant on revenues from finite natural resources and failed to diversify their economies, or it can pursue a course of sustainable, inclusive development led by increased private-sector activity.
We use a unique data set for 115 countries, from 2000–18, and 5-year non-overlapping averages to ... more We use a unique data set for 115 countries, from 2000–18, and 5-year non-overlapping averages to explore the impact of technical assitance on revenue mobilization. To the authors’ knowledge this is the first such effort to determine a direct relationship between technical assistance and the improvement in tax revenues. The paper finds that technical assistance significantly and positively increases tax revenues. Both income per capita and openness were found to positively improve the tax ratio in line with findings in the literature. Dynamic estimations also uncovered a long-run relationship among technical assistance, income per capita, openness, and tax revenues. This result further underscores that it takes time to build capacity and institutional resilience.
We develop a dynamic model of a BHC that encompasses both a trading desk and a loan desk, and exp... more We develop a dynamic model of a BHC that encompasses both a trading desk and a loan desk, and explore the role of risk attitude and overleveraging by the trading desk. We trace the impact of monetary policy and market innovations on bank behavior in the presence of Basel III type regulations. We show that the value of the BHC is enhanced by operating both desks. We explore alternative regulatory remedies to ongoing efforts to ring-fence the proprietary trading business, and show that regulations that target bank governance can mitigate possible rogue trading and the overleveraging problem.
Libya is highly dependent on exhaustible and volatile hydrocarbon resources, which constitute the... more Libya is highly dependent on exhaustible and volatile hydrocarbon resources, which constitute the bulk of government revenues. Although resource wealth provides the means to promote socio-economic development, procyclical fiscal policies threaten macroeconomic stability as well as fiscal sustainability and intergenerational equity. In three parts, this paper provides an assessment of the cyclically adjusted fiscal stance, analyzes fiscal sustainability according the permanent income framework, and simulates various fiscal policy rules with the objective of developing a rule-based fiscal strategy that would delink the economy from oil price fluctuations, improve the management of resource wealth, and safeguard macroeconomic stability.
This paper empirically investigates the effectiveness of monetary policy transmission in the Gulf... more This paper empirically investigates the effectiveness of monetary policy transmission in the Gulf Cooperation Council (GCC) countries using a structural vector autoregressive model. The results indicate that the interest rate and bank lending channels are relatively effective in influencing non-hydrocarbon output and consumer prices, while the exchange rate channel does not appear to play an important role as a monetary transmission mechanism because of the pegged exchange rate regimes. The empirical analysis suggests that policy measures and structural reforms—strengthening financial intermediation and facilitating the development of liquid domestic capital markets—would advance the effectiveness of monetary transmission mechanisms in the GCC countries.
Whereas most of the literature related to the so-called “resource curse” tends to emphasize on in... more Whereas most of the literature related to the so-called “resource curse” tends to emphasize on institutional factors and public policies, in this research we focus on the role of the financial sector, which has been surprisingly overlooked. We find that countries that have financial systems with more depth, as well as those that actively manage their central banks’ balance sheets experience less exchange-rate appreciation than countries that do not. We analyze the relationship between these two findings and suggest that they appear to follow separate mechanisms.
This chapter describes the state of financial development in fragile states. Our analysis primari... more This chapter describes the state of financial development in fragile states. Our analysis primarily relies on indicators from the World Bank Global Financial Development Database, which have been used extensively in the literature to capture the degree to which financial services and activities are present in an economy (depth) and the extent to which they are disseminated and made available to the population (inclusion). We find that financial depth in fragile states is underdeveloped and financial inclusion is low, but with significant heterogeneity among fragile states. We conduct empirical exercises which suggest that fragility is negatively related to financial development, both in terms of depth and especially in terms of inclusion, and exercises that also point to certain aspects of fragility most associated with financial underperformance. Finally, we use a benchmarking exercise to estimate how much financial underdevelopment in fragile states is costing them, in terms of ec...
We develop a framework for natural resource valuation that directly addresses the fundamental col... more We develop a framework for natural resource valuation that directly addresses the fundamental collective action problem in environmental protection. Our framework uses the lessons of behavioral economics to create values that individual decision makers find credible and relatable, in addition to stimulating excitement or concern that is essential to prompting action. We then apply this framework to value forest elephants in Africa and great whales that are found off the coasts of Brazil and Chile. The values we estimate for individual members of these species are significant: $1.75 million per forest elephant and an average of $2 million per whale. We discuss how our valuations lead to new designs for environmental preservation and restoration policies.
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