Joseph Stiglitz argues that central banks’ ruthless pursuit of price stability holds back economic growth and boosts unemployment. His comments were published in the UK’s Guardian.
Posted on June 12th, 2003 by jl
Filed under: Economic Theory & Research | No Comments »
Author/Editor: Canales Kriljenko, Jorge I. ; Monetary and Exchange Affairs Department
Series: Working Paper No. 03/95
Authorized for Distribution: May 1, 2003
Summary: Based on evidence obtained from the IMF’s 2001 Survey on Foreign Exchange Market Organization, the author argues that, for several reasons, some central banks in developing and transition economies may be able to conduct foreign exchange intervention more effectively than the central banks of developed countries issuing the major international currencies. First, these central banks do not always fully sterilize their foreign exchange interventions. In addition, they issue regulations and conduct their foreign exchange operations in a way that increases the central bank’s information advantage and the size of their foreign exchange intervention relative to foreign exchange market turnover. Some of the central banks also use moral suasion to support their foreign exchange interventions.
Get the PDF document here.
Posted on May 23rd, 2003 by jl
Filed under: Economic Theory & Research, IMF, Intl Currency | No Comments »
The IMF recently published a research paper discussing the effects of financial globalization on developing countries. The new study, “Effects of Financial Globalization on Developing Countries—Some Empirical Evidence”, by Eswar Prasad, Kenneth Rogoff, Shang-Jin Wei, and M. Ayhan Kose contributes to a more nuanced understanding of the role played by international capital flows in promoting development. It also contains some important implications for the policy framework of developing countries.
The study set out to answer the following three questions:
* Does financial globalization promote economic growth in developing countries?
* What is its impact on macroeconomic volatility in these countries?
* What factors can help harness the benefits of financial globalization?
Economic theory states that developing countries can accrue large benefits from financial integration. By opening their economies to capital inflows such as foreign direct investment, portfolio investments, and bank borrowing, countries not only encourage economic growth, they also help stabilize consumption, which is an important measure of economic well-being.
What the study found was that this theory doesn’t always hold true in practice. Even though income per capita is higher for developing countries that have more open economies, it is difficult to find strong evidence that suggests this is due to the fact that they have liberalized their capital account. In fact, some of these countries have experienced very costly banking or currency crises, when investors suddenly decided to withdraw their money.
However—and this is important—the study also found that once financial integration crosses a certain threshold, the positive effects of international capital flows (cheaper access to capital, transfer of new technology, development of the banking system) begin to cancel out the negative effects. Furthermore, countries with good economic policies and low corruption stand to gain from financial integration. These countries do a good job at attracting foreign direct investment, which is especially conducive to economic growth. In contrast, countries that are perceived by investors as lacking in transparency and/or as having poor economic policies, tend to rely more on “hot money”, such as short-term bank loans, and less on foreign direct investment. This makes them more prone to crisis.
To give an example, financial integration can encourage countries to overspend. Access to world capital markets makes it easier for governments to borrow—often excessively and on a short term basis. The accumulation of short-term debt in foreign currencies makes such countries more vulnerable to external shocks or changes in investor sentiment.
However, such risks offer reason to proceed with liberalization carefully; they are not reasons for turning away from it altogether. The IMF continues to believe that developing countries can reap significant advantages from opening up to the outside world. In this respect, it is important to keep in mind that this study looked at only one aspect of globalization—the role played by international capital flows in the economic development of developing countries. Other aspects of globalization, such as international trade and labor mobility, were not included in the analysis. An overwhelming majority of research papers have found that trade liberalization has a positive effect on economic growth. The financial-liberalization study therefore should not be seen as providing an answer to the broader question of whether globalization is “good” or “bad” for developing countries.
For more information on the IMF and capital account liberalization, please refer to:
Capital Account Liberalization and Financial Sector Stability, Shogo Ishii and Karl Habermeier, Occasional Paper 211, IMF, Washington DC 2002.
Capital Controls: Country Experiences with their Use and Liberalization, Akira Ariyoshi, Karl Habermeier, et. al., Occasional Paper 190, IMF, Washington DC, 2000.
Posted on May 22nd, 2003 by jl
Filed under: Economic Theory & Research, IMF, Intl Economics, Intl Financial System | No Comments »
ECONOMIC FORUMS AND INTERNATIONAL SEMINARS
Does IMF Fiscal Policy Advice End Up Hurting the Poor?
Tuesday, April 29, 2003, 2:30 p.m.–4:00 p.m.
Many critics argue that the IMF’s advice on fiscal policy reduces growth and increases poverty in developing countries. In the effort to address unmanageable budget deficits, critics claim the IMF advises countries to make substantial cuts in public spending. Critics say that far from cushioning the impact of crises on the poor, these cuts worsen the slowdown and make it more difficult for the poor to find jobs. But what exactly is the nature of IMF fiscal policy advice? Is there a one-size-fits-all fiscal policy in IMF programs? The following panelists addressed these and related criticisms of IMF fiscal policy advice:
Richard Hemming [Moderator]
Assistant Director
Fiscal Affairs Department
IMF
William Cline
Senior Fellow
Institute for International Economics
Sanjeev Gupta
Assistant Director
Fiscal Affairs Department
IMF
Carol Graham
Vice President, Government Studies
Brookings Institution
Read the transcript of the forum here.
Posted on May 16th, 2003 by jl
Filed under: Developmental Issues, Economic Theory & Research, IMF, Intl Economics | No Comments »
In the last year or so, markedly different claims have been heard within the development community about just how much progress is being made against poverty and inequality in the current period of “globalization.” Martin Ravallion provides a nontechnical overview of the conceptual and methodological issues underlying these conflicting claims. He argues that the dramatically differing positions taken in this debate often stem from differences in the concepts and definitions used and differences in data sources and measurement assumptions. These differences are often hidden from view in the debate, but they need to be considered carefully if one is to properly interpret the evidence. The author argues that the best available evidence suggests that if the rate of progress against absolute poverty in the developing world in the 1990s is maintained, then the Millennium Development Goal of halving the 1990 aggregate poverty rate by 2015 will be achieved on time in the aggregate, though not in all regions. He concludes with some observations on the implications for the more policy-oriented debates on globalization and pro-poor growth.
This paper—by Martin Ravallion and a product of the World Bank’s Poverty Team, Development Research Group—is part of a larger effort to throw light on current development debates.
Posted on May 15th, 2003 by jl
Filed under: Developmental Issues, Economic Theory & Research, Intl Economics | No Comments »
