Working Papers

In most developing countries a shortage of long-term, local-currency financing for small-scale infrastructure projects impedes local economic development. Inadequate fiscal transfers, little own source revenue and low creditworthiness make it difficult for local governments to fully fund projects on their own. This paper proposes the use of project finance as a means to attract financing from domestic banks and institutional investors. Donors can play a catalytic role by providing technical assistance to develop projects and credit enhancement to attract commercial financing.

This paper surveys the ways that the structure and magnitude of financial sector compensation can generate incentives for excessive risk taking. It also highlights the underlying economic and institutional forces that have underpinned and sustained these pay structures, including aspects of corporate governance in financial institutions, regulatory capture by financial elites, the nature of the labour market for finance professionals and the extended economic boom of the 1990s and 2000s. The measures endorsed by the Financial Stability Board and the G20 for sound compensation practices do not go far enough in several areas; a broader set of measures need consideration.

This paper assesses the effects of combining fiscal austerity with flexibilization policies aimed at reducing labour costs and increasing competitiveness. Core to our analysis is a global perspective where the aggregation problem is fully taken into account. We derive a stylized macroeconomic framework of distributive and demand dynamics. We show that even in export-led regimes, after considering global feedbacks, flexibilization policies do not lead to higher income and employment. Rather, the end result is contractionary. Over time, the world economy is essentially wage-led and responds positively to coordinated Keynesian stimuli.

This paper examines whether Official Development Assistance (ODA) is disproportionately allocated to countries that need to make the most progress on the Millennium Development Goals (MDGs). We expect MDG-sensitive distribution of foreign aid – or a good donor-recipient match – to be guided by the principles of the Global Partnership for Development. When we apply the MDG-sensitivity criteria for aid allocation, the results indicate that ODA allocation since the Millennium Declaration has become more MDG-sensitive – ODA is given to countries that need it most. While such trends in aid disbursements are commendable, total aid flows, however, fall short of promised levels.

Effective income and wealth taxation is a central development cooperation issue because taxation of foreign companies and their own residents’ overseas assets remain problematic for developing countries. Estimates of the scale of undeclared expatriated profits and overseas assets, and thus the income tax lost to developing countries, are large relative to other forms of innovative development finance. The international cooperation required involves information exchange between jurisdictions to allow the full application of existing tax codes. This expanded global tax base would be a more sustainable and equitable system than the traditional donor-recipient relationship.

This paper assesses the effectiveness of non-tariff special and differential treatment (SDT) offered exclusively to the least developed countries by WTO agreements. SDTs are inefficient in at least four aspects. First, they are not easily accessed as they require a certain level of institutional capacity. Second, when accessible they either need to be complemented by other policy interventions or are offset by measures taken elsewhere. Third, some do not respond to LDC needs. Fourth, many are too vaguely defined to provide concrete benefits. Effectiveness can be enhanced by increased LDC ownership and improved policy coherence by trading and development partners.

A fundamental shift in macroeconomic policy thinking is taking place. This shift opens a space for implementing policies that promote growth and reduce poverty in developing countries. In this paper, policies for post-conflict and resource-rich economies are outlined. Fiscal policy would focus on revenue mobilization, scaling-up public investment, and preventing over-heating. Monetary policies would revive the financial sector, prevent inflationary pressures and stimulate private sector investment. Exchange rate policies should focus on achieving slow depreciation and maintaining international competitiveness. These policies should not be considered in isolation from each other, but in…

This paper critically reviews the impact of globalization on sub-Saharan Africa (SSA) since the early 1980s. The large gains expected from opening up to international economic forces have, to date, been limited, and there have been significant adverse consequences. Foreign direct investment in SSA has been largely confined to resource—especially mineral—extraction, even as continuing capital flight has reduced financial resources available for productive investments. Premature trade liberalization has further undermined prospects for the economic development of SSA as productive capacities in many sectors are not sufficiently competitive to take advantage of any improvements in market…

This paper presents a simple theoretical framework to explain variations in income inequality over time and between countries. It also analyses the factors responsible for the widespread rise in inequality during the neo-liberal reforms of 1980-2000 in the fields of trade, foreign direct investment (FDI) and capital flows, and the rises in migration. Finally, it compares the decline in inequality observed in most of Latin America over 2000-2008 with the steady increase of inequality in many European transition economies during this period despite their return to robust growth. The paper argues that such divergence is explained by differences in policies.