Working Papers

This paper revisits the earlier assessments of the Palma Proposition and the ‘Palma Ratio’. The former is a proposition that currently changes in income or consumption inequality are (almost) exclusively due to changes in the share of the richest 10 per cent and poorest 40 per cent because the ‘middle’ group between the richest and poorest always capture approximately 50 per cent of gross national income (GNI). The latter is a measure of income or consumption concentration based on the above-mentioned proposition and calculated as the GNI capture of the richest 10 per cent divided by that of the poorest 40 per cent. In this paper we do the following: note the use already being made of…

China has departed from the East Asian model of development by letting inequality to rise to a high level, which is contributing to China’s current problems of macroeconomic imbalance, declining efficiency of capital, and rising social tensions. If inequality persists, China may get caught in the “inequality-trap,” which may then lead it to the “middle income trap (MIT).” Fortunately, China still has the levers to pull to reduce inequality and avoid MIT. Measures along both the “wage route” and the “redistributive route” can be adopted for this purpose. In addition, China may pursue the “cooperative route” to more equitable distribution.

We introduce two separate datasets (The Global Consumption Dataset (GCD) and The Global Income Dataset (GID)) containing an unprecedented portrait of consumption and income of persons over time, within and across countries, around the world. The benchmark version of the dataset presents estimates in PPP units of monthly real consumption and income for every decile of the population (a ‘consumption/income profile’) for 133 countries and more than half a century (1960-2012). We describe the construction of the datasets and demonstrate some possible uses by presenting preliminary results concerning the consumption distribution, poverty and inequality for the world and specific country…

Analyses of redistributive policies often focus on income flows to examine the nexus between redistribution and economic growth. With strengthening signs of growing economic inequality in many countries, an increasing number of economists investigated the existence and nature of a hypothetical trade-off between economic growth and equity. As signs of unsustainable development are strengthening more generally, this paper proposes to look at the broader nexus between redistribution, equity and sustainable development, emphasizing its social and environmental dimensions. It does so by first proposing an analytical framework defining the role of redistributive policies in shaping the private…

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…

With bank-level data from 81 developing countries, the paper shows that increased foreign bank presence is associated with increased reliance on non-deposit based funding, which leads to higher interest rate spreads, less credit to the private sector, and higher volatility in bank loans. Foreign bank entry significantly reduces domestic banks’ share of deposits while foreign banks typically allocate less of their assets and deposits to lending. As domestic banks lose their deposit base, they rely on non-deposit based funding, but its higher costs and uncertainty force domestic banks to reduce their lending activities.

Recent calls for more intense debate on and reforms to the international monetary system imply that the current system is unable to respond appropriately and adequately to challenges that have appeared, or become more acute, in recent years. This paper focuses on four such challenges: ensuring an orderly exit from global imbalances, facilitating more complementary adjustments between surplus and deficit countries without recessionary impacts, better supporting international trade by reducing currency volatility and better providing development and climate finance. After describing them, it proposes reforms to enable the international monetary system to better respond to these challenges…

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.