Remittances and their Macroeconomic Impact
This paper examines the macroeconomic trends, drivers and the impact of remittances in Africa. First, it documents the increasing share of remittances relative to other foreign capital flows to Africa, the distribution of remittance inflows across countries, and some key properties. This is followed by an analysis of the macroeconomic drivers of remittances in recipient countries, such as the level of income, inflation and nominal exchange rate depreciation. Specifically, remittances are positively impacted by higher income, but deterred by an unstable macroeconomic environment, pointing to the investment motive in remitting to Africa. The paper also examines the role of remittances in funding Africa’s external balances. Finally, drawing on the case of Egypt, the paper shows the positive impact that rising remittances can have on public debt sustainability.
Read Full Paper >
African Diaspora Remittances are Better than Foreign Aid FundsIn this article, two sources of socio-economic development finance for Africa, African Diaspora remittance funds and Overseas Development Assistance (ODA) funds, are compared. It is argued that Diaspora remittance funds constitute a better alternative to ODA funds for the development of Africa for a number of reasons. Not only have Diaspora remittance funds outpaced ODA funds, but they are more efficiently deployed for the development of the African continent in three main ways. The funds are less likely to be misspent as compared to the misappropriations and legendary inefficiencies in the foreign aid industry. Diaspora remittance funds, as gifts of love, are better focused on building the family and hence the nation. The distribution of these Diaspora remittance funds is far more efficient than ODA funds since these monies go directly to paying school fees, building houses and growing businesses. Some proposals are made to indicate how African governments can facilitate more remittance funds over and above ODA funds.
Read Full Paper >
Human Resource Development (HRD) and Foreign RemittancesThis study tries to document linkages between HRD, migration and remittances in South Asia. We have explained in detail the various channels through which HRD promotes migration and remittances, and a case has been made not to consider this process as brain drain – rather it should be viewed by public policy practitioners as brain circulation which can in turn result not just in increased foreign exchange reserves but also increased prospects for transfer of technology and creative ideas. Econometric results suggest that infant mortality, gross primary school enrolment and real per capita GDP have a negative relationship with remittance inflows in South Asia, whereas gross tertiary school enrolment and access to financial instruments have a positive relationship with remittances in these countries. The result indicates that higher levels of education facilitate mobility of labour and allow better opportunities for working abroad.
Read Full Paper >
Why India is Vulnerable to Portfolio Investment MovementsThis paper analyses the trend of capital flows between India and the US during 2000–2012. The US is a major source of foreign capital in India, through both direct and portfolio investment. During this period, portfolio investment from the US to India dominated over direct investment. A large part of India’s outward FDI is towards the US, although in terms of total FDI in the US, India’s share is not very large. Internationally active Indian banks have the largest foreign claims towards the US, however this amounts to less than 1% of the Indian banking sector.
Read Full Paper >
The New Transparency in Development EconomicsThe Millennium Villages Project is a high profile, multi-country development project that has aimed to serve as a model for ending rural poverty in sub- Saharan Africa. The project became the subject of controversy when the methodological basis of early claims of success was questioned. The lively ensuing debate offers lessons on three recent mini-revolutions that have swept the field of development economics: the rising standards of evidence for measuring impact, the ‘open data’ movement, and the growing role of the blogosphere in research debates.
Read Full Paper >
Managing a Changing World EconomyThe world economy has been experiencing a period of great and dramatic change. In part this has been associated with the rapid emergence of China, the BRICs and other newly industrialising economies. Evolution in the world economy is quickly changing the structure of global output and trade. It is also having implications for the pattern of international capital flows. Alongside these evolutionary changes, the ‘shock’ of the global economic and financial crisis that erupted in 2008 has brought about further changes. Confidence in the efficiency of financial markets has been adversely affected, if not undermined, and consensus over the design of macroeconomic policy has been replaced by substantial areas of division and confusion. The changes have generated broad areas of uncertainty, which in turn have adverse consequences for global economic performance. This article explores these changes and goes on to analyse the issues they raise in terms of managing the world economy. It assesses approaches based on enhanced global economic governance, coalitions based on economic characteristics or regional proximity and economic nationalism.
Read Full Paper >
Why Russia Resists FacebookThe social media websites phenomenon started in 1997 with SixDegrees.com, which allowed users to create profiles, list their Friends and surf the Friends lists. Facebook launched in 2004 and became synonymous with the growth of this sector, exceeding 1.1 billion active users in 2013. Russia is, however, a major country with open-market access where Facebook has not been in a position to compete successfully with local service providers. This article examines the defining features of social networking sites and their growth potential worldwide, looks at the factors which influence their valuation and analyses unique features of the Russian market which have to date prevented Facebook’s expansion.
Read Full Paper >
How The Crown Estate Could Become Britain’s First Sovereign Wealth FundThe United Kingdom is one of a few larger economies without a national wealth fund. This paper investigates the feasibility of a recent proposal to turn The Crown Estate, one of Britain’s largest property investment and management businesses, into such a Sovereign wealth fund as an alternative to its privatisation. The Crown Estate was created in 1760 by Parliament as a means of funding the British monarchy, but when the current Queen dies or abdicates there is likely to be a wide ranging debate about the type of monarchy Britain wants and how it is financed. However, with assets of just under US$12 billion The Crown Estate would be small in relation to other national funds. At present, with an estimated six trillion dollars, the global funds under Sovereign wealth management have been steadily increasing their significance in global investment. The largest single fund is the Norwegian Government Pension Fund with assets of circa US$803.9 billion, while greater China controls US$1.63 trillion through four separate funds. The authors argue that any British fund, even if formed out of The Crown Estate, should have access to the revenues from shale oil and gas which could be worth as much as £500 to £800 of GDP per head at 2012 prices.
Read Full Paper >
Real Estate and the Great Financial CrisisPoliticians and macro policymakers have identified regulatory weakness in the banking sector as the key cause of the Great Financial Crisis (GFC). This allows the easy apportionment of blame and the straightforward, if painful, reforms to banks’ operating procedures. In fact, the real economic damage was done by the world’s first coordinated real estate boom and slump which was facilitated by the rise of shadow banking but not caused by it. From the mid-1990s cheap goods from Asia suppressed inflation, permitting a long period of monetary stimulation. Cheap capital from the same source depressed long-term interest rates. Real estate markets, particularly after 2001, experienced explosive growth which stimulated excessive construction activity and bank lending. Real estate constitutes about 40% of the world’s wealth and central banks singularly failed to see the dangers arising from a collapse of values in this sector. This is the real story of the GFC, which is set out in this article.
Read Full Paper >
Understanding Commercial Property Price indexesThe type of database used for the measurement of commercial property price indexes (CPPIs) dictates the potential weaknesses in the resulting indexes and limitations of the methods available for measuring the indexes. Two major types of data are appraisals of the value of properties and recorded transaction prices. The former is based on expert judgement and may have problems of smoothing and lagging transaction prices. The latter is based on actual transactions and may have sample selectivity bias and limited sample sizes for these heterogeneous properties. These issues are examined.
Read Full Paper >
Using Reputation to Grow Corporate ValueCorporate reputations rank amongst companies’ most valuable assets. They are delivering substantial proportions of their market capitalisations and are a major source of value generation. Their significance is being felt in a wide variety of business sectors including real estate and in particular Real Estate Investment Trusts (REITs) where, as this paper demonstrates, they have become critical drivers of shareholder value as investors increasingly find the surveyor estimates of underlying asset values wanting. This is having significant implications on how, for example, REITs need to manage their corporate reputations and deploy the likes of reputation value analysis to ensure that the messaging they’re delivering is both securing and growing corporate value.
Read Full Paper >
From Stellar Growth to UnderperformanceThe economic trajectory of the Indian economy has altered several times. After decades of severe underperformance, the Indian economy gradually picked up momentum in the 1980s and 1990s, and turned in a stellar performance during the 2000s. This paper examines the rationale behind the ups and downs in India’s economic performance. It provides a succinct account of various phases of growth, delayed initiation of reforms, tardy and incomplete implementation, and vitally important economic strategies that should have been adopted by Indian policymakers but were ignored. In addition, India failed to address several serious structural issues, allowed them to fester indefinitely and paid a high price in terms of GDP growth. Paradoxically the economy benefited from the incomplete reforms and Indian growth had a stellar growth period in the 2000s, before slumping in 2011. Deterioration continued in 2012. The paper delves into the causes behind the deceleration, and analyses how macroeconomic attrition came about. It concludes with proposals of a revival strategy warranted by the current economic predicament.
Read Full Paper >
Asset Poverty in IndiaIn order to formulate policy to target the correctly identified rural poor in India, focus on an income poverty measure alone is insufficient. The purpose of this research is to study a new area of poverty measurement based on data that detail a household’s access to basic assets. The study has used the secondary data source provided by the Demographic and Health Survey (DHS) for the time period of 1992, 1998 and 2005. In order to construct the asset index the technique of multiple correspondence analysis is used. A discussion of trends in asset poverty in various states in India follows, together with the policies they need to adopt depending on their state of poverty.
Read Full Paper >
The Economic Impact of Private EquityOver the past half century, private equity has grown from a tiny part of the financial sector into a powerful industry, often controlling global brands. As the industry has grown, so too has academic interest in the sector. However, the vast majority of empirical research has focused on the impact of private equity at the microeconomic level, typically focusing on the experience of a pool of individual firms rather than the economy as a whole. As such, the analysis has tended to be partial in nature, rather than taking a general equilibrium approach. This article reviews evidence on the microeconomic impact of private equity, and examines whether these findings are visible in macroeconomic data. Across a pool of developed economies with significant private equity activity, there is no sign that private equity investment significantly boosts employment, productivity or hence growth at the macroeconomic level.
Read Full Paper >
Demystifying Youth UnemploymentYouth unemployment has become an ever increasing serious socio-economic problem, which deserves far more attention that it has so far received. In this article, we examine the causes of this issue. They include 1) countries losing the ability to compete effectively and therefore cannot create high-quality jobs, 2) inflexible labour markets that prevent young people from being hired, 3) many young labourers prefer not to work (hard), and 4) mismatch of skills and employers’ needs. We urge governments to take decisive and fast actions to combat this problem before it turns itself into a major crisis.
Read Full Paper >
Strengthening the Early Warning ExerciseFollowing the 2007–2008 global financial crisis, the G20 leaders tasked the International Monetary Fund (IMF) and the newly created Financial Stability Board (FSB) to jointly undertake Early Warning Exercises (EWEs) in order to identify vulnerabilities within the global financial system and encourage appropriate policy responses. This paper argues that a series of challenges have prevented the EWE from realizing its full potential. In particular, the advantages accruing from the joint nature of the exercise have not been fully realized. The paper then puts forward recommendations intended to improve the process and encourage implementation of EWE findings among national policymakers.
Read Full Paper >
Industrial Rebalancing is Already Here, But Can it Continue?In mid-2012, as China’s economy decelerated, growth in electricity production – traditionally a good proxy for the health of industry – diverged strongly on the downside from official measures of industrial value added. While many analysts interpreted this incongruence as a sign of official data manipulation, detailed output and electricity consumption data tell a different story. Variation in Chinese electricity production since 2008 has been close to an exact function of output growth in a handful of heavy industrial sectors including metals, cement and chemicals, rather than industry as a whole. The underperformance of these electricity-intensive, but relatively low value-added sectors in Q2 and Q3 2012 largely explains the divergence between electricity output and industrial growth that confounded analysts last year. Moreover, the declining profitability of electricity-intensive sectors relative to consumer goods is an initial indication of ‘rebalancing’ in the Chinese industrial economy, which may herald changing data patterns in the future.
Read Full Paper >
Poor Economic Statistics Fuel China’s Low Consumption MythThe generally held belief that China’s consumption is too low is a myth based on inadequate theory, a misreading of official statistics and the use of market exchange rates for making international comparisons. Chinese official statistics underestimate consumption expenditure on housing, they omit consumption paid for as benefits by the corporate sector, and there are a number of problems with the household expenditure surveys employed. An adjustment for statistical issues suggests that the rate of consumption is 60–65% of GDP, not the 48% based on the widely quoted official statistics figures, and is quite similar to the level experienced by other East Asian economies.
Read Full Paper >
How Safe is SAFE’s Management of China’s Official Foreign Exchange Reserves?This paper examines whether the State Administration of Foreign Exchange (SAFE) and its subsidiary SAFE Investment Company (SIC), the sole managers of China’s gargantuan official foreign exchange reserves (OFER) until 2007, have shifted their investment behaviour since the inception of China Investment Corporation (CIC). We find that external conditions such as overexposure to US dollar-denominated assets and declining value of the greenback, as well as internal conditions like the rise of CIC as a rival to manage China’s OFER, have prompted SAFE-SIC to depart somewhat from their pre-2007 conservative style of investing most of China’s OFER in low-yielding foreign government bonds, especially US Treasury bills. Since 2008, SAFE-SIC, in a seeming competition with CIC, have started to pursue higher-risk, higher-return investments. However, we observe that this bolder strategy of SAFE-SIC might not be sustainable for long, because: (a) it duplicates CIC’s explicit mission already set by the State Council to invest in higher-risk, higher-return assets; (b) it runs against SAFE’s core mission to preserve, rather than grow, China’s OFER; and (c) SAFE is tied down by other core responsibilities such as the regulation of China’s foreign exchange administration system, the stewardship towards full capital-account convertibility, and the gradual internationalisation of the renminbi (RMB). As such, engaging in higher-risk, higher-return investments would most likely remain a secondary priority within SAFE’s overall mandate.
Read Full Paper >
Cross-Border Financial Integration in Asia and the Macro-Financial Policy FrameworkIn relative terms, Asia came through the global financial crisis relatively well. In part, this can be attributed to its conservative approach to international financial integration. At the same time, financial globalisation means that Asia cannot be fully insulated from international financial shocks. Moreover, it is likely that the rest of the world will undergo a redesign of its international financial profile, such that Asia will also have to adapt. All in all, there is likely to be considerable convergence in the composition of international balance sheets across Asia and the rest of the world. In turn, this is likely to be associated with a higher degree of regional financial integration within Asia. These structural changes call for the careful design of a prudential macro-financial policy framework.
Read Full Paper >
The EurozoneThis article examines the degree of convergence of the economies of the eurozone since the start of the single currency in 1999. Convergence, both in nominal and real forms, is measured using the coefficient of variation of several economic variables. The results suggest that while there was some convergence on inflation up to 2007, there was no convergence on economic growth, total government debt, budget deficits, unemployment or GDP/head. The financial crisis and global recession of 2007 and 2008 exposed a fault line in so large and diverse a currency union, and this now threatens the long-term future of the euro.
Read Full Paper >
Maastricht: Union that Foresaw its Failure but Closed its EyesAs the global financial and economic crisis drags on, European regulators and policy-makers are continuing in their attempts to find a path from crisis towards stability, while balancing the public interests of independent sovereign nations desirous of a deeper financial, economic, political and fiscal union. Concurrent with these attempts, the media and government officials in the core of Europe are characterising the crisis as one stemming from profligate borrowing and reckless spending by peripheral Eurozone economies. Past Eurozone growth, particularly in Germany, did not come from meaningful improvements in productivity, but rather on the back of household wage reductions and industry-friendly reforms to the labour market – the Hartz reforms – which transferred wealth from the people to the banking and export-driven sectors of the economy. While German and French taxpayers are justifiably angry, their anger is largely misdirected. Rather than embracing the false narrative blaming only peripheral nations for requiring bailouts, the anger should more rightfully be directed at designers of the European Monetary Union, banks, in the core, officials and technocrats who failed to properly regulate the domestic banking, rating agencies and political leadership. With this as a backdrop, it logically follows that the German government and central bank are seeking to protect the markets for German exporters and the German banking sector. Accordingly, the German government will be forced to choose either a large share of the costs of supporting a further integration of the European Monetary Union or, alternately, the larger economic and social costs of its failure, including the massive costs of recapitalizing German banks and financial support for German industry. Either approach will lead to German debts rising markedly while its economy contracts. The costs will be astounding.
Read Full Paper >
Light at the End of the TunnelIn October 2012, the Norwegian Nobel Committee honoured the EU with the 2012 peace prize for creating a peaceful and stable Europe after the destructive wars and economic crises of the twentieth century. However, it would have been more appropriate to bestow the prize on the ‘Troika’: the European Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF), with special acknowledgement to ‘Super’ Mario Draghi, the president of the ECB who has done more than anyone to ease the Eurozone’s ongoing and existential economic crisis and keep the union still intact.
Read Full Paper >
The EMU Versus the EPUThis article draws upon the analogy between the current European institutional setting, in the face of the current European crisis, and the rules and institutions that were established in the post-war years to achieve trade liberalisation and a multilateral payments system in Europe. Differently than in the past, a feature of today’s crisis is that trade and payment imbalances have been overlooked, under the assumption that in a closely-integrated single-currency area, trade and payments imbalances do not matter. The implications are discussed in the light of the need to overcome the present crisis and to proceed towards integration goals.
Read Full Paper >
Agricultural StatisticsIn developing economies the data on agricultural production are weak. Because these data are assembled using competing methods and assumptions, the final series are subject to political pressure, particularly when the government is subsidizing agricultural inputs. This paper draws on debates on the effect of crop data subsidies in Malawi. The recent agricultural census (2006/2007) indicates a maize output of 2.1 million tonnes, compared to the previously widely circulated figures of 3.4 million tonnes. The paper suggests that ‘data’ are themselves a product of agricultural policies.
Read Full Paper >
Averting a Global Food CrisisThe World Bank’s Food Price Watch reached a new historic peak in August 2012. High and volatile food prices spell real hardship for the world’s poor, and supply problems due to volatile climatic conditions have exacerbated the surge in global food prices. Investment in agriculture is handicapped by the lack of reliable, accurate data. In many developing countries, the methods of collecting agricultural statistics have hardly advanced in 50 years. This article analyses these flaws and omissions and reviews initiatives to resolve current shortcomings. Plantation agriculture offers one of the most effective means of producing sufficient food to meet global demand. The scope for enhancing production is considerable, particularly in certain countries such as Nigeria which are faced with a substantial food import bill. This article reviews a dozen key staple commodities and explores the opportunities to expand output with a particular reference to Sub-Saharan Africa. Recent research reveals the opportunities to improve production through planting more appropriate seeds and the use of fertiliser. Any step change in production hinges on the adoption of larger scale commercial production, for which private capital will be required. In the case of palm oil, the last few years has seen significant investment in Africa by global agri-business groups keen to complement production from the two major exporting countries: Malaysia and Indonesia. The potential for large scale agriculture has never been so bright as it is today in Africa.
Read Full Paper >
Pastoralism: Africa’s Invisible Economic Powerhouse?Many elements of developing economies are missing from their national accounts. This is more than a statistical dilemma. It hampers the development of government policy, results in under-investment in those missing elements and simultaneous over-investment in others, and helps to paint an incomplete picture of the health, wealth and opportunities existing in these economies. There is a considerable literature on how the informal economy is excluded and the need to strengthen data collection for better policy development. This paper builds on this literature by examining pastoralism in order to exemplify this underinvestment and marginalisation, which creates a vicious circle of impoverishment, conflict and environmental degradation in most developing countries with significant pastoral communities. Investment in data collection and analysis will result in considerable benefits to policy, activities to achieve sustainable development and transparency.
Read Full Paper >
Going Beyond AveragesOne of the persistent, unresolved controversies of economic development is the effectiveness of development assistance – whether foreign aid contributes to economic development. This article argues that this controversy is largely an artefact of a methodology that focuses on the ‘averages’ and pays inadequate attention to the specific characteristics of individual societies. For enhancing aid effectiveness, one needs to discard the one-size-fits-all approach, and adopt a more nuanced, tailor-made strategy based on a comprehensive understanding of specific countries.
Read Full Paper >
Life after DebtThe Greek debt exchange (PSI) that took place in March 2012 was unprecedented in two ways: it was the biggest sovereign default ever and the first within the euro area. This paper examines the debt exchange and the subsequent debt buyback with a view to drawing lessons for policymakers and market participants. It discusses the interaction between the political dimension and the market perception, including areas of actual or potential conflicts between the two. The paper does not address Greece’s longer-term prospects for debt sustainability or euro area membership, but instead focuses narrowly on an assessment of the debt exchange and its aftermath, taking into account its impact on the broader euro area crisis.
Read Full Paper >
The Liquidity Consequences of the Euro Area Sovereign Debt CrisisWe examine the liquidity effects of the euro area sovereign debt crisis on euro area banks as a group, on intra-euro area financial flows and on international liquidity. The lending capacity of the euro area banking system has been much weakened, despite the remarkable growth of the operations of the Eurosystem, including its greatly increased lending and its intermediation between national central banks in surplus and deficit countries. The euro crisis has also created international liquidity stresses.
Read Full Paper >
The ‘Good Global Citizen’ Remit of the IMFIn the highly globalized world economy of our times, where markets are tightly integrated, setting domestic economic policy with a view simply to keeping one’s house in order is no longer optimal. New responsibilities follow for each member of the community of countries from the recognition that the action by one may affect the others. These mutual responsibilities form the core of what we call the ‘Good Global Citizen’ remit of the IMF, a reformed framework for international economic and financial cooperation. This study identifies the new responsibilities, and defines and articulates the rules under the proposed remit.
Read Full Paper >
The Collapse of ConsensusConsensus in macroeconomics helps policymakers formulate a coherent and logically consistent group of policies. At different times in the post-war era there has been consensus around first Keynesian and then monetarist ideas. Economic crises have frequently brought one type of consensus to an end, allowing another to be formed. For much of the 1990s and 2000s there seemed to be consensus built on compromise about the way in which fiscal and monetary policy should be used. However, this collapsed with the global financial and economic crisis. For a brief interlude, a Keynesian consensus re-emerged, but this did not last. At present, there are sharp divisions among economists concerning the effects of macroeconomic policy, and this means that life has become much more confusing for policymakers. This article explores what has been going on, and considers the implications for the future.
Read Full Paper >