Working Papers
January 1, 0001
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2002
August 1, 2002
Fiscal Consequences of Armed Conflict and Terrorism in Low- and Middle-Income Countries
Description: This paper analyses the fiscal effects of armed conflict and terrorism on low- and middle-income countries. An analysis of 22 conflict episodes shows that armed conflict is associated with lower growth and higher inflation, and has adverse effects on tax revenues and investment. It also leads to higher government spending on defense, but this tends to be at the expense of macroeconomic stability rather than at the cost of lower spending on education and health. Our econometric estimates are consistent with the hypothesis that conflict and terrorism have a significant negative impact on growth through changes in the composition of government spending. On the revenue side, the fiscal accounts are affected only through reduced real economic activity. Thus there is potential for a sizable "peace dividend" for countries that are able to resolve conflict and terrorism.
August 1, 2002
Liberalization of Trade in Financial Services and Financial Sector Stability (Empirical Approach)
Description: The paper explores empirically the links between the WTO-driven liberalization of trade in financial services and the stability of national financial systems. Econometric testing of indicators intended to proxy financial sector stability-subdivided into exchange rate and banking sector stability-suggests that opening of the financial sector is an efficient policy instrument at the disposal of the authorities for achieving a variety of macroeconomic goals. While liberalization is found to be broadly conducive to stability, the outcome of liberalization on exchange rate stability is less predictable than on banking sector stability.
August 1, 2002
Liberalization of Trade in Financial Services and Financial Sector Stability (Analytical Approach)
Description: The paper seeks to establish a link between the liberalization of trade in financial services undertaken by countries under the WTO and the stability of their financial systems. The paper concludes that liberalization has generally been conducive to stability because of the mutually reinforcing nature of existing international rules and practices. Financial stability and efficiency, which should be ultimate goals of further liberalization, can be ensured by taking advantage of coherent policy advice and the application of existing multilateral mechanisms-in particular, the WTO negotiations and the IMF/World Bank financial sector assessment program.
August 1, 2002
Central Bank Financial Strength, Transparency, and Policy Credibility
Description: A central bank is financially strong if it possesses resources sufficient to attain its fundamental policy objective(s). Once endowed with those resources, relations between government and central bank should be designed so that significant changes in central bank financial strength do not occur unless necessitated by changes in policy objectives. The level of strength required depends on the array of policy objectives (for example, the exchange rate regime) as well as the constraints and risks presented by the operational environment. Attaining credibility is facilitated if the public can easily determine the financial strength of the bank, yet for a variety of reasons this is often difficult. Transparency requires institutional arrangements that ensure the central bank generates profit in most states of the world, is subject to strict ex post independent audit, and transfers regularly all profits, after provisions, to the treasury.
August 1, 2002
Changes in the Structure of Earnings During the Polish Transition
Description: This paper documents that inequality in labor earnings increased substantially during the economic transition in Poland. One surprising result is that earnings inequality increased markedly in both the private and public sectors, indicating that even state-owned enterprises in Poland moved toward competitive wage setting during the transition. Education premia increased sharply, while experience premia declined. Increases in within-group inequality account for about 60 percent of the increase in overall wage inequality. But, contrary to the experience of countries like the United States, increases in within-group inequality in Poland were very different across skill groups, with much larger increases for highly educated workers.
August 1, 2002
Bankruptcy Procedures for Sovereigns: A History of Ideas, 1976-2001
Description: This paper describes the evolution of ideas to apply bankruptcy reorganization principles to sovereign debt crises. Our focus is on policy proposals between the late 1970s and Anne Krueger's (2001) proposed "Sovereign Debt-Restructuring Mechanism," with brief reference to the economics literature on sovereign debt. We describe the perceived inefficiencies that motivate proposals, and how proposals seek to change debtor and creditor incentives. We find that there has been a moving concensus on what constitutes the underlying problem, but not on how to fix it. The range of proposed approaches remains broad and only recently shows some signs of narrowing.
August 1, 2002
The Speed of Adjustment and the Sequencing of Economic Reforms: Issues and Guidelines for Policymakers
Description: This paper reviews the issues involved in determining the appropriate speed of adjustment and the sequencing of economic reforms, focusing on considerations relevant to policymakers. It points out that the debate between the protagonists of a high-speed approach and those favoring a gradualist approach is based primarily on the weights given to adjustment costs, policy credibility, reform feasibility, and risk assessment. It underscores the importance of appropriate sequencing and the impact of sequencing on the speed of adjustment and reforms. The paper concludes by highlighting factors that policymakers should consider when selecting their approach toward speed and sequencing.
August 1, 2002
Will there Be New Emerging-Market Economies in Africa b+L2280y the Year 2020?
Description: This paper examines past African growth experience and attempts to simulate future ones. In addition to more commonly used determinants of total factor productivity, a measure of the effect of labor reallocation and an index of economic diversification are constructed and included as factors for long-term growth. A simple model is constructed for the purpose of simulating growth scenarios up to the year 2020 for Burkina Faso, Côte d'Ivoire, Ghana, Mali, Tanzania, and Uganda. Even if one makes relatively optimistic assumptions, Africa is not likely to reach "Asian tiger" levels of growth. The results also suggest that growth will depend, to a large extent, on educational investments and productivity gains in agriculture.
August 1, 2002
Current Account and Real Exchange Rate Dynamics in the G-7 Countries
Description: The canonical predictions of intertemporal open-economy macro models are tested by a structural VAR analysis of Group of Seven countries. The analysis is distinguished from the previous literature in that it adopts minimal assumptions for identification. Consistent with a large set of theoretical models, permanent shocks have large long-term effects on the real exchange rate but relatively small effects on the current account; temporary shocks have large effects on the current account and exchange rate in the short run, but not on either variable in the long run. The signs of some impulse responses point toward models that differentiate tradables and nontradables.