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Understanding Trade Dynamics in Sub-Saharan Africa

February 21, 2025
This paper explores export and import dynamics in sub-Saharan Africa (SSA), both regionally and across various country groups. The findings underscore the significant associations that domestic demand and exports have with import changes, albeit the magnitude of these associations varies across countries. Variations in consumption and investment are highly correlated with changes in imports across the region and in nearly all country groups. Changes in exports are also associated with increased import growth, with this link being most notable in resource-intensive countries. Furthermore, an appreciation of the real effective exchange rate is correlated with reduced import growth in East African countries, while resource-intensive countries experience a less pronounced correlation. Exports, on the other hand, show a strong sensitivity to global economic cycles, reflecting the region's reliance on commodities. Finally, the correlation between exchange rates and exports exhibits considerable heterogeneity across countries.

Understanding the Macroeconomic Effects of Natural Disasters

February 21, 2025
Climate change is causing more frequent and devastating natural disasters. The goal of this paper is two-fold. First, it examines the dynamic effects of natural disasters on the growth of output and its components. Government expenditure in advanced economies (AEs) rises immediately in the same year of the natural disaster, offsetting the decline in private investment growth and thereby mitigating the negative effect on output growth. As a result, output growth in AEs is not significantly affected by natural disasters. In contrast, the increase in government expenditure in emerging markets and developing countries (EMDEs) after a natural disaster is smaller and thus, unable to mitigate the contemporaneous negative effect on output growth (which mainly reflects the fall in investment in non-small-island EMDEs and in net exports in small-island EMDEs). In addition, the output recovery in the subsequent year does not fully offset the decline during the year of the disaster. Second, this paper assesses the role of pre-existing country characteristics in mitigating the adverse impact of natural disasters. The paper finds that small islands and countries with limited pre-disaster fiscal space tend to experience more significant declines in output growth following a natural disaster.

Artificial Intelligence and the Philippine Labor Market: Mapping Occupational Exposure and Complementarity

February 21, 2025
This paper combines labor force survey microdata with measures of occupational AI exposure and complementarity to examine the potential impact of recent advancements in AI on the Philippine labor market. We find that around one third of workers are highly exposed to AI with around sixty percent of those also rated highly complementary, indicating potential productivity gains. College-educated, young, urban, female, and well-paid workers in the services sector are most exposed. Business process outsourcing (BPO) is identified as the sector with the highest proportion of jobs at risk of displacement. Addressing regulatory gaps, infrastructure needs, and workforce reskilling is crucial to maximize benefits and mitigate negative impacts.

Prometheus Unbound: What Makes Fintech Grow?

February 21, 2025
The rise of financial technologies—fintech—could have transformative effects on the financial landscape, expanding the reach of services beyond the confines of geography and creating new competitive sources of finance for households and firms. But what makes fintech grow? Why do some countries have more financial innovation than others? In this paper, I use a comprehensive dataset to investigate the emergence and spread of fintech in a diverse panel of 98 countries over the period 2012–2020. This empirical analysis helps ascertain economic, demographic, technological and institutional factors that enable the development of fintech. The magnitude and statistical significance of these factors vary according to the type of fintech instrument and the level of economic development (advanced economies vs. developing countries). Finally, these findings reveal that policies and structural reforms can help promote financial innovation and cultivate fintech ventures—particularly by strengthening technological and institutional infrastructures and reducing cybersecurity threats.

A New Perspective on Temperature Shocks

February 21, 2025
Prevailing research suggests that climate change disproportionately burdens emerging markets and developing economies with greater output losses compared to advanced economies, positing that colder regions are less impacted than their warmer counterparts. This study revisits the empirical relationship between temperature fluctuations and real growth, with a novel focus on differentiating between transitory versus permanent temperature shifts, aligning naturally with the definitions of weather and climate change, respectively. Our findings reveal that richer and colder economies exhibit better adaptation only in response to weather shocks, whereas the pattern reverses for climate change disturbances, challenging the conclusions of previous studies.

Economic Benefits from Deep Integration: 20 years after the 2004 EU Enlargement

February 21, 2025
EU enlargement has stalled since the last member joined over ten years ago, marking the longest period without expansion since 1973. This elapsed time contrasts with the potential income gains membership promises. Drawing on the biggest EU enlargement in 2004 and employing a synthetic difference-in-difference estimator on regional data, we estimate that EU membership has increased per capita incomes by more than 30 percent. Capital accumulation and higher productivity contributed broadly equally, while employment effects were small. Gains were initially driven by the industrial sector and later by services. Despite substantial regional heterogeneity in gains—larger for those with better financial access and stronger integration in value chains prior to accession—all regions that joined the EU benefited. Moreover, existing members benefited too, with average income per capita around 10 percent higher. The estimated gains suggest that deep integration carries significant additional economic benefits beyond simple trade unions, providing valuable lessons for future EU enlargement and regional integration efforts elsewhere.

Botswana: Technical Assistance Report-Enhancing the Forecasting Policy and Analysis System at the Bank of Botswana

February 21, 2025
At the request of Bank of Botswana, a Technical Assistance mission from the Monetary and Capital Markets (MCM) Department visited Gaborone, Botswana during May 27–31, 2024, to assist the authorities in enhancing their forecasting and policy analysis system (FPAS). The mission assessed and advised on both near-term and medium-term forecasting tools and models currently used by the Bank of Botswana. The mission team helped create a new centralized database and introduced a new flexible platform with a suite of models that expands and complements existing near-term forecasting models. The mission team also improved the medium-term forecasting framework by reviewing model calibration, introducing a fiscal block, and recommending further adjustments.

Angola: Technical Assistance Report-Strengthening the Forecasting and Policy Analysis System on the Transition to Inflation Targeting

February 21, 2025
At the request of the Banco Nacional de Angola (BNA), a technical assistance (TA) mission from the Monetary and Capital Markets (MCM) Department visited Luanda, Angola from May 20 to May 24, 2024. The mission helped the authorities review its forecasting and policy analysis system (FPAS), proposed enhancements to modeling and forecasting procedures, and introduced fiscal channels into the core forecasting model to better characterize the dynamics of the Angolan economy. The mission concluded that while the BNA had made impressive progress in improving its FPAS in recent years, the current system only partially met the conditions for inflation targeting. Recommendations were made to facilitate the transition to full inflation targeting and enhance analytical capacity. Further progress is needed in using FPAS models for forecasting, policy advising, and improving monetary policy communication.

The Gambia: Technical Assistance Report-Climate Policy Diagnostic

February 21, 2025
The Gambia’s economic and social development is highly impacted by climate change. Sea level rise poses substantial risks, and the country is exposed to natural disasters that could become more frequent and intense. Recurring droughts and floods impose large economic and welfare losses. With increasing temperature and decreasing rainfall, The Gambia will face a significant challenge due to the heavy reliance on rain-fed agriculture. Salinization and degradation of soil is expected to intensify, that, together with declining agricultural productivity, leads to increased deforestation. Groundwater depletion is an emerging risk, and water access, as well as agricultural expansion are the main drivers of climate related challenges. The lack of efficient land policy, planning and forest protection lead to the expansion of agricultural and livestock activities to forest areas. Demand for water and electricity is expected to grow, but private investment in these sectors is lacking. The mission reviewed the current fiscal policies supporting climate action, including mitigation and adaptation policies and the institutional framework, and provided recommendations to support the long-term climate resilience of The Gambia’s economy.

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