Development

Eduardo Levy Yeyati, 31 March 2020

Dollar shortages and the real consequences of the COVID pandemic may lead to the next wave of emerging market debt crises. This column argues that Fed swaps mitigate this shortage only for a few selected countries, and traditional international financial institutions’ products are ill-designed to assist an emerging market facing a sudden stop. As a broker between central banks and emerging economies, the IMF has a unique opportunity to complete the international financial architecture and fill the lender of last resort role that has long eluded it.

Abhijit Banerjee, Emily Breza, Esther Duflo, Cynthia Kinnan, 30 March 2020

The idea of poverty traps being important for microenterprises is captured in the adage “it takes money to make money”. This column reports on a study following households in India exposed to different levels of microfinance. The findings reveal that microfinance has potentially transformative impacts for some entrepreneurs – especially those who without it were stuck in a poverty trap. However, for other households the effect is very small, suggesting that microlenders should consider more screening of households in order to provide some larger loans.

M. Ayhan Kose, Peter Nagle, Franziska Ohnsorge, Naotaka Sugawara, 16 March 2020

The global economy has experienced four waves of rapid debt accumulation in emerging and developing economies over the past 50 years. This column examines these waves of debt and puts the fourth (current) wave in historical context. The current wave of debt, which started in 2010, stands out for its exceptional size, speed, and breadth. While the previous three waves all ended with widespread financial crises, policymakers have a range of options to reduce the likelihood of the current debt wave ending in crisis.

Natalie Bau, Adrien Matray, 16 March 2020

The misallocation of inputs, and in particular capital, may explain the large disparities in productivity across countries. This column exploits a policy in India in the early 2000s to quantify the effects of foreign capital liberalisation on misallocation and aggregate manufacturing productivity. As a result of the liberalisation policies, capital-constrained firms expanded their assets by 60%, spent more on labour (+24%), and increased their revenue by 18% relative to non-constrained firms. The effects of liberalisation were largest in areas with less developed local banking sectors.

Artjoms Ivlevs, Milena Nikolova, Olga Popova, 21 February 2020

Following the collapse of communism in Central and Eastern Europe, many former Communist Party members launched businesses. This column relies on individual-level survey data to document how entrepreneurial activity was driven by the connections, resources, and opportunities associated with former membership of the ruling party rather than by entrepreneurial skills or individual talent. The findings underscore the fact that former Communist Party networks continue to affect business practices in Central and Eastern Europe. 

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