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1. Making Basel III Work for Emerging Markets and Developing Economies

Author:
Thorsten Beck and Liliana Rojas-Suarez
Publication Date:
04-2019
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
A sound financial regulatory framework is critical for minimizing the risk imposed by financial system fra­gility. In the world’s emerging markets and developing economies (EMDEs), such regulation is also essential to support economic development and poverty reduc­tion. Meanwhile, it is increasingly recognized that global financial stability is a global public good: recent decades have seen the development of new inter­national financial regulatory standards, to serve as benchmarks for gauging regulation across countries, facilitate cooperation among financial supervisors from different countries, and create a level playing field for financial institutions wherever they operate. For the worldwide banking industry, the international regulatory standards promulgated by the Basel Com­mittee on Banking Supervision (BCBS) stand out for their wide-ranging scope and detail. Even though the latest Basel recommendations, adopted in late 2017 and known as Basel III, are, like their predecessors, calibrated primarily for advanced countries, many EMDEs are in the process of adopting and adapting them, and many others are considering it. They do so because they see it as in their long-term interest, but at the same time the new standards pose for them new risks and challenges. This report assesses the implica­tions of Basel III for EMDEs and provides recommen­dations for both international and local policymakers to make Basel III work for these economies.
Topic:
Development, Economics, Emerging Markets, and Markets
Political Geography:
Global Focus

2. Stunted Growth: Why Don't African Firms Create More Jobs?

Author:
Vijaya Ramachandran, Leonardo Iacovone, and Martin Schmidt
Publication Date:
02-2014
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
Many countries in Africa suffer high rates of underemployment or low rates of productive employment; many also anticipate large numbers of people to enter the workforce in the near future. This paper asks the question: Are African firms creating fewer jobs than those located elsewhere? And, if so, why? One reason may be that weak business environments slow the growth of firms and distort the allocation of resources away from better-performing firms, hence reducing their potential for job creation.
Topic:
Economics, Industrial Policy, International Trade and Finance, Markets, and Fragile/Failed State
Political Geography:
Africa and Israel

3. Estimating Illicit Flows of Capital via Trade Mispricing: A Forensic Analysis of Data on Switzerland

Author:
Alex Cobham, Petr Janský, and Alex Prats
Publication Date:
01-2014
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
This paper assesses the role of Switzerland as the leading hub for global commodities trading, in terms of the patterns of prices received by original exporting countries and subsequently by Switzerland and other jurisdictions. We find support for the hypotheses that (i) the average prices for commodity exports from developing countries to Switzerland are lower than those to other jurisdictions; and that (ii) Switzerland declares higher (re-)export prices for those commodities than do other jurisdictions. This pattern implies a potential capital loss for commodity exporting developing countries and we provide a range of estimates of that loss - each of which suggests the scale is substantial (the most conservative is around $8 billion a year) and that the issue merits greater research and policy attention. An important first step would be a Swiss commitment to meet international norms of trade transparency.
Topic:
Economics, Industrial Policy, International Trade and Finance, Markets, and Developing World
Political Geography:
Europe and Switzerland

4. Development as Diffusion: Manufacturing Productivity and Sub-Saharan Africa's Missing Middle

Author:
Vijaya Ramachandran, Alan Gelb, and Christian J. Meyer
Publication Date:
02-2014
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
We consider economic development of Sub-Saharan Africa from the perspective of slow convergence of productivity, both across sectors and across firms within sectors. Why have "productivity enclaves", islands of high productivity in a sea of smaller low-productivity firms, not diffused more rapidly? We summarize and analyze three sets of factors: First, the poor business climate, which constrains the allocation of production factors between sectors and firms. Second, the complex political economy of business-government relations in Africa's small economies. Third, the distribution of firm capabilities. The roots of these factors lie in Africa's geography and its distinctive history, including the legacy of its colonial period on state formation and market structure.
Topic:
Development, Economics, Industrial Policy, and Markets
Political Geography:
Africa

5. Savings by and for the Poor: A Research Review and Agenda

Author:
Dean Karlan, Jonathan Zinman, and Aishwarya Lakshmi Ratan
Publication Date:
11-2013
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
The poor can and do save, but often use formal or informal instruments that have high risk, high cost, and limited functionality. This could lead to undersaving compared to a world without market or behavioral frictions. Undersaving can have important welfare consequences: variable consumption, low resilience to shocks, and foregone profitable investments.
Topic:
Development, Economics, Globalization, International Trade and Finance, Markets, Poverty, and Financial Crisis

6. What's Wrong with Dodd-Frank 1502? Conflict Minerals, Civilian Livelihoods, and the Unintended Consequences of Western Advocacy

Author:
Laura E. Seay
Publication Date:
01-2012
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
Although its provisions have yet to be implemented, section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act is already having a profound effect on the Congolese mining sector. Nicknamed “Obama's Law” by the Congolese, section 1502 has created a de facto ban on Congolese mineral exports, put anywhere from tens of thousands up to 2 million Congolese miners out of work in the eastern Congo, and, despite ending most of the trade in Congolese conflict minerals, done little to improve the security situation or the daily lives of most Congolese. In this report, Laura Seay traces the development of section 1502 with respect to the pursuit of a conflict minerals-based strategy by U.S. advocates, examines the effects of the legislation, and recommends new courses of action to move forward in a way that both promotes accountability and transparency and allows Congolese artisanal miners to earn a living.
Topic:
Security, Development, Economics, International Trade and Finance, Markets, Poverty, Natural Resources, and Financial Crisis
Political Geography:
Africa, United States, and Democratic Republic of the Congo

7. Hoping to Win, Expected to Lose: Theory and Lessons on Microenterprise Development

Author:
Dean Karlan, Ryan Knight, and Christopher Udry
Publication Date:
11-2012
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
We show how financial and managerial constraints impede experimentation and thus limit learning about the profitability of investments. Imperfect information about one's own type, but willingness to experiment to learn one's type, leads to short-run negative expected returns to investments, with some outliers succeeding. We find in an experiment that entrepreneurs invest randomized grants of cash and adopt advice from randomized grants of consulting services, but both lead to lower profits on average. In the long run, they revert back to their prior scale of operations. In a meta-analysis, results from 19 other experiments find mixed support for this theory.
Topic:
Development, Economics, Markets, Foreign Aid, and Foreign Direct Investment
Political Geography:
Africa

8. Agricultural Decisions after Relaxing Credit and Risk Constraints

Author:
Dean Karlan, Robert Osei, Christopher Udry, and Isaac Osei-Akoto
Publication Date:
11-2012
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
The investment decisions of small-scale farmers in developing countries are conditioned by the farmers' financial environment. Binding credit-market constraints and incomplete insurance can reduce investment in activities with high expected profits. We conducted several experiments in northern Ghana in which farmers were randomly assigned to receive cash grants, grants of or opportunities to purchase rainfall-index insurance, or a combination of the two. Demand for index insurance is strong, and insurance leads to significantly larger agricultural investment and riskier production choices in agriculture. The salient constraint to farmer investment is uninsured risk: when provided with insurance against the primary catastrophic risk they face, farmers are able to find resources to increase expenditure on their farms. Demand for insurance in subsequent years is strongly increasing in a farmer's own receipt of insurance payouts, and with the receipt of payouts by others in the farmer's social network. Both investment patterns and the demand for index insurance are consistent with the presence of important basis risk associated with the index insurance, and with imperfect trust that promised payouts will be delivered.
Topic:
Agriculture, Economics, Markets, Food, and Foreign Direct Investment

9. The Global Financial Crisis: The Beginning of the End of the "Development" Agenda?

Author:
Nancy Birdsall
Publication Date:
04-2012
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
In this paper, written as the introduction to New Ideas on Development after the Financial Crisis (JHU Press, 2011), Nancy Birdsall discusses two themes. The first is the pre-crisis subtle shift in the prevailing model of capitalism in developing countries—away from orthodoxy or so-called market fundamentalism—that the crisis is likely to reinforce.
Topic:
Development, Economics, Globalization, Markets, and Financial Crisis

10. How Can the World Bank Group Improve Its Private Sector Projects in African Fragile States?

Author:
Vijaya Ramachandran, Benjamin Leo, and Ross Thuotte
Publication Date:
04-2012
Content Type:
Policy Brief
Institution:
Center for Global Development
Abstract:
In recent years, the World Bank Group has made increasingly strong and explicit commitments to fragile and conflict-affected states, putting them at the top of the development policy agenda. These commitments are promising, but give rise to significant operational challenges for the various arms of the World Bank Group, including the International Development Association (IDA), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA). The bank also faces steady pressure from shareholders to scale up involvement in fragile states while also improving absorptive capacity and project effectiveness.
Topic:
Development, Economics, Markets, Foreign Aid, and World Bank
Political Geography:
Africa

11. International Finance Corporation (ABCs of the IFIs Brief)

Author:
Jenny Ottenhoff
Publication Date:
09-2011
Content Type:
Policy Brief
Institution:
Center for Global Development
Abstract:
The International Finance Corporation (IFC) is a multilateral financial institution that provides financial and technical assistance to the private sector in middle- and low- income countries. Unlike other international financial institutions, the IFC operates on a commercial basis and invests exclusively in for-profit projects that promote poverty reduction and development. Increasingly, the IFC is investing in the world's poorest countries and fragile states that have few private investors. IFC investments support a range of activities including agribusiness, manufacturing, health and education, microfinance programs, and infrastructure development.
Topic:
Development, Markets, Poverty, Foreign Aid, and Foreign Direct Investment

12. From REDD to Green: A Global Incentive System to Stop Tropical Forest Clearing

Author:
David Wheeler, Robin Kraft, and Dan Hammer
Publication Date:
12-2011
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
In this paper, we develop and illustrate a prototype incentive system for promoting rapid reduction of forest clearing in tropical countries. Our proposed Tropical Forest Protection Fund (TFPF) is a cash-on-delivery system that rewards independently monitored performance without formal contracts. The system responds to forest tenure problems in many countries by dividing incentive payments between national governments, which command the greatest number of instruments that affect forest clearing, and indigenous communities, which often have tenure rights in forested lands. The TFPF incorporates both monetary and reputational incentives, which are calculated quarterly. The monetary incentives are unconditional cash transfers based on measured performance, while the reputational incentives are publicly disclosed, color-coded performance ratings for each country. The incentives include rewards for: (1) exceeding long-run expectations, given a country's forest clearing history and development status; (2) meeting or exceeding global REDD+ goals; and (3) achieving an immediate reduction in forest clearing. Drawing on monthly forest clearing indicators from the new FORMA (Forest Monitoring for Action) database, we illustrate a prototype TFPF for eight East Asian countries: Cambodia, China, Indonesia, Lao PDR, Malaysia, Myanmar, Thailand, and Vietnam. A system with identical design principles could be implemented by single or multiple donors for individual or multiple forest proprietors within one or more countries, as well as national or local governments in individual countries, tropical regions, or the global pan-tropics. Our results demonstrate the importance of financial flexibility in the design of the proposed TFPF. Its incentives are calculated to induce a massive, rapid reduction of tropical forest clearing. If that occurs, a TFPF for East Asia will need standby authority for disbursements that may total $10–14 billion annually for the next two decades. This financial burden will not persist, however, because the TFPF is designed to self-liquidate once all recipient countries have achieved clearly specified benchmarks. We estimate that the TFPF can be closed by 2070, with its major financial responsibility discharged by 2040.
Topic:
Agriculture, Economics, Globalization, and Markets
Political Geography:
China, Indonesia, Malaysia, East Asia, Vietnam, Cambodia, Thailand, Southeast Asia, and Myanmar

13. Economic Dynamics and Forest Clearing: A Spatial Econometric Analysis for Indonesia

Author:
David Wheeler, Robin Kraft, Susmita Dasgupta, Dan Hammer, and Brian Blankespoor
Publication Date:
12-2011
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
This paper uses a large panel database to investigate the determinants of forest clearing in Indonesian kabupatens since 2005. Our study incorporates short-run changes in prices and demand for palm oil and wood products, as well as the exchange rate, the real interest rate, land-use zoning, forest protection, the estimated opportunity cost of forested land, the quality of local governance, the poverty rate, population density, the availability of communications infrastructure, transport cost, and local rainfall and terrain slope. Our econometric results highlight the role of dynamic economic factors in forest clearing. We find significant roles for lagged changes in all the short-run economic variables—product prices, demands, the exchange rate and the real interest rate—as well as communications infrastructure, some types of commercial zoning, rainfall, and terrain slope. We find no significance for the other variables, and the absence of impact for protected-area status is particularly notable. Our results strongly support the model of forest clearing as an investment that is highly sensitive to expectations about future forest product prices and demands, as well as changes in the cost of capital (indexed by the real interest rate), the relative cost of local inputs (indexed by the exchange rate), and the cost of land clearing (indexed by local precipitation). By implication, the opportunity cost of forested land fluctuates widely with changes in international markets and decisions by Indonesia's financial authorities about the exchange and interest rates. Our results suggest that forest conservation programs are unlikely to succeed if they ignore such powerful forces.
Topic:
Agriculture, Economics, Globalization, Markets, and Natural Resources
Political Geography:
Indonesia

14. How Can Bill and Melinda Gates Increase Other People\'s Donations to Fund Public Goods?

Author:
Dean Karlan and John A. List
Publication Date:
04-2011
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
We develop a simple theory which formally describes how charities can resolve the information asymmetry problems faced by small donors by working with large donors to generate quality signals. To test the model, we conducted two large-scale natural field experiments. In the first experiment, a charity focusing on poverty reduction solicited donations from prior donors and either announced a matching grant from the Bill and Melinda Gates Foundation, or made no mention of a match. In the second field experiment, the same charity sent direct mail solicitations to individuals who had not previously donated to the charity, and tested whether naming the Bill and Melinda Gates Foundation as the matching donor was more effective than not identifying the name of the matching donor. The first experiment demonstrates that the matching grant condition generates more and larger donations relative to no match. The second experiment shows that providing a credible quality signal by identifying the matching donor generates even more and larger donations than not naming the matching donor. Importantly, the treatment effects persist long after the matching period, and the quality signal is quite heterogeneous—the Gates\' effect is much larger for prospective donors who had a record of giving to "poverty-oriented" charities. These two pieces of evidence support our model of quality signals as a key mechanism through which matching gifts inspire donors to give.
Topic:
Development, Government, Humanitarian Aid, Markets, and Foreign Aid
Political Geography:
United States

15. Getting Real on Trade with Pakistan: Duty-Free Market Access as Development Policy

Author:
Kimberly Ann Elliott
Publication Date:
02-2011
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
The combination of relatively high American barriers to trade in textiles and apparel and the importance of the sector to the Pakistani economy make increased market access a potentially powerful tool of U.S. policy. Unfortunately, recent proposals to extend duty-free market access for Pakistani exports restrict the product and geographic coverage so severely that they would be meaningless in practice. Moreover, the analysis in this paper suggests that the concerns about job loss in the U.S. textile industry from broader coverage are exaggerated. A serious trade package for Pakistan would expand the geographic coverage to allow duty-free imports from all of Pakistan, expand the product coverage for clothing, and cover all other Pakistani exports as well.
Topic:
International Trade and Finance and Markets
Political Geography:
Pakistan and United States

16. Financial Integration and Foreign Banks in Latin America: Do They Amplify External Financial Shocks?

Author:
Liliana Rojas-Suarez, Arturo J. Galindo, and Alejandro Izquierdo
Publication Date:
02-2010
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
This paper explores the impact of international financial integration on credit markets in Latin America. Using a cross-country dataset covering 17 Latin American countries between 1996 and 2008, the authors find that financial integration amplifies the impact of international financial shocks on aggregate credit and interestrate fluctuations. Despite this pernicious effect, the net impact of integration on deepening credit markets is positive and dominates for the large majority of states of nature. The paper also uses a detailed bank-level dataset covering more than 500 banks in Latin America for a similar time period to explore the role of financial integration—captured through the participation of foreign banks—in propagating external shocks. The authors find that interest rates charged and loans supplied by foreign-owned banks respond more to external financial shocks than those supplied by domestically owned banks. However, this result does not hold for all foreign banks: Spanish banks in the sample behave more like domestic banks and do not amplify the impact of foreign shocks on credit and interest rates. Important policy recommendations to avoid foreign banks' amplification of external financial shocks include the establishment of ring-fencing mechanisms, the development of early-warning systems, and the incorporation for agreements between domestic and foreign supervisors.
Topic:
Economics and Markets
Political Geography:
Latin America and Spain

17. The Costs and Benefits of Duty-Free, Quota-Free Market Access for Poor Countries: Who and What Matters

Author:
Kimberly Elliott, Antoine Bouët, David Laborde Debucquet, and Elisa Dienesch
Publication Date:
03-2010
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
This paper examines the potential benefits and costs of providing duty-free, quota-free market access to the least developed countries (LDCs), and the effects of extending eligibility to other small and poor countries. Using the MIRAGE computable general equilibrium model, it assesses the impact of scenarios involving different levels of coverage for products, recipient countries, and preference-giving countries on participating countries, as well as competing developing countries that are excluded. The main goal of this paper is to highlight the role that rich and emerging countries could play in helping poor countries to improve their trade performance and to assess the distribution of costs and benefits for developing countries and whether the potential costs for domestic producers are in line with political feasibility in preference-giving countries.
Topic:
Economics, International Political Economy, International Trade and Finance, Markets, and Third World

18. Making Trade Preferences Work for the Poorest Countries

Author:
Kimberly Ann Elliott
Publication Date:
04-2010
Content Type:
Policy Brief
Institution:
Center for Global Development
Abstract:
Trade preference programs can reduce poverty and promote prosperity and stability in the world's poorest countries, but they often fall short of their intended goals. They regularly exclude commodities that poor countries can produce competitively, such as agricultural products and clothing, and many programs must be frequently renewed, creating uncertainty and discouraging investment. Extending comprehensive, usable, and predictable quota-free market access to all least developed countries could provide a critical boost to the world's poorest people with only trivial effects on preference-giving countries. G-20 leaders should embrace trade preference reform this year to promote growth and stability in the world's poorest countries.
Topic:
International Trade and Finance, Markets, Poverty, and Third World

19. Are Borders Barriers? The Impact of International and Internal Ethnic Borders on Agricultural Markets in West Africa

Author:
Jenny C. Aker, Michael W. Klein, Stephen A. O'Connell, and Muzhe Yang
Publication Date:
04-2010
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
This paper addresses two important economic issues for Africa: the contribution of national borders and ethnicity to market segmentation and integration between and within countries. Market pair regression analysis provides evidence of higher conditional price dispersion for both a grain and a cash crop between markets separated by the Niger-Nigeria border than between two markets located in the same country. A regression discontinuity analysis also confirms a significant price change at the international border. The international border effect is lower, however, if the cross-border markets share a common ethnicity. Ethnicity is also linked to higher price dispersion within Niger; we find a significant intranational border effect between markets in different ethnic regions of the country. This suggests that ethnic similarities diminishing international border effects could enhance international market integration, and ethnic differences could contribute to intranational market segmentation in sub-Saharan Africa. We provide suggestive evidence that the primary mechanism behind the internal border effect is related to the role of ethnicity in facilitating access to credit in agricultural markets. We argue that the results are not driven by differences in price volatility or observables across borders.
Topic:
Agriculture, Economics, Ethnic Conflict, and Markets
Political Geography:
Africa, West Africa, and Nigeria

20. To Formalize or Not to Formalize? Comparisons of Microenterprise Data from Southern and East Africa

Author:
Vijaya Ramachandran, Manju Kedia Shah, Alan Gelb, and Taye Mengistae
Publication Date:
07-2009
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
Why do firms choose to locate in the informal sector? Researchers often argue that the high cost of regulation prevents informal firms from becoming formal and productive. Our results point to a more nuanced story.
Topic:
Development, Economics, Markets, and Labor Issues
Political Geography:
Africa