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To borrow a phrase once used about business cycles, it can be said that “the study of super cycles necessarily begins with the measurement of super cycles” (adapted from Baxter and King, 1999). Are metal prices currently in the early phase of such a “super cycle”? Many market observers believe the answer is yes. Academics, on the other hand, are generally skeptical about the presence of long cycles. This paper searches for evidence of super cycles in metal prices by using band-pass filters to extract particular cyclical components from time series data. The evidence is consistent with the hypothesis that there have been three super cycles in the past 150 years or so, and that we are currently in the early phase of a fourth super cycle. Most analysts attribute the latter primarily to Chinese urbanization and industrialization.IMF Staff Papers (2008) 55, 541–565. doi:10.1057/imfsp.2008.19; published online 19 August 2008 [ABSTRACT FROM AUTHOR]

This paper provides a nontechnical introduction to the IMF's Global Economy Model (GEM). GEM is a modern dynamic stochastic general equilibrium (DSGE) model that has been designed for studying a range of issues that cannot be adequately addressed with reduced-form econometric models or an earlier generation of macromodels whose dynamic equations were not based on strong choice-theoretic foundations. Unlike earlier models, which were viewed as black boxes by many outsiders, GEM's theoretical structure is much better connected with work in the academic community, making it considerably easier for outside researchers to apply it and extend it for their own work. To understand the basic philosophy behind GEM, we start by using the issue of exchange rate pass-through to understand how adding additional features to the model allows one to better understand issues related to the magnitude of exchange rate pass-through. We then provide a nontechnical introduction to what needs to be known to develop a steady-state calibration of the model. Finally, we end by summarizing other work on DSGE modeling at the IMF and lay out a few major priorities for the future.IMF Staff Papers (2008) 55, 213–242; doi:10.1057/imfsp.2008.11 [ABSTRACT FROM AUTHOR]

This paper has two purposes. First, it provides a thorough exposition of the theoretical framework underlying the Global Economy Model (GEM), as the model stands in early 2008. Second, it discusses a number of variants and alternative features considered in the GEM-related literature since Laxton and Pesenti (2003). For an updated survey of GEM and other dynamic, stochastic, general-equilibrium applications at the IMF, the reader is referred to Botman and others (2007). Each section starts with a formal description of the relevant equations, and is followed by a presentation of modeling variants and options. When appropriate, the section provides a more detailed discussion of how the building blocks of GEM relate to the literature. It is worth emphasizing from the very beginning that the paper is meant to be used as a technical reference on GEM and related models, with apologies for the somewhat pedantic attention to details and formulas that stems directly from this premise.IMF Staff Papers (2008) 55, 243–284. doi:10.1057/imfsp.2008.8 [ABSTRACT FROM AUTHOR]

No country has achieved sustained economic development without investment in education. But do all types of human capital affect growth identically? And which types of schooling—secondary or tertiary—should public policy promote? This paper develops an analytical framework to address these questions. It shows how the composition of human capital stock determines a country's development. Hence, promoting the “wrong” type of schooling can have little effect on development. In addition, the paper helps in understanding why empirical studies have failed to find a significant relationship between schooling and growth. [ABSTRACT FROM AUTHOR]

This paper develops a new public domestic debt database covering 93 low-income countries and emerging markets over 1975–2004 to estimate the growth impact of domestic debt. Moderate levels of noninflationary domestic debt, as a share of GDP and bank deposits, are found to exert a positive overall impact on economic growth. Granger-causality regressions suggest support for a variety of channels: improved monetary policy; broader financial market development; strengthened domestic institutions/accountability; and enhanced private savings and financial intermediation. There is some evidence that, above a ratio of 35 percent of bank deposits, domestic debt begins to undermine growth, lending credence to traditional crowding out and bank efficiency concerns. Importantly, the growth contribution of domestic debt is higher if it is marketable, bears positive real interest rates, and is held outside the banking system. [ABSTRACT FROM AUTHOR]

A dozen countries had weak institutions in 1960 and yet sustained high rates of growth subsequently. This paper uses data on their characteristics early in the growth process to create benchmarks with which to evaluate potential constraints on sustained growth for sub-Saharan Africa. This analysis suggests that what are usually regarded as first-order problems—broad institutions, macroeconomic stability, trade openness, education, and inequality—may not now be binding constraints, although the extent of ill-health, internal conflict, and societal fractionalization do stand out as problems in contemporary Africa. A key question is to what extent Africa can rely on manufactured exports as a mode of “escape from underdevelopment,” a strategy successfully deployed by almost all the benchmark countries. The benchmarking comparison specifically raises two key concerns as far as a development strategy based on expanding exports of manufactures is concerned: micro-level institutions that affect the costs of exporting, and the level of the real exchange rate—especially the need to avoid overvaluation. [ABSTRACT FROM AUTHOR]

This paper evaluates monetary policy trade-offs in low-income countries using a dynamic stochastic general equilibrium model estimated on data for Mozambique, taking into account the sources of major exogenous shocks and the level of financial development. The simulations suggest that an exchange rate peg is significantly less successful than inflation-targeting at stabilizing the real economy due to higher interest rate volatility, as in the literature for industrial countries and emerging markets. [ABSTRACT FROM AUTHOR]

The stylized fact that there is no correlation between long-run economic growth and financial globalization has spawned a recent literature that purports to provide newer evidence and arguments in favor of financial globalization. We review this literature and find it unconvincing. The underlying assumptions in this literature are that developing countries are savings-constrained; that access to foreign finance alleviates this to boost investment and long-run growth; and that insofar as there are problems with financial globalization, these can be remedied through deep institutional reforms. In contrast, we argue that developing economies are as or more likely to be investment- than savings-constrained and that the effect of foreign finance is often to aggravate this investment constraint by appreciating the real exchange rate and reducing profitability and investment opportunities in the traded goods sector, which have adverse long-run growth consequences. It is time for a new paradigm on financial globalization, and one that recognizes that more is not necessarily better. Depending on context and country, the appropriate role of policy will be as often to stem the tide of capital inflows as to encourage them. Policymakers who view their challenges exclusively from the latter perspective risk getting it badly wrong.IMF Staff Papers (2009) 56, 112–138. doi:10.1057/imfsp.2008.29; published online 6 January 2009 [ABSTRACT FROM AUTHOR]

This essay argues that financial globalization can be a powerful force in promoting economic growth and the reduction of poverty in emerging market countries. Financial development enables the financial system to allocate capital to its most productive uses and is crucial to the success of an economy. Financial globalization encourages financial development by weakening the power of groups such as government and entrenched private special interests, which have much to lose from an efficient financial system, and by encouraging support for institutional reforms to make the financial system work better. On the other hand, financial globalization, if it is not managed properly, has a dark side and can lead to financial crises that cause much economic hardship. Getting financial globalization to work well is no easy task and requires policies that promote property rights and good-quality financial information that encourage effective prudential supervision, and that promote a stable macroeconomic environment. Although these policies need to be home-grown, international financial institutions like the International Monetary Fund and the World Bank can create incentives to promote these policies in emerging market countries. Citizens in advanced countries can also help by supporting the opening up of their markets to goods and services from poorer countries, and thereby encourage expansion of their export sectors, which creates increased support for financial development and less vulnerability to financial crises.IMF Staff Papers (2009) 56, 139–170. doi:10.1057/imfsp.2008.30; published online 6 January 2009 [ABSTRACT FROM AUTHOR]

Despite an abundance of cross-sectional, panel, and event studies, there is strikingly little convincing documentation of direct positive impacts of financial opening on the economic welfare levels or growth rates of developing countries. The econometric difficulties are similar to those that bedevil the literature on trade openness and growth though, if anything, they are more severe in the context of international finance. There is also little systematic evidence that financial opening raises welfare indirectly by promoting collateral reforms of economic institutions or policies. At the same time, opening the financial account does appear to raise the frequency and severity of economic crises. Nonetheless, developing countries continue to move in the direction of further financial openness. A plausible explanation is that financial development is a concomitant of successful economic growth, and a growing financial sector in an economy open to trade cannot long be insulated from cross-border financial flows. This survey discusses the policy framework in which financial globalization is most likely to prove beneficial for developing countries. The reforms developing countries need to carry out to make their economies safe for international asset trade are the same reforms they need to carry out to curtail the power of entrenched economic interests and liberate the economy's productive potential.IMF Staff Papers (2009) 56, 63–111. doi:10.1057/imfsp.2008.32 [ABSTRACT FROM AUTHOR]

This article profiles the recent evolution and consequences of banking sector globalization. After presenting trends in international banking, the article overviews macroeconomic consequences of banking sector globalization, including the role of banks in the international transmission of shocks, comovements of business cycles, financial crises, and economic growth. Other consequences of banking globalization have parallels with the effects of real-side foreign direct investment, including technology transfers, productivity enhancements, and wage spillovers into the host country. Finally, the article provides arguments that banking globalizing can have important consequences for financial supervision and regulation.IMF Staff Papers (2009) 56, 171–197. doi:10.1057/imfsp.2008.31; published online 3 February 2009 [ABSTRACT FROM AUTHOR]

This paper develops a methodology to construct detailed indices of financial sector development across countries and uses it to create a new panel database of financial sector development in Middle East and North Africa (MENA) countries. It combines existing quantitative data with information from comprehensive surveys undertaken in 2000-01 Sand 2002-03. The data show that some MENA countries have relatively well-developed banking sectors and regulatory and supervisory regimes. However across the region, the nonbank financial sectors and sup- porting institutions are in need of reform. The MENA region ranks far behind industrialized countries and East Asia in financial sector development. [ABSTRACT FROM AUTHOR]

The topic of this paper has been inspired by something of particular interest to Michael Mussa, something to which he made major and important contributions while at the IME The biannual World Economic Outlook, published since the 1980s under the auspices of the Research Department, has, as its purpose, the provision of "analysis and projections … [as] integral elements of the IMF's surveillance of economic developments and policies in its member countries, developments in international financial markets, and the global economic system." In policy-oriented institutions (and in most businesses and individual decision making), policymaking decisions are often guided by projections and forward-looking indicators. [ABSTRACT FROM AUTHOR]

Comments on the article "From Hindu Growth to Productivity Surge: The Mystery of the Indian Growth Transition," by Dani Rodrik and Arvind Subramanian, published in the periodical "International Monetary Fund Staff Papers". Failure of the article's authors to provide a convincing analysis of the reasons behind the productivity growth of India during the 1980s; Argument against the article's basic claim that it is not the systemic reforms of the 1990s that changed the growth process of the country's economy but a mysterious shift in the 1980s.

This paper explores the causes of India's productivity surge around 1980, more than a decade before serious economic reforms were initiated. Trade liberalization, expansionary demand, a favorable external environment, and improved agricultural performance did not play a role. We find evidence that the trigger may have been an attitudinal shift by the government in the early 1980s that, unlike the reforms of the 1990s, was probusiness rather than promarket in character, favoring the interests of existing businesses rather than new entrants or consumers. A relatively small shift elicited a large productivity response, because India was far away from its income- possibility frontier Registered manufacturing, which had been built up in previous decades, played an important role in determining which states took advantage of the changed environment. [ABSTRACT FROM AUTHOR]

This paper empirically examines the extent to which a country's economic growth is influenced by the economies of its trading partners. Panel estimation results based on four decades of data for more than 100 countries show that trading partners' growth has a strong effect on domestic growth, even after controlling for the influence of common global and regional trends. The results are robust to instrumental variable estimation and other robustness tests. Trading partners' relative income levels are also positively correlated with growth, suggesting that the richer a country `s trading partners, the stronger is conditional convergence. A general implication of the results is that countries benefit from trading with fast-growing and relatively more developed countries. [ABSTRACT FROM AUTHOR]

This paper investigates the extent to which output has recovered from the Asian crisis. A regime-switching approach that introduces two state variables is used to decompose recessions in a set of six Asian countries into permanent and transitory components. While growth recovered fairly quickly after the crisis, there is evidence of permanent losses in the levels of output in all the countries studied. [ABSTRACT FROM AUTHOR]

This paper extends the IMF's post-1996 disaggregated capital account indices back to 1983 for a representative sample of 34 countries. All the information used to construct the indices comes from IMF's Annual Report on Exchange Arrangements and Exchange Restrictions and is widely available. It is shown that the disaggregated indices do a better job than the pre-1996 single dummy in reflecting both global trends toward capital account liberalization and country-specific liberalization episodes that occurred during the period. Given the frequency of IMF reporting procedures, the disaggregated indices still fail to accurately track temporary control programs designed to fight off crises. Moreover, the lack of systematic information on enforcement means that the indices remain de jure. Some tentative solutions to these limitations are suggested. [ABSTRACT FROM AUTHOR]

This paper surveys the literature on the effects of capital account openness and stock market liberalization on economic growth and provides a synthesis in which we reconcile some of the different results presented in the literature. Various empirical measures used to gauge the presence of controls on capital account transactions and the liberalization of equity markets are discussed. We compare detailed measures of capital account controls that attempt to capture the intensity of enforcement with other indicators that simply capture whether controls are present. A detailed review of the literature is followed by an empirical section in which we trace the divergence in published results to differences in country coverage, sample periods, indicators of liberalization, and control variables across studies. Specifically, we show that when an institutional variable such as government reputation is added to the specification, the significance of capital account openness vanishes. Also, we demonstrate that enriching the specification by allowing for nonlinearities helps explain why different studies that ignore the nonlinear nature of the relationship find different results. [ABSTRACT FROM AUTHOR]

The conventional growth-accounting approach to estimating the sources of economic growth requires unrealistically strong assumptions about either competitiveness of factor markets or the form of the underlying aggregate production function. This paper outlines a new approach utilizing non-parametric derivative estimation techniques that does not require imposing these restrictive assumptions. The results for East Asian countries show that output elasticities of capital and labor tend to be different from the income shares of these factors and that the growth of total factor productivity over the period 1960-95 has been an important factor in the overall growth performance of these countries. [ABSTRACT FROM AUTHOR]

This paper uses provincial time series data from the People's Republic of China to empirically investigate two propositions relating to economic development: (i) that economic takeoff—or an acceleration in economic growth—is associated with inflows of foreign direct investment (FDI), possibly through technological transfer; and (ii) that takeoff is accompanied, at least in the short term, by widening income inequality. The results indicate that FDI flows have increased the rate of convergence in per capita incomes across China's provinces. However, the pattern of FDI, which has gone mainly to the relatively wealthy provinces, has caused different provinces to converge toward different steady states. [ABSTRACT FROM AUTHOR]

Replies to comments made on the article "From Hindu Growth to Productivity Surge: The Mystery of the Indian Growth Transition," published in the periodical "International Monetary Fund Staff Papers". Argument against the commentator's claim that the reason behind the productivity growth of India during the 1980s was caused by fiscal expansion and hence is unsustainable; Authors' claim that they do not consider India's 1991 balance of payments crisis to constitute compelling evidence that the growth of the 1980s was unsustainable.

At the close of World War II, the future of economic development was the subject of wide-ranging debates. Historical experience has since shown that these forecasts were uniformly too pessimistic. Expectations for the American economy focused on the likelihood of secular stagnation, which continued to be debated throughout the post-war period. Concerns raised during the late 1960s and early 1970s about rapid population growth smothering the potential for economic growth in developing countries were contradicted when, during the mid- and late-1970s, fertility rates began to decline rapidly. Predictions that food production would not keep up with population growth have also been proven wrong: between 1961 and 2000, calories per capita worldwide have increased by 24 percent, despite a doubling of the global population. The high rates of economic growth in East and Southeast Asia were also unforeseen by economists. [ABSTRACT FROM AUTHOR]

There is a general presumption in the literature and among policymakers that immigrant remittances play the same role in economic development as foreign direct investment and other capital flows, but this is an open question. We develop a model of remittances based on the economics of the family that implies that remittances are not profit-driven, but are compensatory transfers, and should have a negative correlation with GDP growth. This is in contrast to the positive correlation of profit-driven capital flows with GDP growth. We test this implication of our model using a new panel data set on remittances and find a robust negative correlation between remittances and GDP growth. This indicates that remittances may not be intended to serve as a source of capital for economic development [ABSTRACT FROM AUTHOR]

Contagion can be defined as the probability of observing large return realizations simultaneously across different financial markets (co-exceedances) rather than as increases in correlations. We introduce global extreme contagion measures constructed from bivariate extremal dependence measures. The measures are used to quantify both negative and positive equity returns contagion at the inter- and intraregional level for a number of mature and emerging equity markets during the past decade. Our results suggest that (a) contagion patterns differ significantly within regions and across regions, with Latin America showing a secular increase in contagion not matched by other regions or countries; (b) contagion is higher for negative returns than for positive returns; (c) only the 1998 Russian and Brazilian crises led to a global increase in contagion; and (d) extremal dependence measures of contagion and simple correlation measures are not highly correlated, with the exception of Latin America, suggesting that the use of correlations as a proxy for contagion may be misleading. [ABSTRACT FROM AUTHOR]

Analysis of firm-level panel data from three Sub-Saharan African economies shows that export manufacturers have an average total factor productivity premium of 17 percent. In addition to the effect on productivity levels, exporters enjoy productivity growth that is 10 percent faster than do nonexporters. The data do not allow testing of whether these premiums are because more efficient producers go into exporting or because of a process of learning-by-exporting. In thinking about the mechanisms behind selectivity and learning, however, our finding of higher premiums for direct exporters, and for those who export to areas outside of Africa, could be interpreted as being consistent with learning-by-exporting effects. [ABSTRACT FROM AUTHOR]

Well over a trillion dollars worth of state-owned firms have been privatized since 1980. The traditional argument is that governments choose to privatize in response to fiscal pressures. In this study, the authors examine the impact of IFI conditionality on privatization and find that IMF conditionality, in particular, has an important indirect economic benefit. Investors are willing to pay more for privatized assets in countries that owe the IMF money (and hence that are subject to the policy constraints attached to the loans). The reason for this is that investors view IMF conditionality as a signal of credible policy reform. The magnitude of this effect is striking. For every dollar a developing country owed the IMF in the early 1980s, it subsequently privatized state-owned assets worth roughly 50c. Admittedly, this “credibility bonus” of IMF lending may not justify the policy conditions typically imposed by the IMF. However, the additional capital drawn into developing countries as a result of the IMF-privatization nexus is no doubt helpful to these economies. [ABSTRACT FROM AUTHOR]

There is increasing recognition that corruption has substantial, adverse effects on economic growth. But if the costs of corruption are so high, why don't countries strive to improve their institutions and root out corruption ? Why do many countries appear to be stuck in vicious circles of widespread corruption and low economic growth, often accompanied by ever-changing governments through revolutions and coups? A possible explanation is that when corruption is widespread, individuals do not have incentives to fight it even if everybody would be better off without it. Two models involving strategic complementarities and multiple equilibria attempt to illustrate this formally. [ABSTRACT FROM AUTHOR]

Discusses a model in which growth is a negative function of fiscal burden. Relation between growth and fiscal burden; Association of growth collapse with a sudden stop of capital inflows, real depreciation and a drop in output; Use of the monetary version of the model to show that balance of payments crises could be a result of fiscal distortions.

Examines the threshold effects in the relationship between inflation and growth using econometric techniques. Effects of inflation on economic growth; Estimate on the threshold level in industrial countries; Association between inflation and growth for inflation rates above the threshold level.

Presents an econometric study that compared the economic growth of countries that liberalized and those that joined regional trade agreements (RTA). Discussion on liberalization's impact on growth; Data and methodology; Growth performance of countries before and after liberalization; Conclusions and policy implications.

Examines the effects of inflation on economic growth. Effects of moderate inflation; Negative relationship of inflation and growth; Use of decision-tree technique; Short-run growth costs of disinflation; Joint frequency distribution of inflation and gross domestic product growth rates.

Analyzes the relationship between income distribution, fundamentals affecting economic growth, and labor market policies in order to determine if inequality exist between countries of the Organization for Economic Cooperation and Development (OECD). Indepth look at the empirical evidence; Conclusions on the analysis.

Examines the fast economic growth of China, enabling per capita incomes to almost quadruple in a decade and a half. Statistical information representing economic growth from 1952 to 1994; Role of capital accumulation in China's economic growth.

Examines the effects of demographic dynamics on the measured rates of economic growth. Model of production with labor productivity that varies with age; Relative productivity of different age groups; Changing age structure of the population; Deconstruction of historical measured growth rates; Effects of demographic dynamics; Net of demographic effects.

Examines the long-run effects of government spending and taxation in an endogenous growth setting using a model in which government spending and taxation can have effects on the rate of growth of output. State goods as input to private production; Public transfer payments in private production functions; Consumption of public stock and transfer payments; Congestion in the consumption; Influence of fiscal policies on growth.

Reports that economic growth and speed of adjustment of an economy depends on its economic openness, its depth of human development, and the quality of its fiscal policies. Tables and graphs to show comparisons between the endogenous growth model and the Solow-Swan model; Effects of the growth models to the economy.

Examines the determinants of economic growth via a panel of cross-sectional and time series data for 98 countries over the 1960-1985 period. Importance of country-specific and time-varying factors; Extension of the works of Mankiw, Romer and Weil; Growth effects of a country's openness to international trade and on government fixed investment; Channels of transmission of the negative impact of a restrictive trade system.