## March 2019 — Macro Research for Development

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### Oxford Workshop on Macroeconomic Policy in Fragile States
- The IMF organized a workshop with Oxford University’s Blavatnik School of Government on December 10-11.
- Recent research on macroeconomic policy in fragile states was presented by academics and experts from IMF, World Bank, ILO, and OECD.
- Topics and presenters included:
  - Interaction between society and state — Daron Acemoglu and James Robinson.
  - Supporting revenue mobilization — Tim Besley.
  - How IFIs should support transitions — Paul Collier.
  - Criteria for choosing an exchange rate regime — Chris Adam, Ibrahim El-Badawi.
- Conference papers will be published as a book in early 2020.

### Remittances and Financial Inclusion in LMICs and Fragile States
- Authors: Ralph Chami, Ekkehard Ernst, Connel Fullenkamp, and Anne Oeking.
- Cross-country evidence on remittances’ impact on labor market outcomes:
  - Remittances have a strong impact on both labor supply and labor demand in recipient countries.
  - Effects are highly significant and greater in size than those of foreign direct investment or official development aid.
- Supply-side effects:
  - Remittances reduce labor force participation and increase informality of the labor market.
  - Male and female labor supply show significantly different sensitivities to remittances.
- Demand-side effects:
  - Remittances reduce overall unemployment but benefit mostly lower-wage, lower-productivity nontradables industries at the expense of high-productivity, high-wage tradables sectors.
  - Consequences: inequality declines, but average wage and productivity growth decline; productivity decline is stronger than wage decline, leading to an increase in the labor income share.
- Fragile states:
  - Remittances impose a positive externality, possibly because the tradables sector tends to be underdeveloped.
- Policy implication:
  - Reforms to foster inclusive growth need to take into account the role of remittances.

### The Role of Multilateral Development Banks (MDBs)
- Presenter: Daniel Gurara (co-authors Andrea F Presbitero, Miguel Sarmiento) — presentation on January 24, 2019 at the International Finance Corporation Sector Economics Seminar.
- Findings on syndicated cross-border bank lending and MDB participation:
  - MDBs' participation is associated with higher borrowing costs and longer maturities — signaling greater willingness to finance high-risk projects not financed by the private sector.
  - MDB participation is also associated with lower spreads for riskier borrowers.
  - Overall implication: MDBs could crowd in private investment in developing countries through risk mitigation.

### Revenue Mobilization and Inequality in Senegal
- Methodology: Computable general equilibrium model.
- Policy scenario: Fiscal consolidation raising revenue by 4 percentage points through VAT, PIT, and CIT.
- Key findings by tax instrument:
  - VAT:
    - Least efficiency cost in output and consumption.
    - Expands the rural-urban inequality gap because significant VAT incidence falls on the rural area.
  - PIT:
    - Most detrimental in terms of growth and inequality.
  - CIT:
    - Causes large efficiency loss but has better distributional implications by distributing the tax burden more evenly across regions.
- Mitigation:
  - Much of the output and distributional costs can be mitigated when the additional revenue is used for infrastructure investment and cash transfer.

### Commodity Terms of Trade Database
- Coverage:
  - Country-specific commodity price indices for 182 economies from 1962-present.
  - For each country, the change in the international price of up to 45 individual commodities is weighted using commodity-level trade data.
- Includes:
  - A commodity terms-of-trade index (proxying windfall gains and losses of income associated with changes in world prices).
  - Additional country-specific series, including commodity export and import price indices.

### Improving Youth Labor Market Outcomes in Emerging Market and Developing Economies
- Context:
  - Young people make up about a third of the working-age population in the typical emerging market and developing economy.
  - Youth inactivity rate: about 20 percent are neither employed, in school, nor in training — double the share in the average advanced economy.
- Potential gains if youth inactivity were reduced to advanced-economy levels:
  - Working-age employment rate in the average emerging market and developing economy would rise more than 3 percentage points.
  - Real output would get a 5 percent boost.

### Does an Inclusive Citizenship Law Promote Economic Development?
- Authors: Imam and Kpodar (2019).
- Contributions:
  - Document evolution of citizenship laws around the world; highlight features of jus soli, jus sanguinis, and mixed regimes.
  - Compile a dataset of citizenship laws worldwide.
  - Empirical approach: Cross-country regressions, panel-data techniques, and synthetic control method.
- Finding:
  - Jus soli laws — being more inclusive — tend to lead to higher income levels than alternative citizenship rules in developing countries, though to a lesser extent in countries with stronger institutional environments.
- Note: A summary was published in Finance and Development (March 2019).

### Export Competitiveness — Fuel Price Nexus in Developing Countries
- Authors: Kpodar, Fabrizio, and Eklou (2019).
- Data and period: Sample of 77 developing countries over 2000-2014.
- Methods: Fixed-effect estimator and local projection approach.
- Findings:
  - An increase in domestic gasoline or diesel price adversely affects real non-fuel export growth, but only in the short run as the impact phases out within two years after the shock.
  - Negative effect of fuel price increase on exports is mainly noticeable in:
    - Countries with a high-energy dependency ratio.
    - Countries where access to an alternative source of energy, such as electricity, is constrained, preventing producers from altering energy consumption mix.

### Gender Gaps in Senegal: From Education to Labor Market
- Authors: Malta and Mendes Tavares (2018).
- Context: Progress in the last two decades, but further reduction of gender gaps in secondary education and the labor market is needed.
- Model: General equilibrium model with heterogeneous agents.
- Policy counterfactual:
  - Increasing years of education so that everyone receives at least 5 years of education produces:
    - GDP gains in a single generation on the order of 8 percent.
    - Improvement in female labor force participation by 11 percentage points.
    - Reduction in inequality (Gini coefficient) by 3 percentage points.

### In Search of Information: Use of Google Trends’ Data to Narrow Information Gaps for Low-income Developing Countries
- Problem: Timely data availability is a long-standing challenge in policy-making and analysis for low-income developing countries.
- Findings:
  - Online search frequencies about a country significantly correlate with macroeconomic variables (e.g., real GDP, inflation, capital flows), conditional on other covariates.
  - Correlation with real GDP is stronger than that of nighttime lights for low-income developing countries, whereas the opposite is found for emerging market economies.
  - Search frequencies improve out-of-sample forecasting performance albeit slightly, demonstrating potential to facilitate timely assessments of economic conditions in low-income developing countries.

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_Source: https://www.imf.org/-/media/files/topics/lics/macro-research-for-development/newsletters/mar2019.pdf_