## September 2021

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**Canonical URL:** [September 2021](https://www.imf.org/-/media/files/topics/lics/macro-research-for-development/newsletters/sep2021.pdf)

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### Board Presentation: The Role of Targeted Interventions to Support Growth and Diversification in Developing Countries: Recent Staff Work
- An inter-departmental IMF working group examined diversification to boost growth, resilience, and job creation in low-income countries (LICs).
- Initial IMF advice emphasized horizontal policies (improving the business environment); country authorities repeatedly asked about sectoral (vertical) policies.
- The working group reviewed recent literature, surveys of country teams, and country case studies to assess frequency and lessons from vertical interventions.
- Key conclusion: horizontal and vertical policies are better viewed as complements than substitutes.
- Risks of vertical policies highlighted: weak capacity and vulnerability to policy capture by established firms.
- Evidence exists of cases where a mix of horizontal and vertical policies supported substantial diversification over time.

### High-Level Conference: Climate-Related Natural Disasters—Macroeconomic Effects and Policy Responses
- IMF-organized virtual conference held on June 16, 2021, included policy makers, experts, and academics.
- Opened by RES director Gita Gopinath; high-level policy panel featured Managing Director Kristalina Georgieva, Mia Mottley (Prime Minister, Barbados), and Richard Randriamandrato (Minister of Economy and Finance, Madagascar); moderated by Haslinda Amin (Bloomberg Television).
- Panel discussion themes:
  - Climate change exacerbates vulnerabilities to macro-critical natural disasters (droughts, floods, hurricanes).
  - Benefits of the debt service suspension initiative and novel debt relief (e.g., disaster clause provisions in Barbados’s public debt) were extensively acknowledged.
- Two technical sessions covered:
  - Impact of disasters on saturation of the economy with safe assets.
  - Effects of climate change on local sectoral specialization.
  - Role of financial adaptation and monetary policy.
  - How to include disasters in macro-fiscal frameworks.

### Toolkit Publication: DIGNAR-19—A Toolkit for Macro Policy Assessments of the COVID-19 Pandemics in Emerging and Developing Economies (EMDEs)
- Developers: Zamid Aligishiev, Giovanni Melina, and Felipe Zanna made the DIGNAR-19 toolkit publicly available on the IMF website.
- Purpose: help analysts conduct quantitative macroeconomic assessments and policy scenario analysis in EMDEs, focusing on growth and debt.
- Features:
  - User-friendly Excel-based interface requiring little to no advanced software knowledge.
  - Three blocks: simulation, graphing, and realism tools.
  - Translates Excel input into instructions for Matlab/Dynare programs; runs behind the scenes and produces an Excel file with simulation outputs and customizable charts.
  - A manual was published to facilitate use.

### Online Course Delivery: Public Debt, Investment, and Growth: The DIG and DIGNAR Models (DIGx)
- Instructors: Giovanni Melina and Felipe Zanna delivered the second session of the online course.
- Course focus:
  - Analyzes relations between public investment, growth, and public debt dynamics using the Debt, Investment, and Growth (DIG) model and the Debt, Investment, Growth and Natural Resources (DIGNAR) model.
  - Presents investment-growth nexus, fiscal adjustment, private sector response, and their interactions.
  - Aims to inform assessment of macroeconomic effects of public investment scaling-up plans on growth and debt dynamics.

### Country Application: Guinea—Diversification and Medium-Term Growth Prospects
- Application: Zamid Aligishiev and Giovanni Melina applied the DIGNAR-19 toolkit for Guinea’s Article IV consultation.
- Findings:
  - Growth in Guinea is becoming increasingly concentrated in the mining sector.
  - Model demonstrates risks associated with the current growth model and benefits from economic diversification.
  - To enable diversification, Guinea needs to increase returns on non-mining private investment to underpin a reorientation of the growth path.
  - Model results highlight risks of increasing concentration in mining and benefits from pursuing diversification.

### Presentation to Authorities: Enhancing Resilience to Climate Change in the Maldives
- Presenters: Giovanni Melina and Marika Santoro presented climate adaptation analysis to Maldivian authorities in the context of the Article IV consultation.
- Analysis approach: calibrating a general equilibrium model to assess resilient infrastructure investment needs, economic impacts, and funding costs/sources.
- Main findings:
  - Significant dividend from building resilient infrastructure.
  - Under worsened climate conditions, the cumulative output gain from investing in more resilient technologies increases up to a factor of two.
  - Maldives’ limited fiscal space, particularly after COVID-19, implies that international community cooperation should step up.
  - It is financially convenient for donors to help build resilience prior to natural disasters rather than finance reconstruction ex-post.

### Working Paper: Defying the Odds—Remittances During the COVID-19 Pandemic
- Authors: Kangni Kpodar, Montfort Mlachila, Saad Quayyum, and Vigninou Gammadigbe.
- Dataset: newly compiled monthly remittance dataset for a sample of 52 countries, of which 16 countries have bilateral remittance data.
- Period analyzed: Jan 2020-Dec 2020.
- Key findings:
  - Strong resilience in remittance flows despite the unprecedented global recession triggered by the pandemic.
  - (i) Remittances responded positively to COVID-19 infection rates in migrant home countries, underscoring remittances as an important automatic stabilizer.
  - (ii) Stricter containment measures have the unintended consequence of dampening remittances.
  - (iii) A shift from informal to formal remittance channels due to travel restrictions appears to have played a role in the surge in formal remittances.
  - Fiscal stimulus in host countries is positively associated with remittances because the fiscal response cushions the economic impact of the pandemic.
- A column summarizing the key findings is forthcoming on Voxeu.org.

### Webinar: Intergenerational Social Mobility in Africa Since 1920
- Presenters: Rasmane Ouedraogo and Nicolas Syrichas at an IMF Institute Training webinar organized by the Africa Training Institute (ATI) on August 11.
- Data: large harmonized dataset of more than 72 million individuals.
- Measures: socioeconomic status mobility across generations via educational and occupational attainment.
- Findings:
  - Substantial geographical variations in upward/downward educational and occupational mobility across and within African countries, and by gender and rural/urban status.
  - Observable individual characteristics (gender, marital status, age, etc.) partly explain social mobility.
  - Educational mobility is a driver of occupational mobility.
  - Strong predictors of social mobility: quality of institutions, level of public spending on education, social protection coverage, natural resource endowments, and countries' fragility.

### Book Chapter: The Close Relationship between Informality and Gender Gaps in Sub-Saharan Africa
- Authors: Vivian Malta, Lisa Kolovich, Angelica Martinez, and Marina Mendes; chapter in The Global Informal Workforce: Priorities for Inclusive Growth (edited by Delechat, C. and L. Medina, 2021).
- Focus: factors explaining larger presence of women in the informal sector, including education, social norms, and legal barriers.
- Findings:
  - Gender gaps in education, limited access to reproductive health care, and higher rates of early marriage contribute to women’s participation in the informal sector.
  - For women, each additional child increases the probability of being in the informal sector by 1.4 percent.
  - For men, being married or having children reduces the likelihood of working in the informal sector.

### High-Level Conference Presentation: How to Boost the Post-COVID-19 Recovery? Policy Lessons from Country Applications of the DIGNAR Model
- Presenter: Giovanni Melina at a high-level conference organized by Villa Mondragone.
- Role of the DIGNAR model over six years:
  - Shaped policy discussions on the investment-growth-debt nexus, natural resource revenue management, fiscal and governance reforms, and international aid in developing countries.
  - Issues amplified by the COVID-19 pandemic, which often wiped out fiscal space available to countries.

### Public Investment for Growth: Absorptive Capacity is Key
- Drawn from: paper by Daniel Gurara, Kangni Kpodar, Andrea Presbitero, and Dawit Tessema (World Development, 2021); summarized in a Globaldev blog.
- Main messages:
  - Project unit costs tend to increase when public investment levels are too high, especially during investment booms and when investment efficiency is low.
  - Findings call for gradual scaling-up of public investment consistent with a country’s absorptive capacity.
  - Strengthening institutions that manage public investment is critical to reap the greatest return from additional infrastructure spending.

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_Source: https://www.imf.org/-/media/files/topics/lics/macro-research-for-development/newsletters/sep2021.pdf_