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Public Perceptions of Canada’s Investment Climate
July 26, 2024
Canada’s muted productivity growth during recent years has sparked concerns about the country’s investment climate. In this study, we develop a new natural language processing (NPL) based indicator, mining the richness of Twitter (now X) accounts to measure trends in the public perceptions of Canada’s investment climate. We find that while the Canadian investment climate appears to be generally favorable, there are signs of slippage in some categories in recent periods, such as with respect to governance and infrastructure. This result is confirmed by both survey-based and NLP-based indicators. We also find that our NLP-based indicators would suggest that perceptions of Canada’s investment climate are similar to perceptions of U.S. investment climate, except with respect to governance, where views of U.S. governance are notably more negative. Comparing our novel indicator relative to traditional survey-based indicators, we find that the NLP-based indicators are statistically significant in helping to predict investment flows, similar to survey-based measures. Meanwhile, the new NLP-based indicator offers insights into the nuances of data, allowing us to identify specific grievances. Finally, we construct a similar indicator for the U.S. and compare trends across countries.
The Mirage of Falling R-stars
July 26, 2024
Was the recent decline in real interest rates driven by a diminishing natural real interest rate, or have we observed a long sequence of shocks that have pushed market rates below the equilibrium level? In this paper we show on a sample of 12 open economies that once we account for equilibrium real exchange rate appreciation/depreciation, the natural real interest rate in the 2000s and 2010s is no longer found to be declining to near or below zero. The explicit inclusion of equilibrium real exchange rate appreciation in the identification of the natural rate is the main deviation from the Laubach-Williams approach. On top of that, we use a full-blown semi-structural model with a monetary policy rule and expectations. Bayesian estimation is used to obtain parameter values for individual countries.
Capital Controls on Outflows: New Evidence and a Theoretical Framework
July 26, 2024
We study capital controls on outflows (CCOs) in situations of macroeconomic and financial distress. We present novel empirical evidence indicating that CCO implementation is associated with crises and declines in GDP growth. We then develop a theoretical framework that is consistent with such empirical findings and also yields policy and welfare lessons. The theory features costly coordination failures by foreign investors which can sometimes be avoided by suitably tailored CCOs. The benefits of CCOs as coordination devices can make them optimal even if CCOs entail deadweight losses; if the latter are large, however, CCOs are detrimental for welfare. We show that optimal CCOs can suffer from time inconsistency, and also how political opportunism may limit CCO policy. Hence government credibility and reputation building emerge as critical for the successful implementation of CCOs.
Climate Policies and External Adjustment
July 26, 2024
This paper assesses the economic effects of climate policies on different regions and countries with a focus on external adjustment. The paper finds that various climate policies could have substantially different impacts on external balances over the next decade. A credible and globally coordinated carbon tax would decrease current account balances in greener advanced economies and increase current accounts in more fossil-fuel-dependent regions, reflecting a disproportionate decline in investment for the latter group. Green supply-side policies—green subsidy and infrastructure investment—would increase investment and saving but would have a more muted external sector impact because of the constrained pace of expansion for renewables or the symmetry of the infrastructure boost. Country characteristics, such as initial carbon intensity and net fossil fuel exports, ultimately determine the current account responses. For the global economy, a coordinated climate change mitigation policy package would shift capital towards advanced economies. Following an initial rise, the global interest rates would fall over time with increases in the carbon tax. These external sector effects, however, depend crucially on the degree of international policy coordination and credibility.
Can Mobile Technologies Enhance Productivity? A Structural Model and Evidence from Benin Food Suppliers
July 26, 2024
This paper analyzes the drivers of digital technologies adoption and how it affects the productivity of small scale businesses in Africa. We use data collected from two semi-rural markets in Benin, where grains and legumes are key staple foods and one-third of the population has internet access. We develop a structural model to rationalize digital technologies adoption—defined as the use of mobile broadband internet connection through smartphones—as well as usage patterns and outcomes observed in the data. The model’s implications are empirically tested using both reduced-form and structural maximum likelihood estimations. We find that younger, wealthier, more educated grains and legumes suppliers and those closely surrounded by other users are more likely to adopt digital technologies. Adopters perform 4-5 more business transactions each month than non-adopters on average, suggesting that digital technologies adoption could raise the monthly frequency and amounts of trades by up to 50%. Most adopters are women, but their productivity gains are lower than their male counterparts. Counterfactual policy simulations with the estimated model suggest that upgrading the broadband internet quality yields the largest improvement in adoption rate and productivity gains, while reducing its cost for a given connection quality only has a moderate effect. Improving access to credit only increases the adoption rate of constrained suppliers.
High-Level Summary Technical Assistance Report: Mauritania: Tax Policy Diagnostic
July 25, 2024
The IMF’s Fiscal Affairs Department has been working with Mauritania on capacity building in tax policy. Mauritania has recently created a tax policy unit and adopted a new General Tax Code in 2019 with a corporate income tax and a semi-dual approach to personal income taxation. However, there is significant scope to enhance the efficiency and effectiveness of income taxes, including due to the proliferation of wasteful tax exemptions. The fast urbanization also calls for a review of recurrent property taxation. The formalization of property rights requires a temporary suspension of the excessive registration fees. Consumption taxation can also be improved by broadening the tax base, for example, by abolishing regressive value-added tax exemptions or by imposing excise taxes on imported used vehicles. Finally, several recommendations aim to support the reform of the Mining Code, such as introducing some progressivity, prohibiting the negotiation of any tax parameters, and strengthening the principle of ring-fencing.
2024 Staff Guidance Note On The IMF’s Engagement With Small Developing States
July 25, 2024
This guidance note provides operational guidance on the Fund’s engagement with small developing states (SDS). It highlights the unique economic characteristics and constraints facing SDS, notably in a more shock-prone world. Building on advice that applies to the full membership, the note explains how the characteristics of SDS shape Fund surveillance, financial support and program design, capacity development (CD), and collaboration with other institutions and donors. The note updates the previous version that was published in December 2017.
List Of IMF Member Countries With Delays In Completion Of Article Iv Consultations Or Mandatory Financial Stability Assessments Over 18 Months
July 25, 2024
In line with the framework for addressing excessive delays in the completion of Article IV consultations, the following table lists the IMF members for whom the Article IV consultation has been delayed by more than 18 months as of June 15, 2024.