Growth, Governance, and Fiscal Policy Transmission Channels in Low-Income Countries
IMF Working Papers, December 1, 2003
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- Growth, Governance, and Fiscal Policy Transmission Channels in Low-Income Countries
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Bibliographic details
- Authors: Naoko C. Kojo, Arye L. Hillman, Emanuele Baldacci
- Published: December 1, 2003
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451875737.001
Summary findings
- Private investment is the principal transmission channel through which fiscal policy affects growth in high-income countries.
- In low-income countries, governance and other considerations suggest that the primary channel is factor productivity.
- Empirical results reported in this paper confirm this expectation: in low-income countries, factor productivity is some four times more effective than investment as a channel for increasing growth through fiscal policy.
- Although the private investment response to fiscal contraction may be minor, high-deficit, low-income countries can nonetheless benefit from a reduction in unsustainable fiscal deficits because of governance-related factor productivity responses that increase growth.
Empirical results and quantitative notes
- Factor productivity is "some four times more effective than investment" as a fiscal policy transmission channel to increase growth in low-income countries (phrase preserved as in source).
- Pages: 39
- Volume: 2003
- Issue: 237
- Series: Working Paper No. 2003/237
- DOI: https://doi.org/10.5089/9781451875737.001
- Stock No: WPIEA2372003
- ISBN: 9781451875737
- ISSN: 1018-5941
- Publication date: December 1, 2003
Policy implications and interpretation
- For low-income countries, prioritizing governance improvements that raise factor productivity can amplify the growth impact of fiscal policy.
- Fiscal consolidation in high-deficit, low-income countries can yield growth benefits through governance-related productivity responses even if private investment responses to fiscal contraction are limited.
- Policy design in low-income countries should account for transmission mechanisms that differ from high-income contexts; emphasis on governance-enhancing measures can change the effectiveness of fiscal adjustment.
IMF Working Paper: Naoko C. Kojo, Arye L. Hillman, and Emanuele Baldacci. "Growth, Governance, and Fiscal Policy Transmission Channels in Low-Income Countries", December 1, 2003.