Debt, Investment, and Growth in Developing Countries with Segmented Labor Markets
IMF Working Papers, June 19, 2020
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- Debt, Investment, and Growth in Developing Countries with Segmented Labor Markets
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Bibliographic details
- Authors: Edward F Buffie, Luis-Felipe Zanna, Christopher S Adam, Lacina Balma, Dawit Tessema, Kangni R Kpodar
- Published: June 19, 2020
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513545639.001
Overview
- Title: Debt, Investment, and Growth in Developing Countries with Segmented Labor Markets
- Authors: Edward F Buffie; Luis-Felipe Zanna; Christopher S Adam; Lacina Balma; Dawit Tessema; Kangni R Kpodar
- Publication date: June 19, 2020
- Series: IMF Working Papers, Working Paper No. 2020/102
- Pages: 95
Model features
- Introduces a new suite of macroeconomic models (DIG-Labor) that extend and complement the Debt, Investment, and Growth (DIG) model used at the IMF since 2012.
- Key structural elements:
- Segmented labor markets
- Efficiency wages and open unemployment
- An informal non-agricultural sector
- Purpose: enable deeper examination of macroeconomic and fiscal policy programs and their impact on labor market outcomes, inequality, and poverty.
Analysis and scenarios
- Application: analyzes growth, debt, and distributional consequences of big-push public investment programs with different mixes of investment in human capital and infrastructure.
- Comparative scenarios: programs that invest mainly in human capital versus programs that invest mainly in infrastructure.
Key findings
- Long-run effectiveness:
- Investment in human capital is much more effective than investment in infrastructure in promoting long-run economic development when investments earn their average estimated returns.
- Intertemporal trade-off:
- Investment in education affects labor productivity with a long lag; it takes 15+ years before net national income, the private capital stock, real wages for the poor, and formal sector employment surpass their counterparts in a program that invests mainly in infrastructure.
- Outcome dependence:
- The ranking of alternative investment programs depends on:
- The policymakers' social discount rate
- The weight of distributional objectives in the social welfare function
Policy implications and considerations
- Choice of investment mix requires balancing long-term development gains from human capital against shorter-term gains from infrastructure.
- Social welfare evaluation must account for:
- Intertemporal distributional impacts (timing of benefits across population groups)
- Policymakers' social discount rate and distributional weighting in welfare assessment
Keywords and subjects (as provided)
- Subject: Human capital, Infrastructure, Labor, Labor markets, National accounts, Wages
- Keywords: Africa, Debt, depreciation rate, diminishing returns, discount rate, Fiscal Policy, Growth, Human Capital, Infrastructure, internal rate of return, investment program, involuntary unemployment, Labor Markets, math display, minimum wage, private sector, Public Investment, real wage, Sub-Saharan Africa, unemployment rate, wage differential, wage premium, Wages, Welfare, WP
Content in this bundle
- Working Paper