Avoid a Fall or Fly Again: Turning Points of State Fragility

IMF Working Papers, May 6, 2021

Source details

Authors: Olusegun Ayodele Akanbi, Nikolay Gueorguiev, Jiro Honda, Paulomi Mehta, Kenji Moriyama, Keyra Primus, Mouhamadou Sy
Published: May 6, 2021
Series: IMF Working Papers
DOI: https://doi.org/10.5089/9781513573687.001

Empirically examines factors affecting turning points of entering and exiting from state fragility.
Methods employed:
- An event study.
- The synthetic control method.
- A logit model.

High persistence of state fragility ("a fragility trap") implies substantial benefits from avoiding a fall into fragility and considerable hurdles to successful exit from fragility.
Avoiding economic contraction is critical to prevent a country on the brink of fragility from falling into fragility.
- Example statistic: among near fragile countries, the probability of entering fragility would rise by 40 percentage points should real GDP per capita growth decline from +2.5 percent to -2.5 percent.
Strengthening government effectiveness, increasing political inclusion, and maintaining robust economic activity support more successful and sustainable exits from fragility.

In the context of the COVID-19 crisis and its aftermath, the findings suggest:
- Provide well-directed fiscal stimulus with sufficient financing, subject to appropriate governance safeguards and well-designed policies.
- Protect critical socio-economic spending to keep vulnerable countries away from being caught in a fragility trap.
Emphasize combined policy action:
- Fiscal support to avoid economic contraction.
- Reforms to improve government effectiveness.
- Policies to increase political inclusion alongside measures to sustain economic activity.

Focus areas highlighted in the study include:
- Econometric analysis and logit models of state fragility turning points.
- Links between income (real GDP per capita growth), government effectiveness, political inclusion, and fragility dynamics.
- Relevance for sectors such as Education spending and Health care spending when protecting socio-economic priorities.

Source: "Avoid a Fall or Fly Again: Turning Points of State Fragility", IMF Working Papers, May 6, 2021.