Save more to improve infrastructure in Latin America and the Caribbean
Eduardo Cavallo, 3 April 2013
Latin America and the Caribbean have less infrastructure than the rest of the world. What they have is also of much poorer quality. This column argues that to reap the rewards of good infrastructure, Latin American and Caribbean countries must increase both investment and saving over the long-term by creating institutional capacity, strengthening the rule of law, and building stable macroeconomic-policy frameworks. It won’t be easy.
Saving and investment, like the chicken and the egg, involve circular causality. But regardless of causality, there is no doubt that Latin America and the Caribbean need more of both.
That the region has an infrastructure problem hardly requires an explanation:
Tags: Caribbean, investment, Latin America, savings
Fire-sale FDI: All smoke and no fire?
Ron Alquist, Linda Tesar, Rahul Mukherjee, 26 March 2013
Is foreign direct investment different in times of crisis? This column tests the ‘fire-sale foreign direct investment hypothesis’, finding that acquisitions undertaken during crisis periods do not fundamentally differ from those undertaken during non-crisis periods. The fire-sale foreign direct investment notion may well be ‘all smoke, and no fire’.
When times are bad, governments tend to welcome foreign direct investment, but they worry that they are selling the family silver for cheap. This ‘fire-sale FDI’ phenomenon, as Krugman called it in the 1990s, is a perennial concern of nations whose currencies have recently plummeted.
Tags: FDI, fire-sale FDI, investment
Public investments for long-term economic growth: the case of health
Michael Stolpe, 22 March 2013
The crisis has shot holes in government budgets devoted to pro-growth public goods. This column argues that health-related public goods support long-term economic growth. Governments may be more inclined to focus on spending related directly to jobs, such as education and welfare-to-work programmes, but health should not be forgotten
Crisis or not, healthcare cries out for large-scale public investments that lock in what appears to be an historic trough in government borrowing costs in many of the world’s advanced countries.
Topics: Health economics
Tags: Ageing, Europe, investment, Japan, US
Avoiding middle-income growth traps
Pierre-Richard Agénor, Otaviano Canuto, Michael Jelenic, 21 December 2012
Many of the emerging economies of the last two decades are now ensnared by ‘the middle-income trap’, in which middle-income countries don’t quite push through to high income status. This column presents recent research suggesting that, if governments act early and decisively to improve access to advanced infrastructure, enhance the protection of property rights, and reform labour markets, trapped economies – like their East Asian counterparts in the 1990s – can push on through.
In the postwar era, many countries have managed to quickly reach middle-income status, but few have gone on to become high-income economies1. Rather, after an initial period of rapid ascent, many countries have experienced a sharp slowdown in growth and productivity, falling into what has been called a ‘middle-income trap’:
Topics: Development, International trade, Labour markets, Productivity and Innovation
Tags: income, innovation, investment, labour market reform, middle income
Oil exporters’ dilemma: How much to save and how much to invest
Reda Cherif, Fuad Hasanov, 10 November 2012
Policymakers in many commodity-exporting countries confront the question of how much to consume, save, and invest out of revenues from commodity exports. This column says policy should focus on improving productivity in the tradeable sector and reducing volatility through diversifying this sector. This would lower precautionary saving needs, increase investment, raise consumption, and improve welfare.
Policymakers in many commodity-exporting countries confront the question of how much to consume, save, and invest out of revenues from commodity exports (see van der Ploeg and Venables 2008). In the face of highly volatile commodity revenues (especially from oil), governments have to balance several objectives at the same time.
Topics: Energy, Macroeconomic policy
Tags: investment, oil exports, savings
Foreign banks and the global financial crisis: Investment and lending behaviour
Stijn Claessens, Neeltje van Horen, 31 January 2012
How did foreign banks adjust their investment and lending decisions during the global financial crisis? This column uses a new and comprehensive database to show that the crisis dramatically halted foreign direct investment in banking and that foreign banks often cut back on lending more than their domestic competitors. While exits have so far been limited, this is likely to change in the coming years.
Foreign banks have in many countries become important sources of financial intermediation. Given this importance, understanding the impact of the financial crisis on foreign-bank behaviour is important. Questions being asked include:
Topics: Global crisis, International finance
Tags: cross-border banking, foreign banks, global crisis, investment
New light on choice of investment strategy
Dimitri Vayanos, Paul Woolley, 18 January 2012
According to classical economics, there are no gains to be made in an efficient market. Yet markets are often far from efficient and the gains are often far from insignificant. So should investors follow the herd or rely on best guesses of fair value? This column argues that the optimal strategy depends on whether you are in for the short or long term.
January finds many pondering the issue of what to do with their savings in the new year. There are two primary and distinct techniques of asset management: momentum and fair value.
Topics: International finance
Tags: efficient market hypothesis, investment, investment strategy
The financialisation of commodities
Ke Tang, Wei Xiong, 30 November 2010
In recent years, hundreds of billions of dollars of investment has flowed into commodities markets. This column describes why and how commodities markets have grown so rapidly and discusses some policy implications.
Crude oil, copper, cotton, soybeans, and live cattle – a seemingly unrelated set of commodities – went through a synchronised boom and bust cycle between 2006 and 2008 (see Figure 1).
Figure 1. Commodity prices
Topics: Financial markets, International finance
Tags: commodities, investment
Financial constraints and innovation: Why poor countries don't catch up
Yuriy Gorodnichenko, Monika Schnitzer, 8 April 2010
How can poor countries stop playing catch up? The question continues to puzzle economists. This column argues that the innovative and productive activities of domestic firms in emerging markets are inhibited by financial frictions. Financial reforms will be most effective if they target the vulnerable small and young domestic firms and those in the service sector.
Does international assistance spur development?
Topics: Development, Productivity and Innovation
Tags: financial frictions, investment, research and development
Buying land in developing nations: Challenges and promises
Denis Drechsler, David Hallam, 29 June 2009
Foreign acquisitions of farmland in Africa and elsewhere have become a cause of concern. This column says that international investments are inevitable – the question is how to reconcile the objectives of land purchasers with the investment needs of developing countries.
Foreign acquisitions of farmland in Africa and elsewhere have become a cause of concern. Many observers consider this development a new form of colonialism that threatens food security of the poor (Economist 2009).
Tags: Agriculture, investment, Land grabs