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Carlos Góes
Both sides of the institutions and growth debate have resorted largely to microeconometric techniques in testing hypotheses. In this paper, I build a panel structural vector autoregression (SVAR) model for a short panel of 119 countries over 10 years and find support for the institutions hypothesis. Controlling for individual fixed effects, I find that exogenous shocks to a proxy for institutional quality have a positive and statistically significant effect on GDP per capita. On average, a 1 percent shock in institutional quality leads to a peak 1.7 percent increase in GDP per capita after six years. Results are robust to using a different proxy for institutional quality. There are different dynamics for advanced economies and developing countries. This suggests diminishing returns to institutional quality improvements.
Mr. Jonathan David Ostry, Mr. Andrew Berg, and Mr. Charalambos G Tsangarides
El FMI ha reconocido en años recientes que no es posible separar cuestiones como el crecimiento y la estabilidad económica, por un lado, y la igualdad, por el otro. De hecho, se puede argumentar con fuerza que la desigualdad y la incapacidad para sustentar el crecimiento económico son dos caras de una misma moneda. Un aspecto central de la misión del FMI es proporcionar asesoramiento que los permita a las economías de los países miembros crecer de una manera sostenida. Pero el FMI ha hecho bien al cuidarse de recomendar el uso de políticas redistributivas, dado que tales políticas pueden menoscabar la eficiencia económica y las perspectivas de crecimiento sostenido (la denominada hipótesis del “cubo agujereado” sobre la que escribió el famoso economista de Yale Arthur Okun en los años setenta). En este Documento de Análisis del Personal Técnico (SDN) se hace un seguimiento de un SDN anterior sobre la desigualdad y el crecimiento, centrando la atención en el papel de la redistribución. La conclusión es que, según los datos macroeconómicos más exactos de los que se dispone, no se puede corroborar contundentemente que la redistribución haya en efecto socavado el crecimiento económico (salvo en casos extremos). Por lo tanto, no se debería suponer —como Okun y otros lo han hecho — que la elección en redistribución y crecimiento constituye una disyuntiva importante. Los datos macroeconómicos más exactos de los que se dispone no corroboran tal conclusión.
Mr. Jonathan David Ostry, Mr. Andrew Berg, and Mr. Charalambos G Tsangarides
The Fund has recognized in recent years that one cannot separate issues of economic growth and stability on one hand and equality on the other. Indeed, there is a strong case for considering inequality and an inability to sustain economic growth as two sides of the same coin. Central to the Fund’s mandate is providing advice that will enable members’ economies to grow on a sustained basis. But the Fund has rightly been cautious about recommending the use of redistributive policies given that such policies may themselves undercut economic efficiency and the prospects for sustained growth (the so-called “leaky bucket” hypothesis written about by the famous Yale economist Arthur Okun in the 1970s). This SDN follows up the previous SDN on inequality and growth by focusing on the role of redistribution. It finds that, from the perspective of the best available macroeconomic data, there is not a lot of evidence that redistribution has in fact undercut economic growth (except in extreme cases). One should be careful not to assume therefore—as Okun and others have—that there is a big tradeoff between redistribution and growth. The best available macroeconomic data do not support such a conclusion.
Mr. Christian A Johnson
Potential Output is a key factor for debt sustaintability analysis and for developing strategies for growth, but unfortunately it is an unobservable variable. Using three methodologies (production function, switching, and state-space), this paper computes potential output for CAPDR countries using annual data. Main findings are: i) CAPDR potential growth is about 4.4 percent while output gap volatility is about 1.9 percent; ii) The highest-potential growth country is Panama (6.5 percent) while the lowest-growth country is El Salvador (2.6 percent); iii) CAPDR business cycle is about eigth years.
International Monetary Fund
The paper is an elaborated report on Nicaragua’s potential economic growth. The challenges and idiosyncratic shocks were immense but the policies of better education, labor contracts, and accomplishments in public investments paved the way for movement of the economy. The external competitiveness and exchange rate assessment also have an important hand. The achievements in the electricity sector and the improvement in reforming the pension system are the prominent aspects. On the whole, the Board considers this growth as a positive trial of development in the global panorama.
Rodrigo Cubero and Ivanna Vladkova Hollar
How does fiscal policy fare in improving the underlying income distribution in Central America? We integrate the data from a number of existing tax and public expenditure studies for the countries in the region and find that the distributional effect of taxation is regressive but small. In contrast, the redistributive impact of social spending is large and progressive, leading to a progressive net redistributive effect in all countries of the region. We also show that raising tax revenues and devoting the proceeds to social spending would unambiguously improve the income of the poorest households.
International Monetary Fund. External Relations Dept.
Russia’s unexpectedly strong recovery since its 1998 crisis has left people wondering whether it is just a temporary result of higher oil prices and the postcrisis depreciation of the ruble or a sign ofdurable improvements in the much-battered economy. This question is addressed in the book Russia Rebounds, written by members of the IMF’s Russian team and due out later this year. John Odling-Smee, Director of the IMF’s European II Department, spoke with Laura Wallace about Russia’s prospects and its relationship with the IMF during the troubled 1990s. Odling-Smee, a U.K. national, joined the IMF in 1990 and took over responsibility for the IMF’s relations with former Soviet Union countries in 1992. Before that, he served in the U.K. Cabinet Office and Treasury for about 15 years.