The past year was one of growing economic anxiety tied to skepticism about both economic integration and an international approach to economic policy making. To help make globalization work for all, the IMF focused on providing policy advice in many macro-critical areas.
Ravi Baiakrishnan, Mr. Chad Steinberg, and Mr. Murtaza H Syed
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Strengthening the capacity of institutions, such as central banks and finance ministries, results in more effective policies and greater economic stability and inclusion. That is why the IMF works with countries to strengthen these institutions by providing technical assistance and training focused on issues that are critical to economic stability.
Through “surveillance,” the IMF oversees the international monetary system, monitors global economic developments, as well as engages in a health check of the economic and financial policies of its 189 member countries. In addition, the IMF highlights possible stability risks to its member countries and advises their governments on potential policy adjustments, enabling the international monetary system to achieve its goal of facilitating the exchange of goods, services, and capital among countries, thereby sustaining sound economic growth.
International Monetary Fund. Asia and Pacific Dept
This Selected Issues paper uncovers the factors behind the unprecedented widening of India’s current account deficit in terms of the sectoral savings-investment balance. The unprecedented widening of India’s current account deficit in recent years is a symptom of underlying macroeconomic imbalances and structural weaknesses. Persistently high inflation has depressed real returns, prompting a surge in gold imports and a marked deterioration in household financial savings and the savings-investment balance. In turn, improvement in the public sector’s savings-investment balance was achieved through capital spending cuts, as subsidies remained high and fuel price adjustments lagged. Further efforts to increase financial savings would help reduce the current account deficit sustainably and boost growth.
The linearity of the relationship between income inequality and economic development has
been long questioned. While theory provides arguments for which the shape of relationship
may be positive for low levels of inequality and negative for high ones, most of the empirical
literature assumes a linear specification finding conflicting results. Employing an innovative
empirical approach robust to endogeneity, we find pervasive evidence of nonlinearities. In
particular, similar to the debt overhang literature, we identify an inequality overhang level
in that the slope of the relationship between income inequality and economic development
switches from positive to negative at a net Gini of about 27 percent. We also find that in an
environment characterized by widespread financial inclusion and high income concentration,
rising income inequality has a larger negative impact on economic development because banks
may curtail credit to customers at the lower end of the income distribution. On the positive
side, a sufficiently high female labor participation can act as a shock absorber reducing such
negative impact, possibly through a more efficient allocation of resources.
The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
The three main financial inflows to developing countries have largely increased during the last two decades, despite the large debate in the literature regarding their effects on economic growth which is not yet clear-cut. An emerging literature investigates the dependence of their effects on some country characteristics such as human and physical capital constraint, macroeconomic policy and institutional capacity. This paper extends the literature by arguing that climate shocks may undermine the effect of Foreign Direct Investment (FDI), official development assistance (ODA) and migrants’ remittances on economic expansion. Based on neoclassical growth framework, the theoretical model indicates that FDI, ODA, and remittances improve economic growth, and the size of the effect increases with good absorptive capacity. However, climate shocks reduce this positive effect of financial flows in developing countries. Using a sample of low and middle-income countries from 1995 to 2018, the empirical investigation confirms the theoretical conclusions. Developing countries should build strong resilience to climate change. Actions are also needed at global level to reduce greenhouse gases emissions, and build strong structural resilience to climate shocks especially in developing countries.