Economic Premise

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The Economic Premise series summarizes good practices and key policy findings on topics related to economic policy. They are produced by the Poverty Reduction and Economic Management (PREM) Network Vice-Presidency of the World Bank.

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Now showing 1 - 10 of 69
  • Publication
    Making Global Value Chains Work for Development
    (World Bank, Washington, DC, 2014-05) Taglioni, Daria; Winkler, Deborah
    Global value chains (GVCs) are playing an increasingly important role in business strategies, which has profoundly changed international trade and development paradigms. GVCs now represent a new path for development by helping developing countries accelerate industrialization and the servicification of the economy. From a firm perspective, production in the context of GVCs highlights the importance of being able to seamlessly connect factories across borders, as well as protect assets such as intellectual property. From the policy maker perspective, the focus is on shifting and improving access to resources while also advancing development goals, and also on the question of whether entry into GVCs delivers labor-market-enhancing outcomes for workers at home, as well as social upgrading. GVCs can lead to development, but, at the country level, constraints such as the supply of various types of labor and skills and inadequate absorptive capacity remain. GVCs can create new opportunities on the labor demand side, but supply and demand cannot meet if the supply is missing. This potential gap illustrates the importance of embedding national GVC policies into a broader portfolio of policies aimed at upgrading skills, physical and regulatory infrastructure, and enhancing social cohesion.
  • Publication
    Changing for the Better: The Path to Upper-Middle-Income Status in Uzbekistan
    (World Bank, Washington, DC, 2013-06) Trushin, Eskender; Carneiro, Francisco G.
    As a low-middle-income country with a gross domestic product (GDP) per capita of US$1,715 and a population of 30 million (nearly half of all of the Central Asian population), Uzbekistan has seen stable economic progress since the mid-2000s, both in terms of growth and poverty reduction. Growth has averaged 8 percent per year since 2004 and extreme poverty has declined from 27 percent in 2000 to 15 percent in 2012. Encouraged by this outstanding growth performance, the Uzbek authorities have set an ambitious goal for the country, to join the group of upper-middle-income countries by 2030. This note discusses the main challenges that the government is likely to face and the structural transformations that the economy will have to undergo to achieve this objective.
  • Publication
    Investment Financing in the Wake of the Crisis: The Role of Multilateral Development Banks
    (World Bank, Washington, DC, 2013-06) Chelsky, Jeff; Morel, Claire; Kabir, Mabruk
    Sustained growth in emerging markets and developing economies requires long-term, reliable capital to finance productive investment, including in basic infrastructure. However, the availability and composition of long-term financing is constrained, partly due to fragile market conditions and cyclical weaknesses in parts of the global economy, as well as longer-term trends. This has had a particularly negative impact on developing economies that do not have reliable access to international bond markets and on sectors that have traditionally relied on bank lending (such as infrastructure). At the same time, fiscal space has been eroded by the crisis, and the direct lending capacity of Multilateral Development Banks (MDBs) remains constrained. This heightens the importance of the catalytic role of the official sector in mobilizing long-term financing from the private sector by drawing on its ability to reduce and share risk. This note explores some of the ways in which MDBs are equipped to serve this purpose.
  • Publication
    From Imitation to Innovation : Public Policy for Industrial Transformation
    (World Bank, Washington, DC, 2013-05) Agénor, Pierre-Richard; Dinh, Hinh T.
    What role does public policy play in helping countries accelerate the industrialization process? This note aims to answer this question by applying a framework to analyze the process of transitioning from imitation to innovation. Based on a dynamic model of growth, simulations suggest that learning through imitation may enable firms to improve productivity significantly in a first stage, and that this may eventually benefit innovation activity as well. The model also shows how failure to switch from imitation as the main source of productivity growth to broad-based, homegrown innovation could lead to the 'middle-income trap' that has befallen some countries.
  • Publication
    Asset Prices, Macro Prudential Regulation, and Monetary Policy
    (World Bank, Washington, DC, 2013-05) Canuto, Otaviano
    Confidence in combining inflation-targeting-cum-flexible-exchange-rate regimes with isolated micro prudential regulation as a means to guarantee both macroeconomic and financial stability has been shattered by the scale and synchronization of the asset price booms and busts that preceded the global financial crisis. It has now become clear that if monetary policy makers and prudential regulators are to succeed in achieving stability, there can be no complacency regarding asset price cycles. This note explores some of the ways in which monetary policy can address asset price booms and busts through its integration with macro prudential regulation.
  • Publication
    A Changing China : Implications for Developing Countries
    (World Bank, Washington, DC, 2013-05) Schellekens, Philip
    Three decades of rapid growth and structural change have transformed China into an upper-middle-income country and global economic powerhouse. China's transformations over this period wielded increasing influence over the development path of other countries, either directly through bilateral trade and financial flows or indirectly through growth spillovers and terms of trade effects. Looking ahead, as China embarks on a new phase in its development journey, a phase characterized by slower but higher-quality growth, the economic landscape facing the developing world is expected to be redefined yet again. As China changes, so will its interactions with the outside world. China is expected to remain both a market and a competitor, but its changes are likely to lead to new opportunities for many and new challenges for some. Key questions in this respect are: (i) how will the level and composition of China's import demand evolve as its economy slows and rebalances; (ii) to what extent will the presumed out-migration of labor-intensive manufacturing materialize and create new opportunities elsewhere; and (iii) how quickly will China move up the value chain and redefine its competitive advantage in the global marketplace? How these uncertain long-term developments affect individual countries will depend on differences in total supply chain costs, resource availability, and innovation capability. As in the past, China's transformations are expected to put formidable pressure on countries to adapt and reform, requiring both political will and entrepreneurial capacity, in a collective race where success will be measured against a rapidly moving frontier.
  • Publication
    Subnational Debt, Insolvency, and Market Development
    (World Bank, Washington, DC, 2013-04) Canuto, Otaviano
    State and local debt and the debt of quasi-public agencies have grown in importance as a result of fiscal decentralization, rapid urbanization, and the increasing role played by private capital. However, with debt comes the risk of insolvency. This note outlines a set of aligned fiscal incentives that should be in place, as well as the design issues to be considered in debt restructuring frameworks. This note also suggests some broad lessons extracted from several country experiences with subnational debt restructuring, insolvency frameworks, and debt market development. This note suggest a range of possible lessons to consider when designing reforms to align fiscal incentives and develop a robust subnational debt framework that can be used to effectively manage the insolvency risks that will inevitably accompany the new dynamism of subnational finance.
  • Publication
    Promoting Shared Prosperity in South Asia
    (World Bank, Washington, DC, 2013-03) Ghani, Ejaz; Mishra, Saurabh
    The geography of poverty has changed. More than 70 percent of the world s poor live not in low-income countries, but in middle-income countries. In 2008, nearly 570 million people lived on less than US$1.25 a day in South Asia, compared to 385 million in sub-Saharan Africa. In addition, nearly 70 percent of the poor people in South Asia live in the lagging regions. Improving the living standards of these regions is crucial to achieving the goal of shared prosperity. Economic growth is not sufficient to enable the lagging regions of South Asia to catch up with the leading regions, in terms of proportional reductions in poverty rates. Policies must be specifically targeted toward achieving greater growth and poverty reduction in these regions. One particular policy channel to achieve shared prosperity is pro-poor fiscal transfers. For the most part, interstate fiscal transfers in South Asian countries do promote equity through transfer of resources to poorer regions, but this outcome usually occurs when pro-poor redistribution has explicit rules and transparency. Further, simply directing financial resources to lagging regions may not be sufficient, and may need to be complemented with increases in capacity, transparency, and participation to facilitate accountability at the local level. Policy makers need to boost shared prosperity and take another look at the millennium development goal paradigm. A new lens is needed- one that shifts the focus of policy from national to subnational level, and from leading to lagging regions, where poverty, gender disparity, and human misery are concentrated.
  • Publication
    The Brazilian Competitiveness Cliff
    (World Bank, Washington, DC, 2013-02) Canuto, Otaviano; Cavallari, Matheus
    Brazilian exports of goods and services have grown sharply in recent years, with sales nearly three times higher in 2010 than in 2000. However, Brazil faces considerable competitiveness challenges: its export performance depends mostly on favorable geographical and sector composition effects. Such challenges increased after the recent global economic crisis. A recent slowdown in industrial exports, production, and investments seems related to supply-side difficulties stemming from a wide range of inefficiencies and rising costs, rather than insufficient demand. Although a stronger currency is one of the factors behind the lower competitiveness of Brazil's manufacturing exports, sluggish productivity performance, lack of dynamism at the firm level, and a real wage uptrend seem to explain a significant part of the overall loss of competitiveness. This diagnostic reinforces the urgency of resuming the agenda of microeconomic reforms, increasing the investment-to-Gross Domestic Product (GDP) ratio, and advancing toward better-skilled human capital.
  • Publication
    South East Europe Six : From Double-Dip Recession to Accelerated Reforms
    (Washington, DC, 2013-01) World Bank
    This note discusses the external environment, economic outlook, and key policy challenges for the six South East European Countries (SEE6)-Albania, Bosnia and Herzegovina (BIH), Kosovo, the former Yugoslav Republic (FYR) of Macedonia, Montenegro, and Serbia-as they seek to reignite economic recovery. After two years of fragile recovery from the global recession, as a group, SEE6 countries experienced a double-dip recession in 2012. Deteriorating external conditions, the impact of the severe winter on economic activity, and a continuing rise in unemployment early in the year took a toll on consumption, investments, and exports. The rise in unemployment continues to threaten the social fabric. Credit recovery and fiscal consolidation are under threat. Nonperforming loans (NPLs)-thought to be stabilizing only a few months ago-are again on the rise. As a result, both within and outside the region, the environment has become much more difficult to navigate, and the policy trade-offs necessary to stabilize economies and reignite growth have become more difficult to make. To overcome these challenges, SEE6 countries need more intensive policy reform to reduce public debt and accelerate structural reforms, especially in fiscal consolidation and the financial sector, labor markets, and business environment. Additional external financing from International Financial Institutions (IFIs) for growth and jobs could prove effective, but only if accompanied by intensified fiscal and structural reforms.