Servén, Luis

Person:
Servén, Luis

Macroeconomics and Growth Unit, Development Research Group

Fields of Specialization

Financial and private sector development, Debt, Shocks and Vulnerabilities, Macroeconomics

Departments

Macroeconomics and Growth Unit, Development Research Group

Last updated: January 31, 2023

Biography

LUIS SERVEN is Senior Advisor in the World Bank’s Research Department, where he manages the research program on Macroeconomics and Growth. He previously managed the Bank’s regional research program on Latin America and the Caribbean. Prior to joining the Bank he worked as a senior researcher at FEDEA, an economics think tank where he was part of the founding team, and taught at the Universidad Complutense of Madrid, MIT, PUC-Rio and CEMFI. His current research focuses on capital flows and exchange rates, fiscal policy, and productivity and growth. He has published numerous books and articles in professional journals on these and other research topics. He holds a Bachelor in Economics from the Universidad Complutense de Madrid and a Ph.D. in Economics from the Massachusetts Institute of Technology. Currently he is co-editor of The World Bank Economic Review and The World Bank Research Observer.

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Publication Search Results

Now showing 1 - 10 of 67

Gross Capital Flows, Common Factors, and the Global Financial Cycle
(World Bank, Washington, DC, 2018-02) Barrot, Luis-Diego; Serven, Luis
This paper assesses the international comovement of gross capital inflows and outflows using a two-level factor model. Among advanced and emerging countries, capital flows exhibit strong commonality: common (global and country group-specific) factors account, on average, for close to half of their variance. There is a contrast across groups: common factors dominate advanced-country capital flows, while idiosyncratic factors dominate emerging- country flows and, especially, developing-country flows. The reason is the much larger role of global factors among advanced countries. Importantly, these findings apply to both inflows and outflows: their respective common factors are very similar -- although global factors play a bigger role for outflows than for inflows. The commonality of flows reflects a global cycle, summarized by a small set of variables (the VIX, the U.S. real interest rate and real exchange rate, U.S. GDP growth, and world commodity prices) that explain much of the variance of the estimated factors -- especially the global factors. Over time, the quantitative role of the common factors exhibits a "globalization" stage up to 2007, during which they acquire growing importance, followed by a phase of "deglobalization" post-crisis. Greater financial openness, deeper financial systems, and more rigid exchange rate regimes amplify countries' exposure to the global financial cycle.
Growth, Inequality, and Poverty: A Robust Relationship?
(World Bank, Washington, DC, 2018-09) Marrero, Gustavo A.; Serven, Luis
An extensive literature on poverty traps suggests that high levels of poverty deter growth. However, a seemingly basic implication of the underlying theoretical models, namely that countries suffering from higher levels of poverty should grow less rapidly, has remained untested. A parallel literature has suggested a variety of mechanisms through which inequality may affect growth in opposing directions. Because inequality and poverty are different aspects of the income distribution, inequality can also affect growth through poverty, an indirect channel that has not been explicitly analyzed. This paper contributes to fill both gaps. Using a large cross-country panel data set, it estimates a reduced-form growth equation adding both inequality and poverty to an otherwise standard set of growth determinants. Given inequality, the correlation of growth with poverty is consistently negative. In contrast, given poverty, the correlation of growth with inequality can be positive or negative, depending on the empirical specification and econometric approach used. Yet, the indirect effect of inequality on growth through its correlation with poverty is robustly negative. Closer inspection shows that these results are driven by the sample observations featuring high (but not extremely high) poverty rates. These empirical findings are consistent with the predictions from an analytical framework with learning-by-doing and knowledge spillovers, in which consumers cannot save and invest if their initial endowment is below a minimum consumption level.
Adding Space to the International Business Cycle
(World Bank, Washington, DC, 2019-03) Abate, Girum Dagnachew; Serven, Luis
Growth fluctuations exhibit substantial synchronization across countries, which has been viewed as reflecting a global business cycle driven by shocks with worldwide reach, or spillovers resulting from local real and/or financial linkages between countries. This paper brings these two perspectives together by analyzing international growth fluctuations in a setting that allows for both global shocks and spatial dependence. Using annual data for 117 countries over 1970-2016, the paper finds that the cross-country dependence of aggregate growth is the combined result of global shocks summarized by a latent common factor and spatial effects accruing through the growth of nearby countries -- with proximity measured by bilateral trade linkages or geographic distance. The latent global factor shows a strong positive correlation with worldwide TFP growth. Countries' exposure to global shocks rises with their openness to trade and the degree of commodity specialization of their economies. Despite its simplicity, the empirical model fits the data well, especially for advanced countries. Ignoring the cross-country dependence of growth, by omitting spatial effects or common shocks (or both) from the analysis, leads to a marked deterioration of the empirical model's in-sample explanatory power and out-of-sample forecasting performance.
Swept by the Tide? The International Comovement of Capital Flows
(World Bank, Washington, DC, 2019-03) Lafuerza, Luis F.; Serven, Luis
This paper assesses the international comovement of gross capital flows in a setting simultaneously encompassing aggregate inflows and outflows. It uses as empirical framework a multilevel latent factor model, implemented on flow data for a large sample of countries over more than three decades. On average, common shocks account for over 40 percent of the variance of both inflows and outflows, although with major differences between advanced countries and the rest. Among the former, global and group shocks dominate capital flows, and the same shocks drive gross inflows and outflows. Among the latter countries, idiosyncratic shocks tend to play the leading role, and gross inflows exhibit less commonality with outflows. The latent factors configure an international financial cycle that closely tracks the trends in a handful of global "push" variables. Recursive estimation of the factor model reveals a rising trend in the exposure of countries' flows to the international cycle—especially for advanced economies—up to the global financial crisis. Exposure to the cycle is robustly related to countries' external financial openness and the (lack of) flexibility of their exchange rate regime.
Assessing the International Comovement of Equity Returns
(World Bank, Washington, DC, 2018-07) Abate, Girum Dagnachew; Serven, Luis
The international comovement of equity returns has been viewed as reflecting either pervasive common shocks or local linkages between countries. This paper brings these perspectives together by assessing the comovement of equity returns in a dynamic model that allows for both common factors and spatial dependence, using quarterly data for 40 advanced and emerging countries over the past two decades, and including GDP growth, the real interest rate, and credit as fundamental variables. Estimation results employing a bias-corrected quasi-maximum likelihood approach provide strong indication that the cross-country dependence of equity returns results from both spatial effects and common shocks captured by a latent common factor -- weak and strong dependence, respectively. The factor exhibits a robust negative correlation with market measures of aggregate risk. Countries' exposure to the common factor rises with their extent of trade openness and the degree of rigidity of their exchange rate regime. Despite its simplicity, the empirical model fits the data well. All these results are robust to the use of alternative spatial weight matrices. The paper also shows that ignoring cross-country dependence leads to distorted parameter estimates and a marked deterioration of the explanatory power of the empirical model.
Gross Capital Flows by Banks, Corporates, and Sovereigns
(World Bank, Washington, DC, 2018-07) Avdjiev, Stefan; Hardy, Bryan; Kalemli-Ozcan, Sebnem; Serven, Luis
This paper constructs a new dataset of quarterly capital flows by sector and establishes four facts. First, the co-movement of capital inflows and outflows is driven by banks. Second, procyclicality of capital inflows is driven by banks and corporates, whereas sovereigns' external liabilities move acyclically in advanced and countercyclically in emerging countries. Third, procyclicality of capital outflows is driven by advanced countries' banks and emerging countries' sovereigns (reserves). Fourth, capital inflows and outflows decline for banks and corporates when global risk aversion increases, whereas sovereigns' flows show no response. These facts are inconsistent with a large class of theoretical models.
Infrastructure, Growth, and Inequality : An Overview
(World Bank Group, Washington, DC, 2014-09) Calderon, Cesar; Serven, Luis
Academics and policy makers have long considered an adequate supply of infrastructure services to be essential for economic development. This paper reviews recent theoretical and empirical literature on the effects of infrastructure development on growth and income distribution. The theoretical literature has employed a variety of analytical settings regarding the drivers of income growth, the degree to which infrastructure represents a public or a private good, and the extent of market distortions, notably in capital markets. In turn, the empirical literature has used various econometric methodologies on time-series and cross-section macro and microeconomic data to test for the effects of infrastructure development. However, these empirical tests face challenging issues of measurement, identification, and heterogeneity. Overall, the literature finds positive effects of infrastructure development on income growth and, more tentatively, on distributive equity. Still, the precise mechanisms through which these effects accrue, and their full impact on welfare, remain relatively unexplored.
Fiscal Policy, Stabilization, and Growth : Prudence or Abstinence
(Washington, DC: World Bank, 2008) Perry, Guillermo; Servén, Luis; Suescún, Rodrigo
This volume covers the conduct of fiscal policy in Latin America, and its consequences for macroeconomic stability and long-term growth. The volume's chapters examine different aspects of these problems, ranging from the purely economic to the institutional and political economy dimensions. The book is organized as follows. This chapter offers an integrated overview of the themes covered in the rest of the volume. The chapter guides the reader through the rest of the volume, but it has been written as a self-standing essay for the benefit of those readers who may not have the time to indulge in the details of every chapter. The rest of the volume is organized in two parts. The first part deals with the pro-cyclical bias of fiscal policy, and the second part with the anti-investment bias of fiscal discipline -- popularly (albeit somewhat confusingly) known as the fiscal space problem. The rest of this introductory chapter consists of four sections. Section II examines recent trends in fiscal policy in the region and introduces the two main themes of the book. Sections III and IV present an overview of the topics covered in the two parts of the book, as well as the conclusions of the corresponding chapters. Section V summarizes the implications for future fiscal analysis and policy management.
Openness, Specialization, and the External Vulnerability of Developing Countries
(World Bank, Washington, DC, 2016-06) Barrot, Luis-Diego; Calderon, Cesar; Serven, Luis
Deepening real and financial integration of developing countries into the world economy has prompted renewed interest in the contribution of external shocks to their macroeconomic fluctuations. This paper revisits the issue using four decades of annual data for a large sample of developing countries. The paper implements a conditionally-homogeneous panel vector autoregression with exogenous variables to model GDP fluctuations in these countries. It uses sign restrictions to identify four external structural shocks -– demand, supply, monetary, and commodity shocks -– and analyzes how their impact on growth is shaped by countries' policy and structural framework. External shocks are found to account for a small share of the forecast error variance of GDP, especially at short horizons. However, their contribution has been on the rise in recent decades. Further, global monetary shocks have become the leading external source of GDP volatility in developing countries. The paper presents a quantitative assessment of the effects of real and financial opening up, as well as those of commodity specialization, on the impact of external shocks on GDP. The results suggest that increasing openness can account for the increasing trend in the volatility attributable to external shocks, as well as the changing roles of different shocks. Moreover, commodity-intensive developing countries are found to be more vulnerable than the rest to all types of external shocks, not just commodity shocks.
Global Imbalances : Origins and Prospects
(Published by Oxford University Press on behalf of the World Bank, 2013-08-01) Servén, Luis; Nguyen, Ha
This paper surveys the academic and policy debate on the origins of global imbalances, their prospects after the global crisis, and their policy implications. A conventional view of global imbalances considers them to primarily result from macroeconomic policies and cyclical forces that cause demand for goods to outstrip supply in the United States and other rich countries and that have the opposite effect in major emerging markets. An alternative view holds that global imbalances are the result of structural distortions and slow-changing factors that primarily affect assets markets. This paper reviews the analytical underpinnings of these two perspectives and the empirical evidence of their respective merits. The paper then assesses the outlook for global imbalances after the crisis, particularly in terms of policy action to reduce their magnitude. Policy intervention is warranted to the extent that the imbalances are driven by welfare-reducing distortions, but in this case, the primary target of policy intervention should be the distortions rather than the imbalances. Finally, the paper examines various forms of international spillovers that may call for multilateral action to limit global imbalances.