Content Type: Working Paper / Publication Year: within 10 Years and within 5 Years / Topic: Finance

1. The Invisible Leverage of the Top 1 Percent: Absentee Debtors and Their Hedge Funds

Author:: Stefano Sgambati
Publication Date:: 01-2024
Content Type:: Working Paper
Institution:: City Political Economy Research Centre (CITYPERC), University of London
Abstract:: The existing literature on finance, debt and inequality depicts economic elites as a creditor class. According to a popular thesis, over the past four decades, the rich and ultra-rich households in the top 1 percent have experienced a saving glut (excess income), which they have invested in the debts of the poor and their governments. While it is undeniable that the rich have expanded their income share at the expenses of the poor, to refer to them as ‘creditors’ or ‘lenders’ is a misrepresentation of how they actually expand their wealth and income shares by financial means. For it conceals the fact that a great deal of their investments is leveraged, that is, carried out with borrowed money. This article shows that the debts generated by individuals and households in the top 1 percent easily surpass those of all other households and even exceed those of the most indebted states in the world. However, these debts are hard to estimate, and indeed they are not accounted for in statistics on household debt. This is because households in the top 1 percent do not borrow from banks, like normal households do, but they are instead absentee debtors who borrow through the hedge funds, private equity firms, personal investment trusts, and big banks of which they are dominant shareholders and ultimate beneficiaries. To gain an insight into their invisible leverage, the article looks at how much hedge funds borrow, and why their leverage matters.
Topic:: Debt, Political Economy, Inequality, Finance, Elites, Hedge Funds, and Leverage
Political Geography:: Global Focus

2. The Future of EU Blended Finance and Guarantees: An Assessment of Cooperation Strategies with Least Developed Countries in Africa

Author:: Erik Lundsgaarde
Publication Date:: 01-2023
Content Type:: Working Paper
Institution:: German Institute of Development and Sustainability (IDOS)
Abstract:: The European Fund for Sustainable Development Plus (EFSD+) is a core element of EU development cooperation and reflects the EU’s strong commitment to deploying blended finance and guarantees as development financing tools. This discussion paper examines the EU’s intentions concerning how the EFSD+ will be integrated into geographic programmes, focussing on the least developed countries (LDCs) in Africa. Based on a review of the Multiannual Indicative Programmes (MIPs) for 30 African LDCs as well as the regional MIP for Sub-Saharan Africa covering the period 2021-2027, the paper provides an overview of funding reserved for EFSD+ implementation in geographic programmes, identifies the expected EFSD+ sectoral priorities and summarises references to development finance institutions (DFIs) as EFSD+ implementation partners. This descriptive review highlights issues for the future monitoring and assessment of the EFSD+. The paper points to uncertainty about the magnitude of the management challenge that EU institutions face in EFSD+ implementation given the difficulties of predicting the scale of guarantee-backed operations in individual countries, the lack of information on the expected volume of blended finance operations, and the limited analysis of how EFSD+ tools relate to other EU funding approaches. The paper also notes that EU institutions should be more explicit about the criteria shaping EFSD+ resource commitments to clarify relevant prerequisites for the effective deployment of EFSD+ tools. Finally, the broad thematic scope for EFSD+ use implies that knowledge about how blended finance and guarantees function and how the financing approaches interact with other interventions needs to increase throughout the EU system.
Topic:: Development, European Union, Finance, Sustainability, and Cooperation
Political Geography:: Africa and Europe

3. The Implications of Financial Development for Economic Growth in CEMAC

Author:: Jean-Cedric Kouam
Publication Date:: 02-2023
Content Type:: Working Paper
Institution:: The Nkafu Policy Institute
Abstract:: In recent years, the Economic and Monetary Community of Central Africa (CEMAC) has experienced sluggish economic growth. This has fallen from 4.86% in 2010 to 0.04% in 2021 (World Bank, 2021), a drop of 4.82 percentage points in a decade. In addition to the high vulnerability of economies to exogenous shocks, several economists such as Asteriou & Spanos (2019) attribute the slowdown in growth to the underdevelopment of the financial sector. In CEMAC, the access of populations to mobile money or commercial bank deposit services has undoubtedly become insufficient to keep economies on a sustainable and inclusive growth path. This article reviews the evolution of financial development indicators in the CEMAC zone since 2013, and its impact on the performance of states in terms of economic growth. We use secondary data collected from the World Bank and the Bank of Central African States (BEAC), between 2013 and 2021. The analysis provides public authorities in CEMAC with arguments to promote financial development in the sub-region to boost economic growth, and better take advantage of the opportunities of the African Continental Free Trade Area (AfCFTA). The paper is structured in two sections. Section 1 presents the evolution of financial development indicators in CEMAC and section 2, the implications for economic growth and sustainable development.
Topic:: Development, Regional Cooperation, Finance, Economic Growth, and CEMAC (Central African Economic and Monetary Community)
Political Geography:: Africa and Central Africa

4. Financial Autonomy of Decentralized Local Authorities and Local Development

Author:: Herve Ondoua, Bin Meh, Boris Andzanga Ndzana, and Jean-Cedric Kouam
Publication Date:: 02-2023
Content Type:: Working Paper
Institution:: The Nkafu Policy Institute
Abstract:: The financial autonomy of Decentralized Territorial Collectivities (DTCs) is today considered as the foundation of local governance. It confers decision-making power in financial matters to municipalities and regions, as well as a certain level of independence in the management of the resources at their disposal. In Cameroon, the general principles of financial autonomy are defined in the law on the General Code of DTCs, in particular in the Fifth Book, which repeals the law establishing the financial regime of local authorities and that on the financial regime of the State. Thus, financial autonomy should enable DTCs to develop by using their own resources in improving the living conditions of their populations. Despite these powers, DTCs still depend for the most part on income from municipal taxes and income transferred by the State. However, DTCs in Cameroon have real economic and financial potential but not a degree of financial autonomy that would allow them to accelerate the development of their locality. This reflection is aimed at local elected officials, political authorities, government authorities and civil society, with the aim of examining the effectiveness of financial autonomy in the face of the economic and financial potential of DTCs and their ability to implement their own local development projects. This article relates financial autonomy and local governance, on the one hand, and shows how financial autonomy is a factor of valorization of local resources, on the other hand.
Topic:: Development, Government, Finance, Local, Decentralization, and Autonomy
Political Geography:: Africa and Cameroon

5. Macro-financial implications of public debt in South Africa: The role of financial regimes

Author:: Theshne Kisten
Publication Date:: 06-2023
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: This paper examines the role of financial frictions in the public debt–growth nexus, documenting that a public debt shock has different macro-financial implications dependent on the state of financial markets in South Africa. A non-linear vector autoregression model is estimated which allows the transmission mechanism to be characterized by two distinct financial regimes: stressful versus normal. The empirical results suggest that a public debt shock has a broadly insignificant impact on economic growth over the full sample, reflecting the ineffectiveness of government borrowing in stimulating the economy, and could suggest that the high and growing debt service costs faced by the government reduces funds available for investment purposes. Debt shocks are found to be deflationary in both regimes, lending support to the precautionary savings effect and the existence of a well-developed financial market, while interest rates decline with the immediate impact being moderately larger in the stress regime, providing evidence of the accommodative stance between fiscal policy and monetary policy. In response to a public debt shock, financial conditions show an immediate and transitory improvement in the high-stress regime; however, in the low-stress regime there is an immediate yet negligible improvement in financial conditions. Lastly, the responses evolve over time, with fiscal policy being less effective in stimulating the economy in the post-crisis period, but it has been effective in reducing financial stress in the high-stress regime.
Topic:: Economics, Finance, Economic Growth, and Public Debt
Political Geography:: Africa and South Africa

6. Assessment of institutional set-up of results measurement and reporting systems for non-sovereign operations in development finance institutions

Author:: Patrick Mabuza, Francis H. Kemeze, Oluwatoba J. Omotilewa, Mamadou Bah, and Btissam Benkerroum
Publication Date:: 02-2023
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: Development finance institutions (DFIs) foster sustainable development through financing, advisory services, and technical assistance. They complement public investments in developing and underserved markets to unlock development opportunities and deliver development results. Whereas DFIs’ missions are known among practitioners, their development achievements are often less understood. Consequently, DFIs have developed different results measurement and reporting systems to document the impacts of their interventions. This includes recent efforts to harmonize development impact indicators for results measurement and reporting. However, less is known about methodologies used in development outcomes assessments, or institutional set-ups for measuring and reporting these outcomes. This hampers knowledge on what works or does not work from a development finance perspective, preventing feedback mechanisms for DFIs to learn from prior interventions, mitigate risks, and ultimately improve subsequent interventions. Using a newly developed integration index score of hard versus soft integration of results measurement and reporting systems, and primary and secondary data from eleven such systems within DFIs, this study examines the set-up and effectiveness of different results reporting systems and mechanisms currently in place in DFIs. Findings reveal that although all interviewed DFIs measure anticipated (ex-ante) and ex-post development outcomes, only 27 per cent operate a fully integrated results measurement and reporting system that permits a 360- degree feedback loop for development effectiveness.
Topic:: Development, Finance, and Assessment
Political Geography:: Global Focus

7. Decentralised finance: good technology, bad finance

Author:: Maria Demertzis and Catarina Martins
Publication Date:: 04-2023
Content Type:: Working Paper
Institution:: Bruegel
Abstract:: The emergence of cryptocurrencies/crypto assets has allowed the provision of a new form of financial services, including payments and loans, known as decentralised finance (DeFi). Crypto assets currently represent only about 1 percent of total global financial assets and it is unlikely, in its current form, that DeFi will become a substitute for the traditional financial system, for three reasons. First, while decentralisation is very innovative, in practice the technology required to replace the role of intermediary is slow and costly in terms of energy use. This has led some crypto networks to adopt more centralised solutions to the problem of verification. Second, the automaticity behind the transactions does not allow for any legal recourse. If something goes wrong, there is no way to stop or reverse a transaction once it has been initiated. It is very difficult to imagine DeFi scaling up without the ability to challenge outcomes. Third, and perhaps most importantly, DeFi is for the most part self-referential. Crypto assets are exchanged for other crypto assets without being employed in activities that stimulate economic growth by creating jobs or facilitating investment. It is not likely for DeFi to grow enough to replace traditional finance unless it helps growth. Nevertheless, the technology that enables DeFi and crypto assets, distributed ledger technology (DLT), is very innovative and has managed to remove the intermediary without compromising the safety and finality of financial transactions. Hence, it is likely that the technology behind crypto assets and DeFi will feed into the mainstream and offer efficiency gains.
Topic:: Science and Technology, Regulation, Finance, Digitalization, and Digital Currency
Political Geography:: Global Focus

8. Global Terrorism Index 2023

Author:: Institute for Economics and Peace (IEP)
Publication Date:: 03-2023
Content Type:: Working Paper
Institution:: Institute for Economics & Peace (IEP)
Abstract:: The GTI report is produced by the Institute for Economics & Peace (IEP) using data from TerrorismTracker and other sources. TerrorismTracker provides event records on terrorist attacks since 1 January 2007. The dataset contains almost 66,000 terrorist incidents for the period 2007 to 2022. In 2022, deaths from terrorism fell by nine per cent to 6,701 deaths and is now 38 per cent lower than at its peak in 2015. The fall in deaths was mirrored by a reduction in the number of incidents, with attacks declining by almost 28 per cent from 5,463 in 2021 to 3,955 in 2022. However, if Afghanistan was removed from the index, terrorism deaths would have increased by four per cent. Afghanistan remained the country most impacted by terrorism for the fourth consecutive year, despite attacks and deaths falling by 75 per cent and 58 per cent respectively. The GTI does not include acts of state repression and violence by state actors and, as such, acts committed by the Taliban are no longer included in the scope of the report since they took control of the government.
Topic:: Climate Change, Economics, Science and Technology, Terrorism, Finance, and Peace
Political Geography:: Middle East, North Africa, and Global Focus

9. Place of crowdfunding in financing investment projects in Poland

Author:: Marcin Czugan, Michał Karwasiński, Jarosław Mizera, and Ewa Balcerowicz
Publication Date:: 03-2023
Content Type:: Working Paper
Institution:: Center for Social and Economic Research - CASE
Abstract:: Crowdfunding for business ventures, commonly referred to interchangeably as investment crowdfunding or equity crowdfunding, is a young practice. It first appeared in the USA (in 2009), and is now a rapidly expanding market in developed economies. The first case of investment crowdfunding in Poland, historically the first issuance, took place in 2012, barely three years later than in the United States. Such crowdfunding is a form of raising capital from the market (from investors) for the development of companies by entrepreneurs or owners, acting as the issuers. Specialised companies (fintechs) creating so-called crowdfunding platforms for matching demand with supply – and where offerings are announced and transactions carried out – are the market’s intermediaries. The report we are releasing discusses the specifics of investment crowdfunding, or in other words how this form of raising funds differs from older forms of external financing for businesses. It also presents the potential and the role of crowdfunding for the development of the capital market in Poland, describing demand for this type of financing, the level of interest among investors, and what both demand and interest depend on. In November 2021, European regulations were introduced specifically for this new market. Our authors analyse how these regulations will affect the future of equity crowdfunding in Poland. This issue of mBank-CASE Seminar Proceedings, on crowdfunding in Poland, follows on from a seminar held in March 2022. Three guests at the seminar were experts participating directly in the development of this new component of Poland’s capital market, therefore possessing unique knowledge of the specifics of crowdfunding, and its strengths and limitations.
Topic:: Finance, Innovation, Economic Development, Private Sector, Knowledge Economy, and Crowdfunding
Political Geography:: Europe and Poland

10. Cooperative Federalism in India: Resetting the Fiscal Architecture: Lessons for India

Author:: Kandarp Patel and Anoop Singh
Publication Date:: 02-2023
Content Type:: Working Paper
Institution:: Centre for Policy Research, India
Abstract:: The COVID-19 pandemic brought significant challenges to public finances, raising global debt to record-high levels and necessitating the suspension of fiscal rules across the globe. As we approach the aftermath of the pandemic, the challenge is to reset the pillars of the fiscal architecture and better manage public finances across all levels of government—as the lynchpin of any successful growth strategy in a post-pandemic world. This situation offers an opportunity to rethink fiscal rules and make fiscal policy more agile in responding to crises, without undermining fiscal sustainability. A risk-based medium-term fiscal framework that combines standards, rules, and strengthened institutions would strike a better balance between flexibility and credibility. Overall, for India to achieve its full potential for economic growth and development, it needs to improve the quality and efficiency of public spending and financial management across all levels of government. In doing this, India should consider moving toward a new principle-based fiscal strategy, complemented with public financial management reforms and setting up an independent fiscal institution. This process will need to be undertaken in close collaboration with the States.
Topic:: Finance, Economic Growth, COVID-19, and Public Debt
Political Geography:: South Asia and India

11. The Internationalisation of the Chinese Renminbi and China’s Digital Currency Plans

Author:: Lorenzo Bencivelli and Michele Savini Zangrandi
Publication Date:: 04-2023
Content Type:: Working Paper
Institution:: Istituto Affari Internazionali
Abstract:: China has made major reforms to boost the international standing of its currency. The global presence of the renminbi remains contained, however. This is due to China’s economic structure (a persistent current account surplus and a partially closed financial account) and the government’s grip on the economy. China is also a Central Bank Digital Currency (CBDC) forerunner. The digital yuan (e-cny) is already active in a large scale trial. Many claim that the e-cny could provide a major boost to the internationalisation of the renminbi. However, the internationalisation of the renminbi would require major economic reforms that cannot be bypassed by the deployment of new technologies. The e-cny is therefore unlikely to boost the renminbi’s international presence. Yet, its underlying technology could be exported to other countries wishing to deploy their own-currency CBDCs. Much like with telecommunication equipment, this scenario would put China in the position of being a provider of a critical infrastructure. In the longer run, the export of e-cny technology might also facilitate the creation alternative payment networks, though this scenario is not very likely.
Topic:: Political Economy, Governance, Finance, Currency, and Digital Policy
Political Geography:: China and Asia

12. Paying with Austerity: The Debt Crisis and Restructuring in Sri Lanka

Author:: C. P. Chandrasekhar, Jayati Ghosh, and Debamanyu Das
Publication Date:: 12-2023
Content Type:: Working Paper
Institution:: Political Economy Research Institute (PERI), University of Massachusetts Amherst
Abstract:: On April 12, 2022, Sri Lanka defaulted on external debt service commitments. Announcing the “pre-emptive default,” pending restructuring, the government also announced that it was suspending repayments due in 2022 on its external debt. By May, Sri Lanka was formally in default, becoming the first country in the Asia-Pacific region to default on debt in two decades. There were medium-term factors that underlay the crisis, not least of which was the chronic dependence on foreign finance, especially debt, to cover widening current account deficits that followed the IMF-inspired and dictated embrace of liberalization policies starting in the late 1970s. In recent years, following the global financial crisis and the end of the civil war in 2009, this dependence on external borrowings intensified. There was also a dramatic shift towards bilaterally, besides multilaterally, financed investment projects and increasing reliance on the bond market, partly to meet debt service commitments on accumulated debt. Given this vulnerability, a crisis was precipitated by a collapse in foreign exchange receipts during the Covid pandemic, due to falling exports, near-zero tourist arrivals and reduced remittances and the subsequent spike in the outflow of foreign exchange because of the speculation-induced rise in the prices of fuel and food. This paper details the events which culminated in the Sri Lankan debt crisis, assesses the appropriateness of the official, IMF-prescribed strategy of adjustment and debt restructuring, considers the experience with restructuring thus far, and explores alternatives that would have been, and could still be, less regressive and ensure sustainable development.
Topic:: Debt, Political Economy, Finance, Austerity, and Liberalization
Political Geography:: South Asia and Sri Lanka

13. Structural Changes and Dominance of Finance in Contemporary Capitalism

Author:: Sunanda Sen
Publication Date:: 09-2023
Content Type:: Working Paper
Institution:: Political Economy Research Institute (PERI), University of Massachusetts Amherst
Abstract:: Structural changes in economies as have taken place in in majority of economies in terms of the sector-wise contribution to their aggregate output as well as employment include a rising share of the services sector, often exceeding one-half of the GDP. Services include, in addition to other activities, the high value financial activities, having weights disproportionately large. Thus the rising share of services to the GDP implies simultaneous rise in share of financial activities to the GDP as well. Analyses in literature explain structural changes by relative profitability as prime mover of changes, similar to financialisation of economies. In this a circuitous link between socio- political and economic-forces and the changing weight (power relations) can be observed. With capitalism taking a multi-layered structure, the path of finance to dominance may be along a variety of trajectories including vertical shifts from real to financial activities. The quantitative strength of finance is reinforced by socio political forces as alliances. The path may face a crisis led by fundamental uncertainty where agents are ignorant of the future, and the path keeps changing by actions of agents themselves. With knowledge unattainable, ‘conventions’ help agents, as Keynes held, the calming of nerves, forming collectively a “conventional process of expectation formation”. This forms a major theoretical innovation of Keynes which brings in expectation formation and decision making by agents based on custom, habit, tradition, instinct as relevant in a model of human agency faced with fundamental uncertainty.
Topic:: Political Economy, GDP, Employment, Capitalism, Finance, and Keynes
Political Geography:: Global Focus

14. Social Cohesion and Firms’ Access to Finance in Africa

Author:: Yabibal M. Walle
Publication Date:: 01-2022
Content Type:: Working Paper
Institution:: German Institute of Development and Sustainability (IDOS)
Abstract:: Social cohesion has recently gained increasing attention in academic and policy circles. Apart from being a necessary feature of stable societies per se, social cohesion is also a key factor for sustainable economic development. One potential means through which social cohesion could foster economic development is by enhancing financial development. In this paper, we examine whether social cohesion is significantly associated with firms’ access to finance in Africa. To this end, we use a recently constructed dataset on social cohesion in Africa, which is based on the Afrobarometer survey and the Varieties of Democracy database. The dataset contains indices for the three pillars of social cohesion – trust, inclusive identity and cooperation for the common good. Combining this dataset with that of the World Bank Enterprise Surveys, we build a sample which covers more than 12,500 firms and 27 African countries. Our results show that all three components of social cohesion are positively associated with at least one measure of firms’ access to external finance. In particular, trust – but not inclusive identity and cooperation for the common good – is significantly associated with the likelihood that firms have a checking or savings account, or are financially constrained. When we measure access to finance with respect to having a line of credit or a loan from a financial institution, all the three pillars of social cohesion, including inclusive identity and cooperation for the common good, are related to access to finance. The results are robust to addressing endogeneity concerns using a heteroskedasticity-based identification strategy. Overall, our results suggest that improving social cohesion (e.g. through social protection, education, strengthening civil society organisations) could do more than hold society together; it could also promote access to finance, growth of firms, and thus economic development and job creation.
Topic:: Finance, Business, Economic Development, and Social Cohesion
Political Geography:: Africa

15. Urbanisation and Rural Development in Developing Countries: A Review of Pathways and Impacts

Author:: Tekalign Gutu Sakketa
Publication Date:: 01-2022
Content Type:: Working Paper
Institution:: German Institute of Development and Sustainability (IDOS)
Abstract:: This paper reviews the current state of literature on the impacts of urbanisation on rural development in developing countries, with an emphasis on Sub-Saharan Africa (SSA). Assessments of these effects diverge greatly. While some authors see urbanisation as strongly benefitting rural areas, for instance, through increased demand for agricultural goods and services, others highlight negative effects, for example, through the loss of livelihoods emanating from displacements and the conversion of agricultural land. Given this complexity, a review that thoroughly analyses the causal relationships between urbanisation and rural development is warranted. To do this, this Discussion Paper identifies seven channels through which urbanisation affects rural development: i) production and consumption linkages; ii) employment linkages; iii) financial linkages; iv) land market linkages; v) information and public service linkages; vi) social interactions linkages; and vii) environmental externalities. As to the first channel, production and consumption linkages, the review suggests that urbanisation has increased demand for agricultural products and services; natural resources; commercialisation and modernisation of agricultural technologies; and smallholders’ participation in modern agricultural value chains. The employment channel suggests that rapid urbanisation is enabling the diversification of rural livelihoods by bringing new economic opportunities to rural areas, but the effects have not been uniform across countries and communities. With regard to financial linkages, flows from cities have increased in many developing countries, benefitting rural areas; yet some studies point to no or to negative effects due to reduced agricultural productivity from the loss of labour and technology, and the crowding out of investment. Land market effects are particularly heterogeneous. While urbanisation tends to drive land value up and encourages investments, there are also negative developments in terms of crowding out and speculation. As to information and public service linkages, the review suggests that urbanisation has fostered information and knowledge flows from urban areas to rural areas which have improved income, innovation, and employment. Social interactions among urban and rural citizens more generally may bridge cultural gaps, improve the flow of information, knowledge, and resources pertinent for rural economic transformation, and thereby enhance social cohesion; yet little empirical evidence exists so far in terms of effects and causalities. Finally, urbanisation affects rural development through the environmental externalities it generates: waste disposal, environmental degradation, and loss of biodiversity. If appropriate technologies are put in place, urbanisation can also improve waste management and soil fertility, thus reducing the cost of agricultural production. To this end, the review has identified research gaps that have important policy implications. First, although effective rural-urban planning, monitoring and evaluation of rural-urban development policies require better data, there is lack of data collection systems or their quality is poor. In this respect, investing in emerging data sources such as satellites data can help countries improve their data collection systems and measures. Second, research is needed to revise and reformulate better theoretical frameworks that take into account the uniqueness of African urban cities. Third, empirical evidence which documents to what extent and how rural-urban linkages provide an important arena for improving social interactions among neighbours, societies, and communities is needed. Finally, as many African countries continue to experience rapid urbanisation (mostly urban sprawl), a thorough study of the impacts of urban externalities on agricultural productivity, food security, biodiversity, and the health of rural communities is necessary.
Topic:: Development, Environment, Urbanization, Employment, Finance, and Public Service
Political Geography:: Africa and Sub-Saharan Africa

16. Chronic Crisis Financing? Fifty Years of Humanitarian Aid and Future Prospects

Author:: Gary Milante and Jannie Lilja
Publication Date:: 04-2022
Content Type:: Working Paper
Institution:: Stockholm International Peace Research Institute
Abstract:: This study maps trends of humanitarian funding in the context of total aid at the country level between 1969 and 2019 and estimates how these trends will change in the future. Historical trends show that the composition of aid has changed significantly in the last two decades: the humanitarian share of total aid to countries has increased from approximately 5 per cent in the 1990s to 23 per cent in 2019. Humanitarian aid was originally intended to respond to short-term emergencies, however, most of today’s humanitarian financing goes to protracted situations. Today many countries receive high levels of humanitarian assistance for a decade or longer, referred to in this paper as ‘chronic’ crises. More than half of total global humanitarian assistance (59 per cent) in the decade 2010–19 went to chronic crises, typically synonymous with conflict-affected, fragile and refugee-hosting settings. These chronic crises have become more prevalent since 1995. Conservative forecasts suggest that 71 per cent of humanitarian assistance over the next decade will continue to go to countries receiving high levels of assistance today. The study concludes with open questions to policymakers regarding the use of the humanitarian financing instrument. In chronic crisis settings, the strategic balance between humanitarian, development and peacebuilding financing and the interplay between these financing streams deserves attention.
Topic:: Development, Humanitarian Aid, Finance, Resilience, and Peacebuilding
Political Geography:: Global Focus

17. Pathways for Reducing Military Spending in Post-civil Conflict Settings

Author:: Alexandra Marksteiner and Diego Lopes da Silva
Publication Date:: 01-2022
Content Type:: Working Paper
Institution:: Stockholm International Peace Research Institute
Abstract:: High military spending is a common and consequential legacy of civil conflict. Reducing military spending can yield valuable economic gains and further contribute to the recovery of post-civil conflict societies. However, little is known about the conditions that enable military spending reductions in a conflict’s aftermath. This SIPRI Insights on Peace and Security tackles this issue and provides a comparison of post-civil conflict conditions and military burden—military spending as a share of gross domestic product—outcomes. It builds on a comparative analysis of 19 post-civil conflict episodes between 1970 and 2020, as well as three detailed case studies, to identify common pathways to post-civil conflict military burden reductions. This research finds that reductions in military burden usually follow peace agreements that encompass trustworthy and legitimate verification mechanisms, the strengthening of institutional means to resolve grievances, and improvements in relations with neighbouring countries.
Topic:: Finance, Military Spending, Resilience, Post-Conflict, and Peacebuilding
Political Geography:: Global Focus

18. After the Allocation: What Role for the Special Drawing Rights System?

Author:: Tobias Pforr, Fabian Pape, and Steffen Murau
Publication Date:: 03-2022
Content Type:: Working Paper
Institution:: Institute for New Economic Thinking (INET)
Abstract:: In August 2021, the IMF made a new SDR allocation to help ease pandemic-induced financial strains in the Global South. This paper assesses the potential of the SDR system to address debt- related problems in global finance. We analyze the SDR system as a web of interlocking balance sheets whose members can use SDR holdings—the system’s tradable assets—for conversion into usable currency as a perpetual low-interest loan or to make payments to each other. Using original IMF data, we study how the system has been practically used since 1990. Though widely perceived as a solution in search of a problem in the post-Bretton Woods era, we find that the SDR system provides three mechanisms through which IMF members borrow and lend usable currency to each other, with different strings attached: first, transactions by agreement; second, the IMF’s core lending facilities for which the SDR system offers additional resources; and third, IMF-sponsored Trusts which seek to harness the SDR system for development purposes and are the basis for the current idea of ‘voluntary channeling’. Overall, given the SDR system’s idiosyncratic accounting rules, the new allocation can improve the liquidity position of a country and offer some limited avenues for sovereign debt restructuring but comes with new interest and exchange rate risks. Voluntary channeling cannot happen without a wealth transfer, neither the SDR allocation nor the use of Trusts can overcome this problem. Still, Trusts can be a useful instrument to help with debt forgiveness and to ensure that borrowed funds are used for their intended purpose.
Topic:: Economics, International Cooperation, Finance, and IMF
Political Geography:: Global Focus

19. Pari Passu Lost and Found: The Origins of Sovereign Bankruptcy 1798-1873

Author:: Marc Flandreau
Publication Date:: 06-2022
Content Type:: Working Paper
Institution:: Institute for New Economic Thinking (INET)
Abstract:: Verdicts returned by modern courts of justice in the context of sovereign debt lawsuits have upheld a ratable (proportional) interpretation of so-called “pari passu” clauses in debt contracts which, literally, promise creditors they will be dealt with equitably. Such verdicts have given individual creditors the right to interfere with payments to others, in situation where the sovereign had failed to make proportional payments. Contract originalists argue that this interpretation of pari passu clauses has no historical foundation. Historically, they claim, pari passu clauses never granted individual creditors a unilateral right to block payments to other bondholders assenting to a government debt restructuring proposal. This article shows this claim is incorrect. Drawing on novel archival research, it argues that pari passu clauses find one potent historical origin in the operation of a now forgotten sovereign bankruptcy tribunal, the London stock exchange. Under the law of the stock exchange, departure from ratable payments did create a unilateral right for individual creditors to interfere with sovereign debt discharges. In fact, ratable distributions provided the touchstone for the stock exchange sanctioned sovereign debt discharge system. What is more, sophisticated contract drafters availed themselves of the logic. The result was a weaponization of pari passu clauses, and their inscription into sovereign debt covenants in the 19th century. The article concludes that the modern debate on the role of clauses in sovereign debt contracts cannot be held without thorough reconsideration of the history of sovereign bankruptcy.
Topic:: Finance, Banking, Stock Markets, and Sovereign Debt
Political Geography:: United Kingdom, Europe, and England

20. The Role of Public REITs in Financialization and Industry Restructuring

Author:: Rosemary Batt, Eileen Appelbaum, and Tamar Katz
Publication Date:: 07-2022
Content Type:: Working Paper
Institution:: Institute for New Economic Thinking (INET)
Abstract:: Real Estate Investment Trusts (REITs) are important but little studied financial actors that control over $3.5 trillion in gross assets and over 500,000 properties in the U.S. Yet they have been largely ignored because tax rules define them as ‘passive investors.’ The evidence in this report shows that they are actually financial actors that aggressively buy up property assets and manage them to extract wealth at taxpayers’ expense. This study identifies the powerful impact that REITs, as owners of the real estate that houses productive enterprises, have had on operating companies and on the US economy more generally. It draws on case study evidence from markets where REITs have a major presence – nursing homes, hospitals, and hotels. The tax treatment of REITs has facilitated a growing and worrying influence on health care markets in particular at taxpayer expense.
Topic:: Health Care Policy, Finance, Tax Systems, and Banking
Political Geography:: Global Focus

21. Western financial warfare and Russia’s de-dollarization strategy: How sanctions on Russia might reshape the global financial system

Author:: Maria Shagina
Publication Date:: 05-2022
Content Type:: Working Paper
Institution:: Finnish Institute of International Affairs
Abstract:: Since 2014, Russia’s de-dollarization plan has been guided by security and geopolitical considerations. By dumping the US dollar from its foreign currency reserves, Russia diverted from the traditional approach where liquidity and the credibility of the issuer determine the choice of currency. In 2022, Russia has doubled down on its efforts to de-dollarize the economy. What started as de-dollarization in 2014, transformed into full-blown rouble-ization in 2022. Following the dynamic of an emerging multipolar world order, the global financial system is also gravitating towards fragmentation and currency multipolarity. The overuse of sanctions could strengthen revisionist countries’ desire to increasingly conduct their trade in non-dollar currencies in an attempt to avoid US oversight. If current trends continue, the de-dollarization effort could gain ground and undermine the primacy of the US dollar.
Topic:: Monetary Policy, Sanctions, Finance, and Conflict
Political Geography:: Russia, Europe, and Global Focus

22. Achieving the full potential of sustainable finance: The role of national, European and international initiatives

Author:: Eva De Francesco
Publication Date:: 07-2022
Content Type:: Working Paper
Institution:: European Policy Centre (EPC)
Abstract:: When signing the 2016 Paris Agreement, a legally binding international treaty on climate change, world leaders agreed to pursue the ambitious goals of achieving climate neutrality and mitigating the effects of climate change. Almost every country around the globe recognised that business-as-usual is not an option if we are to save the planet and human existence. As a result of this realisation and commitment, different green measures are being taken globally, regionally, locally; at all levels of societies; and in the public and private sectors. Redirecting capital flows toward a green economy is an important part of measures to take, so it is no surprise that there is a growing interest in using environmental, social and corporate governance (ESG) factors as guidance points for both public and private investors. However, there is still much to be done to ensure not just sufficient investment volumes but also that investments labelled as ‘sustainable’ do, in fact, contribute to climate action objectives. In order to realise ESG markets’ full potential in supporting the global transition towards a climate-neutral economy, further effort is especially needed in the following three areas: Policymakers at all levels must urgently address greenwashing and the lack of transparent and comparable ESG data. In the context of sustainability reporting, double materiality approaches are better suited to address the urgency of climate change. Policymakers at all levels must ensure the interoperability and alignment of the rapidly evolving sustainability reporting initiatives.
Topic:: Climate Change, Finance, Sustainability, and Green Transition
Political Geography:: Europe

23. Building a Portfolio of Pull Financing Mechanisms for Climate and Development

Author:: Ranil Dissanayake and Bernat Camps Adrogue
Publication Date:: 11-2022
Content Type:: Working Paper
Institution:: Center for Global Development
Abstract:: Pull financing is a powerful but underused mechanism for incentivising progress on hard-to-tackle social problems for which innovation or the take-up of innovation may be part of the solution. It should become part of the ongoing landscape for climate and development work. This paper sets out the specific design features for a portfolio of pull financing mechanisms to support the accelerated development of socially valuable innovations with both climate and development implications. It considers the institutional structure required to manage such a novel mechanism, a process for finding and developing a potential application, and the objectives pull financing should pursue. It then looks in detail at seven applications of pull financing in the climate and development space, each selected to illustrate the potential and challenges of the approach. We conclude by setting out how to construct a high-ambition portfolio of pull financing projects that is both tractable and attractive to potential funders.
Topic:: Climate Change, Development, Environment, and Finance
Political Geography:: Global Focus

24. Do Cash Transfers Deter Migration?

Author:: Michael A. Clemens
Publication Date:: 10-2022
Content Type:: Working Paper
Institution:: Center for Global Development
Abstract:: Conditional Cash Transfers are increasingly used by development aid agencies to reduce the incentives for migration from low-income countries. The evidence to date suggests that such transfers typically increase the rate of migration when they are conditional on investment, such as investment in education. They do this primarily by facilitating acquisition of human capital and by lowering capital constraints—increasing both migration aspirations and the means to achieve them. But with certain design features, particular transfer programs have reduced the incentive to migrate. Broadly speaking, migration can be deterred by transfer programs that are conditional on presence in the origin country—provided that the condition is strict, targeted, and lengthy.
Topic:: Economics, Migration, Finance, and Investment
Political Geography:: Global Focus

25. What’s the Best Way to Bolster the IMF’s Capacity to Lend to Low-Income Countries?

Author:: David Andrews
Publication Date:: 09-2022
Content Type:: Working Paper
Institution:: Center for Global Development
Abstract:: The IMF’s concessional lending to low-income countries through its Poverty Reduction and Growth Trust (PRGT) has risen dramatically since the start of the pandemic and demand for the PRGT resources is expected to remain above pre-pandemic levels for quite some time. But the surge in lending has strained the PRGT's finances—loan resources have dwindled, subsidy costs have risen sharply, and reserves need bolstering. Projections show the risks to PRGT financing are accentuated given the Russian invasion of Ukraine and rising global interest rates. A multi-pronged decade-long effort is needed to ensure sound PRGT financing: (1) reinforce current fundraising efforts for loan and subsidy resources; (2) promote the use of the PRGT's deposit investment account; (3) terminate the reimbursement of PRGT administrative resources to the IMF's General Resources Account and (4) begin a discussion on IMF gold sales to take place in the out years. Each prong of the effort should start immediately, given the time lags involved in reaching consensus and implementation.
Topic:: Development, International Cooperation, Finance, and IMF
Political Geography:: Global Focus

26. The IMF, Africa, and Climate Change—Making Sense of an Implausible Trilogy

Author:: Daniel Citrin and Daouda Sembene
Publication Date:: 06-2022
Content Type:: Working Paper
Institution:: Center for Global Development
Abstract:: Evidence suggests that Africa is the most vulnerable continent to climate change. While African countries contribute relatively little to global emissions, they remain significantly vulnerable to the devastating economic effects of this phenomenon. This paper reviews IMF activities and explores how best the IMF could support efforts by African countries to cope with macroeconomic policy and structural challenges associated with climate change. To this end, while recognizing the relative significance of the overall IMF contribution to addressing this global challenge, we make several recommendations about potential ways to strengthen the role of IMF surveillance, capacity development and financing. First, IMF staff should ensure that policy advice in the context of global, regional and country surveillance fit specific circumstances and institutional capacity of African countries as well as their economic vulnerabilities to climate change. To enable timely response to climate-related crises, staff teams should also be prepared to provide advice on a flexible basis, without being tied to formal periodic work schedules. Additionally, the IMF could facilitate adaptation and mitigation by engaging in intensive outreach activities about the economic impact of climate change. Second, there is merit in developing comprehensive IMF capacity development strategies in close collaboration with the authorities in climate-vulnerable countries. For effective implementation, the IMF will need to identify and actively seek adequate financing for capacity development activities on climate issues. Finally, while the Resilience and Sustainability Trust (RST) is a welcome addition to the IMF toolkit and represents a potentially significant source of financing for some sub-Saharan African countries, specific amendments could be considered notably with a view to limiting the potential cost for low-income borrowers to access its resources. Moreover, successful operationalization of the RST hinges on careful and flexible design of conditionality and how programs under the new facility will be linked to concurrent upper-credit tranche programs.
Topic:: Climate Change, International Cooperation, Finance, and IMF
Political Geography:: Africa

27. Let Them Eat Carbon

Author:: Vijaya Ramachandran and Arthur Baker
Publication Date:: 06-2022
Content Type:: Working Paper
Institution:: Center for Global Development
Abstract:: The push for the World Bank and others to link their investments to addressing climate concerns stems from a fear that, unless developing countries take action to decarbonize now, their economic growth will lead to vast emissions that will derail all global efforts to limit climate change. This approach, which treats low- and middle-income countries as a monolith, is unhelpful to the conversation about climate change. To understand better where emissions are concentrated and how to address them, we projected carbon dioxide emissions to 2035—the point at which observers believe they will level off in most countries due to technological advances and accumulating wealth—under some simple assumptions. Emissions from the world’s poorest 64 countries, those which get IDA loans, will remain very low for decades to come, even if their economies grow rapidly and without action to reduce emissions. Pressuring low- and lower-middle-income countries to replace plans for gas power with solar or wind energy will have limited climate benefits compared to replacing coal generation in richer countries. It is just more efficient—and just—to focus on climate mitigation where emissions are high, and on poverty reduction where poverty is high. And given that there is no sign of an increase in aid spending, especially in the poorest countries, rich countries must not cannibalize development aid or reinvent the development finance architecture
Topic:: Climate Change, Environment, World Bank, Finance, Banking, and Green Transition
Political Geography:: Global Focus

28. Stuck Near Ten Billion: Public-Private Infrastructure Finance in Sub-Saharan Africa

Author:: Nancy Lee and Mauricio Cardenas Gonzalez
Publication Date:: 02-2022
Content Type:: Working Paper
Institution:: Center for Global Development
Abstract:: Many stress the critical role of the private sector in filling yawning sub-Saharan Africa (SSA) infrastructure finance gaps, only widened by the pandemic. Our paper looks in detail at financially closed (construction-ready) transactions with private participation in SSA from 2007-2020. Despite the “billions to trillions” vision, we find no sustained upward trends for such transactions in volumes of total finance, multilateral development bank (MDB) finance, private finance, the share or volume of local private finance, participation by international institutional investors, or finance from bilateral development finance institutions (DFIs). External finance sources were larger than local sources, with Chinese DFIs dominant and the US DFI a marginal actor. Among MDBs, the African Development Bank provided the most finance cumulatively. Investment in renewable energy outpaced investment in fossil fuel infrastructure, but MDBs continued to make significant fossil fuel investments. Investment in water and social infrastructure remains about 5 percent of the total. Policy implications include: the urgent need for greater MDB efforts to use their broad toolkits to catalyze more private infrastructure finance, including from local sources and in social sectors; the case for building on the African Development Bank’s advantages; the importance of growing the US Development Finance Corporation’s efforts; and the strong logic for more collaboration among infrastructure finance providers to SSA, including China, with MDBs providing not only finance but also fora for collaboration and support for the policy and institutional reforms that build sustainability and reduce risk for all actors.
Topic:: Infrastructure, Finance, Private Sector, and Public-Private Partnership
Political Geography:: Africa

29. Greening the US Sovereign Bond Guarantee Program: A Proposal to Boost Climate-Directed Sovereign Finance in Developing Countries

Author:: Scott Morris, Rowan Rockafellow, and Alan Cameron
Publication Date:: 02-2022
Content Type:: Working Paper
Institution:: Center for Global Development
Abstract:: Sovereign bond guarantees (SBGs) are an effective but underutilized instrument available to the US government in support of developing country partners. By protecting bond purchasers in the event of a foreign issuer country’s default, SBGs substantially reduce borrowing costs for developing country governments. In this CGD policy paper, we estimate the costs and benefits of historical US sovereign bond guarantees in order to model the use of SBGs for climate finance purposes. We demonstrate that the US government-provided SBG has the effect of conferring the US government’s cost of borrowing on the partner government. On that basis, it represents substantial savings for these countries. Based on this analysis, we propose a $20 billion “Green” SBG program aimed at financing climate change mitigation efforts in 28 emerging market economies. We estimate that the US government could support $20 billion in bond issuances through a subsidy outlay of $2 billion, resulting in a 22 percent reduction in borrowing cost of the target countries, which represents $4 billion in budgetary saving for their governments. We propose that the subsidy appropriations in support of the guarantees be retained and recycled within the Green SBG program, which would substantially improve the financial leverage of the program over time. We also suggest that the program could be used for climate adaptation purposes by targeting a different group of developing countries
Topic:: Climate Change, Development, Finance, Sustainability, and Green Transition
Political Geography:: North America and United States of America

30. Country Platforms and Delivery of Global Public Goods

Author:: Daouda Sembene, Nancy Lee, and Mark Plant
Publication Date:: 01-2022
Content Type:: Working Paper
Institution:: Center for Global Development
Abstract:: This paper discusses three potential requirements for country platforms to facilitate effective delivery of GPGs. We propose that existing country platforms be repurposed to coordinate the contribution of domestic and external stakeholders to GPG delivery efforts at the country level. For this proposed approach to be successful, an explicit link must be introduced between country-level efforts and global initiatives to provide GPGs. There is also merit in setting up country and global coordination mechanisms, with relevant agencies assigned to operate them both at the national and international levels. Using relevant country platforms, we suggest that international financial institutions (IFIs) such as the IMF and multilateral development banks (MDBs) be mandated with helping developing countries meet the financing needs associated with the provision of GPGs. In addition, technical support from the IFIs should be put on the table to improve the effectiveness of developing countries’ contribution to GPG delivery. In this regard, MDBs can and must play a central role in developing capacities in these countries as part of their own contribution to GPG delivery. At the same time, securing the contribution of civil society and the private sector to GPG delivery efforts is essential given the magnitude of potential financing needs.
Topic:: International Cooperation, Finance, Multilateralism, IMF, and Public Goods
Political Geography:: Global Focus

31. South Korea's Critical Moment in Digital Currency Policymaking: Between Regulating Cryptocurrencies and Launching a Central Bank Digital Currency (CBDC)

Author:: June Park
Publication Date:: 03-2022
Content Type:: Working Paper
Institution:: Korea Economic Institute of America (KEI)
Abstract:: Why is South Korea pilot-testing its Central Bank Digital Currency (CBDC), and what made it shift from non-issuance to consideration? This paper investigates the Bank of Korea (BOK)’s CBDC-related developments amid the geopolitical contest between the U.S. and China. It examines the Moon Jae-in administration’s defiance of decentralized finance (DeFi) and the BOK’s sudden shift from non-issuance to potential issuance, which led to expedited research, development, and pilot-testing of CBDCs. As in the case of the digital yuan, the BOK envisions a hybrid architecture for the digital won, wherein central banks and associated partner institutions are CBDC distributors, though they are distinguished by placing the digital won on distributed ledger technology rather than by centrally controlling it. However, South Korea’s previously rash decision to forego DeFi under an undemocratic process has deprived the country of the time and opportunity to develop new innovations as a leading country in the digital frontier. By sticking only to digitalizing centralized finance, the country now aims to be in “standby” mode for its CBDC launch if and when required, so as not to fall behind in digital financial architecture. This paper scrutinizes the South Korean government’s moves on crypto and CBDCs and argues that 1) the Moon administration has shown incapability in addressing DeFi amid the crypto boom and bust, and 2) the BOK’s shift from non-issuance to potential issuance of the digital won is driven by its interest to uphold central bank independence amid swaying geopolitics between the U.S. and China and an unpredictable upcoming presidential election in South Korea.
Topic:: Economics, Elections, Finance, Cryptocurrencies, and Digital Currency
Political Geography:: China, Asia, South Korea, North America, and United States of America

32. Does the adoption of peer-to-government mobile payments improve tax revenue mobilization in developing countries?

Author:: Abdoul-Akim Wandaogo, Fayçal Sawadogo, and Jesse Lastunen
Publication Date:: 02-2022
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: Developing countries need to raise sufficient tax revenue to finance development. Revenue mobilization is often hampered by limited tax compliance, weak institutions, and technical problems with tax collection. One solution to these challenges is person-to-government (P2G) mobile phone payments, adopted in a number of developing countries since the early 2000s. This study assesses the causal effect of P2G adoption on tax revenue using propensity score matching. According to the matching estimates, countries that adopt P2G services experience a 1.2–1.3 percentage point boost in direct tax revenue as a share of GDP. P2G adoption increases revenue from both corporate and personal income taxes, with larger effects on the latter. The results remain robust to matching quality tests and alternative estimation methods, including function control, two-stage least squares, and system generalized method of moments. The average treatment effects are largest among lower-middle-income countries and countries characterized by limited tax compliance and corruption control, and by low levels of urbanization and domestic credit to the private sector. The findings suggest that developing countries, particularly those with poor institutions and low levels of financial inclusion, should promote the adoption and use of mobile money services for tax transactions.
Topic:: Development, Government, Finance, Economy, and Tax Systems
Political Geography:: Global Focus

33. Profit-shifting behaviour of emerging multinationals from India

Author:: Khanindra Ch. Das
Publication Date:: 02-2022
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: This paper examines the profit-shifting behaviour of emerging multinational firms from India. It is found that the before-tax profitability of subsidiaries differs according to whether they were established directly or via an Offshore Financial Centre (OFC). The impact of the corporate tax rate on profitability is examined using a fixed-effects model for the period 2010–19. In the case of subsidiaries established via OFCs, a negative relationship between corporate tax rate and profitability is found, indicating profit-shifting behaviour. However, a disaggregated investigation by characteristics of parent firms reveals that the negative relationship holds primarily for via-OFC subsidiaries that belong to multinational firms with limited transactions of intangible assets, lower export intensity, and limited dependence on external commercial borrowing. The evidence of profit shifting is not all pervasive. However, in the presence of these transaction channels, multinational firms establish better control over intra-firm resources, which enables the transfer of resources within the multinational firm when the network of subsidiaries is connected through the OFC. The results are robust to the inclusion of economic and institutional factors pertaining to the host country.
Topic:: Finance, Multinational Corporations, Profit, Corporate Tax, and Tax Havens
Political Geography:: South Asia and India

34. Taxless fiscal states: Lessons from 19th-century America and 21st-century China

Author:: Yuen Yuen Ang
Publication Date:: 03-2022
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: How do modern fiscal states arise? Perhaps the most dominant explanation, based on the European experience, is that democratic institutions that limited the extractive power of states—exemplified by the 1688 Glorious Revolution in England—paved the way for the rise of fiscal capacity and subsequent prosperity. Revisionist accounts, however, reveal that this dominant narrative is flawed. In fact, numerous factors converged to enable the rise of European fiscal states, and in England, debt and land were particularly salient factors. Building off this literature, I bring attention to the role of ‘taxless public financing’ (i.e. financing public infrastructure through means other than taxation) in the making of fiscal states in two seldom compared cases: 19th-century America and 21st-century China. Both countries relied heavily on taxless financing to launch an infrastructure boom that spurred rapid growth along with massive corruption and financial risks.
Topic:: History, Finance, Tax Systems, and Land
Political Geography:: China, Asia, North America, and United States of America

35. Two decades of Tanzanian health policy Examining policy developments and opportunities through a gender lens

Author:: Roosa Lambin and Milla Nyyssölä
Publication Date:: 03-2022
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: Tanzania has undertaken important health sector reforms in the new millennium, and the most recent Health Sector Strategic Plan (2021–26) lays out ambitious targets to achieve universal health coverage. Yet, women in Tanzania continue to face significant barriers in accessing healthcare and the country is grappling with important gender-biased health challenges disadvantaging women. The aims of this paper are two-fold. First, we examine the evolution of Tanzania’s health policy over the past two decades (2000–21) from the perspective of enhancing financial protection for working-age women. Second, we explore policy options for genderresponsive health insurance expansion in the context of Tanzania. Methodologically, the paper draws on a scoping study of diverse literature and data and a review of evidence from other contexts with public health insurance schemes. We find that Tanzania has a fragmented health system that relies on several independent schemes introduced throughout the years, characterized by insufficient risk-pooling. Such a system provides insufficient financial protection for workingage women and female-headed households, which are financially less secure than dual-earner households. Although expanding health insurance coverage represents a viable corrective measure, future reforms must account for women’s lower financial contribution capacity to enable equitable access. Additionally, the policy design requires gender-mainstreamed investments in awarenessraising, service quality, and benefit packages.
Topic:: Health Care Policy, Reform, Women, Finance, and Health Insurance
Political Geography:: Africa and Tanzania

36. Behavior Change in the Face of Disaster Risk Finance

Author:: Theodore Ezike
Publication Date:: 09-2022
Content Type:: Working Paper
Institution:: Feinstein International Center, Tufts University
Abstract:: Large-scale Disaster Risk Finance (DRF) mechanisms are relatively new tools in the field of humanitarian assistance and anticipatory action that can have significant positive effects on disaster recovery. However, there is a lack of analysis on how DRF can affect behavior or risk perception, which is important for countries to understand. Drawing on findings from similar programs, such as community health and microfinance, provided insights on areas where DRF may have impact on behavior. The available research indicates that disasters make people risk averse and that insurance and other DRF mechanisms can enable beneficial outcomes. Trust in public institutions, ideally the ones that manage DRF, alongside accurate and timely information from government or other relevant actors, is needed for acceptable levels of risk to be communicated and for appropriate corresponding actions to be taken.
Topic:: Climate Change, Finance, Disaster Management, and Humanitarian Response
Political Geography:: Global Focus

37. Algeria’s social support policy: Economic costs and the need for reform

Author:: Hami Hassan
Publication Date:: 02-2022
Content Type:: Working Paper
Institution:: Arab Reform Initiative (ARI)
Abstract:: With the ratification of the 2022 budget in Algeria, the issue of budget allocations for social support and social benefits has resurfaced once again. This paper attempts to understand the repercussions of state intervention in economic affairs, and the historical and ideological underpinnings of the welfare state in Algeria as a rentier state based on the nationalization of all economic relations in crisis political contexts, the effects of which extended to the state’s relationship with society and the relations of production within it.
Topic:: Economics, Reform, Finance, and Social Order
Political Geography:: Africa and Algeria

38. A Gravity Theory of Subordinate Financialisation

Author:: Photis Lysandrou
Publication Date:: 01-2022
Content Type:: Working Paper
Institution:: City Political Economy Research Centre (CITYPERC), University of London
Abstract:: Recent decades have marked both the globalisation of capitalism following the collapse of communism and its financialisation following the rapid growth of the world's securities markets. These developments have impacted the core-periphery divide in capitalism. In the case of globalisation, the entry of the ex-communist countries into the world capitalist system has swelled the ranks of the emerging capitalist economies (ECEs) that are kept subordinate through the pressures from the advanced capitalist economies (ACEs). In the case of financialisation, the growth of the securities markets has led to a palpable change in the pressures that perpetuate subordination. Where previously the use of authority was the chief source of those pressures, it now plays a secondary role. Absent that authority, and the ECEs would still be held in a subordinate position in global capitalism through the gravitational pull of the ACEs' financial securities markets. The central purpose of this paper is to explain this gravitational pull.
Topic:: Markets, Political Economy, Capitalism, Finance, and Financial Globalization
Political Geography:: Global Focus

39. Savings Glut, Secular Stagnation, Demographic Reversal, and Inequality: Beyond Conventional Explanations of Lower Interest Rates

Author:: Matias Vernengo
Publication Date:: 11-2022
Content Type:: Working Paper
Institution:: Political Economy Research Institute (PERI), University of Massachusetts Amherst
Abstract:: Interest rates have declined over the last 40 years, a period of increasing inequality. The steady decline in interest rates has been interpreted by and large as resulting from a decline of the natural rate of interest. This paper surveys the main explanations associated with the notion of a decline in the natural rate of interest, including the savings glut and the secular stagnation hypothesis. It analyzes the views according to which demographic forces were behind the decline, and might perhaps be associated to a future rise of the same natural rate. It also discusses the view according to which the role of inequality has been also to affect the natural rate of interest. Finally, views that discuss the role of monetary and financial factors, including the so-called global financial cycle literature, are discussed. It is argued that the conventional view suffers from logical and empirical problems that are ultimately insurmountable. A brief critique of the notion of a natural rate of interest, and alternative monetary theory of the decline of interest rates, as determined exogenously by the monetary authority of the hegemonic country, the United States, is proposed.
Topic:: Demographics, Inequality, Finance, and Interest Rates
Political Geography:: North America and United States of America

40. MF Dollars for Dictators? The Allocation of SDR to Moderate and Isolated Countries

Author:: Haggy Etkes
Publication Date:: 03-2022
Content Type:: Working Paper
Institution:: Institute for National Security Studies (INSS)
Abstract:: “The International Monetary Fund assisted radical regimes, including the Russian government and the Taliban in Afghanistan”: This claim was made given the allocation of Special Drawing Rights (SDR) by the IMF to states in the region. Is there truth to this charge?
Topic:: Economics, International Cooperation, Finance, and IMF
Political Geography:: Afghanistan, Russia, Europe, and Middle East

41. Does environmental policy uncertainty hinder investments towards a low-carbon economy?

Author:: Joëlle Noailly, Laura Nowzohour, and Matthias Van Den Heuvel
Publication Date:: 08-2022
Content Type:: Working Paper
Institution:: Centre for International Environmental Studies, The Graduate Institute (IHEID)
Abstract:: We use machine learning algorithms to construct a novel news-based index of US environmental and climate policy uncertainty (EnvPU) available on a monthly basis over the 1990-2019 period. We find that the EnvPU index spikes during the environmental spending disputes of the 1995-1996 government shutdown, in the early 2010s due the failure of the national cap-and-trade climate bill and during the Trump presidency. We examine how elevated levels of environmental policy uncertainty relate to investments in the low-carbon economy. In firm-level estimations, we find that a rise in the EnvPU index is associated with a reduced probability for cleantech startups to receive venture capital (VC) funding. In financial markets, a rise in our EnvPU index is associated with higher stock volatility for firms with above-average green revenue shares. At the macro level, shocks in our index lead to declines in the number of cleantech VC deals and higher volatility of the main benchmark clean energy exchange-traded fund. Overall, our results are consistent with the notion that policy uncertainty has adverse effects on investments for the low-carbon economy hindering progress to address the urgency of climate action.
Topic:: Environment, Finance, Economy, Investment, Institutions, and Decarbonization
Political Geography:: Global Focus

42. Hidden Defaults

Author:: Sebastian Horn, Carmen M. Reinhart, and Christoph Trebesch
Publication Date:: 01-2022
Content Type:: Working Paper
Institution:: Kiel Institute for the World Economy (IfW)
Abstract:: China’s lending boom to developing countries is morphing into defaults and debt distress. Given the secrecy surrounding China’s loans, also the associated defaults remain “hidden”, as missed payments and restructuring details are not disclosed. We construct an encompassing dataset of sovereign debt restructurings with Chinese lenders and find that these credit events are surprisingly frequent, exceeding the number of sovereign bond or Paris Club restructurings. Chinese lenders follow a resolution approach reminiscent of 1980s Western lenders; they seldom provide deep debt relief with face value reduction. If history is any guide, multi-year debt workouts with serial restructurings lie in store.
Topic:: Development, International Cooperation, Finance, Bonds, and Influence
Political Geography:: China and Asia

43. Closing Pandora’s Box: How to Improve the Common Reporting Standard

Author:: Menusch Khadjavi and Marjolein Vertelman
Publication Date:: 05-2022
Content Type:: Working Paper
Institution:: Kiel Institute for the World Economy (IfW)
Abstract:: The 2021 pandora papers show that many wealthy individuals and even politicians use shell companies to hide their fortunes. In order to fight international personal tax evasion, the Common Reporting Standard (CRS) was implemented and it helped governments to collect USD 85 billion already. USD 182 billion are still missing from the government budget because of personal tax evasion. The individual implementation strategies of CRS compliant countries can endanger the effectiveness of the Automatic Exchange of Information (AEOI). Several loopholes are used to circumvent the CRS. There are amendments possible which increase the effectiveness by improving the implementation strategies and closing the loopholes. The enforcement of the CRS should become stricter by removing financial institutions’ licenses to operate in cases of non-compliance. Beneficial ownership registers should increase transparency regarding investments and securities. Within the current momentum of international tax legislation, the CRS compliant countries may leverage the USA into signing the CRS as well. The USA could in turn demand a more effective CRS before signing it.
Topic:: Reform, Finance, Business, and Wealth
Political Geography:: Global Focus

44. Good Peacebuilding Financing: Recommendations for Revitalizing Commitments

Author:: Sarah Cliffe, Paige Arthur, and Betty N. Wainaina
Publication Date:: 03-2022
Content Type:: Working Paper
Institution:: Center on International Cooperation
Abstract:: At a moment of intense global pressure due to the pandemic and the Russian invasion of Ukraine, support for prevention and peacebuilding remains as vital as ever. This brief offers action-oriented recommendations to advance new and more inclusive approaches to peacebuilding financing on the eve of the UN High-level Meeting on Peacebuilding Financing.
Topic:: Conflict Prevention, United Nations, Finance, and Peacebuilding
Political Geography:: Global Focus

45. From Passive Owners to Planet Savers? Asset Managers, Carbon Majors and the Limits of Sustainable Finance

Author:: Joseph Baines and Sandy Brian Hager
Publication Date:: 02-2022
Content Type:: Working Paper
Institution:: City Political Economy Research Centre (CITYPERC), University of London
Abstract:: This article examines the role of the Big Three asset management firms — BlackRock, Vanguard and State Street — in corporate environmental governance. Specifically, it charts the Big Three’s relationships with the public–owned Carbon Majors: a small group of fossil fuels, cement and mining companies responsible for the bulk of industrial greenhouse gas emissions. It finds that the Big Three much more often than not oppose rather than support shareholder resolutions aimed at improving environmental governance. Notably, this is even the case with the Big Three’s environmental, social and governance funds. A more fine–gained analysis shows that the combined voting decisions of the Big Three are more likely to lead to the failure than to the success of environmental resolutions and that, whether they succeed or fail, these resolutions tend to be narrow in scope and piecemeal in nature. Based on these findings, the article raises serious doubts about the Big Three’s credentials as environmental stewards.
Topic:: Environment, Finance, Fossil Fuels, Sustainability, and Corporate Governance
Political Geography:: Global Focus

46. Financial eschatology and the libidinal economy of leverage

Author:: Amin Samman and Stefano Sgambati
Publication Date:: 01-2022
Content Type:: Working Paper
Institution:: City Political Economy Research Centre (CITYPERC), University of London
Abstract:: Apocalyptic thinking has a long religious and political tradition, but what place does it occupy within the temporal universe of contemporary capitalism? In this essay, we use the figure of the eschaton to draw out the loaded and ambiguous character of the future as it emerges through the condition of indebtedness. This entails a departure from political economy accounts of capitalist futurity, which stress the structural logic of financial speculation, in favour of an existential account that begins instead with the cosmology of money and debt. We argue that finance capital’s fixation on the future has produced a very specific form of apocalyptic imagination, characteristic of financial society and built on a libidinal economy of leverage. Rather than offering an ecstatic end to the global process of financialization, financial eschatologies bind the contemporary subject to debt and indebtedness to the very end: an endless apocalypse, premised on the ends of finance itself.
Topic:: Debt, Finance, Money, Eschatology, Futurity, Leverage, and Libidinal Economy
Political Geography:: Global Focus

47. Retail Central Bank Digital Currency: Has Its Time Come?

Author:: Pierre L. Siklos
Publication Date:: 02-2022
Content Type:: Working Paper
Institution:: Centre for International Governance Innovation
Abstract:: As central banks around the world prepare to launch central bank digital currencies (CBDCs), this paper looks at issues surrounding a retail version of CBDCs that would complement notes and coins for consumers. To build the public’s trust in this type of digital currency, concerns such as loss of privacy and security of financial transactions must first be addressed. In addition to these concerns, CBDCs carry the potential risks of overburdening central banks and disrupting cross-border transactions. These and other challenges can be overcome by ensuring the right regulatory and supervisory measures are in place before CBDCs take hold.
Topic:: Regulation, Finance, Central Bank, Banking, and Digital Currency
Political Geography:: Global Focus

48. The IMF should enhance the role of SDRs to strengthen the international monetary system

Author:: Edwin M. Truman
Publication Date:: 12-2022
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: The special drawing right (SDR), issued by the International Monetary Fund (IMF), has the potential to strengthen dramatically the international monetary system. Established in 1969 and allocated twice during its first decade, the SDR was in the institutional closet from 1980 until 2009, when $250 billion in SDRs was allocated to members of the IMF to help address the global financial crisis. In 2021 another $650 billion in SDRs was allocated to help address the coronavirus pandemic. The SDR has proved itself as a crisis instrument. This paper addresses critically the arguments against SDR allocations. It proposes regular annual SDR allocations, along with measures to make the SDR more attractive to critics and measures to build out the SDR system in support of the international monetary system. The paper includes an appendix on the history of the SDR. A second appendix analyzes SDR use following the 2009 and 2021 allocations and finds that contrary to the popular myth, many countries other than low-income members of the IMF benefited directly in multiple ways from those allocations.
Topic:: International Trade and Finance, Financial Crisis, Finance, and IMF
Political Geography:: Global Focus

49. So close and yet so far: the ability of mandatory disclosure rules to crack down on offshore tax evasion

Author:: Elisa Casi, Mohammed Mardan, and Rohit Reddy Muddasani
Publication Date:: 10-2022
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: We study the short-term effect of the introduction of the mandatory disclosure programme for aggressive tax arrangements by focusing on the one introduced in May 2018 under Council Directive 2018/288/EU (or DAC6). Employing bilateral data on cross-border deposits, we study the effect of this new disclosure requirement on cross-border tax evasion. Our results show a reduction of cross-border deposits in EU countries with strong enforcement, captured by large monetary penalties for misreporting. At the same time, we document a relocation of income and wealth to countries with limited intermediary reporting obligations. Finally, we detect a shortterm increase of US$14 billion in cross-border deposits held in countries offering citizenship/residence by investment programmes, suggesting the use of these schemes as regulatory arbitrage to circumvent the disclosure mandated under DAC6. We provide timely and relevant evidence contributing to the debate on international administrative cooperation to reduce cross-border tax evasion.
Topic:: European Union, Finance, Banking, Tax Evasion, and Administrative Cooperation
Political Geography:: Europe and Global Focus

50. Greeniums in sovereign bond markets

Author:: Monika Grzegorczyk
Publication Date:: 09-2022
Content Type:: Working Paper
Institution:: Bruegel
Abstract:: The total market value of green bonds exceeded half a trillion dollars in 2021 and will increase to $1 trillion by the end of 2022. The growing European green sovereign bond market has a value of close to €147 billion at issuance. We study whether investors price green sovereign bonds differently to normal sovereign bonds. We do not expect to find a so-called ‘greenium’: the promise attached to green sovereign bonds is rather loosely defined and green and normal sovereign bonds are both backed by the full faith and credit of their respective governments. However, when systematically matching green and normal sovereign bonds using a number of criteria, including date of issuance and maturity, a small greenium can be measured. More research is needed to understand why rational investors do not arbitrage away this greenium.
Topic:: Finance, Economy, Public Debt, Bonds, Green Economy, and Sovereign Bonds
Political Geography:: Global Focus

51. Mapping climate adaptation finance in Kenya's devolved governance system: a case of Makueni County

Author:: Judith Mulwa and Marie Ladekjær Gravesen
Publication Date:: 12-2022
Content Type:: Working Paper
Institution:: Danish Institute for International Studies (DIIS)
Abstract:: These years, countries are coming up with policies, laws and regulations aimed at mobilising finances to fund response measures for climate change adaptation. It is, therefore, imperative that these finances, among others, are mapped out so that we can track the measures that are financed, the types of financing that are used, and ultimately look at whether the available funds are meeting their objectives in the ways that they are being spent. Kenya is among the first countries to develop policies, strategies and institutional frameworks for climate action, creating a policy and legal environment to advance an effective climate change response. And specifically, Kenya’s Makueni County has enacted county-level climate change regulation as part of the implementation of the national agenda on climate change. The Makueni county government and its partners have made significant efforts to build the capacity to integrate climate information into CIDPs and apply it to resilience planning and budgeting processes. Doing so, Makueni County has been able to attract climate finance in the recent past. The integration of climate financing in the budgetary processes and allocation is an important example that other counties and governance institutions could embrace to attract climate financing and to ensure that impact of the financing is felt at community level. This DIIS Working Paper is a first step at exploring these dynamics, looking at the main types of devolved public funds from the Kenyan ministries and at how Makueni has adapted local institutions and policies to meet local needs of financing for adaptation activities.
Topic:: Climate Change, Governance, Finance, and Adaptation
Political Geography:: Kenya and Africa

52. Devolution of donor funded climate change adaptation finance

Author:: Per Tidemand, Andrew Hattle, Esbern Friis-Hansen, Beatrice Sumari, Peter Rogers, Judith Mulwa, and Millicent Omala
Publication Date:: 12-2022
Content Type:: Working Paper
Institution:: Danish Institute for International Studies (DIIS)
Abstract:: From 2013-2019 Tanzania received USD 2.0 billion as adaptation-related development finance, whereas Kenya received USD 3.3 billion. Based on the OECD database, this DIIS Working Paper analysis projects based on their financial value, measured as ‘adaptation-related development finance’. This is combined with an analysis of the project documents to measure degree of devolution was developed with three main parameters: the extent to which finance was managed through local government accounts; the extent to which the projects in the respective national budgets were considered devolved; and the use of participatory planning arrangements for management of the funds. Given Kenya’s greater emphasis on devolution, its fiscal strengths, and the autonomy of its counties, when compared to Tanzanian local governments, it was assumed that adaptation-related development finance would be relatively more devolved in Kenya than Tanzania. However, preliminary analysis suggests otherwise. The analysis also suggests that projects classified by development partners as ‘adaptation-related development finance’ in several cases exaggerate levels of funding and only contribute marginally to improved local governance of climate adaption activities.
Topic:: Climate Change, Governance, Finance, and Adaptation
Political Geography:: Kenya, Africa, and Tanzania

53. Private Insurance, Public Welfare, and Financial Markets: Alpine and Maritime Countries in Comparative-Historical Perspective

Author:: A. van der Heide and S. Kohl
Publication Date:: 01-2022
Content Type:: Working Paper
Institution:: Max Planck Institute for the Study of Societies
Abstract:: Contemporary capitalist societies use different institutions to manage economic risks. While different public welfare state and financial institutions (banks, capital markets) have been studied across coordinated and liberal market economies, this paper adds the private insurance sector to the study of countries’ security arrangements, following up on Michel Albert’s classical distinction between Alpine and Maritime insurance cultures. Building on extensive new insurance data collections (1880–2017) and institutional analysis, this paper corroborates the long-run historical existence of two worlds of private insurance. Maritime countries (USA, GBR, CAN) developed much bigger life and non-life insurance earlier, with no state-associated insurance enterprises and riskier investments steered towards financial markets. Alpine insurance (AUT, DEU, CHE), by contrast, was initially smaller, with strong state involvement, a significant reinsurance tradition and relatively heavy investments in mortgages and property, due to economic and financial backwardness. We argue that the larger and more “Maritime” the insurance sector, the more it made welfare states liberal and securities markets large. Insurance is thus a hidden factor for countries’ varieties of capitalism and world of welfare. The recent convergence on the Maritime model, however, implies that the riskier and risk-individualizing type of private insurance has added to privatization and securitization trends everywhere.
Topic:: Development, Capitalism, Finance, and Welfare
Political Geography:: Global Focus

54. Central Banks Caught Between Market Liquidity and Fiscal Disciplining: A Money View Perspective on Collateral Policy

Author:: Jakob Vestergaard and Daniela Gabor
Publication Date:: 12-2021
Content Type:: Working Paper
Institution:: Institute for New Economic Thinking (INET)
Abstract:: Despite much attention to unconventional monetary policies after the financial crisis, the collateral policies of central banks are rarely discussed. And when they are, the haircuts applied to assets pledged to access central bank liquidity tend not to be analyzed. An exception to these trends is the recent work by Nyborg (2017), who argues that the collateral policies adopted by the European Central Bank (ECB) aggravated the sovereign debt crisis and put the survival of the euro at risk. Taking our point of departure in the money view literature (Mehrling 2011), we argue however that Nyborg’s critique of the ECB’s crisis response is misguided and that his proposal to deepen and reinforce the ECBs role in the fiscal disciplining of member states would be procyclical and destabilizing. Through our analysis of Nyborg’s work and the ECBs crisis response, we identify core principles for countercyclical collateral policies suitable for market-based financial systems.
Topic:: Monetary Policy, Financial Crisis, Finance, and Banking
Political Geography:: Global Focus

55. Navigating the Straits: Pull Financing for Climate and Development Outcomes

Author:: Ranil Dissanayake
Publication Date:: 11-2021
Content Type:: Working Paper
Institution:: Center for Global Development
Abstract:: An increasing share of official development assistance is being used for climate-related activities. This trend is continuing despite the lack of comprehensive cost-effectiveness evidence to guide spending decisions and continuing concerns that few applications are effective or efficient mechanisms for either climate or development outcomes. This represents both a waste of scarce resources and a missed opportunity. This paper proposes that a well-designed pull financing mechanism, which identifies specific problems for which it will pay a pre-specified price for solutions that can scale up, has the potential to navigate these problems. When they work, a pull instrument can solve problems at scale at low cost by incentivizing private innovators to produce a socially beneficial product that people want to buy and use. However, the design challenges associated with them are not trivial: firstly, the identification and selection of technologies or problems for which the pull financing facility would be a sufficiently large portion of the market to shift incentives for innovators or producers (for technologies that exist but have not been taken up widely yet); and secondly, the ability to design contracts that incentivize socially beneficial innovation that are bought and used. This paper sets out the case for pull financing for climate and development activities, the challenges that need to be addressed to do it well, criteria for judging potential applications of pull financing and an initial indication of some sectors to which pull financing may be applied.
Topic:: Climate Change, Development, Environment, and Finance
Political Geography:: Global Focus

56. Translating Results-Based Financing from Theory to Operational Reality: Lessons from the Practical Application of RBF at the European Commission

Author:: Rachel Silverman
Publication Date:: 10-2021
Content Type:: Working Paper
Institution:: Center for Global Development
Abstract:: esults-based financing (RBF) is one of several broad approaches to finance official development assistance (ODA) “that attempt[s] to connect at least a portion of payment to the verified achievement of results.” Despite some relatively high-profile programs and pilots—and broad interest and curiosity—RBF approaches have yet to penetrate the routine operations of large institutional grant- and contract-based funders, many of which are governed by complex bureaucracies, restrictive financial regulations, and deeply entrenched, risk-averse corporate cultures. The European Commission (EC) is one large and influential donor that has shown a long-standing interest in RBF approaches but is still in initial phases of implementation. Informed by a research partnership between the Center for Global Development (CGD) and EC Commission Directorate-General for International Partnerships (INTPA), this Policy Paper reflects on the experience and lessons learned in attempting to operationalize RBF at scale within a large funder of ODA, with important implications for the broader international development community. Starting at the macro level, it considers the institutional prerequisites for adoption of RBF within a donor agency—in this case, the European Commission/INTPA. It then zooms into the project-level design and negotiation process, including the choice of implementing partner (in this case a United Nations agency) and political and technical stumbling blocks. It concludes with a discussion of remaining challenges for broader use.
Topic:: Development, International Cooperation, Regional Cooperation, and Finance
Political Geography:: Europe

57. Are Development Finance Institutions Good Value for Money?

Author:: Paddy Carter
Publication Date:: 10-2021
Content Type:: Working Paper
Institution:: Center for Global Development
Abstract:: Finance institutions take money from foreign aid budgets to invest in private enterprises. How much should they be given? We can make some progress on that question by looking at the return on investment in the form of higher real incomes for workers and customers, and comparing that to a cash transfer benchmark. There is considerable uncertainty, but what evidence we have suggests returns on investment are in a range that compares well to that benchmark. There is also a diversification argument that because we don’t know which of the things that aid can finance will ultimately prove most important for poverty eradication, aid allocation should hedge its bets. A low single digit percentage of aid allocated to increase the quantity and quality of private investment in low- and middle-income countries seems reasonable.
Topic:: Development, Foreign Aid, Finance, Investment, and Institutions
Political Geography:: Global Focus

58. Operationalizing Climate Adaptation at the US International Development Finance Corporation: The Case for an Agriculture-Led Agenda in Low-Income Countries

Author:: Clemence Landers, Jocilyn Estes, and Scott Morris
Publication Date:: 09-2021
Content Type:: Working Paper
Institution:: Center for Global Development
Abstract:: The US International Development Finance Corporation (DFC) could be well placed to lead among development finance institutions (DFIs) on agriculture adaptation to climate change. With its mandate to support private investment in developing country markets, overcoming barriers to investment in agricultural adaptation—where agricultural growth is an estimated two to four times more effective at reducing poverty than growth originating from other sectors—is exactly the type of activity DFC is intended to pursue. Yet, DFC is paradoxically prone to the same investment incentives and disincentives as private investors with an investment portfolio that tends to favor lower risk, higher deal size (and lower overhead) transactions. So, while global estimates for adaptation investments financing needs total close to $140-$300 billion by 2030, a fraction of the global mitigation needs measured in the trillions of dollars, the barriers to project level investment in agriculture adaptation and resilience raises the risk that DFC will continue to favor larger and lower risk mitigation investments in more established markets. This paper reviews DFC’s agriculture portfolio, and based on this review, proposes elements of an agriculture strategy that can overcome barriers to adaptation and resilience investments in the most climate vulnerable markets.
Topic:: Agriculture, Climate Change, Environment, and Finance
Political Geography:: Global Focus

59. How Effectively Is the Asian Development Bank Responding to COVID-19? An Early Assessment

Author:: Azusa Sato, Rakan Aboneaaj, and Scott Morris
Publication Date:: 08-2021
Content Type:: Working Paper
Institution:: Center for Global Development
Abstract:: In 2020, the Asian Development Bank (ADB) joined efforts by other multilateral development banks (MDBs) to rapidly scale up support to developing countries to address COVID-19. Beyond headline numbers, there has been less focus on how ADB’s support was distributed by country income group, sector, modality, and product. Using an updated dataset on commitments and disbursements between 2018 and end of December 2020, we compare “pre-crisis” and “crisis period” trends. We overlay ADB data on other publicly available datasets reflecting population size, mobility levels, and government fiscal stimulus to evaluate the responsiveness and size of ADB support vis-à-vis other MDBs. Our findings show ADB’s response was most significant in the countries that most needed support—low income economies with sharp GDP declines and limited fiscal response capacity. The health and public sector management sectors had significant surges in commitments, and impacted the modality used. While there was a rise in grant and concessional financing in 2020, non- concessional loans and sovereign operations still dominated during the crisis period. We suggest further work on how these changes impact development outcomes, with a view to recalibrating the bank’s strategies in some sectors and products in the medium term.
Topic:: Development, Finance, Pandemic, COVID-19, and Banking
Political Geography:: Asia

60. Binding Constraints on Digital Financial Inclusion in Indonesia: An Analysis Using the Decision Tree Approach

Author:: Firman Witoelar, Teguh Yudo Wicaksono, and Carlos Mangunsong
Publication Date:: 07-2021
Content Type:: Working Paper
Institution:: Center for Global Development
Abstract:: Despite the concerted efforts of the Indonesian government to increase financial inclusion and the e-commerce–led growth of digital payment services, a large proportion of the country’s population remains financially excluded. Much of the growth and innovation has mainly benefited those already financially included. To understand this outcome, we use the decision tree approach developed by Claessens and Rojas-Suárez (2020), focusing on one of the products with the largest potential to increase financial inclusion in the country: e-money. Our analysis finds that a crucial binding constraint on the expansion of e-money services is a regulatory framework that creates an unlevel playing field between banks and nonbank providers of digital financial services. Regulatory restrictions applied to nonbanks on cashout services, agent recruitment, and know-your-customer processes are at the core of the problem. In addition, a perception of low benefits from the usage of formal financial services results in a lack of the critical mass of customers necessary to ensure the profitability of agents, particularly in remote and rural areas, and thus the expansion of e-money services. We also find other constraints that are not binding at the national level but are binding for some specific groups. The low provision of digital infrastructure in rural areas outside Java is one of them. In addition, constraints such as low trust in providers, though not binding, should be addressed in order to maximize the gains that could be obtained from relaxing the binding constraints.
Topic:: Development, Finance, Digitalization, and Digital Finance
Political Geography:: Indonesia and Oceania

61. Exploring How the US International Development Finance Corporation Can Support Health Sector Investments: Is the Glass Half Full or Half Empty?

Author:: Julia Kaufman, Janeen Madan Keller, and Rachel Silverman
Publication Date:: 07-2021
Content Type:: Working Paper
Institution:: Center for Global Development
Abstract:: Health sector investments present an opportunity for the US International Development Finance Corporation (DFC), under the Biden-Harris administration, to demonstrate meaningful global leadership and refocus on its development mandate, driving broader health benefits and contributing to global economic recovery. DFC’s early days have been defined by a mixed record, notably in the health sector. Still, in the context of the pandemic’s health and economic impacts, the agency is well positioned to help strengthen pandemic preparedness and expand equitable access to health products and innovation in low- and middle-income countries. Through investments to build private sector manufacturing and delivery capacity, DFC can help stem and reverse these losses and insure against future health crises. This policy paper explores how DFC can strategically invest in health while balancing sometimes competing policy imperatives related to health equity, commercial viability, and foreign policy interests. We first provide an overview of the development finance landscape in the health sector and select DFC health-focused investments to date. We then suggest three high-impact engagement opportunities in the health sector for DFC to consider, including building regional manufacturing hubs for health supplies; providing R&D incentives for biotechnology; and supporting robust supply chains for health-adjacent services and delivery models. Lastly, we outline key principles to guide future DFC health sector investments, such as compatibility with long-term universal health coverage goals, a learning agenda for development effectiveness, and health-specific considerations for additionality and co-financing.
Topic:: Development, Health, Finance, and Investment
Political Geography:: North America and United States of America

62. Identifying Binding Constraints on Digital Payment Services in Ethiopia: An Application of a Decision Tree Framework

Author:: Getnet Alemu, Tadele Ferde, and Alejandro Fiorito
Publication Date:: 07-2021
Content Type:: Working Paper
Institution:: Center for Global Development
Abstract:: While several comparable countries in sub-Saharan Africa have seen a significant increase in financial inclusion, mainly driven by digital financial services, Ethiopia still performs poorly. Even digital payment and transfer services, which lower-income and less literate segments of the population could benefit from, are rarely used. Given the low development level of Ethiopia, numerous supply and demand factors could explain this disappointing outcome. We use a decision tree framework to isolate and analyze potential constraints to find which are binding—that is, which constraints limit the expansion of digital payment services in Ethiopia. Our analysis indicates that supply-side problems are pervasive, and we find that competition problems in the essential digital infrastructure market and in the financial sector are responsible for the inadequate provision of digital payment services in Ethiopia. However, the root cause of inadequate competition, and therefore of low financial inclusion through digital payment services, is institutional deficiencies. The two key institutional deficiencies are the lack of capacity of regulatory and supervisory institutions, and the unwillingness of the central government to enable and promote competition. The dominance of public enterprises, Ethio Telecom and the Commercial Bank of Ethiopia, has kept the prices of digital payment services high, particularly for low-income populations, as fees charged for undertaking low-value transactions are very high and the cost of digital infrastructure (mobile phones and plans) is also substantial. Unless these institutional binding constraints are removed, digital payment services in Ethiopia, and digital financial services more generally, will hit a very short ceiling that limits their enormous potential to improve livelihoods in the country.
Topic:: Development, Finance, Digital Economy, and Digitalization
Political Geography:: Africa and Ethiopia

63. A Decision Tree for Digital Payment Services: The Case of Mexico

Author:: Ivonne Acevedo and Miguel Szekely
Publication Date:: 07-2021
Content Type:: Working Paper
Institution:: Center for Global Development
Abstract:: This paper explores the reasons why digital payment services in Mexico are used to a much lower extent than would be expected considering the country’s level of development and the authorities’ efforts to expand these types of services during the past two decades. The paper applies the analytical framework proposed by Claessens and Rojas-Suarez (2020), which consists of identifying the binding constraints preventing an increase in the usage of digital payment services, among a set of alternative explanations. The methodology starts by evaluating the price and usage of digital payment services to discover whether constraints may be on the supply side, the demand side, or both. The main findings suggest that the crucial binding constraints on the expansion of digital payment services in Mexico are mainly on the supply side of the decision tree. Indeed, we identify the regulatory framework seems to be a binding constraint, since it creates an unlevel playing field among the providers of digital payment services. Current regulation could also be a constraint on increasing the provision of digital financial infrastructure, particularly for expanding cash-in and cash-out access points in rural areas. Thus, relaxing the regulatory constraint could enable the expansion of digital payment services. In addition, there is evidence suggesting that a coordination failure, reflected in a strong preference for transacting in cash, might be a binding constraint in the country. Perceived low or nonexistent benefits from using digital payment services could be the source of the coordination failure, since it prevents the formation of a critical mass of users, which in turn discourages suppliers from offering these services.
Topic:: Economics, Finance, Services, and Digitalization
Political Geography:: North America and Mexico

64. Searching for the Binding Constraint to Digital Financial Inclusion in Pakistan: A Decision Tree Approach

Author:: Imran Khan and Karrar Hussain Jaffar
Publication Date:: 07-2021
Content Type:: Working Paper
Institution:: Center for Global Development
Abstract:: Over the last decade, Pakistan has seen improvements in the coverage of its networks of bank branches, ATMs, and mobile money agents. However, the country is lagging behind comparator countries when it comes to the financial inclusion of its population; according to the latest estimates, barely 20 percent are currently included. By using the Claessens and Rojas-Suarez (2020) decision tree methodology, this paper assesses the potential demandand supply-side constraints limiting the usage of digital payment services to identify which constraints are binding. Our main finding is that Pakistan’s institutional weaknesses constitute the most important binding constraint. These weaknesses have incentivized the creation of a sizable informal economy that has resulted in a preference for cash over the use of formal financial channels for the majority of the population. Reflecting institutional deficiencies, the imposition of a withholding tax on financial transactions undertaken by individuals who did not file tax returns has further encouraged a move toward cash and away from digital finance. On the demand side, Pakistan lags behind comparable countries on various indicators such as technical literacy, awareness about the functionality of products, and social inclusion of women. Nevertheless, we find that these constraints are severe only for specific subpopulations. Consistent with our conclusion that institutional weaknesses, the binding constraint, have created deep incentives to remain informal, a considerable proportion of mobile phone–owning financially excluded individuals continue to choose to be financially excluded in spite of having high levels of technical literacy, functional awareness, and trust.
Topic:: Finance, Innovation, Banking, and Digitalization
Political Geography:: Pakistan and Asia

65. Improving Performance in the Multilateral Humanitarian System: New Models of Donorship

Author:: Patrick Saez, Lewis Sida, Rachel Silverman, and Rose Worden
Publication Date:: 06-2021
Content Type:: Working Paper
Institution:: Center for Global Development
Abstract:: The humanitarian system has undergone three series of reforms over the past couple of decades, with mixed results. Multilateral agencies play a central role in the system. Faced with the prospect of growing humanitarian needs as a result of conflict, climate change and pandemics, the elusive quest to improve their performance continues. Yet while donors agree on the benefits of a strong multilateral system to respond to humanitarian crises, they diverge when it comes to measuring performance and providing financial incentives. A political economy defined by co-dependence and information asymmetry complicates the picture. Donors should unbundle their funding of different multilateral functions and measure their performance accordingly. Commonly agreed core functions and capacities should be supported by a greater proportion of core rather than earmarked funding. Performance of these core functions should be measured using multi-donor assessments and functional reviews. Independent measurement of outcomes should be linked to pooled mechanisms that would channel a significantly greater proportion of funding earmarked to specific crises.
Topic:: Finance, Multilateral Relations, Multilateralism, and Donors
Political Geography:: Global Focus

66. An Analysis of the Binding Constraints on Digital Financial Inclusion in India Using a Decision Tree Methodology

Author:: Nandini Harihareswara and Howard Miller
Publication Date:: 04-2021
Content Type:: Working Paper
Institution:: Center for Global Development
Abstract:: The past decade has seen significant innovation and growth in the volume and value of digital payments in India. However, we find that the associated gains have been heavily concentrated in favor of wealthier and urban customers and have had less impact on lower income and rural populations. While some customers now have a far greater selection of quick, cheap, and convenient digital payments methods, as much as 65 percent of the population remains effectively excluded. Using a decision tree framework, we test a range of factors on the supply and demand sides that could be binding constraints on further digital finance penetration. We find that an unlevel playing field in favor of the (primarily state-owned) banking sector results in a lack of effective competition that could be inhibiting greater innovation and outreach in favor of lower-income and marginalized people. This unlevel playing field is potentially a function of institutional weakness combined with the nexus of control of the government and the banking sector, which is reinforced by the position of the National Payments Corporation of India. This control may also be viewed by the government as necessary to protect economic stability in a very dynamic market. To the extent that institutional deficiencies are the root cause of regulatory barriers to the entry of new providers and the scope of digital financial services offered, they are a binding constraint on advancing digital financial inclusion. Under this market structure, the outreach and inherent business models of digital payments and transfers do not provide sufficient perceived benefits to attract large segments of the population. Further, a lack of trust in providers combines with the perception of low benefits to generate an additional binding constraint, preventing the market from reaching a critical mass at which the bulk of the population would have the means and the incentives to use the system. Therefore, the market remains at an equilibrium below its potential.
Topic:: Development, Governance, Finance, and Digitalization
Political Geography:: India and Asia

67. Climate Change, Central Banking, and Financial Supervision: Beyond the Risk Exposure Approach

Author:: Yannis Dafermos
Publication Date:: 09-2021
Content Type:: Working Paper
Institution:: School of Oriental and African Studies - University of London
Abstract:: It is now increasingly accepted that central banks and financial supervisors can no longer ignore climate change. However, there is no consensus on how they should address climate issues. On the one hand, there is a view that central banks and financial supervisors should mainly contribute to the assessment of the exposure of the financial system to climate-related financial risks, considering at the same time the possibility of incorporating climate risks into monetary policy and financial supervision and regulation. On the other hand, it is argued that central banks and financial supervisors need to take action such that they contribute directly to the decarbonisation of our economies and the prevention of climate systemic risks. In this paper, I analyse the main premises and implications of these two approaches and I explain why a systemic risk approach is necessary in the age of climate emergency. I also discuss the challenges involved in a policy agenda aiming at the reduction of climate systemic risks and I outline how these challenges can be tackled.
Topic:: Climate Change, Finance, Risk, and Banking
Political Geography:: Global Focus

68. Why do Sovereign Borrowers Post Collateral? Evidence from the 19th Century

Author:: Marc Flandreau, Stefano Pietrosanti, and Carlotta E. Schuster
Publication Date:: 10-2021
Content Type:: Working Paper
Institution:: Institute for New Economic Thinking (INET)
Abstract:: This paper explores the reasons why sovereign borrowers post collateral. Such behavior is paradoxical because conventional interpretations of collateral stress repossession of the assets pledged as the key to securing lenders against information asymmetries and moral hazard. However, repossession is generally difficult in the case of sovereign debt and in some cases impossible. Nevertheless, such sovereign “hypothecations” have a long history and are again becoming very popular today in developing countries. To explain sovereign collateralization, we emphasize an informational channel. Posting collateral produces information on opaque borrowers by displaying borrowers’ behavior and resources. We support this interpretation by examining the hypothecation “mania” of 1849-1875, when sovereigns borrowing in the London Stock Exchange pledged all kinds of intangible revenues. Yet, at that time, sovereign immunity fully protected both sovereigns and their assets and possessions. Still, we show that hypothecations significantly decreased the cost of sovereign debt. To explain how, we stress the pledges’ role in documenting sovereigns’ wealth and the management of revenue streams. Based on an exhaustive library of bond prospectuses collected from primary sources, matched with a panel of sovereign bond yields and an innovative measure of sovereign fiscal transparency, we show that collateral minutely described in debt covenants served to document and monitor sovereign resources and development prospects. Encasing this information in contracts written by lawyers served to certify the quality of the resulting data disclosure process, explaining investors’ readiness to pay a premium.
Topic:: Economics, Finance, History, Innovation, Contracts, Sovereign Debt, and Collateral
Political Geography:: Global Focus

69. Fiscal Policy Letter No5: Improving Financial Inclusion To Broaden The Tax Base In Cameroon

Author:: Jean-Cedric Kouam and L.B. Bongbinsin
Publication Date:: 07-2021
Content Type:: Working Paper
Institution:: The Nkafu Policy Institute
Abstract:: For several months, Cameroon has been facing the ravages of the pandemic caused by the coronavirus. To stop the spread of the virus, the Cameroonian authorities in April 2020 announced a series of fiscal easing measures to help companies and households in difficulty. Estimated at more than 114 billion CFA francs according to the Director-General of Taxation, the decisions taken have profoundly impacted public finances. Indeed, well before the pandemic, the country was already facing a high risk of external debt overhang (IMF, 2018) and immense security challenges in the North and the Anglophone regions. Despite this constraining socioeconomic and political context, the state must find the necessary and sufficient resources to ensure its proper functioning and territorial integrity. This fiscal policy letter proposes through analyzes a way for the government of Cameroon to increase its tax revenues in the coming years without penalizing growth: improving financial inclusion. The goal is to eliminate all constraints that exclude the most disadvantaged from full participation in the financial sector. The letter is structured around six key points. First, we provide an overview of Cameroon’s financial inclusion situation. Second, we analyze the factors that explain economic agents’ access to financial services, the transmission mechanisms between the financial and formal sectors, and the barriers to financial inclusion in Cameroon. Our results show that a deepening of the financial system would likely positively affect tax mobilization in Cameroon. Estimates show that a 10% increase in financial assets would lead to a 1.87% increase in tax revenue, equivalent to CFAF 49.70 billion – based on the level of tax revenue projected in the 2021 budget law. Similarly, a 10% increase in the number of secure servers – better access to the internet – would lead to a 1.1% increase in tax revenue, equivalent to CFAF 30.62 billion. This improvement in access to financial services for all economic agents – households, businesses – requires the public authorities to make the current regulations more flexible and increase the banking network’s density. This includes the development of payment systems, the construction of quality infrastructures, the definition of mechanisms to limit massive illicit capital flight, and the multiplication of consumer/investor protection guarantees.
Topic:: Development, Infrastructure, Governance, Finance, and Tax Systems
Political Geography:: Africa and Cameroon

70. Information Asymmetry: A Major Obstacle to Credit Provision In Cameroon

Author:: Jean-Cedric Kouam and Maurice Tchegho
Publication Date:: 07-2021
Content Type:: Working Paper
Institution:: The Nkafu Policy Institute
Abstract:: According to the report published by the World Bank, which ranks the world’s economies Doing Business (2020) according to the ease of doing business, Cameroon ranked 167th out of 190 economies, a loss of one place compared to 2019. However, the country gained 0.1 point by recording a score of 46.1 points out of the 100 at stake. According to the World Bank, this slight increase is the result of the improvement of one of the ten indicators taken into account in the calculation of the score, that relating to access to credit. Indeed, with the help of the Economic and Monetary Community of Central Africa (CEMAC), Cameroon has established a framework for the granting of licenses and the operation of credit bureaus (1) which has enabled it to rank 80th in terms of obtaining credit, with a score of 60 out of 100 for obtaining credit and 6 for the depth of information on credit. Conversely, the score for credit bureaus is zero (World Bank, 2020). Despite this notable progress, particularly with regard to access to credit information, information asymmetry remains a serious problem in the relationship between the credit applicant and the credit provider in Cameroon. Defined as the lack of communication of accurate and reliable information from companies, this translates into the fact that one of the contracting parties holds information that it decides, voluntarily or not, to transmit to the other party. This constitutes an obstacle to project financing. From this situation, a major concern arises: What are the causes and consequences of informational opacity in the credit granting process in Cameroon?
Topic:: Communications, Finance, Business, and Credit
Political Geography:: Africa and Cameroon

71. A Look at the Legal Framework and Constraints of Credit Granting In Cameroon

Author:: Steve Tametong and Martial Nteme
Publication Date:: 07-2021
Content Type:: Working Paper
Institution:: The Nkafu Policy Institute
Abstract:: The realisation of an investment depends, in certain cases, on the use of credit. The granting of credit requires a prior credit operation. According to section 3 of Law No. 2019/021 of 24 December 2019 to lay down certain rules relating to credit activity in the banking and microfinance sectors in Cameroon, a credit operation means “the act by which a reporting institution, acting for consideration, advances or promises to advance funds to a natural or legal person, or makes a commitment by signature in the interest of the latter”. In reality, the credit applicant is faced with challenges that stem partly from his or her ignorance of the legal framework for granting credit in Cameroon. It is therefore necessary for each credit applicant to master the legal environment that governs the granting of credit. This is the first articulation of this analysis (I). The second section examines the conditions and constraints of credit granting (II). The third section sets out recommendations for improving the framework for granting credit in Cameroon (III).
Topic:: Infrastructure, Finance, Investment, and Credit
Political Geography:: Africa and Cameroon

72. The Financial Decentralization Of Local Governments Tested By The Principle Of Cash Flow In Cameroon

Author:: Theophile Nguimfack Voufo and Steve Tametong
Publication Date:: 07-2021
Content Type:: Working Paper
Institution:: The Nkafu Policy Institute
Abstract:: In the face of the multiple socio-political crises that Cameroon is experiencing, the form of the state is now being debated, against the backdrop of the issue of governance. Seen in its political, administrative or financial dimensions, state governance has failed miserably in terms of socio-economic development issues. To remedy this, the public authorities recognize the need to complete the decentralization process. Is this commitment, which is regularly reinforced by the media, a way out of the crisis? From a legal point of view, the evolution of the decentralization process is marked by two fundamental requirements: the transfer of powers on the one hand, and the subsequent transfer of resources to exercise these powers on the other. Since 2010, the central executive has been committed to the transfer of powers to local authorities. However, the principles of complementarity, subsidiarity and even concomitance mark the return of the state, whereas decentralization implies a priority of action for the decentralized communities. In this respect, the transfer of powers is accompanied by the transfer of resources, in particular local taxation and allocations from the State budget. Local taxation, grants and own resources acquired by decentralized authorities constitute the basis of financial decentralization. It requires that the resources transferred to local governments be freely managed. This refers to the ability to mobilize these resources without being hindered by state bodies. This freedom remains an illusion in the presence of the principle of the unity of the treasury. This principle links the treasury of decentralized communities to that of the State, which can have several implications for the financial freedom of action of these communities. Given the current challenges of decentralization in Cameroon, the question arises as to whether the unity of the treasury is compatible with the financial decentralization of decentralized local authorities. Questioning the relevance of this principle allows us to verify whether this classic rule is not already obsolete in Cameroon. Analysis shows that the principle of the cash unit is incompatible with financial decentralization (I) and should be reconsidered (II).
Topic:: Government, Finance, Local, and Decentralization
Political Geography:: Africa and Cameroon

73. Diaspora Investors and Access to Bank Credit in Cameroon: Constraints and Opportunities

Author:: Ballo Ngomna and Joel Moudio
Publication Date:: 09-2021
Content Type:: Working Paper
Institution:: The Nkafu Policy Institute
Abstract:: According to the Doing Business 2020 report, “compared to the previous year, sub-Saharan African economies improved their average score by 0.9 points” on the Doing Business index, which ranks countries on the ease of doing business. Overall, Cameroon’s index value (46.1) does not give it an honourable ranking (167th out of 190). However, its ranking is better in terms of obtaining loans (80th out of 190), one of the ten components used to calculate the index.
Topic:: Economics, Finance, Credit, and Banking
Political Geography:: Africa and Cameroon

74. Ease of Paying Taxes In Cameroon

Author:: Henri Kouam
Publication Date:: 10-2021
Content Type:: Working Paper
Institution:: The Nkafu Policy Institute
Abstract:: The Doing Business Index of the World Bank ranks economies based on their performance in several businesses and governance-related indicators. One of the most important indicators for developing economies such as Cameroon is the “Paying Taxes Indicator,” as investors closely watch this metric to determine the attractiveness of a country to Foreign Direct Investment.
Topic:: Governance, Finance, Tax Systems, and Banking
Political Geography:: Africa and Cameroon

75. Examining the Difficulties Encountered by Women in Obtaining Credit in Cameroon

Author:: Jean-Cedric Kouam, Ulrich D'Pola, and Shandy Mopia
Publication Date:: 10-2021
Content Type:: Working Paper
Institution:: The Nkafu Policy Institute
Abstract:: In Cameroon, women represent 50% of the total population (World Bank, 2020). Vulnerable jobs among women – i.e., those of unpaid family workers and those of self-employed persons – represent 80.82% of total jobs among women, compared to 62.89% among men (World Bank, 2019). One of the reasons for the high vulnerability of women’s employment is the difficulty of accessing finance (credit), which is limited to micro-finance. Indeed, more than 90% of women do not have an account with a formal banking institution and therefore cannot benefit from the credit, and only 16.8% of women have access to credit for any use. However, access to credit and other financial services for women is a prerequisite for the economic empowerment of women and promulgation of gender equality. It is a pathway to fight against the economic marginalization of women and promote economic inclusion. The role of women in economic development cannot be underestimated, even though most women are involved in the informal sector. Major challenges, such as access to credit, limit the ability of women to grow from the informal to the formal sector or exploit the same economic opportunities as men. This challenge is pertinent and is faced by several countries in sub-Saharan Africa, where most women are involved in informal activities such as agriculture. While the general conditions necessary for access to credit in Cameroon do not discriminate gender-wise, women still face several impediments that make access to credit difficult for them as compared to men. This article looks at the difficulties encountered by women in obtaining credit and makes key recommendations to respond to these challenges to make credit easily accessible for women.
Topic:: Gender Issues, Finance, Credit, Banking, and Equality
Political Geography:: Africa and Cameroon

76. Report on the 2021 Budget of Cameroon: An Analysis of the Sustainability of the Public Debt

Author:: Jean-Cedric Kouam, Henri Kouam Tamto, Bin Joachem Meh, and Marlyse Noussi
Publication Date:: 11-2021
Content Type:: Working Paper
Institution:: The Nkafu Policy Institute
Abstract:: The purpose of this report is to analyze the 2021 budget of the State of Cameroon, examining the sustainability of public debt. We use data extracted from the Republic of Cameroon’s Finance Laws, notably those for 2021; available public debt data from the Autonomous Sinking Fund; as well as forecasts made by the Ministry of the Economy, Planning, and Regional Development in the New National Development Strategy 2020-2030. Using the framework for analyzing public debt sustainability defined jointly by the International Monetary Fund and the World Bank in 2018, we show that Cameroon’s public debt, while still sustainable (estimated at 46.9% of Gross Domestic Product, thus remaining below the community threshold of 70%), still poses a high risk of external debt distress on the Cameroonian economy. This result means that, in the absence of concrete and radical actions by the government to reduce its rate of indebtedness, it will be difficult for the Cameroonian Treasury to honor all the government’s financial commitments on the bond markets in the near future, particularly with respect to debt service payments. We show that Cameroon’s liquidity and solvency ratios correspond to a policy that can be improved. Some debt and debt service indicators are significantly above short-term benchmarks over the entire study period from 2021 to 2030. Given this situation, it is urgent that the government define and implement an effective and efficient fiscal policy capable of bringing Cameroon to the level of development hoped for by 2035. This requires a more optimal reallocation of resources in order to guarantee productive investments and sustainable human development (Fambon, 2002). In this sense, this report emphasizes the need to guarantee the competitiveness of national enterprises, which includes the promotion of national private investment and the choice of loans at preferential rates that require the repurchase and/or cancellation of certain components of the country’s public debt. Thus, the study recommends several economic policy proposals to the Cameroonian government to reduce the debt burden.
Topic:: Debt, Economics, Governance, Finance, and Public Debt
Political Geography:: Africa and Cameroon

77. Ups and Downs in Finance, Ups without Downs in Inequality

Author:: Olivier Godechot, Nils Neumann, Paula Apascaritei, István Boza, and Martin Hällsten
Publication Date:: 11-2021
Content Type:: Working Paper
Institution:: Max Planck Sciences Po Center on Coping with Instability in Market Societies (MaxPo)
Abstract:: The upswing in finance over the past several decades has led to rising inequality, but do downswings in finance lead to a symmetric decline in inequality? In this paper, we analyze the asymmetry of the effect of ups and downs in financial markets, as well as the effect of increased capital requirements and the bonus cap on national earnings inequality. We use administrative employer–employee linked data on earnings from 1990 to 2017 for twelve countries. Additionally, we use data on earnings from bank reports, from 2009 to 2017 in thirteen European countries. We find a strong asymmetry in the effects of financial ups and downs on earnings inequality, a mitigating effect of rising capital requirements on the contribution of finance to inequality, and a restructuring effect of the bonus cap for the earnings of financiers, while neither policy affects absolute levels of earnings inequality.
Topic:: Financial Crisis, Regulation, Inequality, and Finance
Political Geography:: Europe

78. Financing energy innovation: internal finance and the direction of technical change

Author:: Joëlle Noailly and Roger Smeets
Publication Date:: 09-2021
Content Type:: Working Paper
Institution:: Centre for Trade and Economic Integration, The Graduate Institute (IHEID)
Abstract:: Achieving the goals of the Paris Agreement and of climate neutrality by 2050 in the European Union will require mobilizing financial investments towards clean energy innovation. This study examines the role of internal finance (cash flows and cash holdings) and financing constraints for innovation in energy technologies. We construct a dataset for 1,300 Europeans combining balance-sheet information and patenting activities in renewable (REN) and fossil-fuel (FF) technologies and estimate the sensitivity of patenting activities to's internal finance. We use count estimation techniques and control for a large set of-specific characteristics and market developments in REN and FF technologies. We find that patenting activities ofs specialized in REN innovation are significantly more sensitive to a shock in cash flows thans specializing in FF innovation. Hence, our results emphasize that innovatives in clean energy may be particularly vulnerable to financing constraints. We discuss the implications of these results for energy transition policies aiming to redirect finance towards clean energy R&D.
Topic:: Environment, Science and Technology, European Union, Finance, Sustainable Development Goals, Innovation, and Energy
Political Geography:: Europe

79. Sovereign Debt in the 21st Century

Author:: Kris James Mitchener and Christoph Trebesch
Publication Date:: 08-2021
Content Type:: Working Paper
Institution:: Kiel Institute for the World Economy (IfW)
Abstract:: How will sovereign debt markets evolve in the 21st century? We survey how the literature has responded to the eurozone debt crisis, placing “lessons learned” in historical perspective. The crisis featured: (i) the return of debt problems to advanced economies; (ii) a bank-sovereign “doom-loop” and the propagation of sovereign risk to households and firms; (iii) roll-over problems and self-fulfilling crisis dynamics; (iv) severe debt distress without outright sovereign defaults; (v) large-scale sovereign bailouts from abroad; and (vi) creditor threats to litigate and hold out in a debt restructuring. Many of these characteristics were already present in historical debt crises and are likely to remain relevant in the future. Looking forward, our survey points to a growing role of sovereign-bank linkages, legal risks, domestic debt and default, and of official creditors, due to new lenders such as China as well as the increasing dominance of central banks in global debt markets. Questions of debt sustainability and default will remain acute in both developing and advanced economies.
Topic:: Debt, Finance, Banking, and Sovereign Debt
Political Geography:: Global Focus

80. Sovereign Bonds since Waterloo

Author:: Josefin Meyer and Christoph Trebesch
Publication Date:: 12-2021
Content Type:: Working Paper
Institution:: Kiel Institute for the World Economy (IfW)
Abstract:: This paper studies external sovereign bonds as an asset class. We compile a new database of 266,000 monthly prices of foreign-currency government bonds traded in London and New York between 1815 (the Battle of Waterloo) and 2016, covering up to 91 countries. Our main insight is that, as in equity markets, the returns on external sovereign bonds have been sufficiently high to compensate for risk. Real ex-post returns average more than 6 percent annually across two centuries, including default episodes, major wars, and global crises. This represents an excess return of 3-4 percent above US or UK government bonds, which is comparable to stocks and outperforms corporate bonds. Central to this finding are the high average coupons offered on external sovereign bonds. The observed returns are hard to reconcile with canonical theoretical models and the degree of credit risk in this market, as measured by historical default and recovery rates. Based on our archive of more than 300 sovereign debt restructurings since 1815, we show that full repudiation is rare; the median creditor loss (haircut) is below 50 percent.
Topic:: Economics, Governance, Finance, and Bonds
Political Geography:: Global Focus

81. China's Belt and Road Initiative in Italy: An Analysis of Financial Cooperation

Author:: Nicola Bilotta
Publication Date:: 05-2021
Content Type:: Working Paper
Institution:: Istituto Affari Internazionali
Abstract:: Financial cooperation is essential to boosting bilateral economic ties, providing firms with more effective instruments to operate in foreign markets. It should come as no surprise, then, that financial cooperation was a pillar of the 2019 Memorandum of Understanding (MoU) reached between Italy and China in support of the latter’s Belt and Road Initiative (BRI). However, a preliminary analysis of BRI-related commercial agreements between Italian financial institutions and their Chinese counterparts shows that they have not resulted in any ground-breaking development. These Memoranda have apparently just added a “BRI” badge to pre-existing trends of collaboration. The BRI-related MoUs in the field of financial cooperation do not, for the time being at least, justify concerns that China may gain an economic foothold in Italy large enough to win it much political influence. A more realistic risk is that these MoUs may undermine a common European approach to China, weakening the negotiating stance of the European Union’s. Paper prepared in the framework of the IAI project “When Italy embraces the BRI”.
Topic:: Foreign Policy, Political Economy, Governance, Finance, and Belt and Road Initiative (BRI)
Political Geography:: China, Europe, Asia, and Italy

82. CBDCs for Dummies: Everything You Need to Know about Central Bank Digital Currency (And Why You Shouldn’t Be Afraid of It)

Author:: Nicola Bilotta
Publication Date:: 06-2021
Content Type:: Working Paper
Institution:: Istituto Affari Internazionali
Abstract:: “No cash accepted in this store”. What might seem to some like science fiction is on its way to becoming reality. The rise of non-cash payments is a global phenomenon, although moving at different speeds around the world. To keep up with the digitalisation of payments (and of the economy), many central banks are exploring the development of Central Bank Digital Currencies (CBDCs), a digital form of cash. Despite being confined to a technical discussion among experts, when (rather than if) launched, CBDCs concerns us all. Thus, raising awareness of what CBDCs are, and of their key economic and political dimensions, is crucial to ensure that citizens are not only passive spectators. This paper has the ambition to provide (non-expert) readers with straightforward and simple answers to some of the many questions they may have around CBDCs. It sets the ground to better understand what CBDCs are (and are not), their drivers and their possible design. It will explore the impact of CBDC systems on privacy, the geo-strategic drivers of CBDCs and the possible rivalry between public and private money. Paper prepared in the framework of a research effort on the risks and the opportunities related to Central Bank Digital Currencies (CBDCs) with the support of Intesa Sanpaolo and the Bank of Italy.
Topic:: Political Economy, Governance, European Union, Finance, Currency, and Digital Policy
Political Geography:: China, Europe, and United States of America

83. Post-American Moments in Global Financial Governance in the New Millennium

Author:: Ilene Grabel
Publication Date:: 01-2021
Content Type:: Working Paper
Institution:: Political Economy Research Institute (PERI), University of Massachusetts Amherst
Abstract:: It is difficult to find much to celebrate about the current conjuncture, marked as it is by deeply destructive incoherence. The best that can be said is that we are in an interregnum. But I suggest that today’s incoherence also includes productive and even transformative moments. I argue that incoherence in global financial governance should be understood as productive in several respects. It is creating and widening alternative spaces in which some of the values, practices, tools, objectives, and goals associated with embedded liberalism can be rearticulated in a world in which there is no “order,” American-led or otherwise. The silver lining of incoherence is that it creates space for experimentation and innovation unconstrained by an overarching “ism.” Incoherence is creating exits or leakages from noxious national and global policy environments, rendering it less poisonous than it would be in the absence of ideational aperture and contestation, competing policies, institutions, networks, and poles of power. The abdication by the US of its traditional role of global coordination and discipline, as exerted under the post-war embedded liberal or the neoliberal American-led orders, is creating opportunities for more permissive and varied “reembededness” and diverse forms of economic integration. The emerging regime reflects neither your grandmother’s American-led order 1.0 or 2.0. In this morbid post-American interregnum there is no singular “ism” or “alternative order,” a fact that I do not mourn.
Topic:: Governance, Finance, Global Political Economy, and Neoliberalism
Political Geography:: Global Focus and United States of America

84. Risk Shocks and Divergence between the Euro Area and the US in the aftermath of the Great Recession

Author:: Thomas Brand and Fabien Tripier
Publication Date:: 03-2021
Content Type:: Working Paper
Institution:: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:: Highly synchronized during the Great Recession of 2008-2009, the Euro area and the US have diverged in the period that followed. To explain this divergence, we provide a structural interpretation of these episodes through the estimation for both economies of a business cycle model with ﬁnancial frictions and risk shocks, measured as the volatility of idiosyncratic uncertainty in the ﬁnancial sector. Our results show that risk shocks have stimulated US growth in the aftermath of the Great Recession and have been the main driver of the double-dip recession in the Euro area. They play a positive role in the Euro area only after 2015. Risk shocks therefore seem well suited to account for the consequences of the sovereign debt crisis in Europe and the subsequent positive eﬀects of unconventional monetary policies, notably the ECB’s Asset Purchase Programme (APP).
Topic:: Debt, Economics, International Political Economy, Global Recession, Finance, Europe Union, Economic Growth, and Risk
Political Geography:: United States, Europe, and Global Focus

85. World Interest Rates and Macroeconomic Adjustments in Developing Commodity Producing Countries

Author:: Vincent Bodart, François Courtoy, and Erica Perego
Publication Date:: 01-2021
Content Type:: Working Paper
Institution:: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:: With commodities becoming international financial securities, commodity prices are affected by the international financial cycle. With this evidence in mind, this paper reconsiders the macroeconomic adjustment of developing commodity-exporting countries to changes in world interest rates. We proceed by building a model of a small open economy that produces a non-tradable good and a storable tradable commodity. The difference with standard models of small open economies lies in the endogenous response of commodity prices which -due to commodity storage- adjust to variations in international interest rates. We find that the endogenous response of commodity prices amplifies the reaction of commodity exporting countries to international monetary shocks. This suggests that commodity exporting countries are more vulnerable to unfavourable international monetary disturbances than other small open economies. In particular, because of the existence of the commodity price channel, even those small open commodity-exporting economies that are disconnected from international financial markets can be affected by the international financial cycle.
Topic:: Economics, International Political Economy, Monetary Policy, Finance, Commodities, Interest Rates, Exports, and Price
Political Geography:: Global Focus

86. China’s Experience in Building a Venture Capital Sector: Four Lessons for Policy Makers

Author:: Anton Malkin
Publication Date:: 01-2021
Content Type:: Working Paper
Institution:: Centre for International Governance Innovation
Abstract:: China’s journey from being a technological backwater to a technological superpower was fuelled, in part, by the success of its venture capital (VC) sector in supporting start-ups. Its VC market is now the second largest in the world after that of the United States. As of 2019, China produced more “unicorns” (privately held, rapidly growing, early-stage technology companies valued at US$1 billion or more) than the United States. Policy makers can learn the following lessons from China’s growing VC sector: China’s use of labour market incentives promotes reverse migration of highly educated expatriates; weak intellectual property protection is not necessarily a deterrent to VC funding, especially in developing countries; government finance, when used appropriately, can help direct VC toward promising technology firms; and an emerging market does not need to wait until it becomes financially developed in order to create funding channels to support start-ups and entrepreneurship.
Topic:: Science and Technology, Hegemony, Finance, and Venture Capital
Political Geography:: China and Asia

87. India’s Sustained Economic Recovery Will Require Changes to Its Bankruptcy Law

Author:: Anirudh Burman
Publication Date:: 04-2021
Content Type:: Working Paper
Institution:: Carnegie Endowment for International Peace
Abstract:: As India’s economy recovers from the coronavirus pandemic, Indian businesses need efficient financial structures to regain their ground. Key reforms to India’s Insolvency and Bankruptcy Code could fill these gaps. One of the key drivers of economic recovery in India will be the efficient movement of capital from inefficient firms to efficient ones. The economic downturn caused by the coronavirus pandemic has been severe, and India’s economy was one of the worst affected in 2020–2021. Though the economy is recovering faster than initial estimates, sustained economic recovery will not take place if stressed businesses cannot restructure their debts properly or if failing firms cannot be resolved efficiently. India’s bankruptcy law is key to solving these challenges. In 2016 India enacted the Insolvency and Bankruptcy Code, 2016 (IBC), which was a landmark reform to the nation’s financial system and the first comprehensive law to regulate insolvency.1 But the IBC has been suspended for a period of one year since the COVID-19-related lockdown was imposed in March 2020. In its place, India’s banking regulator, the Reserve Bank of India (RBI), has introduced a limited restructuring scheme for COVID-19-related stress in the meantime. Older mechanisms for insolvency that are still in operation have historically not worked according to expectations. As the one-year period of suspension comes to a close, this paper argues that bringing back the IBC—with adequate modifications—is an important prerequisite for sustained economic growth. India historically suffered from a patchwork framework of insolvency laws that either did not give lenders adequate powers to recover their debts upon default or only catered to the interests of certain kinds of lenders—to the exclusion of others.2 The IBC is a modern and comprehensive bankruptcy law that since its enactment has had a significant role in reducing the problem of nonperforming assets (NPAs), or “bad loans,” in India’s financial system. In the wake of the economic disruption caused by COVID-19, the Indian government suspended the operation of critical parts of the IBC. These changes meant that lenders could not trigger insolvency proceedings against defaulting businesses if the default occurred after March 20, 2020. While this suspension possibly prevented unnecessary business failures and provided a “calm period” for the economy, these measures have outlived their utility.
Topic:: Law, Finance, Economy, and COVID-19
Political Geography:: South Asia and India

88. Climate Finance Mobilization in Uganda: The Most Viable Option

Author:: Robert Bakiika, Christine Mbatuusa, Anthony Mugeere, and Anna Amumpiire
Publication Date:: 04-2021
Content Type:: Working Paper
Institution:: Advocates Coalition for Development and Environment (ACODE)
Abstract:: This report seeks to contribute to informing the mobilization of climate finance in light of the climate change impacts across all sectors. The report highlights the operating policy, legal and institutional framework on public climate finance, makes reference to country case studies on climate finance mobilization, proposes various options for climate finance mobilization based on stakeholders consulted and ranks the most efficient option.
Topic:: Climate Change, Governance, Finance, and Mobilization
Political Geography:: Uganda and Africa

89. COVID-19 credit support programs in Europe’s five largest economies

Author:: Julia Anderson, Francesco Papadia, and Nicolas Véron
Publication Date:: 04-2021
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: n 2020, European governments mitigated the economic impact of COVID-19 lockdowns and other pandemic-fighting programs through a host of initiatives, including efforts to support credit, such as guarantees for bank loans, particularly to small and medium-sized enterprises. This paper presents detailed information about these national credit support programs in the largest national economies of the European Union (France, Germany, Italy, and Spain) and the United Kingdom. The information was collected through thorough examination of published material and extended exchanges with national authorities and financial sector participants. The analysis focuses on (1) how countries positioned themselves on the many tradeoffs that emerged in designing and implementing the programs; and (2) what explains differences in usage across countries and its leveling off everywhere in the second half of 2020.
Topic:: Government, European Union, Finance, Fiscal Policy, and COVID-19
Political Geography:: United Kingdom and Europe

90. The impact of the COVID-19 pandemic on the poor: Insights from the Hrishipara diaries

Author:: Risto Rönkkö, Stuart Rutherford, and Kunal Sen
Publication Date:: 03-2021
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: In this paper, we examine the economic impact of the COVID-19 pandemic on the livelihoods of the poor. We use an unusually rich data set from a ‘financial diaries’ study known as the Hrishipara Daily Diaries Project. The data set tracks the economic and financial transactions of 60 individuals and their families in a semi-rural setting in Bangladesh on a real-time basis from October 2019 to September 2020. We document individual diarists’ behavioural responses to COVID-19, which reveal the varied experiences of the poor during the pandemic. We find that the pandemic and associated government lockdowns had significant negative effects on the livelihoods of the poor in our study, with financial inflows and outflows, incomes, and household expenditures below pre-pandemic levels during the pandemic period. To cope with the pandemic, households drew down on their cash reserves at home, as well as cutting down on non-food expenditures to protect their spending on food.
Topic:: Economics, Government, Finance, Pandemic, and COVID-19
Political Geography:: Bangladesh and South Asia

91. European Union cohesion project characteristics and regional economic growth

Author:: Zsolt Darvas, Jan Mazza, and Catarina Midoes
Publication Date:: 02-2021
Content Type:: Working Paper
Institution:: Bruegel
Abstract:: Due to problems with existing methodologies that aim to identify the causal impact of European Union cohesion policy on economic growth, we adopted a novel methodology. We first estimated ‘unexplained economic growth’ by controlling for the influence of various region-specific factors, and then analysed its relationship with about two dozen characteristics specific to projects carried out in various regions in the context of EU cohesion policy. We found that the best-performing regions have on average projects with longer durations, more inter-regional focus, lower national co-financing, more national (as opposed to regional and local) management, higher proportions of private or non-profit participants among the beneficiaries (as opposed to public-sector beneficiaries) and higher levels of funding from the Cohesion Fund. No clear patterns emerged concerning the sector of intervention.
Topic:: European Union, Finance, Economic Growth, and Regional Integration
Political Geography:: Europe

92. Factoring in Africa to support trade development: Challenges and opportunities for growth through capacity development.

Author:: The African Capacity Building Foundation
Publication Date:: 01-2021
Content Type:: Working Paper
Institution:: The African Capacity Building Foundation (ACBF)
Abstract:: This occasional paper is about factoring, known as the selling or transferring of accounts receivable to secure funds that are immediately available. The process provides a solution to address the financing gap for Small and Medium Enterprises (SMEs) to support trade development as part of the African Continental Free Trade Agreement (AfCFTA) and Africa’s structural transformation agenda. The study is based on an extensive review of the literature and an analysis of secondary data from FCI database and other materials collected on factoring to identify key issues, trend, progress, drivers, and barriers affecting factoring in leading African countries. The paper shows that factoring represents an alternative source of financing for African businesses to increase intra-African trade under the AfCFTA. Other findings include low Africa’s share in global factoring and growth rate in factoring, and low factoring GDP penetration rates of leading African countries. The paper notes that Africa’s performance in the factoring market needs to improve significantly based on a number of key indicators. However, factoring activities are projected to reach US$50 billion by 2025 in Africa with a number of small-sized factoring companies emerging in other African countries. For this to be achieved, a coordinated approach to capacity development is needed to address the barriers identified.
Topic:: Development, Finance, Economic Growth, and Trade
Political Geography:: Africa

93. Can Integrated Social Protection Programmes Affect Social Cohesion? Mixed-Methods Evidence from Malawi

Author:: Francesco Burchi and Federico Roscioli
Publication Date:: 01-2021
Content Type:: Working Paper
Institution:: German Institute of Development and Sustainability (IDOS)
Abstract:: Using a mixed-method approach we show the impacts of an integrated social protection programme on social cohesion in Malawi. We find no concrete effect of the lump-sum transfer; in contrast, the business training enhances social cohesion especially when accompanied by participation in saving groups.
Topic:: Poverty, Finance, Business, and Social Cohesion
Political Geography:: Africa and Malawi

94. The Impact of Patient Capital on Job Quality, Investments and Firm Performance: Cross-Country Evidence on Long-Term Finance

Author:: Christoph Sommer
Publication Date:: 01-2021
Content Type:: Working Paper
Institution:: German Institute of Development and Sustainability (IDOS)
Abstract:: Long-term finance is not only important for development and growth, but also has the potential to contribute to better jobs. This paper provides empirical evidence to what extent long-term loans affect job quality, firms’ investments in fixed assets and innovation, as well as firm performance.
Topic:: Finance, Economic Growth, Investment, and Capital
Political Geography:: Global Focus

95. From Tectonic Shifts to Winds of Change in North Africa and the Middle East: Europe’s Role

Author:: Nathalie Tocci, Riccardo Alcaro, Francesca Caruso, Silvia Colombo, Dario Cristiani, Andrea Dessì, Flavio Fusco, and Daniela Huber
Publication Date:: 03-2021
Content Type:: Working Paper
Institution:: Istituto Affari Internazionali
Abstract:: Winds of change are blowing in North Africa and the Middle East. They originate from Washington, where the new Biden administration is expected to abandon its predecessor’s zerosum, erratic approach and take steps towards supporting regional balances and cooperation. Effects are visible especially in the Gulf, with the US pondering its options to re-activate nuclear diplomacy with Iran and Saudi Arabia and the United Arab Emirates grudgingly agreeing to put their feud with Qatar on ice. One way or another, these winds of change are working their way through the Levant, the Eastern Mediterranean and Libya. Admittedly, they are still feeble and can easily fade out like a morning breeze. Were that to happen, Europeans would be amongst the most affected – aside, of course, from regional populations themselves. It is now high time for the EU and its member states to leave the backseat they have (un)comfortably been sitting in for years, seize the opportunity of a cooperative US administration and work to play a more proactive role in North Africa and the Middle East commensurate with their considerable financial, diplomatic and military resources.
Topic:: Foreign Policy, Diplomacy, Military Affairs, and Finance
Political Geography:: Europe, Middle East, North Africa, and United States of America

96. China’s Digital Yuan: An Alternative to the Dollar-Dominated Financial System

Author:: Rajesh Bansal and Somya Singh
Publication Date:: 08-2021
Content Type:: Working Paper
Institution:: Carnegie Endowment for International Peace
Abstract:: Central bank digital currencies (CBDC) are digital tokens issued by central banks. In a way, they are the digital version of cash; their value is guaranteed by a central bank. Unlike money held in credit cards and mobile wallets, CBDCs are not a mere representation of physical money stored elsewhere. Instead, they are a complete replacement for currency notes. While several countries are developing their digital currencies, China is well positioned to take the lead with the digital yuan. This paper highlights ways in which China can use its digital yuan to internationalize the renminbi (RMB) and gradually chip away at the hegemony of the dollar. The first part of the paper focuses on the dollar’s dominance in the global financial system and the privileges the United States accrues as a result of the dollar being the world reserve currency. The United States has a tight grip on the world’s payment rails, especially in the case of cross-border transactions. For example, the Society for Worldwide Interbank Financial Telecommunications (SWIFT)—the largest cross-border payment clearinghouse in the world—has to comply with and implement unilateral U.S. sanctions. These sanctions seriously hinder trade and damage the economies of the countries affected by them, as was the case with Iran, which lost $150 billion worth of revenue as a result of U.S. sanctions.1 Once a country is cut off from SWIFT’s network, it becomes extremely difficult for it to trade with the rest of the world. Thus, via the dollar’s dominance and its geopolitical muscle, the United States is positioned to maintain a tight grip on the world’s financial system. In an increasingly multipolar world, this outdated, decades-old system of the dollar as the apex currency and the United States’ position of power that allows it to pursue its own geopolitical interests has become outdated. The U.S. dollar’s hegemony has been challenged by economies like those of the European Union (EU), Russia, and China. Of all the countries, China finds itself in a dominant position to gain from this transition. In order to challenge the dollar’s hegemony and internationalize its currency, China will have to move away not just from the dollar but also from the payment rails dominated by the dollar. The best way to simultaneously do both would be to introduce a new payment rail like CBDCs. This paper analyses the way the launch of China’s CBDCs could greatly enhance its currency internationalization prospects. Considering China’s growing economy and influence over the world, the paper argues that China’s CBDC launch could bring a period of momentous change in the global financial system. In order to challenge the dollar, China will have to build the payments infrastructure required to facilitate the use of its digital yuan. It will also have to incentivize other countries to adopt its digital currency. China’s ability to successfully promote its currency using CBDCs will depend heavily on the country’s ability to relax capital controls and maintain the world’s trust in its institutions. China’s geopolitics will play a key role here. In the last decade, some of China’s major geopolitical efforts have set the stage for its CBDC launch. As China continues to use its foreign policy and technological capabilities to grow its influence in the global financial system, the launch of the digital yuan could be a significant step forward in this direction. This paper examines the reasons for China’s past efforts at currency dominance and explores ways in which the country can use its CBDC to further internationalize its digital yuan.
Topic:: Foreign Policy, Finance, Economy, Central Bank, and Currency
Political Geography:: China and Asia

97. Financial Markets and Social Media: Lessons From Information Security

Author:: Claudia Biancotti and Paolo Ciocca
Publication Date:: 11-2021
Content Type:: Working Paper
Institution:: Carnegie Endowment for International Peace
Abstract:: On January 28, 2021, stocks in U.S.-based video game retailer GameStop Corp. reached an all-time high of $483. Two weeks earlier, they had been trading at $20. Two weeks later, they were down again, and a congressional hearing on the matter was underway in Washington. Wild swings are hardly uncommon in financial markets. This episode, however, had novel characteristics. In a recent report, the U. S. Securities and Exchange Commission states that “GameStop Corp and multiple other stocks experienced a dramatic increase in their share price in January 2021 as bullish sentiments of individual investors filled social media.” 1 Retail traders congregating on the Reddit platform were key in both price formation and the emergence of a “Main Street versus Wall Street” narrative around the stock.2 The influence of social media on financial markets is here to stay, as younger generations start saving and investing. This carries both opportunities and risks. Information sharing and discussion on internet platforms can improve market transparency and efficiency. On the other hand, social media platforms are known vehicles of disinformation and manipulation of human behavior. They could be weaponized by malicious actors, ranging from state-sponsored groups to crime syndicates, looking to compromise market integrity and financial stability. For liberal democracies with independent financial watchdogs, a complex policy challenge follows. In order to fight information operations, financial authorities will need to cooperate with intelligence communities and other relevant parts of executive branches. This requires rules that clearly define each party’s role and encourage reciprocal trust. In many jurisdictions, cybersecurity statutes provide a starting point. They are, however, limited in scope, only covering cooperation vis-& agrave;-vis traditional cyber attacks. In this paper, we argue that the model must evolve to help prevent or defend against malicious information operations.3 We highlight, as a first step, the importance of organizational modules that allow entities with different levels of access to classified information to work together to assess and inform responses to hostile operations.
Topic:: Security, Markets, Finance, and Social Media
Political Geography:: Global Focus and United States of America

98. Accounting for the Digital Economy: Time for a Fresh Approach

Author:: Patricia Meredith
Publication Date:: 02-2021
Content Type:: Working Paper
Institution:: Centre for International Governance Innovation
Abstract:: Accounting standards that are used for tangible assets are not suitable for today’s digital economy, which is fuelled by intangible assets. These standards need to reflect the shift in focus from tangible to intangible assets in order for the digital economy to thrive. Intangible assets such as design branding and software are not recognized by current accounting standards unless they are purchased from a third party. Without a shift in mindset that recognizes intangible assets and reflects the new economic reality, challenges will arise in making loans and investments and in taxing value creation. The accounting profession cannot act alone in making the shift and will need support from policy makers and regulators, investors, creditors and directors to make the necessary changes.
Topic:: Finance, Digital Economy, Investment, and Digitization
Political Geography:: Global Focus

99. Unlocking the Potential of Private Financing for Low-carbon Energy Transition: Ideas and Solutions from ASEAN Markets

Author:: Venkatachalam Anbumozhi
Publication Date:: 01-2020
Content Type:: Working Paper
Institution:: Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:: Under the Paris Agreement in 2015, the opportunities for the ASEAN Member States (AMS) to maximise low-carbon energy sources to achieve the Nationally Determined Contributions (NDC) target in reducing carbon emission levels have expanded. In order to move towards a low-carbon energy transition, private sector actors must work together with governments to implement strategies to invest in the low-carbon economy. However, major barriers such as insufficient enabling policy environment, availability of technologies and access to funding somehow impede the implementation. It is believed that unlocking the potentials of private sector would accelerate the transition of low-carbon energy. This paper, based on a market survey, which aimed to identify barriers and risks that private sectors face in accelerating the low-carbon investments. The survey respondents are divided into two categories, Lenders and Borrowers. Analysing 110 total respondents helped to identify the perceived and actual barriers as well as risks underlying to the access to financing and generated potential solution for policymakers to overcome these barriers. The survey results indicate that the main obstacles faced by private sectors are incoherent policies that created a high-risk environment for investment, a lack of access to de-risking mechanisms, and insufficient capacity to communicate the opportunities amongst financial institutions and project developers. To bare these risks, this paper suggests four interdependent solutions – establishment of a low-carbon transition fund, government warranty programme, broadening of de-risking mechanisms, and capacity building programme to accelerate the low-carbon energy transition across ASEAN.
Topic:: Energy Policy, Finance, Renewable Energy, and Private Sector
Political Geography:: Asia and Southeast Asia

100. The Effects of Financial Inclusion on Development Outcomes: New Insights from ASEAN and East Asian Countries

Author:: Rajabrata Banerjee, Ronald Donato, and Admasu Afsaw Maruta
Publication Date:: 09-2020
Content Type:: Working Paper
Institution:: Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:: This study empirically examines the effects of financial inclusion on economic development, – economic growth, education, health, and income inequality – in 20 Asian countries in the period 2004-2015. The financial inclusion index at an aggregate level is constructed using a hybrid methodology (reported in the previous paper) and we empirically examine its relationship with particular development outcomes. We then disaggregate the index into the three dimensions of financial inclusions – access, usage, and quality – and further into the top two indicators from each dimension based on principal component analysis scores (reported in the previous paper), to examine whether specific dimensions or indicators are more strongly associated with particular development outcomes than with others. Our results show that aggregate financial inclusion has a strong positive effect on all development outcomes and this effect improves for countries with lower political risk. At the dimension level, while usage is the only dimension impacting on economic growth, and access is the only dimension impacting on health outcomes, both usage and access influence education and income inequality. Moreover, the top ranked indicators in each dimension exert a far greater positive influence on development outcomes than the second highest ranked indicators. Our findings show that adopting a single blanket policy may not be appropriate to realise the full potential of financial inclusion in a less developed country. Policy prescriptions should therefore target specific dimension and indicators of financial inclusion to maximise the positive effect on development outcomes.
Topic:: Development, Health, Finance, and Fiscal Policy
Political Geography:: Asia

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COLUMBIA UNIVERSITY PRESS