Content Type: Working Paper / Publication Year: 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 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

3. 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

4. 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

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. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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

30. 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

31. 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

32. 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

33. 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

34. 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

35. 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

36. 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

37. 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

38. 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

39. 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

40. 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

41. 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

42. 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

43. 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

44. 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

45. 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

46. 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

47. 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

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

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COLUMBIA UNIVERSITY PRESS