Archive for the ‘Growth and development’ Category

The Prize in Economics to Prof Angus Deaton …(a prize in bread and butter economics)

October 13, 2015

There was a time when this blog used to get caught in the Prize fever. This time it did not even realise that this year’s award has been announced. Not sure whether this explains maturity of the blog or it has become too old to remember. It is though ironical to be distributing all these Prizes in economics given the state of economics around the world. Though this year’s prize is different.

This year’s Prize is an interesting one . Given to Prof Deaton for his work on “analysis of consumption, poverty, and welfare”. I mean till all this crisis, these terms had disappeared from economics lingo. No one cared much about these old historic economic issues of consumption, poverty, and welfare barring the development economists of course. Now because of inequality and Piketty people have again started to talk about these issues.

The Prize website poll says only about 30-35% knew about Prof Deaton’s work on the subject. His work is on three questions:

To design economic policy that promotes welfare and reduces poverty, we must first understand individual consumption choices. More than anyone else, Angus Deaton has enhanced this understanding. By linking detailed individual choices and aggregate outcomes, his research has helped transform the fields of microeconomics, macroeconomics, and development economics.

The work for which Deaton is now being honored revolves around three central questions:

How do consumers distribute their spending among different goods?Answering this question is not only necessary for explaining and forecasting actual consumption patterns, but also crucial in evaluating how policy reforms, like changes in consumption taxes, affect the welfare of different groups. In his early work around 1980, Deaton developed the Almost Ideal Demand System – a flexible, yet simple, way of estimating how the demand for each good depends on the prices of all goods and on individual incomes. His approach and its later modifications are now standard tools, both in academia and in practical policy evaluation.

How much of society’s income is spent and how much is saved? To explain capital formation and the magnitudes of business cycles, it is necessary to understand the interplay between income and consumption over time. In a few papers around 1990, Deaton showed that the prevailing consumption theory could not explain the actual relationships if the starting point was aggregate income and consumption. Instead, one should sum up how individuals adapt their own consumption to their individual income, which fluctuates in a very different way to aggregate income. This research clearly demonstrated why the analysis of individual data is key to untangling the patterns we see in aggregate data, an approach that has since become widely adopted in modern macroeconomics.

How do we best measure and analyze welfare and poverty? In his more recent research, Deaton highlights how reliable measures of individual household consumption levels can be used to discern mechanisms behind economic development. His research has uncovered important pitfalls when comparing the extent of poverty across time and place. It has also exemplified how the clever use of household data may shed light on such issues as the relationships between income and calorie intake, and the extent of gender discrimination within the family. Deaton’s focus on household surveys has helped transform development economics from a theoretical field based on aggregate data to an empirical field based on detailed individual data.

Just scroll the page for more resources..

Also check MR BLog for several links : one, two and three

China as an emperor with no clothes?

October 1, 2015

Most pessimists of a certain economy/economies have their day someday. So, time is ripe for China’s pessimists and they go abuzz saying “Didn’t I I tell you”? All this while those who built their careers over China’s optimism have been shrugged aside. How quickly the tides turn really.

Jim Chanos the China pessimst is one such fugure. In this interview, he calls the country as an emperor with no clothes. It is still not naked but is getting there:


Different kinds of democracies..

September 29, 2015

Dani Rodrik and Sharun Mukand have this insightful piece on political economy of democracies:


How growing cereals instead of tuber led to certain countries getting better institutions? (some parallels with Sholay..)

September 11, 2015

This idea of what leads certain regions to have higher incomes than others is as old a question as it can get. Within this, quality of institutions has emerged as one of the strongest reasons for high and low growth. Within this, the questions remains what leads to better institutions? Many explanations have been given like law, politics, finance and so on.

Joram Mayshar, Omer Moav, Zvika Neeman and Luigi Pascali have this interesting piece looking at geography and agriculture as a source for institutional differences. They build from Jared Diamond’s idea on why geography matters but have a different take.

The authors say that regions that grew things like tuber etc could not really store these agri items. Hence they had to be consumed right away. There was no case for appropriation by robbers and so on.

However, those who grew things like cereals etc which could be stored, there was a case for appropriation by robbers (Hindi Movie fans will remember Sholay :-)). Hence, the need for hierarchy and institutions to minimise these robberies.

That simple really..


China actually started to grow from Mao’s period onwards (1953)..

September 9, 2015

One common narrative around Chinese high growth phase is that it all started in 1978. Post the so called Deng revolution and reforms.

Four researchers –  Anton Cheremukhin, Mikhail Golosov, Sergei Guriev, Aleh Tsyvinski – do not agree. They say it all started with Mao in 1953:


Back to Fundamentals in Emerging Markets..

August 14, 2015

Prof Dani Rodrik says that hype around emerging markets is now tapering off.  Much of the past growth was around foreign capital and buzz.


Debt miracle: Why the country that borrowed the most industrialised first

July 28, 2015

Jaume Ventura and Hans-Joachim Voth say that it was the debt revolution in Britain which played a strong factor in its industrial revolution as well:

The possible trinity of financial inclusion and the five kinds of financial illiterates..

July 23, 2015

SS Mundra of RBI speaks on financial inclusion and has some interesting insights.

He says unlike the impossible trinity of macroeconomics, here there is a possible trinity of inclusion:


Is the Greece crisis the Treaty of Versailles moment?

June 29, 2015

One does not know how to even sum up the Greece crisis. Despite nearly 5 years of Greece under stress, not only there is no solution. But it has only become worse overtime. All kinds of expertise is being offered and most is actually asking more questions than giving answers. Draghi magic is over and hard reality has sunk in.

The ongoing crisis has many narratives from history. The obvious one is Great Depression which has been an overkill. People have argued on both sides for stimulus and against stimulus and there are both +ves and -ves with each point. Then there are comparisons with 1907 panic and so on.

The Greece crisis and coming agreement is now being compared to similar such events.

In this vein, Prof. Amartya Sen has a piece comparing the upcoming agreement to the one held in Versailles in 1919 which sowed the seeds of second world war. He argues by forcing countries towards austerity and really harsh conditions, we could be in for trouble again. Prof Simon Wren Lewis says Amartya Sen is right.

What times we are living in. Anything can happen..

Is too much Finance a concern, or is it just statistical illusion?

June 25, 2015

An interesting paper by William Cline of PIIE. Lately, there has been some research which shows that too much finance leads to lower growth.  The author critques such research.

He says much of this has been shown using a kind of econometric trick. What people have done is added a quadratic term (of say financial deepening) in the regression equation. This shows a negative coefficient leading people to make their claims that after such and such ratio/percentage (of say bank assets to GDP), finance leads to lower growth.

Fair enough. The author says one could actually do the same for doctors, telephones, R&D and so on. His analysis shows the coefficient is negative here as well. So, after so many doctors, so many telephones etc growth becomes lower. Does this sound plausible?

This Policy Brief shows that these recent fi ndings warrant considerable caution, however, because the negative quadratic term may be an artifact of spurious attribution of causality. I fi rst show that correlation without causation could similarly lead to the conclusion that too many doctors spoil growth (for example). I then demonstrate algebraically that if the variable of interest, be it fi nancial depth, doctors, or any other good or service that rises along with per capita income, is incorporated in a quadratic form into a regression of growth on per capita income, there will be a necessary but spurious fi nding that above a certain point more of the good or service in question causes growth to decline.

Fascinating. This quadratic term is an old idea (or a trick now) in econometrics and amazing to see how it has been used this time. It usually shows a negative term just to limit the same excesses (have limited understanding of this though).

Though, the author misses the main point. People used same tricks before the crisis as well. All kinds of fancy regressions were invented to show that only finance matters for growth. This was used to push policy agenda. So all kinds of financial indicators (bank assets, equity markets, bank accounts etc) were used to show how they lead to GDP growth. This was a phase where GDP growth was rising generally and by fitting such regressions, positive relationships were not difficult to find. So the mantra was simple. Just let financial sector grow. And hence, finance professors became the new dons and got huge fame. They were appointed to all kinds of committees to drive financial sector of respective countries. Same with the finance sector.

Post-crisis, we are now questioning these findings and arguing the opposite. After all, we have to show that the discipline is responsible and knows things. Nothing could be further from truth. It is even more bizarre that the professors who argued for finance earlier have only seen their fame grow!!

Another point is it is not right to compare finance with medicine/telephones/R&D etc. Finance interacts with the economy in many more ways than all these other factors. Too many doctors, telephones etc hardly impact the economy adversely but finance surely does. This is nothing new. For ages, speculations and manias in finance have impacted economies.

For any development, one needs several factors and finance is just one of them. We had overdone the analysis earlier and are perhaps overdoing it now.

Do you want to build a dam or create employment?

June 25, 2015

Interesting anecdote by Michael Tanner.

Lately, there is a concern over rising inequality in US and developed world. Politicians feel growth is only rewarding those at the top. The author says we are mixing these two things. High growth should be welcome at all costs and if inequality is rising we should use different tools for the same. But to say growth should be lower does not get us anywhere. In this context he quotes this story from Prof. Milton Friedman :


China’s new Silk Route initiative – Signs up with Hungary as first partner

June 15, 2015

Adam Minster of Bloomberg informs of this development:


China’s attempt to create multipolar world : Silk Routes versus Sea Lanes

June 4, 2015

This is an absolutely brilliant piece by Atul Bhardwaj of Institute of Chinese Studies.

He goes on to explain how and why Chinese are trying to revisit their Silk Route in an attempt to build a multipolar world.

Grapes from Astana can reach Amritsar in just 28 hours by train through Pakistan—a fact recently reinforced by an economist from Tajikistan1 in his talk about land routes connecting Central Asia to India. A few years ago, the idea itself would have been relegated as impractical to a mind conditioned to think of international trade as synonymous with ships and sea lanes of communication (SLOC). Until, of course, the Chinese proposed their signature idea of “One-Belt-One-Road” (OBOR) which is fast gaining currency.

For long, the Chinese story was devoid of ideas that could develop an emotional rapport with the world. OBOR has injected a new dimension to the Chinese growth narrative. The primary aim of OBOR is to connect China with Europe through Central Asia and Russia. The purpose is to limit the maritime component in the global supply chain and thereby reduce dependence on the international merchant fleet of bulk carriers and tankers.

Beijing understands that making Southeast Asia the world’s factory and building international financial infrastructure like the Asian Infrastructure Investment Bank (AIIB) are not adequate to lead the global economy, what is equally important is control over the channels through which business travels.


OBOR is not purely land based; it also has a maritime component. The ports and harbours in Indonesia, Africa, Myanmar, Bangladesh, Pakistan, Sri Lanka and possibly India are part of the scheme to shorten sea time that the to-and-fro trade from West Asia and Africa has to traverse to reach China. This ensures that China-bound oil first lands at Gwadar port in Pakistan or at Kyaukphyu port in Myanmar, from where it is carried through tankers, pipelines and rail network to western China, thus opening up new vistas to create wealth for populations all along routes that have remained backward for centuries.

Generally, ocean trade between two ports bypasses many nations along the passage. For example, oil coming from West Asia to China using the conventional SLOCs is largely a bilateral transaction that benefits few littorals en route. OBOR, backed by $140 billion funds, is creating a comprehensive network of ports, railways and roads that would open up new business synergies all along the route.

What will China gain from this?

The question is, why is China diversifying trade routes? Why cannot the Chinese continue to use the well-established SLOCs? If their goods can easily ply on relatively peaceful high seas then why do they want to move them through well-populated national territories? Why are the Chinese increasing their vulnerabilities by increasing the number of stakeholders along the proposed trade routes? One plausible answer is that Chinese trade does not feel safe using American-dominated SLOCs. An economic reason could be the desire to garner a greater share in the global service sector that is currently under American dominance.

Reopening the old silk route is an open defiance of the American “command of the commons.” Commanding the commons entails controlling the $375 billion shipping industry and the shipping insurance and reinsurance business, that includes vessel hull, war risk and cargo insurance premiums. This business has been the bedrock of the Western dominance of the world. The Chinese challenge is non-confrontationist, to the extent that it does not involve naval battles to physically dethrone the United States (US) from the command.

This raises an obvious question, if China is turning its back on the oceans then why is it investing in building a blue water navy? The Chinese are building more surface ships than submarines because they see medium navies as a diplomatic force that is used more for advancing flag showing than fighting wars. According to media reports, China plans to have 351 ships by 2020 and every year it is building or launching roughly 60 naval ships. The Chinese are building warships merely as a show of capability much in the same fashion as the US had built a large cruiser in 1925, merely to puncture British naval vanity. Another reason seems to be to induce America to spend more on its navy.

The Chinese also do not seem to want to meddle with the well-protected Anglo–American insurance markets. The Chinese strategy hinges on bringing down the usage of oceans for trade. Once trains and road links become extensive, global trade will not employ 55,000 ships to move cargo. Lower volumes will lead to a sharp fall in the revenue generated from insurance and reinsurance premiums that accrue to the Western world and also have an impact on the derivatives market at the London-based Baltic Exchange. Reduced trade through oceans will automatically lead to decline in the importance of Western navies. This would hit the maritime nations hard. The pain will aggravate when Chinese capital creates more favourable insurance and reinsurance regimes and fragments the market along the new trade routes that it is creating.

Hmm fascinating..

As this blog keeps saying. Knowing history and politics is so crucial to figuring economics. But here in India we are just lost in debates over GDP and inflation numbers.

Chinese have never really cared for such meaningless discussions and are looking at a much much bigger picture.

So how do we compare this with what US did?

Many analysts have compared OBOR investments with the $17 billion Marshall Plan that the US had executed for Western Europe in the aftermath of World War II. However, the two are fundamentally different because the historical context in which the Marshall Plan was conceived is totally at variance with circumstances in which OBOR is germinating. The former was a by-product of war and a superpower’s geostrategic game to contain the Soviet footprint in Europe by giving a fillip to Western war-devastated economies. On the other hand, OBOR is promoted by China, which is not yet a superpower and is not using war surpluses to catapult itself to a hegemonic position. The Chinese initiative is more towards creating a multipolar world by breaking the Anglo–Saxon vice-like grip over global trade.

…..The twin factor that differentiates China’s rise from that of the US is the role that the American military and private capital played in influencing the contours of the postcolonial order. America emerged on the global stage after two bloody wars. The entire post-war planned development and industrialisation model that America introduced to the world was designed to cater to the war industry. Therefore, the American military–industrial complex played a massive role in shaping the post-war world order. Currently, the Chinese government has kept its Peoples’ Liberation Army and its billionaires, who control 3% of Chinese wealth, on a tight leash.

How did British kill Chinese supremacy?

To understand the nuances of the critical changes that China is introducing to the international political economy, one needs to peep into history; the way the British closed traditional land routes and introduced the notion of “landlocked” in transnational exchanges. As Nimmi Kurian argues in India-China Borderlands (2014: 30), the British security establishment created the concept of “buffer zones” on borders that “flew in the face of both economic logic and social reality.”

China, a continental power in Asia, was dissuaded from using the Silk Road and forced to open its ports through a series of “Opium Wars” and the invasion of Tibet. China resisted but eventually relented due to domestic strife created by the decline in trade. For the British it was essential to use their navy to make ocean routes more attractive, because since the 18th century “navy and credit” had been the bulwark of their global reach (Kennedy 1981: 46). By the middle of the 19th century, the British lost monopoly over manufacturing with the rise of Germany, the US and Russia. In 1870 the United Kingdom (UK) contained 32% of the world’s manufacturing capacity; this share was down to 15% by 1910 (Kennedy 1981: 47).

Undeterred by changed circumstances, the English used their capital to underwrite the ocean trade. They encouraged free trade and earned money by extending services like shipping, insurance, commodity-dealing, banking. By 1914 they had reached a stage where the Lloyds of London provided insurance cover to German merchantmen that were sunk by Royal Navy guns. The fall in international trade in the wake of the Great Depression of 1929 led to a fall in British annual earnings from shipping, commissions, insurance and overseas investments; they fell by some £250 billion (Kennedy: 53).

America is palpably perturbed by the development of the AIIB and the OBOR. These twin Chinese creations are likely to do to America what the two world wars and the Great Depression had done to Britain. These could reduce their share of global service trade, which currently is double that of China (Romei 2014). The reduced shipment of oil from West Asia to America due to the shale gas revolution and the growth in renewable energy avenues coupled with new trade routes will cause a severe dent in American revenues. It is for this reason that America is mobilising its allies to refrain from joining Chinese-led initiatives.

One wonders what America will do to stem the slide. Will America go to war, relying on the money and goodwill of its allies? The UK also entered the World War II on borrowed money—both India and the US extensively lent money and equipment to the UK to fight the War; which it won but Britain was bankrupted. Will India be the American ally in a misadventure that takes on China?

Brilliant. Explains so much about emergence and shaping of world economy.

It further discusses India’s stance and why it should join China in this initiative.

Superb stuff..

Which countries were stuck for the longest period in the upper-middle-income category before moving to high income?

June 2, 2015

Greece and Argentina.

Prof Andres Velasco explains that apart from poor macro policy, both countries also share this aspect.

Aside from an established tradition of bad macroeconomics, what do Greece and Argentina have in common? One answer is that they were the world’s longest-held captives of the so-called middle-income trap – and remain within its reach to this day. With countries in Asia, Eastern Europe, and Latin American fearing that, having reached the international middle class, they could be stuck there, Greece and Argentina shed light on how that might happen.

A recent paper by economists from Bard College and the Asian Development Bank categorizes the world economy according to four groups – with the top two categories occupied by upper-middle-income and high-income countries – and tracks countries’ movements in and out of these groups. Which countries were stuck for the longest period in the upper-middle-income category before moving to high income? You guessed it: Greece and Argentina.

Correcting for variations in the cost of living across countries, the paper concludes that $10,750 of purchasing power in the year 1990 is the threshold for per capita income beyond which a country is high income, while $7,250 makes it upper-middle income. (These thresholds may sound low, but the World Bank uses similar cutoffs.)

By these criteria, Argentina became an upper-middle-income country all the way back in 1970, and then spent 40 years stuck in that category before reaching high-income status in 2010. Greece joined the international upper middle class in 1972, and then took 28 years to reach the top income group, in 2000. No other country that became upper middle income after 1950, and then made the transition, took nearly as long. In fact, the average length of that transition was 14 years, with economies such as South Korea, Taiwan, and Hong Kong taking as little as seven years.

It does not end here. The crisis poses several issues for the two countries.  Greece might have moved back to middle income:

Data in the paper stop at 2010, but the story may well be worse today. According to IMF figures, Greece’s never-ending crisis has cut per capita GDP (in terms of purchasing power parity) by 10% since 2010, and by 18% since 2007. Indeed, Greece may have dropped out of the high-income category in recent years.

Argentina’s per capita income has risen, albeit slowly, during this period, but the country was never far from a full-blown macroeconomic crisis that could reduce household incomes sharply. So it seems fair to conclude that both countries are still caught in the middle-income trap.

What kind of trap is it? In Greece and Argentina, it is both political and economic.

The usual story..

Education is important for growth – an idea which is just a hype..

June 2, 2015

Prof Hausmann has this food for thought piece on the relation.

He says we usually say education is critical for growth. But data/trends suggest otherwise:


Changing the rules of game for US economy..

May 28, 2015

What should be Hillary Clinton’s economic agenda? Should she be on right of the centre (like her husband) or lean towards the left (as developed world is increasingly moving to)?

This report by Prof Stiglitz et al suggests rules for American economy have to be rewritten. Over the last few decades, post policymakers have followed market ideology but that has only led to wealth piling at the top. All that talk of market being the best mechanism to distribute resources has not worked. Markets may be more efficient than govt but poor at equity allocation.

This article by Dylan Matthews sums up the report:


From MDGs to Post 2015 SDGs..

May 28, 2015

Trust all these UN type organisations to keep coming out with one buzzword after the other. I mean buzzwords are fine if some work actually gets done. But this is usually not the case.

Anyways as tenure of MDGs is going to be over in 2015, UN is coming out with a new development buzz – Post 2015 Sustainable Development Goals (SDGs). The question is what should these goals be?

Bjorn Ljomborg of Copenhagen Business School, who has been associated with such projects writes on SDGs.

Over the next 15 years, the international community will spend $2.5 trillion on development, with national budgets contributing countless trillions more. In September, the world’s 193 governments will meet at the United Nations in New York to agree on a set of global targets that will direct these resources. With so much at stake, it is vital that we make the smartest choices.

Because it is only natural for politicians to promise to do everything, the UN is currently poised to consider an impossibly inclusive 169 targets. The proposed targets range from the ambitious (“end the epidemics of AIDS, tuberculosis, and malaria”) to the peripheral (“promote sustainable tourism”) to the impossible (“by 2030 achieve full and productive employment and decent work for all women and men, including for young people and persons with disabilities”).

But promising everything to everyone provides no direction. In truth, having 169 priorities is like having none at all.

That is why my think tank, the Copenhagen Consensus, asked 82 of the world’s top economists, 44 sector experts, and UN organizations and NGOs to evaluate which targets would do the most good for every dollar, euro, or peso spent. A team of eminent economists, including several Nobel laureates, then prioritized these targets in value-for-money terms.

It turns out that not all targets are equal. Some generate amazing economic, social, and environmental benefits per dollar spent. Many others generate only slightly more than a dollar per dollar spent. Some even generate a net loss, doing less than a dollar of good per dollar spent.

If the world were to spend money equally across all 169 UN targets, it would do about $7 of social good for each dollar spent. That is respectable, but we could do much better.

The panel of eminent economists has produced a much shorter list of just 19 targets that will do the most good for the world. Every dollar spent on these targets will likely produce $32 of social good – more than four times more effective than spending on all 169. Being smart about development spending could be better than quadrupling the global aid budget. The short list covers a lot of ground; what connects the targets is the amount of good they will do for people, the planet, and prosperity.


 This list of smart targets will not solve all of the world’s problems; no realistic list, however ambitious, can. But the 19 targets identified by the Copenhagen Consensus can help the world’s governments to concentrate on key priorities. These targets will do more than four times as much good per dollar spent as spending across all 169 targets would do. Governments should stop promising everything to everyone and start focusing on delivering the most possible.

MDG had 8 goals with 21 targets. And now we have 19 targets. I don’t think this is a really short target list. Just that these 19 targets are under three Ps – People, Planet and Prosperity. Who said only Business Schools believed in Ps, Ss and so on?

Eric Hanushek and Ludger Woessmann suggest just one taregt – basic human skills:

Kinnaur’s curse? Environmental threat from Hydroelectric projects

May 19, 2015

Interesting article which takes you to the perennial debate between environment and development.

This article is on Kinnaur in Himachal Pradesh:

Kinnaur, one of Himachal Pradesh’s most ecologically fragile regions, is under threat from widespread construction activity for hydroelectric power projects. Landslides have become a common occurrence putting lives of villagers to severe environmental risk.

Are lessons being learnt from several environment disasters?

Japan isn’t just a knockoff nation..

May 7, 2015

The big challenge for Asian countries like India and China is to innovate the next gen products and services.

Noah Smith has this interesting piece on how Japan achieved this transition. People in the west ofen complaint that Japan is just an imitating country. Reality could not be more different:


A new buzzword – frontier economies?

April 30, 2015

I was reading this recent post on capital flows from IMF in frontier economies. I assumed frontier economies to be another name for emerging economies. But no, it is a different class as explained here:

There is a group of fast-growing low-income countries that are attracting international investor interest—frontier economies. Understanding who they are, how they are different, and how they have moved themselves to the frontier matters for the global economy because they combine huge potential with big risks. 

Get to know them  

The first thing to note is that some of these countries already have moved to the lower-middle income group. While a working definition of frontier economies is subject to further discussion, broadly speaking, these countries have been deepening their financial markets, such as Bangladesh, Kenya, Nigeria, Mozambique, and Vietnam.

Some also have been able to tap the international capital markets, such as Bolivia, Ghana, Honduras, Mongolia, Nigeria, Senegal, Tanzania, Vietnam, and Zambia. Their markets are, however, not as deep and liquid as those of the emerging markets, but compared to the latter, they offer higher returns and the benefits of a diversified portfolio.

Really? Another buzzword called frontier economies. IMF is another champion in all these naming gaming and creating buzzwords.


Many frontier countries are growing at a fast pace, in most cases helped by sustained efforts to achieve macroeconomic stability, and by building business-friendly institutions ( Chart 1). These economies have also made significant efforts to lower inflation through prudent fiscal and monetary policy ( Chart 2).

Most of these countries have made progress in strengthening their policy making apparatus, reducing excessive red tape and lowering trade restrictions. Reforms to change their economic structure have helped them unlock their potential, including  greater weight on the services sector, such as in Tanzania and Kenya.

In many countries, alleviation of their debt burden over the past decade has freed up money for investments in physical and human capital. Several countries received debt relief under the Highly Indebted Poor Country Initiative, but others reduced their debt outside this initiative, such as Kenya, Mongolia, Nigeria, and Vietnam.

These countries have deepened their financial markets at a fast pace—they offer more domestic financial services and products than their peers. Some have attracted international investor interest in their domestic bonds market and several have issued sovereign bonds in the international capital markets ( Chart 3).

Access to international capital markets means these countries can attract financing to address gaps in infrastructure, such as roads and railways, which could provide further impetus to growth. But as described below, market access also poses new financial risks that countries need to carefully manage.

Influences from outside their borders

Low interest rates combined with advanced economies shedding debt have pushed investors to search for higher returns on their investments, which has expanded their interest to invest in frontier economies.

The quest for resources by emerging economies has contributed to improved terms of trade and a surge in both domestic and foreign investment in resource-rich countries, such as Bolivia, Ghana, Nigeria, and Mongolia.

Domestic public investment has increased as the low debt burden, favorable external borrowing rates, and high commodity prices have increased access to private financing sources outside their borders. 

Just another group of countries which have shown some recent promise.  And all these are countries which soon are called lost ones as well..


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