Ideas for growth session 9: Macroeconomics

The session was chaired by Silvana Tenreyro (LSE; IGC), who gave the floor to Jaume Ventura (CREI, Universidad Pompeu Fabra and Barcelona GSE). Jaume’s presentation aimed at giving an overview of the interaction between two different ways of financing development in emerging countries: mobilizing domestic savings (financial reforms) and mobilizing foreign savings (financial or current account liberalization). The most important message of his research is that the success of financial liberalization depends on keeping domestic asset trade flowing, which in term depends on country characteristics and luck. With regard to the timing of such a policy, unless a country is very poor, policy-makers should wait until certain preconditions that stimulate domestic savers’ optimism are met.

The session continued with a presentation by Tony Venables (Oxford; IGC) who presented his views on the optimal steps needed to make the most out of natural resource revenues, especially in low income countries, where the model of Permanent Income Hypothesis and the Norwegian model of managing revenues are not particularly suitable due to these economies’ immediate development needs. Some of the most recurrent mistakes of resource rich economies are: relying on a boom-bust model of revenues and failing to save. Tony using resource revenues for current spending (consumption), capital spending (investment in the domestic economy) and foreign assets accumulation – with a combination that depends on the country’s characteristics, such as the ability to absorb extra domestic spending, government’s capacity for appraisal and implementation of projects, etc.

The last presenter was Dave Donaldson (MIT), whose research tries to understand the impact of reductions in barriers to international trade for consumers in remote locations, by looking at barriers at the intra-national level. Looking at a carefully selected basket of goods in Ethiopia and Nigeria, Dave finds that marginal costs from distance are very high, although the pass-through of marginal costs to prices generally reduces mark-ups. Furthermore, less social surplus from trade is available to remote consumers. Lastly, remote markets seem to be less competitive than markets closer to the source of products. The dynamics of the session were enriched by the policy-makers’ take on these issues, discussed by Nii Sowa (IGC Ghana) and Hamza Malik (State Bank of Pakistan).