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Ethiopia has achieved sustained high growth for more than a decade. At the same time, the country has been facing several economic challenges, including falling exports, chronic foreign currency shortages, as well as a slow pace of structural transformation. In recent years, the already overvalued birr has appreciated sharply in real terms, partly driven by the appreciation of the dollar, thereby making Ethiopia's competitiveness and industrialization drive more difficult. In response to these challenges, this paper looks at the question of why the real exchange rate is a useful policy instrument. The analysis suggests that Ethiopia needs a more flexible exchange rate policy. A competitive or undervalued exchange rate is important in bringing about productivity-enhancing structural change. There is robust evidence that a real devaluation stimulates exports in general and manufacturing exports in particular, improves the trade and current account balances, and spurs economic growth. Currency undervaluation is a second-best policy intervention that can help offset some of the key constraints to manufacturing growth prevalent in low-income countries and speed up structural transformation. However, exchange rate adjustments need to take into account the increase in the cost of capital imports and debt burden.
Exchange Rate --- Export Competitiveness --- Exports --- Finance and Financial Sector Development --- Foreign Exchange --- Growth --- International Economics and Trade --- Structural Change
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Structural transformation has resulted in an increasing share of services in aggregate value-added in advanced and developing countries across the world. We analyze the impact of this shift into services on countries’ efficiency in collecting the value-added tax (VAT). The analysis is based on two alternative measures of VAT efficiency: (1) the VAT C-efficiency, using a broad panel of 134 countries over the period 1970-2014; and (2) the VAT gap using a more granular, proprietary dataset that draws on the results of IMF’s Revenue Administraion-Gap Analysis Program covering 24 countries over the period 2004-2016. We find that a higher share of services in aggregate value-added reduces the VAT efficiency, and that this adverse effect is mainly a result of a rise of non-tradable services, which in turn contributes to a narrowing of the VAT base.
Macroeconomics --- Public Finance --- Taxation --- Business Fluctuations --- Cycles --- Efficiency --- Optimal Taxation --- Business Taxes and Subsidies --- Industrial Organization and Macroeconomics: Industrial Structure and Structural Change --- Industrial Price Indices --- Taxation, Subsidies, and Revenue: General --- Public finance & taxation --- Economic growth --- Value-added tax --- Structural transformation --- Tax efficiency --- Tax gap --- Revenue administration --- Spendings tax --- Tax administration and procedure --- Economic development --- Revenue
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Ghana has experienced a decade of solid and exceptionally high growth. Between 2005 and 2015, income nearly doubled. This paper analyzes the factors driving this impressive growth performance, using tools such as structural change decompositions and growth regressions. For the comparative perspective, the paper compares Ghana with its structural and aspirational peers. The paper finds that the contribution of structural change to growth has been limited and attributes this to labor that was freed up in agriculture not being absorbed by high-productivity sectors. Looking at factors that drove growth since 2000, financial development and infrastructure had the most important impacts. A benchmark analysis suggests that those areas should remain the policy focus over the longer term, but that near-term priority should be given to stabilization policies.
Agriculture --- Business cycles and stabilization policies --- Common carriers industry --- Construction industry --- Determinants of growth --- Economic growth --- Food and beverage industry --- Food security --- General manufacturing --- Inflation --- International economics and trade --- International trade and trade rules --- Labor markets --- Plastics and rubber industry --- Pulp and paper industry --- Social protections and labor --- Structural change --- Textiles apparel and leather industry
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