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Post-conflict countries receive substantial aid flows after the start of peace. While post-conflict countries' capacity to absorb aid (that is, the quality of their policies and institutions) is built up only gradually after the onset of peace, the evidence suggests that aid tends to peak immediately after peace is attained and decline thereafter. Aid composition broadly reflects post-conflict priorities, with large parts of aid financing social expenditure and infrastructure investment. Aid has significant short-term effects on the real exchange rate (RER), as inferred from the behavior of RER in the world. While moderate RER overvaluation is observed in post-conflicts, it cannot be traced down to the aid flows. The empirical evidence on world growth reveals new findings about the pattern of catch-up growth during post-conflicts and the role of key growth determinants on post-conflict growth. Aid is an important determinant of growth, both generally and more strongly during post-conflict periods. Because RER misalignment reduces growth, RER overvaluation during post-conflicts reduces catch-up growth. Aid and RER overvaluation combined also lower growth. But the negative growth effect of RER overvaluation declines with financial development.
Absorptive Capacities --- Assets --- Conflict and Development --- Currencies and Exchange Rates --- Current Account --- Debt Markets --- Depreciation --- Development Economics and Aid Effectiveness --- Domestic-Currency --- Dutch Disease --- Economic Conditions and Volatility --- Economic Growth --- Economic Theory and Research --- Economies --- Economy --- Emerging Markets --- Equilibrium --- Equilibrium Level --- Export Diversification --- Export Growth --- Finance and Financial Sector Development --- Macroeconomic Management --- Macroeconomics and Economic Growth --- Misalignment --- Overvaluation --- Post Conflict Reconstruction --- Poverty Reduction --- Private Sector Development --- Pro-Poor Growth --- Real Exchange Rate --- Real Exchange Rate Appreciation --- Real Exchange Rate Overvaluation --- Relative Price --- Risks --- Social Conflict and Violence --- Social Development
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Post-conflict countries receive substantial aid flows after the start of peace. While post-conflict countries' capacity to absorb aid (that is, the quality of their policies and institutions) is built up only gradually after the onset of peace, the evidence suggests that aid tends to peak immediately after peace is attained and decline thereafter. Aid composition broadly reflects post-conflict priorities, with large parts of aid financing social expenditure and infrastructure investment. Aid has significant short-term effects on the real exchange rate (RER), as inferred from the behavior of RER in the world. While moderate RER overvaluation is observed in post-conflicts, it cannot be traced down to the aid flows. The empirical evidence on world growth reveals new findings about the pattern of catch-up growth during post-conflicts and the role of key growth determinants on post-conflict growth. Aid is an important determinant of growth, both generally and more strongly during post-conflict periods. Because RER misalignment reduces growth, RER overvaluation during post-conflicts reduces catch-up growth. Aid and RER overvaluation combined also lower growth. But the negative growth effect of RER overvaluation declines with financial development.
Absorptive Capacities --- Assets --- Conflict and Development --- Currencies and Exchange Rates --- Current Account --- Debt Markets --- Depreciation --- Development Economics and Aid Effectiveness --- Domestic-Currency --- Dutch Disease --- Economic Conditions and Volatility --- Economic Growth --- Economic Theory and Research --- Economies --- Economy --- Emerging Markets --- Equilibrium --- Equilibrium Level --- Export Diversification --- Export Growth --- Finance and Financial Sector Development --- Macroeconomic Management --- Macroeconomics and Economic Growth --- Misalignment --- Overvaluation --- Post Conflict Reconstruction --- Poverty Reduction --- Private Sector Development --- Pro-Poor Growth --- Real Exchange Rate --- Real Exchange Rate Appreciation --- Real Exchange Rate Overvaluation --- Relative Price --- Risks --- Social Conflict and Violence --- Social Development
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This paper studies the short and longer-term impact of IMF engagement in Low-Income Countries (LICs) over nearly three decades. In contrast to earlier studies, we focus on a sample composed exclusively of LICs and disentangle the different effects of IMF longer-term engagement and short-term financing using a propensity score matching approach to control for selection bias. Our results indicate that longer-term IMF support (at least five years of program engagement per decade) helped LICs sustain economic growth and boost resilience by building fiscal buffers. Interestingly, the size of IMF financing has no significant impact on economic growth, possibly pointing to the prominent role of IMF policy advice and institutional capacity building in the context of longer-term engagement. We also present evidence that the short-term IMF engagement through augmentations of existing programs or short-term and emergency facilities is positively associated with a wide range of macroeconomic outcomes. Notably, the IMF financial support has the greatest impact on short-term growth when LICs are faced with substantial macroeconomic imbalances or exogenous shocks.
International Monetary Fund --- Economic assistance --- Economic development --- Exports and Imports --- Inflation --- Public Finance --- International Monetary Arrangements and Institutions --- International Lending and Debt Problems --- International Agreements and Observance --- International Organizations --- Globalization: Economic Development --- Economic Development, Innovation, Technological Change, and Growth --- Current Account Adjustment --- Short-term Capital Movements --- International Investment --- Long-term Capital Movements --- Price Level --- Deflation --- National Government Expenditures and Education --- National Government Expenditures and Health --- International economics --- Finance --- Macroeconomics --- Public finance & taxation --- Foreign direct investment --- Balance of payments need --- Current account balance --- Education spending --- Balance of payments --- Prices --- Health care spending --- Expenditure --- Investments, Foreign --- Expenditures, Public --- Somalia
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"The authors study how the effect of trade openness on economic growth depends on complementary reforms that help a country take advantage of international competition. This issue is illustrated with a simple Harris-Todaro model where output gains after trade liberalization depend on the degree of labor market flexibility. In that model, trade protection may ameliorate the problem of underemployment (and underproduction) in sectors affected by labor market distortions. Hence, trade liberalization unambiguously increases per capita income only when labor markets are sufficiently flexible. The authors then present some panel evidence on how the growth effect of openness depends on a variety of structural characteristics. For this purpose, they use a non-linear growth regression specification that interacts a proxy of trade openness with proxies of educational investment, financial depth, inflation stabilization, public infrastructure, governance, labor-market flexibility, ease of firm entry, and ease of firm exit. They find that the growth effects of openness are positive and economically significant if certain complementary reforms are undertaken. "--World Bank web site.
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"The authors study how the effect of trade openness on economic growth depends on complementary reforms that help a country take advantage of international competition. This issue is illustrated with a simple Harris-Todaro model where output gains after trade liberalization depend on the degree of labor market flexibility. In that model, trade protection may ameliorate the problem of underemployment (and underproduction) in sectors affected by labor market distortions. Hence, trade liberalization unambiguously increases per capita income only when labor markets are sufficiently flexible. The authors then present some panel evidence on how the growth effect of openness depends on a variety of structural characteristics. For this purpose, they use a non-linear growth regression specification that interacts a proxy of trade openness with proxies of educational investment, financial depth, inflation stabilization, public infrastructure, governance, labor-market flexibility, ease of firm entry, and ease of firm exit. They find that the growth effects of openness are positive and economically significant if certain complementary reforms are undertaken. "--World Bank web site.
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