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The World Bank Human Capital Index (HCI) is based on the productivity gains of future workers from human capital accumulation. But in many developing countries, a sizeable fraction of people are not employed, or are in jobs in which they cannot fully use their skills and cognitive abilities to increase their productivity. The Utilization-adjusted Human Capital Indices (UHCIs) adjust the HCI for labor-market underutilization of human capital, based on fraction of the working age population that are employed, or are in the types of jobs where they might be better able to use their skills and abilities to increase their productivity ("better employment"). The UHCIs generalize the growth-based interpretation of the HCI: the inverse of a country's UHCI score represents long-run GDP per capita with complete human capital and complete utilization, relative to that under the status quo. The UHCIs are designed to complement the HCI, and not to replace it: they have different purposes, and the challenges of measuring utilization mean that the UHCIs should be interpreted with caution for policy analysis. Both utilization measures are available for more than 160 countries, and are roughly U-shaped in per capita income, suggesting human capital is particularly underutilized in middle-income countries. Human capital is also underutilized for women: while the HCI is roughly equal across boys and girls, female UHCIs are typically lower than those for males, driven by lower employment rates.

Development Accounting --- Economics of Education --- Education --- Employment --- Employment and Unemployment --- HCI --- Health --- Human Capital --- Human Capital Index --- Labor Force Participation --- Labor Market Utilization --- Labor Markets --- Social Protections and Labor --- UHCI

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This paper shows that in theory and BLS microdata, the prices of imported goods respond to the exchange rates (ER) of the producer's foreign competitors. In contrast, standard models have no role for competitors' ERs. Excluding the effects of competitors' exchange rates typically biases upwards estimates of bilateral exchange rate pass-through because competitors' ERs and bilateral ERs are positively correlated. A multi-country version of Atkeson and Burstein's (2008) industry aggregation model is able to explain a sizable proportion of pass-through of competitors' exchange rates to import prices, and also predicts pass-through of foreign competitors' prices and pass-through of competitors' ERs to US producer prices-both of which are supported in the data. The results suggest that pass-through will be larger for ER movements shared by a greater fraction of foreign competitor countries.

Competitor --- Data --- Economic Modeling --- Exchange Rates --- Foreign Investment --- Markets --- Safety Net

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To analyze the effect of an increase in the quantity or quality of public investment on growth, this paper extends the World Bank's Long-Term Growth Model (LTGM), by separating the total capital stock into public and private portions, with the former adjusted for its quality. The paper presents the Long-Term Growth Model Public Capital Extension (LTGM-PC) and accompanying freely downloadable Excel-based tool. It also constructs a new Infrastructure Efficiency Index (IEI), by combining quality indicators for power, roads, and water as a cardinal measure of the quality of public capital in each country. In the model, public investment generates a larger boost to growth if existing stocks of public capital are low, or if public capital is particularly important in the production function. Through the lens of the model and utilizing newly-collated cross-country data, the paper presents three stylized facts and some related policy implications. First, the measured public capital stock is roughly constant as a share of gross domestic product (GDP) across income groups, which implies that the returns to new public investment, and its effect on growth, are roughly constant across development levels. Second, developing countries are relatively short of private capital, which means that private investment provides the largest boost to growth in low-income countries. Third, low-income countries have the lowest quality of public capital and the lowest efficient public capital stock as a share of gross domestic product. Although this does not affect the returns to public investment, it means that improving the efficiency of public investment has a sizable effect on growth in low-income countries. Quantitatively, a permanent 1ppt GDP increase in public investment boosts growth by around 0.1-0.2ppts over the following few years (depending on the parameters), with the effect declining over time.

Energy --- Energy Policies & Economics --- Hydrology --- Infrastructure --- Infrastructure And Law --- Infrastructure Economics --- Infrastructure Economics And Finance --- Infrastructure Finance --- Infrastructure Regulation --- Labor & Employment Law --- Long-Term Growth --- Macroeconomic Management --- Public Capital --- Public Investment Efficiency --- Water Resources

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Commodity-exporting developing economies are often characterized as having needlessly procyclical fiscal policy: spending when commodity prices are high and cutting back when prices fall. The standard policy advice is instead to save during price windfalls and maintain spending during price busts. This paper questions this characterization and policy advice. Using a New Keynesian model, it finds that optimal fiscal policy is heterogeneous depending on the commodity exported and exchange rate regime. Optimal fiscal policy is often procyclical in countries with floating exchange rates because many commodity price shocks are highly persistent, and so they should be spent according to the permanent income hypothesis. In contrast, in countries with fixed exchange rates, optimal fiscal policy becomes countercyclical to smooth the business cycle. Empirically, the paper introduces a new measure of fiscal cyclicality, the marginal propensity to spend (MPS) an extra dollar of commodity revenues, and shows that it is moderately procyclical overall but highly heterogeneous across countries depending on their characteristics. Consistent with theory, the MPS is more procyclical in countries with floating exchange rates than those with fixed exchange rates. Moreover, in countries with floating exchange rates, the MPS is higher in countries facing more persistent commodity price shocks.

Agriculture --- Business Cycles and Stabilization Policies --- Commodities --- Commodity Exporters --- Commodity Prices --- Cyclicality --- Fiscal and Monetary Policy --- Fiscal Policy --- Macroeconomics and Economic Growth --- Price Shock --- Price Volatility --- Public Sector Development

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COVID-19 not only represents a worldwide public health emergency but has become an international economic crisis that could surpass the global financial crisis of 2008-09. Right now, containment and mitigation measures are necessary to limit the spread of the virus and save lives. However, they come at a cost, as shutdowns imply reducing economic activity. These human and economic costs are likely to be larger for developing countries, which generally have lower health care capacity, larger informal sectors, shallower financial markets, less fiscal space, and poorer governance. Policy makers will need to weigh carefully the effectiveness and socioeconomic consequences of containment and mitigation policies, responding to epidemiological evidence on how the virus spreads and trying to avoid unintended consequences. Economic policy in the short term should be focused on providing emergency relief to vulnerable populations and affected businesses. The short-term goal is not to stimulate the economy-which is impossible, given the supply-restricting containment measures, but rather to avoid mass layoffs and bankruptcies. In the medium term, macroeconomic policy should turn to recovery measures, which typically involve monetary and fiscal stimulus. However, in many developing countries, stimulus may be less effective because monetary transmission is weak and fiscal space and fiscal multipliers are often small. A more viable goal for macroeconomic policy in developing countries is avoiding procyclicality, ensuring the continuity of public services for the economy, and supporting the vulnerable. Because COVID-19 is truly a global shock, international coordination is essential, in economic policy,health care and science, and containment and mitigation efforts. Critical times call for well-designed government action and effective public service delivery-preserving, rather than ignoring, the practices for macroeconomic stability and proper governance that serve in good and bad times.

Business Cycles and Stabilization Policies --- Economic Conditions and Volatility --- Fiscal and Monetary Policy --- Macroeconomic Management --- Macroeconomics and Economic Growth