External Sector Research Articles

IMF trade forecasts for crisis countries: Bias, inefficiency, and their origins

External sector surveillance and stabilization are core missions of the International Monetary Fund (IMF). Since 1992, the IMF approved over 600 crisis country loan programs, conditional on reforms and performance targets that are contingent on IMF crisis assessments and recovery forecasts. The literature evaluating IMF crisis forecasts has primarily focused on GDP, inflation, and fiscal budgets, but IMF programs often originate with the balance of payments crises. Our evaluation of IMF imports/exports/exchange rates in crisis countries reveals a surprising dichotomy: import forecasts are largely efficient and unbiased, while exports and exchange rate forecasts exhibit substantial biases and inefficiencies. We show forecast errors in the full sample are driven by deeply flawed IMF forecasts for LICs in crisis. Fixed exchange rate LICs (predominantly African franc zone countries) receive systematically inefficient import forecasts. Exchange rate forecasts for LICs with flexible exchange rates are so inefficient that they cannot outperform a naïve random walk, and over 30 percent of the forecasts cannot match the exchange rate’s directional movement during the first year of the recovery. Examining the sources of biases and inefficiencies, we highlight effects of conditionality and geopolitics that were not fully accounted for in IMF forecasts, specifically those relating to arrears (domestic and foreign), fiscal finance (balance and credit limits), policy reforms (trade and government), (civil) wars, and elections.

Bilateral and multilateral aid perspectives of economic growth in sub-Saharan Africa

PurposeThe purpose of this study is to determine the impact of disaggregate official development aid (ODA) on economic growth, and ascertain whether bilateral and multilateral aid played complementary role with private sector, government sector and external sector in driving growth of sub-Saharan African economies.Design/methodology/approachThe role of bilateral and multilateral aid in economic growth of sub-Saharan Africa (SSA) is investigated in this study. The vector error correction model (VECM) and generalized method of moments (GMM) techniques are employed in estimating the short-run and long-run impacts, over the period 1980–2020.FindingsThe estimation results reveal that the effect of bilateral aid is positive, and more significant than multilateral aid. Their effect on economic growth is, however, less significant than the effects of domestic private investment and government spending. Nonetheless, aid complemented private and government sectors in facilitating growth. External trade is the only exogenous variable in estimation that is insignificant. The results further reveal that economic growth is unable to significantly respond to its own lag. Generally, the estimation results conform to theoretical expectations.Practical implicationsOne major implication of the findings is that SSA countries have benefited substantially from development aid. It is, therefore, important for these countries to develop stronger institutions that would attract more inflows of development aid.Originality/valueThe study was motivated by the fact that less attention has been given to the role of disaggregate ODA in economic growth of African countries. Previous research works have tended to focus more on aggregate ODA. Furthermore, adequate research has yet to be done on how ODA complements the private sector, government sector and external sector in facilitating growth of African countries. These issues are investigated in the study.

The role of Intellectual Property Rights in Enhancing Regional Development

Intellectual property rights (IPRs) are recognized as a growth enhancing factor for the economy. IPRs can influence the growth process through the domestic and external sectors of an economy. Therefore, researchers are increasingly interested in the role of IPR protection in the economic growth of countries. In OECD countries, most industries rely on innovation with innovative technology, hence, the role of IPR is important in stimulating the diffusion of knowledge to foster innovation that contributes to the regional development. Based on the above-mentioned, the research aims to analyze the role of IPR protection in enhancing regional development in OECD countries. The study uses the latest data set from the OECD and World Bank. We found that IPRs have a positive and significant effect on regional economic growth in OECD countries. FDI is also highly significant effect on regional economic growth. The result of this study provides interesting results that will support policy makers in considering improving intellectual property rights of inventors when formulating policies for national and regional development.

The Sectoral Nexus in a Small Open Economy: Evidence from Nigeria

The interrelationship between the real, monetary, fiscal, and external sectors of the Nigerian economy is an issue of concern, as it will provide policymakers with insight on which of the sectors is potent in influencing output in the real sector, which little or no attention was given. This study, therefore, examines the interrelationships between these sectors in Nigeria between 2010Q1 and 2021Q1. Structural Equation Model (SEM) was employed. The study finds that monetary and fiscal sectors have a positive influence on the real sector output, while the external sector has a negative influence on the real sector output in Nigeria. It was found that only the monetary sector influenced real sector output significantly. This study recommends effective collaboration between the monetary and fiscal authorities in stimulating aggregate demand, boosting economic activities, and spurring economic growth in Nigeria using money supply, and external and domestic debt.

Domestic vs. External Economic Sectors and the Political Process: Insights from Greece

Building on the well-established relationship between economic dynamics and political processes, we focus on the most important element of the political process, namely, general (or national) elections, and look into their effects on public finance and total economic output. In this vein, the present study has three objectives: (i) to investigate political budget cycles in Greece during the period known as the ‘Third Hellenic Republic’ (in Greek, ‘Metapolitefsi’, hereafter THR) since 1974; (ii) to assess whether national elections affect total economic activity in a stabilizing or destabilizing way; and (iii) to examine the possible effects of the external sector of the economy on the budget balance. The empirical findings of our analysis document how the Greek economy was characterized by sharp political budget cycles in correspondence with the THR, exerting a destabilizing effect on the total output of the economy. Performances of the external sector of the economy have significantly affected budget balances in Greece.

Endogenous exchange rates in empirical stock-flow consistent models for peripheral economies: an illustration from the case of Argentina

In recent years there has been an increase in empirical SFC models applied to specific countries to address a broad range of research questions. However, in most cases, the exchange rate has been modeled as exogenous. This prevents the analysis of both the multiplicity of channels through which the global financial cycle impacts economies and the effects that the different tools of domestic economic policy have on the external sector and macro-financial stability. To overcome this limitation, this paper presents an empirical quarterly SFC model for Argentina where the exchange rate is modeled among the lines proposed by Godley and Lavoie. The model includes a diversity of tools of economic policy that in the recent past have affected exchange rate stability and, consequently, the economy in general. The results suggest that the closure used in this model can be useful for the construction of similar models for other peripheral countries in which the nominal exchange rate results from the interaction of different processes from both the domestic economy and the rest of the world.

Microbial community metabolic alterations and resistance to metals and antibiotics driven by chronic exposition to multiple pollutants in a highly impacted tropical coastal bay

Microbial communities from Sepetiba Bay (SB, Rio de Janeiro, Brazil), characterized by 16S rRNA gene (V4–V5 region) sequencing analysis, were found to be correlated with the metallic contamination factor and the Quality Ratio (QR) index. Consistently, the predicted function of microbial communities, obtained with Tax4Fun2, showed that the functional patterns in SB internal sector under the highest anthropogenic pressure were different from that observed in the external sector with the lowest contamination level. Signal transduction, cellular community, membrane transport, and energy metabolism were among the KEGG pathways favored by metallic contamination in the SB internal sector, while lipid metabolism, transcription, and translation were among the pathways favored in the SB external sector. Noteworthy, the relative proportions of KEGG pathways and genes associated with metallic homeostasis showed significant differences according to the SB sectors, consistently with the ecological risk classification (QR index) of sediments. The functional prediction approach is an economically viable alternative and presents an overview of the main pathways/genes favored in the SB microbiota exposed to long-term pollution. In contrast, the microgAMBI, ecological status index based on bacterial community composition, was not consistent with the metallic contamination of SB, suggesting that this index requires improvements to be applied in tropical areas. Our study also revealed a strong correlation between metal resistance genes (MRG) and antibiotic resistance genes (ARG), indicating that MRG and ARG are co-selected by the metallic contamination prevailing in SB.

The effects of IMF conditional programs on the unemployment rate

The fundamental mission of the International Monetary Fund (IMF) is to ensure global financial stability and to assist countries in economic turmoil. Although there is a consensus that IMF-supported programs can have a direct effect on the labor market of recipient countries, it remains unclear how IMF participation decision and conditionalities attached to IMF loans can affect the unemployment rate of borrowing countries. Using a world sample of countries from 1980 to 2014, we investigate how lending conditional programs of the IMF affect the unemployment rate. Our analyses account for the selection bias related to, first, the IMF participation decision and, second, the conditions included within the program. We show that IMF program participation significantly increases the unemployment rate of recipient countries. Once we control for the number of conditions, however, we find that only IMF conditions have a detrimental and highly significant effect on the unemployment rate. There is evidence that the adverse short-run effect of IMF conditions holds robust in the long-run. Disaggregating IMF conditionality by issue area, we find adverse effects on the unemployment rate for four policy areas: labor market deregulation, reforms requiring privatization of state-owned enterprises, external sector reforms stipulating trade and capital account liberalization, and fiscal policy reforms that restrain government expenditure. Our initial results are found to be robust across alternative empirical specifications.

Sterol and PAHs fingerprint analysis of organic matter at Southeast Brazilian Bay

Southeast Brazilian bays have been increasingly degraded by untreated organic loads. Therefore, to assess fecal contamination status, sediment quality regarding polycyclic aromatic hydrocarbons (PAHs), and sources of organic matter (OM), we have determined fine-grained and total organic carbon (TOC) content and concentrations of PAHs and sterols in twenty-six surface sediment samples in Sepetiba Bay. The fine-grained (1–26 %), TOC (0.20–3.45 %), PAHs (<LQ – 78.27 ng g−1) and sterols (0.10–21.58 μg g−1) results showed a decreasing trend from the internal to the external sector of the study area. The diagnostic ratios of selected PAHs and sterols indicated a mixture with significant contribution from continental and pyrolytic OM in all stations. The fecal contamination is significant to the internal sector of Sepetiba Bay. Considering a site-specific sediment quality guidelines (SQGs) the PAHs levels with more restricted benchmark values indicate the harbor and the internal sector as contaminated.

International Fund Allocation under Economic Policy Uncertainty Shock

Abstract This paper focuses on the impact of economic policy uncertainty on international asset allocation and international capital flows. Our results show that economic policy uncertainty shocks have a negative impact on the international asset allocation, which can be explained from the real economic activity channel and the expectation channel. We also explore a full fledge of country level heterogeneities about the economic policy uncertainty shocks on international asset allocation. Specifically, good institutional quality, transparent information, good information access to the international financial market and bilateral informational link help to alleviate the negative effect that economic policy uncertainty shock does to asset allocation. And a healthy public and external sector also help to alleviate the negative effect. While the importance of government in the economy amplifies the negative effect of economic policy uncertainty shocks to asset allocation. JEL classification numbers: E44, G11, G15. Keywords: Economic policy uncertainty, Global fund allocation, Institutional quality, Global imbalance.

External Sector Macroeconomic Indices and Real Economy of Nigeria: An Empirical Analysis (1981 – 2020)

In recent times, the external sector of Nigeria’s economy has been characterized by instability, while the performance of her Real Economic Growth (RGDP) has remained below average. This study, therefore, investigated the relationship between her (RGDP), and some external sector macroeconomic indices, namely: Foreign Exchange Rate (FXR), Total Export (EXP). Trade Openness (TOR), Total Import (IMP), External Debt (EXTD), External Debt Service Charges, (EXDINT) and Foreign Direct Investment (FDIR), CBN is the source of the study data, spanning for a period of 1981 to 2020. The study applied Co-integration technique, Error Correction Model (ECM) and Granger Causality tests for the econometric analysis. Evidence from empirical results confirmed that, in the long run, only FDIR contributed positively to (RGDP), while the rest, had significant adverse effect on RGDP. The Granger Causality test established that only FDIR had bilateral relationship with RGDP while RGDP preceded EXP, TOR and FXR, implying that RGDP determines those variables without a feedback. EXTD, EXDINT and IMP maintained independent causal relationship. The ECM coeficient (-1.14), is significant and correctly signed (negative). It measures the speed of the adjustment, at which equilibrium is restored to RGDP, after the short-run disequilibrium in the selected indices. The implication is that RGDP growth process in Nigeria, in the long run, adjusts slowly to the changes in the selected indices, indicating a Policy lag effect. Consequently, Monetary authority should maintain efficient debt monitoring and management; effective and sustainable exchange rate management; infrastructural and technological development to beep up exportation. They should lay emphasis on stable political environment and sustainable economic policies to encourage more FDI. The Policy makers should make policies that would match the magnitude of the expected changes.

Investigative Study of Economic Crisis in Sri Lanka

Abstract: This paper analyses the reasons and scenario of the current economic crisis in Sri Lanka. The study examines the possible reasons for the crisis, its ongoing impact on GDP, tourism industry, and on Sri Lankan rupee against other major currencies in the world. The paper shows that Forex reserves of Sri Lanka mainly depend on Tourism revenue, thus underscoring the importance of the tourism industry. But due to current circumstances of the Covid-19 and its severe impacts leads to a high decline in tourism revenue which ultimately affects the country’s reserves. This resulted in the high depreciation in the value of the Sri Lankan rupee against other major currencies in the world. To assess if the country has enough reserves, we have used the Guidotti - Greenspan rule and we found that since the Covid pandemic has begun, Sri Lanka has been unable to follow this rule and the ratio of reserves to short term debt is continuously decreasing. The external sector of Sri Lanka is also not performing well due to the sharp decline in exports. The IMF has approved a bailout package through its Special Drawing Rights to get over this crisis. Therefore, appropriate actions must be undertaken to overcome the crisis and revive the economy

Impact of Capital Flow on Economic Growth: Empirical evidence from Ethiopia (1980-2010) using ARDL Approach

Evidence abound that some transitioning and developing countries are attracting large inflows of foreign capital that could engender economic growth or have destabilizing effects on their economies if not well managed. This has undoubtedly aroused anxiety over its potential effects on economic growth, the competitiveness of the export and external sectors viability. The study examines the impact of capital flow on economic growth in Ethiopia as well as the causal shortrun and long-run relationship among the variables, using time series data from 1980 – 2010. Using the Autoregressive Distributed Lag (ARDL) approach, the result reveals that all the variables are statistically significant; which implies that the capital flow has an impact on economic growth in both short- and long-run dynamic equilibrium models. Additionally, Vector Autoregressive (VAR) and Innovative Accounting Techniques approach to Granger causality analysis shows that there exists bidirectional causality between gross capital flow, and economic growth. Consequently, these findings suggest that policy makers should critically understand, the nature, what drives the capital flows, and the impact of its sudden surge or reversal on economy. Moreover, it is also recommended that government should continue to pursue trade and foreign exchange policies that would ensure competitiveness of the export sector viability and economic growth.

Construction of a volatility index from exchange-traded dollar–rupee options

PurposeThis paper aims to propose the implied volatility index for the US dollar–Indian rupee pair (INRVIX). The study seeks to examine whether INRVIX truly reflects future USDINR (US Dollar-Indian rupee) volatility and signals profitable currency trading strategies.Design/methodology/approachTwo measures of INRVIX are constructed and compared: a model-free version based on the methodology adopted by the Chicago Board of Options Exchange (CBOE) and a model-dependent version constructed from Black–Scholes–Merton-implied volatility. The proposed INRVIX is computed by tweaking some parameters of the CBOE methodology to ensure compatibility with the microstructure of the Indian currency derivatives market. The volatility forecasting ability of INRVIX is compared to that of a generalized autoregressive conditional heteroscedasticity (1,1) model. Ordinary least squares regression is used to examine the relationship between n-day-ahead USDINR returns and different quantiles of INRVIX.FindingsResults indicate that INRVIX based on the model-free approach reflects ex post volatility in a better manner than its model-dependent counterpart, although neither measure is found to be an unbiased and efficient forecast. Subsample analysis across tranquil and turbulent periods corroborates the results. The volatility forecasting performance of INRVIX is found to be better than that of forecasts based on historical time-series. These results are consistent with similar studies of developed market currencies. The study does not find any significant relationship between extreme levels of INRVIX and the profitability of trading strategies based on such levels, which is contrary to results from the equity options market.Practical implicationsForeign exchange volatility affects the costs of international trade and the external sector competitiveness of Indian multinationals. It is a significant risk factor for financial institutions and traders in the financial markets. An implied VIX for the USDINR could serve as an indicator of expected foreign exchange risk. It could thus provide a signal for a possible intervention in the forex market by the regulator. Regulators could introduce volatility derivative contracts based on the INRVIX. Such contracts would enable hedging of the pure volatility risk of dollar–rupee exposure. Thus, the study has practical implications for investors, hedgers, regulators and academicians alike.Originality/valueTo the author’s knowledge, this is one of a few studies to construct an implied VIX for an emerging currency like the rupee. The study is based on up-to-date sample data that includes the recent COVID-19 market crash. A novel contribution of this paper is that in addition to examining whether INRVIX contains information about future USDINR volatility, and it also examines the signalling power of INRVIX for currency trading strategies.

Assessment of the Impact of the Covid-19 Pandemic on the Balance of Payments and the International Investment Position of Russia

The article analyzes the current situation in the world economy in 2020, caused by the energy crisis due to the failure of OPEC agreements, political conflicts, trade wars, and the COVID-19 pandemic. The pandemic and its socio-economic consequences have become the main cause of the global crisis.The author conducted statistical analysis of the effects of the COVID-19 pandemic on the balance of payments and the international investment position of Russia, which in aggregate form reveals the results of the country's foreign economic activity. The author analyzes country's external sector statistics summarizing the results of Russia's activities with the rest of the world in 2020 and identifies the trends of the impact of the coronavirus pandemic on the Russian economy and the results of the foreign economic activity of the Russian state. The paper analyzes in detail all the enlarged items of the balance of payments and the international investment position of the Russian Federation and quantifies the impact of the COVID-19 pandemic in 2020–2021 on them and also provides an overview of the development of the external sector of the Russian economy at the end of the year.While analyzing the statistical data of the balance of payments and the international investment position of Russia in 2000–2021, a comparison is made with the current situation in the economy and foreign economic sphere in connection with the global crisis of 2008 and the introduction of international financial and economic sanctions after 2014. The author with regard to the effects of the COVID-19 coronavirus pandemic on the balance of payments and the international investment position of the Russian Federation in 2020–2021 substantiates a forecast of further prospects for the development of the foreign economic sector of the Russian economy in the medium term.

Spain and the internationalization of the economy

Since integration of the Spanish economy into the EU (since January 1, 1986), 35 years have already passed. During this period of time political and economic European map has undergone significant changes. Economic sectors were deeply transformed by globalization and regionalization. For Spain, the process of joining European structures mainly meant rebuilding of national economic system in accordance with the necessary criteria and norms, which set the Spanish economy on the path of diversification and modernization. In recent years, Brussels has been focusing on the growing importance of external economic and export component for the EU member–states. It means redistributing production and technological chains within the Eurozone and, furthermore, diversification of the EU trade and industrial external relations, including the demand and needs of third parties, i.e. on the markets outside the European Union. In this regard, for Spain it is of particular importance to build up its export potential, develop export clusters and extend internationalization of business, to reduce the cost of production, and intensify country’s participation in global price chains. At the same time, it is necessary to admit, that the Spanish economy and its external sector are under the pressure of both internal and external factors today. These are: protracted crisis phenomena in the European Union (Brexit, financial and economic difficulties in the Eurozone, price volatility in the energy market, etc.), the worsening conditions for interaction with the United States, trade wars, slowing global economic growth. Finally, the impact of the COVID-19 has been a major social and economic challenge for Spain.

Government Spending Volatility and Real Economic Growth: Evidence From a Major Oil Producing Country, Saudi Arabia, 1970 to 2018

The objective of this paper is to examine the effect of government spending volatility on economic growth in an oil producing country—Saudi Arabia. The Hodrick–Prescott (HP) filtering approach was applied to decompose the data series into cyclical and trend components. The ordinary least squares, and nonlinear autoregressive distributed lag were also used, and the results confirm the negative effect of government spending volatility on real GDP growth in an oil-based economy. Moreover, the estimated coefficients of the nonlinear ARDL models indicate that changes in government spending have a significant short run and long run impact on real GDP growth, and real GDP growth responds asymmetrically to movements in government spending. Moreover, the more trade openness and credit fluctuate, the more volatile real economic growth is. Although the magnitude of government spending volatility is acceptable, the result proves that the exclusion of oil-based economies from the test of government spending volatility was inappropriate and unjustified. These results suggest that controlling the sources of instability in real GDP growth depends on the external sector and domestic credit. However, the successes of other countries should be presented and studied in order to choose appropriate policies that mitigate public spending volatility and contribute to sustainable economic growth.

Towards top-down holographic composite Higgs: minimal coset from maximal supergravity

Within the context of top-down holography, we study a one-parameter family of regular background solutions of maximal gauged supergravity in seven dimensions, dimensionally reduced on a 2-torus. The dual, four-dimensional confining field theory realises the global (spontaneous as well as explicit) symmetry breaking pattern SO(5) → SO(4). We compute the complete mass spectrum for the fluctuations of the 128 bosonic degrees of freedom of the five-dimensional gravity theory, which correspond to scalar, pseudoscalar, vector, axial-vector, and tensor bound states of the dual field theory, and includes particles with exotic SO(4) quantum numbers. We confirm the existence of tachyonic instabilities near the boundaries of the parameter space.We discuss the interplay between explicit and spontaneous symmetry breaking. The SO(5)/SO(4) coset might provide a first step towards the realisation of a calculable framework and ultraviolet completion of minimal composite Higgs models, if the four pseudo-Nambu-Goldstone bosons are identified with the real components of the Higgs doublet in the standard model (SM), and a subgroup of SO(4) with the SU(2) × U(1) SM gauge group. We exhibit an example with an additional localised boundary term that mimics the effect of a weakly-coupled external sector.

Tolkappiyam in Comparative Perspective - Purapporul Venbamaalai Vetchi Thinai

This article compares grammatical descriptions of Tolkappiyar and Iyanarithanaar about Vetchi Thinai. It compares the descriptions about vetchi thinai and its Thuraigal told in Puraththinaiyiyal of Tholkappiyam with PurapporuL venbaa maalai. Vadavenkadam Tenkumari Aidai Tamilkorum Nallulakam Accepted Grammar Nool Tolkappiyam. Tolkappier, who divided semantics into writing and word, clearly defined dualistic grammar when defining his semantics. Due to the lack of internal and external departments, the external sector also became weak. They are Vetchi, Vanji, Uzhinai, Thumbai, Vagai, Kanchi, Padan. Among these, he has made a cut for kurinchi, a snare for the umbilical cord, a thump for weaving for medicine, a kanji for milk and a kanji for peruntinai. This article presents some of the similarities between the two departments found in both texts.

Whose fault is it? Loan defaults at the Devkhand bank, India

Learning outcomes Through this case, the students will be able: to study how developments in the external environment impact businesses, in general, and banking sector, in particular, banks/banking, environmental management, financing/borrowing, government, political business risk and politics; to identify the politico-legal constituents of the external environment which significantly influence businesses; and to analyse the pros and cons of loan-waivers as a policy decision on various stakeholders including banks, borrowers, governments as well as the larger society. Case overview/synopsis The case is symptomatic of the dilemmas faced by the Indian bank employees, in charge of loan-disbursals, torn between seemingly contradictory demands from their top management and the governments. Complexity academic level The case is meant to be used in the course on “Business Environment” both at the UG and PG levels. It can be used along with the module on “External Environment and its Constituents” to augment students’ understanding of the “Impact of Political Environment on Business.” The case can also enrich the class discussion on the PEST (politico-legal/economic/socio-cultural/technological) framework for analysing the forces in the external environment acting upon a business. Supplementary materials Teaching notes are available for educators only. Subject code CSS 4: Environmental Management.