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Macroeconomic and Development Policy in a Financially Globalized Economy: Current and Historical Perspectives

Paper Session

Sunday, Jan. 6, 2019 8:00 AM - 10:00 AM

Hyatt Regency Atlanta, Hanover G
  • Chair: Devika Dutt, University of Massachusetts-Amherst

The Return of the Sacred Cows: How the International Financial Institutions Approach New Forms of Finance

Ingrid Harvold Kvangraven
University of York


This paper maps out the theorization by the international financial institutions’ (IFIs) on the finance-growth nexus from the 1990s until today, in official reports, working papers, and other publications. We find that the way the IFIs approached the relationship between finance and growth changed, at least in discourse, after the financial crisis of 2007/08. While the consensus in the 1990s and 2000s was that finance is generally good for growth, after the crisis a growing number of papers showed that after a certain threshold, finance may actually start having a negative effect on growth. The role of local currency debt for developing economies is examined as a case study of how the IFIs approach new forms of finance. We find that the IFI approach to local currency debt broadly falls under the “too much finance” literature led by the IFIs. Although the institutions do suggest that context specific factors must be taken into account, the policy advice offered to the G20 is in terms of generalities and an analysis of the role of local currency debt that is abstracted from relations of capital accumulation. Finally, the paper develops an alternative research agenda for approaching issues of finance and development and local currency debt in particular. We argue for a framework that does not limit itself to the analysis to issues of misallocation of capital or the marginal cost of maintaining financial stability, but rather to considering how the financial sector interacts with and affects investment in the real economy.

The IMF and World Bank’s Policy for Development of Government Bond Market in Developing Countries: Primacy of Monetary Policy as the Result of Financial Globalisation

Carolina Alves
University of Cambridge


The 1970s marked a turning point towards the predominance of monetary policy to regulate the economy. Frequently, the discussion over the secondary role reserved to fiscal policy draws attention to, on the one hand, the neoliberal policies that promoted the withdrawal of the state and, on the other, the developments within macroeconomic economy theory that distanced themselves from the outcomes of the Keynesian Revolution, which had placed at the core of the discipline the possible effects of a bond-financed expenditure on aggregate demand and hence on real economic variables (Keynes, 1937:221). This paper argues that financial globalisation is another important force contributing to the primacy of monetary policy, as it demands that the latter has an active role in managing and consolidating the financial markets through government bonds. As such, this paper is interested in how this role is perceived in the IMF and World Bank’s Guidelines for Public Debt Management and the World Bank Group’s Government Bond Market Development Program as well as in the possible constraints and limitations for state activism in developing countries that follow from these guidelines.

The Role of Aid on Peace Consolidation in Post-conflict Sri Lanka

Narayani Sritharan
University of Massachusetts-Amherst


Sri Lanka went through an almost three-decade ethnically characterized war which ended
in 2009. That means that the country has had 7 years to address some of the major grievances
that caused the war and the grievances that came up during the war. Given that setting this
paper investigates whether regional distribution of aid has an effect on relative post-conflict
performance across regions in Sri Lanka. I use GIS analysis to conduct this investigation.
The World Bank has geocoded aid projects and the Asian Development Bank has aid project
reports with geographical locations. Essentially, the Tsunami in Sri Lanka in 2004 will be used
as a natural experiment which investigates whether a bias in aid allocation exists or not. One
would expect that after a natural catastrophe aid would be allocated to the most impacted
areas. If this is not the case some political bias must be in place. In order to determine this,
a simple OLS can be run and tested for no spatial dependency or autocorrelation. Another
map will illustrate the locations of the post-war donor projects. Again, the idea would be to
investigate whether there is a correlation between the project locations and the ethnicity of
the local population. Furthermore, this map will include an analysis of whether the projects
are relevant to those geographical places.

Terms of Trade, Tariff Rates, and Recoveries from Financial Crises: The United States and Argentina in the 1890s

Peter Bent
American University of Paris


The United States and Argentina both experienced severe financial crises in the early 1890s. This paper analyzes the trajectory of the recoveries from these crises, focusing on how changes in commodity prices and tariff rates impacted these recoveries. Sustained recovery only occurred in the United States when wheat prices surged in 1897. Likewise, recovery was delayed after the Baring Crisis in Argentina in part because of decreased prices for agricultural exports, and renewed growth ultimately coincided with higher export prices. Increases in tariff rates also occurred during these recovery periods, though most consistently in the United States. However, the evidence suggests that higher commodity prices played more of a role in encouraging post-crisis economic growth than did trade policy changes in these countries over this period.

Can Reserve Accumulation be Counterproductive?

Devika Dutt
University of Massachusetts-Amherst


Central Banks around the world increasingly intervene in the foreign exchange market for a variety of reasons, such as providing a protective buffer in the event of a sudden stop or reversal of capital flows. As a result, there has been an unprecedented accumulation of foreign exchange reserves on the balance sheets of central banks around the world, especially in developing and emerging economies. Therefore, several central banks have built some capacity to act as a lender of last resort, even when emergency liquidity required is not denominated in their own currency, thereby reducing the probability of default by borrowers in their country in the event of a financial crises. This paper examines whether the accumulation of reserves due to foreign exchange intervention can be counterproductive by encouraging the inflow of volatile capital flows that are linked to the occurrence of financial crises. It builds a model of capital flows in which the accumulation of reserves by central banks encourages over-lending and thereby creates the conditions for crises. The main conclusions of the model are then estimated econometrically to examine whether the conclusions are borne out in the data.
JEL Classifications
  • F3 - International Finance
  • O1 - Economic Development