This paper uses an instrumental variable approach to study whether public debt has a causal effect on economic growth in a sample of OECD countries. The results are consistent with the existing literature that has found a negative correlation between debt and growth. However, the link between debt and growth disappears once we instrument debt with a variable that captures valuation effects brought about by the interaction between foreign currency debt and exchange rate volatility. We conduct a battery of robustness tests and show that our results are not affected by weak instrument problems and are robust to relaxing our exclusion restriction.
How can the private sector work for development? This paper provides answers to this question from the firms’ perspective by examining the trade-offs that private firms face between maximizing their profits and achieving a positive social impact. In particular, it considers the experience of microfinance as the best available data source from the point of view of a firm engaged in development issues. The paper studies balance sheet data of microfinance institutions (MFIs) to understand what drives their financial self-sustainability. The analysis focuses on how this variable is affected by firm-level proxies for social impact, such as outreach to women and loan size, using both a quantile regression and an instrumental variable approach. The findings indicate that there is low risk of mission drift as MFIs become more financially sustainable. Indeed, serving women seems to increase financial self-sustainability in all types of institutions due to reduced risk. Moreover, increasing the loan size seems to be less important as firms gain financial self-sustainability. Nevertheless, even if more profitable MFIs tend to cope better with costs, they are also more sensitive to risk and market power. This can limit their role in financing projects with a higher long-term development impact, as well as it can reduce their interest in fostering market mechanisms forward. Therefore there is room for regulation to design risk mitigation mechanisms and promote competition.
This paper uses detailed information on the latitude and longitude of conflict events within a set of Sub-Saharan African countries to study the impact of external income shocks on the likelihood of violence. We consider a number of external demand shocks faced by the country or the regions within countries - changes in the world demand of agricultural commodities, financial crises in the partner countries or changes in foreign trade policy - and combine these with information reflecting the natural level of trade openness of the location. We find that (i) within-country, the incidence, intensity and onset of conflicts are generally negatively and significantly correlated with income shocks within locations; (ii) this relationship is significantly weaker for the most remote locations, i.e those located away from the main seaports, (iii) at country-level, we cannot detect any significant effect of these shock on conflict incidence or onset; but (iv) large and longlasting shocks seem to affect the location of conflict outbreaks. In general, our results suggest that external income shocks are important determinants of the intensity and geography of conflicts within countries. However, conflicts tend to start in remote locations which are naturally less affected by foreign shocks, which might explain why these seem to have little effect on conflict onset at the country-level.
