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CGD’s work in this area focuses on strengthening financial systems in development countries through innovation and regulation.
Greater access for the poor to the formal financial system—including payments, savings, credit, and insurance—can greatly improve household stability and development prospects. CGD examines how to strengthen, broaden, and deepen financial systems in developing countries through innovation and regulation. We also study the effects of financial crises, to avoid and mitigate future shocks, and how developing countries can improve their business climates to spur inward investment.
In this CGD Essay, visiting fellow Nancy Lee provides the full details and policy recommendations for a strategy of regional investment integration in the Americas. The essay, excerpted from her chapter in the forthcoming White House and the World: A Global Development Agenda for the Next U.S. President, builds on a previously published CGD Note by specifying the scope of the proposed agreement, outlining its expected gains, and identifying the initial steps the United States could take to encourage a fresh agreement to be reached.
Unlike East Asia and Europe, Latin America lacks a shared integration strategy and continues to struggle with a burdensome investment climate. In this new CGD Note, visiting fellow Nancy Lee suggests a fresh approach to regional integration in the form of a proposed regional investment agreement. The idea is a collective effort to set common standards for reducing specific barriers to domestic and foreign investment. Beyond its benefits for growth, such an agreement could boost the incomes of the poor by helping small businesses trapped in the informal sector move into the more productive formal sector.
Two aspects of global imbalances -- undervalued exchange rates and sovereign wealth funds -- require a multilateral response. For reasons of inadequate leverage and eroding legitimacy, the International Monetary Fund has not been effective in dealing with undervalued exchange rates. In this working paper, CGD senior fellow Arvind Subramanian and his co-author propose new rules in the World Trade Organization to discipline cases of significant undervaluation that are clearly attributable to government action. Placing exchange rates and sovereign wealth funds on the trade negotiating agenda may help revive the Doha Round by rekindling the interest of a wide variety of groups, many of whom are currently disengaged from the round.
Access to financial services -- ranging from credit to the use of electronic means of payment -- is crucial for growth and poverty reduction. This new working paper by CGD senior fellow Liliana Rojas-Suarez tells why access to financial services is low in Latin America and suggests innovative solutions. Among the recommendations: public-private partnerships to improve financial literacy; training specialized juries to adjudicate financial disputes in ways that protect the rights of borrowers and creditors; and regulatory changes to speed the spread of technology offering financial services to low-income families and small firms.
How do people escape poverty? In this working paper, CGD senior fellow Peter Timmer and his co-authors describe pathways out of poverty in Indonesia from 1993 to 2000, a period of economic and political turmoil. They find that most rural poor people who escaped poverty did so without moving to cities. From this experience they distill three policy recommendations: boost agricultural productivity, improve the investment climate for the rural non-agricultural sector, and make education a cornerstone of the government anti-poverty strategy. Learn more
With foreign investment in the U.S. increasingly in the spotlight, this working paper by William Cline explores the U.S. external deficit and the fact that the U.S. relies on foreign lending to finance its trade deficit. Cline emphasizes the dangers of a hard landing for the U.S., and why this would especially hurt developing countries that depend on an expanding U.S. economy and are vulnerable to spikes in interest rates. The paper is based on a chapter in Cline’s recent book, The U.S. as a Debtor Nation.
The biggest controversy to hit microfinance since the Compartamos IPO erupted this week as easygoing, bookish economist types at two East Coast microfinance research institutions dueled over the longstanding empirical question of whether the glass is half full or half empty. CGAP researchers, citing industry-consensus best-practice guidelines, accentuated the positive in observing that about 2.5 billion adults worldwide have accounts with formal banking institutions (about 2.5 billion do not). Academic researchers at the NYU-based Financial Access Initiative adopted a more skeptical stance, pointing out that Half the World is Unbanked.
OK, so I won't quit my day job for nightclub comedy.
Two new studies are indeed out tallying how many people have credit or savings accounts with commercial banks, savings banks, post office savings banks, cooperatives, government development banks, and microfinance institutions. The FAI report is short and sweet and draws on data from Patrick Honahan, who is now governor of Ireland's central bank. In contrast, the CGAP report harvests new information collected by surveying financial regulators in 139 countries.