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Thus far, the “billions to trillions” vision is not coming to fruition. The greatly expanded private capital flows that people hoped for, especially for SDG-related infrastructure and for low-income countries (LICs), have not materialized. Given stagnating aid flows, attempts to accelerate spending have raised public debt, putting macroeconomic stability at risk in many LICs. Many call for more catalytic use of donor resources to mobilize private finance, but others question whether blending public and private monies would just subsidize the private sector, or divert public funds from social and infrastructure investment in LICs and fragile states aimed at reducing poverty. CGD research focuses on building the evidence base for better understanding the challenges and devising innovative solutions in synergizing public and private finance. We are analysing private capital flows to LICs after the global financial crisis; examining the factors limiting the role development finance institutions (DFIs) are playing in mobilizing private finance; exploring the characteristics and sources of finance of infrastructure projects in Africa; assessing the impact of blended finance on poverty; and proposing changes to the development finance architecture to boost DFI risk tolerance, mobilization, and impact.
There is an urgent need to change PSW business models to maintain their financial sustainability while doing much better on mobilization and development impact. Two factors are critical for meeting this challenge: enhanced risk management capability and greater flexibility regarding risk-adjusted returns.
Last year the World Bank adopted a new “cascade” approach that intended to maximise finance for development by prioritising private solutions wherever possible. In what world would this “cascade” algorithm make sense? Without a good answer to that question, the cascade risks looking like ideology rather than sound development finance advice.
Last week we published a new paper, Can Africa Be A Manufacturing Destination?, that highlights the persistence of high labor costs in many countries in sub-Saharan Africa. This led to a lively debate on Twitter, initiated by Chris Blattman at the University of Chicago.
What happens when capital and sophisticated goods flow uphill, from poorer to richer countries? With a new dataset of foreign direct investment and a measure of the sophistication of exports, CGD senior fellow Arvind Subramanian and his co-author Aaditya Mattoo find that developing countries sending goods and services uphill experience economic growth and other development benefits.
The G-8 has endorsed sweeping efforts to combat bribery and corrupt payments by international investors. Are these efforts effective? A new working paper by Theodore H. Moran says no. In How Multinational Investors Evade Developed Country Laws, Moran presents evidence that multinational corporations evade anti-corruption laws by making payments to relatives and cronies of developing country rulers. The findings will be discussed at a CGD event on Thursday, Feb. 16.
Using a comprehensive data set of working conditions and wage compliance in Cambodia’s exporting garment factories, the authors explore the impact of foreign ownership on wages and working conditions, whether the relationship between wages and working conditions more closely resembles efficiency wage or compensating differential theory, and whether the wage-working conditions relationship differs between domestically owned and foreign-owned firms.
Most studies of privatization look at what happens to companies. Reality Check, a new volume of case studies from Latin America, Asia, and the former Soviet Union, examines the impact on people. Surprise: privatization has often been a reasonably good thing, even for the poor.