Trade and Development Report 2008: Commodity Prices, Capital Flows and the Financing of Investment

Contents......Page 5
Explanatory notes......Page 13
Abbreviations......Page 14
Overview......Page 17
A. Global growth and trade......Page 31
B. The fallout from the sub-prime crisis......Page 34
C. Global economic imbalances and exchange rates......Page 35
1. Commodity price shocks and the risk of inflation......Page 39
2. An effective and measured macroeconomic policy response......Page 42
References......Page 43
Annex table to chapter I: Real effective exchange rates, 2001–2007......Page 45
Table 1.1: World output growth, 1991–2008......Page 32
Table 1.2: Export and import volumes of goods, by region and economic grouping, 2002–2007......Page 33
Chart 1.1: Current-account balance and real effective exchange rate in Eastern Europe and the Russian Federation, 1996–2007......Page 37
Chart 1.2: Crude petroleum prices, nominal and real, January 1970–June 2008......Page 40
Chart 1.3: Unit labour cost, labour compensation, productivity and consumer price index, selected country groups, 2000–2007......Page 41
A. Introduction......Page 49
1. Trends in commodity prices......Page 50
2. Terms of trade......Page 57
1. Soaring food prices in 2007 and 2008......Page 61
2. Impact of the rise in global food prices......Page 63
3. Policy implications of the food crisis......Page 65
1. Background......Page 67
2. Commodity dependence and price volatility......Page 68
3. Measures to deal with commodity price instability......Page 71
4. Commodity price instability and policy coherence......Page 74
Notes......Page 76
References......Page 78
Box 2.1: Commodity price formation and speculation......Page 54
Table 2.1: World primary commodity prices, 2002–2007......Page 53
Table 2.2: Impact of changes in terms of trade and net income payments on national disposable income in selected developing-country groups, average of 2004–2006......Page 60
Table 2.3: Food trade as a share of GDP, by main country groups, 2000–2007......Page 64
Table 2.4: Commodity dependence by geographical region, 1995–1998 and 2003–2006......Page 69
Chart 2.1: Monthly commodity price indices by commodity group, January 1995–May 2008......Page 51
Chart 2.2: Net barter terms of trade, selected countries, 2000–2007......Page 58
Chart 2.3: World cereal consumption, production, stocks and prices......Page 62
Chart 2.4: Price volatility of non-fuel commodities and crude petroleum vis-à-vis manufactures......Page 70
A. Introduction......Page 81
B. Recent evolution of the current accountin developing countries......Page 82
1. Examples of post-crisis current-account reversals......Page 86
2. Factors influencing current-account reversals......Page 89
1. Standard economic models of savings and development......Page 94
Chart 3.10: Relationship between current-account balance and per capita GDP growth, 1985–2005......Page 99
1. Macroeconomic policies......Page 101
2. Need for international policy coordination......Page 104
Notes......Page 105
References......Page 106
Table 3.1: Analysis of current-account reversals: summary of changes in GDP growth and the real effective exchange rate (RER)......Page 90
Chart 3.8: Determinants of the probability of an expansionary current-account reversal, developing and transition economies......Page 93
Chart 3.1: Current-account balance in developing and developed countries, and emerging economies in Europe, 1980–2007......Page 83
Box 3.1: Current account and net capital flows: some definitions......Page 84
Chart 3.3: Capital flows, current-account balance and change in reserves in developing and transition economies, by region, 1981–2007......Page 85
Chart 3.4: Current-account balance and commodity prices for countries exporting oil, and mineral and mining products, 1980–2007......Page 87
Chart 3.5: Current-account reversals, GDP growth and real effective exchange rate for selected countries......Page 88
Chart 3.6: Main economic variables around a current-account reversal......Page 91
Chart 3.7: Determinants of the probability of a current-account reversal......Page 92
Chart 3.9: Relationship between domestic savings and per capita GDP growth, average for 1985–2005......Page 98
Chart 3.11: Real short-term interest rate and GDP growth in Asia and Latin America, 1986–2007......Page 102
Box 3.2: The failure of the neoclassical model......Page 97
1. Identifying reversal episodes......Page 109
2. Econometric analyses of the determinantsof current-account reversals......Page 110
3. Distinction between expansionary and contractionary reversals......Page 112
Explanatory note to tables 3.A1, 3.A2 and 3.A3......Page 115
Table 3.A1: Determinants of current-account reversals......Page 111
Table 3.A2: Determinants of expansionary current-account reversals......Page 113
Table 3.A3: Determinants of contractionary current-account reversals......Page 114
A. Introduction......Page 117
1. The role of corporate profits......Page 118
Chart 4.1: China: shares of savings by sector in total savings, 1992–2004......Page 120
3. Investment finance and information asymmetries......Page 123
C. Financial reforms in developing and transition economies......Page 126
1. Financial crises and restructuring of the banking sector......Page 129
Table 4.3: Bank claims on the private sector in developing and transition economies, by region, 1990–2007......Page 133
Table 4.6: Non-performing loans and return on assets, selected regions, 2000–2007......Page 142
4. Foreign financing......Page 145
5. Investment financing from the perspective of the firm......Page 149
E. Lessons and policy recommendations......Page 152
Notes......Page 155
References......Page 159
Box 4.1: Patterns of interest rates, inflation and growth......Page 140
Table 4.1: Savings and investment by households and non-financial firms, selected economies and periods......Page 119
Table 4.2: Market shares of banks by ownership, selected economies, 1994–2007......Page 131
Table 4.4: Composition of bank claims on the private sector in selected economies, 1990, 2000 and 2007......Page 137
Table 4.5: Selected indicators of bank financing in selected regions, 1995–2007......Page 139
Table 4.7: Stock exchange indicators in selected developing and transition economies, by region, 2006......Page 146
Table 4.8: Foreign financing of firms in selected developing and transition economies, by type, average of 1998–2006......Page 148
Table 4.9: Sources of investment finance, selected country groups, 2002–2006......Page 150
Table 4.10: Sources of investment finance, selected countries, 1999–2006......Page 151
Chart 4.2: Bank claims on the private and public sectors, selected countries, 1990–2007......Page 134
Chart 4.3: Agriculture: share of bank loans, value added and labour force in total, selected African countries......Page 138
Chart 4.4: Stock market capitalization in developing and transition economies, by region, 1995–2006......Page 143
Chart 4.5: Outstanding domestic bonds in emerging markets by type of issuer: selected regions, 1993, 2000 and 2007......Page 144
Chart 4.7: Foreign borrowing by firms in developing and transition economies, by region, 1999–2006......Page 147
A. Introduction......Page 163
B. The rationale for ODA......Page 164
Table 5.2: Share of aid in central government expenditure, 2002–2006......Page 166
Chart 5.1: Long-term trends in ODA, 1960–2006......Page 167
Chart 5.5: Composition of total ODA by main sectors, 1990–2006......Page 169
1. The recent debate on aid effectiveness......Page 171
Chart 5.7: Variability of bilateral ODA, 1990–2006......Page 172
Chart 5.8: Gross Fixed Capital Formation (GFCF) and economic ODA percapita, average of 2004–2006......Page 174
Chart 5.11: Human Development Index (HDI) scores and Social ODA per capita......Page 176
1. MDG financing and beyond......Page 179
Chart 5.13: MDG financing needs, ODA disbursements and estimated ODA pledges, 2000–2015......Page 180
F. Conclusions......Page 183
Notes......Page 185
References......Page 186
Box 5.1: Research on the relationship between aid and growth......Page 173
Table 5.1: Current-account balances: changes between 1992–1996 and 2002–2006......Page 165
Chart 5.3: ODA less debt relief and aid to Afghanistan and Iraq, 2000–2006......Page 168
Chart 5.6: ODA disbursements and estimated ODA pledges, 2004–2010......Page 170
Chart 5.10: Composition of social ODA by main sub-categories, 1990–2006......Page 175
Chart 5.12: CPIA scores and ODA per capita......Page 178
1. Econometric analysis of the impact of ODA on growth......Page 189
2. Econometric estimates of the additionality of debt relief......Page 191
Table 5.A1: The impact of disaggregated ODA on economic growth......Page 190
Table 5.A2: Regression results with dependentvariable: donor’s ODA net of debtrelief as a share of donor’s GNI......Page 192
Table 5.A3: Regression results with dependent variable: ODA net of debt reliefreceived by HIPCs, 1996–2006......Page 193
Table 5.A4: Regression results with dependent variable: ODA net of debt reliefreceived by HIPCs, 2000–2006......Page 194
Explanatory note on table 5.A1: Definitions of variables and sources for regression on aid and growth......Page 195
Explanatory note on tables 5.A2, 5.A3 and 5.A4: Definitions of variables and sources for regression on debt relief and aid additionality......Page 196
Notes......Page 197
A. Introduction......Page 199
B. Recent trends in the external debt of developing countries......Page 200
C. Debt relief......Page 205
1. Standard frameworks for debt sustainability analysis......Page 209
2. External debt sustainability......Page 211
3. Public debt sustainability......Page 212
4. Interactions between external and fiscal sustainability......Page 213
E. Dealing with debt default......Page 214
F. Conclusions: policy recommendations......Page 216
Notes......Page 219
References......Page 222
Box 6.1: Face value and net present value of debt relief......Page 206
Box 6.2: Debt reduction under the HIPC Initiative and MDRI......Page 207
Table 6.1: Debt indicators for developing countries, 1980–2007......Page 202
Chart 6.3: Alternative measures of debt-to-GNI ratio of developing countries, 1970–2006......Page 204
Chart 6.2: Decomposition of changes in the debt-to-GNI ratio in developing countries, 1971–2006......Page 201
Selected UNCTAD Publications......Page 225
Questionnaire......Page 233