Lacina Balma's Books

Debt, Investment, and Growth in Developing Countries with Segmented Labor Markets

By: Mr.Edward F Buffie,Luis-Felipe Zanna,Mr.Christopher S Adam,Lacina Balma,Dawit Tessema,Mr.Kangni R Kpodar

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Debt, Investment, and Growth in Developing Countries with Segmented Labor Markets

By: Mr.Edward F Buffie,Luis-Felipe Zanna,Mr.Christopher S Adam,Lacina Balma,Dawit Tessema,Mr.Kangni R Kpodar

We introduce a new suite of macroeconomic models that extend and complement the Debt, Investment, and Growth (DIG) model widely used at the IMF since 2012. The new DIG-Labor models feature segmented labor markets, efficiency wages and open unemployment, and an informal non-agricultural sector. These features allow for a deeper examination of macroeconomic and fiscal policy programs and their impact on labor market outcomes, inequality, and poverty. The paper illustrates the model's properties by analyzing the growth, debt, and distributional consequences of big-push public investment programs with different mixes of investment in human capital and infrastructure. We show that investment in human capital is much more effective than investment in infrastructure in promoting long-run economic development when investments earn their average estimated returns. The decision about how much to invest in human capital versus infrastructure involves, however, an acute intertemporal trade-off. Because investment in education affects labor productivity with a long lag, it takes 15+ years before net national income, the private capital stock, real wages for the poor, and formal sector employment surpass their counterparts in a program that invests mainly in infrastructure. The ranking of alternative investment programs depends on the policymakers' social discount rate and on the weight of distributional objectives in the social welfare function.

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International Monetary Fund

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ISBN 10

1513545639

ISBN 13

9781513545639

Macroeconomic Challenges of Structural Transformation

Public Investment, Growth and Debt Sustainability in Sierra Leone

By: Lacina Balma,Mthuli Ncube

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Macroeconomic Challenges of Structural Transformation

Public Investment, Growth and Debt Sustainability in Sierra Leone

By: Lacina Balma,Mthuli Ncube

This paper analyzes the link between public investment, economic growth and debt sustainability in Sierra Leone using an inter-temporal macroeconomic model. In the model, public capital improves the productive capacity of private capital, generating positive medium and long term effects to increases in public investment. The model application indicates that a large increase in public investment would have positive macroeconomic effects in the medium term. However, since there is no free lunch, rigidities in tax adjustment would entail unrealistic and unachievable adjustment in the current spending to cover recurrent costs and ensure debt sustainability. A more ambitious increase in public investment would entail more fiscal adjustment, particularly if external commercial loans are secured to complement the adjustment. The model simulations also emphasize the importance of improvements in the structural economic conditions to reap growth dividends. In addition, even if the macroeconomic implications of public investment scaling-up can be favorable in the long term under changes in certain structural conditions, downside risks such as terms of trade shifts and Ebola-induced productivity shortfall expose the country to increased risk of unsustainable debt dynamics. This underscores the need to remove bottlenecks to growth and maintain prudent borrowing policies.

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