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Productivity Drag from Small and Medium-Sized Enterprises in Japan
Productivity growth in Japan, as in most advanced economies, has moderated. This paper finds supportive evidence for the important role of small and medium-sized enterprises (SMEs) in explaining Japan’s modest productivity growth. Results show a substantial dispersion in firm-level productivity growth across sectors and even across firms within the same sector. SMEs, on average, exhibit lower productivity growth than non-SMEs in Japan, with smaller and older SMEs showing particularly low productivity growth. Estimates suggest that boosting productivity growth in all of the worst-performing SMEs could improve overall productivity growth by up to 1.8 percentage points. The SME credit guarantee system, SME financing constraints, demographic factors, and lack of intangible capital investment are discussed as contributors to the slow productivity growth of Japan’s small and old SMEs.
Japan
This Selected Issues paper assesses the relationship between demographic trends and housing prices in Japan. Among various issues in the context of regional disparities, the paper focus on regional differences in population dynamics to try and understand to what extent demographic trends have influenced housing market prices in Japan in the past twenty years. Large cities, notably the Greater Tokyo area, are experiencing net migration inflows, while other regions are experiencing net migration outflows. Due to the durability of housing compared to other forms of investment, the magnitude of house price declines associated with population losses is larger than that of house price increases associated with population gains. These model-based predictions are likely to underestimate the actual fall in house prices associated with future population losses, as expectations of lower housing prices in the future could trigger more population outflows and disposal of houses, especially in rural areas. The paper suggests policy measures to help close regional disparities and avoid potential over-investment by taking account of demographic trends for housing supply.
Measuring the Informal Economy in the Caucasus and Central Asia
This study estimates the size of the informal economy, and the relative contribution of each underlying factor, for the Caucasus and Central Asia countries in 2008. Using a Multiple Indicator-Multiple Cause model, we find that a burdensome tax system, rigid labor market, low institutional quality, and excessive regulation in financial and products markets are determinant factors in explaining the size of the informal economy, which ranges from 26 percent of GDP in Kyrgyz Republic to around 35 percent of GDP in Armenia. Furthermore, the results show that higher levels of informality increase the levels of self employment and the percentage of currency held outside the banking system.
Regional Economic Outlook, November 2012, Middle East and Central Asia
The outlook for the Middle East and North Africa region is mixed. Oil-importing countries are witnessing tepid growth, and the moderate recovery expected in 2013 is subject to heightened downside risks. For the Arab countries in transition, ongoing political transitions also weigh on growth. With policy buffers largely eroded, the need for action on macroeconomic stabilization and growth-oriented reforms is becoming increasingly urgent. Countries will need to put in place safety nets to protect the poor and build consensus for some difficult fiscal choices. The region’s oil exporters are expected to post solid growth in 2012, in part due to Libya’s better-than-expected postwar recovery. ...
The Cost of Foreign Exchange Intervention
The accumulation of large foreign asset positions by many central banks through sustained foreign exchange (FX) intervention has raised questions about its associated fiscal costs. This paper clarifies conceptual issues regarding how to measure these costs both from an ex-post and an ex-ante (relevant for decision making) perspective, and estimates both marginal and total costs for 73 countries over the period 2002-13. We find ex-ante marginal costs for the median emerging market economy (EME) in the inter-quartile range of 2-5.5 percent per year; while ex-ante total costs (of sustaining FX positions) in the range of 0.2-0.7 percent of GDP per year for light interveners and 0.3-1.2 percent of GDP per year for heavy interveners. These estimates indicate that fiscal costs of sustained FX intervention (via expanding central bank balance sheets) are not negligible.
Kuwait
This 2014 Article IV Consultation highlights that economic activity in Kuwait picked up in 2014. Non-oil growth is projected at 3.5 percent driven by a combination of continued increase in domestic consumption and some pick-up in government capital spending and private investment. Flat oil production would keep the overall real GDP growth positive at 1.3 percent. The average inflation rate is forecast to remain at about 3 percent. The current account and fiscal surpluses are expected to remain high. The medium-term economic outlook is favorable. Non-oil GDP growth is expected to pick up to 4 to 5 percent in the medium term, supported by government investment in infrastructure and the oil sector, and by consumption.
Countercyclical Fiscal Policy and Gender Employment: Evidence from the G-7 Countries
Would countercyclical fiscal policy during recessions improve or worsen the gender employment gap? We give an answer to this question by exploring the state-dependent impact of fiscal spending shocks on employment by gender in the G-7 countries. Using the local projection method, we find that, during recessions, a positive spending shock of 1 percent of GDP would, on average, lift female employment by 1 percent, while increasing male employment by 0.6 percent. Consequently such a shock would improve the female share of employment by 0.28 percentage point during recessions. Our findings are driven by disproportionate employment changes in female-friendly industries, occupations, and part-time jobs in response to fiscal spending shocks. The analysis suggests that fiscal stimulus, particularly during recessions, could achieve the twin objectives of supporting aggregate demand and improving gender gaps.
Georgia
The new government is committed to prudent macroeconomic policies and to enhancing Georgia’s business-friendly environment. Large external liabilities plus its high current account deficit remain the main sources of vulnerability, and reducing these in an orderly manner is a key macroeconomic challenge. Greater exchange rate flexibility should help align its monetary policy and exchange rate decisions more closely with its inflation. Maintaining central bank independence and increasing monetary policy transparency are welcomed by the Executive Directors. The impressive structural agenda aims at improving the business environment and at boosting competitiveness.
Republic of Equatorial Guinea: Request for Purchase Under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director
Already battered by a still unfolding COVID-19 pandemic, Equatorial Guinea was struck on March 7 by massive accidental explosions at a military compound in Bata, its largest city, that killed over 100 people and caused widespread damage to surrounding neighborhoods. These shocks have adversely impacted economic activity and weakened considerably the fiscal and external positions, relative to the EFF-supported program approved in December 2019, creating a substantial financing gap. With the EFF-supported program off-track, as governance reforms have taken longer than originally envisaged, it is not feasible to effectively respond to the humanitarian crisis within the EFF framework. Bringing the program back on track would take time as the authorities continue to work on outstanding structural measures due to capacity constraints in the pandemic context and need for consensus building. Support provided under the RFI, buttressed by appropriate prior actions on governance and safeguards, would create the fiscal space necessary for the authorities to meet the immediate humanitarian needs, and reinvigorate engagement under the EFF-supported program.
Demographics and the Natural Rate of Interest in Japan
Japan’s aging and shrinking population could lower the natural rate of interest and, together with low inflation expectations, challenge the Bank of Japan’s efforts to reflate the economy. This paper uses a semi-structural model to estimate the impact of demographics on the natural rate in Japan. We find that demographic change has a significantly negative impact on the natural rate by lowering trend potential growth. We also find that the negative impact has been increasing over time amid stronger demographic headwinds. These findings highlight the importance of boosting potential growth to offset the negative demographic impact and lift the natural rate in Japan.
