In countries with limited access to finance, firms accumulate retained earnings to finance indivisible investment projects. McKinnon (1973) illustrates that when cash is used as a primary store of value, inflation may discourage investment as it increases the cost of accumulating retained earnings.
... See More + This paper formalizes this argument in a dynamic framework and provides a simple calibration of the model that suggests sizable effects of inflation on investment. The mechanism is particularly relevant for small firms, as firms with lower cash flows must accumulate retained earnings for longer periods of time to meet the price of indivisible investment goods. Consistent with the model, empirical evidence suggests that inflation disproportionately reduces investment in small firms.
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Policy Research Working Paper WPS6972 JUL 01, 2014
This report contains the World Bank Group Boards' calendar for the period of July to September 2014, specifying the Boards' engagements, such as meetings and briefings.
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Developing countries are trying to develop long-term financial markets and institutional investors are expected to play a key role. This paper uses unique evidence on the universe of institutional investors from the leading case of Chile to study to what extent mutual funds, pension funds, and insurance companies hold and bid for long-term instruments, and which factors affect their choices.
... See More + The paper uses monthly asset-level portfolios to show that, despite the expectations, mutual and pension funds invest mostly in short-term assets relative to insurance companies. The significant difference across maturity structures is not driven by the supply side of debt or tactical behavior. Instead, it seems to be explained by manager incentives (related to short-run monitoring and the liability structure) that, combined with risk factors, tilt portfolios toward short-term instruments, even when long-term investing yields higher returns. Thus, the expansion of large institutional investors does not necessarily imply longer-term markets.
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Policy Research Working Paper WPS6922 JUN 01, 2014
Opazo, Luis; Raddatz, Claudio; Schmukler, Sergio L.
Ratings for the Regional Trade Facilitation Project for Africa were as follows: outcomes were moderately satisfactory, risk to development outcome was substantial, Bank performance was moderately satisfactory, and Borrower performance was moderately satisfactory.
... See More + Some lessons learned included: African trade insurance (ATI) agency plays a public sector role as a multilateral agency owned by multiple states, which provides legitimacy, allows preferred creditor status, and facilitates healthy peer pressure among member states to honor financial commitments. Imbedding self-correction and self-supervision mechanisms in client agencies minimizes the need for the Bank to play the role of a de facto regulator, for which it does not necessarily have sufficient resources, expertise, or enforcement mandate. The presence of a significant number of independent directors competitively selected for their specialized expertise in accordance with an agreed competence matrix may also play a critical role as ATI progresses towards self-supervision. More attention should have been given by the Bank to understanding the specific demand in Africa in terms of market needs, product mix, targeted clients, and transaction origination channels. Operational manuals, technical assistance, and training, while all necessary, are not sufficient mechanisms to ensure that a public sector entity like ATI will be able to keep pace with its internationally competitive peers and without taking excessive risks. Political and commercial risk insurance continues to be a key instrument needed to support private trade and investment flows in Africa.
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Implementation Completion and Results Report ICR3001 MAY 28, 2014
This report contains the World Bank Group Boards' calendar for the period May to July 2014, specifying the Boards' engagements, such as meetings and briefings.
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This paper investigates the role of fiscal guarantees in promoting infrastructure investment. Infrastructure is a critical driver of economic growth, but infrastructure entails significant up-front costs that yield benefits after a time lag.
... See More + Investors hesitate to put their money down on private infrastructure ventures because of the long lag and governments do not give guarantees for reasons of fiscal prudence. The paper argues that governments and large investment guarantee agencies can in many situations give suitably-calibrated guarantees to private projects by exploiting the fact that a guarantee on one project can reduce the risk of another one failing. The paper works out the architecture of such guarantees, which can be fiscally prudent and yet boost investment, especially in infrastructure, and thereby promote growth.
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Policy Research Working Paper WPS6850 MAY 01, 2014
This report contains the World Bank Group Boards' calendar for the period May to July 2014, specifying the Boards' engagements, such as meetings and briefings.
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