International Finance and Development Group

The group focuses on the following areas of research:

•  Poverty Alleviation, Inequality, Investment in Human Resources and Public Policies

Reducing poverty is arguably the fundamental objective of economic development policies. Previous research over the last quarter century has identified various kinds of investment in human resources, such as those schooling and health, as being of critical importance in reducing poverty in poor countries. This has led to ongoing research efforts to identify what can be done to induce greater investments of these and other types by the poor themselves. While much progress has been made in this respect, many important questions remain. For example, what types of public policies have the largest impact in obtaining higher investment levels by the poor and non-poor alike? Of these, which are most cost-effective? Given the importance of social norms and unfavorable institutional conditions in poor communities, under what conditions and through which types of incentives and agents can such programs and policies be most effectively initiated and implemented? If not how can these unfavorable institutions be changed or the influences thereof overcome?

•  Globalization and Financial Crisis

Historically, increased international integration and capital flows has been associated with higher rates of financial crisis. In the nineteenth century, and through much of the twentieth century, sovereign debt crises were observed most frequently in eras of greater globalization, as well as in periods of relative international and domestic recession. Financial crises have been typified by their regional and sometimes international incidence, by their repeated incidence in particular countries and regions of the world, by their repeated incidence in poorer regions of the world, and by the large and persistent real effects that they have had for afflicted countries' economies. In the most modern era of globalization, and in particular since 1980, again financial crises are more frequent and take the form of both debt default and fixed exchange rate regime abandonment. Since many countries now operate on market exchange rate systems, exchange rate crises now initially afflict individual countries rather than large groups of countries as they did under the Gold Standard systems. However, both exchange rate crises and default crises in individual countries exhibit perhaps greater contagion, or subsequent “domino” effects, with respect to other countries than in the past.

•  International Finance and Development

The group will pursue research to answer the central questions concerning financial crises in the modern era of globalization, with the goal of identifying conditions under which such crises can be controlled and contagion be prevented. In this research, we ask whether we can learn from historical experience, or whether the rather different modern credit market institutions have really changed the properties of modern crises and their resolution such that history is irrelevant. We ask whether freer trade is, indeed, the primary factor in producing financial crisis, or whether other factors – economic recession, prices of key exports in world markets, or foreign countries' policies - produce conditions ripe for crisis. We consider carefully the role of modern international financial institutions, such as the IMF and the World Bank; do they help resolve and prevent financial crises - or do they aggravate them? Are international institutions such as the Paris Club, designed to intermediate negotiations between defaulters and their creditors, effective in reducing the incidence of crises? Finally, and perhaps most importantly, we ask, why do countries that experience financial crisis suffer such devastating and persistent real effect?