Macroeconomic Shocks and Conflict

Politicians, economists, and Wall Street would have us believe that limitless economic expansion is the Holy Grail, and that there is no conflict between growing the economy and protecting the environment. Supply Shock debunks these widely accepted myths and demonstrates that we are in fact navigating the end of the era of economic growth, and that the only sustainable alternative is the development of a steady state economy. Starting with a refreshingly accessible, comprehensive critique of economic growth, the author engages readers in an enormous topic that affects everyone in every country. Publisher's Weekly favorably compared Czech to Carl Sagan for popularizing their difficult subjects; Supply Shock shows why. Czech presents a compelling alternative to growth based on keen scientific, economic, and political insights including: The "trophic theory of money" The overlooked source of technological progress that prevents us from reconciling growth and environmental protection Bold yet practical policies for establishing a steady state economy. Supply Shock leaves no doubt that the biggest idea of the 20th century – economic growth – has become the biggest problem of the 21st. Required reading for anyone concerned about the world our children and grandchildren will inherit, this landmark work lays a solid foundation for a new economic model, perhaps in time for preventing global catastrophes; certainly in time for lessening the damages.

In recent decades, the Middle East and North Africa region (MENA) has experienced more frequent and severe conflicts than in any other region of the world, exacting a devastating human toll. The region now faces unprecedented challenges, including the emergence of violent non-state actors, significant destruction, and a refugee crisis bigger than any since World War II. This paper raises awareness of the economic costs of conflicts on the countries directly involved and on their neighbors. It argues that appropriate macroeconomic policies can help mitigate the impact of conflicts in the short term, and that fostering higher and more inclusive growth can help address some of the root causes of conflicts over the long term. The paper also highlights the crucial role of external partners, including the IMF, in helping MENA countries tackle these challenges.

This paper explores the effect of news shocks on the current account and other macroeconomic variables using worldwide giant oil discoveries as a directly observable measure of news shocks about future output ? the delay between a discovery and production is on average 4 to 6 years. We first present a two-sector small open economy model in order to predict the responses of macroeconomic aggregates to news of an oil discovery. We then estimate the effects of giant oil discoveries on a large panel of countries. Our empirical estimates are consistent with the predictions of the model. After an oil discovery, the current account and saving rate decline for the first 5 years and then rise sharply during the ensuing years. Investment rises robustly soon after the news arrives, while GDP does not increase until after 5 years. Employment rates fall slightly for a sustained period of time.

Signs of hope in sub-Saharan Africa: modest but steady economic growth and the spread of democracy. By the end of the twentieth century, sub-Saharan Africa had experienced twenty-five years of economic and political disaster. While “economic miracles” in China and India raised hundreds of millions from extreme poverty, Africa seemed to have been overtaken by violent conflict and mass destitution, and ranked lowest in the world in just about every economic and social indicator. Working in Busia, a small Kenyan border town, economist Edward Miguel began to notice something different starting in 1997: modest but steady economic progress, with new construction projects, flower markets, shops, and ubiquitous cell phones. In Africa's Turn? Miguel tracks a decade of comparably hopeful economic trends throughout sub-Saharan Africa and suggests that we may be seeing a turnaround. He bases his hopes on a range of recent changes: democracy is finally taking root in many countries; China's successes have fueled large-scale investment in Africa; and rising commodity prices have helped as well. Miguel warns, though, that the growth is fragile. Violence and climate change could derail it quickly, and he argues for specific international assistance when drought and civil strife loom. Responding to Miguel, nine experts gauge his optimism. Some question the progress of democracy in Africa or are more skeptical about China's constructive impact, while others think that Miguel has underestimated the threats represented by climate change and population growth. But most agree that something new is happening, and that policy innovations in health, education, agriculture, and government accountability are the key to Africa's future. Contributors Olu Ajakaiye, Ken Banks, Robert Bates, Paul Collier, Rachel Glennerster, Rosamond Naylor, Smita Singh, David N. Weil, and Jeremy M. Weinstein

Global temperatures have increased at an unprecedented pace in the past 40 years. This paper finds that increases in temperature have uneven macroeconomic effects, with adverse consequences concentrated in countries with hot climates, such as most low-income countries. In these countries, a rise in temperature lowers per capita output, in both the short and medium term, through a wide array of channels: reduced agricultural output, suppressed productivity of workers exposed to heat, slower investment, and poorer health. In an unmitigated climate change scenario, and under very conservative assumptions, model simulations suggest the projected rise in temperature would imply a loss of around 9 percent of output for a representative low-income country by 2100.

Using narrative-based country-case studies, war episodes in the Middle East were examined to assess their economic impact on conflict and neighboring economies. The paper found that conflicts led to a contraction in growth, higher inflation, large fiscal and current account deficits, loss of reserves, and a weakened financial system. Post-conflict recovery depended on the economic and institutional development of the country, economic structure, duration of the war, international engagement, and prevailing security conditions. The net economic impact on neighboring countries varied according to their initial economic conditions, number and income level of refugees they hosted, economic integration, and external assistance.