IMF Weekend Read

 

Dear MARIA, In today's edition, we highlight: How sound economic policy can help prevent conflict Country Focus: Boosting growth and prosperity in South Africa Innovation's unseen frontier, in March 2025 F&D magazine Podcast with Karthik Sastry on animal spirits and the economy, and more ECONOMIC GROWTH How Sound Economic Policy Can Help Prevent Conflict (Credit: UNICEF/UNI561766/Ibarra Sánchez) Economic policies supporting conflict prevention can not only save lives and prevent injuries, forced displacement, and vast economic damage, but also result in significant cost savings for high-risk countries, write the IMF's Franck Bousquet, Paul M. Bisca, Christopher Rauh, and Benjamin Seimon in a new blog. For every $1 invested in conflict prevention—via efforts to promote macroeconomic stability and growth, make institutions more effective, and support local community development—between $26 and $103 in possible conflict-related costs can be saved. These include the cost of massive humanitarian needs as well as lost economic output, according to recent research based on policy simulations incorporating machine learning-based predictions of conflict. IMF research highlights three areas of domestic macroeconomic policies that are especially effective in reducing the risk of conflict at reasonable costs: Healthier fiscal positions and improved state capacity; A resilient labor market and other hallmarks of a resilient economy; and Improving state capacity with the help of the international community. Read the Blog COUNTRY FOCUS Boosting Growth and Prosperity in South Africa (Credit: StockNinja, Subodh Agnihotri & fivepointsix/Getty Images South Africa’s economic growth potential can be further unlocked by improving the business environment, strengthening governance, and reforming the labor market. The country is well-positioned to confront longstanding challenges that have been holding the economy back, including declining real per-capita income, persistent unemployment, pervasive poverty, and one of the highest inequality rates in the world, write the IMF’s Kamil Dybczak and Delia Velculescu in a new Country Focus article. A new Government of National Unity, in power since June 2024, has committed to tackling these challenges by providing new impetus to the ongoing structural reforms initiated in 2020. Changes underway include reforms to the electricity and logistics sectors, streamlining of digital communications and water licensing, and modernization of the eVisa system, the authors write. While these reforms are an important step in the right direction, further action could help enhance the country’s economy. The IMF recommends fully implementing the reforms underway as well as additional reforms to enhance the business environment; fight corruption, professionalize public administration, and improve governance of state-owned enterprises; and reform the labor market, in part to help young people get jobs more easily. Read the Article F&D MAGAZINE Innovation's Unseen Frontier (Credit: Simona Bortis-Schultz) Notwithstanding Plato’s 2,400-year-old proverb, necessity alone is not the mother of invention. It also requires opportunity. An individual’s likelihood of becoming an innovator reflects parental background in terms of income and sociological factors, Xavier Jaravel of the London School of Economics writes in the new issue of F&D magazine. The phenomena of “Lost Einsteins” and “Lost Marie Curies”—highly talented children from disadvantaged backgrounds who innovate far below their potential—is no small matter. The scientific output of future generations could increase by as much as 42 percent if talented youth everywhere had equal opportunities to develop their potential, research shows. “Democratizing access worldwide to careers in innovation is a key to expanding long-term growth and narrowing inequalities,” Jaravel says. “Simple, targeted policies can democratize innovation. The macroeconomic implications are enormous.” Read the Article Subscribe for free print copies here. While we like to think our financial decisions are based on logic, the truth is, they are largely driven by emotion. So when John Maynard Keynes looked for methods to measure economic fluctuations, animal spirits were a key ingredient. Karthik Sastry is a macroeconomist and assistant professor at Princeton University. In this podcast, he says personal instincts and primal urges are known to cause cycles of boom and bust, and one way to gauge those emotions is through economic narratives. Sastry is coauthor with Joel Flynn of How Animal Spirits Affect the Economy published in Finance and Development magazine.  Weekly Roundup STAFF PAPER Evaluating Historical Episodes using Shock Decompositions in the DSGE Model A new IMF staff paper presents alternative methods for calculating and interpreting the influence of exogenous shocks on historical episodes within the context of DSGE models. The authors show analytically why different methods for calculating shock decompositions can generate conflicting interpretations of the same historical episodes. They argue that the best method for analyzing particular episodes is one which isolates the influence of the shocks during the period under consideration and where the initial conditions represent the system’s distance from balanced growth path at the beginning of the episode. Thank you for your interest in the Weekend Read! Be sure to let us know what issues and trends we should have on our radar. Miriam Van Dyck Editor IMF Weekend Read mvandyck@IMF.org

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