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Maintaining a Long-Term Vision toward Development

KCP 2017 Report cover

Research plays a crucial role in learning from past policies and thinking about the future with a long-term perspective. Especially in times of crises, it is imperative that countries do not lose sight of their long-term development objectives. Without the independent scrutiny of research, the conceptual and empirical foundations for policy making would be weak, best practices would be emulated without sufficient evidence, and new fads and fashions would get more attention and traction than they deserve. Researchers supported by the KCP also regard pushing back against tenuous ideas, data, and solutions – with rigorous evidence – as one of their core duties.

DEC research helped dispel the excessive confidence in silver bullets like microfinance, when the reality is much more complex and nuanced. Rigorous research brings a healthy “grain of salt” into the policy debate, armed with scientific evidence, and not propelled by fads.

Learning from the past, especially past financial and debt crises, would be particularly valuable as countries develop policy solutions to recover from the COVID-19 pandemic. For example, the role of official lending during a global crisis cannot be underestimated. By constructing and examining an encompassing new data set across more than 200 years (1790–2015), covering 134 creditor countries and 50 international and regional financial organizations, a new study shows that official sovereign-to-sovereign lending reached record highs during some macroeconomic disasters and all global wars, with potential consequences for output, trade, and asset markets. This analysis highlights bilateral trade and bilateral bank exposure as key predictors of official lending flows in times of crises. It also stresses the importance of further examination of the roles of new creditor powers, like China, the Russian Federation, India, Brazil, and the Arab oil states; the effects of “South-South” official lending; official financing instruments via central banks; and the determinants of financial cooperation via official lending. Many more studies on the role of official lenders in international capital flows are desired to surface insights on the roles of governments and multilateral institutions in addressing economic crises.

A KCP-supported project examined changes in bank capital and capital regulations since the global financial crisis in Europe and Central Asia. The study shows a positive effect brought about by the new Basel III capital framework and regulatory capital reforms enacted at the country level in the wake of the crisis. However, the analyses also reveal that monitoring bank health remains a challenge, especially for large banks and in environments where risk weights are easily manipulated and the definition of Tier 1 capital is less stringent.

An original piece of research takes time to design and implement, but its framework, data, and insights can have long-lasting effects and be repurposed for new ideas, particularly in emergency situations like natural disasters or health crises. For example, a KCP project on Data Systems for Safer Cities and Inclusive Growth tested how openly available, privately maintained data can be transformed into policy analysis in urban planning and development. The project utilized a machine learning model and geolocated crash reports from Twitter for Nairobi, Kenya. The approach expands the coverage of road crashes to analyze road safety and prioritize policy action around the locations where crashes occur more often. This project highlights the importance of using innovative ways to combine different sources of data to shed light on policy solutions, especially in situations where public data are scarce, inaccessible, or of low quality.