Editorial

Materially improving a country's income and employment levels demands sustained investment in productive capacities (physical and human capital) and public infrastructure. The world being a closed economy, global resources available for investment (public and private) correspond to the level of global savings. Because the ability to save depends on income levels, developing economies, especially Low-Income Countries (LICs), must plug a significant gap between limited domestic savings and large investment needs by mobilizing foreign savings—including through official funding in the form of subsidized loans or grants. Financing needs for development are indeed considerable. For LICs alone, the United Nations (UN)1 estimates that achieving the Millennium Development goals would require those countries to mobilize the equivalent of 20% of their GDP in tax revenue to be able to fund the desired accumulation of public capital. With tax revenues currently averaging about 16% of GDP, LICs fall well short of the UN benchmark. There is a strong case for international coordination to ensure adequate financing for development. Although standard theory predicts that capital should flow from rich to poor countries (as relatively scarce capital makes investment in the latter more profitable), we know since Lucas (1990) that relative resource endowments do not drive international capital flows. Quite contrary, capital often moves “upward” from poor to rich countries. A large literature has explored potential reasons for this paradox, ranging from lower risk-adjusted returns in developing economies to weak financial institutions that fail to efficiently allocate funds, as well as inefficient public sectors unable to properly coordinate, plan and execute infrastructure projects. Three international conferences on Financing for Development gathering the international donor community (Monterrey, 2002; Doha, 2008 and Addis Ababa, 2015) have stressed the importance of a comprehensive and integrated approach to shaping policies and pooling the resources needed for sustainable development in LICs. For instance, the Monterrey Consensus led to agreements in core areas of Financing for Development (FfD), including: • mobilizing domestic, regional, and international public and private financial resources and related issues regarding their efficient use and management (including debt management); • advancing the contribution of trade and global value chains to development; • enhancing the international financial and technical cooperation for development; • ensuring a stable and efficient international monetary, financial, and trading system supporting development, including through cooperation on tax issues, principles guiding international capital mobility and the strengthening of global financial safety nets (to discourage the accumulation of excessive precautionary savings by vulnerable countries). The Adis Ababa conference of 2015 furthered progress in these different areas. For instance, the Platform for Collaboration on Tax (PCT) – a joint effort by the International Monetary Fund (IMF), Organisation for Economic Co-operation and Development (OECD), United Nations (UN), and World Bank Group – has developed several initiatives aimed at improving domestic tax revenue in developing countries. While achieving the FfD objectives represents a great opportunity for sustainable international development, developing countries and donors face multiple challenges. In particular, there is no clear path to meeting the FfD targets. Furthermore, addressing only selected issues related to FfD may lead to unintended side effects in the short run, with potentially adverse consequences on the credibility of development policies. This special issue (SI) gathers a series of original articles shedding new light on some of those challenges. After an extensive call for papers in 2020, we selected the following contributions: 1 Aid allocation: The role of external discipline, by François Bourguignon and Jean-Philippe Platteau; 2 Delays in public investment projects, by Raphael Espinoza and Andrea F. Presbitero; 3 Abnormal pricing in international commodity trading: Evidence from Ghana, by Ama A. Ahene-Codjoe, and Angela A. Alu, and Rahul Mehrotra; 4 When do we repair the roof? Insights from responses to fiscal crisis early warning signals, by Jiro Honda, René Tapsoba and Ismael Issifou; 5 A time to build: Does technical assistance matter for revenue mobilization? by Ralph Chami, Elorm Darkey and Oral Williams. 6 Moral hazard index for credit risk to SMEs, by José A. Castillo, Andrés Mora-Valencia and Javier Perote; 7 Financial market economy vs. self-financing economy and the role of risk aversion, by Laurent Augier and Yin Chao 8 Eurobonds, debt sustainability and macroeconomic performance in Africa: Synthetic control experiments, by Chuku Chuku and Yasin Yenice Mustafa The selection process was organized in two steps. First, we selected 12 papers for presentation at a conference on June 22, 2021.2 Second, the papers went through a regular peer review process. Aside from the paper presentations, the conference featured two keynote addresses. Prof. Njuguna Ndung'u (Executive Director of the African Economic Research Consortium and former Governor of the Central Bank of Kenya) discussed digital space and financial inclusion in Africa. Prof. Ugo Panizza, Professor of International Economics at the Graduate Institute Geneva, in an address entitled “Legal air cover,” built the case for ex-post adjustments to debt contracts aimed at temporarily protecting debtor countries forced to divert resources to handle the effects of the COVID-19 pandemic. Mr. Jan Van de Poel, representing Mrs. Meryame Kitir, the Belgian Minister of Development Cooperation and of Major Cities (BMDC), delivered introductory remarks to the conference, which due to the covid pandemic, took place virtually. About 60 international scholars, including academics and policymakers, joined the event. This Special Issue was initiated by the Belgian policy research group on Financing for Development (BeFinD), coordinated by Romain Houssa at the University of Namur (UNamur). BeFinD is a consortium of four academic research centers in Belgium: Centre of Research in the Economics of Development (UNamur), HIVA Research Institute for Work and Society (KU Leuven), Leuven Centre for Global Governance Studies (KU Leuven), Institute of Development Policy (Universiteit Antwerpen). BeFinD has worked on policy and research questions that are the most relevant on issues related to financing for development in the framework of ACROPOLIS (Academic Research Group for Policy Support) project. The ACROPOLIS project is financed by the Belgian Directorate General for Development Cooperation (DGD) in collaboration with the Belgian Minister of Development Cooperation and of Major Cities. It aims to support the decision-making of DGD with evidence-based research on issues related to financing for development. The project is managed by ARES-CCD and VLIR-UOS. It brings together policymakers from DGD, BMDC, Enabel, and other relevant governmental actors on the one hand and researchers from universities in Belgium on the other over the 2014–2018 period. We are also grateful for the anonymous reviewers for evaluating the manuscripts as well as providing constructive comments and suggestions that helped to improve the accepted manuscripts. We are grateful for the valuable support received from BeFinD and ACROPOLIS project. We would also like to thank Valerie Mignon and Mario Larch, the editors of International Economics, for their guidance and encouragements. Valerie Mignon provided gracious help at each stage of this SI project. Special thanks are due to the BeFinD's “Academic Stakeholders” for their unwavering support throughout this project: Jean-Philippe Platteau (CRED), Paul Reding (CRED), Danny Cassimon (IOB), Huib Huyse (HIVA) and Axel Marx (GGS). We also wish to thank the policy coordinators of ACROPOLIS and key collaborators of BeFinD at DGD, in the cabinet of BMDC, at BIO-invest and at ARES and VLIR (Jan Van de Poel, Christian de Lannoy, Vermaerke Pieter, Gaëlle Jullien, Johan Debar, Julie Poppe, Inge Vandevyvere, Nathalie Francken, Noémie Nyst, Camille Roegiers, and Gaetan Herinckx). We also thank Kelbesa Megersa and Karel Verbeke for their constant administrative support to the academic coordinator of BeFinD. Finally, we wish to thank all researchers involved in the ACROPOLIS-BeFinD project from the three universities (UNamur, KU Leuven, UAntwerp) and all the contributors as well as participants of the SI conference.