Steven Pennings

Senior Economist

Development Research Group

(Visiting the Prosperity Chief Economist's office for 2025)

The World Bank

Curriculum Vitae: [link]

Email: spennings@worldbank.org, or steven.pennings@gmail.com

Address: 1818 H St. NW, Washington DC 20433 USA

Google Scholar: [link]

Recent Academic Working Papers (and selected work in progress)

The Macroeconomic Effects of Cash Transfers: Evidence from Brazil (with Feler, Mendes, Miyamoto and Nguyen)

World Bank Policy Research Working Paper 10652 (Dec 2023) [link to working paper]. Media/blogs: Estadão, SF Fed Economic Letter.

This paper provides new evidence on the macroeconomic impact of cash transfers in developing countries. Using a Bartik-style identification strategy, the paper documents that Brazil’s Bolsa Familia transfer program leads to a large and persistent increase in relative state-level GDP, formal employment, and informal employment. A state receiving 1% of GDP in extra transfers grows 2.2% faster in the first year, with R$100,000 of extra transfers generating five formal-equivalent jobs, half of which are informal. Consistent with a demand-side mechanism, the effects are concentrated in non-tradable sectors. However, an open-economy New Keynesian model only partially captures the high multipliers estimated.

Lives, Livelihoods, and Learning: A Global Perspective on the Well-Being Impacts of the COVID-19 Pandemic (with Decerf, Friedman, Mendes and Yonzan)

World Bank Policy Research Working Paper 10728 (March 2024) [link to working paper].

This study compares the magnitude of national level losses that the COVID-19 pandemic inflicted across three critical dimensions: loss of life, loss of income, and loss of learning. The well-being consequences of excess mortality are expressed in years of life lost, while those of income losses and school closures are expressed in additional years spent in poverty (as measured by national poverty lines), either currently or in the future. While 2020–21 witnessed a global drop in life expectancy and the largest one-year increase in global poverty in many decades, widespread school closures may cause almost twice as large an increase in future poverty. The estimates of well-being loss for the average global citizen include a loss of almost three weeks of life (19 days), an additional two and half weeks spent in poverty in 2020 and 2021 (17 days), and the possibility of an additional month of life in poverty in the future due to school closures (31 days). Well-being losses are not equitably distributed across countries. The typical high-income country suffered more total years of life lost than additional years in poverty, while the opposite holds for the typical low- or middle-income country. Aggregating total losses requires the valuation of a year of life lost vis-à-vis an additional year spent in poverty. If a year of life lost is valued at five or fewer additional years spent in poverty, low-income countries suffered greater total well-being loss than high-income countries. For a wide range of valuations, the greatest well-being losses fell on upper-middle-income countries and countries in the Latin America region. This set of countries suffered the largest mortality costs as well as large losses in learning and sharp increases in poverty.

Refereed Journal Publications

Cross-region Transfer Multipliers in a Monetary Union: Evidence from Social Security and Stimulus Payments

American Economic Review (2021) [link to paper (downloadable)][online appendix][journal page]

Earlier version with title "Cross-region Transfers in a Monetary Union: Evidence from the US and Some Implications": World Bank Policy Research Working Paper 9244 (May 2020) [link to working paper][online appendix]

US federal transfers to individuals are large, countercyclical, vary geographically, and are often credited with helping to stabilize regional economies. This paper estimates the short-run effects of these transfers using plausibly exogenous regional variation in temporary stimulus payments and permanent Social Security benefit increases. States that received larger transfers tended to grow faster contemporaneously, with a multiplier of around 1.5 for permanent transfers and 1/3 for temporary transfers. Results are broadly consistent with an open-economy New Keynesian model. At business cycle frequencies, cross-region transfer multipliers are not large, suggesting only modest gains in regional stabilization from US federal automatic stabilizers.

Leader Value Added: Assessing the Growth Contribution of Individual National Leaders (joint with William Easterly) Penultimate working paper version: December 2024 [link] [online appendix] [List of estimated leader effects][journal page] Forthcoming at the Journal of Development Economics

Previous versions: World Bank Policy Research Working Paper 9215 (April 2020) [link to working paper] and NBER Working Paper 27153 (May 2020) [link to NBER WP]

(old title "Shrinking Dictators: Assessing the Growth Contribution of Individual National Leaders" or "How Much Do Leaders Explain Growth? An Exercise in Growth Accounting" March 2015 [link])

Previous literature suggests that leaders matter for growth in general. This paper asks: which leaders matter? We develop a method to estimate the idiosyncratic growth contribution of individual leaders (relative to their compatriots) and, drawing on Armstrong et al. (2022), calculate its uncertainty via a robust empirical Bayes confidence internal (EBCI). We show that most intuitive estimate of a leader’s contribution—the average growth rate during their tenure—is mostly useless for measuring his or her contribution and estimating the leader effect requires major adjustments to that raw growth average. Relatively few leaders have large contributions with zero outside the 95% robust EBCI, which suggests it is difficult to identify which leaders are good or bad for growth using growth data. Although there are some leaders that stand out using our method, many of those leaders are surprises. Moreover, leaders in non-democratic countries are not much more likely to be identified as good or bad for growth than leaders in democratic ones.

One Rule Fits All? Heterogeneous Fiscal Rules for Commodity Exporters When Price Shocks Can Be Persistent: Theory and Evidence (joint with Arthur Mendes) Review of Economic Dynamics (Jan 2025). [link to journal version](gated)[link to online appendix][Let's talk development blog]

(Previous version: World Bank Policy Research Working Paper 9400 (Sept. 2020) [link] [appendix] , penultimate version: September 2022 [link][appendix])

Commodity-exporting developing economies are often characterized as having needlessly procyclical fiscal policy: spending when commodity prices are high and cutting back when prices fall. Implicit in this criticism is that one best-practice acyclical fiscal rule fits all countries, regardless of their characteristics. In this paper, we reevaluate this characterization and policy prescription. We first estimate a new theoretically motivated measure of procyclicality of spending — the marginal propensity to spend (MPS) an extra dollar of commodity revenues — which we allow to vary with the country’s exchange rate (ER) regime and the persistence of the commodity price shocks it faces. Empirically, we find that, overall, countries tend to spend 25c of every extra dollar of commodity revenues (moderately procyclical), but that spending is significantly more procyclical in countries with a flexible ER than a fixed ER, and spending becomes more procyclical in flexible-ER countries with more persistent commodity price shocks. We then compare estimates with the same regressions run on simulated data generated by optimal policy in a parsimonious New Keynesian model. With transient shocks, optimal policy is always acyclical, as in the conventional wisdom. But in the more realistic case of persistent shocks, optimal policy becomes procyclical in countries with flexible ERs (to smooth consumption, by the permanent income hypothesis), but is almost acyclical in countries with fixed ERs (to stabilize the business cycle). We conclude the that the model is able to rationalize the heterogeneity in procyclicality observed in the data, but differs quantitatively in some dimensions.

Pass-through of Competitors' Exchange Rates to US Import and Producer Prices

Journal of International Economics (March 2017) [journal version (gated)] [accepted manuscript (downloadable)]

(also World Bank Policy Research Working Paper 7926) [link to working paper] [online appendix]

This paper shows that in theory and BLS microdata, the prices of imported goods respond to the exchange rates (ER) of the producer's foreign competitors. In contrast, standard models have no role for competitors' ERs. Excluding the effects of competitors' exchange rates typically biases upwards estimates of bilateral exchange rate pass-through because competitors' ERs and bilateral ERs are positively correlated. A multi-country version of Atkeson and Burstein's (2008) industry aggregation model is able to explain a sizable proportion of pass-through of competitors' exchange rates to import prices, and also predicts pass-through of foreign competitors' prices and pass-through of competitors' ERs to US producer prices --- both of which are supported in the data. The results suggest that pass-through will be larger for ER movements shared by a greater fraction of foreign competitor countries.

When is the Government Transfer Multiplier Large? (joint with Eric Giambattista)

European Economic Review (November 2017) [journal version (gated)] [accepted manuscript (downloadable)]

(also World Bank Policy Research Working Paper 8184) [link to WP] [online appendix] [Dynare code to replicate Table 2]

Transfers to individuals were a larger part of the 2009 US stimulus package than government purchases. Using a two-agent New Keynesian model, we show analytically that the multiplier on targeted transfers to financially constrained households is (i) larger than the purchase multiplier if the zero lower bound (ZLB) binds and (ii) is more sensitive to degree of monetary accommodation of inflation. Targeted transfers provide the same boost to demand as purchases, but lower aggregate supply relative to purchases, as those receiving transfers want to work less. When the aggregate demand curve inverts --- such as when the ZLB binds --- the extra inflation from lower supply boosts the multiplier. We show this result also holds quantitatively in a medium-scale version of the model.

Are Regional Fiscal Multipliers on EU Structural and Investment Fund Spending Large ? A Reassessment of the Evidence (with Fiuratti, Nikolova, and Schiffbauer)

Journal of Macroeconomics (forthcoming) [link to journal page]. Earlier version: World Bank Policy Research Working Paper 10658 (January 2024) [link][online appendix]

The European Commission’s “NextGenerationEU” COVID-19 recovery package has underscored interest in the size of regional fiscal multipliers in Europe. While the objective of these funds is the long-term transformation toward more sustainable green growth and digitalization in EU economies, several recent papers have also focused on their short-term stimulatory effects and have estimated large short-term regional multipliers on historical EU structural and investment fund spending. This has contributed to a view that EU funds can boost growth substantially not only in the long term, but also in the short term in countries receiving large flows, particularly in Central and Eastern Europe. This paper reevaluates the evidence by estimating regional short-term multipliers using recent data on EU fund spending and a leave-one-out predicted disbursement schedule instrument. In contrast with much of the recent literature, there is little evidence of large relative GDP multipliers at either the national or subnational level in the short term. This is despite a strong response of regional investment to EU funds, which often increases euro for euro. The results suggest that expectations should be tempered on using EU structural and investment funds as a tool for short-term regional fiscal stimulus, and instead policy makers may want to focus on the long-term benefits of EU funds, in line with their original purpose.

The Seasonality of Conflict (joint with Jenny Guardado) [link] Conflict Management and Peace Science 2024

(Previous version: World Bank Policy Research Working Paper 9373 (August 2020) [link to working paper] )

In this paper we use one of the largest shocks to labor demand in developing countries—harvest—to examine how the returns to fighting versus working impact the intensity of conflict. Exploiting the exogenous allocation and timing of harvest across Afghanistan, Iraq, and Pakistan, we find that the onset of harvest usually reduces the number of insurgent attacks by between 6% and 21%. We argue this is due to an increase in the opportunity cost of fighting and not due to alternative explanations based on changes in subnational state capacity, temperature or rainfall, among other possibilities. Furthermore, as harvest shocks are transitory and anticipated, our estimates minimize the potential bias present in other persistent income shocks commonly used in the literature. Our findings clarify the ubiquity and importance of the opportunity cost channel to explain conflict intensity—even in settings involving highly ideological insurgencies.

Shock Persistence and the Study of Armed Conflict: Empirical Biases and Some Remedies (with Jenny Guardado) Forthcoming (2024) at International Interactions [link to journal version (gated)] [penultimate WP version]

Poor employment prospects for potential insurgents are often thought to increase the intensity of armed conflict. A large empirical literature tries to identify the strength of this “opportunity cost” channel, in part by regressing conflict on commodity price shocks that affect the demand for workers. In this research note we develop a theoretical framework to interpret these empirical results. We argue that because commodity price shocks are usually persistent, the estimated strength of the opportunity cost mechanism will be biased upwards (towards zero)—even for labor-intensive commodities whose price shocks are not permanent. We define this bias analytically and, using regressions on simulated data, show that it is quantitatively important for commodities studied in the literature. The bias occurs because persistent shocks that reduce employment prospects today are correlated with unobserved dynamic motivations to fight, such as the expected value of an oil field or a fighter's subjective value of a grievance. We conclude that the opportunity cost mechanism may be even stronger than has been estimated, and that researchers should use transient or seasonal shocks to identify its magnitude.

Locally Financed and Outside Financed Regional Fiscal Multipliers (Dec 2021) [link to paper] [online appendix]

Economics Letters (April 2022) [link to journal version]

The size of regional fiscal multipliers determines the efficacy of fiscal stimulus, the costs of fiscal austerity and whether countercyclical fiscal policy is more effective at the federal or local level. This paper studies fiscal multipliers in regions of a monetary union—US states, Eurozone members, or countries with a hard exchange-rate peg—and how multipliers are affected by the way spending is financed: local deficit financing, local tax financing or outside financing (federal or foreign aid). I present analytical and quantitative government purchase and transfer multipliers using a New Keynesian model consistent with estimated transfer multipliers in Pennings (2021), focusing on the persistence of the fiscal shock. I find that at business-cycle frequencies, financing has little effect on impact multipliers: outside-financed multipliers are only about 0.07–0.16 larger than local deficit-financing multipliers. This suggests efforts to enable local countercyclical fiscal policy may be a partial substitute for greater fiscal centralization or foreign financing.

The impact of monetary policy on financial markets in small open economies: more or less effective during the financial crisis? (with Arief Ramayandi and Hsiao Chink Tang)

Journal of Macroeconomics 44 (June 2015), 60-70 [journal version (gated)] [accepted manuscript (downloadable)] [online appendix]

This paper estimates the impact of monetary policy on exchange rates and stock prices of eight small open economies: Australia, Canada, the Republic of Korea, New Zealand, the United Kingdom, Indonesia, Malaysia, and Thailand. On average across these countries in the full sample, a one percentage point surprise rise in official interest rates leads to a 1% appreciation of the exchange rate and a 0.5–1% fall in stock prices, with somewhat stronger effects in OECD countries than non-OECD countries (though differences are sometimes not significant). We find little robust evidence of a change in the effect of monetary policy surprises during the recent financial crisis.

Recent Policy Work

Long-Term Growth Prospects in Peru: Leveraging the Global Green Transition and the Reforms Needed to Become a High-Income Country (with Barco, Celiku, Chávez, Mendes and Resk)

World Bank Policy Research Working Paper 10900 (September 2024) [link to working paper]

This paper uses the World Bank Long-Term Growth Model and extensions to study Peru’s long-term growth prospects and its potential to attain high-income economy status. Under a business-as-usual baseline, Peru’s potential GDP growth declines slowly from 2.1 to 1.7 percent over the next two decades, due mostly to demographic factors. In this baseline, it takes more than half a century to reach high income status. To accelerate growth, the paper considers moderate and ambitious reform scenarios for the non-resource sector through faster total factor productivity (TFP) growth, human capital growth, and higher investment rates. The ambitious reform path accelerates growth to an average of 4.3 percent in the simulation period (2024–50), allowing Peru to reach high-income status by 2045. The paper also considers a Global Green Transition scenario, where Peru takes advantage of higher global demand for copper from clean technologies. In that scenario, higher copper prices, greater exploration, improved mining technology, and reinvested copper windfalls increase baseline growth to 3.1 percent by 2035. If Peru were able to harness the global green transition and implement ambitious reforms in the non-resource sector, growth could accelerate to an average of 5 percent, and the country could reach high-income status by 2042.

How Large Are the Economic Dividends from Closing Gender Employment Gaps in the Middle East and North Africa? (with Fiuratti and Torres)

World Bank Policy Research Working Paper 10706 (February 2024) [link to working paper]

This paper quantifies the gains in gross domestic product per capita from closing gender employment gaps in the Middle East and North Africa, using three neoclassical growth models. The paper starts with baseline impacts from the Gender Employment Gap Index, which suggests that in the long run, gross domestic product per capita would be around 50 percent higher in the typical economy in the region if gender employment gaps were closed (mean 54 percent, median 49 percent). However, the gains are heterogeneous, ranging from less than 10 percent in Qatar to more than 80 percent in the Republic of Yemen. The paper then explores short-term gains, when capital is fixed (or adjusts slowly), and gains in the medium-term, with sluggish implementation of reforms using the Long Term Growth Model, which roughly halves the gains (and lowers the gains by more than half in resource-rich countries). Finally, the paper incorporates the effects of changes in the skill distribution in a model incorporating capital-skill complementarities in production. Because gender employment gaps in the Middle East and North Africa tend to be larger among the unskilled, closing these gaps reduces average skill levels, moderating long-term gains by 5-10 percentage points. However, if women in the Middle East and North Africa continue the current trend toward greater educational attainment, the gains will be greater than in the baseline. All three models—the Gender Employment Gap Index, the Long Term Growth Model, and capital-skill complementarities—point to large increases in gross domestic product per capita from closing gender employment gaps.

Assessing the Effects of Natural Resources on Long-Term Growth : An Extension of the World Bank Long Term Growth Model (with Loayza, Mendes and Mendez Ramos)

World Bank Policy Research Working Paper 9965 (March 2022) [link to working paper][Link to spreadsheets]

This paper extends the World Bank's Long-Term Growth Model (LTGM) with the addition of a natural resource sector to analyze how long-run growth evolves in resource-rich countries and the growth impacts of price shocks and resource discoveries. In the LTGM-Natural Resource Extension (LTGM-NR), commodity price shocks affect long-term economic growth through physical investment rates. As a large share of resource income typically accrues to the government, the size of the boost to investment in a price boom depends on the government’s fiscal rule. Fiscal rules that prioritize public investment, like a Hartwick Rule, generally lead to the largest increases in long-term growth. However, structural surplus rules, which save commodity revenues, can also boost growth if they free up savings for private investment. The response of growth to discoveries of natural resources is similar to the response to price shocks, although discoveries also produce a direct effect on real GDP, in addition to an indirect effect through investment. The LTGM¬-NR also captures the effect of other (non-resource) growth fundamentals in resource-rich economies, and it is better suited to general growth analysis in these countries than the standard LTGM. However, the LTGM-NR is a supply-side model, and so does not capture the short-run effects of price and discovery shocks that operate through aggregate demand.

A Gender Employment Gap Index (GEGI): A Simple Measure of the Economic Gains from Closing Gender Employment Gaps, with an Application to the Pacific Islands World Bank Policy Research Working Paper 9942 (February 2022) [link to working paper][link to dataset (GEGIs for each country)][blog]

Despite a policy consensus that closing gender employment gaps will boost economic growth, relatively little is known about the size of these gains in many developing countries. This paper develops a new Gender Employment Gap Index (GEGI), which is equal to the size of long-run GDP per capita gains from closing gender employment gaps. The GEGI is simple and transparent and can be easily constructed using closed-form expressions for almost all countries using macroeconomic employment rate data by gender. The basic variant of the GEGI is the gap between male and female employment as a share of total employment. The full GEGI is similar, but instead of using an aggregate employment gap, the full GEGI is the weighted average of a “better employment gap” and “other employment gap.” The basic and full GEGIs are similar (correlation of 0.97), and both average 19 percent across countries. This means that GDP per capita in the long run would be almost 20 percent higher if female employment were exogenously increased to be the same as men’s (other things being equal). The paper also provides an application for the Pacific Islands, for which a simple measure like the GEGI is particularly important given the lack of alternative estimates.

The Utilization-adjusted Human Capital Index (UHCI) World Bank Policy Research Working Paper 9375 (September 2020) [link to working paper][link to dataset]

The World Bank Human Capital Index (HCI) is based on the productivity gains of future workers from human capital accumulation. But in many developing countries, a sizable fraction of people are not employed, or are in jobs in which they cannot fully use their skills and cognitive abilities to increase their productivity. The Utilization-adjusted Human Capital Indices (UHCIs) adjust the HCI for labor-market underutilization of human capital, based on fraction of the working age population that are employed, or are in the types of jobs where they might be better able to use their skills and abilities to increase their productivity (“better employment”). The UHCIs generalize the growth-based interpretation of the HCI: the inverse of a country's UHCI score represents long-run GDP per capita with complete human capital and complete utilization, relative to that under the status quo. The UHCIs are designed to complement the HCI, and not to replace it: they have different purposes, and the challenges of measuring utilization mean that the UHCIs should be interpreted with caution for policy analysis. Both utilization measures are available for more than 160 countries, and are roughly U-shaped in per capita income, suggesting human capital is particularly underutilized in middle-income countries. Human capital is also underutilized for women: while the HCI is roughly equal across boys and girls, female UHCIs are typically lower than those for males, driven by lower employment rates.

The Human Capital Index 2020 Update : Human Capital in the Time of COVID-19 (with R. Gatti, P. Corral, N. Dehnen, R. Dsouza, J. Mejalenko) [Report link] (Sept 2020)

Malaysia's Economic Growth and Transition to High Income: An Application of the World Bank Long Term Growth Model (LTGM) (with S. Devadas, J. Guzman, Y. Kim, N Loayza) World Bank Policy Research Working Paper 9278 (June 2020) [link to working paper]

Macroeconomic Policy in the Time of COVID-19 : A Primer for Developing Countries (with Norman Loayza) Research and Policy Brief, 26 March 2020, [link]

Assessing the Effect of Public Capital on Growth: An Extension of the World Bank Long-Term Growth Model (with Sharmila Devadas)

World Bank Policy Research Working Paper 8604 (October 2018) [link to working paper] [online appendix]

Journal of Infrastructure, Policy and Development (2019) 3(1) (reprint) [link]

Long-term Growth Model (LTGM) Project (with Norman Loayza and team).

The LTGM is an Excel-based tool to analyze future long-term growth (and poverty) scenarios, building on the celebrated Solow-Swan Growth Model. Includes a number of extensions.

Spreadsheets, slides, papers, country applications and extensions available at: http://www.worldbank.org/LTGM

Other Working Papers

Consumption Smoothing and Shock Persistence: Optimal Simple Fiscal Rules for Commodity Exporters (with Arthur Mendes)

World Bank Policy Research Working Paper 8035 (April 2017) [link to working paper]

Fiscal Consolidations and Growth: Does Speed Matter? (joint with Esther Perez Ruiz), [link]

IMF Working Paper 13/230 (November 2013); Media: Businessweek

Private Business Investment in Australia (joint with Lynne Cockerell)

Reserve Bank of Australia Discussion Paper 2007-09

A long history of a short block: four centuries of development surprises on a single stretch of a New York City street (joint with William Easterly and Laura Freschi)

Latest version: June 2016 [link]; Interactive website [link]; Media: Wall St Journal, Financial Times, Marginal Revolution, Wired

How much long-run economic growth happens at the country level? (with Diego Anzoategui and William Easterly)

Latest version: November 2018 [link]

Blog posts, Talks, Notes and LTGM archive

One rule doesn’t fit all: Rethinking fiscal policy for commodity-exporting developing economies

Let's Talk Development Blog, 24 April 2025 [link] (with Arthur Mendes)

Policy Research Talk - Long-Term Growth in Developing Countries

Presentation Slides | Video | Event Website (December 14, 2021)

World Bank Feature Story on the Long Term Growth Model (LTGM) [link] (February 15, 2022)

Long Term Growth Model (LTGM) Training

World Bank MTI Forum, Washington DC, November 2019 [link to slides]

Spreadsheets on main LTGM website: www.worldbank.org/LTGM

How much would GDP per capita increase if gender employment gaps were closed in developing countries?

Let's Talk Development Blog, 4 March 2022 [link]

Historical lessons from China’s monetary policy during transition (1987–2006): Central bank reform and nominal anchor

All About Finance Blog, 4 January 2021 [link]

Historical lessons from China’s monetary policy during transition (1987–2006): Monetary policy transmission and the choice of instruments

All About Finance Blog, 11 January 2021 [link]

The Effect of Fiscal Policy on Growth in the Short and Long Run

XXVIII Cycle of Economic Lectures, Banco de Guatemala, June 2019 [link to slides]

Notes on Approaches to Growth Accounting , 28 January 2017 [link]

LTGM Spreadsheet Archive (for training purposes): LTGM v5.61 (April2025), LTGM-PC v5.61 (April 2025), LTGM-HC v0.6 beta (April 2025)

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