nep-dev New Economics Papers
on Development
Issue of 2021‒06‒21
nineteen papers chosen by
Jacob A. Jordaan
Universiteit Utrecht

  1. Aid and institutions: Local effects of World Bank aid on perceived Institutional quality in Africa By Isaksson, Ann-Sofie; Durevall, Dick
  2. Cash versus Kind: Benchmarking a Child Nutrition Program against Unconditional Cash Transfers in Rwanda By Craig McIntosh; Andrew Zeitlin
  3. Poverty traps and affluence shields: modelling the persistence of income position in Chile By Prieto Suarez, Joaquin
  4. Back from Israel: The Causal Impacts of Training in Modern Farms on Smallholder Cultivation in Nepal By Ram Fishman; Michal Eliezer; Maya Oren
  5. Income shocks, bride price and child marriage in Turkey By Isabelle Chort; Rozenn Hotte; Karine Marazyan
  6. Does India use development finance to compete with China? A subnational analysis By Asmus, Gerda; Eichenauer, Vera; Fuchs, Andreas; Parks, Bradley
  7. The scars of the Eelam War: Eroded trust, heightened ethnic identity, and political legacies in north-eastern Sri Lanka By Jia LI; Takahiro ITO; Ramila USOOF-THOWFEEK; Koji YAMAZAKI
  8. Health expenditures, remittances, and climate vulnerability: Evidence from Bangladesh By Gazi M Hassan
  9. Universal Basic Income Programs: How Much Would Taxes Need to Rise? Evidence for Brazil, Chile, India, Russia, and South Africa By Ali Enami; Ugo Gentilini; Patricio Larroulet; Nora Lustig; Emma Monsalve; Siyu Quan; Jamele Rigolini
  10. Sectoral Wage Gaps and Gender in Rural India By Merfeld, Joshua D.
  11. The Power of Markets: Impact of Desert Locust Invasions on Child Health By Bruno Conte; Lavinia Piemontese; Augustin Tapsola
  12. Powering structural transformation and productivity gains in Africa: The role of global value chains and resource endowments By Owusu, Solomon
  13. Returns to Grid Electricity on Firewood Consumption and Mechanism By Ngawang Dendup
  14. The impact of temperature on productivity and labor supply: Evidence from Indian manufacturing By Somanathan, E.; Somanathan, Rohini; Sudarshan, Anant; Tewari, Meenu
  15. Input use and output price risks: the case of maize in Burkina Faso By Tristan Le Cotty; Elodie Maître d'Hôtel; Moctar Ndiaye; Sophie Thoyer
  16. Unfolding Trade Effect in Two Margins of Informality. The Peruvian Case By Camila Cisneros-Acevedo
  17. 40 Years of Dutch Disease Literature: Lessons for Developing Countries By Edouard Mien; M Goujon
  18. Assessing Brazilian agri-food policies: what impact on family farms? By Valdemar J. Wesz Junior; Simone Piras; Catia Grisa; Stefano Ghinoi
  19. How does market competition affect firm innovation incentives in emerging countries? Evidence from Latin American firms. By Benavente, Jose Miguel; Zuniga, Pluvia

  1. By: Isaksson, Ann-Sofie (Department of Economics, School of Business, Economics and Law, Göteborg University); Durevall, Dick (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Motivated by the lack of sub-national empirical evidence on the relationship between aid and institutional development, this study explores the local effects of World Bank aid on perceived institutional quality in African aid receiving countries. We combine geo-referenced data on the subnational allocation of World Bank aid projects to Africa over the 1995-2014 period with geo-coded survey data for 73,640 respondents across 12 Sub-Saharan African countries. To account for the endogenous placement of World Bank project sites, we compare the estimated effect of living near a site where a World Bank project was under implementation or completed at the time of the interview, to that of living near a site where we know that a World Bank project appeared after the survey date. The empirical results suggest a positive impact of World Bank aid on perceived institutional quality, as measured by citizens’ expressed willingness to abide by key formal institutions. This applies even if we consider overall World Bank aid, i.e. not just projects specifically targeted at institutional development. As may be expected, however, the estimated effects are more pronounced when restricting our attention to projects focusing on institution building. Notably, the observed effects concern finalized projects, not projects still under implementation, highlighting that institutional change is a slow process.
    Keywords: Aid; Institutions; Africa
    JEL: F35 O17 O19 O55
    Date: 2021–06
  2. By: Craig McIntosh; Andrew Zeitlin
    Abstract: We benchmark a multi-dimensional child nutrition intervention against an unconditional cash transfer of equal cost. Randomized variation in transfer amounts allows us to estimate impacts of cash transfers at expenditure levels equivalent to the in-kind program, as well as to estimate the return to increasing cash transfer values. While neither the in-kind program nor a cost-equivalent transfer costing \$124 per household moves core child outcomes within a year, cash transfers create significantly greater consumption than the in-kind alternative. A larger cash transfer costing \$517 substantially improves consumption and investment outcomes and drives modest improvements in dietary diversity and child growth.
    Date: 2021–06
  3. By: Prieto Suarez, Joaquin
    Abstract: I propose analysing the dynamics of income positions using dynamic panel ordered probit models. I disentangle, simultaneously, the roles of state dependence and heterogeneity (observed and non-observed) in explaining income position persistence, such as poverty persistence and affluence persistence. I apply my approach to Chile exploiting longitudinal data from the P-CASEN 2006–2009. First, I find that income position mobility at the bottom and the top of the income distribution is much higher than the expected, showing signs of high economic insecurity. Second, the observable individual characteristics have a much stronger impact than true state dependence to explain individuals’ current income position in the income distribution extremes.
    Keywords: longitudinal data; poverty persistence; affluence persistence; income mobility; Chile; Latin America
    JEL: D31 D63 I32
    Date: 2021–05
  4. By: Ram Fishman (Tel Aviv University); Michal Eliezer (Tel Aviv University); Maya Oren (Tel Aviv University)
    Abstract: What are the effects of agricultural knowledge transfer on smallholder farmers? Experimental or quasi-experimental evaluations of agricultural extensions programs remain scant. Moreover, such programs are known to suffer from deep implementation flaws, making it difficult to assess whether low impacts are observed because of poor implementation or because knowledge is not in fact the binding constraint to adoption of improved practices. We utilize a unique natural experiment, in which Nepali smallholder farmers are selected by lottery to take part in an agricultural training and employment in Israel. The program is entirely commercially based, and immerses participants in modern Israeli farms for a year, where they receive classroom instructions about modern farming and employed by commercial farmers. Upon their return to Nepal, program participants are more likely to engage in agriculture for their income, operate an agricultural business and to invest in their farms. Their expenditures on inputs and market access, as well as their agricultural revenues, are substantially higher. However, we see limited evidence for dramatic shifts to modern farming methods. These results are in line with self-reported learnings from the program which are highlight managerial skills.
    Keywords: Agriculture; Extension; Technology Adoption; Skills
    JEL: O13 O14
    Date: 2021–05
  5. By: Isabelle Chort (TREE - Transitions Energétiques et Environnementales - UPPA - Université de Pau et des Pays de l'Adour - CNRS - Centre National de la Recherche Scientifique, IUF - Institut Universitaire de France - M.E.N.E.S.R. - Ministère de l'Education nationale, de l’Enseignement supérieur et de la Recherche, IZA - Forschungsinstitut zur Zukunft der Arbeit - Institute of Labor Economics); Rozenn Hotte; Karine Marazyan
    Abstract: This paper investigates the impact of income shocks and bride price on early marriage in Turkey. Weather shocks provide an exogenous source of variation of household income through agricultural production. A decrease in rainfall observed over the 9 months period corresponding to the growing season is found to negatively affect both agricultural production and returns for the majority of crops and vegetables. Data on weather shocks are merged with individual and household level data from the Turkish Demographic and Health Surveys 1998 to 2013. The practice of bride-price, still vivid in many regions of the country, may provide incentives for parents to marry their daughter earlier, when faced with a negative income shock. In addition, marriages precipitated by negative income shocks may present specific features (endogamy, age and education difference between spouses). To study the role of payments to the bride's parents, we interact our measure of shocks with a province-level indicator of a high prevalence of bride-price. We find that girls living in provinces with a high practice of bride-price and exposed to a negative income shocks when aged 12-14 (resp. 12-17) have a 28% (resp. 20%) higher probability to be married before the age of 15 (resp. 18). Such women are also more likely to give birth to their first child before 18 and for those who married religiously first, the civil ceremony is delayed by 2 months on average. Our results suggest that girl marriage still participates to household strategies aimed at mitigating negative income shocks in contemporary Turkey.
    Keywords: Child marriage,Income shocks,Bride price,Weather shocks,Turkey
    Date: 2021–06–11
  6. By: Asmus, Gerda; Eichenauer, Vera; Fuchs, Andreas; Parks, Bradley
    Abstract: China and India increasingly provide aid and credit to developing countries. This paper explores whether India uses these financial instruments to compete for geopolitical and commercial influence with China (and vice versa). To do so, we build a new geocoded dataset of Indian government-financed projects abroad between 2007 and 2014 and combine it with data on Chinese government-financed projects. Our regression results for 2,333 provinces within 123 countries demonstrate that India's Exim Bank is significantly more likely to locate a project in a given jurisdiction if China provided government financing there in the previous year. Since this effect is more pronounced in countries where China has made public opinion gains relative to India and where both lenders have a similar export structure, we interpret this as evidence of India competing with China. By contrast, we do not find evidence that China uses official aid or credit to compete with India through co-located projects.
    Keywords: development finance,foreign aid,social development assistance,official credits,new donors,China,India,geospatial analysis
    JEL: F34 F35 F59 H77 H81 O19 O22 P33 R58
    Date: 2021
  7. By: Jia LI (Lecturer, Business School, Nanjing University of Information Science and Technology); Takahiro ITO (Graduate School of International Cooperation Studies, Kobe University); Ramila USOOF-THOWFEEK (Senior Lecturer, Department of Psychology, Faculty of Arts, University of Peradeniya); Koji YAMAZAKI (Graduate School of International Cooperation Studies, Kobe University)
    Abstract: This study explores the influence of the protracted 1983-2009 Sri Lankan civilconflict on social and political outcomes using original household survey data. Our regression analysis compares outcome variables of survey respondents who suffered from different degrees and types of war victimization during the civil conflict. By differentiating individual- and household-level war exposure, voluntary and involuntary military service experience, and family loss of soldiers and civilians, we evaluate the influence of a wide array of war-time experience on outcomes, like trust, ethnic identification, and political participation. We find that civil conflict undermined political trust, heightened inter- as well as intra-ethnic divisions, and left different political legacies among the Sinhalese and Tamils in Sri Lanka. Future policy interventions may need to target different groups of people in different ways based on their victimization and experience during the conflict.
    Keywords: civil conflict, trust, political participation, ethnic identification, Sri Lanka
    Date: 2021–03
  8. By: Gazi M Hassan
    Abstract: Remittances’ effect on a household’s health outcome (e.g. Infant mortality) is ambiguous, but the impact on health expenditure is positive and less equivocal in literature. This paper puts the relationship between health expenditure and remittances into a stress test to see whether it survives the adverse impact of climate change. Using a natural experiment of rainfall-driven remittances, I provide an experimental measure for remittances’ effect on the health expenditure among rural households in southern Bangladesh. Health expenditure and remittances are jointly related; therefore, I use the instrumental variable approach. The treatment of remittances is randomly assigned to households who suffered losses due to a natural shock from the cyclone-Roanu enabling the instrument, exogenous variation in rainfall interacted with cyclone affected migrant household’s distance to the local weather stations, to identify the average treatment effect for the treatment group (cyclone-affected remittances recipient households). I find that while remittances cause household health expenditures to increase, the marginal effect of remittances is heterogeneous and negative conditional on the household’s exposure to the level of vulnerability proxied by the household’s distance to cyclone shelter. In other words, the health expenditure-remittances nexus gets weaker with the adverse effect of climate change. Specifically, I find that an increase in remittances by a Taka increases health expenditure by 0.24 Taka (24 Paisa) in the absence of any climate hazard but reduces health expenditure by 0.10 Taka (or 10 Paisa) if the measure of climate vulnerability increases by one standard deviation from its mean value. For countries like Bangladesh, which is exceptionally vulnerable to natural hazards, climate vulnerabilities can render the financing of health care costs through remittances unsustainable even if households receive regular and sizable flows.
    Keywords: Health expenditure, remittances, climate vulnerability, climate change, endogeneity, natural experiment
    JEL: I1 I19 F24
    Date: 2021–06
  9. By: Ali Enami (University of Akron); Ugo Gentilini (World Bank); Patricio Larroulet (Tulane University); Nora Lustig (Tulane University); Emma Monsalve (World Bank); Siyu Quan (Tulane University); Jamele Rigolini (World Bank)
    Abstract: Using microsimulations this paper analyzes the poverty and tax implications of replacing current transfers and subsidies by a budget-neutral (no change in the fiscal deficit) universal basic income program (UBI) in Brazil, Chile, India, Russia, and South Africa. We consider three UBI transfers with increasing levels of generosity and identify scenarios in which the poor are no worse off than in the baseline scenario of existing social transfers. We find that for poverty levels not to increase under a UBI reform, the level of spending must increase substantially with respect to the baseline. Accordingly, the required increase in tax burdens is high throughout. In our five countries and scenarios, the least increase in taxes required to avoid poverty to be higher than in the baseline is around 25% (Brazil and Chile). Even at this lower rate, political resistance and efficiency costscould limit the feasibility of a UBI reform.
    Keywords: Universal basic income, microsimulation, inequality, poverty, tax incidence
    JEL: H22 H31 H55 I32 D63
    Date: 2021–06
  10. By: Merfeld, Joshua D. (KDI School of Public Policy and Management)
    Abstract: Using detailed monthly panel data from rural India, this paper analyzes sectoral wage gaps for men and women. I document three important findings. First, there is clear evidence of sorting into sectors, with very large differences in worker human capital across the farm and non-farm sectors and much higher wages in the latter. Second, while these wage gaps are substantial in the cross-section, the wage gap within individuals is decidedly smaller, consistent with worker sorting. Third, the wage gap for women is much larger than it is for men, with the latter exhibiting almost no within-individual gap in wages across sectors. Women work fewer hours and are less likely to work outside of their own village in the non-farm sector, yet the wage gap is driven by higher-caste and married women. I find no evidence of non-pecuniary benefits of agricultural employment relative to non-farm employment being responsible for this gap. These results are consistent with a lack of local non-farm employment opportunities interacting with barriers to labor mobility for women but not men.
    Keywords: agriculture, gender, labor, non-farm, wages
    JEL: J31 J43 Q12
    Date: 2021–05
  11. By: Bruno Conte; Lavinia Piemontese; Augustin Tapsola
    Abstract: This paper investigates the consequences of a locust plague that occurred in Mali in 2004. We argue that in agricultural economies with a single harvest per year, this type of shock can affect households through two channels: first, a speculative/anticipatory effect that kicks in during the growing season, followed by a local crop failure effect after harvest. We show that, in terms of health setbacks, children exposed in utero only to the former suffered as much as those exposed to the latter. We also document a substantial impact of the plague on crop price inflation before the harvest, as well as a stronger crop failure effect for children born in isolated areas.
    Keywords: desert locust swarms, agricultural shocks, local markets, child health
    JEL: O12 I15 Q12 Q18
    Date: 2021
  12. By: Owusu, Solomon (UNU-MERIT, Maastricht University)
    Abstract: Sixty years ago, many countries in Africa implemented various industrial policies to promote structural transformation and industrialization, all aimed at generating productivity gains. Today, the consensus seems to be that the region has since recorded moderate productivity gains and industrialization remains elusive. Participation in global value chains (GVC) has recently been highlighted as a pathway to fast-track development in terms of productivity gains and structural change in the region. This paper builds on these arguments and investigates how participation in GVC affects aggregate labour productivity growth and its two sub-components: within and structural change. It further examines how this relationship differs with the extent of country’s natural resource endowments. The results show that participation in GVCs has a significant positive effect on productivity growth in Africa. This gain is largely through backward participation and is stronger for countries that are further from the productivity frontier. The analysis using the sub-components of productivity growth also shows that GVC participation has a positive and significant effect on productivity growth by inducing an efficient reallocation of resources within sectors (intra-sector reallocation) but not across sectors (inter-sector reallocation). Moreover, these benefits arise mostly in non-resource intensive and non-oil resource intensive countries. Overall, the results indicate that GVC participation matters for productivity growth in Africa but highlights differences in the channel of impact across countries with different natural resource endowments.
    Keywords: Global value chains, structural change, productivity, resource endowment, Africa
    JEL: C67 F15 O11 O13 O14 O47 O55
    Date: 2021–05–17
  13. By: Ngawang Dendup (Waseda University)
    Abstract: The unprecedented stock of greenhouse gases in the atmosphere is changing the traditional role of the forest into that of a carbon sink. However, dependence on firewood for household energy is ubiquitous in developing countries, undermining the carbon services that forests provide. One of the options to address this problem is to provide access to alternatives such as electricity. This study examines the effect of grid electricity on firewood consumption by using an instrumental variable (IV) estimation strategy, and it evaluates the mechanisms underlying the causal effect. I use three waves of large sample household surveys from Bhutan and other administrative data to complement the main results. The results show that grid electricity reduces firewood consumption by approximately 0.37 - 2.65 cubic meters per month and that electrified households are approximately 83 - 90% more likely to use electricity instead of kerosene as lighting fuel. Households respond to electricity provisions by adjusting household technology, particularly in terms of shifting to the newly available source of household fuel and adopting basic electrical appliances.
    Keywords: electricity, firewood, household technology, instrumental variables, electrical appliances
    JEL: O12 Q5
    Date: 2021–05
  14. By: Somanathan, E.; Somanathan, Rohini; Sudarshan, Anant; Tewari, Meenu
    Abstract: Hotter years are associated with lower economic output in developing countries. We show that the effect of temperature on labor is an important part of the explanation. Using microdata from selected firms in India, we estimate reduced worker productivity and increased absenteeism on hot days. Climate control significantly mitigates productivity losses. In a national panel of Indian factories, annual plant output falls by about 2% per degree Celsius. This response appears to be driven by a reduction in the output elasticity of labor. Our estimates are large enough to explain previously observed output losses in cross-country panels.
    Keywords: Temperature,warming,labor productivity,labor supply
    JEL: Q54 Q56 J22 J24
    Date: 2021
  15. By: Tristan Le Cotty (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École des Ponts ParisTech - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique, Cirad-ES - Département Environnements et Sociétés - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement); Elodie Maître d'Hôtel (UMR MoISA - Montpellier Interdisciplinary center on Sustainable Agri-food systems (Social and nutritional sciences) - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - IRD - Institut de Recherche pour le Développement - CIHEAM-IAMM - Centre International de Hautes Etudes Agronomiques Méditerranéennes - Institut Agronomique Méditerranéen de Montpellier - CIHEAM - Centre International de Hautes Études Agronomiques Méditerranéennes - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, Cirad-ES - Département Environnements et Sociétés - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement); Moctar Ndiaye (UG - Université de Guyane); Sophie Thoyer (CEE-M - Centre d'Economie de l'Environnement - Montpellier - UMR 5211 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: We investigate whether the fluctuations of agricultural output prices may explain the low level of input use in Sub-Saharan Africa. We combine data on local maize prices and data on farmers' fertilizer use over the 2009-2011 period in Burkina-Faso to estimate a panel-tobit model of fertilizer use. We separate the predictable and unpredictable components of maize price fluctuations and find that fertilizer use decreases when maize price fluctuations increase, and more specifically when unpredictable price fluctuations increase.
    Abstract: Nous analysons si les fluctuations des prix des produits agricoles peuvent expliquer le faible niveau d'utilisation des intrants en Afrique Sub Saharienne. Nous combinons des données sur les prix locaux du maïs et des données sur l'utilisation des engrais chimiques sur la période 2009-2011 au Burkina-Faso pour estimer un modèle tobit en panel d'utilisation d'intrants. Nous distinguons les composants prévisibles et imprévisibles des fluctuations des prix du mais et établissons que l'utilisation d'intrants diminue quand les fluctuations des prix du maïs augmentent, et que cet effet est lié à la composante imprévisible des fluctuations des prix.
    Keywords: fertilizer use,price risk,maize,intensification,Sub-Saharan Africa,utilisation d’intrants,risques de prix,maïs,Afrique Sub Saharienne
    Date: 2021–06–07
  16. By: Camila Cisneros-Acevedo
    Abstract: This paper studies the effect of an increase in import competition on informality along two margins. I consider the extensive margin, where workers are hired by unregistered employers and the intensive margin, where even though jobs are carried out in registered firms, employees are off the books. Peru's relentless informal employment and its unprecedented trade-driven growth provides an ideal case study. Using a rich household survey, I find that exposure to trade impacts on informality through two competing and contrasting mechanisms. On the one hand, extensive-informal employment declines as unregistered employers shrink or exit due to their low productivity. On the other hand, intensive-informal employment rises as registered employers reduce costs by hiring informal workers. Furthermore, results suggest that the intensive margin drives the overall effect. Hence, I find that trade liberalisation increases informality.
    Keywords: trade liberalization, labour informality, Peru
    JEL: F16 F14 J46
    Date: 2021
  17. By: Edouard Mien (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne); M Goujon (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne)
    Abstract: This paper surveys the literature on the "Dutch disease" caused by natural resources revenues in developing countries. It describes the original model of Dutch disease and some important extensions proposed in the theoretical literature, focusing on the ones that meet the developing countries' conditions. It then reviews the main empirical studies that have been conducted since the 1980s, aiming to understand the methodological issues and to highlight the current gaps in the literature. There is evidence that the Dutch disease is still a topical issue for many developing countries, particularly in Africa. However, there remains large gaps in the theoretical and empirical literature in the understanding of the most adequate policy instruments to cope with, specifically in the least developed countries that are new producers of commodities.
    Keywords: Dutch disease,Natural resources,Resource curse,Structural transformations,Real exchange rate
    Date: 2021–06
  18. By: Valdemar J. Wesz Junior; Simone Piras; Catia Grisa; Stefano Ghinoi
    Abstract: Since the beginning of the 1990s, Brazil has introduced different policies for increasing agricultural production among family farms, such as the National Program for Strengthening Family Farming (Pronaf), the technical assistance and rural extension programmes (ATER), and seeds distribution. Despite the importance of these policies for the development of family farming, there is a lack of empirical studies investigating their impact on commercialization of food products. By considering household-level data from the 2014 Brazilian National Household Sample Survey, we use propensity score matching techniques accounting for the interaction effects between policies to compare the commercialisation behaviour of recipients with non recipients. We find that Pronaf has a significant positive impact on family farmers propensity to engage in commercialisation, and this effect increases if farmers have also access to ATER. Receiving technical assistance alone has a positive effect, but this is mostly limited to smaller farms. In turn, seed distribution appears not to increase commercialization significantly. A well balanced policy mix could ensure that, in a country subject to the pressure of international food markets, increased commercialisation does not result in reduced food security for rural dwellers.
    Date: 2021–05
  19. By: Benavente, Jose Miguel (Inter-American Development Bank (IADB)); Zuniga, Pluvia (UNU-MERIT)
    Abstract: The role of market competition on firm innovation remains a controversial policy question, especially in the context of developing countries. This paper presents new empirical evidence about the impact of market competition on firm innovation engagement in Colombian and Chilean manufacturing industries. We correct for the endogeneity of market competition using instruments proxying entry costs and policy interventions (i.e. competition decisions and entry law reforms), our results are like those of developed countries. Market competition increases firm propensity to invest in innovation in manufacturing enterprises and this relationship is linear in Chilean while in Colombian industries it takes the form of an inversed-U shape relation. The impact of competition is decreasing with the level of sector asymmetry -as preconised in the literature, while the impact of firm distance to the frontier affects firm innovation engagement differently in the two countries. In Chile, competition raises innovation incentives for the third and fourth productivity quartiles while no impact is found for firms in the first (bottom) two quartiles. In contrast, in Colombia market competition raises innovation engagement across regardless their firm productivity position but effects are stronger in the medium range (second and third quartiles). Our main results are robust to controlling for past innovation engagement, import competition and business dynamics.
    Keywords: Market Competition, Innovation, Technology Purchasing, Productivity, Latin American Firms
    JEL: O32 D41 O47 D24
    Date: 2021–05–19

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