nep-lam New Economics Papers
on Central and South America
Issue of 2005‒04‒24
eight papers chosen by
Maximo Rossi
Universidad de la República

  1. Fluctuaciones del Dólar, Precio del Cobre y Términos de Intercambio By José De Gregorio; Hermann González; Felipe Jaque
  2. Concentration and Price Rigidity: Evidence for the Deposit Market in Chile By Solange Berstein; Rodrigo Fuentes
  3. Credibility and Inflation Targeting in an Emerging Market: The Case of Chile By Luis F. Céspedes; Claudio Soto
  4. Cuanto Explican las Reformas y la Calidad de las Instituciones el Crecimiento Chileno? Una Comparación Internacional By César Calderón; Rodrigo Fuentes
  5. Concessions of Infrastructure in Latin America: Government-led Renegotiation By J. Luis Guasch; Jean-Jacques Laffont; Stephane Straub
  6. Should Latin America Fear China? By Eduardo A. Lora
  7. The Electoral Consequences of the Washington Consensus By Eduardo A. Lora; Mauricio Olivera
  8. Why So Small? Explaining the Size of Firms in Latin America By Eduardo A. Lora; Ana Maria Herrera

  1. By: José De Gregorio; Hermann González; Felipe Jaque
    Abstract: This paper examines the determinants of the copper price and the Chilean terms of trade, with special focus on the industrialized economies' real exchange rates. It also estimates the effects of world economic activity on the copper price and terms of trade. Empirical results show that, in the long run, a 10% real depreciation of the US dollar yields an 18% increase in the real copper price and a 12% increase in the terms of trade. Moreover, a 1% increase in world economic growth, generates increases of 0.14% in the real copper price and 0.24% in the terms of trade.
    Date: 2005–02
  2. By: Solange Berstein; Rodrigo Fuentes
    Abstract: The effects of monetary policy depend significantly on the capacity of the Central Bank to affect market interest rates by managing liquidity. Therefore, it comes out as an important issue to determine the degree of flexibility of lending and deposit rates to changes in policy rates. In this sense, there is a vast literature that explores sluggishness on bank interest rates. In terms of deposit interest rates a larger rigidity has been associated to higher levels of concentration on the banking industry. Besides, the market discipline hypothesis would imply differences on the response of banks’ deposit rates according to their characteristics. This paper analyzes deposit interest rate sluggishness for the Chilean banking industry and its relation with market concentration and bank characteristics. The results support the fact that higher concentration imply more rigidity and that bank characteristics such as solvency, size and loan risk would also make a difference in the speed of adjustment.
    Date: 2005–03
  3. By: Luis F. Céspedes; Claudio Soto
    Abstract: When the monetary authority lacks credibility it faces a larger trade-off between output and inflation. This poses important challenges for the implementation and design of an inflation targeting regime and an inflation stabilization process. In this paper we show how these challenges have determined different implementation phases of an inflation targeting regime in Chile, and how imperfect credibility is consistent with the different features of the disinflationary process followed by Chile during the 90s.
    Date: 2005–04
  4. By: César Calderón; Rodrigo Fuentes
    Abstract: The main goal of the present paper is to evaluate the sources of growth in Chile and the world over the last decades, but stressing the role of complementarities in economic policies. Hence, we evaluate the growth determinants for a sample of 28 countries with information over the 1970-2000 period. In contrast to Gallego and Loayza (2002), we test directly the existence of complementarities between trade and financial liberalization policies with: a) the initial conditions of the economy, b) human capital policies, and c) the level of institutions.
    Date: 2005–04
  5. By: J. Luis Guasch; Jean-Jacques Laffont; Stephane Straub
    Abstract: This paper completes Guasch, Laffont and Straub (2003), extending the analysis to the case of government-led renegotiations. We first extend the theoretical framework to a multiple-period context in which both Pareto improving and rent shifting renegotiations at the initiative of the government can occur. We then perform an empirical analysis based on the same sample of 307 water and transport projects in 5 Latin American countries between 1989 and 2000. While some of the main insights, for example concerning the importance of having a regulator in place when awarding concessions and the fragility of price cap regulatory schemes, are unchanged, there are also significant differences, in particular with respect to the effect of investment and financing, as well as the corruption variables. We also provide additional evidence showing that a good regulatory framework is especially important in contexts with weak governance and political opportunism.
  6. By: Eduardo A. Lora (Research Department, Inter-American Development Bank)
    Abstract: This paper compares growth conditions in China and Latin America to assess fears that China will displace Latin America in the coming decades. China’s strengths include the size of the economy, macroeconomic stability, abundant low-cost labor, the rapid expansion of physical infrastructure, and the ability to innovate. China’s weaknesses, stemming from insufficient separation between market and State, include poor corporate governance, a fragile financial system and misallocation of savings. Both regions share important weaknesses: the rule of law is weak, corruption endemic and education is poor and very poorly distributed
    Keywords: China, Latin America, economic growth, investment climate
    JEL: E66 O57 P52
    Date: 2004–10
  7. By: Eduardo A. Lora (Research Department, Inter-American Development Bank); Mauricio Olivera (Research Department, Inter-American Development Bank)
    Abstract: This paper assesses how electoral outcomes both in presidential and legislative elections in Latin America have been affected by the adoption of economic policies aimed at improving macroeconomic stability and easing the functioning of markets. The database includes 17 Latin American countries for the period 1985-2002, and a total of 66 presidential elections and 81 legislative elections. The set of testable hypotheses are derived from a literature review, and structured around the hypothesis of economic voting. It is found that (i) the incumbent's party is rewarded in presidential elections for reductions in the rate of inflation and in legislative elections for increases in the rate of growth; (ii) the more fragmented or the more ideologically polarized the party system, the higher the electoral pay-off of reductions of the inflation rate or increases in the rate of economic growth; (iii) the electorate cares not only for the economic outcomes but also for some of the policies: while the electorate seems to be blind to macroeconomic policies such as fiscal or exchange rate policies, it is adverse to pro-market policies, irrespective of their effects on growth or inflation; and (iv) the electorate is more tolerant to pro-market reforms when the incumbent's party has a more market-oriented ideology. These results suggest that reforming parties have paid a hefty price for the adoption of pro-market reforms, except when adopted in conjunction with stabilization policies in high-inflation economies.
    Keywords: Latin America, Washington Consensus, structural reforms, presidential elections, legislative elections, economic voting
    JEL: D72 D81
    Date: 2004–10
  8. By: Eduardo A. Lora (Research Department, Inter-American Development Bank); Ana Maria Herrera (Michigan State University - Department of Economics)
    Abstract: On average, Latin American firms are small with respect to world patterns, both in terms of the quantity of assets they control and the amount of employment they generate. We examine data on firm size from developed and developing countries around the world to assess the influence on demand, supply and institutional factors on the size of the largest firms in each country. We find that, besides the size of the economy and the level of income per capita, the key determinants of the size of firms are trade openness, stock market capitalization and physical infrastructure. Our simulations suggest that if the gaps with respect to the best Latin American performer were closed in each of these three areas, firm size in the countries of the region would - on average - reach world patterns.
    Keywords: firm size, Latin America, openness, financial sector, infrastructure
    JEL: D23 G30 K40 L20
    Date: 2005–03

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