New Economics Papers
on Central and South America
Issue of 2006‒03‒25
six papers chosen by

  1. Wage Indexation, Inflation Inertia, and the Cost of Disinflation - New version By Javier Gómez
  2. Geographic space, assets, livelihoods and well-being in rural Central America By Alwang, Jeffrey; Jansen, Hans G.P.; Siegel, Paul B.; Pichon, Francisco
  3. The rise and fall of Brazilian inequality, 1981-2004 By Litchfield, Julie A.; Leite, Phillippe G.; Ferreira, Francisco H. G.
  4. Endogenous skill formation in developing countries By Rossana Patrón
  5. Public education and growth: cost-effectiveness of educational policies in developing countries By Rossana Patrón
  6. Understanding reform in Latin America By Alvaro Forteza; Mario Tommasi

  1. By: Javier Gómez
    Abstract: A Statement of the Colombian Consitutional Court has mandated wage indexation on the basis of past inflation. A simple model with a wage price system, a real block, and an inflation targeting interest rule is calibrated to resemble price setting in the colombian economy and to analize the differing slope of the output inflation trade off for diferent specifications of wage indexation. The disinflation experiments show that backward looking indexation increases inflation inertia, decreases the effect of monetary policy, and increases the cost of disinflation. Shorter wage contracts and more frequent wage negotiations do not appear to have important effects on the cost of disinflation. Higher central bank credibility and the use of forward looking inflation expectations in wage negotiations decrease the cost of disinflation and may eventually lead to a boom.
    JEL: E1 E17 E52 E27 J30
  2. By: Alwang, Jeffrey; Jansen, Hans G.P.; Siegel, Paul B.; Pichon, Francisco
    Abstract: "This paper uses an asset-base framework to analyze the determinants of rural growth and sustainable poverty reduction for the three poorest countries in Central America: Guatemala, Honduras and Nicaragua...Using a combination of GIS mapping techniques, quantitative household analysis, and qualitative analyses of assets and livelihoods, the authors generate a description of rural territories that recognizes the differential effects of policies and asset bundles across space and households. They identify the combinations of human, natural and physical, social and location-specific assets that matter most to raise household well-being and take advantage of prospects for poverty-reducing growth." from Authors' Abstract
    Keywords: Poverty reduction ,rural livelihoods ,Households Economic aspects ,
    Date: 2005
  3. By: Litchfield, Julie A.; Leite, Phillippe G.; Ferreira, Francisco H. G.
    Abstract: Measured by the Gini coefficient, income inequality in Brazil rose from 0.57 in 1981 to 0.63 in 1989, before falling back to 0.56 in 2004. This latest figure would lower Brazil ' s world inequality rank from 2nd (in 1989) to 10th (in 2004). Poverty incidence also followed an inverted U-curve over the past quarter century, rising from 0.30 in 1981 to 0.33 in 1993, before falling to 0.22 in 2004. Using standard decomposition techniques, this paper presents a preliminary investigation of the determinants of Brazil ' s distributional reversal over this period. The rise in inequality in the 1980s appears to have been driven by increases in the educational attainment of the population in a context of convex returns, and by high and accelerating inflation. While the secular decline in inequality, which began in 1993, is associated with declining inflation, it also appears to have been driven by four structural and policy changes which have so far not attracted sufficient attention in the literature, namely sharp declines in the returns to education; pronounced rural-urban convergence; increases in social assistance transfers targeted to the poor; and a possible decline in racial inequality. Although poverty dynamics since the Real Plan of 1994 have been driven primarily by economic growth, the decline in inequality has also made a substantial contribution to poverty reduction.
    Keywords: Inequality,Services & Transfers to Poor,Poverty Impact Evaluation,Rural Poverty Reduction,Pro-Poor Growth and Inequality
    Date: 2006–03–01
  4. By: Rossana Patrón (Departmento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: The paper provides a flexible framework to deal with educational provision and public policies in developing countries, linking the impact of quality-quantity-equity of educational policies on labour markets and the external sector. The model includes typical aspects of developing countries that require some further deviations from the structure of a 'standard' single country model as the inclusion of informal activities, which are usually dominated by the poorest qualified workers. Simulation exercises allows us to argue that more sophisticated educational policies ("multiple targets") may increase the efficiency of the government expenditure in education in terms of the quantity-quality of the output (skills) delivered to the labour market. The potential of education and educational policies to produce allocative, growth and distributive effects is also shown in the simulation exercises.
    Keywords: public education, educational policies, developing countries
    JEL: I F
    Date: 2005–05
  5. By: Rossana Patrón (Departmento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: The paper analyses the short and long term effects of education activities for an open economy, linking current costs to future benefits of alternative educational policies. The simulations find that growth effects are higher for those policies that reduce the internal inefficiency of the education sector thus improving the productivity of public expenditure. The analysis has implications for policymakers in developing countries like Uruguay with failing educational systems, as it suggests a relation between cost effectiveness of policies and growth and not a relation between enrolments and growth or between public expenditure in education and growth as it is usually tested in growth regressions.
    Keywords: public education, growth, developing countries
    JEL: I F O
    Date: 2005–10
  6. By: Alvaro Forteza (Departmento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Mario Tommasi (Departamento de Economía, Universidad de San Andrés, Argentina.)
    Abstract: This paper provides an overview of the pro-market reform process in eight Latin American countries, based on country studies undertaken within the Understanding Reform project of the Global Development Network. After a brief presentation of the reform in Latin America and in the eight countries in the project, the paper addresses some key themes on the political economy of reform. We review the initial conditions of reform; the role played by technocrats and stakeholders; political participation; the peculiar shortcut to reform represented by "policy switches" (announcing something to do the opposite); some traditional topics in the literature on reform like sequencing, shocks and learning; the apparently key role played by local characteristics; the complex feedbacks between pro-market reforms and the political process; and the recent backlash against reform in Latin America. The paper ends with some remarks mostly on normative lessons from this experience.
    Keywords: Reform, Washington Consensus, Political Economy
    JEL: O54 O57 P16
    Date: 2005–12

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