nep-lam New Economics Papers
on Central and South America
Issue of 2009‒03‒14
four papers chosen by
Maximo Rossi
University of the Republic

  1. Institutions, Geography, and Terms of Trade in Latin America: A Longitudinal Econometric Analysis By Nathan Perry; Carlos Schönerwald
  2. Effective Schools for Low Income Children: a Study of Chile’s Sociedad de Instrucción Primaria By Francisco Henríquez; Alejandra Mizala; Andrea Repetto
  3. Public-Private Partnerships: when and how By Eduardo Engel; Ronald Fischer; Alexander Galetovic
  4. Do Latin American Central Bankers Behave Non-Linearly?: The experiences of Brazil, Chile, Colombia and Mexico By Luiz de Mello; Diego Moccero; Matteo Mogliani

  1. By: Nathan Perry; Carlos Schönerwald
    Abstract: Recent World Bank reports indicate that the world has seen a severe reduction in poverty, representing not just a cutback in the relative incidence of poverty but a significant decline in the total number of “poor” people. However in Latin America, the incidence of poverty has remained approximately constant, while the number of poor people has increased. Because of this it is important to understand why Latin America is not making the same strides that the rest of the world is in terms of poverty reduction. It is also necessary to understand how Latin American countries can achieve a long-term economic development to both reduce poverty and improve income inequality. Since long-term economic development is a complex phenomenon, the paper focuses on three “deep” determinants- geography, integration, and institutions. Traditionally, authors study the impact of institutions, integration and geography on per capita income using worldwide cross-section data. Conversely, this paper employs the Hausman and Taylor (1981) estimator to examine the influence of these three determinants on per capita income in Latin American countries. That longitudinal econometric method allows us to consider unobserved heterogeneity across countries and to obtain direct parameter estimates of the time invariant independent variables, like geography or some institutional measures. Our results demonstrate that not just the quality of institutions, as much of the previous literature has claimed, but also the terms of trade both have strong impacts on per capita income. Once institutions are controlled for, measures of geography have relatively weak direct effects on incomes. Similarly, once institutions are controlled for, we find that both openness to trade and appreciated real exchange rates are detrimental to growth.
    Keywords: Institutions, Development, Openness, Geography, Panel Data, Latin America
    JEL: N1 O1 H1 F1
    Date: 2009–04
  2. By: Francisco Henríquez; Alejandra Mizala; Andrea Repetto
    Abstract: This paper analyzes the success of Chile’s Sociedad de Instrucción Primaria (SIP) in providing high quality primary school education to low income children. The paper shows that SIP students’ results in national standardized tests are not due to selection or observables. Interviews with principals of SIP schools and of schools that compete with them suggest that differences may be related to having student achievement as the primary goal, a clear and shared methodology, the systematic use of the information provided by teachers’ and students’ evaluations, the selection of directors and teachers through competition, and the assignment of resources to leveling children that lag behind, among other factors.
    Date: 2009
  3. By: Eduardo Engel; Ronald Fischer; Alexander Galetovic
    Abstract: When are public-private partnerships (PPPs) better than conventional provision and regulated privatization? And should PPP contracts be structured and governed when this is the case?. We show that the defining features of a PPP are (i) bundling of construction and operation, (ii) private but temporary ownership of assets and (iii) intertemporal risk sharingwith the public sector. Thus some characteristics of PPPs are akin to privatization while others are similar to conventional provision. Since incentives for efficient building and management are related to bundling, PPPs are closer to privatization in this regard. As the discounted government budget under a PPP is similar to that under conventional provision, PPPs are closer to conventional provision when it comes to budgetary accounting. We also show that avoiding distortionary taxation and relieving strained government budgets are weak arguments for PPPs. We examine the institutional requirements for a successful PPP program and emphasize the need for an independent supervisor of PPPs (and in general of all public works) and a Committee of Experts to award when conflicts or the need for renegotiation arises. Lack of rule of law alters the choice between conventional provision and PPPs in favor of the former, as there is less risk of regulatory takings in a short termconstruction contract than in a long lived PPP. In the case where quality service is contractible, the the PPP contract that optimally balances demand risk, user-fee distortions and the opportunity cost of public funds, features a minimum revenue guarantee and a revenue cap that differ from those observed in practice. This contract can be implemented via a competitive auction with realistic informational requirements.
    Date: 2009
  4. By: Luiz de Mello; Diego Moccero; Matteo Mogliani
    Abstract: This papers estimates unrestricted monetary reaction functions for four Latin American countries (Brazil, Chile, Colombia and Mexico) and tests for the presence of non-linear effects in central bank behaviour. The analysis covers the post-1999 inflation-targeting period. We deal with the presence of unit roots in the data by estimating the policy rules in a co-integration setting. We test for linear and non-linear co-integration among the variables of interest. The results suggest that a non-linear specification is not rejected by the data for Brazil, Colombia and Mexico, but it is for Chile. Estimation of smooth-transition models by NLLS and EN-NLLS suggests that the central bank’s response to the inflation gap (i.e. deviations of expected inflation from the target) is invariant across policy regimes in Colombia. It becomes stronger in Mexico as expected inflation deviates from the target. Policy responses appear to weaken in Brazil as the inflation gap widens, a finding that most probably reflects a history of adverse supply shocks and upward adjustments in targets in the early years of inflation targeting. Non-linearity is also found in the central bank’s response to the exchange rate in Brazil and Colombia.<P>Les banques centrales d’Amérique latine se comportent-elles d’une manière non-linéaire? : Les expériences du Brésil, du Chili, de la Colombie et du Mexique<BR>Ce document estime des fonctions de réaction monétaires non-contraintes pour quatre pays d’Amérique latine (Brésil, Chili, Colombie et Mexique) et teste l’existence d’effets non-linéaires dans le comportement des banques centrales. L’analyse couvre la période post-1999 où la politique monétaire se caractérise par le ciblage d’inflation. Nous traitons la question de la présence de racines unitaires dans les données en estimant les règles de politique monétaire dans un cadre de cointégration. Nous testons l’existence d’une cointégration linéaire et non-linéaire de nos variables d’intérêt. Les résultats suggèrent que la spécification non-linéaire ne peut être rejetée pour les données brésiliennes, colombiennes et mexicaines ; elle l’est en revanche dans le cas du Chili. L’estimation de modèles de transition douce par des NLLS et EN-NLLS suggère que la réponse de la banque centrale à la différence entre l’inflation espérée et la cible d’inflation ne change pas selon le régime de politique monétaire au Chili. Elle se durcit au Mexique lorsque l’inflation espérée s’éloigne de la cible. Les réponses semblent s'assouplir au Brésil lorsque la différence entre l’inflation espérée et la cible d’inflation s’accroît ; ce résultat est certainement dû à des chocs d’offre négatifs et à des ajustements à la hausse des cibles dans les premières années de politique monétaire à cible d’inflation. Nous trouvons aussi un effet non-linéaire de la réponse de la Banque centrale au taux de change au Brésil et en Colombie.
    Keywords: cible d'inflation, co-intégration multiple, inflation targeting, reaction function, fonction de réaction, non-linear co-integration, smooth-transition model, modèle de transition douce
    JEL: C22 E52 O54
    Date: 2009–03–06

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