New Economics Papers
on Central and South America
Issue of 2009‒09‒05
seven papers chosen by

  1. The Influence of Collateral on Capital Requirements in the Brazilian Financial System: an approach through historical average and logistic regression on probability of default By Alan Cosme Rodrigues da Silva; Antônio Carlos Magalhães da Silva; Jaqueline Terra Moura Marins; Myrian Beatriz Eiras da Neves; Giovani Antonio Silva Brito
  2. Linking Financial and Macroeconomic Factors to Credit Risk Indicators of Brazilian Banks By Marcos Souto; Benjamin M. Tabak; Francisco Vazquez
  3. Public Policies and FDI Location: Differences between Developing and Developed Countries By Timothy Goodspeed; Jorge Martinez-Vazquez; Li Zhang
  4. Revisiting Political Budget Cycles in Latin America By Sebastián Nieto Parra; Javier Santiso
  5. Unpacking youth unemployment in Latin America By Cunningham, Wendy
  6. Ex-ante methods to assess the impact of social insurance policies on labor supply with an application to Brazil By Robalino, David A.; Zylberstajn, Helio
  7. Structural Estimation and Policy Evaluation in Developing Countries By Petra E. Todd; Kenneth I. Wolpin

  1. By: Alan Cosme Rodrigues da Silva; Antônio Carlos Magalhães da Silva; Jaqueline Terra Moura Marins; Myrian Beatriz Eiras da Neves; Giovani Antonio Silva Brito
    Abstract: Using data drawn from the Brazilian Central Bank Credit Information System, this paper evaluates the impact of the use of collateral on the probability of default and, consequently, on capital requirement levels in the Brazilian financial system. Literature suggests that the existence of collateral in some credit operations increases the debtor's readiness to honor its commitment and, therefore, could result in a lower probability of default. The methodology used to calculate capital requirements is based on the Basel II IRB-Foundation Approach, although the probabilities of default have been estimated by historical averages following Basel II orientation, and corroborated by a logistic regression model. The test of hypothesis about difference between collateralized and uncollateralized probabilities of default for each risk class indicates that they are statistically different. This result was obtained both from historical average probability of default as from logistic regression model.Sob condições específicas, incluindo o requerimento de capital de 11% adotado no Brasil e a Perda dado Default (ou LGD da sigla em inglês) estabelecida em 45%, este artigo também procura identificar um fator de equivalência da razão entre os requerimentos de capital para risco de crédito na Abordagem Padronizada Simplificada e aqueles calculados pela Abordagem Básica do IRB. Para a amostra utilizada, os resultados indicam que operações de não-varejo com garantia possuem uma probabilidade média de default de 2,46% e um fator de equivalência de 60%. Em contrapartida, operações não garantidas possuem uma probabilidade média de default de 6,66% e um fator de equivalência de 93%, aproximando-se bastante do fator de ponderação de 100% da Abordagem Padronizada Simplificada.
    Date: 2009–06
  2. By: Marcos Souto; Benjamin M. Tabak; Francisco Vazquez
    Abstract: This study constructs a set of credit risk indicators for 39 Brazilian banks, using the Merton framework and balance sheet information on the banks’ total assets and liabilities. Despite the simplifying assumptions, the methodology captures well several stylized facts in the recent history of Brazil. In particular, it identifies deterioration in the credit risk indicators of the banking sector, following the crisis in the early 2000s. The risk indicators were regressed against a number of macro-financial variables at both individual and systemic level, showing that an increase in the system EDF, interest rates, and CDS spreads will lead to a deterioration of the individual expected default probability.
    Date: 2009–07
  3. By: Timothy Goodspeed; Jorge Martinez-Vazquez (International Studies Program. Andrew Young School of Policy Studies, Georgia State University); Li Zhang
    Abstract: Host country government officials in developing and developed countries alike would like to know the impact of their public policies on foreign investment in their countries. Unfortunately, the literature does not provide a single view, and there are likely to be differences between developing and developed countries. This paper examines the impact of three host country government policies on the host’s FDI stock: taxation, good governance, and infrastructure. We focus on whether the impact of these factors on FDI differs depending on the level of development of the host country. The regression results indicate that FDI is sensitive to host country taxation in developed countries, but not in developing countries; FDI is sensitive to host country corruption in developing countries but not developed; and FDI shows sensitivity to host country infrastructure quality in both developed and developing host countries, though FDI appears to be more sensitive in developing host countries.
    Keywords: FDI, Developing countries, Developed countries, Foriegn Direct Investment
    Date: 2009–08–01
  4. By: Sebastián Nieto Parra; Javier Santiso
    Abstract: In this paper we test the impact of elections on fiscal policy in Latin American economies in comparison to OECD countries over the period 1990-2006. We find that in Latin American countries, the average primary balance declines by an amount close to 0.7 per cent of GDP during an election year, confirming the hypothesis of fiscal deteriorations during the election cycle. Most of this movement is due to the expenditure component and within this it is current (close to 0.8 per cent of GDP) rather than capital expenditure that is most affected. By contrast, in OECD countries, the observed changes in the primary balance and current expenditures during election years are minimal. Our analysis also suggests that re-elections of incumbent candidates in Latin America have a considerable impact on the expenditure side of the fiscal balance. Finally, by comparing the 2005-2006 electoral cycle with respect to prior electoral cycles, we note a slight improvement of fiscal management around elections in the region. We derive policy implications and recommendations from our findings.<BR>L’objectif de cet article est de tester l’impact des élections sur la politique budgétaire dans les pays d’Amérique Latine par rapport aux pays de l’OCDE pendant la période 1990-2006. Nos résultats montrent qu’en moyenne le solde primaire diminue de près de 0,7 pourcent du PIB pendant l’année électorale, ce qui confirme l’hypothèse d’une détérioration de la discipline budgétaire pendant le cycle électoral en Amérique Latine. Une grande partie de ce mouvement s’explique par une croissance des dépenses publiques qui trouve son origine dans les dépenses courantes (près de 0,8 pourcent du PIB) plus que dans les dépenses en capital. En revanche, dans les pays de l’OCDE, le solde primaire et les dépenses courantes évoluent peu pendant l’année électorale. Notre analyse suggère également que les réélections des candidats en exercice en Amérique Latine ont un impact considérable sur les dépenses budgétaires. Enfin, la comparaison du cycle électoral de 2005-2006 aux cycles passés fait apparaître une amélioration, bien qu’encore réduite, de la discipline budgétaire de la région en période électorale. Nous analysons les implications politiques de ces résultats et proposons des recommandations.
    Keywords: elections, élections, Latin America, Amérique latine, incumbent candidates, candidats en exercice, political budget cycle, cycle politique et budgétaire
    JEL: D72 E62 H62 P16
    Date: 2009–08–14
  5. By: Cunningham, Wendy
    Abstract: High youth unemployment rates may be a signal of difficult labor market entry for youth or may reflect high churning. The European and United States literature finds the latter conclusion while the Latin American literature suggests the former. This paper uses panel data to examine whether Latin American youth follow OECD patterns or are, indeed, unique. By decomposing transition matrices into propensity to move and rate of separation matrices and estimating duration matrices, the authors find that Latin American youth do follow the OECD trends: their high unemployment reflects high churning while their duration of unemployment is similar to that of non-youth. The paper also finds that young adults (age 19-24) have higher churning rates than youth; most churning occurs between informal wage employment, unemployment, and out-of-the labor force, even for non-poor youth; and unemployment probabilities are similar for men and women when the analysis control for greater churning by young men. The findings suggest that the"first employment"programs that have become popular in the region are not addressing the key constraints to labor market entry for young people and that more attention should be given to job matching, information, and signaling to improve the efficiency of the churning period.
    Keywords: Youth and Governance,Labor Markets,Population Policies,Adolescent Health,Labor Policies
    Date: 2009–08–01
  6. By: Robalino, David A.; Zylberstajn, Helio
    Abstract: This paper solves and estimates a stochastic model of optimal inter-temporal behavior to assess how changes in the design of the unemployment benefits and pension systems in Brazil could affect savings rates, the share of time that individuals spend outside of the formal sector, and retirement decisions. Dynamics depend on five main parameters: preferences regarding consumption and leisure, preferences regarding formal Vs. informal work, attitudes towards risks, the rate of time preference, and the distribution of an exogenous shock that affects movements in and out of the social security system (given individual decisions). The yearly household survey is used to create a pseudo panel by age-cohorts and estimate the joint distribution of model parameters based on a generalized version of the Gibbs sampler. The model does a good job in replicating the distribution of the members of a given cohort across states (in or out of the social security / active or retired). Because the parameters are related to individual preferences or exogenous shocks, the joint distribution is unlikely to change when the social insurance system changes. Thus, the model is used to explore how alternative policy interventions could affect behaviors and through this channel benefit levels and fiscal costs. The results from various simulations provide three main insights: (i) the Brazilian SI system today might generate distortions (lower savings rates and less formal employment) that increase the costs of the system and might generate regressive redistribution; (ii) there are important interactions between the unemployment benefits and pension systems, which calls for joint policy analysis when considering reforms; and (iii) current distortions could be reduced by creating an actuarial link between contributions and benefits and then combining matching contributions and anti-poverty targeted transfers to cover individuals with limited or no savings capacity.
    Keywords: ,Labor Markets,Labor Policies,Pensions&Retirement Systems,Emerging Markets
    Date: 2009–08–01
  7. By: Petra E. Todd (Department of Economics, University of Pennsylvania); Kenneth I. Wolpin (Department of Economics, University of Pennsylvania)
    Abstract: This paper discusses the use of discrete choice dynamic programming (DCDP) methods for evaluating policies of particular relevance to developing countries, such as policies to reduce child labor and increase school attendance, to improve school quality, to affect immigration flows, to expand old age pension benefits, or to foster small business investment through microfinance. We describe the DCDP framework and how it relates to static models, illustrate its application with an example related to conditional cash transfer programs, consider numerous empirical applications from the literature of how the DCDP methodology has been used to address substantively important policy issues, and discuss methods for model validation.
    Keywords: development economics, policy evaluation, dynamic discrete choice models, schooling, migration
    JEL: J22 C21 H31
    Date: 2009–07–24

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