nep-lam New Economics Papers
on Central and South America
Issue of 2009‒09‒26
three papers chosen by
Maximo Rossi
University of the Republic

  1. Lagging regions and development strategies: The case of Peru By Thurlow, James; Morley, Samuel; Pratt, Alejandro Nin
  2. Polarisation, Populism and Hyperinflation[s]: Some Evidence from Latin America By Manoel Bittencourt
  3. Corrupting Learning: Evidence from Missing Federal Education Funds in Brazil By Claudio Ferraz; Frederico Finan; Diana Belo Moreira

  1. By: Thurlow, James; Morley, Samuel; Pratt, Alejandro Nin
    Abstract: "Despite the economic transformation of Peru's coastal economy, the country's inland region remains poor and underdeveloped. We herein examine the economic linkages between the two regions using a multi-regional computable general equilibrium model based on a regionalized social accounting matrix. The model results show that coastal growth undermines the inland economy by increasing import competition and internal migration. Peru, therefore, cannot rely solely on rapid national growth to generate broad-based poverty reduction. When we simulate policies aimed at curbing divergence, we find that reducing interregional transaction costs stimulates national economic growth, but widens divergence by shifting inland production towards agriculture and concentrating investment in coastal manufacturing. In contrast, conditional cash transfers reduce regional and rural-urban inequality, but do not stimulate national growth. Finally, investing in inland productivity (through extension services and improved rural roads) reduces regional divergence, but the resulting market constraints worsen rural-urban inequality. These findings suggest that isolated interventions may worsen inequality, and that complementarities exist between supply-side investments and policies aimed at stimulating demand and improving access to national markets." from authors' abstract
    Keywords: Regional development, Public investments, economic growth, Development strategies,
    Date: 2009
  2. By: Manoel Bittencourt (Department of Economics, University of Pretoria)
    Abstract: We test for the populist view of state capture in Latin America be- tween 1970 and 2003. The empirical results-based on the relatively novel panel time-series data and analysis - confirm the prediction that recently-elected governments coming into power after periods of po- litical dictatorship, and which are faced with high economic inequal- ity and demand for redistribution, end up pursuing unfunded populist [re] distributive policies. These policies, in turn, lead to bursts of hyper- in?ation and therefore macroeconomic instability in the region. All in all, we suggest that the implementation of democracy as such requires not only the 'right political context'- or a constrained executive-to work well, but it also must come with certain economic institutions, (e.g. central bank independence and a credible and responsible fiscal authority), institutions which would raise the costs of pursuing populist policies in the first place.
    Keywords: Polarisation, populism, hyperinflation, Latin America
    JEL: E31 E65 N16 O23 O54
    Date: 2009–09
  3. By: Claudio Ferraz (Department of Economics PUC-Rio); Frederico Finan (University of California, Berkeley); Diana Belo Moreira (World Bank)
    Abstract: While cross-country analysis suggests that corruption hinders economic growth, we have little evidence on the mechanisms that link corruption to long-run economic development. We provide micro-evidence on the consequences of corruption for the quality of education. We use data from the auditing of Brazil’s local governments to construct objective measures of corruption involving educational block grants transferred from the central government to municipalities. Using variation in the incidence of corruption across municipalities and controlling for students’, schools’ and municipal characteristics, we find that corruption significantly reduces the school performance of primary school students. Students residing in municipalities where corruption in education was detected score 0.35 standard deviations less on standardized tests, and have significantly higher dropout and failure rates. We also provide evidence on the mechanisms that link corruption and mismanagement to learning and school attainment. The results are consistent with corruption directly affecting economic growth through the reduction of human capital accumulation. JEL Codes: D73, I21, H72
    Date: 2009–09

This nep-lam issue is ©2009 by Maximo Rossi. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.