New Economics Papers
on Central and South America
Issue of 2012‒06‒13
three papers chosen by

  1. Foreign banks, corporate strategy and financial stability: lessons from the river plate By Michael Brei; Carlos Winograd
  2. Distance and Political Boundaries: Estimating Border Effects under Inequality Constraints. By Fernando Borraz; Alberto Cavallo; Roberto Rigobon; Leandro Zipitría
  3. Do Financial and Institutional Variables Enhance the Impact of Remittances on Economic Growth in Latin America and the Caribbean? A Panel Cointegration Analysis. By Miguel Ramirez

  1. By: Michael Brei (EconomiX - CNRS : UMR7166 - Université Paris X - Paris Ouest Nanterre La Défense); Carlos Winograd (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, Université d'Evry - Val d'Essonne - Université d'Evry - Val d'Essonne, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA)
    Abstract: This paper analyzes the risk taking of branches and subsidiaries of international bank holding institutions from the perspective of host country regulators in two Latin American financial systems: Argentina and Uruguay. Using both theory and empirics, we analyze differences in the risk attitudes of these institutions in the run up to the major financial crises of 2001-02. The empirical part of this paper is based on a rich bank-level dataset on corporate structures, balance sheets, and ownership of banks. We find that foreign banks branches have taken on fewer risks than subsidiaries and relate this to differences in the legal responsibility of parent banks. This research not only shows original results concerning banks corporate strategies in the face of country risk, but also contributes to the debate on appropriate banking regulation.
    Keywords: Financial Crises ; Argentina ; Uruguay ; Bank Corporate
    Date: 2012–06
  2. By: Fernando Borraz; Alberto Cavallo; Roberto Rigobon; Leandro Zipitría
    Abstract: The “border effect” literature finds that political borders have a very large impact on relative prices, implicitly adding several thousands of miles to trade. In this paper we show that the standard empirical specification suffers from selection bias, and propose a new methodology based on quantile regressions. Using a novel data set from Uruguay, we apply our procedure to measure the segmentation introduced by city borders. City borders should matter little for trade. We find that when the standard methodology is used, two supermarkets separated by 10 kilometers across two different cities have the same price dispersion as two supermarkets separated by 30 kilometers within the same city; so the city border triples the distance. When our methodology is used, the city border effect becomes insignificant. We further test our methodology using online prices for the largest supermarket chain in the country, and show that the “online border” is equivalent to the average distance from the online warehouse to each of the offline stores.
    JEL: F40 F41
    Date: 2012–06
  3. By: Miguel Ramirez (Department of Economics, Trinity College)
    Abstract: Using recently developed panel unit root and panel cointegration tests and the Fully-Modified OLS methodology, this paper estimates the impact of remittances on the economic growth of selected upper and lower income Latin American & Caribbean (LAC) countries over the 1990-2007 period. Despite the large flow of remittances to the region, there have been relatively few empirical studies assessing the impact of remittances on economic growth in LAC. Panel unit root tests suggest that several of the macro variables included in the model exhibit unit roots, yet, at the same time, Pedroni’s panel cointegration test determined that there is a cointegrating relationship among the variables in the estimated model. The FMOLS estimates suggest that remittances have a positive and significant effect on economic growth in both groups of countries. The estimates also indicate that both the degree of economic freedom and credit provided by the banking system have a positive and significant effect on economic growth in upper (middle) income LAC countries. The sign of the interaction term between remittances and the credit (and EFI) variables suggest that remittances act as substitutes for these variables. Finally, the effect of remittances on both sets of countries is stronger in the presence of a financial (credit) variable.
    Keywords: Credit, Economic Freedom Index (EFI), FMOLS, Latin America & Caribbean, Remittances and Growth, Panel Cointegration, Panel Unit Roots
    JEL: C22 O10 O40 O54
    Date: 2012–05

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