New Economics Papers
on Central and South America
Issue of 2013‒04‒20
eleven papers chosen by

  1. The Impact of Taxes and Social Spending on Inequality and Poverty in Argentina, Bolivia, Brazil, Mexico, Peru and Uruguay: An Overview By Nora Lustig; Carola Pessino; John Scott
  2. Deconstructing the Decline in Inequality in Latin America By Nora Lustig; Luis F. Lopez-Calva; Eduardo Ortiz-Juarez
  3. Projections of dynamic generational tables and longevity risk in Chile By Javier Alonso; David Tuesta; Diego Torres; Begona Villamide
  4. Export entrepreneurship and trade structure in Latin America during good and bad times By Fernandes, Ana M.; Lederman, Daniel; Gutierrez-Rocha, Mario
  5. Does Aid for Education Attract Foreign Investors? An Empirical Analysis for Latin America By Julian Donaubauer; Dierk Herzer; Peter Nunnenkamp
  6. “Decomposing the Rural-Urban Differential in Student Achievement in Colombia Using PISA Microdata” By Raul Ramos; Juan Carlos Duque; Sandra Nieto
  7. Overlapping Regionalism, No Integration: Conceptual Issues and the Latin American Experiences By Andrés Malamud
  8. Subempleo por ingresos y funcionamiento del mercado de trabajo en Colombia By Luis Eduardo Arango Thomas; Diana carolina Escobar; Emma Monsalve
  9. Small Is Not Beautiful: Firm-Level Evidence of the Link between Credit, Firm Size and Competitiveness in Colombia By Arturo Galindo; Marcela Melendez
  10. Measuring Impoverishment: An Overlooked Dimension of Fiscal Incidence By Sean Higgins; Nora Lustig
  11. The Impact of Conflict on Education Attainment and Enrollment in Colombia: lessons from recent IDPs By Ruth Uwaifo Oyelere; Kate Wharton

  1. By: Nora Lustig (Department of Economics, Tulane University); Carola Pessino (School of Government and Executive Director, Centro de Investigaciones y Evaluación en Economía Social para el Alivio de la Pobreza, Universidad Torcuato Di Tella, Buenos Aires, Argentina); John Scott (CIDE (Centro de Investigación y Docencia Económicas), Mexico and,Consejero Académico, CONEVAL (Consejo Nacional de Evaluación de la Política de Desarrollo Social), Mexico)
    Abstract: How much redistribution and poverty reduction is being accomplished in Latin America through social spending and taxes? Standard fiscal incidence analyses applied to Argentina, Bolivia, Brazil, Mexico, Peru, and Uruguay yield the following results. Direct taxes and cash transfers reduce inequality and poverty by nontrivial amounts in Argentina, Brazil, and Uruguay, less so in Mexico and relatively little in Bolivia and Peru. While direct taxes are progressive, the redistributive impact is small because direct taxes as a share of GDP are low. Cash transfers are quite progressive in absolute terms except in Bolivia where programs are not targeted to the poor. In Bolivia and Brazil, indirect taxes almost completely offset the poverty-reducing impact of cash transfers. In-kind transfers in education and health reduce inequality in all countries by considerably more than cash transfers.
    Keywords: fiscal incidence, inequality, poverty, taxes, social spending, Latin America
    JEL: H22 I3 O1
    Date: 2013–04
  2. By: Nora Lustig (Department of Economics, Tulane University); Luis F. Lopez-Calva (Poverty and Gender Unit, Latin America and the Caribbean Vice-presidency, World Bank); Eduardo Ortiz-Juarez (Regional Bureau for Latin America and the Caribbean, United Nations Development Programme (UNDP))
    Abstract: Inequality in Latin America unambiguously declined in the 2000s. The Gini coefficient fell in 14 of the 17 countries where there is comparable data, and the change was statistically significant for all of them. Existing studies point to two main explanations for the decline in inequality: a reduction in hourly labor income inequality, and more robust and progressive government transfers. Available evidence suggests that it is the skill premium--or, more precisely, the returns to primary, secondary and tertiary education vs. no schooling or incomplete primary schooling--that drives the decline in hourly labor income inequality. The causes behind the decline in returns to schooling, however, have not been unambiguously established. Some studies find that returns fell because of an increase in the supply of workers with more educational attainment; others, because of a shift in demand away from skilled-labor.
    Keywords: inequality, skill premium, government transfers, Latin America
    JEL: D31 I24 H53 O15 O54
    Date: 2013–04
  3. By: Javier Alonso; David Tuesta; Diego Torres; Begona Villamide
    Abstract: The increase in longevity risk is leading to serious challenges for economies. Industries such as insurance and pensions, which are most closely related to the management of the risks of an aging population, have for a number of years experienced direct effects of this kind. To counterbalance this, they have developed techniques for constructing mortality tables in order to project the future trends of life expectancy at birth and thus reduce the level of uncertainty that this market by its nature involves. Developed countries have led technical improvements for constructing these tables, while Latin American countries have lagged behind significantly in this respect. Given that these countries cannot yet develop tables weighted by social and medical aspects, it is highly probable that this situation will continue. That is why this study aims to construct a forecast for mortality rates, based on projection models of the ARMA (p, q) type and non-parametric contrast methodology. The study is based on the case of Chile, which provides most information for constructing a model for a Latin American country. The estimates show that the official mortality tables in Chile could include significant lags by 2050, which will have major negative effects on the pension and insurance industry, in the hypothetical case that they were not updated. In another exercise, using the mortality table estimated in this work, we found that if pensions in Chile are not to lose their purchasing power, the contribution rate would have to be increased by 8 percentage points in the case of men and 4 in the case of women. Given that Chile is the best developed country in the region with respect to mortality tables, the negative effects on the rest of Latin America could be even more worrisome.
    Keywords: Pensions, insurance, longevity risk, mortality tables, Latin America, Chile
    JEL: G23 J32 G22
    Date: 2013–04
  4. By: Fernandes, Ana M.; Lederman, Daniel; Gutierrez-Rocha, Mario
    Abstract: The authors use a new dataset on export transactions for a large set of Latin American and Caribbean and comparator countries to assess the extent of"export entrepreneurship"during periods of fast export growth (2005-2007) and depressed external demand (2008-2009). Export entrepreneurship is equated with the extensive margin of exports, namely the advent of new exporting firms, new export products, and new export market destinations. The main findings are: (1) annual exporter entry, exit, and survival rates in Latin America and the Caribbean are quite similar to what is observed in other countries, and entry rates across sectors are quite similar but survival rates appear to be highest in agriculture; (2) the relative size of entrants into export markets (relative to incumbents) tended to be lower for natural resource-abundant countries during 2005-2007, but less so during the crisis years of 2008-2009; (3) entry rates tend to be lower in sectors in which a country has revealed comparative advantage, however, exit rates and survival rates of new exporters are higher in those sectors; and (4) the low growth of exports during the global recession of 2008-2009 in Latin America and the Caribbean was due to lower growth in exports of incumbent firms'pre-existing products and destinations, while new products and destinations tended to attenuate the recession's effects. Overall, the data suggest that the Latin American and Caribbean region appears to be no less entrepreneurial in terms of the extensive margins of exports than comparator countries.
    Keywords: Currencies and Exchange Rates,Free Trade,Debt Markets,Export Competitiveness,Country Strategy&Performance
    Date: 2013–04–01
  5. By: Julian Donaubauer; Dierk Herzer; Peter Nunnenkamp
    Abstract: We address the question of whether foreign aid helps attract foreign direct investment (FDI). This could be achieved if well targeted aid removed critical impediments to higher FDI inflows. In particular, we test the hypothesis that aid for education is an effective means to increase FDI flows to host countries in Latin America where schooling and education appears to be inadequate from the viewpoint of foreign investors. We employ panel data techniques covering 21 Latin American countries over the period from 1984 to 2008. We find that aid for education has a statistically significant positive effect on FDI. This effect is robust to potential outliers, sample selection, alternative specifications and different estimation methods.
    Keywords: foreign aid, foreign direct investment, aid effectiveness, human capital
    JEL: E24 F21 F35 O15 O19
    Date: 2013–04
  6. By: Raul Ramos (Faculty of Economics, University of Barcelona); Juan Carlos Duque (RiSE-group, Department of Economics, EAFIT University); Sandra Nieto (Faculty of Economics, University of Barcelona)
    Abstract: Despite the large number of studies that draw on Programme for International Student Assessment (PISA) microdata in their analyses of the determinants of educational outcomes, no more than a few consider the relevance of geographical location. In going some way to rectify this, our paper examines the differences in educational outcomes between students attending schools in rural areas and those enrolled in urban schools. We use microdata from the 2006 and 2009 PISA survey waves for Colombia. The Colombian case is particularly interesting in this regard due to the structural changes suffered by the country in recent years, both in terms of its political stability and of the educational reform measures introduced. Our descriptive analysis of the data shows that the educational outcomes of rural students are worse than those of urban students. In order to identify the factors underpinning this differential, we use the Oaxaca-Blinder decomposition and then exploit the time variation in the data using the methodology proposed by Juhn-Murphy-Pierce. Our results show that most of the differential is attributable to family characteristics as opposed to those of the school. From a policy perspective, our evidence supports actions addressed at improving conditions in the family rather than measures of positive discrimination of rural schools.
    Keywords: educational outcomes, rural-urban differences, decomposition methods. JEL classification: J24, I25, R58
    Date: 2012–12
  7. By: Andrés Malamud
    Abstract: After 20 years of its foundation, MERCOSUR has failed to meet its declared goals. Far from being a common market and not yet a customs union, it has neither deepened nor (legally) enlarged. All other regionalist projects in Latin America fare even worse, albeit they have arguably fostered domestic democracy, economic reforms and more peaceful regional relations. This paper introduces a conceptual toolkit for comparing regional integration, and then apply it to explain the sprawling goals and declining performance of the Latin American experiences. The aim is to show how the strengthening of national sovereignty – as opposed to its pooling or delegation – is at the heart of most contemporary regionalist strategies.
    Keywords: comparative regional integration, regionalism, Latin America, Mercosur
    Date: 2013–03
  8. By: Luis Eduardo Arango Thomas; Diana carolina Escobar; Emma Monsalve
    Abstract: Se estiman los salarios de empleados particulares y servidores públicos catalogados como plenamente ocupados y subempleados por ingresos. De igual manera, se estima la brecha salarial entre ellos, para lo cual se utilizan tanto la ecuación de Mincer como la descomposición Blinder-Oaxaca y la metodología propuesta por Ñopo (2008). Los resultados indican que, aunque existe un diferencial de salarios entre ambos grupos, del orden de 40% a 44%, el componente no explicado del mismo es mucho menor (de 25% a 30% del mismo) que el que sugieren los datos a primera vista y conducen, en ocasiones, a generar alarmas sobre el funcionamiento del mercado de trabajo e incluso a hablar de “condiciones de empleo inadecuado” o “empleo de baja calidad”. Aunque algunos subempleados por ingresos podrían tener argumentos para considerarse como tales, presentamos evidencia que muestra que entre el 70% y el 75% del diferencial de salarios es explicado por variables asociadas a capital humano. Igualmente, encontramos que la brecha se presenta con mayor nitidez en la parte alta de la distribución de los salarios: a más edad y mayor educación, mayor es el componente no explicado de la misma, la cual se presenta con mayor claridad en los sectores de minas, transporte y construcción.
    Keywords: Subempleo por ingresos, funcionamiento del mercado laboral, descomposición de la brecha salarial. Classification JEL: J31.
    Date: 2013–04
  9. By: Arturo Galindo; Marcela Melendez
    Abstract: Credit has been found to be a catalyst for economic growth, as it spurs investment, enhances productivity, allows costs to be spread out over time, improves resource allocation, and enables investors to cope better with macroeconomic volatility. Most studies focus on the relationship between financial development and growth at the country level, while few analyze the relationship at the firm level. Using a panel-shaped firm-level dataset of Colombian firms and employing the methodology developed by Love and Zicchino (2006), this paper examines whether the response of firms to financial and real shocks varies according to firm size and across different levels of firm productivity. The study finds that financial shocks have a significant positive impact on firm growth, which is larger for larger firms and more productive firms that export. The results indicate that something is preventing smaller firms from taking full advantage of access to external financing.
    JEL: G32 O54
    Date: 2013–04
  10. By: Sean Higgins (Department of Economics, Tulane University); Nora Lustig (Department of Economics, Tulane University)
    Abstract: The effect of taxes and benefits on the poor is usually measured using standard poverty and inequality indicators, stochastic dominance tests, and measures of progressivity and horizontal inequity. However, these measures can fail to capture an important aspect: that some of the poor are made poorer (or some of the non-poor made poor) by the tax-benefit system. We call this impoverishment and formally establish the relationships between impoverishment, stochastic dominance tests, horizontal inequity, and progressivity measures. The directional mobility literature provides a useful framework to measure impoverishment. We propose using a transition matrix and income loss matrix, and establish a mobility dominance criterion to compare alternate tax-benefit systems. We illustrate with data from Brazil.
    Keywords: stochastic dominance, poverty, fiscal incidence, mobility
    JEL: I32 H22
    Date: 2013–04
  11. By: Ruth Uwaifo Oyelere (School of Economics, Georgia Institute of Technology); Kate Wharton (Georgia Institute of Technology)
    Abstract: Forty years of low-intensity internal armed conflict have made Colombia home to over 3 million Internally Displaced Persons (IDPs), the world’s largest population. The effect of violence on a child’s education is of particular concern because of the critical role that education plays in increasing human capital and productivity. This paper explores the education accumulation and enrollment gaps created by being directly affected by conflict. We proxy for this direct impact by focusing on IDPs. First, we show that measuring the impact of conflict on children using levels of conflict at the municipal level underestimates the education enrollment and accumulation gaps. We subsequently estimate the education accumulation and enrollment gaps for IDPs in comparison to non-migrants and other migrants using various econometric techniques. Our results suggest a significant education accumulation gap for children of IDPs compared to non-migrants that widens to approximately half a year at the secondary level. We find no evidence of enrollment gaps at the primary level when appropriate controls are included, but we do find a lower probability of enrollment at the secondary level. The disparity in effects when we focus on direct exposure to conflict versus a dummy that captures living in a municipality with high conflict suggests the need to be careful when using the latter to estimate the impact of conflict.
    Keywords: Education Attainment, School Enrollment, Colombia, Internal Displacement, Conflict
    JEL: I24 O12 O15 J10
    Date: 2013–04

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