nep-lam New Economics Papers
on Central and South America
Issue of 2014‒06‒28
six papers chosen by
Maximo Rossi
University of the Republic

  1. Bases, Bullets and Ballots: the Effect of U.S. Military Aid on Political Conflict in Colombia By Oeindrila Dube; Suresh Naidu
  2. Interventions and Expected Exchange Rates in Emerging Market Economies By Santiago García-Verdú; Manuel Ramos Francia
  3. Inequality of Opportunity and Economic Growth: A Cross-Country Analysis By Ferreira, Francisco H. G.; Lakner, Christoph; Lugo, Maria Ana; Özler, Berk
  4. Institutional investors and long-term investment : evidence from Chile By Opazo, Luis; Raddatz, Claudio; Schmukler, Sergio L.
  5. Saving More to Borrow Less: Experimental Evidence from Access to Formal Savings Accounts in Chile By Felipe Kast; Dina Pomeranz
  6. Echoes of the crises in Spain and US in the Colombian labor market: a differences-in-differences approach By Luis E. Arango; Dolores de la Mata; Nataly Obando

  1. By: Oeindrila Dube; Suresh Naidu
    Abstract: Does foreign military assistance strengthen or further weaken fragile states facing internal conflict? Aid may strengthen the state by bolstering its repressive capacity vis-à-vis armed non-state actors, or weaken it if resources are diverted to these very groups. We examine how U.S. military aid affects political violence in Colombia. We exploit the allocation of U.S. military aid to Colombian military bases, and compare how aid affects municipalities with and without bases. We use an instrument based on worldwide increases in U.S. military aid (excluding Latin America). We find that U.S. military assistance leads to differential increases in attacks by paramilitaries, but has no effect on guerrilla attacks. Aid also results in more paramilitary (but not guerrilla) homicides during election years, particularly in politically competitive municipalities. The findings suggest that foreign military assistance may strengthen armed non-state actors, undermining domestic political institutions.
    JEL: H56 O54
    Date: 2014–06
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:20213&r=lam
  2. By: Santiago García-Verdú; Manuel Ramos Francia
    Abstract: We study variations in the risk-neutral distributions of the exchange rates in Brazil, Chile, Colombia, Mexico, and Peru due to interventions implemented by these countries. For this purpose, we first estimate the risk-neutral densities of the exchange rates based on derivatives market data, for one-day and one-week horizons. Second, using a linear regression model, we assess possible effects on the distributions of the expected exchange rates due to these interventions. We find little evidence of an effect on the expected exchange rates' means, volatilities, skewness, kurtoses, risk premia, and tails' parameters. In the few cases for which we do find some statistical evidence of an effect, it tends to be short-lived or not economically significant. On the other hand, we find evidence that interventions which objective is to restore and/or assure the proper functioning of exchange rate markets have a higher probability of success. This probability increases as the amount of resources to intervene at disposal of the central bank increases. Needless to say, there are limits to the methodology we use.
    Keywords: Interventions, Exchange Rates, Risk-Neutral Distributions, Generalized Extreme, Value Distributions.
    JEL: E5 F31 G12 C58
    Date: 2014–06
    URL: http://d.repec.org/n?u=RePEc:bdm:wpaper:2014-11&r=lam
  3. By: Ferreira, Francisco H. G. (World Bank); Lakner, Christoph (World Bank); Lugo, Maria Ana (World Bank); Özler, Berk (University of Otago)
    Abstract: Income differences arise from many sources. While some kinds of inequality, caused by effort differences, might be associated with faster economic growth, other kinds, arising from unequal opportunities for investment, might be detrimental to economic progress. We construct two new metadata sets, consisting of 118 household surveys and 134 Demographic and Health Surveys, to revisit the question of whether inequality is associated with economic growth and, in particular, to examine whether inequality of opportunity – driven by circumstances at birth – has a negative effect on subsequent growth. Results are suggestive but not robust: while overall income inequality is generally negatively associated with growth in the household survey sample, we find no evidence that this is due to the component we attribute to unequal opportunities. In the DHS sample, both overall wealth inequality and inequality of opportunity have a negative effect on growth in some of our preferred specifications, but the results are not robust to relatively minor changes. On balance, although our results are suggestive of a negative association between inequality and growth, the data at our disposal does not permit robust conclusions as to whether inequality of opportunity is bad for growth.
    Keywords: inequality, inequality of opportunity, economic growth
    JEL: D31 D63 O40
    Date: 2014–06
    URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp8243&r=lam
  4. By: Opazo, Luis; Raddatz, Claudio; Schmukler, Sergio L.
    Abstract: Developing countries are trying to develop long-term financial markets and institutional investors are expected to play a key role. This paper uses unique evidence on the universe of institutional investors from the leading case of Chile to study to what extent mutual funds, pension funds, and insurance companies hold and bid for long-term instruments, and which factors affect their choices. The paper uses monthly asset-level portfolios to show that, despite the expectations, mutual and pension funds invest mostly in short-term assets relative to insurance companies. The significant difference across maturity structures is not driven by the supply side of debt or tactical behavior. Instead, it seems to be explained by manager incentives (related to short-run monitoring and the liability structure) that, combined with risk factors, tilt portfolios toward short-term instruments, even when long-term investing yields higher returns. Thus, the expansion of large institutional investors does not necessarily imply longer-term markets.
    Keywords: Debt Markets,Mutual Funds,Emerging Markets,Deposit Insurance,Non Bank Financial Institutions
    Date: 2014–06–01
    URL: http://d.repec.org/n?u=RePEc:wbk:wbrwps:6922&r=lam
  5. By: Felipe Kast; Dina Pomeranz
    Abstract: Poverty is often characterized not only by low and unstable income, but also by heavy debt burdens. We find that reducing barriers to saving through access to free savings accounts decreases participants' short-term debt by about 20%. In addition, participants who experience an economic shock have less need to reduce consumption, and subjective well-being improves significantly. Precautionary savings and credit therefore act as substitutes in providing self-insurance, and participants prefer borrowing less when a free formal savings account is available. Take-up patterns suggest that requests by others for participants to share their resources may be a key obstacle to saving.
    JEL: D14 D91 G22 O16
    Date: 2014–06
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:20239&r=lam
  6. By: Luis E. Arango; Dolores de la Mata; Nataly Obando
    Abstract: This paper presents evidence of the effect of the recent phases of the business cycle in Spain and United States, proxied by their respective unemployment rates, on the labor market of Colombian cities with high migration tradition. These countries are the main destination for labor Colombian migrants. Using information from the household survey between 2006 and 2011 for urban areas in Colombia and a differences-in-differences approach we find that unemployment rates of those countries negatively affect the probability and the amount of remittances received by Colombian households living in areas with high and moderate migration tradition. At a second stage we provide evidence that unemployment rates of those countries positively affect the labor force participation decisions in Colombian regions with the highest migration tradition. Classification JEL: C21, J21, J22
    Date: 2014–06
    URL: http://d.repec.org/n?u=RePEc:bdr:borrec:827&r=lam

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