nep-lam New Economics Papers
on Central and South America
Issue of 2014‒09‒08
twenty papers chosen by

  1. Inflation Targeting in Latin America By Adolfo Barajas; Roberto Steiner; Leonardo Villar; Cesar Pabon
  2. Entrepreneurship in Latin America: A Step Up the Social Ladder? By Eduardo Lora; Francesca Castellani
  3. Trade obstacles, inventory level of inputs, and internationalization of enterprise activities : a comparison between Southeast Asia and Latin America By Ueki, Yasushi
  4. How Can Latin America Help the World to Cope with Climate Change? By Sebastian Galiani; Manuel Puente; Federico Weinschelbaum
  5. Is the Glass Half Empty or Half Full? School Enrollment, Graduation, and Dropout Rates in Latin America By Marina Bassi; Matias Busso; Juan Sebastian Munoz
  6. Causal Estimates of the Intangible Costs of Violence against Women in Latin America and the Caribbean By Jorge Aguero
  7. Income inequality in Latin America: Recent decline and prospects for its further reduction By Giovanni Andrea Cornia
  8. Inflation Targeting in Colombia, 2002-2012 By Miguel Urrutia; Franz Hamann; Marc Hofstetter
  9. Ideology and Taxation in Latin America By Ernesto H. Stein; Lorena Caro
  10. Policies for Making the Chilean Labour Market More Inclusive By Aida Caldera Sánchez
  11. Government Capabilities in Latin America: Why They Are So Important, What We Know about Them, and What to Do Next By Carlos Scartascini; Mariano Tommasi
  12. Tax Reforms in Latin America in an Era of Democracy By Diego Focanti; Mark Hallerberg; Carlos Scartascini
  13. The Distance between Perception and Reality in the Social Domains of Life By Eduardo Lora
  14. Optimal Adaptation and Mitigation to Climate Change in Small Environmental Economies By Omar Chisari; Sebastian Galiani; Sebastian Miller
  15. The Unemployment Subsidy Program in Colombia: An Assessment By Carlos Medina; Jairo Nunez; Jorge Andres Tamayo
  16. Access to Credit and the Size of the Formal Sector in Brazil By Pablo D`Erasmo
  17. The Brazilian Electoral Panel Studies (BEPS): Brazilian Public Opinion in the 2010 Presidential Elections By Barry Ames; Fabiana Machado; Lucio Renno; David Samuels; Amy Smith; Cesar Zucco
  18. Living on the Edge: Youth Entry, Career and Exit in Drug-Selling Gangs By Leandro Siqueira Carvalho; Rodrigo R. Soares
  19. Towards a “New” Inflation Targeting Framework: The Case of Uruguay By Martín González-Rozada; Martín Sola
  20. The cost of crime in Uruguay By Diego Aboal; Jorge Campanella; Bibiana Lanzilotta

  1. By: Adolfo Barajas; Roberto Steiner; Leonardo Villar; Cesar Pabon
    Abstract: Estimation of conventional Taylor rules for Brazil, Chile, Colombia and Peru shows that central banks increase their repo rate in response to increases in the output gap and, except in Peru, to deviations of inflation expectations from target. Using a Markov-Switching methodology, it is found that, in the presence of external shocks, Chile, Colombia and Peru temporarily abandoned their conventional reaction function. The Taylor Rule is expanded and variables are included related to exchange rate misalignments and to domestic credit developments; limited evidence is found that countries have used some form of integrated inflation targeting. There is strong evidence that intervention in F/X markets is determined by exchange rate misalignments rather than by exchange rate volatility and that most countries seem particularly concerned with a strong currency. Central banks appear to have pursued an inflation objective using a standard Taylor rule and an exchange rate objective through interventions in the F/X market.
    JEL: E31 E52 E61
    Date: 2014–01
  2. By: Eduardo Lora; Francesca Castellani
    Abstract: This book looks at the potential and the limits of policies to promote entrepreneurship as an important vehicle for social mobility in Latin America and the Caribbean, as well as steps to remove the constrains that hamper entrepreneurship.
    JEL: E21 I31 O15 Z13
    Date: 2014–03
  3. By: Ueki, Yasushi
    Abstract: This paper investigates the impact of trade barriers such as customs clearance, subjective trade obstacles (customs and trade regulations), and inventory of inputs on the internationalization of enterprises in Southeast Asia and Latin America, using the World Bank's enterprise surveys. Empirical results show a negative association between the internationalization of enterprises and subjective trade obstacles, while the impact of subjective trade obstacles is not significant on enterprises already internationalized. An international comparison between Southeast Asia and Latin America suggests that enterprises in Latin America face unfavorable conditions that discourage them from becoming more closely inserted into international production networks.
    Keywords: Southeast Asia, Latin America, International trade, Exports, Business enterprises, Export propensity, Export intensity, Trade cost, Inventory control
    JEL: F14
    Date: 2014–08
  4. By: Sebastian Galiani; Manuel Puente; Federico Weinschelbaum
    Abstract: Latin America has a comparative advantage in deforestation compared to other forms of climate change mitigation. Thus, to the extent that Latin America should engage in mitigation, the optimal climate change policy should manage these advantages by generating incentives in Latin America to deal with forestry. This paper describes the problem of deforestation and studies the market failures that arise in relation to forestry emission problems, analyzing them from a global public good perspective. The paper additionally describes other problems related to forestry emission issues and presents a non-exhaustive review of the solutions currently proposed to address this issue. The paper concludes with policy recommendations.
    JEL: D71 D79 F18 F53 Q54
    Date: 2013–08
  5. By: Marina Bassi; Matias Busso; Juan Sebastian Munoz
    Abstract: This paper uses 113 household surveys from 18 Latin American countries to document patterns in secondary school graduation rates over the period 1990– 2010. It is found that enrollment and graduation rates increased dramatically during that period, while dropout rates decreased. Two explanations for these patterns are provided. First, countries implemented changes on the supply side to increase access, by increasing the resources allocated to education and designing policies to help students staying in school. At the same time, economic incentives to stay in school changed, since returns to secondary education increased over the 1990s. Despite this progress, graduation rates are low, and there persist remarkable gaps in educational outcomes in terms of gender, income quintiles, and regions within countries. In addition, wage returns have recently stagnated, and the quality of education in the region is low, casting doubts on whether the positive trend is sustainable in the medium term.
    Date: 2013–10
  6. By: Jorge Aguero
    Abstract: Violence has a striking gender pattern. Men are more likely to be attacked by a stranger, while women experience violence mostly from their partners. This paper estimates the costs of violence against women in terms of intangible outcomes, such as women's reproductive health, labor supply, and the welfare of their children. The study uses a sample of nearly 83,000 women in seven countries from all income groups and all sub-regions in Latin American and the Caribbean. The sample, consisting of 26. 3 million women between the ages of 15 and 49, strengthens the external validity of the results. The results show that physical violence against women is strongly associated with their marital status because it increases the divorce or separation rate. Violence is negatively linked with women's health. The study shows that domestic violence additionally creates a negative externality by affecting important short-term health outcomes for children whose mothers suffered from violence. To obtain the child health outcomes, the study employs a natural experiment in Peru to establish that these effects appear to be causal. Finally, the paper presents evidence indicating that women's education and age buffer the negative effect of violence against women on their children's health outcomes.
    JEL: I12 I3 J16
    Date: 2013–08
  7. By: Giovanni Andrea Cornia (Dipartimento di Scienze per l'Economia e l'Impresa)
    Abstract: The paper reviews the extent of the income inequality decline which has taken place in Latin America over 2002-10 which reduced the regional Gini index to the level of the early 1980s. The paper then focuses on the factors which may explain such decline. These include a drop in the skill premium following an expansion of secondary education, the adoption of a new development model by a growing number of progressive goverments which adopted prudent but more equitable macroeconomic, tax, social assistance and labour policies. For the region as a whole, gains in terms of trade, remittances, FDI and world growth played an important but not determinant role though their impact was perceptible in countries where such shocks were sizeable. Finally, the paper reviews the changes in inequality during the difficult years 2009-12 and discusses whether and how the recent decline can be sustained over the next decade in the context of sluggish world growth.
    Date: 2014
  8. By: Miguel Urrutia; Franz Hamann; Marc Hofstetter
    Abstract: After decades using monetary aggregates as the main instrument of monetary policy and having different varieties of crawling peg exchange rate regimes, Colombia adopted a full-fledged inflation-targeting (IT) regime in 1999, with inflation as the nominal anchor, a floating exchange rate, and the short-term interest rate as the main instrument. This paper examines the experience of the Colombian Central Bank over the last decade, a period of consolidation and innovation of its IT strategy. The paper studies the increasing number of instruments used by the CB, including systematic foreign exchange interventions, announcements, and, sporadically, macro-prudential policies, capital controls, and changes in reserve requirements, among others. The study also examines some political economy dimensions that help explain the behavior of the CB during this period. To guide the discussion, a small-scale open-economy policy model is estimated.
    JEL: E02 E32 E42 E43 E52 E58 E61 F31 F33 F42
    Date: 2014–02
  9. By: Ernesto H. Stein; Lorena Caro
    Abstract: This paper examines the impact of ideology on tax revenues in Latin America, using a panel of 17 countries from 1990 to 2010. As a first approach, a fixed- effects model is used to identify the impact of ideology on taxation; left-leaning governments are associated with increases in total tax revenues and income tax revenues of 2. 1 and 1. 3 percent of GDP, respectively. There is no effect on revenues from VAT or social security taxes. To deal with endogeneity problems, an event study and a difference in difference methodology are used to track the behavior of revenues around the time of the shifts to the left. Tax revenues and income tax revenues increase by 1. 5 and 0. 8 percent of GDP when comparing revenues immediately before and after the shift in ideology. The pattern of tax revenues around ideological shifts suggests that the effects are causal.
    JEL: H20 P16
    Date: 2013–05
  10. By: Aida Caldera Sánchez
    Abstract: Economic growth and recent policy reforms have increased employment and reduced overall poverty in Chile. Yet there are some groups that remain at the margins of the labour market and could benefit from and contribute more to growth. Women and young people have entered the labour force in greater numbers, but their participation rates remain low compared to most OECD and Latin American countries. The participation of women in the labour market is held down by economic, cultural and regulatory barriers. For youth, poor basic skills acquired through compulsory education and the weak linkages between secondary education and job related skills often limit their employment prospects. Among lowskilled workers, a high minimum wage and strict employment protection pose a barrier to employment. At the same time, education and training policies do not sufficiently reach those with poor skills and the public employment services lack the capacity to deliver high quality job-search services. The paper discusses a number of policies that could help to make the Chilean labour market more inclusive and broaden the benefits of growth. These include expanding childcare, promoting a more flexible labour market and strengthening education and skills policies, among others. This Working Paper relates to the 2013 OECD Economic Survey of Chile ( Des politiques pour rendre le marché du travail chilien plus inclusif La croissance économique et les réformes récentes ont accru le niveau d’emploi et réduit la pauvreté globale au Chili. Pourtant, il y a certains groupes qui restent en marge du marché du travail. Les femmes et les jeunes sont de plus en plus nombreux à investir le marché du travail, mais leur taux d’activité reste faible par rapport à ceux de la plupart des pays de l’OCDE et d’Amérique latine. La participation des femmes sur le marché du travail est tenu par des obstacles économiques, culturels et réglementaires. Pour les jeunes, les faibles compétences de base acquises par l'éducation obligatoire et la faiblesse des liens entre l'enseignement secondaire ainsi que les compétences professionnelles limitent souvent leurs perspectives d'emploi. S’agissant des travailleurs peu qualifiés, l’existence d’un salaire minimum élevé et d’une protection de l’emploi rigide freinent l’accès à l’emploi. Dans le même temps, les politiques d'éducation et de formation ne parviennent pas suffisamment à ceux ayant de faibles capacités et les services publics de l'emploi n'ont pas la capacité de fournir des services de recherche d'emploi de haute qualité. Cette étude examine un certain nombre de politiques qui pourraient contribuer à rendre le marché du travail chilien plus inclusif et à élargir les bénéfices de la croissance. Il s'agit notamment de l’extension des services d’accueil des enfants, l’assouplissement du marché du travail et le renforcement des politiques éducatives et de développement des compétences, parmi d’autres mesures. Ce Document de travail se rapporte à l'Étude économique de l'OCDE de Chili 2013 ( tm).
    Keywords: female employment, youth employment, low-skilled workers, labour market policies, Chile, Chili, travailleurs peu qualifiés, emploi des femmes, emploi des jeunes, politique du marché du travail
    JEL: J1 J16 J21 J24 J3 J7
    Date: 2014–06–02
  11. By: Carlos Scartascini; Mariano Tommasi
    Abstract: This policy brief takes stock of the research on government capabilities undertaken at the Inter-American Development Bank, highlights the relevance of government capabilities for generating better policies and higher levels of development, summarizes what has been learned about the origins of those capabilities, suggests avenues for further exploration, and derives lessons (and caveats) for institutional reforms and for the operational work of the Bank.
    JEL: D72 D73 D78
    Date: 2014–01
  12. By: Diego Focanti; Mark Hallerberg; Carlos Scartascini
    Abstract: The literature on taxes and public finance generally focuses on revenues, an easily observable and generally available variable, as the observable measure of tax policy. Still, revenues depend on many determinants other than the political will and policy objectives of the government. It is therefore important, when studying the politics of taxation, to evaluate specific changes to the tax code such as rates, bases and exemptions. With the underlying goal of exploring the political process and the determinants of tax policy, this paper compiles a novel and highly comprehensive database of tax reforms for Latin America between 1990 and 2004. The paper present a description of the database as well as the stylized facts of tax reforms in Latin America. Examples of the database’s uses are discussed, as is motivation for future research.
    JEL: D72 H2 K34
    Date: 2013–12
  13. By: Eduardo Lora
    Abstract: The distance between perception and reality with respect to the social domains of life is often striking. Using survey data collected on Latin American countries, this paper provides an overview of the main empirical findings on the gaps between perception and reality in four social domains-health, employment, the perception of security, and social ranking. The overview emphasizes the psychological biases that may explain the gaps. Biases associated with cultural values are very relevant with respect to health and job satisfaction. Cultural differences across countries are pronounced in perceptions of health, while cultural differences across socioeconomic groups are more apparent with respect to job satisfaction. Affect and availability heuristics are the dominant sources of bias in the case of perceptions of security. The formation of subjective social rankings appears to be less culturally dependent but more dependent on the socioeconomic development in the country. The gaps between objective and subjective indicators in the social domains of life are a rich source of data to help understand how perceptions are formed, identify important aspects of people's lives that do not appear in official indicators, inform public debate on social policy, and shed light on public attitudes on key social issues.
    JEL: I19 J28 Z13
    Date: 2013–08
  14. By: Omar Chisari; Sebastian Galiani; Sebastian Miller
    Abstract: This paper compares the optimal dynamic choices between policies of mitigation and adaptation for three economies: Brazil, Chile and the United States. The focus is on the optimal role of mitigation and adaptation for “environmentally small economies,” i. e. , economies that are witnessing an exogenous increase in emissions to which they are contributing very little. The simulations lead to three main conclusions. First, small economies should concentrate their environmental efforts, if any, on adaptation. This is not a recommendation that such economies indulge in free-riding. Instead, it is based on considerations of cost effectiveness, ceteris paribus. Second, small economies that are unable to spend enough on adaptation may end up spending less on mitigation owing to their impoverishment as a result of negative climate shocks. Third, higher mitigation expenditures may arise not only as a result of greater optimal adaptation expenditures, but also because of increased adaptation to the incentives for mitigation provided by richer countries.
    JEL: Q52 Q54
    Date: 2013–10
  15. By: Carlos Medina; Jairo Nunez; Jorge Andres Tamayo
    Abstract: This paper assesses the effects of the Colombian Unemployment Subsidy (US), which includes benefits as well as training for some recipients. Using regression discontinuity and matching differences-in-differences estimators, the study finds that participation in the labor market, earnings of beneficiaries, and household income do not increase, and for some populations decrease during the 18 months after leaving the US program. Enrollment in formal health insurance falls. Effects on male heads of household include reductions in their earnings, decreases in their labor participation, and increases in their unemployment rates. The study also finds a small though statistically significant positive effect on beneficiaries' school attendance, but none on their children's weight or height at birth. The results are sensitive to the type of training that beneficiaries receive. Overall, the program serves more as a mechanism for smoothing consumption and providing social assistance than for increasing labor market efficiency.
    JEL: D12 H31 J38
    Date: 2013–05
  16. By: Pablo D`Erasmo
    Abstract: This paper studies the link between credit conditions and formalization in Brazil, as both credit and the rate of formalization have notably increased in the last decade. A firm dynamics model with endogenous formal and informal sectors is developed to quantitatively evaluate how much of the change in corporate credit and the size of the formal sector can be attributed to a reduction in the cost of financial intermediation. The model predicts that the observed reduction in intermediation costs generates an increase in the credit-to-output ratio and in the share of formal workers, in line with the data. It is found that -by affecting the corporate interest rate, the allocation of capital and the entry and exit rates- the change in credit conditions has important effects on firm size distribution and aggregate productivity.
    JEL: D24 E26 L11 O16 O17
    Date: 2013–04
  17. By: Barry Ames; Fabiana Machado; Lucio Renno; David Samuels; Amy Smith; Cesar Zucco
    Abstract: This report presents sample characteristics and summary statistics from the Brazilian Electoral Panel Study (BEPS) project. The survey, composed of three waves, was conducted in Brazil in 2010, a presidential election year, and is composed of 4,611 interviews with 2,669 voting-age Brazilians.
    Date: 2013–04
  18. By: Leandro Siqueira Carvalho (RAND Corporation); Rodrigo R. Soares (Department of Economics PUC-Rio)
    Abstract: We use data from a unique survey of members of drug-trafficking gangs in favelas (slums) of Rio de Janeiro, Brazil, to characterize drug-trafficking jobs and study the selection into gangs, analyzing what distinguishes gang-members from other youth living in favelas. We also estimate wage regressions for gang-members and examine their career path: age at entry, progression within the gangs’ hierarchy, and short- to medium-term outcomes. Individuals from lower socioeconomic background and with no religious affiliation have higher probability of joining a gang, while those with problems at school and early use of drugs join the gang at younger ages. Wages within the gang do not depend on education, but are increasing with experience and involvement in gang-related violence. The two-year mortality rate in the sample of gang-members reaches 20%, with the probability of death increasing with initial involvement in gang violence and with personality traits associated with unruliness.
    Date: 2013–02
  19. By: Martín González-Rozada; Martín Sola
    Abstract: Using a dynamic stochastic general equilibrium model with financial frictions, this paper evaluates the effects of a rule that incorporates not only the interest rate but also the legal reserve requirements as instruments of monetary policy. It is found that reserve requirements can be used to achieve the Central Bank’s inflation objectives. The use of this instrument, however, produces a real appreciation of the Uruguayan peso. When the Central Bank uses the monetary policy rate as an instrument, the effect of an increase in reserve requirements is to contribute to reducing the negative impact on consumption, investment and output. Nevertheless, the quantitative results in terms of inflation reduction are rather poor. The policy rate becomes more effective in reducing inflation when the reserve requirement instrument is solely directed at achieving financial stability. The paper’s main policy conclusion is that a well-targeted non- conventional policy instrument can help to effectively control inflation.
    JEL: C61 C68 E52 E58
    Date: 2014–02
  20. By: Diego Aboal; Jorge Campanella; Bibiana Lanzilotta
    Abstract: This paper uses cost accounting to estimate some of the costs associated with criminal activity and violence in Uruguay. Among the costs being considered are those of security and crime prevention; justice; incarceration and rehabilitation of prisoners; stolen goods; health care and loss of life resulting from violence; and costs associated with prisoners' loss of productive time while in prison. A variety of methodologies and sources of information were utilized to calculate these cost estimates. Although a significant range of costs has been covered, the cost of crime as a whole has not been accounted for due to limited information. Consequently, cost estimates must be interpreted as a minimum benchmark. The total estimated cost for 2010 in Uruguay comes to 3. 1 percent of gross domestic product (GDP).
    JEL: D60 H50 I31 K14
    Date: 2013–04

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