nep-lam New Economics Papers
on Central and South America
Issue of 2017‒04‒30
five papers chosen by

  1. Institutions vs. Social Interactions in Driving Economic Convergence: Evidence from Colombia By Coscia, Michelle; Cheston, Timothy; Hausmann, Ricardo
  2. Shifting Gears: A Growth Diagnostic of Panama By Hausmann, Ricardo; Espinoza, Luis; Santos, Miguel Angel
  3. Exploring the Uncharted Export: An Analysis of Tourism-Related Foreign Expenditure with International Spend Data By Coscia, Michele; Hausmann, Ricardo; Neffke, Frank
  4. Fiscal policy, income redistribution and poverty reduction in low and middle income countries By Nora Lustig
  5. Economic Complexity in Panama: Assessing Opportunities for Productive Diversification By Hausmann, Ricardo; Morales, Jose Ramon; Santos, Miguel Angel

  1. By: Coscia, Michelle (Harvard University and University of Namur); Cheston, Timothy (Harvard University); Hausmann, Ricardo (Harvard University)
    Abstract: Are regions poor because they have bad institutions or are they poor because they are disconnected from the social channels through which technology diffuses? This paper tests institutional and technological theories of economic convergence by looking at income convergence across Colombian municipalities. We use formal employment and wage data to estimate growth of income per capita at the municipal level. In Colombia, municipalities are organized into 32 departamentos or states. We use cellphone metadata to cluster municipalities into 32 communication clusters, defined as a set of municipalities that are densely connected through phone calls. We show that these two forms of grouping municipalities are very different. We study the effect on municipal income growth of the characteristics of both the state and the communication cluster to which the municipality belongs. We find that belonging to a richer communication cluster accelerates convergence, while belonging to a richer state does not. This result is robust to controlling for state fixed effects when studying the impact of communication clusters and vice versa. The results point to the importance of social interactions rather than formal institutions in the growth process.
    Date: 2017–02
  2. By: Hausmann, Ricardo (Harvard University); Espinoza, Luis (Harvard University); Santos, Miguel Angel (Harvard University)
    Abstract: Panama has been one of the fastest growing economies in the world over the previous decade. Growth has been spearheaded by the development of a modern service sector on the activities surrounding the Canal, and non-residential construction. Large public infrastructure projects and the private provision for infrastructure demanded by the service sector, have fueled growth and created a vibrant labor market for non-skilled workers. Two warning signals hover over Panama's stellar performance. The construction sector has been growing for a decade at a rate that is equivalent to doubling its stock of structures every four years. The demand for non-residential construction cannot grow indefinitely at a higher rate than the rest of the economy. This feeds into the second signal: Income inequality. In spite of the minor improvements registered over the accelerated-growth spell, Panama remains amongst the world's top five most unequal countries. Both warning signals point out to the need of further diversifying the Panamanian economy, and promoting economic activity in the provinces so as to deconcentrate growth and make it more inclusive. We deployed our Growth Diagnostic methodology in order to identify potential binding constraints to that process. Skilled labor, necessary to gradually diversify into more complex and high value-added activities, is relatively scarce. This scarcity manifests into large wage-premiums to foreigners across all occupations, which are particular large within more complex industries. Major investments in education have improved indicators of schooling quantitatively, but quality remains a major concern. We find that Panama's immigration policies are preventing skills from spilling over from their special economic zones into the rest of the economy. On top of that, the list of professions restricted to Panamanians and other constraints on skilled labor flows, are constraining even further the pool of skills. As we document here, these efforts are not helping the Panamanian workers, quite the contrary. We also find that corruption, and to a lesser extent, red tape, are other important factors that shall be addressed in order to allow Panama to shift the gears of growth, tackle inequality and continue growing at a fast pace.
    Date: 2016–10
  3. By: Coscia, Michele (Harvard University); Hausmann, Ricardo (Harvard University); Neffke, Frank (Harvard University)
    Abstract: Tourism is one of the most important economic activities in the world: for many countries it represents the single largest product in their export basket. However, it is a product difficult to chart: "exporters" of tourism do not ship it abroad, but they welcome importers inside the country. Current research uses social accounting matrices and general equilibrium models, but the standard industry classifications they use make it hard to identify which domestic industries cater to foreign visitors. In this paper, we make use of open source data and of anonymized and aggregated transaction data giving us insights about the spend behavior of foreigners inside two countries, Colombia and the Netherlands, to inform our research. With this data, we are able to describe what constitutes the tourism sector, and to map the most attractive destinations for visitors. In particular, we find that countries might observe different geographical tourists' patterns--concentration versus decentralization--; we show the importance of distance, a country's reported wealth and cultural affinity in informing tourism; and we show the potential of combining open source data and anonymized and aggregated transaction data on foreign spend patterns in gaining insight as to the evolution of tourism from one year to another.
    Date: 2016–11
  4. By: Nora Lustig (Tulane University)
    Abstract: Current policy discussion focuses primarily on the power of fiscal policy to reduce inequality. Yet, comparable fiscal incidence analysis for twenty-eight low and middle income countries reveals that, although fiscal systems are always equalizing, that is not always true for poverty. In Ethiopia, Tanzania, Ghana, Nicaragua, and Guatemala the extreme poverty headcount ratio is higher after taxes and transfers (excluding in-kind transfers) than before. In addition, to varying degrees, in all countries a portion of the poor are net payers into the fiscal system and are thus impoverished by the fiscal system. Consumption taxes are the main culprits of fiscally-induced impoverishment. Net direct taxes are always equalizing and indirect taxes net of subsidies are equalizing in nineteen countries of the twenty-eight. While spending on pre-school and primary school is pro-poor (i.e., the per capita transfer declines with income) in almost all countries, pro-poor secondary school spending is less prevalent, and tertiary education spending tends to be progressive only in relative terms (i.e., equalizing but not pro-poor). Health spending is always equalizing but not always pro-poor. More unequal countries devote more resources to redistributive spending and appear to redistribute more. The latter, however, is not a robust result across specifications.
    Keywords: fiscal incidence, social spending, inequality, poverty, developing countries.
    JEL: H22 H5 D31 I3
    Date: 2017–02
  5. By: Hausmann, Ricardo (Harvard University); Morales, Jose Ramon (Harvard University); Santos, Miguel Angel (Harvard University)
    Abstract: The economy of Panama has thrived for more than a decade, based on a modern service sector on the activities surrounding the Canal. Panama has inserted its economy into global value chains, providing competitive services in logistics, ship handling, financial intermediation, insurance, communication and trade. The expansion of the modern service sector required significant non-residential construction, including office buildings, commercial outlets, warehouses, and even shopping malls. Large public infrastructure projects such as the expansion of the Canal, the Metro, and Tocumen airport, have provided an additional drive and paved the road for productive diversification. But productive diversification does not spread randomly. A country diversifies towards activities that demand similar capacities than the ones already in place. Current capabilities and know-how can be recombined and redeployed into new, adjacent activities, of higher value added. This report identifies productive capabilities already in place in Panama, as signaled by the variety and ubiquity of products and services that is already able to manufacture and provide competitively. Once there, we move on to identifying opportunities for productive diversification based on technological proximity. As a result, we provide a roadmap for potential diversification opportunities both at the national and sub-national level.
    Date: 2016–10

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