The Latin American Journal of Economics - formerly Cuadernos de Economía - is an open-source journal published by the Economics Institute for over 47 years.
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This paper explores the direct ef fect of an education expansion on the level of earnings inequality by carrying out microsimulations for most Latin American countries. We find that the direct ef fect of the increase in years of education in the region in the 1990s and 2000s was unequalizing; this result is expected to hold for future expansions if increases in education are not highly progressive. Both facts are closely linked to the convexity of returns to education in the labor market. On average, the estimated impact of the education expansion remains unequalizing when allowing for changes in returns to schooling, although the ef fect becomes smaller.
An optimal monetary policy Taylor rule is developed for an open economy, which we then estimate following a Markov regime-switching model for quarterly data from Colombia during 1990-2011. We find two opposite monetary regimes characterized by different policy rules: until October 2000 the Central Bank of Colombia reacted only statistically to output gap changes while after October 2000, when inflation targeting was of ficially adopted, monetary policy reacted only statistically to changes in the inflation rate. The latter regime is consistent with the Taylor principle as shown analytically and verified empirically by a unit root test for a Markov regime-switching model.
In 1992, Mexico’s federal government signed the ANMEB agreement as part of a series of strategic public education reforms. The agreement decentralized the education system, making state governments directly responsible for providing basic public education, in an attempt to reduce marked regional disparities in educational levels. Now that sample sizes are large enough to allow reasonable empirical analysis, I examine several indicators used to measure the characteristics of education in each state. The aim is to assess whether there is suf ficient empirical evidence to af firm that the agreement has contributed to improving education levels and reducing disparities among the states.
We analyze the consequences of a teenage pregnancy event in the short and long run in Mexico. Using longitudinal and cross-section data, we match females who became pregnant and those who did not based on a propensity score. In the short run, we find that a teenage pregnancy causes a decrease of 0.6-0.8 years of schooling, lower school attendance, fewer hours of work and a higher marriage rate. In the long run, we find that a teenage pregnancy results in a 1-1.2-year loss in years of education, which implies a permanent ef fect on education, and lower household income per capita.
This paper provides the first empirical evidence for Mexico about relative wage dif ferences between college-educated and high-school-educated workers across five-year age groups. Rotating panel surveys are used to implement an imperfect substitution model for similar male workers between dif ferent age groups and between the two education groups. For the period 2005-2012, the results suggest a partial elasticity of substitution of 1.7 for college- and high-school-educated workers and a partial elasticity of substitution of about 3 across age groups. Remarkably, the wage gap between younger and older workers with the same education level increased after the economic crisis of 2008.
This paper provides an overview of the real options approach to valuation mainly from the point of view of the author who has worked in this area for over 30 years. After a general introduction to the subject, numerical procedures to value real options are discussed. Recent developments in the valuation of complex American options has allowed progress in the solution of many interesting real option problems. Two applications of the real options approach are discussed in more detail: the valuation of natural resource investments and the valuation of research and development investments.
Using a panel of 16 countries during the 1961-2010 period, we find that financial development has a positive significant ef fect on economic growth in the long run for high-income countries but a negative significant ef fect for low-income countries. When studying the determinants of financial development, we find that higher financial openness and lower country risk are associated with greater financial development. The financial risk index has a positive significant ef fect on financial development, while the economic risk index has a negative significant ef fect. In addition, lower foreign debt and better socioeconomic conditions increase financial development.
The purpose of this article is to determine the impact of foreign direct investment (FDI) on a country’s overall economy rather than simply the sectors receiving such investment. The strategy consisted of adopting a crowding-in/crowding-out approach to Mexico’s total capital volume in the 1993-2010 period. The substitutability of foreign and local capital implies a lower-than-expected economic dynamism. Using a dynamic panel analysis, a negative relationship was found between FDI and the general wage. Throughout the analysis, firm size stands out as a key variable in explaining the impact of FDI.
We estimate the elasticity of the long-run relationship between energy consumption and GDP for 10 countries in Latin America from 1971 to 2007. We employ Pedroni’s (1999, 2004) panel cointegration test to determine if such a long-run relationship exists. Westerlund’s (2006) cointegration test for panel data is used to estimate the slopes of the long-run relationship variables. These findings provide empirical guidance for policies to promote energy conservation and ef ficiency. Cointegration between the two variables is found to exist in both directions. This paper discusses the energy dependence of some countries and describes potential implementation of energy conservation policies in others.
This paper proposes a dynamic economic model with wealth accumulation and human capital accumulation with endogenous education. In addition to learning by education like in the Uzawa-Lucas model, we also consider Arrow’s learning by producing and Zhang’s learning by consuming (creative learning) in the human capital accumulation equation. We simulate the model to demonstrate the existence of equilibrium points and motion of the dynamic system. We also examine how ef fects of changes in the propensity to receive education, the population, the propensity to save, and the education sector’s total productivity will alter the paths of the economic dynamics.
Some approaches to measuring the middle class are based on an arbitrary definition such as income quartiles or the poverty line. Foster and Wolfson have recently developed a methodology without arbitrariness. We apply this tool and a complementary method–the relative distribution approach–to analyze the evolution of the middle class and polarization in Uruguay during the 1994-2004 and 2004-2010 periods. During the first period, characterized by increasing income inequality, the middle class declines and income polarization increases. In the second period, which includes the recovery from the 2002 downturn, we find that the middle class increases and polarization decreases.
This paper describes the effects of the 2009 global financial crisis on firms' access to financing for investment projects. The analysis uses data from the Latin American and Caribbean Enterprise Surveys 2006 and 2010, demonstrating that during the crisis, the availability of internal sources was crucial for larger and foreign-owned firms or firms that were part of a group, while state-owned firms did not enjoy any financial privileges. Firms sought greater bank and supply-chain financing, larger firms used less internal funds, foreign firms relied more on internal funds, while firms that export and import used bank credits more intensively.
We use microdata from the National Social Security Administration to document pension inequality in Argentina between 1995 and 2009 and perform decomposition techniques to analyze the relationship between pension reforms and observed inequality. We find that before 2003, pensions under SIJP rules, the incorporation of provincial benefits into the national scheme and the increase of female retirees play important roles in accounting for increased inequality, while after 2003 the increase in the share of minimum pensions and implementation of the moratorium program appear to be the most significant factors in explaining more equal distribution.
This paper analyzes the relationship between economic growth and productivity to budget share ratios of government expenditures in Bolivia since 1940. Government expenditures are classified according to their functional and economic characteristics and place of origin. The results indicate that defense expenditures, decentralized expenditures (local or regional), and expenditures in Santa Cruz Department represent the best ways for government to boost the country's growth. Expenditures on additional areas, such as education, and in other promising departments, such as Beni and Oruro, have the potential for generating significant growth and should be considered areas for possible government intervention.
It is widely argued that good governance is an important determinant of foreign direct investment (FDI). With the exception of studies of corruption, however, empirical research on the link between governance and FDI is limited, particularly in the context of Latin America. Moreover, recent studies by Bellos and Subasat (2012a and 2012b) suggest that poor governance is a source of attraction rather than a hurdle for multinational companies in selected transition countries. By employing a panel data gravity model, this article aims to verify these unusual and interesting results in the context of selected Latin American countries. Our results confirm that the FDI enhancement role of poor governance exists not only in the transition countries but also in Latin America.
This paper compares out-of-sample performance, using the Chilean GDP dataset, of a large number of autoregressive integrated moving average (ARIMA) models with some variations to identify how to achieve the smallest root mean squared forecast error with models based on information criteria--Akaike, Schwarz, and Hannan-Quinn. The analysis also addresses the role of seasonal adjustment and the Easter effect. The results show that Akaike and Schwarz are better criteria for forecasting when using actual series and Schwarz and Hannan-Quinn are better with seasonally adjusted data. Accounting for the Easter effect improves forecast accuracy for actual and seasonally adjusted data.
The recent worldwide economic conditions resulting from the financial crisis call for greater cooperation. This paper assesses the impact of trade reforms between Latin America and the Caribbean (LAC) and India and LAC and the EU (European Union) at 2020 using a global computable general equilibrium (CGE) model. The findings show that LAC-EU tariff reduction appears to be beneficial for both regions in the short run, though not so in the long run, while the LAC-India tariff reduction impact appears to be more beneficial for both economies in the long run. This important finding emphasizes the scope and opportunities for south-south cooperation in the long run.
Given that a significant proportion of the Chilean education system is financed with household resources, we present human capital contracts (HCC) as an option for higher education financing for students facing financial constraints, but who could use their expected future income flows as collateral. We analyze the feasibility of HCC implementation in Chile over a set of college majors. We find that HCC can partially fund any college major in Chile and finance some majors completely, under certain conditions. Among the variables analyzed, those affecting most severely the contract pricing are initial wage level after graduation and graduation rate.
We examine the behavior of output disparities of Mexican regions relative to the richest region, the Capital, during the period 1940-2009, and the dynamics of the output gap series of the U.S.-Mexico border region. Our estimations suggest that whilst other Mexican regions have been catching up with the Capital region, the Mexican border region has lagged behind its U.S. counterpart. Moreover, we find evidence that the economic liberalization reforms of the 1980s negatively affected the output gap of most regions, without reverting the catching-up process. The border region is a notable exception, where the reforms actually accelerated the catching-up process.
This article introduces a political economy model for studying the relationship between the vote-buying strategy of a party that has won the mayoralty of a municipality in the last election and its preferences as the governing party on the municipal political space, given its desire to maintain its position. The main result is that the governing party prefers to promote, given its clientelistic structure, the political agendas with which it selectively impoverishes worse-of f (WO) individuals; this will allow that equilibrium prices in vote markets will be reduced in a next election, and therefore, it will help enable the governing party to achieve its objective of maintaining governmental power through its vote-buying strategy in the exchange network.
Instituto de Economía - Facultad de Ciencias Económicas y Administrativas - Pontificia Universidad Católica de Chile
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