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.

Using panel data from the International Country Risk Guide corruption index, institutional quality and political stability indices and several state variables for developed and developing countries, this paper explores the linear quadratic empirical relationship between corruption and economic growth. Empirical literature has shown a linear relationship between corruption and economic growth but hasn’t dif ferentiated between growthenhancing and growth-reducing levels of corruption. An analysis based on the generalized method of moments estimation shows that a decrease in corruption raises the economic growth rate in an inverted U-shaped way. This result is robust with respect to alternative specifications of the econometric relationship.

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.

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.

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.

This study explores the relationship between education and wages in Mexico. It contributes to our understanding of the structure of wages, helping explain individuals’ choices concerning education level. First, we estimate the age-earnings functions for each level of education. Then, taking into account some important costs of added years of study, we estimate the net present value of investment in human capital in each of four steps up the educational ladder. We estimate the internal rate of return associated with investment in each successive step considering different scenarios, two of which take into account prospective economic growth and mortality.

Peruvian monetary poverty declined by 12 percentage points in only four years. Based on the Alkire-Foster multidimensional headcount, we build a simple comparative framework to measure the tension between this result and a broader indicator of deprivation. We select six dimensions and apply this framework to Peruvian data for 2004 and 2008. The results indicate that if we rely only on monetary standards, there is an increased risk of classifying as non-poor individuals who still suffer significant deprivation. Deprivations are similar across regions and are largely related to the lack of adequate water and sanitation services. This last result reveals an opportunity to focalize public investment efforts.

We study family income inequality in Mexico from 1988 to 2010, when among married couples, the share of income contributed by females grew from 13 to 23 percent. However, the correlation of married males’ to married females’ earnings has been fairly stable at 0.28, one of the highest correlations recorded across countries. We follow Cancian and Reed’s (1999) methodology in order to determine whether married females’ income equalizes total family income distribution. We investigate several counterfactuals and conclude that increased female employment has contributed to a decline in family income inequality through higher married females’ labor participation in poor families.

This study uses a computable general equilibrium model to analyze the effects of eliminating Colombia’s parafiscal taxes, which finance social programs. In the model, these are substituted by alternative financing sources: VAT, indirect taxes or taxes on capital. The results show that elimination of parafiscal taxes produces a one percentage point decrease in the unemployment rate, as long as these are not substituted by other taxes. However, when other taxes are substituted for parafiscal taxes, there may not be any effect on the unemployment rate. This implies that eliminating parafiscal taxes does not produce the effects expected by a partial equilibrium analysis, that is, a significant reduction in the unemployment rate.

Previous research has shown that trade and FDI are beneficial to countries’ economic development. This paper builds on the literature, and analyzes the effects on total factor productivity (TFP) through three channels of openness—imports, inward FDI and international call traffic (ICT) for a set of developing countries in Asia and Latin America and the Caribbean (LAC). Using data from the period of 1980 to 2000, I find that imports, FDI and international call traffic all significantly promote TFP growth in developing countries, and that human capital enhances the ef fects of imports on TFP.

On December 2010, five research teams gathered in Santiago, Chile, to discuss the growth experiences of Argentina, Chile, Colombia, Mexico and Venezuela since independence from Spain was declared in 1810. The five teams answered an invitation from the editors of the Latin American Journal of Economics to explain why these countries’ growth experiences lag so far behind those of the developed world, and at the same time, why their trajectories have been so dissimilar. This paper serves as an introduction to the special issue, characterizing the patterns of growth in Latin America, and discussing the teams’ answers.

We document the behavior of income per capita in Argentina subsequent to independence and the civil wars of the mid-19th century. We first decompose the data to isolate low frequency behavior and show that, with significant departures over some periods of time, income per capita grew, on average, at 1.2% per year. The decomposition shows that the largest departure from this behavior is the period from 1974 to 2010, when there was a large and sustained deviation from the trend, with two subperiodsof rapid convergence. Using a simple version of Solow’s growth model as a conceptual framework, we focus our analysis on that particular period. We calibrate and simulate the model from 1950 onwards and use its predictions to provide a quantitative measure of the extremely poor performance of the Argentine economy since 1974. We also use a simple model of the government budget constraint to account for the macroeconomic history of Argentina during that same period. We argue that the systematic mismanagement of government budgets is the principal reason for Argentina’s long departure from the trend. The two subperiods of rapid convergence coincide with the two subperiods of macro fiscal discipline.

This article analyzes long-term patterns of growth of the Chilean economy. Examining 200 years of data, it shows evidence in favor of using a neoclassical growth model to conduct the empirical analysis. It presents a formal analysis of structural breaks in the Chilean growth process, finding structural changes in 1929 and 1971/1981. A further analysis of the country’s economic history indicates that fiscal policy, external shocks and trade policy are plausible explanations for these breaks. When these variables are included in the empirical model, the hypothesis of no breaks during these 200 years cannot be rejected.

Using modern growth theory, we estimate Colombian total-factor productivity relative to the United Kingdom’s for the last 200 years in order to match observed income differences. Our results show Colombia’s remarkably inefficient use of technology relative to a country that is a leader in this regard and provide quantitative estimates of the proximate causes of relative income differences between the two economies.

The standard of living, measured as gross domestic product (GDP) per capita, increased dramatically in Venezuela relative to that of the United States from 20 percent in 1920 to 90 percent in 1958, but since then has collapsed to around 30 percent nowadays. What explains these remarkable growth and collapse episodes? Using a standard development accounting framework, we show that the growth episode is mainly accounted for by an increase in capital accumulation and knowledge transfer associated with the foreign direct investment in the booming oil industry. The collapse episode is accounted for equally by a fall in total factor productivity and in capital accumulation. We analyze Venezuela during the collapse episode in the context of a model of heterogeneous production units were policies and institutions favour unproductive in detriment of more productive activities. These policies generate misallocation, lower TFP, and a decline in capital accumulation. We show in the context of an heterogeneous-establishment growth model that distortionary policies can explain a large portion of the current differences in TFP, capital accumulation, and income per capita between Venezuela and the United States.

In 1950 Mexico entered an economic takeoff and grew rapidly for more than 30 years. Growth stopped during the crises of 1982-1995, despite major reforms, including liberalization of foreign trade and investment. Since then growth has been modest. We analyze the economic history of Mexico 1877-2010. We conclude that the growth 1950-1981 was driven by urbanization, industrialization, and education and that Mexico would have grown even more rapidly if trade and investment had been liberalized sooner. If Mexico is to resume rapid growth—so that it can approach U.S. levels of income—it needs further reforms.

As in other Latin American countries, labor informality in Uruguay mainly affects less educated workers, who are also more vulnerable to poverty. We analyze the impact of some policies against informality in Uruguay, applying a general equilibrium model with a segmented labor market specification. We simulate two sets of policies: payroll tax cuts and increased enforcement in the informal sector. Both sets of policies are effective in reducing informality, but the effect on poverty is not straightforward. Poverty falls as informality is reduced; however, as enforcement policies increase hiring costs for informal firms, wages of low-skilled workers decline and poverty increases.

In this paper we study the properties of general equilibrium with default in economies with incomplete markets. It is noted that, in equilibrium, an agent makes two types of comparisons when deciding whether to participate in the credit market: as a lender and as a borrower. As a consequence, the equilibrium can be linked to levels of punishment, perception of default and promised returns. An analysis of equilibrium in the case of economies with two homogeneous types of agents is also presented, from which it can be deduced that in equilibrium under partial default the personal valuations of default for the buyer and the seller are equal.

Some countries in Latin America have introduced a tax on bank withdrawals in order to increase revenue. The debit tax has usually been levied in periods of economic turbulence. This paper analyzes the effects of such a tax on real cash holdings and on balances of different types of bank accounts in Colombia. The paper analyzes data for the period 1994 to 2007 and then verifies the robustness of the model using only the data from 2000 to 2007, thereby eliminating the economic crisis of the late 1990s. The results show that even though the tax caused a decrease in checking account balances, the changes produced in total balances of real cash after 2001 cannot be attributed to the debit tax. However, an increase in the rate of growth of savings account balances can be attributed to it, suggesting a substitution from checking toward savings accounts.

An inelastic tax system increases the uncertainty associated with tax revenue collection. This results in continuous short-term adjustments to maintain the stability of tax collection. In this paper, we estimate the revenue elasticity of the principal taxes in Mexico, finding a much greater elasticity than that found in previous studies. A cointegration model between the revenue and taxes is used which satisfies strong exogeneity, providing a basis for congruent and reliable projections. Using this model, the tax revenue projected for 2011 is much lower than the estimates prepared by Mexico’s federal government.