Generating sustained growth in Sub-Saharan Africa (SSA) is one of the most pressing challenges in global development. As the region clearly needs assistance to jump start its development, foreign aid becomes crucial. This paper investigates the nexus between foreign aid, exchange rate misalignment, and economic growth in SSA. Contrary to conventional wisdom, we do not find aid to be a major contributor to exchange rate overvaluation. In addition, we found that aid fosters growth but its impact is weaker in countries with overvalued exchange rates. Furthermore, we found that overvaluation reduces growth but its negative effect is ameliorated by financial development.

Despite the important role that total factor productivity (TFP) has played in the growth literature, few attempts have been made to change the methodology to estimate it. This paper proposes a methodology based on a state-space model to estimate TFP and its determinants. With this methodology, it is possible to reduce the measurement of our ignorance. As a by-product, this estimate yields the capital share in output and the long-term growth rate. When applied to Chile, the estimation shows a capital share around 0.5 and long-term growth of TFP around 1%. Capital accumulation tends to explain the growth rate in the fast growth periods under the econometric estimation more than the traditional growth accounting methodology.

Using a rich data set of Chilean exporters, we analyse several issues regarding the relationship between entry into export markets and product quality. We find that every year, a large number of new exporting relationships are initiated, but the survival rate of these entries is very low and declines over time. Using unit values as a proxy for product quality, our estimations show that entry is generally associated with higher product quality. This higher quality, however, tends to reduce over time and eventually disappears three years after entry. In addition, our evidence suggests that the positive relationship between entry and quality is more prevalent in new exporters. To better identify this effect, we explore whether there are systematic differences across sectors. As expected, for sectors in which quality differentiation may be important, our findings reveal that reference-price and differentiated products show a higher price in the year of entry and a longer convergence to incumbent prices. These results hold after controlling for potential sample selection bias.

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.

Dollarization brought price stability and higher economic growth to Ecuador. Nevertheless, unemployment remained stubbornly high. Two opposing forces explain this result: sustained growth led to higher labor demand but price stabilization triggered substitution effects by cheaper intermediate goods and capital.

The process whereby monetary unification of certain countries of the European Union was achieved is studied, as also the experience of the beginning years of the euro’s existence. The author first describes the effect that the euro has had upon the commercial and financial integration of the Union’s members. Thereafter, the monetary and fiscal policy of the Monetary Union is analyzed. It is considered that the European Central Bank has been successful in establishing the credibility of its monetary policy as based upon a targeted inflation rate.

However, with respect to its fiscal policy, the author arrives at the conclusion that the weakening of control over the potential tendency towards a deficitary fiscal stance could pose a threat in the Monetary Area for the European Central Bank’s credibility. The international functions of a currency are also analyzed, and the evolution of the euro as an inter- national currency for both private and official use is studied.

We explore the effects of government subsidies on presidential elections in Chile in 1989-99. We use a panel with three periods (the elections of 1989, 1993, and 1999) and 229 counties. We correct for the potential simultaneity problem deriving from the fact that an incumbent facing a difficult political scenario might react by increasing subsidies to improve his/her electoral performance. Our results indicate that the greater the coverage of these types of programs (i.e., the percentage of people receiving subsidies), the higher the votes for the incumbent.

The economic performance of Uruguay in the last 50 years has been disappointing. Annual growth in labor productivity has been lower than the rest of the Latin American economies and well below that East Asian and OECD countries. Out of the 0.9 percent of annual growth in productivity, total factor productivity (TFP) accounts for around 45 percent, which confirms the key role TFP plays in economic growth. The paper aims to discuss the issues.