Organized Crime: Causes, Consequences and Potential Policies
November 6, 2024 - Presentation by Maria Micaela Sviatschi
Millions of people currently live under systems of governance created by rebels during civil wars or by criminal organizations such as cartels and gangs (Lessing, 2021; Blattman et al., 2023). However, little is known about the development implications both during and after these groups are in power. Moreover, in several contexts, such as in Central America, Colombia, Peru, Brazil, and South Africa, and particularly in urban areas, non-state armed actors coexist with the formal state, controlling several parts of the territory. At the same time, many of these non-state actors use children as their main source of labor, affecting the incidence of youth violence and the expansion of these groups. While much of the literature has studied the rise of non-state actors due to the absence of the state, little is known about situations with such a duopoly of violence. I use both quasi-experimental and experimental methods to further our understanding of (a) the immediate implications of non-state armed actors on human capital formation and development, (b) the persistence of such effects, and (c) help identify policies to limit the ability of non-state armed actors to grow or spread.
Financial Information and Retirement Planning: Evidence from a Mandatory Financial Counseling Program
September 24, 2024 ¨C Presentation by
This paper examines the impact of financial education on retirement planning using Dual Advisory, a financial advice program implemented in Colombia. The program, which provides workers with personalized advice on switching pension plans, was gradually made mandatory and aimed to prevent costly switching decisions. Using administrative data and taking advantage of the phased implementation of the program, we estimate the causal effects of financial education on pension switching and contribution behavior. We find that the program reduced pension switching by 30-40%, due to both increased inertia and improved decision making by workers. Personalized information increased the likelihood of choosing a pension plan with higher expected returns, but we find no evidence that the program affected workers' contribution frequency after switching. These findings support the effectiveness of financial education in improving retirement preparedness through better decision making, but not necessarily in changing saving behavior.
The Peculiar Politics of Antitrust in Latin America
September 11 2024 - Presentation by: Ben Ross Schneider
Antitrust policies and institution building in Latin America raise two main questions. First, how did 3 of the richest and largest countries ¨C Brazil, Chile, and Mexico ¨C build in the space of only a decade (2006-16) the strongest antitrust agencies and policies in the region? The answers lie mostly in international dissemination of best practices and pressures from foreign governments (with foreign business backers). Second, how did big business fight back to reduce the power of these agencies? The answers here depend heavily on the varying institutional openings or vulnerabilities that allowed individual businesses to contest agency decisions or weaken it overall. These vulnerabilities arose from judicial systems in Mexico and Chile and electoral laws, especially proportional representation, in Brazil.
Routes to Reform: Education Politics in Latin America
September 10 2024 - Presentation by: Ben Ross Schneider
The key to sustained and equitable development in Latin America is high quality education for all. However, coalitions favoring quality reforms in education are usually weak because parents are dispersed, business is not interested, and much of the middle class has exited public education. In Routes to Reform, Ben Ross Schneider examines education policy throughout Latin America to show that reforms to improve learning specially making teacher careers more meritocratic and less political are possible. Several Andean countries and state governments in Brazil achieved notable reform since 2000, though on markedly different trajectories. Although rare, the first bottom-up route to reform was electoral. The second route was more top-down and technocratic, with little support from voters or civil society. Ultimately, by framing education policy in a much broader comparative perspective, Schneider demonstrates that contrary to much established theory, reform outcomes in Latin America depended less on institutions and broad coalitions, but rather due to the emptiness of the education policy space on more micro factors like civil society organizations, teacher unions, policy networks, and technocrats.
Business Uncertainty in Developing and Emerging Economies
April 24, 2024 - Presentation by: Jose Maria Barrero
We study business uncertainty in volatile environments by surveying 31,000 managers across 41 countries and building a dynamic model to quantify the implications. We elicit subjective probability distributions about future own-firm sales and measure firm-level uncertainty with their second moments. In turn, we measure realized volatility at the firm-level with managers¡¯ absolute forecast errors. Our analysis centers on two new facts. (1) Uncertainty and volatility both decline with GDP per capita. (2) Managers underestimate volatility everywhere (they are overprecise), but more so in rich countries. We build a heterogeneous-firm dynamic model featuring real investment and entry/exit options, and use it to weigh up our facts against cross-country productivity gaps. Firm value and investment are convex in profitability, so high volatility in poor countries requires lower aggregate TFP to account for their low GDP per capita. High overprecision in rich countries pushes the other way because it improves selection and reallocation, thereby raising rich-country GDP per capita.
Refunds and Firms' Performance: Evidence from a Withholding Reform in Honduras
March 19th, 2024
Value-added taxes (VAT) have been widely adopted across the world. One key issue in the effective administration of VAT are refunds: late or unreliable refund of credits undermine the best traits of VAT systems and might affect firms¡¯ growth and investment opportunities. In this paper, we use administrative data on the universe of VAT taxpayers in Honduras to estimate the impact of a tax reform aimed at curtailing excessive unrefunded credits. First, we document the substantial expansion of unrefunded credits in the period 2011-2019, equivalent to 1.5% of GDP, and characterize its drivers. We then study a reform that substantially decreased the withholding rate of VAT liabilities by credit card providers. Using a differences-in-differences approach, we document that the reform causally decreased unrefunded credits of affected firms and thus was equivalent to a tax cut. We then evaluate whether this reform affected firms¡¯ economic outcomes such as investment, wage bill or revenue, and are unable to reject the null hypothesis of zero effects on firm growth.
February 28, 2024 - Presentation by: Gustavo de Souza
This paper studies the effect of an innovation subsidy on the growth of firms in a developing country. Using administrative microdata for Brazil and difference-in-differences, I find that innovation subsidies drive firm growth by facilitating firm entry into high-tariff markets with domestically produced versions of foreign goods. After receiving an innovation subsidy, firms issue more patents, expand their workforce, and diversify their product line. However, these patents receive minimal citations, while also heavily citing foreign patents. Firms increase imports of foreign inputs and expand their product line towards products with high import tariff. Despite that, in the most conservative estimate, every $1 of innovation subsidy generated $10 in present value wages.
- Somik Lall
February 12, 2024 - Presentation by: Michele Ruta
This paper introduces the New Industrial Policy Observatory (NIPO) dataset and documents emergent patterns of policy intervention during 2023 associated with the return of industrial policy. The data show that the recent wave of new industrial policy activity is primarily driven by advanced economies, and that subsidies are the most employed instrument. Trade restrictions on imports and exports are more frequently used by emerging market and developing economies. Strategic competitiveness is the dominant motive governments give for these measures, but other objectives such as climate change, resilience and national security are on the rise. In exploratory regressions, we find that implemented measures are correlated with the past use of measures by other governments in the same sector, pointing to the tit-for-tat nature of industrial policy. Furthermore, domestic political economy factors and macroeconomic conditions correlate with the use of industrial policy measures. We intend for the NIPO to be a publicly available resource to help monitor the evolution and effects of industrial policies.
November 9th - Presentation by Sebastian Edwards
In The Chile Project, Sebastian Edwards tells the remarkable story of how the neoliberal economic model¡ªinstalled in Chile during the Pinochet dictatorship and deepened during three decades of left-of-center governments¡ªcame to an end in 2021, when Gabriel Boric, a young former student activist, was elected president, vowing that ¡°If Chile was the cradle of neoliberalism, it will also be its grave.¡± More than a story about one Latin American country, The Chile Project is a behind-the-scenes history of the spread and consequences of the free-market thinking that dominated economic policymaking around the world in the second half of the twentieth century¡ªbut is now on the retreat. In 1955, the U.S. State Department launched the ¡°Chile Project¡± to train Chilean economists at the University of Chicago, home of the libertarian Milton Friedman. After General Augusto Pinochet overthrew socialist president Salvador Allende in 1973, Chile¡¯s ¡°Chicago Boys¡± implemented the purest neoliberal model in the world for the next seventeen years, undertaking a sweeping package of privatization and deregulation, creating a modern capitalist economy, and sparking talk of a ¡°Chilean miracle.¡± But under the veneer of success, a profound dissatisfaction with the vast inequalities caused by neoliberalism was growing. In 2019, protests erupted throughout the country, and in 2022 Boric began his presidency with a clear mandate: to end neoliberalism. In telling the fascinating story of the Chicago Boys and Chile¡¯s free-market revolution, The Chile Project provides an important new perspective on the history of neoliberalism and its global decline today.
November 1st, 2023 - Presentation by: Christian Posso
This paper evaluates the impact of a regulatory reform implemented in Colombia that aimed to promote the formalization of new start-ups by cutting down registration costs and taxes and aims to study startup survival determinants. Using a rich combination of administrative records that allow us to follow in time the universe of formal firms in the country, we analyze static and dynamic effects on new formal firm's creation and the quality of the new firms created by testing whether they had a higher probability of survival due to the reform, and whether the firms created faced fewer financial constraints through access to formal credit. We find that the reform increased the number of formal small firms registered by 30%, but we do not find evidence that the newly formalized firms that benefited from the reform had a higher probability of survival, which means that reducing formalization costs could not be enough to improve the quality of the new firms created. We, therefore, consider a statistical model to rationalize the determinants of firm size and firm survival.
June 14th, 2023 - Presentation by: Jorge Padilla
Economic inequality has increased in many western countries and is one of the driving impulses of the growth of populist parties and policies worldwide. Populists peddle simple solutions to complex problems, are obsessed with immigration, and blame the failure of their policies on foreign agents, supranational entities, or domestic minorities. While right-wing populists in power raise inequality further, left-wing populists tend to reduce inequality but at the expense of sacrificing growth. Tackling inequality without undermining the rule of law and economic well-being requires a non-populist approach that takes into account that citizens¡¯ aspirations go beyond bread and circus and care about status and value the dignity of labor. This paper discusses whether and how the EU can provide a solution to the growth, dignity and equality trilemma and thus eschew the phantom of populism.
April 21st, 2023 ¨C Presentation by: Paul Gertler
The Covid-19 pandemic generated a huge negative shock to the global economy. Businesses around the world were affected by mobility, gathering, and other restrictions that impacted consumer demand and consequently the profitability and survival of firms. In this paper, we study the performances of Latin-American SMEs during the pandemic and the impact of a common public policy, namely government backed loans, to mitigate those impacts using a failed experiment. In the first part of the paper, we use disaggregated and high frequent administrative banking account data that can approximate firms¡¯ earnings in Brazil, Chile, Colombia, Mexico, Paraguay, and Peru. Besides observing a sharp short-term decline in the total amount of earnings due to the implementation of the first wave of lockdowns (implemented during the second half of March 2020), we go further and study the heterogeneous impact of the pandemic shock by economic sectors, firms¡¯ sizes, the gender of either the owner or the main shareholder, and the type of deposits (online vs. inperson).
The study focuses on fintech adoption by studying the migration from in-person to online banking transactions. Our main findings are: i. SMEs suffered most right after the lockdowns implementations, but they could reach pre-pandemic levels in 2021 due to the acceleration of the digitization process; ii. the earnings¡¯ gender gap are small during both the lockdown and recovery phases; and iii. industries facing higher exposure to the public experienced a larger decline and a slower recovery. In the second part of the study, we partnered with the government of Chile and BCI for a field experiment in government backed loans to SMEs. We find that the loans increased firms¡¯ liquidity and helped small firms maintain employment levels during the pandemic.
April 20, 2023 - Presentation by: Felipe Valencia and Laura Garcia
Origins of Latin American Inequality: How deep are the roots of Latin America¡¯s economic inequalities? In this chapter we survey both the history and historiography of the region¡¯s extreme economic disparities, focusing on the most recent academic contributions. We begin by documenting the broad patterns of national and sub-national differences in income 2 and inequality, building on the seminal contributions of Sokoloff and Engerman (2000); Engerman and Sokoloff (2002, 2018) and aiming to capture different dimensions of inequality. We then proceed thematically, providing correlational evidence and summarizing the key recent studies on each topic. We focus on colonial institutions, slavery, land reform, education, and the role of elites. Finally, we conduct a ¡°replication¡± exercise on some key papers in the literature, extending their results to include different measures of inequality as outcomes. Trapped by Inequality Narratives of Progress and The Politics of Redistribution in Latin America: This book explores long-term trajectories of economic inequality in Latin America and identifies the causes of persistent levels of economic inequality in Latin America and explains how and why some countries manage to escape such traps and embark on paths of diminishing inequality. I argue that differences in state-elite equilibriums shape redistributive institutions (e.g., tax and agrarian reform legislation) and, thereby, long-run economic inequality. State-elite equilibriums are a function of state capacity and the political cohesiveness of the Economic Elite at key moments of institutional change. Unlike most research on this topic, I use a small-n design to theorize on the patterns of economic inequality over the course of the twentieth century, an approach that unveils moments of divergence that are lost in cross-country statistical analyses. To test my theory, I integrate different methodological approaches including in-depth comparisons between Uruguay, Chile, Colombia, and Per¨². The comparison zooms in into three definitory moments for state-elite equilibriums and inequality as a result: state formation, and two time periods characterized by mounting pressures toward redistribution and reforms to the main redistributive institutions: 1920-1940 and 1960- 1970. Over the course of 18 months of fieldwork, I collected data from transcripts of congressional debates as well as official communications (e.g., government reports, discourses, correspondence) related to tax and agrarian reform legislation in these time periods. I use process-tracing and critical event analysis to analyze and uncover the processes through which state-elite equilibriums shape the politics of redistribution in the making of tax and agrarian reform legislation within each case. Finally, I test observable implications of my argument using a large-N data-set of all countries for the period between 1960 and 2018.
April 18, 2023 - Presentation by: Facundo Alvaredo and Ignacio Flores
What is the level of aggregate wealth in Latin America? How is it distributed? These are two simple yet surprisingly difficult questions. Data on wealth is scarce, partial and oftentimes contradictory. In this informal talk organized at the request of the WB, we present the sources for the study of wealth inequality in the world and in LAC. We discuss the methods, as well as the estimates of wealth aggregates and wealth concentration based on recently available surveys and administrative registries in the region and assess a number of existing series (Credit Suisse, WID.world). Considering all the evidence, we distinguish reliable, robust facts from what can only be conjectured or speculated.
April 13, 2023 - Presentation by: Mauricio Cardenas
In this conversation Mauricio Cardenas will present his recent work on climate mitigation and discuss the interplay between the costs of climate policies, high debt and low growth projections for Latin America and the Caribbean.
Does Countercyclical Fiscal Policy Pay? The Relevance of Fiscal Acyclicality
October 5, 2022 - Presentation by: J. Rodrigo Fuentes and Raimundo Soto,
Fiscal procyclicality in most emerging economies fuels output volatility and inflation and exacerbates debt problems. Only a few countries have been able to reform fiscal management away from procyclical policies. Previous research, however, focuses only on the two polar cases of countercyclical vs. procyclical fiscal policies, despite evidence that several countries follow an a-cyclical fiscal stance. This paper contributes to this discussion in three areas. The first contribution is to provide an economic rationale for a-cyclical fiscal policies as the optimal response of governments that must pay an intervention cost that outweigh the benefits of a countercyclical policy. The second contribution of this paper is to provide a formal, statistical test of fiscal cyclicality, which allows us to separate between three fiscal stances: procyclical, a-cyclical, and countercyclical. The third contribution is an assessment of the impact of each view on several macroeconomic variables (long-run economic growth, output instability, price instability, and fiscal sustainability) for a worldwide representative sample of 148 countries in the period 1990-2019. The descriptive statistics show that despite the acyclical economies experiencing high volatility in TOT shocks, they exhibit the lowest standard deviation of the business cycle, measured as the cross-country median of the standard deviation of the difference between actual and long-run real GDP. Procyclical economies exhibit the highest volatility. Regarding inflation, the group of countercyclical economies presents the lowest median inflation, followed by the acyclical and counter cyclical economies. At the same time, procyclical policies had a larger inflation rate regarding economic growth and debt to GDP ratio. There are no significant differences. These results survive after controlling for some relevant macroeconomic variables.
May 10, 2022 - Presentation by: Oded Galor
In a captivating journey from the dawn of human existence to the present, world-renowned economist and thinker Oded Galor offers an intriguing solution to two of humanity¡¯s great mysteries.
Why are humans the only species to have escaped ¨C only very recently ¨C the subsistence trap, allowing us to enjoy a standard of living that vastly exceeds all others? And why have we progressed so unequally around the world, resulting in the great disparities between nations that exist today? Immense in scope and packed with astounding connections, Galor¡¯s gripping narrative explains how technology, population size, and adaptation led to a stunning ¡°phase change¡± in the human story a mere two hundred years ago. But by tracing that same journey back in time and peeling away the layers of influence ¨C colonialism, political institutions, societal structure, culture ¨C he arrives also at an explanation of inequality¡¯s ultimate causes: those ancestral populations that enjoyed fruitful geographical characteristics and rich diversity were set on the path to prosperity, while those that lacked it were disadvantaged in ways still echoed today.
As we face ecological crisis across the globe, The Journey of Humanity is a book of urgent truths and enduring relevance, with lessons that are both hopeful and profound: gender equality, investment in education, and balancing diversity with social cohesion are the keys not only to our species¡¯ thriving, but to its survival.
Pandemic Prospects and the Global Economic Recovery
July 27, 2021 - Presentation by: Steven B. Kamin
Little attempt has been made to quantify to what extent progress toward vanquishing the pandemic will engender progress toward economic normalization, and how this progress will vary across countries. In large part, this reflects the considerable degree of uncertainty attending every link in the causal chain: the pace of vaccinations around the world; the impact of vaccinations on the course of pandemic cases and deaths; and the impact of pandemic spread on economic activity. This paper attempts to quantify some of the links in this chain. We start with country-specific projections for pandemic deaths constructed by the Institute for Health Metrics and Evaluation (IHME). These projections, along with corresponding projections for the stringency of pandemic lockdown restrictions, are then plugged into an empirical model of the responses of GDP to COVID-19 deaths and lockdown regulations. This model is based on a panel-data regression for 70 economies, comprising the lion¡¯s share of global population and GDP, estimated during the period of the pandemic. The output of this model is the impact of the projected evolution of pandemic deaths and lockdown restrictions on the 2021 growth rates of GDP for those 70 economies.
November 23, 2020 - Presentation by: Metodij Hadzi-Vaskov, Samuel Pienknagura, and Luca Antonio Ricci
We explore the macroeconomic impact of social unrest using a novel, high-frequency index of social unrest compiled by Barrett et al. (2020) on the basis of word counts in media reports. First, we find that economic activity declines following spikes in the unrest index, with GDP remaining on average ? percentage points below the pre-shock baseline after 6 quarters. The adverse effect on GDP is driven by sharp contractions of manufacturing and services, (sectoral decomposition) and consumption (demand decomposition). Second, we find that social unrest lowers confidence, raises uncertainty, albeit its adverse economic effects can be dampened by strong institutions and available policy space. Third, the economic impact differs by type of unrest: episodes motivated by socio-economic reasons result in sharper GDP contractions compared to those associated mainly with politics/elections, while unrest triggered by a combination of socio-economic and political issues sees sharpest contractions. The findings are particularly relevant amid the recent increase in the frequency of social protests across the world in the pre-pandemic period, and for the possibility of new episodes of social unrest due to the adverse impact of COVID-19 on inequality and poverty.
September 21, 2020 - Presentation by: Jens Christensen
Abstract: In their search for yield in the current low interest rate environment, many investors have turned to sovereign debt in emerging economies, which has raised concerns about risks to financial stability from these capital flows. To assess this risk, we study the effects of changes in the foreign-held share of Mexican sovereign bonds on their liquidity premiums. We find that recent increases in foreign holdings of these securities have played a significant role in driving up their liquidity premiums. Provided the higher compensation for bearing liquidity risk is commensurate with the chance of a major foreign-led sell-off in the Mexican government bond market, this development may not pose a material risk to its financial stability.
Public Investment under Autocracy and Social Unrest
January 22, 2020 - Presentation by: Thorsten Janus
This paper studies the determinants of public investment under autocracy. The optimal investment level balances rent extraction with increasing the future tax base and preventing social unrest. The citizens balance their time between producing and protesting. The labour supply is downward distorted. The public investment level suffers three downward distortions and a fourth, potentially upward distortion. The joint distortions can generate moderate to large efficiency losses. Empirically we show that government spending in autocracies varies more and is less related to tax collections than in democracies. Additionally, it responds to democratization pressure.
