Preface
The Center for Latin American Economics is pleased to present the fourth issue of Latin American Research Abstracts. The issue includes 88 abstracts written by 95 authors and co-authors. The abstracts appear in alphabetical order by the lead author's surname. The authors' mailing addresses appear in these Abstracts so that readers interested in receiving copies of the papers can request them directly from the authors.
In preparation for our next publication, we urge you to send abstracts of your recent research, along with copies of the papers. We ask that the authors write the abstracts in English, limit the abstract to 250 words, and confine submissions to research related to Latin American monetary and economic issues. If you are not yet an associate, we urge you to join by filling out the application form at the end of this document. Please send communication to the following address:
Center for Latin American Economics
PO Box 655906
Dallas, TX 75265-5906
The Center serves as a catalyst to facilitate communication among scholars. We thank you for your support in this effort.
William C. Gruben, Director
Carlos E. Zarazaga, Executive Director
Contributors
Abreu, Marcelo De Paiva
Abreu, Marcelo De Paiva
Carneiro, Dionisio D.
Werneck, Rogério L.F.
Agosin, Manuel R.
Ahumada, Hildegart
Canavese, Alfredo
Sanguinetti, Pablo
Sosa Escudero, Walter
Aitken, Brian
Hanson, Gordon H.
Harrison, Ann E.
Amadeo, Edward J.
Camargo, José Márcio
Arce M., Daniel G.
Armijo, Leslie Elliott
Arndt, H.W.
Arroyo, Ardón Sánchez
Bhattacharya, Joydeep
Guzman, Mark G.
Huybens, Elisabeth
Smith, Bruce D.
Bizzozero, Lincoln
Vera, Tabaré
Brannon, Jeffrey T.
James, Dilmus D.
Brannon, Jeffery T.
James, Dilmus D.
Luker, G. William
Bucheli, Marisa
Rossi, Máximo
Calvo, Guillermo A.
Mendoza, Enrique G.
Carneiro, Dionisio Dias
Garcia, Márcio G.P.
Carvalho, Jose L.
De Faro, Clovis
Chang, Roberto
Cragg, Michael Ian
Epelbaum, Mario
D'Amato, Laura
López, Beatriz
Penas, M. Fabiana
Streb, Jorge M.
De Faro, Clovis
Delfino, José Alberto
Easterly, William R.
Mauro, Paolo
Schmidt-Hebbel, Klaus
Elías, Victor J.
Fernandez-Arias, Eduardo
Ffrench-Davis, Ricardo
Fullerton, Jr., Thomas M.
Garcia, Marcio G.P.
Girón, Alicia
Graf Noriega, Juan Pablo
Hargis, Kent
Hargis, Kent
Maloney, William F.
Humpage, Owen G.
McIntire, Jean M.
Kildegaard, Arne
Ladrón-De-Guevara, Antonio
Ortigueira, Salvador
Santos, Manuel S.
Lazin, Olga M.
Mac Isaac, Donna
Rama, Martin
Marcouiller, Doug
Martínez Trigueros, Lorenza
Montoya, Silvia
Mitnik, Oscar
Mora Contreras, Jesús
Murillo Garza, José Antonio
Nicolini, Juan Pablo
Hopenhayn, Hugo
Nicolini, Juan Pablo
Marcet, Albert
Nin, Alejandro
Ostro, Bart
Sanchez, José Miguel
Aranda, Carlos
Eskeland, Gunnar S.
Penha Cysne, Rubens
Pérez-López Elguenzabal
Rama, Martin
Renero, Juan M.
Reynoso del Valle, Alejandro
Rich, Paul
De los Reyes, Guillermo
Santos, Manuel S.
Vigo, Jesús
Schmidt-Hebbel, Klaus
Servén, Luis
Sheriff, H. Ernesto
Simonsen, Mario Henrique
Penha Cysne, Rubens
Sod Hoffs, Gabriel
D'Amato, Laura
Tanski, Janet
Terra, María Inés
Gigliotti, Adriana
Terra, María Inés
Vaillant, Marcel
Trindade Terra, Maria Cristina
Vera, Gabriel
Boné, José Antonio
Werneck, Rogério L.F.
Westley, Glenn
Wilkie, James W.
Lazin, Olga M.
Abreu, Marcelo De Paiva
Pontifícia Universidade Católica do Rio de Janeiro
Rua Marquês de São Vicente, 225
Rio de Janeiro CEP 2243-900
Phone: (55-21) 274-2797 or 529-9214
Fax: (55-21) 294-2095
NAFTA and Brazilian-United States Economic Relations
This paper focuses on the impact of NAFTA-driven trade diversion upon Brazil. In the first section, the paper analyzes the U.S.-Mexico NAFTA negotiations. The second section presents a static evaluation of the impact of NAFTA on Brazilian exports to the United States. In the next section, the long-run implications of related changes in the direction of capital flows are evaluated. The fourth section presents a preliminary analysis of the impact of a preferential trade agreement between Brazil and the United States. The final section discusses the compatibility between an eventual Brazil-U.S. preferential trade agreement and MERCOSUR and with the goal of trade integration in South America.
Trade in Manufactures: The Outcome of the Uruguay Round and Developing Country Interests
The purpose of this paper is to assess the outcome of the Uruguay Round for trade in manufactures with reference to developing countries. This includes an assessment of the results from the point of view of increased markets for developing countries, due to trade liberalization in the markets of both developed and developing countries--as well as an evaluation of the impact of trade liberalization in developing countries on exports of manufactures by developed countries.
Abreu, Marcelo de Paiva
Pontifícia Universidade Católica do Rio de Janeiro
Ruo Marquês de São Vicente, 255
Rio de Janeiro CEP 22453-900
Phone: (55-21) 274-2797 or 529-9214
Fax: (55-21) 294-2095
Carneiro, Dionisio D.
Pontifícia Universidade Católica do Rio de Janeiro
Ruo Marquês de São Vicente, 255
Rio de Janeiro CEP 22453-900
Phone: (55-21) 274-2797 or 529-9214
Fax: (55-21) 294-2095
Werneck, Rogério L.F.
Pontifícia Universidade Católica do Rio de Janeiro
Ruo Marquês de São Vicente, 255
Rio de Janeiro CEP 22453-900
Phone: (55-21) 274-2797 or 529-9214
Fax: (55-21) 294-2095
Government and Economic Growth: A Three-Gap View of the Long-Run Prospects of the Brazilian Economy
The objective of this paper is to discuss issues bearing on the long run prospects for Brazilian economic growth between the second half of the nineties and the next decade in view of the recent shifts in discussions pertaining to the role of government expenditures and their implications for economic growth.
The paper looks beyond the present stabilization problems. An overview of the failure of the state as growth promoter in Brazil since the early eighties is presented. Also, the issues of government and growth from the new perspective of the mid-nineties are discussed. A simulation model is presented, followed by a discussion of the results.
Growth and Environment Trade-Offs: Three-Gap Simulations for Brazil
This paper concentrates on the study of trade-offs between growth and environmental conservation in Brazil taking into account environmental targets not necessarily consistent with sustainable development.
The paper is divided into five sections. The first section considers domestic externalities, which do not spill over significantly across national borders. Then attention is concentrated on global externalities such as global warming and reduction of biodiversity, which affect economic agents in other countries and consequently cause major inter-country distributional problems. This is followed by an analysis of alternatives and costs of curtailing global warming as well as the reduction of biodiversity. Basic and environment-friendly scenarios are defined and discussed. Finally, the relevant trade-offs between growth and environmental conservation are presented and discussed.
Brazil: Widening the Scope for Balanced Growth
The aim of this paper is to explore issues which will bear upon the growth prospects for the Brazilian economy, assessing both the importance of the constraints to economic growth and the scope for government policies designed to attenuate them in the coming years. Following this introduction, the next section presents a short appraisal of Brazil's recent economic history. In Section 2, the workings of the Brazilian economy are described in a simple model which highlights the effects of trade liberalization and the new pattern of public spending on the country's growth possibilities. In Section 3, the main issues which are relevant for an analysis of the trade-offs between growth and environmental conservation in Brazil are presented. Finally, in Section 4, medium-term growth prospects are examined using simulations based on the model, first without considering the effects of environment protection policies and then taking the impact of those policies into account.
Agosin, Manuel R.
Universidad de Chile
Graduate School of Economics & Management
Diagonal Paraguay 257, Rm. 1801
Santiago, Chile
Phone: (56-2) 222-0775
A Tale of Two Regions: Investment in Latin America and East Asia
This paper examines why the investment rates of Latin American countries have been so low in comparison with those of the fast growing East Asian countries. Second, it estimates an econometric model for the ratio of private investment to GDP in Latin American and Asian countries, respectively. The econometric results and a casual examination of the data suggest that the causes for the poor performance of private investment in Latin America relative to Asia are: considerably slower economic growth; more stringent domestic credit constraints; the adverse impact of the debt crisis on Latin American investment, a factor which was absent in the Asian countries; an important fall in complementary public investment in Latin America, which did not take place in Asia; and a greater degree of macroeconomic and relative price instability.
Ahumada, Hildegart
Instituto Torcuato Di Tella
Miâones 2159/77
1428 Buenos Aires, Argentina
Phone: (54-1) 783-8680
FAX: (54-1) 783-3061
Canavese, Alfredo
Instituto Torcuato Di Tella
Miâones 2159/77
1428 Buenos Aires, Argentina
Phone: (54-1) 783-8680
FAX: (54-1) 783-3061
E-mail: alca@itdtar.edu.ar
Sanguinetti, Pablo
Instituto Torcuato Di Tella
Miâones 2159/77
1428 Buenos Aires, Argentina
Phone: (54-1) 783-3070
FAX: (54-1) 784-0089
Sosa Escudero, Walter
University of Illinois at Urbana-Champaign
Urbana, IL 61801
Phone: (217) 333-1000
Income Distribution Effects of High Inflation: Some Estimates for some Latin-American Countries
Economists often point out that inflationary financing of public expenditures is a regressive form of taxation. However, there have been few attempts to measure the effects of inflation on income distribution. Papers in this project are devoted to measure the impact of the inflation tax on income distribution for some high inflation Latin American countries: Argentina, Guatemala, Paraguay, Colombia and Perú.
Cointegration techniques are used to get steady state estimates of money demand for each country. Money demand is measured for each quintile of the distribution of income on the basis of these estimates and data from surveys on family expenditure. Once money demand estimates are known for each quintile, the distribution of the steady state burden of the inflation tax for each quintile can be calculated for each country.
Aitken, Brian
International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431
Hanson, Gordon H.
University of Texas
Department of Economics
Austin, TX 78712
Phone: (512) 471-3211
FAX: (512) 471-3510
Harrison, Ann E.
Columbia Business School
615 Uris Hall
New York, NY 10027
Spillovers, Foreign Investment, and Export Behavior
Case studies of export behavior suggest that firms who penetrate foreign markets reduce entry costs for other potential exporters, either through learning by doing or through establishing buyer-supplier linkages. We pursue the idea that spillovers associated with one firm's export activity reduce the cost of foreign market access for other firms. We identify two potential sources of spillovers: export activity in general and the specific activities of multinational enterprises. We use a simple model of export behavior to derive a logit specification for the probability of a firm's exports. Using panel data on Mexican manufacturing plants, we find evidence consistent with spillovers from the export activity of multinational enterprises but not with general export activity.
Amadeo, Edward J.
Pontifica Universidade Católica do Rio de Janeiro
Rua Marquês de São Vicente, 225
Rio de Janeiro CEP 22453-900
Phone: (55-21) 274-2797 or 529-9214
FAX: (55-21) 294-2095
International Trade, Outsourcing, and Labor: A View from the Developing Countries
This paper looks at the relation between trade, the operation of transnational corporations and labor markets from the developing countries' perspective. In the recent debate on developed countries, emphasis has been given to the roles of greater trade and investment relations with developing countries and labor saving technologies in explaining the falling employment opportunities for unskilled workers and the widening wage differential between skilled and unskilled workers. for symmetrical reasons, it should be expected that in developing countries, employment opportunities for the unskilled would improve and wage differentials would shrink. However, so far the evidence does not support this symmetrical behavior. Why? The paper advances a few theoretical hypotheses for the unexpected evidence. It also looks at the connection between the pervasive drive towards greater labor market flexibility and lower labor costs and greater international integration in developing countries. Finally, it presents a taxonomy of both optimistic and pessimistic views on the impact of greater international integration from the developing countries' perspective.
Refuting the Inevitable: Two Paradigms
This paper is organized in three parts. First of all, the paper shows that there are technological and economic changes which have led to an increase in competition through the deterioration of wages and labor standards in important segments of economic activities all over the world.
Second, the paper argues that the reduction in the degree of vertical integration of firms and downsizing have generated a process of decentralization of economic activities and an increase of economic transactions through the market. Such tendencies, however, instead of reducing the requirements of coordinating actions, increase such requirements. This is because if there are more transactions taking place through the market and a greater participation of small enterprises, the incidence of market imperfections can be greater than before, thus generating greater requirement of extra-market actions to correct them. Last, the paper tries to establish guidelines for an industrial policy agenda. Such guidelines are an attempt to provide a conceptual support to proposals and initiatives on active industrial policies.
Amadeo, Edward J.
Pontifícia Universidade Católica do Rio de Janeiro
Rua Marquês de São Vicente, 225
Rio de Janeiro CEP 22453-900
Phone: (55-21) 274-2797 or 529-9214
FAX: (55-21) 294-2095
Camargo, José Márcio
Pontifícia Universidade Católica do Rio de Janeiro
Rua Marquês de São Vicente, 225
Rio de Janeiro CEP 22453-900
Regulations and Flexibility of the Labor Market in Brazil
The paper deals with four questions associated with the flexibility of the labor market in Brazil: (1) To what extent is the real wage rigid in Brazil and therefore impedes job creation or worsens the unemployment and informality record? (2) Compared to other countries, to what extent are payroll taxes and mandated benefits too big, thus employing a level of compensation that would hinder the competitiveness of Brazilian industry? (3) To what extent to the levels of the minimum wage and mandated benefits determine or affect the level of informality? (4) To what extent do the costs of dismissal and other types of impediments to the dismissal of workers in Brazil (compared to other countries) affect employment flexibility?
Arce M., Daniel G.
University of Alabama
Department of Economics, Finance & Legal Studies
200 Alston, Box 870224
Tuscaloosa, AL 35487-0224
E-mail: darce@alston.cba.ua.edu
Phone: (205) 348-6321
FAX: (205) 348-2951
Correlated Strategies as Institutions of Macroeconomic Stabilization
During the 1980s, game theory rose to the forefront of macroeconomic analysis in OECD nations as a tool to investigate the strategic complementarities present in macro policy targeting and also to investigate the ability to break out of nash traps in labor and money markets in order to reach socially desirable efficient outcomes. At the same time, a long-overlooked body of literature pertaining to inflation as a social phenomena was emerging in order to fully understand the Latin American inflationary experience of the 1980s. the game-theoretics of this approach is quite different from its OECD counterpart. In particular, it is often at odds with the rational expectations approach in which representative agents immediately locate the Nash equilibria of a game.
For example, Simonsen (1988) argues that anonymity of wage/price bargains across economic sectors leads to norms of prudent (maximin) behavior in which non-Nash inflationary outcomes are likely. Moreover, Heymann-Navajas-Warnes (1991) present a two-player model of budget deficit and inflation in Argentina, one in which the inflationary outcome does not occur in the stage game but can occur via the fold theorem as the game is repeated and minimax behavior is allowed. We show how when the rules of the game are extended in order to allow for correlated strategies, the maximin and minimax paradoxes created by Simonsen and Heymann-Navajas-Warnes can be resolved without the rational expectations/Nash strategist assumption. Yet the interpretation of the correlated strategy is different in each case. The type of correlation that resolves the Simonsen maximin paradox can be viewed as coordinated by an unbiased government whose sole purpose is as an institution to guide players towards equilibrium. In contrast, correlation resolves the Heyman-Navajas-Warns minimax paradox through the creation of a market where players will exploit all possibilities for payoff arbitrage.
Coherence and the Credibility of Convertibility Announcements
two credibility problems that arise in convertibility-based stabilizations are policy announcements that violate truth-telling and a nonzero probability of policy failure. this study derives the tradeoff between these problems when announcements resemble cheap talk. We demonstrate that this tradeoff can only be reduced if the policy announcement is coherent, that is, if it induces a distribution on strategies and types such that players cannot engage in payoff arbitrage.
Armijo, Leslie Elliott
Department of Political Science, 303ME
Northeastern University
Boston, Massachusetts 02115
Phone: (617) 373-4411 or -2796
FAX: (617) 373-5311
E-mail: larmijo@lynx.neu.edu
Sequencing Reform: Tradeoffs Among Alternative Roads to Democracy and Markets
Many countries in Latin America and throughout the developing and postcommunist world are currently in the process of becoming both more democratic and more market-oriented. If both liberal democratic government and liberal economic rules are desirable, then it is easy to assume that national movement away from authoritarian politics and dirigiste economics also must be compatible and reinforcing. Unfortunately, significant tradeoffs exist within and among three broad change sequences: (1) prior democratization, with subsequent economic liberalization (as in India or Argentina), (2) prior economic reform followed later by political opening (as in Chile), or (3) joint or alternating political and economic opening (as in Brazil or most of Eastern Europe). This essay proposes ten hypotheses about the interactions of alternative liberalization paths.
Inflation and Insouciance: The Peculiar Brazilian Game
In most countries, owners of financial capital, as net creditors, abhor inflation. Yet Brazilian elites, including bankers, exhibit a puzzling lack of concern about very high inflation. One explanation is that indexation of formal sector wages, prices, and most financial assets have protected the middle and upper classes from inflation's worst ravages. A deeper cause is that due to subtle peculiarities in Brazilian financial regulations, owners of financial capital--mainly bankers but also corporate and individual investors--have been able to reap extraordinary rewards under high, escalating, and volatile inflation.
Using simple game theory to model the preferences of Industry, Labor, Government, and Banks, the essay suggests that the Brazilian case confounds conventional expectations about the political economy of stabilization. First, financial capital is not a bulwark of anti-inflation sentiment. Second, the game of Brazilian inflation is not a pure collective action problem; it also displays characteristics of rent-seeking. Third, greater economic policy influence for the lower classes as a result of democratization (rather than primarily resulting in increased pressures for populist and inflationary policies) may instead offer the only hope for lasting stabilization.
Arndt, H.W.
The Australian National University
The Research School of Pacific Studies
GPO Box 4
Canberra Act 2601, Australia
Anatomy of Regionalism
Regionalism is in fashion. One reason why almost everyone is in favor of it is that the term is used in several different ways. This paper distinguishes four different meanings. The first refers to preferential trading arrangements, such as the European Community (EC), the U.S./Canada Free Trade Area, and the North American Free Trade Agreement (NAFTA) of U.S., Canada, and Mexico. The second is exemplified by the regional economic integration linking Hong Kong and Taiwan with the southern provinces of China and the Singapore-Johor-Batam growth triangle. The third is the open regionalism which is the objective of the Asia Pacific Economic Cooperation (APEC) forum. Finally, there is the subnational regionalism in Scotland, Catalonia, and Lombardy, which raises different issues from the three supra-national versions. This paper deals mainly with the latter, contrasting the government-led discriminatory first kind with the market-driven non-discriminatory second and third.
Arroyo, Ardón Sánchez
Investigador Económico
Banco de México
Dirección General de Investigación Económica
Avenida Juarez 90, Primer Piso
Colonia Centro
Codigo Postal 06040 Mexico, D.F.
Phone: (52 5) 761-8588
Methods of Restructuring Liabilities Considering Varying Interest and Inflation Rates
In economies with high inflation, the traditional method of amortization of credit has been accelerated payment of capital in real terms. In order to avoid this in the decade of the eighties, methods of amortization of growing payments were designed which were fixed in advance. Examples of these methods are the creditos aficorcados which guarantee constant payment to present value, housing credit with guaranteed constant payments in terms of the salary rate, and finally payment with guaranteed real established amortization. This paper discusses diverse methods of liquidation of credit including those mentioned above with the purpose of adjusting restructuring mechanisms of the credit portfolio of the national banking system. This is necessary due to the high interest rates which predominate the national market today. A method of payment is introduced which in general terms embraces all the methods of payments described previously and that in situations like the one of the Mexican economy today is useful in the task of restructuring the internal debt as well as the foreign.
Bhattacharya, Joydeep
Cornell University
Department of Economics
4th Floor Uris Hall
Ithaca, NY 14853
Phone: (607) 255-5620
FAX: (607) 255-2818
Guzman, Mark G.
Cornell University
4th Floor Uris Hall
Ithaca, NY 14853
Phone: (607) 255-5620
FAX: (607) 255-2818
Huybens, Elisabeth
Instituto Tecnológico Autónimo de México
Centro de Investigación Económica
Av. Camino Sta. Teresa #930
Col. Héroes de Padierna
México, D.F. 10700, México
Phone: (525) 628-4197 ext. 2915
E-mail: huybens@cie.ster.itam.mx
Smith, Bruce D.
Cornell University
Cornell University
4th Floor Uris Hall
Ithaca, NY 14853
and
Federal Reserve Bank of Minneapolis
Research Department
250 Marquette Avenue
Minneapolis, MN 55480
Phone: (607) 255-6209
FAX: (607) 255-2818
E-mail: bdsl@cornell.edu
Monetary, Fiscal, and Bank Regulatory Policy in a Simple Monetary Growth Model
We examine a simple monetary growth model originally developed by Schreft and Smith and modify it to allow for the possibility of a government budget deficit financed by issuing money and bonds and for the possibility of bank regulation. The basic framework is a two period overlapping generations model with production and outside assets and, hence, is in the spirit of Diamond (1965).
We also consider possible welfare justifications for the imposition of a reserve requirement that does bind in the observed steady state equilibrium. Our analysis is also geared to consider the consequences (for steady state equilibria) of changes in fiscal policy (the magnitude of the deficit) or monetary policy (the composition of government liabilities). The analysis also generates some interesting results about the dynamic behavior of the inflation rate.
The paper also describes the environment and the nature of trade in the model, states the conditions that must be satisfied by a competitive equilibrium, analyzes the steady state equilibria of an economy with an unregulated banking system, considers dynamics, and introduces reserve requirements along with their welfare consequences.
Bizzozero, Lincoln
Universidad de la República
Departamento de Economía José Enrique Rodó 1854
C. de Correo 6248
11000 Montevideo, Uruguay
Phone: (598-2) 49 29 73 or 41 77 07
FAX: (598-2) 48 19 17
Vera, Tabaré
Universidad de la República
Departamento de Economía
José Enrique Rodó 1854
C. de Correo 6248
11000 Montevideo, Uruguay
Phone: (598-2) 49 29 73 or 41 77 07
FAX: (598-2) 48 19 17
From Asunción to Ouro Preto: Definitions and Strategy in the Construction of MERCOSUR
The meeting in Ouro Preto which took place December 8-9, 1994 was the seventh of the Consejo Mercado Común and the last for the transition period for the Asunción Treaty. This work analyzes specifically the institutional judicial order placing special emphasis on the structure defined by the Protocol of Ouro Preto. The work also analyzes the objectives achieved in the free trade zone and the conforming of the Unión Aduanera (Custom Union).
Brannon, Jeffrey T.
Associate Professor
Department of Economics and Finance
University of Texas at El Paso
El Paso, Texas 79968-0543
Phone: (915) 747-5245
FAX: (915) 747-6282
James, Dilmus D.
Professor of Economics and Finance
University of Texas at El Paso
El Paso, Texas 79968-0543
Phone: (915) 747-7788
FAX: (915) 747-6282
Cometh the NAFTA, Whither the Maquiladora? Reflections on the Future of Industrialization in Northern Mexico
The objective of this article is to explore what impacts NAFTA might have on Mexican maquila operations. Our main focus is on the fate of the maquiladoras located in a narrow strip along Mexico's northern border, which account for approximately eighty percent of the total. We conclude that the fundamental shortcoming in the northern border region is the lack of a technological base sufficient to support sustained, dynamic socioeconomic development.
Before beginning our speculation, two introductory matters receive attention: (1) a mention of Mexico's recent measures to integrate maquila production into her national economy and (2) a lengthier description of Mexico's liberalization since the early 1980s, a trend which we believe is not sufficiently appreciated outside of Mexico.
Brannon, Jeffrey T.
Associate Professor
Department of Economics and Finance
University of Texas at El Paso
El Paso, Texas 79968-0543
Phone: (915) 747-5245
FAX: (915) 747-6282
James, Dilmus D.
Professor of Economics and Finance
University of Texas at El Paso
El Paso, Texas 79968-0543
Phone: (915) 747-7788
FAX: (915) 747-6282
Lucker, G. William
Department of Economics
University of Texas at El Paso
El Paso, TX 79968-0543
Phone: (915) 747-5245
FAX: (915) 747-6282
Generating and Sustaining Backward Linkages Between Maquiladoras and Local Suppliers in Northern Mexico
Despite 25 years of growth, Mexico's in-bond assemble, or maquila, operations use very little material inputs that are made in Mexico. Mexican content is less than 2 percent of value added, and those coming from the northern border region are even more minuscule. Some of the reasons for the paucity of local sourcing are reviewed with particular emphasis on corporate and plant purchasing arrangements. Mexican policies, designed to support national suppliers, are reviewed; and the authors offer suggestions that stress the need for a regional focus that concentrates on fostering local technological capacities. The study relies in part on surveys of plant managers and corporate purchasing officers.
Bucheli, Marisa
Universidad de la República
Departamento de Economía
José Enrique Rodó 1854
C. de Correo
6248
11000 Montevideo, Uruguay
Phone: (598-2) 49 29 73 or 41 77 07
FAX: (598-2) 48 19 17
Rossi, Máximo
Universidad de la República
Departamento de Economía
José Enrique Rodó 1854
C. de Correo
6248
11000 Montevideo, Uruguay
Phone: (598-2) 49 29 73 or 41 77 07
FAX: (598-2) 48 19 17
Income Distribution in Uruguay, 1984-1992
This paper studies the distribution of income during the period 1984-1992. Special attention is given to the remuneration of civil servants during those years and the changes in the adjustment of pensions. The results show a relative stability in the inequality in the period.
The constitutional reform, which referred to the change in the adjustment system of the pensions, did not alter the general distribution of income; but there were changes regarding the participation of the pensions in the total income and its contribution to the inequality. The reform improved retired people's situations in relation to the rest of the population, affecting in an important way those people who have only pensions as a source of income.
Finally, the wages of civil servants reduced their contribution to the inequality of the total income through a deterioration of the richer ones.
Calvo, Guillermo A.
Center for International Economics
University of Maryland
College Park, MD 20742
Phone: (301) 405 3550
FAX: (301) 405 7835
Email: calvo@econ.umd.edu
Mendoza, Enrique G.
Board of Governors of the Federal Reserve System
International Finance Division
Washington, D.C. 20551
Phone: (202) 452-3000
Reflections on Mexico's Balance-of-Payments Crisis: A Chronicle of a Death Foretold
Conventional views on the recent collapse of the Mexican currency focus on a problem of current account suststainability and systemic real appreciation or on an equilibrium phenomenon sent off track by exogenous shocks. We argue instead that the crash was the resolution of a balance-of-payments crisis originated in large financial imbalances that developed gradually since 1988. The violence of the crisis is attributed to sterilized intervention and a bonds-led speculative attack. Linkages between money demand, asset holding behavior, and flows of private expenditures play a key role in our argument. Econometric analysis of the demand for money and business-cycle regularities provides evidence in favor of our view.
Carneiro, Dionisio Dias
Pontíficia Universidade Católica do Rio de Janeiro
Rua Marquês de São Vicente, 225
Rio de Janeiro CEP 22453-900
Phone: (55-21) 274-2797 or 529-9214
Private International Capital Flows to Brazil
The early nineties have witnessed a revival of capital flows to developing countries. Despite the several unsuccessful attempts to stabilize inflation until the Real Plan of July, 1994, Brazil was a major beneficiary of those capital inflows, the majority of which were composed of portfolio investment. Capital inflows had a good side because they increased the amount of foreign reserves at the Central Bank, thereby making less likely a hyperinflation in the earlier period and opening room for the exchange rate based stabilization that is being currently attempted through the Real Plan. Nevertheless, capital inflows posed major monetary and fiscal problems, which are described and analyzed. The prospects of the Brazilian stabilization are robust to the change in the international environment caused by the Mexican crisis, since they depend more on domestic factors (fiscal and monetary discipline) than on the continuity of capital flows at the previous levels.
Carvalho, Jose L.
Instituto de Ciências Econômicas e Gestâo
Universidade Santa Ursula (ICEG/USU)
Getulio Vargas Foundation
Graduate School of Economics
Praia de Botafogo
Rio De Janeiro, Brazil
De Faro, Clovis
Getulio Vargas Foundation
Graduate School of Economics
Praia de Botafogo Igo
CEP 22253-900, Rio de Janeiro, Brazil
Phone (55-021) 551 4699
FAX (55-021) 551-3529
From the Brazilian Pay-As-You-Go Pension System
Given that the current official pension plan in Brazil is not feasible, several reform proposals have been recently submitted. In a previous work, we have developed a scheme which has its fundaments based on a market approach. A recurrent criticism of this proposal is centered on the fact that we estimated the present value of the transition costs without considering the flow of funds necessary for the government to implement it. The purpose of this paper is to estimate this flow of funds, taking into account the fact that the government will maintain all the benefit payments associated with the present system. Subsidiarily, we will also suggest a scheme for the government financing of such a flow of funds.
Chang, Roberto
Senior Economist
Federal Reserve Bank of Atlanta
Research Department
104 Marietta Street N.W.
Atlanta, Georgia 30303
Phone: (404) 521-8057
FAX: (404) 421-8956
Email: frbecon3@solinet.net
Commitment, Coordination Failures, and Delayed Reforms
Major reforms are often postponed for long periods, in spite of widespread agreement about the need for them and about what has to be done. These delays are costly, and hence it is important to understand why reforms are not undertaken immediately. This paper provides one such explanation.
I study a model in which delaying reform imposes large costs on everybody's welfare; yet, policy makers choose to postpone the reform for an arbitrarily long period. This may occur even if government policy is controlled by a single, benevolent social planner and all agents act optimally with perfect information and perfect foresight. The crucial assumption is that the government has a commitment problem in setting the taxes needed to pay for the reform. Private investors understand this problem, and their expectations about future government policy become fundamental for the success of the reform. As a consequence, the model has equilibria in which reform is immediate and equilibria in which reform is delayed; the latter occurs if the government needs to build its credibility by having a period of low taxes and no reform. Whichever equilibrium obtains depends on market expectations, and hence a delayed reform can be seen as a coordination failure.
Political Party Negotiations, Income Distribution, and Endogenous Growth
This paper examines the determination of the rate of growth in an economy in which two political parties, each representing a different social class, negotiate the magnitude and allocation of taxes. Taxes may increase growth if they finance public services but reduce growth when used to redistribute income between classes. The different social classes have different preferences about growth and redistribution. The resulting conflict is resolved through the tax negotiations between the political parties. I use the model to obtain empirical predictions and policy lessons about the relationship between economic growth and income inequality. The model is consistent with the observation that differences in growth rates across countries are negatively related to income inequality. However, government policy cannot simultaneously increase growth and reduce inequality.
Cragg, Michael Ian
Columbia University
Department of Economics
116 Street & Broadway
New York, NY 10027
Phone: (212) 854-1754
Epelbaum, Mario
Instituto Tecnológico Autónimo de México
Centro de Investigación Económica
Av. Camino Sta. Teresa #930
Col. Héroes de Padierna
México, D.F. 10700, México
Why is Wage Dispersion Growing in Mexico? Is it the Incidence of Reforms or the Growing Demand for Skills?
In the mid 1980s, Mexico undertook major trade reform, privatization, and deregulation. This coincided with a rapid expansion in wages and employment that led to a rise in wage dispersion. This paper examines the role of industry and occupation-specific effects in explaining the growing dispersion. We find that despite the magnitude and pace of the reforms, industry-specific effects explain little of the rising wage dispersion. In contrast, occupation-specific effects can explain almost half of the growing wage dispersion. Finally, we find that the economy became more skill-intensive and that this effect was larger for the traded sector because this sector experienced much smaller low-skilled employment growth. We therefore suggest that competition from imports had an important role in the fall of the relative demand for less-skilled workers.
The Premium for Skills in LDCs: Evidence from Mexico
During the 1987-1993 period, all education-experience skill classes in Mexico have experienced significant employment and real wage growth. This growth was accompanied by a large increase in wage dispersion within and across skill classes. While shifts in labor supply are unlikely to explain the changing wage and employment patterns, supply and demand elasticities appear to be an important factor in this growing economy. Still we find that it is difficult to rationalize the relative wage changes without considering a disproportionate increase in the demand for skilled labor. We develop a test of whether the observed data by industry is consistent with a production function based upon a labor aggregator. We reject this hypothesis and thus argue that some labor is more complementary with capital and that the wage changes may be a function of cheaper or more productive capital (skill biased technological change). The rising relative demand for skilled workers in Mexico during a period of increased trade with the U.S. is evidence of the weakness of the Hecksher-Ohlin-Samuelson predictions.
D'Amato, Laura
Centro de Estudios Macroeconómicos de Argentina
Instituto Universitario
Av. Córdoba, 637
1054 Capital Federal, Argentina
Phone: (314) 17 57
López, Beatriz
Centro de Estudios Macroeconómicos de Argentina
Instituto Universitario
Av. Córdoba, 637
1054 Capital Federal, Argentina
Phone: (314) 17 57
Penas, M. Fabiana
Centro de Estudios Macroeconómicos de Argentina
Instituto Universitario
Av. Córdoba, 637
1054 Capital Federal, Argentina
Phone: (314) 17 57
Streb, Jorge M.
Centro de Estudios Macroeconómicos de Argentina
Instituto Universitario
Av. Córdoba, 637
1054 Capital Federal, Argentina
Phone: (314) 17 57
FAX: (541) 314-1654
Email: streb@cema.edu.ar
A Cost Function for the Banking Industry
In this paper we use a translog function to study the operating costs of the banking industry, taking the subset of private banks in Argentina. Building on earlier studies, economies of scale are decomposed into various dimensions including size of operations, utilization level, and number of plants. The influence of geographic location is also analyzed, relating it to differences in the price of inputs.
De Faro, Clovis
Getulio Vargas Foundation
Graduate School of Economics Praia de Botafogo Igo
CEP 22253-900
Rio de Janeiro, Brazil
Phone: (55-021) 551 4699
FAX: (55-021) 551 3529
Inflation and Debt Indexation: The Equivalence of Two Alternative Schemes for the Case of Periodic Payments
The presence of inflation has induced financial institutions to implement procedures devised to protect the real values of their loans. Two of such procedures, the floating rate scheme and the monetary correction mechanism, tend to lead to very different streams of payments. However, whenever the floating rate scheme follows the rule of strict adherence to the Fisher equation, the two procedures are financially equivalent.
Stabilization of Agricultural Prices in Brazil: Evaluation and Prospects
With the purpose of stabilizing the prices received by farmers, the Brazilian government has established what amounts to an intervention band for several products. Covering the period January 1980 to January 1993, the paper analyzes the effectiveness of such a policy for the case of cotton, sugar, soybeans, maize, and wheat.
Delfino, José Alberto
Universidad Nacional de Córdoba
Maipú 151, Piso 1
5000 Córdoba, Argentina
Phone: (54-51) 22 24 80
Real Exchange Rates, International Trade, and Economic Welfare
This paper presents a simple optimization model that permits the measurement of the evolution of domestic prices as a function of international inflation, terms of trade, and capital flows. The model also allows the calculations of trade patterns associated with particular arrays of prices and levels of academic activity and the estimation of the impact of their changes on economic welfare.
Easterly, William R.
The World Bank
Policy Research Development
1818 H Street N.W.
Washington, D.C. 20433
Phone: (202) 477-1234
Mauro, Paolo
Economist
International Monetary Fund
700 19th St., N.W.
Washington, D.C. 20431
Phone: (202) 623-7000
Schmidt-Hebbel, Klaus
Senior Economist
The World Bank
1818 H Street, N.W.
Washington, D.C.
Phone: (202) 473-7453
FAX: (202) 522-1151
Email:kschmidthebbel@worldbank.org
Money Demand and Seigniorage-Maximizing Inflation
Depending on the shape of the money demand function, steady-state seigniorage may follow a Laffer curve, with higher inflation. . . . The paper develops a model of money demand, inflation, and seigniorage based on an optimizing consumer-investor-portfolio allocator, who faces a cash-in-advance constraint, forcing this agent to hold a combination of money and bonds before incurring consumption expenditure. It will be shown that the existence of a Laffer curve depends critically on how good substitutability for money and bonds are in aggregate financial assets held as cash -in-advance.
The paper also presents both individual-country and combined cross-country time-series evidence that supports the notion that the semielasticity of money demand with respect to inflation varies with inflation.
Elías, Víctor J.
Universidad Nacional de Tucumán
Dept. of Economics
Balcarce 740
4000 Tucumán, Argentina
Phone: 54-81-22 06 02
FAX: 54-81-24 22 61 or 54-81-21 84 93
International Migration as Source of Argentinean Economic Growth
Using the sources of economic growth methodology, this study tries to quantify the importance that immigration had in Argentine economic growth during the period 1860-1970. Immigration effect is measured through its contribution to population growth, to changes produced in the labor force participation rate, and to changes in the composition of the labor force (age, sex, and education mainly). The analysis of the subperiod 1860-1910 is of special interest since Argentina experienced a strong economic growth in it (measured by several indicators), where immigration played a very important role. This subperiod allows to analyze the role of several policies of economic growth proposed at present (using the relationship of substitution that factor mobility with product mobility has). Several demographic studies made in Argentina provide the basic material to measure immigration role.
Regional Economic Convergence: The Cases of Argentina, Brazil, and Peru
The objective of this paper is to study the economic regional convergence in Argentina, Brazil, and Peru using the methodology of Barro and Sala-I-Martin. Even though the regional data on those countries are not as rich as one will need to fully apply their methodology, it provides a reasonable start in the search of whether regional convergence exists in Latin America and its determinants.
Fernandez-Arias, Eduardo
The World Bank
International Economics Department
1818 H Street N.W.
Washington, D.C. 20433
Phone: (202) 477-1234
The New Wave of Private Capital Inflows: Push or Pull?
Widespread private capital inflows to middle-income countries have surged over the last three years. At the same time Brady-type deficit reduction operations and domestic policy reform took place, country creditworthiness indicators dramatically improved; and international interest rates plummeted. Which factors are most important in explaining this wave of capital inflows, and consequently how sustainable is it? This is a subject of debate with important implications for policy as well as positive analysis.
Some see this new wave of voluntary capital inflows as being mostly pulled by attractive domestic conditions, which open new and profitable investment opportunities in the domestic economy and improve country creditworthiness. Under this interpretation, successful domestic policies are the key, and if maintained, capital inflows would be sustained. Others, however, see these inflows as being mostly pushed by conditions in industrial countries, especially the low interest rates prevailing there. In this interpretation, capital inflows would not be sustained if international real interest rates returned to the higher levels of the 1980s.
This paper presents an analytical model of international portfolio investment in developing countries based on non-arbitrage conditions between external returns and domestic returns adjusted by country risk. This model is used to explain why the new wave of private capital inflows is mostly a middle-income country phenomenon. To analyze the issue at hand, the model is operationalized and a tractable estimating equation is obtained and used for a representative panel of middle-income countries. The main empirical result is that, with a few exceptions, most notably Mexico, the surge of capital inflows appears to be largely driven by low returns in industrial countries, as opposed to domestic factors. Consequently, recent levels of capital inflows will prove to be unsustainable if global interest rates soon return to higher levels.
Ffrench-Davis, Ricardo
Principal Regional Adviser
Economic Commission for Latin America and the Caribbean
Casilla 179 D
Santiago, Chile
Phone: (56-2) 208-5051
FAX: (56-2) 208-1946
Trends in Regional Cooperation in Latin America: The Crucial Role of Intra-Regional Trade
A significant upsurge has taken place in reciprocal trade and investment within Latin America during the 1990s. In fact, total intraregional exports of Latin America (LACs) doubled in the four years elapsing in 1990-1994, capturing nearly two-thirds of the increase in total exports. In manufactures, both rates of growth and shares of intraregional trade are notably higher. In this sense, regional integration contributes to a more dynamic productive transformation of the domestic economies and can complement policies directed to enhance systemic productivity.
This paper focuses on efforts made by LACs to foster trade within the region and on the result achieved. Section I presents a brief survey on economic integration between 1960 and 1990. Section II presents the framework of our analysis. First, the empirical scenario is discussed, giving an account particularly of trade reforms implemented in the region. Then the analytical framework is examined, placing the discussion in a globalizing world but with both limitations to access and to produce non-traditional and manufactured exports. These products face distortions and market incompleteness, that regional cooperation can contribute to remove progressively and efficiently. Section III examines the evolution of reciprocal exports in the 1990s. It is shown that actually intraregional exports are more intensive in technology and value-added. Thus they exhibit more linkages with the domestic economy than traditional exports. Section IV discusses some pending or omitted issues.
Fullerton, Jr., Thomas M.
Senior Economist
Bureau of Economic and Business Research
University of Florida
221 Matherly Hall
Gainesville, FL 32611-2017
Phone: (904) 392-0171
FAX: (904) 392-4739
Modeling Secondary Market Developing Country Debt-Prices
Monthly secondary market debt-prices for commercial bank loan certificates are modeled for Colombia, Ecuador, and Venezuela. Using variables which are commonly used as signals of credit-worthiness, model parameters are estimated simultaneously with three-staged least squares seemingly unrelated regression. Model precision is judged using simulation test incorporating information available to financial markets at the times at which forecast periods were defined. Prediction results are benchmarked against random walk alternatives to quantify accuracy. An extension of the initial results is currently being conducted using least absolute deviation estimation procedures. The latter approach is being tested due to extensive applications in other areas of financial econometrics.
Inflationary Stabilization Efforts in Ecuador
Stand-by loans agreements reached by Latin American governments with the International Monetary Fund invariably contain conditionality requirements with respect to inflationary policy targets. Although price stabilization goals are always defined over short-term planning periods, there has been relatively little econometric research regarding short-term inflationary dynamics in Latin America. Provisions in the current stand-by agreement signed by Ecuador and the IMF last year call for that country's end-of-year inflation rate to be lowered to 15 percent in 1995. An augmented Harberger-Hanson framework for price dynamics is adapted to a monthly data frequency in this paper, with simulation analysis utilized to gauge the feasibility for meeting the stated policy target. Results will be presented at the 1995 Business and Economic Statistics sessions of the American Statistical Association meetings.
Garcia, Márcio G.P.
Pontifícia Universidade Católica do Rio de Janeiro
Rua Marquês de São Vicente, 225
Rio de Janeiro CEP 22453-900
Phone: (55-21) 274-2797 or 529-9214
FAX: (55-21) 294-2095
The Financing of Infra-Structure and the Recovery of Sustained Economic Growth
Unlike previous growth cycles in Brazil, the new one that will complete the Real stabilization plan can no longer count on the state as the main financier and undertaker of the infrastructure investments. This represents a world trend that originated the project finance, a way to finance heavy investments designed to make possible the private/public partnership. The project finance separates the firm risk from the business risk and designs finance arrangements that are specific to each investment project. In Brazil, now that the law that regulates concessions to the private sector has been enacted and the privatization program has been accelerated, the project finance will probably constitute the main finance procedure for infrastructure investments. For the project finance to work, the regulatory environment should be clear and the contracts should be credible, preventing the public sector to be put into a corner, forced to bail out insolvent projects. A new proposal for the BNDES system--an insurance against the macroeconomic risk in credit operations--is laid out. This proposal aims at building a long term credit market in Brazil.
Monetary and Exchange Rate Policy: Some Recent Factual Lessons
The success of the Real Plan in maintaining low inflation in the coming years depends on reduced rates of monetary expansion. It is necessary not just to eliminate the inflationary financing of the fiscal deficit but also to eliminate the passivity of monetary policy, which has fueled inflation in recent years. In the past the Central Bank of Brazil has targeted interest rates with the objective not to contain inflation but to maintain a stable demand for public debt. Monetary expansion has been allowed to occur passively in support of this objective. The following measures are proposed: to change the relation between the central bank and the treasury so as to impede the central bank's motivation for inflationary finance, to allow the central bank to exercise supervision and regulatory functions over the state banks in the same way that such functions are exercised over the private banks; to remove the treasury's account from the central bank so that the treasury is not automatically granted credit; to change the operating mechanism of the central bank, imposing greater costs of illiquidity on the banks.
Girón, Alicia
Directress
Universidad Nacional Autónoma de México
Instituto de Investigaciones Económicas
Fte. de la Escondida 36
Lomas de las Palmas
Mexico, D.F., México 52760
Phone: (525) 623-0078
FAX: (525) 251-98-65
The Commercial Banking System in Canada, the United States, and Mexico
The commercial banking system of each of the NAFTA countries plays a vital role not only in promoting financial and economic integration of the region but also in boosting the regional development of each country. The role of the commercial banking system is not only decisive in the channeling of resources but also in promoting institutional changes that the associate countries of this agreement need in order to respond effectively to the challenges of competition, deregulation, and financial liberalization of the globalized world.
The objective of this paper is to analyze the characteristics of the commercial banking system of Canada, the United States, and Mexico. The study selects the largest commercial banks of each country not only for their relevance on the national level but also for their presence and power in the international financial arena.
Economic Crisis and the Participation of Women
This paper describes the important role of women as productive agents in society within recent years. It analyzes the tendencies and transformation of the feminine labor force, the growth of employment of women in relation to that of men, occupational segregation, salary discrimination, the double work day, and the processes of migration. There is an emphasis on Latin America. It deals with the economic crisis of the eighties, characteristics of the woman in Mexico, and economic statistics on women in the work force.
Fifty Years of Foreign Debt
The work deals with the foreign debt in Mexico from 1940 until the renegotiations of the Brady Plan in February of 1990. It analyzes the financing of the foreign debt through international financial institutions and through the international private banking system.
Highlighting the channeling of credits to the different economic sectors, the work shows the intimate relationship between credit and the process of national and international accumulation. Debt is an economic variable which leads to social debt and thus to a political problem.
At the root of the financial crises in the decade of the 1980s there was a search for an alternative solution which resulted in multiple renegotiations and plans of stabilization from the IMF. This resulted in a structural change which led to liberalization and privatization which formed the basis of a new model of development, one totally different from what had been in place for the past fifty years.
Graf Noriega, Juan Pablo
Banco de México
Avenida Juarez 90, Primer Piso
Colonia Centro
Codigo Postal 06040 México, D.F.
Phone: (52 5) 761-8588
Behavior of Export Prices of Manufactured products: Mexico, 1980-1994
The objective of this work is to investigate how export prices of manufactured goods in Mexico are determined. This topic has not been dealt with directly for two reasons. First, there exists a consensus theory that the small exporters, like the Mexicans, are tomadores of prices. The second reason is because the statistical information needed to carry out the empirical evaluation is not easily available.
This paper is divided into four parts. The first presents the theoretical framework in which the estimation equation is based. the second describes the statistical information utilized. Given the difficulty encountered in collecting the data, this section takes on special importance in the work. The third and last sections include the estimation method, results, and conclusions. The results obtained for the majority of the products considered indicate that the export prices are determined principally by the established prices in the international markets.
Hargis, Kent
University of South Carolina
International Business Program Area
Columbia, SC 29208
Phone: (803) 777-2969
FAX: (803) 777-3609
The Internationalization of Emerging Equity Markets: Domestic Market Development or Retardation?
The internationalization of emerging equity markets in Latin America provides a unique opportunity to investigate how changing regulations, information disclosure, and international financial innovations impact the development of financial markets in developing economies. This paper extends the literature examining the role of liquidity in the endogenous development of financial markets to the case of international listings. It is demonstrated how international listings can shift a local equity market from an equilibrium of low liquidity and market capitalization to a market with high liquidity and self-sustaining growth of actively traded equity. International listings thereby improve the allocation and quantity of investment by lowering the required rate of return on equity and reducing the premium for liquidity risk in the market. In contrast to previous work, subsidies to either trade or issue equity are not needed. The shift to a Pareto superior outcome will occur as a response to incentives faced by the firm to list internationally. Welfare unambiguously improves from the perspective of the firm and the investor.
Time-Varying Transmission of Prices and Volatility: Latin American Equity Markets, 1989-1994
The integration of Latin American equity markets is tested before and after the liberalization of foreign investment restrictions with conditional and unconditional versions of the International Capital Asset Pricing Model (ICAPM). The explanatory power of the model increases significantly in Argentina and Brazil after liberalization. Contemporaneous volatility spill-overs from the United States to Argentina are found to increase after liberalization using various GARCH models. The impact is larger for negative innovations in the U.S. for Argentina and Mexico after liberalization. Returns increase in three of the four countries while volatility is reduced substantially in all four markets. Therefore, the influence of foreign investors in reducing volatility may be greater than the increase in volatility resulting from exposure to world risks and hot money.
Hargis, Kent
University of South Carolina
International Business Program Area
Columbia, SC 29208
Phone: (803) 777-2969
FAX: (803) 777-3609
Maloney, William F.
University of Illinois
Department of Economics
1206 S. Sixth St.
Champaign, IL 61820
Phone: (217) 333-0120
FAX: (217) 244-6678
Emerging Equity Markets: Are They for Real?
As equity markets in developing countries have grown so have concerns about whether their often dramatic movements are purely speculative or are in fact reflecting the real variables that theory suggests they should. Using the methodology developed by Fama (1990) and Schwert (1990) for the U.S., this paper provides preliminary evidence about the degree to which the largest emerging markets in Asia and Latin America are efficient. In support of the efficient markets hypothesis, industrial production is found to exert a significant positive influence on real stock returns in all markets except Taiwan. However, using the share of return variance explained as a measure of efficiency yields extremely counterintuitive results: the Mexican and Malaysian markets are more efficient than the base case U.S. and Japanese equity markets, and the least efficient markets are those of Taiwan and Korea. Including international real variables increases the explanatory power for Taiwan and Korea suggesting outward looking investors, rather than inefficiency. However, the crux of the anomaly is argued to lie in the differing composition of the return indices that is likely to render all such comparisons of efficiency suspect. Finally, the paper presents some inconclusive results when proxies for time varying returns are included in the specifications.
Humpage, Owen F.
Research Department
Federal Reserve Bank of Cleveland
P.O. box 6387
Cleveland, OH 44101
Phone: (216) 579-2019
FAX: (216) 579-3050
McIntire, Jean M.
Federal Reserve Bank of Cleveland
P.O. Box 6387
Cleveland, OH 44101
Phone: (216) 579-3023
FAX: (216) 579-3050
An Introduction to Currency Boards
The usefulness of money lies in its ability to reduce transactions costs, but this depends, in turn, on the public's confidence in the stability of money's purchasing power. Governments lacking an established reputation for price stability must adopt strong institutional constraints on their ability to inflate, if they hope to achieve monetary credibility. Recent events in Mexico and the movement toward market-based development strategies in Eastern Europe, Latin America, and Asia have kindled an interest in currency boards as an institution for providing monetary credibility in developing countries.
Currency boards exchange domestic currency for a foreign-reserve currency on demand at a fixed exchange rate and insure their offer by fully backing the domestic monetary bases with the foreign reserves. Because currency boards never monetize domestic assets, they cannot finance fiscal policies, sterilize reserve flows, or otherwise engage in discretionary monetary policies. The costs of acquiring monetary credibility through a currency board are: 1) a loss of monetary sovereignty, 2) the inability to promote terms-of-trade adjustments through exchange-rate changes, and 3) a restricted ability to provide lender-of-last-resort operations during banking crises.
Kildegaard, Arne
University of Mississippi
Dept. of Economics & Finance
University, Mississippi 38677
Phone: (601) 232-7211
Relative Price Changes and Absolute Banking Disasters: A Simple General Equilibrium Model with an Application to Chile
Development finance is channeled preponderantly through collateralized debt (bank loans) rather than equity contracts in LDCs and NICs, making the respective national financial systems vulnerable to shocks which affect the value of capital. Shocks which cause relative price changes can harm banks, as asymmetric contracts expose banks to the capital losses in declining sectors but not to the capital gains in expanding sectors. A stylized dynamic general equilibrium model investigates the effect of terms of trade shocks on the value of capital in a small open economy. Applied retroactively to the Chilean economy of the early 1980s, the model accurately indicates which sectors would expand and which would contract, the direction and magnitude of the exchange rate movement, and a sharp change in asset prices consistent with the financial crisis which ensued.
Foreign Finance and the Collapse of the Peso
The Mexican peso grew overvalued as the result of persistent inflation in excess of the rate of devaluation. However, the recent inflation resulted from capital inflows rather than fiscal deficits. Monetary authorities walked a tightrope between allowing capital inflows to expand the money supply (at the cost of inflation) and sterilizing those flows (which endangered the banking system). The terms of the bailout have forced Mexico to abandon concerns for the banking system, which will, in the long run, be counter-productive.
Ladrón-de-Guevara, Antonio
Universitat Pompeu Fabra
Department of Economics and Business
Calle Balmes 132
08008 Barcelona, Spain
Ortigueira, Salvador
Centro de Investigación Económica
Av. Camino Santa Teresa #930
10700 México, D.F., México
Santos, Manuel S.
Centro de Investigación Económica
Av. Camino Santa Teresa #930
10700 México, D.F., México
Email: msantos@cie.ster.itam.mx
A Two-Sector Model of Endogenous Growth with Leisure
This paper analyzes the equilibrium dynamics of an endogenous growth model with physical and human capital in which leisure considerations have a direct effect on the utility function. Even in the absence of technological externalities, our model may contain multiple balanced paths. These multiple steady-state configurations are directly related to the modelization of leisure and may provide an explanation on certain patterns of behavior found in economic growth and labor markets concerning human capital accumulation and worked hours.
Lazin, Olga M.
University of California-Los Angeles
Latin American Studies
405 Hilgard Avenue
Los Angeles, CA 90024
Phone: (310) 825-4321
Emerging World Trade Blocs: The North American Free Trade Area and the European Union Compared
This paper compares the key legal and policy aspects of the two trade blocs, NAFTA and EU, and outlines the salient features of each. It also presents quantitative data on NAFTA and the EU as well as additional relevant data on Japan, Eastern Europe, and other world trade units. The analysis focuses first on population, GNP, GNP/C, and exports, as measured by export share of GNP. The EU and NAFTA are then compared with respect to economic strength, geographic coverage, and competitive potential.
Mac Isaac, Donna
The World Bank
1818 H Street, N.W.
Washington, D.C. 20433
Phone: (202) 473-7679
FAX: (202) 522-1153
Rama, Martin
The World Bank
1818 H Street, N.W.
Washington, D.C. 20433
Phone: (202) 473-7679
FAX: (202) 522-1153
Determinants of Hourly Earnings in Ecuador: the Role of Labor Market Regulations
Labor costs in the regulated sector of the Ecuadorian economy are said to be high due to the existence of a large array of mandated benefits. We analyze this truism by using the recently completed Living Standards Measurement Survey (LSMS), which covers both urban and rural areas. The LSMS is much more detailed than previous Ecuadorian household surveys, both with respect to earnings (including all of the mandated benefits) and individual characteristics from education to indigenous background and unionization. Our analysis shows that as expected, take-home pay in the regulated sector is higher than in the rest of the economy but the gap is much smaller in practice than on paper. In fact, the impact of mandated benefits is partly offset by a sharp reduction of the base earnings--the foundation upon which mandated benefits are paid. This downward shift is facilitated by both the low level and weak enforcement of minimum wages. The impact of labor market regulations on labor costs is even smaller than suggested by the resulting increase in take-home pay because mandated benefits, unlike base earnings, are not subject to social security contributions and payroll taxes.
Montoya, Silvia
Fundación Mediterránea
Juan del Campillo 394
CP 5000 Córdoba, Argentina
Phone: (54-51) 82 4841 or 72 6523
FAX: (54-51) 72-4625
Mitnik, Oscar
IEERAL
Fundación Mediterránea
Juan del Campillo 394
CP 5000 Córdoba, Argentina
Phone: (54-51) 61-5372
FAX: (54-51) 78-4581
The Dynamics of Poverty and Income Distribution: Greater Buenos Aires, 1974-1994
the worsening problems of income distribution and the growth in the number of people under the poverty line has been a burgeoning phenomenon in Argentina for more than twenty years. This expansion in the number of households and individuals classified as poor has not been a linear process, reaching a peak in the last years of the eighties as a result of the deteriorating general macroeconomic situation.
In this study the changes in poverty levels and income distribution for the Greater Buenos Aires area from 1974 to 1994 are reviewed. Out of the two decades covered by the study, certain representative years were selected for different economic situations.
The FGT poverty measurements were used for the chosen years. Additionally, factors which had contributed to explain changes in poverty during the period were broken down, and the two most relevant ones were considered: the growth component (measured through the mean income of society) and the distributive component. With the elements given, it was possible to analyze the degree of sensitivity of poverty measurements to changes in society's mean income and in its distribution.
The analysis of the results has shown the significance of the worsening of distributive problems in explaining the growth of poverty over the period considered. In this sense, the continual macroeconomic fluctuations have produced ups and downs of mean income, leaving 1994 at a similar level to 1974 due to a deterioration of the distribution of income.
Mora Contreras, Jesús
Instituto de Investigaciones Económicas y Sociales
Facultad de Ciencias Económicas y Sociales
Facultad de Ciencias Económicas y Sociales
Universidad de Los Andes
Mérica-Venezuela
FAX: 074-44 03 77
Email: jmora@faces.ula.ve
The Pro and Cons of PDVSA's Strategic Associations
The National Company Petroleos de Venezuela (PDVSA) has been authorized to sign strategic associations with foreign companies. On the positive side, these agreements enable the financing of new projects which couldn't be developed otherwise. On the negative side, they are supposed to introduce a tax regime, which implies a shifting of the rent sharing to the benefit of foreign capital.
Murillo Garza, José Antonio
Investigador
Banco de México
Dirección de Estudios Económicos
Avenida Juarez 90, Primer Piso
Colonia Centro
Codigo Postal 06040 Mexico, D.F.
Phone: (52 5) 761-8588
Interaction of the Central Bank's Monetary Policy and the Credit Policy of the Banking System: The Case of Mexico, 1994-1995 (Research Document #73)
Utilizing a game theory focus, this research paper presents a theoretical analysis pertaining to the interaction between the Central Bank and the banking system. It analyzes the implications of the relationship between the Central Bank and the banking system in the attainment of the Central Bank's goals of price stability and stability in the financial system. It considers optimal monetary policy contracts, including those which are totally fixed and those which are flexible. It reflects on the optimality of the overnight interbanking market and the collecting of high penalty rates for overdrafts in Cuenta Unica.
The paper also looks at the effect of a banking structure, both monopolistic and competitive, as they relate to the objectives of the Central Bank. In addition, the paper examines the benefits of regulated and discretionary monetary policy contracts.
Nicolini, Juan Pablo
Universidad Torcuato Di Tella
Miñones 2177 (1428)
Capital Federal, Argentina
Phone: (54-1) 784-3386
FAX: (54-1) 784-0089
Email: juanpa@utdt.edu.ar
Hopenhayn, Hugo
University of Rochester
and
Universitat Pompeu Fabra
Email: hopen@upf.es
Optimal Unemployment Insurance: The Case of Argentina
In this paper, we apply the theory of repeated moral hazard to model the optimal unemployment insurance design between a risk averse agent and a risk neutral principal. We use Argentinean data on unemployment to calibrate our model and numerically solve for the optimal contract. We also compute the reductions in budget implied by switching to the optimal contract.
Nicolini, Juan Pablo
Universidad Torcuato Di Tella
Miñones 2177 (1428)
Capital Federal, Argentina
Phone: (54-1) 784-3386
FAX: (54-1) 784-0089
Email: juanpa@utdt.edu.ar
Marcet, Albert
Universitat Pompeu Fabra
Email: marcet@upf.es
Recurrent Hyperinflations and Learning
The paper examines the dynamics of a monetary model in which the rational expectations hypothesis is replaced by a learning mechanism that converges to a rational expectations equilibrium. We argue that the model reproduces the main stylized facts associated to hyperinflationary episodes.
Nin, Alejandro
Universidad de la República
Facultad de Ciencias Sociales
Departamento de Economía
José Enrique Rodó 1854
C. de Correo 6248
11000 Montevideo, Uruguay
Phone: (598-2) 49 29 73 or 41 77 07
FAX: (598-2) 48 19 17
Trade Flow Model: Impact of Economic Integration of the Southern Cone on Trade in Dairy Products
The impact of economic integration of the Southern Cone (MERCOSUR) and its effects on Argentina's Brazil's and Uruguay's trade in dairy products are analyzed using a trade flow model. The model differentiates products by country of origin using an import demand that is determined in a two-step procedure using a single elasticity of substitution and the share of the exporting countries in each market. Simulation with the model allows us to conclude that integration will increase Uruguay and Argentine exports to Brazil, but it will have a marginal effect on Brazil's global imports. Brazilian imports will depend basically on the common external tariff. Integration will not increase Uruguay's dependence on Brazilian markets. This dependence will be related to income in Brazil's market. Developed countries will be Uruguay's principal competitors. Uruguay should increase exports in order to keep its share in Brazil's market.
Ostro, Bart
The World Bank
Policy Research Department
Public Economics Division 1818 H Street
Washington, D.C. 20433
Phone: (202) 477-1234
Sanchez, José Miguel
The World Bank
Policy Research Department
Public Economics Division 1818 H Street
Washington, D.C. 20433
Phone: (202) 477-1234
Aranda, Carlos
The World Bank
Policy Research Department
Public Economics Division 1818 H Street
Washington, D.C. 20433
Phone: (202) 477-1234
Eskeland, Gunnar S.
The World Bank
Policy Research Department
Public Economics Division 1818 H Street
Washington, D.C. 20433
Phone: (202) 477-1234
Air Pollution and Mortality: Results from Santiago, Chile
Heavy outdoor pollution is found in developing country cities such as Jakarta, Katowice, Mexico City, and Santiago. Most epidemiological studies of dose-response relationships between particulate air pollution (PM 10) and premature deaths are from Western industrial nations. This paper is based on monitored PM10 values or small particles.
Over several years, daily measures of ambient PM10 were collected in Santiago. Data were collected for all deaths as well as for deaths of all people over 64. Deaths from respiratory and cardiovascular disease were recorded separately, and accidental deaths were excluded.
Multiple regression analysis was used to explain mortality with particular attention to the influence of season and temperature. The association persists after controlling for daily minimum temperature and binary variables indicating temperature extremes, the day of the week, the month, and the year. Additional sensitivity analysis suggests robust relationships. The results are surprisingly consistent with results from industrial countries.
Penha Cysne, Rubens
Getulio Vargas Foundation
Graduate School of Economics
Praia de Botafogo 190 8 Andar, Sala 821
Rio de Janeiro, Brazil
Phone: 55 215 369 245
FAX: 55 215 369 409
Official Financial System of Brazil and the Fall of Inflationary Tax and Inflation Transfers to Commercial Banks
This paper provides empirical data on inflationary tax and inflationary transfer to commercial banks in Brazil before and after the drop of inflation generated by the Plano Real, implemented in July of 1994.
Pérez-López Elguezabal
Banco de México
Avenida Juarez 90, Primer Piso
Colonia Centro
Codigo Postal 06040 Mexico, D.F.
Phone: (52 5) 761-8588
A Cointegration Model for Forecasting the Mexican GDP
The purpose of this work is to construct an econometric model in order to forecast the GDP. A general equilibrium model of a two sector open economy is presented. From this model, an inverse relationship between production and exchange rate is derived.
The volume index of industrial production as well as the bilateral Mexico-United States exchange rate turn out to be non-stationary variables. Nevertheless, both variables are cointegrated. A cointegrating regression was utilized in order to calculate the forecasts. A future scenario for real bilateral exchange rate was formulated and the industrial production for the last three quarters of 1995 was predicted. Then taking these predictions as a starting point and utilizing an auxiliary regression, the GDP of 1995 was predicted.
Rama, Martin
The World Bank
Policy Research Department
Public Economics Division 1818 H Street
Washington, D.C. 20433
Phone: (202) 473-7679
FAX: (202) 522-1153
Email: mrama@worldbank.org
Do Labor Market Policies and Institutions Matter? The Adjustment Experience in Latin America and the Caribbean
This paper analyzes the effects of eight labor market policies and institutions on the economic performance of 31 countries in Latin America and the Caribbean over the period of 1980-92. The set of variables used to describe labor market policies and institutions includes the number of ILO conventions ratified by each country, the mandatory annual and maternity leave regimes, the social security contributions paid by workers and employees, the relative size of government employment, the ratio of minimum to average wages, the amount of severance pay received in the case of dismissal, and the union membership rate. The effect of these variables on economic performance is assessed by means of cross-country regressions on aggregate panel data, with the growth rates of output, employment (total and in manufacturing) and labor costs as the endogenous variables. Economic performance is worse in countries with high government employment and high unionization rates. The six other policies and institutions considered appear to be relatively benign. Unionization and government employment being correlated, the results suggest higher payoffs to restructuring the public sector than to changing the labor code.
Renero, Juan M.
Instituto Tecnológico Autónomo de México
Departamento de Economía
Río Hondo 1
0100 México, D.F., México
Welfare of Alternative Equilibrium Paths in the Kiyotaki-Wright Model
I propose new existence and welfare results for the Kiyotaki-Wright model. Previous work on the model has focused almost exclusively on steady-states and has established the existence of multiple steady-states. Moreover, welfare comparisons among steady-states are of dubious significance because transitions are ignored.
For mixed strategies that restrict agents to play a unique strategy for each opportunity set, I prove that there exists an equilibrium in which the most costly to-store good has the highest acceptance rate. Furthermore, this equilibrium Pareto dominates equilibria in which less costly to-store goods are universally accepted.
I also display multiple equilibria in which only pure strategies are played. Among these is one in which the universally accepted good is the least costly to-store and another in which the universally accepted good is the second least costly to-store. For some initial conditions, both exist; and the latter is better according to a representative-agent-type welfare criterion.
Thus, my results show (1) that there often exist equilibria in which objects with poor storage properties are widely accepted and (2) that these equilibria have good welfare properties in relation to those in which better objects are widely accepted.
Reynoso del Valle, Alejandro
Banco de México
Dirección General de Investigación Económica
Avenida Juarez 90, Primer Piso
Colonia Centro
Codigo Postal 06040 Mexico, D.F.
Phone: (52 5) 761-8588
Target Zones with Endogenous Credibility
The purpose of this research is to explore the role of monetary policy on the sustainability of a floating exchange system within certain limits of intervention. An attempt is made to combine some results from the theory of exchange rate collapses and the theory of bands in order to set forth some considerations on designing an operative scheme that allows to lower the volatility of the parity in the short term, without implying the accumulation of further disequilibria that eventually would lead to an abrupt devaluation of the local currency. An heuristic method is followed in order to single out the consequences of having endogenous credibility bands and selecting a particular reaction function for the central bank. The work's emphasis is more on how things occur through the mechanisms of transmission of the monetary policy rather than on the results from comparative statistics.
The paper describes the Mexican experience of the last years in order to take advantage of a concrete case to identify some stylized facts about the collapse of a band system. It also presents a monetary model of exchange rate determination that reproduces those stylized facts and analyzes the effects that different combinations of parameters have on the sustainability of a band system.
Rich, Paul
Profesor Titular IV
University of the Americas
Escuela de Ciencias Sociales
Sta. Catarina Mártir
Cholula, Puebla
72820 México
Phone: (22) 29 24 83
FAX: (22) 29 26 35
Email: rich@udlapvms.pue.udlap.mx
De los Reyes, Guillermo
Professor, International Relations
University of the Americas,
Puebla, Mexico
The 1995 Mexican Financial Crisis and Mexican Higher Education: A Role for Computers (Working Paper ED-95-1, Hoover Institution, Stanford University)
Information technology is a victim of the current Mexican financial crisis. The desire to disseminate information more widely and economically than with conventional printing should be turning universities and research institutions to the new technology, but the cost of hardware and software after devaluation threatens to stymie efforts to put Mexico on the information superhighway. The creation of a Mexican national information infrastructure puts an enormous strain on educators. However, Mexico's current problems can only get worse unless imagination is applied to them. One solution is to put what limited resources there are towards a 21st century information technology and not dissipate resources on a number of already dated solutions.
Freemansonry's Education Role in Mexico: By Rite, By Right, By Ritual
The question of Masonry's possible educational influence in Mexico comes to the fore with the renewed interest in the regime of Porfirio Díaz, the longtime president-dictator of the country. His rehabilitation has much to do with the interest in his career shown by President Salinas, who as one of the architects of the North American Free Trade Agreement saw himself as following in the free market activities of his predecessor.
Participation of Mexican political leaders in Freemasonry should be placed in the context of a renewed worldwide interest in the nineteenth and early twentieth centuries in the empowerment of political leadership through the use of symbolism. The Mexican President could not call upon the Church to confer authenticity. This surely has something to do with why Díaz became a Mason. Masonry could uniquely enhance his stature--as it has the stature of a number of Mexican presidents before and since.
What better way to maintain the mystery of the presidency than for the president to belong to a shadowy mysterious fraternity? Such membership appeals to the notion beloved by many that there is a they who control matters and that they manipulate affairs.
Joel Poinsett: The First Gringo in Mexico
The paper deals with the first American minister to Mexico, Joel R. Poinsett and his encounter with Mexico which had profound consequences. As America's envoy, he was to have a unique opportunity to make his views felt and consequently serves as an initial example of American interventionism.
Political Culture in Post NAFTA Mexico
Scholarship in Mexico sometimes resists general intellectual developments although this is hardly a problem confined to south of the Rio Grande. One reason for this has been resentment of the North American bias of the social sciences. However, a desire to adopt a more Mexican or more Latin American stance does not always have a desirable result. Shunning strategies because they are gringo has not guaranteed the creation of an adequate and distinctive Mexican approach to the social sciences.
A number of recent books published in the United States indicate that there is a resurgence in political culture's contribution to the social sciences, one which offers no excuse for the straight-laced chronology which has typified some American and Mexican historiography. Political culture is a highly useful concept when post-NAFTA Mexico is considered because of the almost unique interplay in Mexico between religion politics.
Will the perspectives of a renewed political culture approach find their way into the work of Mexican scholars? While social history has been firmly established as part of the historical mainstream for many years, the amount of good social and economic history being written in and about Mexico continues to be limited. So, while there are certainly a number of evolving Mexican academic viewpoints on contemporary social and economic issues, there is not currently what could be described as a cutting-edge Mexican school of political scientists and sociologists, especially one that could be perceived as a major contributor to the worldwide conversation of scholars.
Santos, Manuel S.
Centro de Investigación Económica
Av. Camino Santa Teresa #930
10700 México, D.F., México
Email:msantos@cie.ster.itam.mx"
Vigo, Jesús
Universidad de Salamanca
Departamento de Economía
Campus Miguel de Unamuno
Edificio FES
37008 Salamanca, Spain
Email: jvigo@gugu.usal.es
Error Bounds for a Numerical Solution for Dynamic Economic Models
In this paper we analyze a discretized version of the dynamic programming algorithm for a parameterized family of infinite-horizon economic models and derive error bounds for the approximate value and policy functions.
Schmidt-Hebbel, Klaus
Senior Economist
The World Bank
1818 H Street, N.W.
Washington, D.C.
Phone: (202) 473-7453
FAX: (202) 522-1151
Email: kschmidthebbel@worldbank.org
Servén, Luis
The World Bank
1818 H Street, N.W.
Washington, D.C.
Phone: (202) 473-7453
Saving and Distribution: An Overview
This paper presents the stylized facts on saving, income, growth, and distribution using data for a large number of industrial and developing countries and relates the empirical regularities to those reported in the literature. It provides a brief survey of alternative views of saving determination with emphasis on the saving consequences of alternative distributions of income across individuals. It presents cross-country econometric evidence on the determinants of saving.
Supported by new empirical evidence, the main conclusion of this paper is that across countries, higher income inequality seems to be associated with higher saving ratios. This result is in accordance with most theoretical arguments on the saving-inequality link. It is nevertheless subject to three important qualifications. First, the link does not appear empirically strong. Second, it does not seem robust across country categories; specifically among industrial countries, no such relationship emerges from the data. Third, even if the direct impact of higher inequality is to raise saving, inequality might affect saving also through its indirect impact on the other important saving determinants. In theory, this could reverse the sign of the saving-inequality relationship, but we doubt that this is the case in practice.
Sheriff, H. Ernesto
Senior Analyst
Grupo Bedoya
Ingavi # 1058
Casilla 346
La Paz, Bolivia
Phone: (591-2) 35 50 75
FAX: (591-2) 39 12 23
Econometric Estimation of a Private Consumption Function for Bolivia (1965-1993)
In this paper I develop a parsimonious conditional model of consumers' expenditure in Bolivia for 1965-1993. The set of information contains, besides expenditure, income, inflation, and the recursive variance of inflation. All variables are annually measured.
In specifying the model, I follow the econometric approach known as general-to-particular methodology. I address issues of empirical model design and evaluation, cointegration, and exogeneity.
The empirical model is robust and has well determined parameter estimates. These features are especially remarkable in a period of great macroeconomic instability which includes a hyperinflationary process in the 1984-1985 period.
The validity of the conditional model supports the usual assertions about the transmission of the volatility of inflation to the volatility of aggregate demand via consumers' expenditure. The approach for dealing with the inflation instability is new: here the inflation instability is measured by VARINF-recursive variance of inflation.
Simonsen, Mario Henrique
Getulio Vargas Foundation
Graduate School of Economics
Praia de Botafogo 190 8 Andar, Sala 821
Rio de Janeiro, Brazil
Penha Cysne, Rubens
Getulio Vargas Foundation
Graduate School of Economics
Praia de Botafogo 190 8 Andar, Sala 821
Rio de Janeiro, Brazil
Phone: 55 215 369 245
FAX: 55 215 369 409
Welfare Costs of Inflation: The Case for Interest-Bearing Money and Empirical Estimates for Brazil
We provide in this paper a closed form for the Welfare Cost of Inflation which we prove to be closer than Bailey's expression to the correct solution of the corresponding non-separable differential equation. Next, we extend this approach to an economy with interest-bearing money, once again presenting a better approximation than the one given by Bailey's approach. Finally, empirical estimates for Brazil are presented.
Sod Hoffs, Gabriel
Banco de México
Dirección General de Investigación Económica
Avenida Juarez 90, Primer Piso
Colonia Centro
Codigo Postal 06040 México, D.F.
Phone: (52 5) 761-8588
The Rational Expectations Theory of the Term Structure of Interest Rates and the Option Value of Postponing Investment (Working Paper No. 75)
The purpose of this paper will be to bridge the gap empirically by incorporating explicitly the use of options to explain the term structure of interest rates, therefore modifying the usual rational expectations models of term structure. It will explain and quantify the liquidity premium component of long term rates. Furthermore, it will explain why it cannot be eroded by arbitrage. In order to do this, a theory of how expectations about the variance of interest rates are formed will be put forward. I will also attempt to explain the change in maturity of debt through this new framework. Finally, I shall test this theory by using Mexican data. These data present interesting stylized facts which can be explained much better in light of this theory.
Streb, Jorge M.
Centro de Estudios Macroeconómicos de Argentina
Instituto Universitario
Av. Córdoba, 637
1054 Capital Federal
Argentina
Phone: (314) 1757 1304 2269 2508
FAX: (541) 314-1654
Email:streb@cema.edu.ar
D'Amato, Laura
Banco Central de la República Argentina
Reconquista 266/74
1003 Capital Federal
Argentina
Short-Run Costs and Capacity Utilization
Permanent and transitory output can be distinguished in cost functions just as permanent and transitory income are distinguished in consumption functions. This can be relevant for the pattern of U-shaped average costs often found in econometric studies: transitory deviations of actual output from potential output lead short-run costs to diverge from long-run costs in that manner. Data from retail banks in Argentina are used to evaluate the issue of capacity utilization in the banking industry with the number of branches as a proxy for potential output and product per branch as a proxy for the utilization level.
Tanski, Janet
New Mexico State University
Department of Economics
Las Cruces, NM 88003
Phone: (505) 646-3201
FAX: (505) 646-2820
Trends in Industrial Organization and Market Power in Mexico (1980-1994) and the Probable Effect of NAFTA
While the issue of market share and manufacturing concentration is important within the context of hemispheric trade, study of Mexican industries has been hampered by the lack of data. This project develops a database of Mexican production and sales data by industry from 1980 to date. It also analyzes concentration ratios derived from production and market share ratios based on sales for the manufacturing industry in Mexico from 1980 to date. These data and studies will form a solid basis to which post-NAFTA industry data can be compared in subsequent studies. Using sources such as Mexican Chambers of Commerce, Expansion Group, INEGI, and the Mexican Stock Exchange, data are compiled for calculating concentration ratios and market share ratios for Mexican industry from 1980 to date and also for analysis of which industries in Mexico can be expected to benefit most and least from NAFTA judged by productivity differentials between Mexican and U.S. firms in the same industries. The comparison or results from this analysis will help establish if there is any direct relationship between the degree to which certain firms can be expected to benefit from NAFTA and their degree of market power.
Terra, María Inés
Universidad de la República
Departamento de Economía
José Enrique Rodó 1854
C. de Correo 6248
11000 Montevideo, Uruguay
Phone: (589-2) 49 29 73 or 41 77 07
FAX: (598-2) 48 19 17
Gigliotti, Adriana
Universidad de la República
Departamento de Economía
José Enrique Rodó 1854
C. de Correo 6248
11000 Montevideo, Uruguay
Phone: (589-2) 49 29 73 or 41 77 07
FAX: (598-2) 48 19 17
MERCOSUR: Localization of Production
MERCOSUR eliminates trade barriers between countries that differ greatly both economically and geographically. The paper uses a general equilibrium framework to examine the impact of a common market on the geographic location of production. Various trade liberalization scenarios are simulated for a world composed of nations and natural regions. The model assumes monopolistic competition with economies of scale, product differentiation, and transportation costs with two productive sectors, one factor, three countries, and five natural regions. The presence of scale economies and barriers to the movement of good results in agglomeration effects. The smaller regions specialize in industries in which scale economies do not dominate. However, the trajectory of specialization is nonlinear. Its evolution and final equilibrium with one or several industrial center depends on the interaction between relative market size, transport costs, the level of trade barriers, and the market power of firms.
Terra, María Inés
Universidad de la República
Departamento de Economía
José Enrique Rodó 1854
C. de Correo 6248
11000 Montevideo, Uruguay
Phone: (589-2) 49 29 73 or 41 77 07
FAX: (598-2) 48 19 17
Vaillant, Marcel
Universidad de la República
Departamento de Economía
José Enrique Rodó 1854
C. de Correo 6248
11000 Montevideo, Uruguay
Phone: (589-2) 49 29 73 or 41 77 07
FAX: (598-2) 48 19 17
Changes in Regional Specialization Patterns: Old Comparative Advantages and New Economies of Scale
This paper uses the center-periphery agglomeration hypothesis to examine the effects of regional integration on the MERCOSUR countries. The paper demonstrates how the process of regional integration leads to a scale-economy-based relocation of economic activity. When scale economies and transport costs are incorporated in a model of goods and services trade between places, the relative size of the markets undergoing integration appears as a central variable in the determination of specialization. By viewing geographic regions as areas that are naturally integrated through low transport costs, issues related to specialization may be more fully and clearly developed. Application of this paradigm to the case of Uruguay suggests that the country benefits from integration through MERCOSUR. Uruguay's advantages may be seen as expressed not only through the demand side--since the variety of available consumption goods is broadened--but through the supply side, as greater specialization efficiencies become possible.
Trindade Terra, Maria Cristina
Pontifícia Universidade Católica do Rio de Janeiro
Rua Marquês de São Vicente, 225
Rio de Janeiro RJ CEP 2243-900
Brazil
Phone: (55-21) 274-2797 or 529-9214 or 529-9390
Fax: (55-21) 294-2095
Multiple Equilibrium and Protectionism
This paper provides a novel perspective on the dynamics of infant industry protection. In a normative approach, trade policies are analyzed when the industrial sector generates positive externalities in production and when there are adjustments to costs to changing production between sectors. If the government is able to fully commit to its tariff schedule for the future, the welfare maximizing policy is to maintain a positive tariff forever. However, if the government is not able to commit, the only time-consistent policy is zero tariff always. In the intermediary case, i.e., when the government can commit for a limited period of time, the time consistent optimal tariff will be positive but lower than the full-commitment tariff. This result indicates that some institutions that have always been considered sources of inefficiency, such as protectionist lobbying, may in fact be welfare improving in some cases!
Private International Capital Flows to Brazil
The early nineties have witnessed a revival of capital flows to developing countries. Despite the several unsuccessful attempts to stabilize inflation until the Real Plan of July, 1994, Brazil was a major beneficiary of those capital inflows, the majority of which were composed of portfolio investment. Capital inflows had a good side because they increased the amount of foreign reserves at the Central Bank, thereby making less likely a hyperinflation in the earlier period and opening room for the exchange rate based stabilization that is being currently attempted by the Real Plan. Nevertheless, capital inflows posed major monetary and fiscal problems, which are described and analyzed. The prospects of the Brazilian stabilization are robust to the change in the international environment caused by the Mexican crisis, since they depend more on domestic factors (fiscal and monetary discipline) than on the continuity of capital flows at the previous levels.
Vera, Gabriel
Subgerente De Métodos Estadísticos
Banco de México
Avenida Juarez 90, Primer Piso
Colonia Centro
Codigo Postal 06040 México, D.F.
Phone: (52 5) 761-8588
Boné, José Antonio
La Universidad Panamericana
The Effect of Educational Expansion on Income Distribution for Wage Earners in Mexico: 1977-1984
For many years, the Mexican society overall has made a great effort to provide more schooling for the largest number of people possible. Because of structural reasons, this process has been reflected more in the schooling of the workers, particularly the younger workers. Because of this, people looking for work for the first time have more education. This paper attempts to answer the question: What is the effect on income distribution of a labor supply with increasingly more schooling?
Werneck, Rogério L.F.
Pontifícia Universidade Católica do Rio de Janeiro
Rua Marquês de São Vicente, 225
Rio de Janeiro RJ CEP 2243-900
Brazil
The Changing Role of the State in Brazil
Since the late eighties, privatization, trade liberalization, and deregulation have become central issues on the economic policy agenda in Brazil as part and parcel of the stabilization effort. However, as the sense of urgency aroused by the need to put an end to high inflation starts to lose momentum, there are now mounting pressures in favor of the resurgence of a more interventionist state that under the ample umbrella of active industrial policy would pick the winners among the various industries and open them to a generous flow of government favors in the form of tax and credit subsidies, shelter from foreign competition, and cozy public sector procurement contracts. Massive subsidization of selected industries was the hallmark of the military regime's industrial policy that led to major blunders, widespread rent-seeking, state plundering and corruption. This paper stresses the difficulties of implementing the same kind of policy in the new Brazilian democratic environment, particularly when the government still has to impose very painful and unpopular fiscal adjustment measures in order to consolidate the results of the current stabilization plan and to establish a firmer ground for sustained economic growth.
Westley, Glenn
Inter-American Development Bank
1300 New York Avenue, N.W.
Washington, D.C. 20577
Phone: (202) 623-2481
FAX: (202) 6232481
Email: glennw@iadb.org
Financial Liberalization: Does it Work? The Case of Latin America
This paper makes two major points. First the effects of financial liberalization on productivity and growth may be much smaller--perhaps as much as an order of magnitude smaller--than suggested by a number of earlier studies. Second, methodologically, empirical new growth studies may gain a great deal of additional information and may benefit in other important ways by using annual data--as it is done here--instead of the multi-year averaged data that have uniformly employed by these studies up until now.
Wilkie, James W.
University of California-Los Angeles
Latin American Studies
405 Hilgard Avenue
Los Angeles, CA 90024
Phone: (310) 825-4321
Mexico as Linchpin for Free Trade in the Americas
The purpose of the paper is to: (1) explain Mexico's role as linchpin for free trade integration in the Western Hemisphere; (2) list the free trade organizations in the Western Hemisphere as of January 1, 1995, and compare the U.S. and Canadian plans for the expansion of free trade areas; (3) show how the emerging Mercado Común del Sur (MERCOSUR) poses a special challenge to and opportunity for Mexico. (Although MERCOSUR is a customs union in the process of becoming a free trade area, it seeks to become a common market); and (4) determine whether free trade is being imposed from above to exploit workers in the name of globalization or is a result of popular demand.
The discussion is divided into four sections. The first examines the expansion of free trade in the Americas led by Mexican President Carlos Salinas de Gortari beginning in 1990. Section 2 presents data and graphs that enable us to analyze relationships in the hemisphere and the rise of blocs elsewhere in the face of economic globalization. Section 3 evaluates future prospects for expanding and consolidating free trade areas (FTAs). Section 4 poses tests to determine whether free trade is being imposed on the people or demanded by them.
