Working Papers

Documents published in the IDB working paper series are of the highest academic and editorial quality and all have been peer reviewed by recognized experts in their field. They are research and survey studies that, while conforming to rigorous research standards, need not be final products as their purpose is not only to inform but to stimulate discussion. The audience for working papers is largely academic, but may also include policymakers and private sector professionals.

• Financial Integration and Foreign Banks in Latin America: How Do They Impact the Transmission of External Financial ...

  Galindo, Arturo; Izquierdo, Alejandro; Rojas-Suarez, Liliana

  Date : Feb, 2010

  This paper explores the impact of international financial integration on credit markets in Latin America, using a cross-country dataset covering 17 countries between 1996 and 2008. It is found that financial integration amplifies the impact of international financial shocks on aggregate credit and interest rate fluctuations. Nonetheless, the net impact of integration on deepening credit markets dominates for the large majority of states of nature. The paper also uses a detailed bank-level dataset that covers more than 500 banks for a similar time period to explore the role of financial integration—captured through the participation of foreign banks—in propagating external shocks. It is found that interest rates charged and loans supplied by foreign-owned banks respond more to external financial shocks than those supplied by domestically owned banks. This does not hold for all foreign banks. Spanish banks in the sample behave more like domestic banks and do not amplify the impact of foreign shocks on credit and interest rates.

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• Productive Development Policies in Trinidad and Tobago: A Critical Review

  Moya, Ramiro; Mohammed, Anne-Marie; Sookram, Sandra

  Date : Jan, 2010

  Even as Trinidad and Tobago seeks productive diversification away from the energy sector, the process underlying the country’s productive development policies (PDP) is in a state of transition from state-directed industrial policy to a newer approach with extensive private-public participation. This study explores the main characteristics of four PDPs in Trinidad and Tobago and reviews them following the related literature (e. g. , Rodríguez-Clare, 2005a and 2005b, and Melo and Rodríguez-Clare, 2006). The four PDPs are: a) The process towards the Promotion of Clusters; b) the PDPs for the Tourism industry; c) the classical PDPs for Micro, Small and Medium Enterprises and; d) the Free Trade Zone as a policy designed to compensate for the failure of the State.

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• Politics, Policies and the Dynamics of Aggregate Productivity in Colombia

  Eslava, Marcela; Melendez, Marcela

  Date : Dec, 2009

  This paper describes private actors’ involvement in Colombia’s policymaking process. While more transparent and formal channels are used to discuss horizontal policies, they are also less effective. The adoption of targeted policies, however, follows a faster track and depends more on political power than on those policies’ potential as engines for productivity growth. Data on policies and political characteristics across sector-region units are used to further characterize the different groups’ weight in policymaking, and the effect of the implied unbalance on aggregate productivity. Electoral weight and being represented by business groups and associations are found to be important determinants of the policy benefits received by a sector in a region, especially when activities are located in regions affected by armed conflict. It is also found that the resulting imbalance of policies damages aggregate productivity.

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• Financial Dependence, Formal Credit and Informal Jobs

  New Evidence from Brazilian Household Data

  Catao, Luis; Pages, Carmen; Rosales, Maria Fernanda

  Date : Dec, 2009

  This paper examines a much overlooked link between credit markets and formalization: since access to bank credit typically requires compliance with tax and employment legislation, firms are more likely to incur such formalization costs once bank credit is more widely available at lower cost. The relevance of this credit channel is gauged using the Rajan-Zingales measure of financial dependence and a difference-in-differences approach applied to household survey data from Brazil. It is found that formalization rates increase with financial deepening, especially in sectors where firms are typically more dependent on external finance. Also found is that, decomposing shifts in formalization rates into those within each firm size category and those between firm sizes, financial deepening significantly explains the former but not so much the latter. Some key policy implications are derived.

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• New Century, Old Disparities: Gender and Ethnic Wage Gaps in Latin America

  Atal, Juan Pablo; Nopo, Hugo; Winder, Natalia

  Date : Dec, 2009

  This paper surveys gender and ethnic wage gaps in 18 Latin American countries, decomposing differences using matching comparisons as a non-parametric alternative to the Blinder-Oaxaca (BO) decomposition. It is found that men earn 9-27 percent more than women, with high cross-country heterogeneity. The unexplained pay gap is higher among older, informal and self-employed workers and those in small firms. Ethnic wage differences are greater than gender differences, and educational attainment differentials play an important role in explaining the gap. Higher ethnic wage gaps are found among males, singleincome generators of households and full-time workers, and in rural areas. An important share of the ethnic wage gap is due to the scarcity of minorities in highpaid positions.

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• Political Institutions and Street Protests in Latin America

  Machado, Fabiana; Scartascini, Carlos; Tommasi, Mariano

  Date : Dec, 2009

  This paper argues that where institutions are strong, actors are more likely to participate in the political process through institutionalized arenas, while where they are weak, protests and other unconventional means of participation become more appealing. This relationship is explored empirically by combining country-level measures of institutional strength with individual-level information on protest participation in 17 Latin American countries. Evidence is found that weaker political institutions are associated with a higher propensity to use alternative means for expressing preferences, that is, to protest. Also found are interesting interactions between country-level institutional strength and some individual-level determinants of participation in protests.

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• The Making of Policy: Institutionalized or Not?

  Scartascini, Carlos; Tommasi, Mariano

  Date : Dec, 2009

  This paper develops a framework for analyzing different policymaking styles, their causes and their consequences in Latin America, finding that lower institutionalization and greater use of alternative political technologies (APTs) are more likely the lower the cost of using these technologies, the higher the potential damage they can cause, the lower the wealth of the economy, and the more asymmetric the distribution of de jure political power. Moreover, strategic complementarity exists in the use of alternative political technologies; for instance "bribes by the rich" and "protests by the poor" are likely to be countervailing forces, and will both occur in polities with weaker political institutions.

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• Institutional Quality and Fiscal Transparency

  Andreula, Nicolo; Chong, Alberto; Guillen, Jorge

  Date : Dec, 2009

  This paper uses new data on fiscal transparency for a cross-section of countries; these data possess several advantages. First, the data are based on in-depth reports using a standardized methodology and protocol. Second, this study covers 82 countries, more than previous comparable studies. Third, the fiscal measures used have been obtained with the collaboration of government authorities, which makes them particularly reliable. Finally, the data collection has been undertaken at a high level. These new data permit examination of a relevant but little-studied issue, the role of institutional quality in a country’s fiscal transparency. It is shown that there is in fact a causal relationship between institutions and transparency. The findings are robust to changes in specification and a host of transparency sub-measures.

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• Happiness, Ideology and Crime in Argentine Cities

  Di Tella, Rafael; Schargrodsky, Ernesto

  Date : Dec, 2009

  This paper uses self-reported data on victimization, subjective well being and ideology for a panel of individuals living in six Argentine cities. While no relationship is found between happiness and victimization experiences, a correlation is documented, however, between victimization experience and changes in ideological positions. Specifically, individuals who are the victims of crime are subsequently more likely than non-victims to state that inequality is high in Argentina and that the appropriate measure to reduce crime is tobecome less punitive (demanding lower penalties for the same crime).

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• The Economics of Natural Disasters: A Survey

  Cavallo, Eduardo; Noy, Ilan

  Date : Dec, 2009

  Catastrophes caused by natural disasters are by no means new, yet the evolving understanding of their relevance to economic development and growth is still in its infancy. In order to facilitate further necessary research on this topic, this paper summarizes the state of the economic literature examining the aggregate impact of disasters. The paper reviews the main disaster data sources available, discusses the determinants of the direct effects of disasters, and distinguishes between short- and long-run indirect effects. The paper then examines some of the relevant policy questions and follows up with projections about the likelihood of future disasters, while paying particular attention to climate change. The paper ends by identifying several significant gaps in the literature.

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