Institutional Arrangements and Fiscal Performance: The Latin American Experience

This paper considers whether institutional factors, in this instance electoral systems and procedures, affect Latin American countries` fiscal performance as measured by the size of the public sector, fiscal deficits, the size of the public debt, and the degree of procyclality of fiscal policy. The authors find that electoral systems characterized by large district magnitude and high political fragmentation have larger governments, larger deficits, and more procyclical fiscal policies. Transparent and hierarchical budget procedures, on the other hand, lead to lower deficits and levels of debt.

The Political Economy of Exchange Rate Policy in Latin America: An Analytical Overview

Exchange rates have been central to the course of economic development in Latin America for decades. From the heyday of import substitution in the 1960s to the rapid expansion of foreign debt in the 1970s, from the debt crisis and its troubled aftermath in the 1980s to the rekindling of growth and borrowing in the 1990s, the exchange rate has been crucial to the mix of government policies that has shaped the region. Indeed, many analysts regard exchange rate policy as a major determinant of other economic outcomes, such as adjustment to the oil shocks of the 1970s and the debt crisis of the 1980s (Sachs, 1985). And currency policies have themselves been at the center of some of the regions most prominent economic processes and events, such as liberalizing reforms in the Southern Cone between 1976 and 1982, the Mexican crises of 1982 and 1994, Argentinas adoption of a currency board in 1991, Brazils 1999 currency crisis, and ongoing discussions of dollarization.

Evolución de la concentración urbana en todo el mundo: un enfoque de panel

(Disponible en idioma inglés únicamente) En este trabajo empleamos un enfoque de panel para estudiar el crecimiento de la población en las principales ciudades del mundo. Hallamos que las principales ciudades crecen con mayor rapidez en economías relativamente atrasadas y en economías más inestables y de crecimiento más rápido. También hallamos que los efectos de las políticas del comercio sobre el crecimiento de ciudades importantes depende considerablemente de la geografía. Mientras que el crecimiento demográfico en importantes ciudades ubicadas en puertos o cerca de ellos no cambia tras un repunte de los flujos de comercio, el crecimiento demográfico en ciudades importantes tierra adentro sí tiende a desacelerarse luego del mismo hecho. Por otro lado, no hallamos efecto alguno del régimen político sobre el crecimiento demográfico de ciudades importantes. Por último, hallamos algunos elementos de prueba de que, si todo lo demás se mantiene igual, las ciudades de mayor tamaño tienden a crecer a un menor ritmo.

Elections and the Timing of Devaluations

This paper presents a rational political budget cycle model for the open economy, in which devaluations are delayed in the run-up to elections, in order to increase the electoral chances of the party in office. By concentrating on the closed economy, previous political cycle models had overlooked the influence of elections on the behavior of exchange rates. We introduce voter uncertainty in two different dimensions. Not only are voters uncertain regarding the competency of the incumbent. They also ignore the degree to which the incumbent is opportunistic, i.e. willing to distort the economy for electoral gain. When there is only uncertainty about competence, we obtain a separating equilibrium, like in the previous political budget cycle literature. However, when uncertainty about opportunism is introduced, a partially pooling equilibrium emerges: an incompetent, opportunistic incumbent delays a devaluation until after elections, mimicking a competent incumbent, while the competent does not distort the optimal pattern of the exchange rate, regardless of the degree of opportunism. The model's prediction that there is a tendency to delay devaluations until after elections is used to look at the empirical evidence on devaluations around elections.devaluations, elections, political budget cycles, incomplete information.

Elections and the Timing of Devaluations

This paper presents a rational political budget cycle model for an open economy, in which devaluations are delayed in the pre-election period so as to increase the electoral chances of the party in office. By concentrating on closed economies, previous political cycle models had overlooked the influence of elections on the behavior of exchange rates. Voter uncertainty is introduced in two different dimensions. Not only are voters uncertain regarding the competency of the incumbent, but tey also ignore the degree to which the incumbent is opportunistic.

Trade Intensity and Business Cycle Synchronization: Are Developing Countries any Different?

Some key criteria in the optimal currency area literature are that countries should join a currency union if they have closer international trade links and more symmetric business cycles. However, both criteria are endogenous. Frankel and Rose (1998) find that trade intensity increases cycle correlation among industrial countries. We study whether the same result holds true for the case of developing countries, as their different patterns of international trade and specialization may lead to cyclical asymmetries among them and between industrial and developing countries. We gather annual information for 147 countries for 1960-99 (33,676 country pairs) and find: (i) countries with higher bilateral trade exhibit higher business cycle synchronization, with an increase of one standard deviation in bilateral trade intensity raising the output correlation from 0. 05 to 0. 09 for all country pairs; (ii) countries with more asymmetric structures of production exhibit a smaller business cycle correlation; (iii) the impact of trade integration on business cycles is higher for industrial countries than both developing and industrial-developing country pairs; (iv) a one standard deviation increase in bilateral trade intensity leads to surges in output correlation from 0. 25 to 0. 39 among industrial countries, from 0. 08 to 0. 10 for our sample of industrial-developing country pairs, and from 0. 03 to 0. 06 among developing countries; (v) the impact of trade intensity on cycle correlation is smaller the greater the production structure asymmetries between the countries.

Why Do Countries Float the Way They Float?

Countries that are classified as having floating exchange rate systems (or very wide bands) show strikingly different patterns of behavior. They hold very different levels of international reserves and allow very different volatilities in the movements of the exchange rate relative to the volatility that they tolerate either on the level of reserves or in interest rates. We document these differences and present a model that explains them as the optimal response of a Central Bank that attempts to minimize a standard loss function, in an environment in which firms are credit-constrained and incomplete markets limit their ability to avoid currency mismatches. This model suggests that the difference in the way countries float could be related to their differing levels of exchange rate pass-through and differences in their ability to avoid currency mismatches. We test these implications and find a very strong and robust relationship between the pattern of floating and the ability of a country to borrow internationally in its own currency. We find weaker and less robust evidence on the importance of pass-through to account for differences across countries with respect to their exchange rate/monetary management.

Politics and Exchange Rates: A Cross-Country Approach to Latin America

This paper explores the impact of political economy factors on exchange rate policy in Latin America. It studies the determinants of the choice of exchange rate regime in Latin America, placing special emphasis on political, institutional and interest group explanations. The presumption is that differences in institutional and political settings, as well as differences in economic structure, can have an effect on the choice of regime and, more generally, on exchange rate policy. In addition to these structural elements, the paper examines whether such political events as elections and changes in government affect the pattern of nominal and real exchange rates.

El ALCA y el destino de la inversión extranjera directa

(Disponible en idioma inglés únicamente) El papel de los acuerdos de integración regional como factor determinante de la ubicación de la inversión extranjera directa (IED) se ha ido convirtiendo en un problema cada vez más importante para las economías en desarrollo. En América Latina, es probable que los mayores efectos guarden relación con el Acuerdo de Libre Comercio de las Américas (ALCA). Esto suscita una serie de preguntas altamente pertinentes: Por ejemplo, ¿qué efecto tendrá el ALCA en la IED proveniente de EE. UU. y Canadá destinada a países latinoamericanos? ¿Cómo afectará eso a la IED proveniente del resto del mundo? ¿Cuáles son las implicaciones para un país como México, cuyo acceso preferencial a EE. UU. puede verse menoscabado? ¿Hay que anticipar que habrá ganadores y perdedores, y, de ser así, qué es lo que determina si un país dado gana o pierde? Para responder a estas preguntas, en este trabajo analizamos las repercusiones de la integración regional de la IED e intentamos sacar conclusiones sobre los efectos probables del ALCA en los países de América Latina.

The Cyclical Nature of North-South FDI Flows

In this paper, we examine how the business and interest rate cycles in developed countries affect FDI to developing countries. After aggregating flows into three big source areas (the U. S. , Europe and Japan), we find FDI flows to be countercyclical with respect to both output and interest rate cycles in the first two, whereas in Japan they display either no cyclical behavior or mild procyclical behavior. This finding is consistent with the fact that FDI outflows and local investment tend to move in opposite directions during the cycles in the U. S. and Europe, reflecting investors` arbitrage among different investment opportunities. In sum, and contrary to what is usually claimed, we conclude that recessions in industrial countries are likely to increase FDI flows, particularly to those countries with close ties with the U. S. and Europe.