Essays on economic development and political economy: Evidence from Latin America.

Abstract

This thesis presents three papers that contribute to our understanding of economic development. In particular, I explore the role of natural resources and political actors on economic development and provide empirical evidence from Latin America. Chapter 1 draws on joint work with Juan Pablo Rud. In this chapter we study the impact of a large Peruvian gold mine on the local population. Using annual household data from 1997 to 2006, we find evidence of a positive effect of the mine's demand of local inputs on real income, household welfare and poverty reduction. The effects are only present in the mine's supply market and surrounding areas. We examine and rule out that the results are driven by the fiscal revenue windfall from mining levies. Using a spatial general equilibrium model, we interpret these results as evidence of welfare gains generated by the mine's backward linkages. Chapter 2 explores empirically the effect of party nomination procedures on political selection and governance. Using a new data set of Latin American parties, I find evidence of a positive relationship between primaries, electoral performance and quality of government. I interpret these results as evidence of primaries improving political selection. To address relevant identification concerns, I use an instrumental variable approach based on determinants suggested by a model of endogenous primaries, which I test on the data. Chapter 3 studies the role of costly taxation as an explanation of the flypaper effect: the observed greater response of public spending to grants than to increments of the tax base. I develop a model of local spending with costly taxation and test the model using data from Peruvian municipalities. I find that differences in tax collection costs explain almost one third of the flypaper effect