per 100 people, a variable that measures the cost reduction in the production of intermediate inputs, fostering specialization (Bougheas et al., 2000). Furthermore, our model controls for inflation, a variable that captures the economic instability of an economy and is negatively associated with economic growth (Fischer, 1993). Human capital is another fundamental variable adopted in our equation, since its growth raises labor productivity and other inputs in production, generating a positive impact on economicdevelopment (Becker, 1994). We also include financial depth, proxied by domestic credit to the private sector, inspired by Levine’s (1997) empirical evidence of financial development as a good predictor of economic growth, to check whether institutions remain statistically relevant in our empirical model. We then adopt a dummy variable for LatinAmerica and check whether the effect of institutions on economicdevelopment is stronger in the region than in the rest of the world.
From North's ideas one can conclude his eminent concern in understanding why the institutions of a country are positively related to good economic conditions, while in others the past didn’t developed institutions that ensures or guarantees economic results. Despite this paper walks in an opposite direction to North, its concerns is about economicdevelopment and growth conditions in LatinAmerica and what relationship can be established together with social capital and institutional governance. Specifically when looking at LatinAmerica, the findings in this regard are of two natures. The region gets the lowest levels of interpersonal and institutional trust among all democratic economies, ie, it has low social capital, based on the terms proposed by Putnam. On the other hand it is also noted that "a unique culture of transgression exists in LatinAmerica" (Sorj and Martuccelli 2008:158), based on 'legalistic tradition' of the continent, the existence of institutions that distinguish citizens – often on economic basis – and the acceptance or tolerance to the disregard of legal norms. Thus, both interpersonal trust and institutional governance in LatinAmerica seem weak.
Nikolaev and Salahodjaev (2016) proposed that intelligence - another dimension related to culture - may be linked to the distribution of wellbeing within society and across nations. Using, data from 81 countries and applying wide range of estimation techniques (such as OLS regressions with robust Huber), they reported that intelligence is a significant antecedent of happiness inequality even after controlling for economicdevelopment, geography and quality of institutions. This result holds even when the authors use a panel data for 50 US states from 1972 to 2012. Moreover, they report that economicdevelopment moderates the link between intelligence and life satisfaction.
Table 2.7 displays the first stage and reduced-form regressions. I only report the first stage of the model with corruption as the dependent variable. The results are sim ilar when using other outcome variables, although the sample size varies. The results from the first stage (column 1 ) resemble the findings about primary determinants ob tained using the sample of presidential candidates in section 2.5. The likelihood th at a president was primary-nominated increases with political competition, but only for politicians who were not also party founders." Columns ( 2 ) to (7) report the reduced form regressions. In all cases, the estimates are consistent with the 2SLS findings: the factors th at increase the likelihood of primary adoption are also positively correlated with the measures of government quality. This evidence highlights the link between political competition, party institutions and political selection.
It is not enough to foster international transfers to alleviate the poverty trap, but it is necessary to design economic policies addressed to increase investment, with international institutions support addressed to diminish the risk of investment in developing countries, and other measures which would have a highly positive impact on economicdevelopment, because the increase in real income per inhabitant is the most important factor to finance health. Thus the MDGs should be addressed within a general policy to improve economicdevelopment.
positively in a greater manner on education, measured as secondary school enrollment. We know that financial development includes better and more access to credits for all population; higher savings rates; healthy macroeconomic policies and institutions. The financial sector has strengthened in the last years in LatinAmerica. Therefore, the opportunities for economicdevelopment have been increasing. People have more options to finance consumption goods as well as investment. However, the disparity in the levels of financial development among Latin American countries, make it necessary to study further the interaction term. Does higher financial development enhances remittances impact on education? We can observe from this result, how the interaction term boosts human capital investments. Eventually, we will check the extent of impact of the levels of financial development of countries. Finally, the table suggests a statistically significant and negative relationship of Capital formation and Population growth. Inflation, trade, GDP per capita and government expenditure show a statistically insignificant relationship.
First, financial markets have created an environment that al- lows investment by allowing entrepreneurs to ”think big” (Patrick, 1966 , p 176 ) and, therefore, opening the economy to new oppor- tunities and sources of growth (Levine & Zervos, 1998 ). They not only promote new opportunities but they also select finan- cially viable projects. Traditional macroeconomic models have pointed this mechanism as a key factor for economic growth that is associated with the Total Factor Productivity (TFP or Solow Residual). These models of economic growth were devel- oped by Solow-Swan ( 1957 ), according to it, economic growth comes from three factors: capital, labor, and TFP. If the first two variables are stable as in most economies one of the fac- tors that can lead to an increase in economic growth is the TFP. Solow ( 1957 ) defined the TFP as a catch-all term that could be used to explain any change (increase or decrease) of the eco- nomic growth. In this sense, models usually use the TFP to show improvements in education and labor force. In this case, scholars would use it to capture increased entrepreneurship op- portunities. In other words, the role of the financial market is to sponsor and select productive investment that generates eco- nomic growth.
In this chapter I will discuss the methodological procedures used to investigate if and how trust affects variation in economicdevelopment. According to the social capital analyst Krishna, a combination of case-study and statistical methods should be employed to study the impact of trust (Krishna 2004: 207). My point of departure is a quantitative approach, namely a multiple regression analysis, which is used because it enables an evaluation of the possible existence of a general relationship between growth and trust in LatinAmerica. Trust is aggregated to a macro level and constitutes a national property. At the same time, I argue that the case-oriented approach is useful for exploring the mechanisms behind the causality: How does trust affect economicdevelopment? I select the specific case for a case-oriented qualitative analysis based on the quantitative analysis. Uruguay turns out as the country with the highest value on the most pertinent variable in the analysis, social capital. This indicates that it might be a particularly good case for tracing how the mechanisms of trust functions. As social capital is an individual micro level concept in the qualitative analysis, elite interviews are used to explore behavioural patterns among the micro level creators of economicdevelopment: Business leaders in Uruguay. Problems and challenges with both the regression analysis and the case study of Uruguay will be treated and weighted thoroughly. I will first present the methodological procedures and the arguments for my selected. Secondly, the data and the operationalization will be discussed, and finally, issues regarding bias, validity and reliability of data will be treated, as well as my strategies to overcome these obstacles.
Because a lagged value for years preceding 1990 could not be created for the share of rural population on marginal land, this variable is likely to be endogenous in the regression for average annual growth over 1990–2011. OLS regression and the consequent Hausman specification test for simultaneity confirms at the 5 % significance level the possibility of endogeneity. The instrumental variables three- stage least squares (3SLS) estimation is used to correct for this problem. In this procedure, it is assumed that the structural system includes both the growth regression and a second equation for the share of rural population on less favored agricultural land. Based on the insights of the theoretical model, the explanatory variables in the latter equation are factors that explain the prominence of an agricultural-based rather than a modern economy: arable land per capita, gross fixed capital formation as a percentage of GDP, agricultural value added as a share of GDP and the small island developing states dummy. In the 3SLS procedure, the instruments of the first stage include all the exogenous variables of the two structural equations. Three additional exogenous instruments, also averaged over 5 years preceding 1990, were also included: primary school enrolment rate, secondary school enrolment rate and land area. The second and third stages involve the seemingly unrelated linear regression equations (SURE) procedure, employing two-step (or iterative) feasible generalized least square (GLS) that accounts for contemporaneous correlation in the errors across equations.
While the income boost produced by closing the productivity gap in this simple accounting calculation is sizable, it would apparently leave most of the observed income gap. This metric would suggest that productivity is an important but not predominant variable behind income gaps, but then why is it that income is so closely associated with productivity across countries (as shown in Figure 2)? An appreciation of the relevance of productivity for the overall economicdevelopment process requires the exploration of the interplay between productivity and factor accumulation: the indirect effects of productivity gaps on the incentives to accumulate production factors may account for a substantial portion of the observed development gaps. In fact, the traditional tools previously utilized underestimate the importance that closing the productivity gap would have on welfare. We show in what follows that after a full measure is obtained, it becomes clear that:
Moreover, the importance of carrying out a historical study on the subject of …nancial development and growth is mainly because, no doubt, developing countries can indeed bene…t from …nance, however …nance needs the right framework to thrive (i.e., macroeconomic stability and all the economicinstitutions that generate stability, such as central bank independence and sound …scal authorities, must be in place as necessary conditions for development) 11 . Furthermore, it can be speculated that the …nancial liberalisation taking place in some of those countries in the 1990s, or the introduction of more competition in the …nancial sector, might have played a positive role in widening access to …nance after the stabilisations of the 1990s. All in all, the institutional reforms that those countries implemented in the 1990s (with
derstand the environmental issue was the so-called De- velopment and Environment Styles in LA, which was started mid-1978 and concluded mid-1980. Both Vicente Sánchez, then in charge of the UNEP Latin American Office, as well as Enrique V. Iglesias, ECLAC’s Execu- tive Secretary, were seeking with this project to impact in the political-executive authorities of the region that showed little knowledge regarding the environmental value in development issues . In order to do so, they offered project management to Osvaldo Sunkel, at that time living in England, under the conviction that their prestige would allow permeating through this resistance that was shown both by specialists in economy and de- velopment issues as well as political and executive au- thorities . Of course, Sunkel conscious of the fact that they did not have any greater specialization in the envi- ronmental issue, established the condition that a team of experts in the matter should be contracted. Given the above, when he arrived to Chile and contacted Luciano Tomassini, who was then Enrique Iglesias’ advisor at ECLAC, he immediately introduced him to Nicolo Gligo, agronomist and ecologist that during the Salvador Al- lende’s presidential administration (1970-73) had di- rected the Chilean Institute of Natural Resources of Chile (IREN its acronym in Spanish). Regarding the intellect- tual contribution made by Gligo to Sunkel’s thinking he recalls: “I could discover with him what I consider the key to understanding the field of study of ecology, the notion of ecosystem, the comprehension that we are all part of one single ecosystem and that there is a direct relationship between what’s going on in the society and nature (in its widest sense). This was a very rich reflec- tion as I realized not only that there is a nature, but also that there is a transformed nature, a natural environment and an artificial manmade environment and that every- thing is interconnected. Similarly, the international eco- nomic trends, either in the rural and urban development have strong implications from the environmental stand- point” . Thus, Gligo and Sunkel formed a highly com- plementary team that became a key element for the pro- ject’s success, among which main activities were holding the inter-disciplinary seminar “Development and Envi- ronmental Styles in LA”, held between November 19 and 23, 1979, in Santiago, Chile and that gathered more than 500 professionals and personalities of the region and, additionally, allowed the new publication with the same name in 1981, which became a classic work of the issue in FTA . In this endeavour they were certainly assisted by a large number of experts with whom they teamed up at the ECLAC. One of them was Gilberto Gallopin who, according to Gligo, was a key contributor as an expert systems analyst and ecologist who “helped us to define the environment as the mediation of the environment by
The Mexican Produce Foundations (PFs) are civil society organizations managed by farmers, created in Mexico in 1982 (one in each of the 32 states) to manage public funds for agricultural research and extension, that have evolved to influence the design and implementation of agricultural and STI policies, contribute to changes in public research institutions and the setting of research priorities, and have been the source of new communication links between commercial farmers‖ associations and federal and state authorities, as well as researchers. The PFs were created without significant involvement from foreign or multilateral institutions, to improve the interaction between the Institute for Forestry, Agricultural and Livestock Research (INIFAP) and farmers. Eventually farmers gained control of the boards of the PFs, and a national coordinating office was set up (National Coordinator for the Produce Foundations – COFUPRO). The Produce Foundations were set up in the midst of the country‖s experience of economic and political liberalisation, when public research institutes were not well equipped to help farmers cope with the new challenges and opportunities presented by the changing economic situation and access to technologies. Ekboir et al (2009) point out the importance of the Produce Foundations‖ experience in developing ―learning abilities, including identifying knowledge gaps and defining strategies to fill them‖, leading the PFs to have ―major and diverse impacts on the agricultural innovation and research systems‖ (Ekboir et al 2009: xiii). This success is attributed primarily to the activities the farmers themselves introduced as they learned to manage funds for research and extension. Ekboir et al contrast this experience with the limited impacts resulting from the typical agricultural policies of many developing countries that separate the financing and implementation of research, and have reduced their public extension programs (Ekboir et al 2009: xiii). This example highlights the kind of institutional mechanisms suggested by the Manifesto for more deliberative priority-setting in a sectoral and sub-regional (feeding into a national level) space. However, the example also raises the question as to how or to what degree the Producer Foundations enable a balance of power between larger commercial and small-scale farmers.
Moreover, the importance of carrying out a historical study on the subject of …nancial development and growth is mainly because developing countries can indeed bene…t from …nance. However …nance needs the right framework to thrive (i.e., good macroeconomic performance and all the economicinstitutions that generate that, such as central bank independence and sound …scal authorities, must be in place as necessary conditions for development) 12 . Furthermore, it can be reasonably said that the …nancial liberalisation (or de-regulation) taking place in those countries in the 1990s, or the introduction of more competition in the …nancial sector, has played a positive role in widening access to …nance after the stabilisations of the 1990s. All in all, the institutional reforms that those countries implemented in the 1990s (with the implementation of in‡ation targeting by more inde- pendent central banks, …scal responsibility laws (at regional and federal levels), and more competition in the …nancial sector) seem to have paid some dividends in terms of creating
This paper begins with a discussion of our dependent variable, which is whether there is fiscal reform. The second part considers why crises may be connected to reforms, and it provides five testable hypotheses. The third part of the paper considers how crises are measured in the literature. The fourth part adds additional, more political explanations for reforms. The final part of the paper provides the empirical analysis. While we examine several different types and different measures of crises, we find that only fiscal crises in the year the crisis hit (not later) make it more likely that countries reform. Moreover, other more political variables seem to be relevant as well. Countries that experience more frequent general strikes and that have electoral institutions that encourage a personal instead of a party vote also are more likely to reform. We expect that these variables are more likely symptoms of broader problems. The strikes occur at least partly because the political system is not functioning well. The electoral institutional variable is one indicator of the scale of the common pool resource problem. The greater the problem, the more likely there are fiscal issues unresolved in the first place.
Notes: The sample correspond to an unbalanced panel of thirty-two Latin American economies from 1980 to 2009. The dependent variable is productivity growth. The growth rates are in percentage changes (that is, multiplied by 100). Increases in the real exchange rate index (growth) measure currency depreciations. System Generalized Method of Moments (System GMM) estimation following Roodman (2009a) programming for the two-step Arellano-Bover/Blundell- Bond estimator with Windmeijer (2005) finite sample corrections. Small sample adjustments with collapsed instruments have been performed in all the estimations (Roodman, 2009b). This table reports the t-test instead of the z-test, and the F test instead of the Wald χ2 test for the general model. GMM instrumentation: the control regressors are assumed as endogenous, except the terms of trade which are assumed exogenous. Initial output per worker was assumed predetermined, using second lags in regression (1) and (2). Endogenous variables are instrumented using second lags for the difference equation and first lags for the levels equation. Predetermined variables, in addition, are instrumented with first lags for the difference equations and contemporaneous lagged first differences as instruments for the level equations. All the estimations include time period specific effects. Standard errors are given in parenthesis. Specifications tests reports the p-values.
Economists have been traditionally interested in understanding which policies work best for increasing welfare and providing adequate policy recommendations. In their quest, they have generally studied policymaking using models in which economic policies are chosen by a benevolent social planner. The point of departure of this document is that policies are not chosen by benevolent planners (or similar constructs), but are instead the outcome of strategic interactions among a number of key participants (voters, economic interest groups, politicians, technocrats) each with its own motivations and incentives. Moreover, it is also necessary to consider that policy decisions have an intertemporal component (i.e., policies usually have an impact beyond the period in which they are discussed, and political actors usually interact over time). Thus to understand policies—and the features of those policies relevant for their impact on behavior and welfare—it is necessary to study strategic political interactions over time. By doing so it is possible to understand better what aspects of the functioning of the institutions of democracy are relevant for explaining the features of policies and henceforth for explaining patterns of development.
The theoretical foundation for public support for these interventions is their ability to generate positive externalities, overcome market failures, and reduce transactions costs that block economic activity. 3 However, even when there is a solid basis in economic theory to justify corrective interventions, not all are necessarily justified given that actions by the State can impose additional costs arising from “government failures.” The experiences of fieldwork by the Inter-American Development Bank (IDB) highlighted in the present study identify some of the limitations when it comes to applying these instruments, such as a bias towards supply with little attention given to actual demand; complex and bureaucratic procedures to access benefits; lack of coordination between one program and others in relevant institutions; little interaction between those who plan the initiatives and their end clients; and limited use of impact evaluation. Often the authorities justify creating new programs and incentives without regard to existing ones, creating redundancies and reducing program effectiveness.
The aim of the World Bank’s ‘structural adjustment program’ and the associated neoliberal agenda was to pave the way for an expansion and increased operations of capital, particularly in the form of foreign direct investment (FDI), the bearers of which were the multinational corporations (MNCs) that dominate international trade in goods and services. Regarding this wave of investment and associated capital flows see the discussion below. There are four different types of FDI depending on the reasons for a firm to invest abroad, namely: (i) resource-seeking capital used to secure access to low-cost labour or natural resources; (ii) market-seeking capital used to open or penetrate new markets, or maintain already existing ones; (iii) efficiency-seeking capital to reconstruct existing production by taking advantage of a lower cost structure in the host economy or economies of scale; and (iv) strategic asset-seeking capital used to enable MNCs to protect or develop their ownership specific advantage—to acquire the assets of existing firms. The latter was reflected in the acquisition of state enterprises put up for sale by governments in the privatization agenda (to revert the nationalization policy of the 1960s and 1970s). It is estimated (Petras & Veltmeyer, 2006: 46) that at least 40 percent of the inflows of private capital in the 1990s—from 1990 to 1996 when the inflow of FDI increased six-fold and LatinAmerica was converted into a major destination point for asset-seeking capital—was unproductive in that it did not mean the transfer of technology, simply the purchase of already existing assets, which led to the denationalization of key firms and entire sectors such as banking in Mexico, where all of the country’s big banks except one were acquired by foreign firms. The inflow of both productive and unproductive flows of investment capital, and the privatization and denationalization of firms and economic enterprises with the potential to expand market share or compete on the world market, were facilitated by policies pursued under the Washington consensus within the framework of the new world order.
It is supposed that εit = νi + uit . That is, the error ε it can be decomposed into two parts, a fixed constant for each country ν i , and random term u it that meets the OLS(εit = νi + uit), which is equivalent to performing a general regression and to give each individual a different origin point (ordinate). The random effects model (RE) has the same specification as the fixed effects except that the terms ν i , rather than being a fixed value for each country that remain constant over time is a random variable with mean value E[νi] and variance Var(νi) 6= 0. The RE model is more efficient but less consistent than the FE. For the estimation of dynamic panel data it is common to use the Generalized Method of Moments (GMM); see, for example, Arellano and Bond (1991). They extend the GMM estimation in differences on the basis of regressions in differences to control unobservable effects. They also use previous observations of explanatory variables and lags of the dependent variables as instruments.