Alberto Chong

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.

Causality and Feedback Between Institutional Measures and Economic Growth

Recent cross-section studies have demonstrated a strong link between measures of corruption, bureaucratic quality, property rights, and other institutional variables, and economic growth. In this paper we build on previous research and present some empirical evidence on the direction of causality between institutional measures and growth. It appears that the poorer the country, and the longer the wait, the higher the influence of institutional quality on economic growth. However, we also show the existence of reverse causality. Indeed, it appears that economic growth also causes institutional quality. Copyright 2000 Blackwell Publishers Ltd..

Soap Operas and Fertility: Evidence from Brazil

This paper focuses on fertility choices in Brazil, a country where soap operas (novelas) portray families that are much smaller than in reality, to study the effects of television on individual behavior. Using Census data for the period 1970-1991, the paper finds that women living in areas covered by the Globo signal have significantly lower fertility. The effect is strongest for women of lower socioeconomic status and for women in the central and late phases of their fertility cycle. Finally, the paper provides evidence that novelas, rather than television in general, affected individual choices.

Determinants of Current Account Deficits in Developing Countries

The authors examine the empirical links between current account deficits and a broad set of economic variables proposed in the literature. To accomplish this, they complement and extend previous research by using a large, consistent set of macroeconomic data on public and private domestic savings, external savings, and national income variables; focusing on developing economies by drawing on a panel data set for 44 developing countries and annual information for the period 1966-95; adopting a reduced-form approach rather than holding to a particular structural model; distinguishing between within-country and cross-country effects; and employing a class of estimators that controls for the problems of simultaneity and reverse causation. Among their findings: Current account deficits in developing countries are moderately persistent. A rise in domestic output growth generates a larger current account deficit. Increases in savings rates have a positive effect on the current account. Shocks that increase the terms of trade or cause the real exchange rate to appreciate are linked with higher current account deficits. Either higher growth rates in industrial economies or higher international interest rates reduce the current account deficit in developing economies.

Inequality and Institutions

This paper presents theory and evidence on the relationship between inequality and institutional quality. We propose a model in which the two dynamically reinforce each other and set out to test this relationship with a broad array of institutional measures. We establish double causality between better institutional quality and a more equal distribution of income, but also demonstrate that the link from the latter dominates the former. These results are shown to be robust to various specifications and different data sources that cover various time-spans.

Structural reform, institutions and earnings: Evidence from the formal and informal sectors in urban Peru

Reforms undertaken in Peru in the early 1990s might have resulted in a slight reduction of the informal sector. Costs associated with becoming and staying informal, and benefits of becoming formal might have increased. This, when a legalistic definition of informality is used. Earnings differentials between formal and informal self-employed workers are negligible although they persist between formal and informal salaried workers. Skilled workers are more likely to be found in the formal sector and informal wage earners tend to be younger and less skilled. The earnings generating process for both the formal and the informal self-employed workers is similar.

Television and Divorce: Evidence from Brazilian Novelas

This paper studies the link between television and divorce in Brazil by exploiting variation in the timing of availability of the signal of Rede Globo—the network that had a virtual monopoly on telenovelas in the country—across municipal areas. Using three rounds of Census data (1970, 1980 and 1991) and controlling for area fixed effects and for time-varying characteristics, the paper finds that the share of women who are separated or divorced increases significantly after the Globo signal becomes available. The effect is robust to controlling for potential determinants of Globo’s entry strategy and is stronger for relatively smaller areas, where the signal reaches a higher fraction of the population.

External sector and income inequality in interdependent economies using a dynamic panel data approach

Abstract By using a panel of countries for 1960–1995 we show that the intensity of capital controls, the exchange rate, the type of exports, and the volume of trade appear to affect the long run distribution of income.

The Truth about Privatization in Latin America

Privatization is under attack. Criticisms run from corrupt deals to abuse of market power and social welfare losses. We evaluate the empirical record on privatization relying on recent comprehensive studies from Latin America. There are four main results. First, the increased profitability of privatized firms is not explained by sample selection biases. Second, in the quest to identify the sources of increased profitability after privatization, we find little evidence that validates concerns of generalized market power abuses, exploitation of workers and lack of fiscal benefits. Third, the manner in which privatization is carried out matters. Transparency and homogeneity in procedures, speed, and limited restructuring prior to privatization lead to better outcomes and less room for corruption and discretion. Finally, privatization’s success is enhanced by two complementary policies: re-regulation or deregulation of industries previously shielded from competitive forces; and an effective corporate governance framework that facilitates privatized firms’ access to capital at lower costs. Overall, the empirical record shows that privatization leads to increased profitability and productivity, firm restructuring, fiscal benefits, output growth and even quality improvements. Most cases of privatization failure can be linked to poor contract design, opaque processes with heavy state involvement, lack of re-regulation and a poor corporate governance framework.

Privatization and Labor Force Restructuring Around the World

Some critics of privatization argue that poor labor force restructuring is a key concern and that governments should establish better retrenchment programs. Using new data from a sample of 400 companies in the world, Chong and Lopez-de-Silanes test competing theories about the wisdom of retrenchment programs and their effect on prices paid by buyers, and rehiring policies by private owners after privatization. The results show that adverse selection plagues retrenchment programs carried out by governments before privatization. Controlling for endogeneity, several labor retrenchment policies yield a negative impact on net privatization prices. In confirmation of the adverse selection argument, various types of voluntary downsizing lead to a higher frequency of rehiring of the same workers by the new private owners. Compulsory skill-based programs are the only type of program that is marginally associated with higher prices and lower rehiring rates after privatization, but the political and economic costs of this policy may make it somewhat impractical. While a qualified non-intervention policy appears to be the safest bet in labor retrenchment before privatization, another one might be to set up a social safety net or labor reallocation program before privatization, and then let the new private owners decide who is redundant and who is not. Setting up the program before privatization may help with the political viability of the process and letting the new owners manage the retrenchment may help avoid adverse selection.