Claudio E. Montenegro

New Estimates for the Shadow Economies all over the World

This paper presents estimations of the shadow economies for 162 countries, including developing, Eastern European, Central Asian, and high income OECD countries over 1999 to 2006/2007. According to our estimations, the weighted average size of the shadow economy (as a percentage of ‘official’ GDP) in Sub-Saharan Africa is 37.6%, in Europe and Central Asia (mostly transition countries) 36.4% and in high income OECD countries 13.4%. We find that an increased burden of taxation (direct and indirect ones), combined with (labour market) regulations and the quality of public goods and services as well as the state of the ‘official’ economy are the driving forces of the shadow economy.

Aggregate agricultural supply response in developing countries: a survey of selected issues

The authors review several studies of the aggregate agricultural supply response. Using both economic and econometric reasons, they argue that time series estimation typically generates a downward-biased estimate of the response to a credible reform. Even though time series estimates can provide an accurate picture of past behavoiral relations, they do not provide an adequate basis for forecasting the impact of policy reform. This is especially true in developing countries, where policy reforms involve large changes and have included agricultural price reform, industrial trade liberalization, financial sector reform, and macroeconomic stabilization. Under those circumstances, parameters values obtained under the former policy regime have little relevance in the new regime. The authors also argue that investment in public goods should be viewed as complementary to, not competitive with, price policy. They claim that to select the policy with the biggest impact on output makes no sense. They provide what they consider to be better criteria for choosing the best from alternative policies.

Comparable Estimates of Returns to Schooling Around the World

Rates of return to investments in schooling have been estimated since the late 1950s. In the 60-plus year history of such estimates, there have been several attempts to synthesize the empirical results to ascertain patterns. This paper presents comparable estimates, as well as a database, that use the same specification, estimation procedure, and similar data for 139 economies and 819 harmonized household surveys. This effort to compile comparable estimates holds constant the definition of the dependent variable, the set of control variables, the sample definition, and the estimation method for all surveys in the sample. The results of this study show that (1) the returns to schooling are more concentrated around their respective means than previously thought; (2) the basic Mincerian model used is more stable than may have been expected; (3) the returns to schooling are higher for women than for men; (4) returns to schooling and labor market experience are strongly and positively associated; (5) there is a decreasing pattern over time; and (6) the returns to tertiary education are highest.

In From the Shadow : Integrating Europe's Informal Labor

This book is about Magda and Jacek and millions of others like them, who earn a living working full- or part-time in Europes untaxed markets for goods, services, and labor. Magda was certified as a hairdresser years ago, and shes very proud of the salon apprenticeship she did shortly after. She learned a lot and made good friends but was never fully comfortable working for somebody else. Jaceks clients pay him in cash, and he pays his men in cash as well. He sometimes needs to show a license to get the trade price on parts and materials. But he can keep it up-to-date by declaring only part of what he actually earns to the tax office. This book ventures a general conclusion about what policy makers can do to bring more economic activity in from the shadow: Although it may be necessary to improve the structural incentives created by taxation, social protection policies, and labor market regulation, doing so is not sufficient for substantive improvement to be achieved. To back up this general conclusion, the book presents a large body of evidence indicating that much more than the fairly mechanical incentive structures of taxation, social policy, and labor market regulation is at work in shaping the circumstances that lead people into the shadowy unregulated and untaxed markets for goods, services, and labor.

How distorted is Cuba's trade? Evidence and predictions from a gravity model

Cuban trade has been historically distorted for two reasons: its membership in the socialist trade pact (CMEA) and the US embargo. Using a gravity model, this article explores the degree of distortion of the current Cuban trade structure and predicts its evolution, in the event the economy is liberalized. The econometric approach uses information on trade flows between 101 developing and developed countries in the 1980–91 period. The main results predict that 80 per cent of Cuban exports and imports will switch away from current partners (in particular, Canada and Japan) towards the USA, to reduce transportation and transaction costs. The results appear robust to specification, time period and trade determinants. The degree of distortion of Cuban trade has declined in the 1990–91 period but, unless the US embargo is lifted, it will not converge to what world trade patterns predict.

Crafting Labor Policy : Techniques and Lessons from Latin America

Nothing impacts the welfare of individuals and households more directly than employment and earnings opportunities. In developing countries, labor market reform is a crucial component for the success of overall economic policy reforms. Despite success in other areas of economic reform over the past ten years, Argentina, Brazil, and Chile continue to face significant labor policy issues. To reduce the rhetoric around the issues - in Argentina, a high level of unemployment exists; in Brazil, the high costs of public employment have created large government deficits and public debt; and in Chile, there is a growing income inequality and uncertainty of employment - the book uses a systematically quantitative approach. The value of the quantitative methods in analysis is that they can provide frameworks to better understand the effects of various policy actions. The results can then be translated into benefits and costs that policy makers can more easily explain to their constituents. The policy recommendations resulting from the issues analyzed in Crafting Labor Policy: Techniques and Lessons from Latin America may be beneficial to other developing countries enacting labor market reforms.

Economic Freedom, Human Rights, and the Returns to Human Capital: An Evaluation of the Schultz Hypothesis

In 1975 Theodore W. Schultz suggested that the returns to human capital are highest in economic environments experiencing unexpected price, productivity, and technology shocks that create “disequilibria.” In such environments, the ability of firms and individuals to adapt their resource allocations to shocks becomes most valuable. In the case of negative shocks, government policies that mitigate the impact of the shock will also limit the returns to the skills of managing risk or adapting resources to changing market forces. In the case of positive shocks, government policies may restrict access to credit, labor, or financial markets in ways that limit reallocation of resources toward newly emerging profitable sectors. This article tests the hypothesis that the returns to skills are highest in countries that allow individuals to respond to shocks. Using estimated returns to schooling and work experience from 122 household surveys in 86 developing countries, the article demonstrates a strong positive correlation between the returns to human capital and economic freedom, an effect that is observed throughout the wage distribution. Economic freedom benefits those workers who have attained the most schooling as well as those who have accumulated the most work experience.

How are Youth Faring in the Labor Market? Evidence from Around the World

This paper uses a new standardized micro database for a large set of developing countries to (1) describe the patterns of labor market outcomes for youth, and (2) explain the contributions of supply and demand factors to youth outcomes. The paper shows that youth face various difficulties in transitioning to work. This is reflected in their relatively higher unemployment rate, higher incidence of low paying or unpaid work, and a large share of youth who are neither working nor in school. This is especially true for young girls who are found outside the labor market, some engaged in home production. Finally, the paper also finds that cross-country estimates show that changes in the youth relative cohort size is unlikely to have a large effect on how youth are faring in the labor market.

El efecto de China en el comercio internacional de América Latina

Haciendo uso de modelos gravitacionales, se analizan los flujos agregados de comercio con el fin de identificar los efectos de China sobre el comercio de America Latina. Entre las principales conclusiones se encuentran las siguientes: i) El crecimiento del mercado chino no fue desaprovechado por los paises de America Latina; ii) A nivel agregado no se encontro que las importaciones que los socios comerciales latinoamericanos hacen de China hayan desplazado a las importaciones que estos hacen de America Latina; iii) Solo hay una asociacion positiva entre importaciones de China y exportaciones a terceros mercados en el caso del Cono Sur.

Economic Freedom, Human Rights, and the Returns to Human Capital : An Evaluation of the Schultz Hypothesis

T.W. Schultz (1975) proposed that returns to human capital were highest in economic environments where technology, price or production shocks were common and managerial skills to adapt resource allocations to those shocks were most in need. We hypothesize that variation in returns to human capital across developing countries can be explained in part by government institutions that blunt the magnitude of those shocks or that limit individual abilities to respond to those shocks. Using estimated returns to schooling and experience from 122 household surveys from 86 developing countries, we demonstrate a strong positive correlation between economic freedom and returns to human capital. The positive effect is observed at all quantiles of the wage distribution. Economic freedom benefits the most skilled who get higher returns to schooling; but it also benefits the least skilled who get higher returns from experience.