Irani Arráiz

A SPATIAL CLIFF-ORD-TYPE MODEL WITH HETEROSKEDASTIC INNOVATIONS: SMALL AND LARGE SAMPLE RESULTS*

In this paper we specify a linear Cliff and Ord-type spatial model. The model allows for spatial lags in the dependent variable, the exogenous variables, and disturbances. The innovations in the disturbance process are assumed to be heteroskedastic with an unknown form. We formulate a multi-step GMM/IV type estimation procedure for the parameters of the model. We then establish the limiting distribution of our suggested estimators, and give consistent estimators for their asymptotic variance covariance matrices, utilizing results given in Kelejian and Prucha (2007b). Monte Carlo results are given which suggest that the derived large sample distribution provides a good approximation to the actual small sample distribution of our estimators.

Default, Settlement, and Repayment History: A Unified Model of Sovereign Debt

This paper combines default, settlement, and repayment history into a unified, dynamic borrowing model of sovereign debt. The model addresses two questions: 1) how the level of debt and the income profile affect the length of time a country in default is excluded from the international credit market, and 2) how repayment history impinges upon the credit limit and interest rate lenders offer, and upon the borrowers incentive to default. In the model, borrowers weigh the benefits from defaulting against the penalties associated with it, namely a lengthy exclusion from the market and a potential deterioration in the credit terms. The paper models the settlement as a random process to reflect inefficiencies that arise due to the existence of private information, but conditions the probability of a settlement on the portion of the defaulted debt borrowers agree to repay. The model incorporates repayment history (i.e., the number of years a country has been active in the international credit market) into the information set used by lenders. Quantitative analysis shows that the model can replicate some key stylized facts of sovereign debt: settlement offers depend positively on a debtors current income level and negatively on its level of debt; the debt-to-GDP ratio that new borrowers or serial defaulters can support is well below the ratio that proven debtors can safely manage; the probability of default is larger for debtors with recent payment difficulties; once a country defaults, it takes many years of impeccable repayment and low levels of debt for that country to gain full access to international credit markets; this process is slow and backsliding is difficult to avoid

Impact of the Chilean Supplier Development Program on the Performance of SME and Their Large Firm Customers

This paper evaluates the impact of the Chilean Supplier Development Program, aimed at improving and stabilizing the commercial linkages between small and medium-sized suppliers and their large firm customers, during the period 2003-2008. Applying propensity score matching and difference-in-differences, we find that both groups of firms benefited from the coordination efforts. The program increased sales, employment, and the sustainability of small and medium-sized suppliers. It also increased the sales of large firms and raised their ability of becoming exporters. We also find that the timing of the effect is different for suppliers and large firms. While the effect on suppliers appeared one year after the firms enrolled in the program, the effect on large firms took two years to appear.

Default and Settlement: Payment Resumption and Disclosure of Information

A country with a history of default has the advantage of having revealed information to the credit market on how it has conducted itself while confronting a default episode and how it might manage a possible default situation in the future. Under the assumption that a borrower is excluded for a finite period of time from the credit markets once it has defaulted, and that the period of exclusion can be used to negotiate the settlement conditions, this paper shows, using survival analysis techniques, that disclosure of information by the debtor will lead to a reduction in the time of the negotiation; that is, an increase in the settlement rate. This disclosure of information can be in the form of previous default or the credible announcement of fiscal reforms. Engaging in debt reduction or rescheduling under concessionary rates hurts the debtors probability of reaching an agreement and settling the debt. The paper shows, using Standard and Poors dataset which includes default episodes that date back to the 1820s, that a country with a history of default has a higher probability of leaving the period of exclusion sooner than a country that has defaulted for the first time. Uncertainty reduction increases the settlement rate.

Psychometrics as a Tool to Improve Screening and Access to Credit

This paper studies the use of psychometric tests, which were designed by the Entrepreneurial Finance Lab as a tool to screen out high credit risk and potentially increase access to credit for small business owners in Peru. The analysis uses administrative data covering the period from June 2011 to April 2014 to compare debt accrual and repayment behavior patterns across entrepreneurs who were offered a loan based on the traditional credit-scoring method versus the Entrepreneurial Finance Lab tool. The paper finds that the psychometric test can lower the risk of the loan portfolio when used as a secondary screening mechanism for already banked entrepreneurs—that is, those with a credit history. For unbanked entrepreneurs—those without a credit history—using the Entrepreneurial Finance Lab tool can increase access to credit without increasing portfolio risk.

Same Bureaucracy, Different Outcomes in Human Capital? How Indigenous and Rural Non-Indigenous Areas in Panama Responded to the CCT

This paper estimates the impact of the conditional cash transfer program, Red de Oportunidades, on human capital outcomes in areas with different incidences of poverty: indigenous and rural non-indigenous areas of Panama. The analysis relies on data from the Living Standards Measurement Survey of 2008. It uses a propensity score matching technique to identify the impact of the program by replicating the selection criteria followed by the government. Our results show that the program increased school enrollment and was able to reduce child labor in both areas. In rural areas, the impact of the program on education outcomes was restricted to enrollment in middle school where we estimated an increase of 10.2 percentage points (pp). The program also increased the proportion of children that completed elementary school by 13.8 pp, although it did not have an impact on enrollment in elementary or high school. In indigenous areas, the impact of the program on education outcomes was restricted to enrollment in elementary school where we estimate an increase of 7.9 pp. Additionally, the results show that the program reduced child labor in children ages 12 to 15 in both areas: by 10.1 pp in rural areas and 15.8 pp in indigenous areas. With regard to preventive health care services, we found no evidence of impact on the numbers of visits to health care providers or the number of vaccines that children received. However, we estimated that the proportion of women who had a Papanicolau test screening because of the program increased by 11.7 pp in rural areas and 14.7 pp in indigenous areas. Sadly, we found that the program might also have led to an increase in the number of pregnancies in rural areas: the proportion of pregnant women in 2008 was 3.2 pp higher in the beneficiary group than in the control group, and the number of pregnancies since the beginning of the program increased by 0.44 among beneficiaries---despite the fact that the number of children ages 3 to 6, who were born before the implementation of the program, was not statistically different between the groups.

Are psychometric tools a viable screening method for small and medium-size enterprise lending ? evidence from Peru

This study collaborated with the Entrepreneurial Finance Lab and a large bank in Peru to use psychometrics for small and medium-size enterprise lending. Applicants used a psychometric tool and those who achieved a score higher than a threshold were offered a loan. Using a regression discontinuity design and credit bureau data, the study finds that the tool increased small and medium-size enterprise loan use by up to 59 percentage points for applicants without a credit history, without leading to worse repayment behavior. This increase in borrowing resulted primarily from financial institutions other than the partner bank. For applicants with a credit history, the tool did not increase small and medium-size enterprise loan use.