Marcela Eslava

Factor Adjustments after Deregulation: Panel Evidence from Colombian Plants

We analyze nonlinear adjustments of capital and labor using plant data from the Colombian Annual Manufacturing Survey, allowing for interdependence in adjustments of the two factors. We find nonlinear employment and capital adjustments. We also find that capital shortages reduce hiring, and labor surpluses reduce capital shedding. Moreover, we find that job destruction and capital formation increased after factor market deregulation in Colombia. Finally, we find that completely eliminating frictions in factor adjustment would yield a substantial increase in aggregate productivity through improved allocative efficiency, but that the actual impact of the Colombian deregulation on productivity was modest.

Plant Turnover and Structural Reforms in Colombia

In a healthy economy, plant turnover increases aggregate productivity because efficient producers are more likely to survive. Given high entry and exit rates and the potential importance of turnover in accounting for aggregate productivity, in this paper we examine the determinants of plant exits and then examine how exits and other forms of output reallocation contribute to aggregate productivity. Using a unique plant-level longitudinal data set for Colombia for the period 1982-98, we examine the role of productivity and demand as well as input costs in determining plant exits. Moreover, given the important structural reforms introduced in Colombia during the early 1990s, we explore whether and how plant survival changed after these reforms. Our data permit measurement of plant-level quantities and prices, which allows us to decompose productivity and demand shocks and, in turn, to estimate the effects of these fundamentals on plant exit. We find that higher productivity, higher demand, and lower input prices decrease the probability of plant exit. We also find that the importance of physical efficiency and costs in determining exits increases after the introduction of structural reforms. Finally, a decomposition of aggregate productivity suggests that reallocation through entry and exit is important in accounting for the increase in aggregate productivity after the introduction of structural reforms. Copyright 2006, International Monetary Fund

The Political Economy of Fiscal Policy: Survey

This paper surveys the recent literature on the political economy of fiscal policy, in particular the accumulation of government debt. We examine three possible determinants of fiscal balances: opportunistic behavior by policymakers, heterogeneous fiscal preferences of either voters or politicians, and budget institutions. We focus on the contributions of the last 10 years and emphasize findings related to developing countries. We include a recent body of literature on the fiscal preferences of voters, which, interestingly, seems to suggest that voters do not favor high-spending governments. We also report some original empirical evidence. First, we test different hypotheses from the political economy literature in a simultaneous manner for a large set of both developed and developing countries. We find that less-fragmented governments and a greater ability of voters to monitor fiscal policy are related to lower deficits; the estimated effects are larger than when the two hypotheses are evaluated separately, as the existing literature does. Second, we suggest the role of the courts in the determination of fiscal policy as a promising new avenue of research, and present some suggestive novel evidence on the importance of this channel.

Scarring Recessions and Credit Constraints: Evidence from Colombian Plant Dynamics

Using a rich dataset of Colombian manufacturing establishments, we illustrate scarring effects of recessions operating through inefficient exit induced by heterogeneous credit constraints. We show that financially constrained businesses may be forced to exit the market during recessions even if they are more productive than surviving unconstrained counterparts: an unconstrained plant with TFP at the lowest 10th percentile faces the same estimated exit probability as a constrained plant with TFP at the 79th percentile. If credit constraints affect 1/3 of businesses, we estimate aggregate TFP losses of 1.2 log points after a four year long recession.

Central Bankers in Government Appointed Committees

I study the policy choices of members of a central bank committee, who are appointed by the government. Central bankers balance their desire to protect the Central Banks reputation against their interest to be reappointed. Committees can be more successful than single central bankers at reducing inflation and insulating policy from government pressures. These gains are only achieved if the turnover rate of committee members is low and the committee is small. The former is associated with a low risk of being replaced for not supporting the governments preferred policy. The latter, meanwhile, implies high probability that a single vote affects policy, making any individual member more weary of potentially affecting the Central Banks reputation through his vote.

Credit constraints and business performance: evidence from public lending in Colombia

Whether public lending to firms effectively eases credit constraints has been widely studied for very small businesses. The evidence documented for larger firms refers to lending that is significantly subsidized and targeted to these businesses, so the estimated positive effects may reflect poor allocation of public credit. This paper investigates the impact on its beneficiaries of a wide, untargeted and unsubsidized, lending program in Colombia. We use data on all non-micro manufacturing firms and all formal credit operations. After correcting for potential selection biases using econometric techniques, we find that Bancoldex loans increase firms’ employment, purchases of inputs, investment, and output for small (but non-micro) firms, while large firms experience increases in variable inputs, but not on investment. While both short-term and long-term Bancoldex loans are found to have positive impacts on output, input demand and employment, only long-term loans increase investment. Moreover, short-term loans have a larger impact on input demand than long-term loans. Our findings also indicate that Bancoldex’ beneficiaries end up with improved overall credit conditions after receiving Bancoldex credit: the amount of credit received goes up, the duration of the loans increases, and beneficiaries are able to establish credit relationships with more financial intermediaries. Though the interest rates go down, in this dimension the effect is small.

Why Internal Conflict Deteriorates State Capacity? Evidence from Colombian Municipalities

Previous work has documented a negative correlation between internal conflict and state capacity. We attempt to shed light on mechanisms that underlie this relationship, using data for Colombian municipalities. We rely on identifying heterogeneous effects of different types of violent events on state capacity, taking advantage of variability across municipalities in the prevalence of specific manifestations of conflict and their intensity. Our findings suggest that events making civilians feel targeted affect the state’s capacity to collect taxes, while those reflecting a stronger military capacity of illegal armies, in particular their large-scale attacks, affect the state’s capacity to provide public goods.

Political Fragmentation and Government Spending: Bringing Ideological Polarization into the Picture

The literature has come to no agreement about the empirical validity of the so-called weak government hypothesis. According to this hypothesis, political fragmentation should lead to higher government expenditure. With the aim of reconciling the empirical evidence with theory, in this paper we discuss and test a new hypothesis about this relationship: that fragmentation should matter for public spending only to the extent that the degree of polarization is high enough. Our results for a sample of presidential democracies show that a marginal change in the level of fragmentation in the governing coalition affects positively the size of the budget, but only if there is some degree of polarization. We also find that what matters for fiscal policy in presidential democracies is the degree of fragmentation and polarization within the governing coalition, rather than in the legislature at large. For parliamentary democracies we find erratic patterns for the relationship between fragmentation and public spending. Our results suggest interesting differences between presidential and parliamentary systems.

Public-Private Collaboration for Productive Development Policies in Colombia

This study analyzes the institutions that shape public private collaboration for the design and implementation of productive development policies in Colombia. Colombia is an interesting case because productive development policies are increasingly designed, in principle, in the context of formal institutions and venues, with public-private collaboration being a pillar of that formal design. We focus on two specific cases: (1) the Private Council for Competitiveness and its role in the National System for Competitiveness; (2) the Colombian government’s Productive Transformation Program. These case studies suggest that public private collaboration has contributed to the continuity of productive development policies across governments. Collaboration has also been behind particular achievements, such as helping overcome specific government failures, and helping develop private organizational capabilities. A central message of this document is thus that formal institutions to foster public private collaboration, such as the ones adopted in Colombia over the last few decades, have an important potential for advancing adequate productive development policies. However, public private collaboration for productive policies has by no means brought a development “miracle”.

Do Modern-Time Wars Make States? Panel Data Evidence

We re-examine the view that wars make strong states, taking advantage of panel data to address two of the most obvious endogeneity concerns that arise in this context: initial conditions and persistence of state capacity. Our main message is that, in modern times, there is no evidence that wars lead to strong states. In contrast to findings for earlier periods, our results show that external conflicts have displayed a negative correlation with traditional measures of state capacity in recent decades, which becomes insignificant after controlling for initial conditions and the persistence of state capacity. As in previous work, we find a negative capacity- internal conflict correlation, robust to controlling jointly for initial conditions and persistent effects.