Pablo Fajnzylber

INEQUALITY AND VIOLENT CRIME

We investigate the robustness and causality of the link between income inequality and violent crime across countries. First, we study the correlation between the Gini index and homicide and robbery rates within and between countries. Second, we examine the partial correlation by considering other crime determinants. Third, we control for the endogeneity of inequality by isolating its exogenous impact on these crime rates. Fourth, we control for measurement error in crime rates by modeling it as both unobserved country effects and random noise. Finally, we examine the robustness of this partial correlation to alternative measures of inequality. The panel data consist of nonoverlapping 5‐year averages for 39 countries during 1965–95 for homicides and 37 countries during 1970–94 for robberies. Crime rates and inequality are positively correlated within countries and, particularly, between countries, and this correlation reflects causation from inequality to crime rates, even after controlling for other crime determinants.

Crime and Victimization: An Economic Perspective

The recent upward trend in crime rates of developing countries has spurred widespread public concern about personal and proprietary insecurity. In some countries, the questions of crime, violence, and victimization are attracting more attention from academics and policy makers than traditional economic problems. The objective of this paper is to examine the main issues related to crime and victimization from an economic perspective. For this purpose the paper combines a review of the main results established in the literature with original research on the causes of crime and the risk factors of victimization. The first section provides a review of the estimates of the costs of crime, the main theoretical and empirical research on its causes, and the relative advantages of official and survey data on crime. The second section presents original work on the main causes of violent crime from a cross-country perspective. The empirical work starts with a basic model of the economic determinants of homicide and robbery rates. In turn, this empirical model is extended along five dimensions: 1) deterrence factors, 2) illegal drug-related activities, 3) demographic issues, 4) income and ethnic polarization, and 5) social capital. The third section reviews recent case studies of Latin American cities that rely on survey data to assess the empirical determinants of the probability of victimization. These studies focus on three types of risk factors: 1) individual characteristics, 2) household characteristics, and 3) community characteristics. The main conclusions from the previous sections are summarized in section four.

Labor demand and trade reform in Latin America

There are concerns that trade reform and globalization will increase the uncertainty that the average worker, especially the relatively unskilled worker, faces. The increased competitiveness of product markets and greater access to foreign inputs, the argument goes, will lead to more elastic demand for workers. This may have adverse consequences for both labor market volatility and wage dispersion. The authors argue that while the case that trade liberalization should increase own-wage elasticities may be broadly compelling for competitive import-competing industries, it is less so for imperfectly competitive, nontradable, or export industries. They test the hypothesis using establishment-level panel data from three countries with periods of liberalization. The data provide only mixed support for the idea that trade liberalization has an impact on own-wage elasticities. No consistent patterns emerge. If globalization is making the lives of workers more insecure, it is probably working through some other mechanism.

Releasing Constraints to Growth or Pushing on a String? Policies and Performance of Mexican Micro-Firms

Abstract Using firm-level data from Mexico, this paper investigates the firm characteristics associated with participation in credit markets, access to training, tax payments and membership in business associations. We find that firms which participate in these institutions exhibit significantly higher profits. Moreover, firms that borrow from formal or informal sources and those that pay taxes are significantly more likely to stay in business but firms that received credit exhibit lower rates of income growth. These results persist when firm characteristics that are arguably correlated with unobserved entrepreneurial ability are controlled for. Our findings suggest that the significant within-country differences in firm productivity observed in developing economies are due in part to market and government failures that limit the ability of micro-firms to reach their optimal sizes.

International economic activities and skilled labour demand: evidence from Brazil and China

Using two new firm-level datasets, this article investigates the impact of three international economic activities – the use of imported inputs, exports and foreign direct investment – on skilled labour demand in Brazil and China. We find that Brazilian firms that engage in these activities exhibit a higher skilled labour demand than firms that do not. In contrast, Chinese firms that engage in these activities have a lower skilled labour demand than firms that do not. Thus, international economic activities act as a channel for skill-biased technology diffusion in Brazil but have an effect of specialization according to comparative advantage in unskilled labour-intensive goods in China.

Economic Reforms and Total Factor Productivity Growth in Latin America and the Caribbean (1950-95): An Empirical Note

The authors rely on a series of growth accounting exercises to determine whether the growth rate of total factor productivity (TFP) or the unexplained portion of GDP growth (after controlling for the accumulation of capital per worker) in 18 Latin American and Caribbean economies has benefited from economic reform. They use Sachs and Warner (1995) criteria to identify the years of economic reform. They apply growth decomposition analysis and econometric tests to determine whether TFP growth has been significantly higher during periods of economic reform. Although the growth decomposition analysis assumes that the capital share of output is constant across Latin American countries, the economic estimates allow for cross-country differences. In ordinary least squares (OLS) regressions and seemingly unrelated regressions (SUR), two alternative dummy variables are used to control for the effects of business-cycle fluctuations on observed rates of TFP growth. In addition, the SUR regressions consider the possibility that Latin American economies face common shocks. Finally, panel regressions are based on five-year averages of the growth rates of GDP and capital per worker. The authors find that, on average, economic reforms have been associated with a 1.5 percent yearly increase in the rate of TFP growth. But there are important differences across countries and in some cases economic reforms have been associated with lower TFP growth.

Low carbon, high growth : Latin American responses to climate change - an overview

A global financial and economic crisis of unprecedented dimensions was unfolding at the time of this writing. The urgency, immediacy, and staggering magnitude of the challenges posed by such a crisis have the potential to crowd out efforts aimed at addressing the challenges of global warming which are discussed in detail in this report. The capacity of political leaders and of national and supranational institutions to deal with major global threats is, after all, not unlimited. It would be, therefore, naive to think that the worlds ability to tackle simultaneously the breakdown of financial markets and the threats posed by global warming is free of tensions and trade offs. These two global menaces are of such far reaching implications for mankind, however, that it would be imprudent to allow the shorter term emergency of the global financial crisis and economic downturn to unduly deflect the policy attention away from the longer term dangers of climate change. The challenge clearly is to find common ground and to identify and pursue as many policies as feasible that can deliver progress on both fronts simultaneously. This is in principle possible but not easy to achieve in practice.

International Economic Activities and the Demand for Skilled Labor: Evidence from Brazil and China

Increases in international economic integration can lead to greater specialization according to comparative advantage, but also to the diffusion of skill-biased technologies. In developing countries characterized by relative abundance of unskilled labor, these factors can have opposite effects on the relative demand for skilled labor. This paper investigates the impact of the use of imported inputs, exports and foreign direct investment on the demand for skilled workers of Brazilian and Chinese manufacturing plants. We find that while in Brazil increased levels of international integration are associated with an increased demand for skilled labor, the opposite is true in China.

Releasing Constraints to Growth or Pushing on a String? The Impact of Credit, Training, Business Associations and Taxes on the Performance of Mexican Micro-Firms

The authors employ propensity score matching and a traditional control function approach to examine the impact of participation in various societal institutions on microfirm performance in Mexico. They find that firms that participate in credit markets, receive training, pay taxes, and belong to business associations exhibit significantly higher profits, even after controlling for the various factors that drive participation in those institutions. They also find that firms that borrow from formal or informal sources and those that pay taxes are significantly more likely to stay in business, but firms that received credit exhibit lower rates of income growth. Overall, the results suggest that even if the best performing micro-firms are more likely to be selected into participating in societal institutions, causality also runs in the opposite direction. In particular, increases in strictly or broadly defined formality have the potential for increasing profits and survival rates, and appear to bring micro-firms closer to their optimal sizes.

Firm Entry and Exit, Labor Demand, and Trade Reform: Evidence from Chile and Colombia

There are increasing fears that trade reform - and globalization generally - will increase the uncertainty the average (especially less skilled) worker faces. If product markets become more competitive and the access to foreign inputs is increased, will demand for workers among existing firms become more elastic? Will labor markets become more volatile because bad shocks to output will translate into greater impacts on wages and employment? So far the literature on this question has focused almost entirely on labor demand within continuing firms. But much of the movement in the job market arises from the entry and exit of firms. The authors show that firms entering and exiting a market contribute almost as much to employment changes as firms continuing in a market. In several samples, firms entering and exiting affected the net change in-positions more than the expansion of continuing plants did, although contributions varied greatly across the business cycle and period of adjustment. Estimates of labor demand elasticities of entering and exiting firms were surprisingly similar in Chile and Colombia and somewhat higher than elasticities for firms that survived. Estimates of the effect of trade liberalization offer only ambiguous lessons on trade reforms probable impact on these elasticities. The data suggest that in Chile greater exchange rate protection does reduce the wage-employment elasticity of entering and exiting plants, but the results are reversed in Colombias case. Moreover, in Colombia higher import penetration lowers the elasticity of labor demand and in Chile higher tariffs increase it. These findings, combined with very ambiguous results from probit regressions on the determinants of plant exit, suggest that circumspection is warranted in asserting that trade liberalization will increase the wage elasticity of labor demand.