Taxation in developing nations has always been difficult, but the Global Crisis has brought further complications. This column examines and compares the tax revenue trends in Asia and Latin America to shed light on some of these issues. Despite their similarities, there is no one-size-fits-all explanation for tax/GDP ratios between the two regions. While progress has been made, the gap between the advanced economies and developing countries offers ample room for improvement. This is particularly important for developing nations as they face growing demand for fiscal spending.
Joshua Aizenman, Yothin Jinjarak, Jungsuk Kim, Donghyun Park, 08 January 2016
Joshua Aizenman, Yothin Jinjarak, Donghyun Park, 14 February 2015
The Global Crisis put to the fore the possibility that the relationship between financial development and output growth may be non-linear. This column presents new evidence on the issue using data on output growth of ten sectors from Latin America and East Asia. The authors find large differences between the two regions in terms of the impact of financial depth on sectoral growth, and validate the negative impact of financial deepening on output growth in several sectors. The results confirm that the impact of financial development on sectoral growth may indeed be non-linear – i.e. it may promote growth only up to a point.
Sebastian Edwards, 04 February 2015
The conventional ‘trilemma’ view is that countries that allow free capital flows can still pursue independent monetary policies as long as they allow flexible exchange rates. This column examines the pass-through of Federal Reserve interest rates to policy rates in Chile, Colombia, and Mexico. The author concludes that, to the extent that central banks take into account other central banks’ policies, there will be ‘policy contagion’ and that, even under flexible rates, monetary policy will not be fully independent.
Juan Blyde, 09 November 2014
While participation in global value chains is giving developing countries the opportunity to diversify production and to acquire know-how from global buyers, few countries in Latin America are taking advantage of these new forms of production. Using a combination of innovative datasets at the macro and micro levels this column presents a comprehensive picture of the participation of Latin America and the Caribbean in global value chains and describes why it is so low.
Eduardo Levy Yeyati, Samuel Pienknagura, 10 June 2014
Latin America’s inequality has fallen, driven by a reduction in the educational wage premium. This column discusses potential driving forces behind this phenomenon and argues that while this is a positive outcome, it may reflect a deeper malaise. A preliminary evaluation suggests that supply changes are more important than de-industrialisation. But lacklustre PISA scores support a more dismal hypothesis. The premium decrease may mirror a decline in education quality.
Julián Caballero, Ugo Panizza, Andrew Powell, 02 April 2014
In recent years credit growth in Latin America has been very strong, and countries have become more reliant on foreign bond issuances. This column argues that these phenomena are linked, and may have led to vulnerabilities which domestic and international supervisors are not well-equipped to assess. There is no systematic information on firms’ currency mismatches and hedging activities, and none that includes those of subsidiaries that may be located in other jurisdictions, preventing an accurate analysis of the true risks.
Augusto de la Torre, Eduardo Levy Yeyati, Samuel Pienknagura, 12 January 2014
There is a wave of fashionable pessimism over the future growth of Latin America. This column distinguishes between two main types of concerns – related to the trend of the long-term growth, and to the cyclical vulnerabilities of the region. While the first type is partially justified, the second type is not because such concerns overlook two fundamental changes in Latin American economies. First, the de-dollarisation of financial contracts reduces the adverse effects of currency depreciations. Second, a more credible monetary policy was implemented with a substantial decline in the exchange rate pass-through to inflation.
Ignacio Munyo, Ernesto Talvi, 07 November 2013
In recent years, the growth rates of Latin American countries have been cooling-off in comparison to the period of 2004-08. This column argues that the cooling-off is not due to a change in external factors because these have remained favourable. Persistent economic growth can be achieved by internal transformations. It cannot be sustained solely by the external conditions.
Elías A. Baracat, J. Michael Finger, Julio J. Nogués, Raúl León Thorne, 28 October 2013
Trade reforms must be durable if countries are to reap the benefits of international specialisation and trade. Whereas Peru has sustained the reforms it carried out in the 1990s, Argentina has introduced multiple trade restrictions in recent years. This column argues that Peru’s success is due to two factors. First, Peruvian trade reform was part of a broader reform effort. Second, by highlighting the success of Asian countries and negotiating bilateral agreements, Peru’s political leaders fostered a positive vision of Peru’s role in the world economy.
Philipp Hühne, Birgit Meyer, Peter Nunnenkamp, 31 July 2013
One of the few areas where multilateral trade talks are making progress is the so-called Aid-for-Trade Initiative designed to remove frictional barriers to trade such as in transportation, communication and energy infrastructure. This column discusses research suggesting that both donors and recipients benefit from the aid. Aid-for-Trade, however, seems to best promote the exports of middle-income countries rather than, for instance, sub-Saharan African ones.
Gustavo Adler, Nicolas Magud, 04 July 2013
Commodity exporters have been both blessed and cursed by the boom-and-bust nature of commodity-price and demand swings. This column presents a new metric that computes the additional income arising from changes in the real purchasing value of output as a result of changes in relative prices. Focusing on Latin America, it’s clear that although its recent terms-of-trade boom is of similar magnitude to that seen in the 1970s, the associated income windfall has been much larger. The current weakening of external current-account balances in Latin America – even if driven by higher domestic investment – warrants close monitoring.
Eduardo Cavallo, 03 April 2013
Latin America and the Caribbean have less infrastructure than the rest of the world. What they have is also of much poorer quality. This column argues that to reap the rewards of good infrastructure, Latin American and Caribbean countries must increase both investment and saving over the long-term by creating institutional capacity, strengthening the rule of law, and building stable macroeconomic-policy frameworks. It won’t be easy.
Augusto de la Torre, Julián Messina, 07 March 2013
The last decade has seen unprecedented economic and social achievements in Latin America. This column investigates the relationship between changes in the labour market and the drop in income inequality across the continent. There is certainly room for more research to help us better understand Latin America’s spectacular decline in income inequality, but what is clear is that the good news is tempered by the fact that the specialisation of the region’s economies are relatively low in skill intensity and therefore productivity.
Rolando Avendaño, Niels Boehm, Elisa Calza, 27 January 2013
Small and medium-sized enterprises provide the vast majority of employment in developing countries and are keystones in the productive structures of emerging economies. This column argues that the growth of such firms is being hindered by scarce financing. Looking at Latin America, it is clear that public financial institutions are increasingly important in meeting credit demands. If emerging economies want to see long-term growth, there needs to be a comprehensive approach to reducing the ‘traditional’ barriers to small and medium enterprise financing.
Christian Daude, 10 December 2012
Latin American central banks are facing new challenges in the form of unprecedented levels of uncertainty and exchange rate appreciation pressures. This column, focusing on Brazil, Chile, Colombia, Peru and Mexico, argues that there is an overestimation of the potential output in several Latin American economies, a lack of an explicit policy direction from central banks, and lacklustre frameworks for macroprudential policy. Although inflation targeting has served countries in Latin America well, significant risks remain.
Eduardo Cavallo, Eduardo Fernandez-Arias, 17 October 2012
The Eurozone body politic seems to be slowly learning the lessons for crisis management. This column argues that Latin America’s decades of financial crisis can provide key insights for Europe.
Christian Daude, Ángel Melguizo, 11 September 2012
Latin American economies performed remarkably well during the crisis – and the years before. This column compares the fiscal policies in the region with those of advanced economies and discusses the factors behind the differences, before outlining some areas for policy reform.
Luigi Guiso, Helios Herrera, Massimo Morelli, 25 January 2012
What good might come from Europe’s crisis? Profligate governments in Italy and Greece, while pandering to the masses, have left their countries with crippling debt. This column draws parallels with Latin America and argues that the current hardship may sound a death knell for populism in southern Europe, as it has elsewhere.
Eduardo Levy Yeyati, Luciano Cohan, 12 January 2012
Four years ago, there was growing support for the idea of ‘decoupling’ – that emerging markets were becoming less affected by business cycle swings in developed economies. Then came the global crisis. Focusing on Latin America, this column argues that the 2010s will be a far harder decade. But that might not be such a bad thing if it forces these economies to look again at their growth strategies.
Richard Baldwin, 09 March 2011
VoxEU welcomes the latest member of the Vox consortium – Vox.LACEA – that provides policy relevant research and commentary on Latin America and the Caribbean. Launched in January, it hopes to become a major resource for economists, policymakers, and journalists with an interest in the economies of the region.