After a growth recovery, with an expansion of 1.1 percent in 2017, the region has encountered some bumps in the road. The Latin America and the Caribbean (LAC) region is expected to grow at a modest rate of 0.6 percent in 2018 and 1.6 percent in 2019.
... See More + This slowdown in the region’s recovery is mainly explained by the crisis that started in Argentina in April, the growth slowdown in Brazil, and the continuing economic, social, and humanitarian collapse in Venezuela. Furthermore, net capital inflows to the region have fallen dramatically since early 2018, bringing once again to the fore the risks faced by LAC. In addition, natural disasters such as earthquakes and hurricanes have brought devastation to the region with disturbing frequency. The core of the report analyzes the foundations of risk, develops a theoretical framework to price risk instruments, and reviews how LAC has managed risk in practice. The overall message of the report is that there are different types of risk: (i) those that follow standard probabilistic distributions that can be easily insured by the market; and (ii) those that exhibit fat-tails (i.e., non-negligible probabilities of extreme events) that are much harder to ensure by the market (like earthquakes). Finally, there are “black swans” that, by definition, are unpredictable events that cannot be insured and force countries to rely exclusively on ex-post aid and/or broad preventive measures. In other words, the fatter are the tails of a distribution, the less market insurance is available, and the more countries will have to rely on ex-post aid. Yet progress in managing risk continues to be made (the Catastrophe Bond for earthquakes in the Pacific Alliance, recently sponsored by the World Bank, being an outstanding example). This would have been unthinkable some time ago. New knowledge and insurance schemes, all supported by institutions such as the World Bank, will undoubtedly make LAC a safer region to live and prosper.
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In recent years there have been many high-profile corruption cases coming to light in Latin America. To many this is just bad news. After all, corruption diverts public resources that could be used to address many of the needs of the region.
... See More + For example, corruption in public works increases the prices paid by governments, reducing resources for additional public works, which in turn lowers investment and negatively affects growth. And corruption in the delivery of public services limits the social programs that could be offered to the population, thereby negatively impacting poverty reduction. Corruption also creates a sense of unfairness and injustice, which is particularly corrosive for societies. Not surprisingly, we have seen examples of social outrage, perhaps intensified by an economic situation characterized by low growth and subdued employment projections. But, at the same time, it needs to be recognized that these cases also reflect a lower regional tolerance for corruption. They also reflect the commitment of many public officials, law enforcement officers, and judicial agents working hard to uncover these activities and, in the process, make the region more transparent. In my many trips over the years to the Latin American region I have heard so many times that what we are witnessing now would have been unthinkable just a few years ago. And this is good news because it means that that things are changing for the better. The World Bank wants to be part of these efforts and accompany countries fighting to improve governance and transparency. Building on our global experience and expertise, we can help improve enforcement, and change perceptions. In some cases, we support efforts to strengthen the ability of citizens to engage in public policy and denounce illegal activities. In others, we work with client countries to make governments smarter, more transparent and accountable. And in others we help creative incentives for increased integrity in the public sector. This booklet highlights some of the World Bank initiatives in the region, which we consider good examples of what can be done to strengthen state capacity and increase citizens’ trust in their government. We recognize that designing and implementing anti-corruption strategies requires change on many levels, and we are aware of our responsibility to offer support to build effective institutions able to offer quality services to citizens.
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Working Paper 130411 OCT 01, 2018
Estrada,Eduardo Andres; Zoratto,Laura De CastroDisclosed
The objective of this paper is to study the evolution of the incidence and profile of nonstandard workers in selected countries in Latin America and the Caribbean and Europe and Central Asia in the past two decades.
... See More + The analysis of the profile of this group of workers focuses on three key characteristics that could approximate their productivity: education level, labor income, and task content (manual/cognitive or routine/nonroutine) performed by the workers in their occupations. While in Latin America most of the countries show a stable prevalence in recent decades, in Europe and Central Asia there is not any common pattern across countries. In contrast, from the point of view of the profile of nonstable employment, there are several common characteristics among these types of workers across countries, such as improved level of education, performance of more intensive nonroutine cognitive tasks, and higher variance of labor income. The findings suggest that nonstandard workers are a heterogeneous group. The increase in the incidence of nonstandard employment and its heterogeneity generates concern about the lower level of insurance against certain risks that workers face. Therefore, a greater understanding of the trends in the prevalence and characteristics of nonstandard workers is needed to design regulation and policies oriented to these types of workers.
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Policy Research Working Paper WPS8581 SEP 12, 2018
Through substitution and income effects, remittances can alter an individual’s allocation of time between market activities and household production, decreasing labor supply.
... See More + This paper uses propensity score matching and household surveys for 2006 and 2014 to estimate the impact of remittances on labor supply in the three countries of the Northern Triangle (El Salvador, Guatemala, and Honduras). The results show that remittances are associated with a reduction in labor force participation, particularly among women. This effect is largest for Salvadoran women (13 percentage points). A sensitivity analysis finds that the negative effect on labor force participation rates of men in El Salvador and Guatemala and women in El Salvador is robust topotential selection bias. Receiving remittances is also associated with a lower likelihood of young adults being in school or at work, with this effect being robust to selection bias for young men in Guatemala. At the same time, the evidence suggests that remittances may be supporting small enterprises and self-employment in El Salvador and Guatemala. The analysis does not find robust evidence of remittances affecting the labor supply in Honduras in 2014.
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Working Paper (Numbered Series) 131471 SEP 01, 2018
Sousa,Liliana Do Couto; Garcia Suaza,Andres FelipeDisclosed
Despite their importance, data on the structure of bank credit by maturity are scarce. For Latin America and the Caribbean, data are particularly difficult to obtain, as few banks report loan maturity data in commercial data sets such as Bankscope.
... See More + With support from the Association of Supervisors of Banks of the Americas, this study assembled a novel data set on the structure of bank credit allocation in Latin America and the Caribbean covering 21 countries during 2004-14. This paper uses Bankscope and International Financial Statistics data to extended the coverage to more than 100 countries, creating the largest data set so far on credit by maturity. Benchmarking credit structure in Latin America and the Caribbean, the paper finds that the region is financially underdeveloped, because the ratio of short-term credit to gross domestic product is lower than in peers; long-term credit is at par; and consumer and commercial loans are lower. The paper also explores patterns of credit growth through nonparametric regressions. The results indicate that short-term credit grows faster than long-term credit as income grows in low-income countries, but the situation reverses when countries reach high- or middle-income status. Reflecting this trend, the share of mortgage loans rises with income.
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Policy Research Working Paper WPS8571 AUG 29, 2018
Gutierrez,Eva M.; Karmali,Nadeem M.; Sourrouille,Diego M.Disclosed
A new set of survey questions is used to map governance structures that firms employ to support the successful implementation of transactions. Responses to the questions were collected as part of the Enterprise Surveys in six South American countries.
... See More + Without imposing any a priori model, latent class analysis (LCA) discovers meaningful patterns of governance structures that readily match constructs in the literature. All governance structures use bilateralism. Bilateralism and formal institutions are sometimes complements, but never substitutes. For each firm, LCA provides estimates of the posterior probability that the firm uses each of the discovered governance structures. These estimates can be used by researchers to go further, testing their own hypotheses relevant to Williamson's discriminating alignment agenda using additional data from the Enterprise Surveys or elsewhere. Variations in the effectiveness of different governance structures across countries and across different types of firms and transactions are explored. Regional variation within countries is greater than cross-country variation. Foreign-owned firms, exporters, larger firms, and better-managed ones are more likely to use governance structures that complement bilateralism with use of the legal system or with the help of paid third-parties.
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Policy Research Working Paper WPS8564 AUG 22, 2018
There is a large and extensive literature examining the strength of agglomeration economies and, more generally, the determinants of spatial variations in productivity for developed countries.
... See More + However, the corresponding literature for developing countries is comparatively scant. This paper contributes to filling this knowledge gap by providing estimates for city productivity premiums and different sources of agglomeration effects for 16 countries in the Latin America and Caribbean region. While two of the countries in our sample -- Brazil and Colombia -- have been considered by the literature, the remaining 14 countries have not been previously analyzed. The paper presents estimates for the region as well as comparable estimates for each country using a harmonized data set with characteristics of individual workers and features of the cities in which the workers live. In addition to examining the strength of agglomeration economies, the roles of human capital externalities and market access in explaining subnational productivity variations are assessed. The paper finds that citywide human capital externalities appear much stronger than agglomeration economies in explaining productivity variation in all the considered countries. There is considerable heterogeneity in the estimated strength of human capital externalities across countries, which could be a reflection of country differences in educational quality.
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Policy Research Working Paper WPS8560 AUG 20, 2018
About one in four Latin Americans self-identify as Afro-descendants today. They comprise a highly heterogeneous population and are unevenly distributed across the region, but share a common history of displacement and exclusion.
... See More + Despite significant gains over the past decade, Afro-descendants still are overrepresented among the poor and are underrepresented in decision-making positions, both in the private and the public sector. The extent to which Latin America will be able to end extreme poverty and boost shared prosperity will therefore depend, to a very large degree, on the social inclusion of Afro-descendants. The objective of this study is to deepen the region's empirical understanding of the drivers behind the persistent exclusion of the afro-descendants, as a first step to design appropriate solutions. The report proposes a framework to organize and think of the myriad options available to address their situations, based on the experience accumulated by the region and the data available.
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About one in four Latin Americans self-identify as Afro-descendants today. They comprise a highly heterogeneous population and are unevenly distributed across the region, but share a common history of displacement and exclusion.
... See More + Despite significant gains over the past decade, Afro-descendants still are overrepresented among the poor and are underrepresented in decision-making positions, both in the private and the public sector. The extent to which Latin America will be able to end extreme poverty and boost shared prosperity will therefore depend, to a very large degree, on the social inclusion of Afro-descendants. The objective of this study is to deepen the region's empirical understanding of the drivers behind the persistent exclusion of the afro-descendants, as a first step to design appropriate solutions. The report proposes a framework to organize and think of the myriad options available to address their situations, based on the experience accumulated by the region and the data available.
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This paper explores the effect of market orientation on (known) natural resource wealth using a novel dataset of world-wide major hydrocarbon and mineral discoveries.
... See More + Consistent with the predictions of a two-region model, the empirical estimates based on a large panel of countries show that increased market orientation causes a significant increase in discoveries of natural resources. In a thought experiment whereby economies in Latin America and sub-Saharan Africa remained closed, they would have only achieved one quarter of the actual increase in discoveries they have experienced since the early 1990s. The results call into question the commonly held view that natural resource endowments are exogenous.
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Policy Research Working Paper WPS8520 JUL 11, 2018
Arezki,Rabah; van der Ploeg,Frederick; Toscani,FrederikDisclosed
This paper examines the impact of the quality of the business environment as well as the monitoring capacity of the tax agency on firms' tax evasion and production decisions.
... See More + First, the paper uses firm-level data for 30 African and Latin American countries to show that tax evasion and distortions stemming from the business environment are positively and significantly correlated, while sales not reported for tax purposes and institutional quality are negatively and significantly correlated. Second, the paper develops a general equilibrium model where heterogeneous firms make tax evasion decisions based on their assessment of the quality of their business environment as well as the monitoring capacity of the tax agency. The model simulations for each country in the African and Latin American sample show that the model can explain 35 percent of the variation in tax evasion and more than 49 percent of the dispersion in output per worker across the sample countries. Finally, a series of counterfactual experiments shows that, at the current level of deterrence, governments could decrease sales not reported for tax purposes by 21 percent, by reducing distortions stemming from the business environment by half. The paper presents empirical supporting evidence consistent with testable predictions of the model.
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Policy Research Working Paper WPS8522 JUL 11, 2018
Geothermal energy can play a substantial role in meeting the energy needs of many Latin America and Caribbean Region (LAC) countries given the region’s vast potential.
... See More + The majority of geothermal resources in the LAC region remain largely untapped, not only in Central America and Mexico where development is more advanced, but also in the Caribbean and in South America. If further explored and developed in a sustainable fashion, these resources could meet a significant share of the base load power needs of the region, at a competitive cost, resulting in direct economic and environmental benefits. This report is envisioned to be a decision-makers’ guide for assessing key challenges and measures to facilitate expanding geothermal development in LAC. Based on discussions with LAC policymakers, utilities, and developers, several cross-cutting challenges affecting most countries in the region were identified, including: i) addressing geothermal resource risks; ii) mobilizing financing for geothermal development; iii) policy, legal, and regulatory reforms to improve the investment climate; and iv) environmental and social considerations. Based on the World Bank’s own extensive experience in the geothermal sector and drawing upon global and regional experience, this report then presents demonstrated solutions to addressing these key challenges. It showcases an array of measures from around the world that clients in LAC can customize for application in their own domestic markets.
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Despite a substantial improvement in controlling new infections of Human Immunodeficiency Virus (HIV) over the last ten years, Mexico is experiencing a low-level epidemic with approximately 180,000 people living with HIV (Spectrum, 2013), making it the fourth ranking country in Latin America with regards to the number of people with the disease (PLHIV).
... See More + The objective of increasing coverage and reducing inequality in the country is reflected in the objectives of the Specific Action Program (PAE) for the national response to HIV, Acquired Immunodeficiency Syndrome (AIDS) and Sexually transmitted infection (STI) of 2013-2018 (Secretaria de salud), which seeks to decrease the effect of HIV and STIs, implement prevention strategies and provide comprehensive care for vulnerable population groups and those living in poverty. The possibility of achieving the objectives of the PAE is closely related to the total amount of resources that Mexico can commit to fighting HIV and the way these resources are allocated. In the hopes of assisting the government of Mexico in further strengthening its HIV investment, the authors try to answer the question “How can HIV funding be optimally allocated to the combination of HIV response interventions that will yield the highest impact in the shortest period”. The study found that despite the overall greater costs of treatment with Antiretroviral therapy (ART), this is the most cost-effective program. ART not only reduces deaths but is an effective measure to prevent new infections due to the reduction of viral load to undetectable levels. As such, the most cost-effective allocation – with no additional resources of current Program funds, is to scale up treatment, by about 4 to 8 percent, to maximize ART coverage while slightly reducing overall allocations to general population prevention.
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