rafmacalaba/datause-encoder-data huggingface dataset:
Figure 4.1: Relative Wages - Southeast/Northeast <!-- Start of picture text --> relative wages SEINE for different years of education<br><!-- End of picture text --> <!-- Start of picture text -->
1.25<br>1.2  3<br>1.15  -<br>1.1~~~~~~~~~~~~~~-0<br>1.05<br>F  ... __O___1998  +.  1992  . -+  1  _1993  1999. .. 1995  X  1996  - -- 1997 x--<br>0.95<br>0  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15<br>years  of education<br><!-- End of picture text -->

_Note:_ The estimates are from different PNADs (1992-99). Conditional (on location) wages are calculated as wages for different years of schooling for the NE and SE. _Source:_ Author's calculations.

Figure 4.2: Relative Returns to Years of Schooling - Southeast/Northeast <!-- Start of picture text --> returns to education SE/NE<br>1.6<br>1.4<br>1.2<br>0.8<br>0.6<br>0.4<br>0.2 .. 1992 1993 1995 1996 .. .1997<br>__ -1998 -+ 1 1999<br>1 2 3 4 5 6 7 8 9 10 11 12 13 14 15<br>Years of education<br><!-- End of picture text --> Source: Author's calculations based on data from PNADs 1992-99.

18
57

# REFERENCE

- Aghion, Philippe and Howitt, Peter. "A Model of Growth through Creative Destruction," Econometrica, March 1992, 60 (2), pp. 323-51.

- Allen, Franklin and Gale, Douglas. "A Welfare Comparison of the German and U.S. Financial Systems," Working Paper No. 94-12. The Wharton Financial Institutions Center, 1994.

- Amihud, Yakov, and Mendelson, Haim. "The Effects of Beta, Bid-Ask Spread, Residual Risk and Size on Stock Returns," Journal of Finance, 1989, 44, pp. 479-86.

- Arestis, Philip and Demetriades, Panicos. "'Finance and Growth: Schumpeter Might Be Right' A Comment on King and Levine," University of East London mimeo, 1995.

- Arrow, Kenneth J. "The Role of Securities in the Optimal Allocation of Risk Bearing, Review of Economic Studies, April 1964, 31(2), pp. 91-96.

- Atje, Raymond and Jovanovic, Boyan. "Stock Markets and Development," European Economic Review, April 1993, 3.7 (2/3), pp. 632-40.

- Bagehot, Walter. Lombard Street. Homewood, IL: Richard D. Irwin, 1873 (1962 Edition).

- Bencivenga, Valerie R., and Smith, Bruce D. "Financial Intermediation and Endogenous Growth," Review of Economics Studies, April 1991, 58(2), pp. 195-209.

- Bencivenga, Valerie R. and Smith, Bruce D. "Deficits, Inflation and the Banking System in Developing Countries: The Optimal Degree of Financial Repression," Oxford Economic Papers, October 1992, 44(4), pp. 767-90.

- Bencivenga, Valerie R. and Smith, Bruce D. "Some Consequences of Credit Rationing in an Endogenous Growth Model," Journal of Economic Dynamics and Control, JanuaryMarch 1993, 17, pp. 97-122.

- Bencivenga, Valerie R.; Smith, Bruce D., and Starr, Ross M. "Transactions Costs, Technological Choice, and Endogenous Growth," Journal of Economic Theorv, October 1995, 67(1), pp. 53-177.

- Bennett, Robert L. "Financial Innovation and Structural Change in the Early Stages of Industrialization: Mexico, 1945-1959," Journal of Finance, December 1963, 18(4), pp. 666-83.

- Berger, Allen N. and Udell, Gregory F. "Relationship Lending and Lines of Credit in Small Firm Finance," Journal of Business, July 1995, 68(3), pp. 357-81.
as a problem. Corresponding figures for labor regulations as more than a minor problem are 25%, 12%, 10% and 17%, respectively. Figure 1 shows the percentage of all stores who find labor regulations as obstacles for all the states in our sample. These numbers suggest that a substantial number of retail stores find labor regulations as burdensome, a finding which is confirmed in other surveys too.<sup>3</sup> Perceptions of stores about the severity of labor regulations discussed above cannot be used directly in the regressions as they are likely to be colored by store characteristics such as size, age, etc. Hence, we define our main measure of labor regulation, the _Perception_ index, as the average value of the reported scores on the labor regulation question above where the average is taken at the state level. Being a group average, the _Perception_ index suffers less from measurement errors and endogeneity problems associated with firm-perceptions (Krueger and Angrist, 2001) although these problems cannot be ruled out completely. For example, if large stores find labor regulations to be more burdensome then part of the variation in the _Perception_ index will simply reflect differences in store-size across states rather than labor laws. We address this problem in two important ways. First, we control for a number of store attributes in our regressions. The intention here is that if store characteristics such as size and age that may affect how stores perceive the severity of labor regulations are controlled for then differences in the underlying labor laws are the only reason why the _Perception_ index would vary across states. Second, we use an alternative measure of labor regulation, the _Law Book_ index, which is an index of labor regulation for the manufacturing sectors in

> 3 For example, KPMG recently conducted a survey of retail firms in India (KPMG, 2005). This report shows that in the “Fast moving consumer goods” section of retailing about 35% of the firms reported labor regulations as a significant problem (p. 19). These stores account for 80% of consumer spending in the country.

5
-4-

balances. Section IV discusses the need to supplement the proposed framework with indepth knowledge of country-specific fiscal issues. Section V applies the proposed framework to evaluate fiscal performance in three countries: Zambia, India and Argentina. These countries have different income levels, are located in three different continents, and are selected on the basis of recent World Bank economic work using the proposed approach or equivalent. Section VI concludes and proposes directions for further research.

# **II. FISCAL POLICY AND ECONOMIC MANAGEMENT**

4. Fiscal policy is critical in economic management for several reasons. In many developing countries, only the public-sector can borrow from abroad and repay the external debt. Thus, what happens to the public-sector has a direct bearing on the country's external debt and debt service. Of the total long term debt stock of developing countries in 1997, public-sector debt accounted for 86 percent'. Even if a country's external debt is contracted by the private-sector, experience has shown that governments often take over that obligation when the public-sector's credit rating is adversely affected by private-sector debt problems.

5. The importance of linkages between fiscal policy and other economic policies cannot be overstated. A country's deficit financing determines its domestic interest rates and inflation, which in turn drive exchange rate expectations and the private-sector's capacity to earn foreign exchange, and therefore repay debt. Fiscal policy, of course, can also affect private-sector growth directly by crowding out private investment. Another channel through which fiscal policy can influence economic activities is the micro effects that tax and spending decisions have on the behavior of households and firms. Thus a country's ability and willingness to repay its external debt obligations is closely linked to the ability of the public-sector to tax its residents and to use the revenue to buy foreign exchange for debt service payments.

6. Fiscal policy is not the only way that a government can influence economic activities. Other instruments include monetary, exchange-rate, financial, and income policies. The traditional separation of fiscal from other macro policies, particularly monetary policy, while useful as an analytical device, is no longer appropriate in the real world of developing countries for a number of reasons. If there is no independent central bank, monetary policy frequently accommodates fiscal policy. The dominant role and intervention of many governments in the financial sector also drives financial policy to depend on fiscal policy. And the limited domestic market for bonds and government debt instruments, together with limited access to international capital markets, often leave governments with few choices except inflation financing. Furthermore, in many transition economies, fiscal and monetary policies are indistinguishable.

7. New developments in international finance in the 1 990s tend to reinforce linkages between fiscal and other macroeconomic policies. First, the world has become more I See Global Economic Prospects, 1999, p. 182.
4 The high current account deficits of 1981 and 1982 (15% and 18% of GDP, respectively) were not sustainable with the sharply reduced flow of private capital. A major improvement of the trade and current account was achieved but this forced adjustment fell almost entirely on imports. While export proceeds stagnated in 1983 and 1984 - although export-'taxes were lowered substantially -, import expenditures decreased by almost 40% compared to their 1981 level. This reduction of imports was partly due to a sharp increase in protective measures such as tariff increases and applications of quantitative restrictions. Further, large devaluations of the Sucre changed the relative price between imported and domestically prodhced goods. To what degree these changing relative prices were effective in affecting trade flows is explored below.

# 3. Structure of the model and estimation results

We analyze the linkages between domestic growth and merchandise trade in Ecuador in a partial equilibrium framework. Concentration lies on the suppiy-side of the economy, while aggregate demand and its determinants are not explored. The model captures only the real goods sector and leaves financial transactions and the monetary sector aside. Therefore, the output of the economy has to be viewed as 'potential' or 'capacity' production instead of being 'actual' output.

The structure of the model is presented in Box 1. A one-sector economy is assumed. Output is a function of four factors of production: imported inputs, labor, a 'domestic' capital stock and an 'imported' capital stock. A three-level nested production function is introduced. As depicted in equation 1, output of the economy is a function of imported inputs (Mw) and domestic value added (Y). The latter is generated by labor L and the aggregate capital stock J (equation 2)!4 Following Marquez (1984 and 1985) and Michalopoulos (1975), a distinction is made between a domestically produced capital stock (Kd) and an imported one (Kf) which combine to form the aggregate J (equation 3). Both parts of the production function system which incorporate an imported input are described by constant-elasticity of substitution functions (equations 1 and 3) while the domestic value added function (equation 2) is assumed to be of a Cobb-Douglas type.<sup>5</sup>

- 4 The aggregate capital stock correspornds to Sato's (1967,1975) efficiency capiml stock.

- _5_ Data on average man-hour employment in Ecuador could **no;** be obtined. Therefore the elasticity of substitution between the aggregate capital stock and labor had to be restricted to one. Studies examining the functional relationship between capital and labor in developing countries generally find substantial substitutionpossibilities in most industries, often close to unity. Compare Laumas and Williams (1981), Morawee (1976) and Sines (1979).
techniques generate a scale by scale decomposition of the time series data, we show that it is possible to decompose the covariance of two series into various scales. This multiscale analysis, in turn, enables us to understand how synchronization of the economic activities in different countries changes over different time horizons.

The first observation is that analyzing the co-movement of economic activities is more demanding on data than a simple decomposition. Therefore, in order to extend the number of observations in our sample, we use a monthly Industrial Production Index (IPI) data series. This series provides a sample size of _N_ = 237 months. However, this selection also comes at a cost. As the IPI series does not include most of the low income countries, a modified sample of five countries was chosen for our analysis. These are Brazil (BRA), India (IND), United States (USA), Turkey (TUR), and Pakistan (PAK).

In the remaining part of this analysis, we use the industrial production of United States as a reference point. Therefore, the analysis shows to what extent industrial production in other countries in the sample are synchronized with the United States. Figure 9 shows the results for cross-correlation defined in (A.6) with lag _λ_ = 0 and with scale _τ_ ranging up to 32 months. Confidence intervals in all cases suggest that the correlations are insignificant for very high (0-1 month) and lower frequencies (16+ months). In addition, there is no statistically significant correlation between Pakistan IPI and the one of the United States at any frequency (Panel d). Similarly, the Indian series are not significantly correlated except at the 4 month scale. The correlations with Turkey and Brazil, on the other hand, follow a similar pattern with statistically significant associations at 2, 4, and 8 month scales. The peak of the correlation in Turkey is at 16 month scale, whereas the Brazil has its peak at 8 month scale. Overall, in our sample, industrial production in Turkey exhibits the highest correlation with the one in the United States at all scales.

The co-movement exercise has so far focused on contemporaneous synchronizations. Next, we study the lead and lag relationships between the industrial production in the United States and other countries in the sample. Note that the confidence intervals for levels higher than 4 (16 months) are too wide due to the boundary effect of the wavelet transform; hence, they are not included in this analysis.

Figure 10 shows the results for Turkey. The first scale (d1) denotes the correlation 20
Following the literature on within country migration, we use the share of the population that had arrived in destination j more than 5 years ago that was born in state of origin i as a proxy.

<u>Population: is the population by state in 1995 as reported by the Census. As Greenwood</u> (1997) summarizes, population is often used as a measure of the availability of public goods. However, it is also true that larger states offer more “connection points” than small states and will hence, in a random reallocation, attract more migrants. Shultz (1982) is also correct in arguing that larger states may have smaller rates of out migration simply by virtue of having more places to migrate to within. The 1995 value is used to eliminate any problems of simultaneity with migration flows that happen in subsequent years.

<u>Labor Market Variables:</u> The unemployment and nominal wage variables are generated as the average of their quarterly values in 1995, 1996 and 1997 from the National Urban Employment Survey (Encuesta Nacional de Empleo Urbano- ENEU).

<u>Cost of Living:</u> Though presumably the potential migrant should be focusing on real as opposed to nominal expected wages, the actual deflator used may not be that of the current place of work. For instance, if a migrant plans to return to a low cost area to retire, he may generate real savings measured in his retirement destination faster by earning a lower real wage in a high cost area (See Lucas 1997 for a survey of this literature). Further, high cost of living may point to a larger potential income over the long run even if not experienced even by the individual making the decision (Spencer 1989, Pagano 1990). Certainly, in an intertemporal or intergenerational context, taking a lower real wage in the US is still likely to offer the migrant’s descendents far better options than would have been the case in Mexico.<sup>5</sup>

> 5 The literature provides mixed evidence. Cameron and Muellbauer (1997) studying UK migration find strong “deflator” effects that they argue dominate any expectation effects. On the other hand, Thomas (1993), also looking at the UK, finds no impact of regional house price difference on destination choice of any group except retirees.

6
-4-

Table 1 Macro-performance in Matawi. 1974-87

||Const. 78<br>Prices<br>||Current P|rices||
|---|---|---|---|---|---|
|Year|(1)<br>ReaL GDP<br>Growth Rate<br>(X)|~~(2)<br>Gross Domestic<br> <br>Investment/GD<br>(X)|(3)<br>Gross Domesitc<br>P Saving/GDP<br>CX)|(4)<br>Implicit Foreign<br>Savings/GDP<br>CX)<br>(2)- (3)|(5)<br> <br>Inflation<br>Rate 1/<br>**(X)**|
|Pre-Study:||||||
|1973||20.4|12.4|8.0||
|1974|7.2|18.9|16.4|2.5|18.2|
|1975|6.1|24.9|17.0|7.9|8.3|
|1976|5.0|22.1|17.8|4.3|10.0|
|1977|4.9|22.2|20.1|2.1|12.5|
|1978|9.7|30.9|20.5|10.3|1.0|
|1979|4.4|27.1|12.7|14.4|2.6|
|1980|0.4|22.2|10.8|11.4|15.0|
|1981|-5.3|15.2|11.9|3.3|17.0|
|1982|2.5|14.6|14.9|-0.3|9.8|
|1983|3.7|13.7|15.2|-1.5|10.9|
|1984|5.4|13.0|15.4|-2.4|12.9|
|Post-Study:||||||
|1985|4.6|13.3|13.1|0.2|8.5|
|1986|-0.2|11.1|9.2|1.9|12.7|
|1987<br>|1.1|12.1|13.2|-1.1|24.2|
|1988|4.8|13.3|8.0|5.3|24.4|

1/ Annual change in impticit price deflator for GOP.

Source: Volume 2, Tax Policy for Malawi, WorLd Bank, November, 1985. These data are drawn from Malawi NationaL Accounts Report, 1973-79 and Malawi, Economic Report, 1985. Post study data are drawn from Malawi Country Economic Memorandun (#8140-M%I). This source includes minor revisions to earLier data.
services insured by the government (see World Bank 1994). This type of system has been in operation in Chile since the early 1980s, and is currently in the process of being implemented in Argentina, Colombia, Peru, and Mexico. Reforms of the health care system are taking longer to be defined, but are also under consideration. Both can have a very important effect on the efficiency of the labor market if they reduce payroll taxes, and their distortionary impact.

Latin American labor legislation has a long tradition of protecting job security. Measures include severe limitations on temporary hiring and substantial costs-in the form of severance payments-for dismissals without "cause". The labor market impact of employment protection laws largely depends on how firms and workers perceive them. If severance is seen as a delayed payment scheme, its effect on hiring and other decisions is minimal. But, in most cases, severance payments are directly related to the worker's tenure in the firm, typically in the form of "x monthly salaries per year of service". This legislation uses one policy instrument to address two policy objectives --penalizing wrongful dismissals and providing unemployment insurance. The problem is that neither objective is well served. Firms devise ways to reduce the costs associated with mandated severance payments, and employees attempt to transform voluntary quits into dismissals in order to be eligible for severance payment. The law has the effect of transforming labor into a fixed factor. Because of this, hiring and firing decisions are subject to delays and temporary contracts are informal (see Cox Edwards, 1995).

Reducing the payoff associated with litigation, and transforming severance payments into a deferred compensation scheme would greatly increase the degree of efficiency of Latin American labor markets. Reducing litigation payoffs requires defining employer's liability in case of dismissal for economic cause as well as in the case of dismissals without "cause." Argentina and Chile have allowed this distinction in their legislation. Some countries have begun to transform severance payments into deferred compensation plans. Reducing the payoff associated to litigation, would put benefits in the hands of workers quickly, when they are most needed, and induce employers to make hiring and firing decisions without delays, helping the dynamism of the economy.

_Malaysia_ There is no minimum wage in Malaysia. There is a contributiondefined provident fund system financed with workers and employers contributions, and managed by the public sector. Contributions to retirement provident funds have more than doubled between 1950 and 1994. Payroll contributions in Malaysia are already between 20 and 25% of total labor costs. Fringe benefits (some of them mandated by law, and many negotiated voluntarily) are an important component of labor costs. One of the issues that comes out at high levels of payroll taxation such as in Malaysia, is the definition of taxable wage, because imaginative formulas of compensation are devised in attempts to get around taxation.

# 7. **Conclusions**

35
savings histories.<sup>5</sup> Eligible clients receive an SMS message letting them know how much they may borrow and that they can obtain the loan through a Baobab agent. If a client pays back the loan within 15 days, she becomes eligible for a larger loan in the next cycle. If a client repays the loan within 16-30 days, she is eligible for the same amount in the next cycle. However, if the client does not repay the loan within 30 days, she is not eligible for another Taka loan in the near future. Because the convenience of agent networks facilitates loan repayment, and because the loan amounts offered are rooted in analysis of account activity, this “accelerator” approach has led to substantial credit growth for BSN (and BMG).<sup>6</sup> Digital credit, sometimes referred to as mobile credit or nano-credit, is easy to access and can be approved and disbursed very quickly and thus has shown dramatic growth in countries such as Kenya. Using data from Kenya, Bharadwaj, Jack, and Suri (2019) show that digital credit makes households more resilient to negative shocks. But digital credit is also characterized by high default and delinquency rates. Using data from a digital lender in Mexico, Burlando, Kuhn and Prina (2021) exploit quasi-experimental variation in the speed of disbursement to study its impact on repayment. They find that by doubling the delivery time from ten to twenty hours, the likelihood of default is reduced by 21 percent. Besides the speed of delivery, default in digital credit may be brought about by poor business practices and weaknesses in credit reporting.<sup>7</sup> Digital lenders, which encompass a range of institutions beyond MFIs, such as Fintech companies and cellular providers, do not consult nor report to credit reporting bureaus fully or regularly. In large part, this is because credit reporting bureaus were set up for a pre-digital era. They are not inclusive of all types of lenders and face challenges in the frequency of uploading data (daily uploads are necessary for these short-term loans) and the ease of connection with other players in the credit reporting ecosystem. As a result, many lenders do not ensure that credit bureau information is updated and correct, even when they do consult it prior to lending. Because account activity can be monitored, credit bureau information is not required for nano-

> 5 https://baobabgroup.com/en/announcement/meeting-a-diversity-of-client-needs-nano-loans-with-potential-forgiga-impact/

> 6 Buri et al. (2019).

> 7 Center for Financial Inclusion/Accion. “Making Digital Credit Truly Responsible.” September, 2019. Washington, D.C. https://www.centerforfinancialinclusion.org/making-digital-credit-truly-responsible. - See also Beth Rhyne, “Red Flags in Kenya’s Nano-Credit Market.” https://www.centerforfinancialinclusion.org/red <u>flags-in-kenyas-nano-credit-market</u>

8