rafmacalaba/datause-encoder-data huggingface dataset:
– surface of a mathematical model of the earth between the districts’ geographical centers.<sup>11</sup> In robustness checks, we include several other distance variables. These are (i) geodesic distances between largest cities in each district, (ii) driving distance between these cities using the transport network and (iii) driving time between these cities.<sup>12</sup>

# _Linguistic Proximity_

Another important component of bilateral migration costs is the linguistic differences (Belot and Ederveen 2012; Adsera and Pytlikova 2015); linguistic proximity facilitates communication and skill transferability, especially for the less skilled. First, we measure linguistic distance between any two districts ( _i_ , _j_ ) following the commonly used ethnolinguistic fractionalization (EFL) index (Mira 1964), which measures the probability of two randomly chosen individuals from different districts speaking the same language. We concentrate on the mother tongue, which is “the language spoken in childhood to the person by the person’s mother”, as reported in the 2001 Census of India. In addition to data availability, we argue that there are two advantages in using the mother tongue. First, each individual has a unique mother tongue even if they are multilingual. Second, mother tongue relates more closely to an individual’s birth place, family background, and social networks. In the 2001 Census of India, there are 122 separate mother tongues, and all districts have multiple mother tongues spoken by the native population.

We construct two different measures of linguistic proximity between two districts: _Common Languageij_ and _Language Overlapij_ . Let _s_<sup>_l_</sup> _i_<sup>and</sup><sup>_sl_</sup> _j_<sup>betheshareofindivid-</sup> uals speaking mother tongue _l_ in districts _i_ and _j_ , respectively. Then _s_<sup>_l_</sup> _i_<sup>_∗sl_</sup> _j_<sup>isthe</sup> probability that an individual from _i_ can speak to an individual from _j_ in language _l_ . Summing over all possible mother tongues, _Common Languageij_ measures the likelihood of any two individuals being able to communicate in a common language. This

> 11We restrict centroids to be inside the boundaries of a polygon.

> 12See Alder, Roberts, and Tewari (2017) for more details on how these distances and travel times are calculated using the road network data.

13
1 Introduction In the past two or three decades most Latin American countries have redefined their development strategies, moving away from import-substitution regimes towards policies promoting integration with the global economy through exports and foreign direct investments (FDI). This important shift has been accompanied by an intense academic debate regarding the relationship between integration with the international markets and domestic growth. Despite the general presumption of a positive impact of trade liberalization on economic growth, there is still disagreement among economists about the nature of this relationship (Baldwin 2000). Most of the controversy is explained by the difficulty in identifying the underlying mechanisms driving this relationship (Winters 2004). Furthermore, since trade liberalization is often just one element of a more comprehensive set of market-oriented reforms it is hard to disentangle its effect from the impact of other policies.

This paper contributes to this debate by developing an innovative microeconometric approach that can disentangle the various channels through which integration with the global markets –via international trade– can affect firm-level productivity. Our empirical analysis is based on Mexican firm-level data covering 1993-2002,<sup>1</sup> a period of economic integration between Mexico, the US, and Canada within the North American Free Trade Agreement (NAFTA). The present study, defines NAFTA as a process of economic integration that goes beyond a simple tariff-reduction scheme and, instead, encompasses a set of institutional rules within which foreign trade and investment take place. The objective of this paper is to measure the impact of NAFTA on the productivity of Mexican plants.

The present study is related to various strands of literature. The pioneer set of studies collected in Roberts and Tybout (1996) analyzed the evolution of firm-level productivity dynamics in response to trade reforms and economic integralation for various developing countries. More recently, the interest has moved towards the identification of the different channels and mechanisms behind the impact of trade reforms on productivity (Aghion, Burgess, Redding, and Zilibotti 2004, Girma, Greenaway, and Kneller 2004, Pavcnik 2002, Tybout 2001, Amiti and Konings 2007, Fernandes 2007). Our research also draws on the lessons learned from the industrial organisation litera-

> 1In the paper we refer interchangeably to firm or plant to identify the unit of observation of our study, however this refers to the unit of observation of our data that is “the manufacturing establishment where the production takes place”

2
the multiplier, as the eect of these years is mostly osetting (standard errors are slightly larger, and signicance is now at the 5% level). For temporary transfers, the scatter plots in Figure 2 suggest that Mississippi (MS) might be inuential. In the right two columns of row D1, I drop MS and show that it has little eect on estimated multipliers, which are still signicant at 5%. No other states are inuential either when dropped one-by-one (see Appendix Figure 3.2).<sup>22</sup> 3.3.4. Instrumental Variable Estimates. As discussed in Section 2.3, the specication (Equation 2) is a reduced form as the exogenous changes in transfers are essentially the variable of interest. However, it is worth estimating an instrumental variables specication (row D2) in case the constructed transfer variables are measured with error (which could attenuate multiplier estimates), or there are other correlated transfer payments that I am not capturing (leading to upward bias). For permanent transfers in the rst column, I instrument all Social Security transferswhich are potentially endogenoususing my sample of exogenous Social Security increases. The multiplier is around 1.9, signicant at the 1% level (the rst-stage F-stat is above 500).<sup>23</sup> For one-o transfers in the second and third columns, I instrument changes in the potentially endogenous BEA category All other personal current transfer receipts (as a share of labor income or GDP) using the pooled 2008 ESP

> 22The second last column of Appendix Table 3 adds back in previously dropped extreme outliers, where |growth|>20% (annualized). For permanent transfers that reduces signi- cance to a p-value of 8%, and it also increases the estimated multiplier to 2. For temporary transfers, there is little eect on the labor income specication, but these extreme observations make the GDP specication go to zero (and become insignicant). Dropping the two smallest states in 1980 (Alaska and Wyoming), with extremely volatile growth rates and a combined population of <1m increases the permanent transfer multiplier substantially (positive and signicant at the 1% level), and results in multipliers for the GDP specication similar to those estimated above (signicant at 5%). See Appendix 3.01 for further details.

> 23The size of the IV coecient is unsurprising, as a $1 increase in my exogenous permanent Social Security transfers series increases all BEA Social Security payments by about 80 cents (after controlling for time and state FEs). The strong rst-stage relationship is plotted in Panel B of Appendix Figure 3.1 and provides an additional validation of the cross-state allocation of transfers and Romer and Romer's aggregate narrative.

22
|**Table 3: Thirty most common tasks done by insourcing and outsourcing workers**<br>_Task_|Proportion for<br>Insourcing|Proportion for<br>Outsourcing|
|---|---|---|
|Implement sales tactics such as building rapport and closer relations when they interact with customers|0.84|0.72|
|Do research on customers by exploring the needs of an existing or potential clients|0.83|0.74|
|Implement sales tactics such as implementing a customer relationship management system|0.83|0.74|
|Use digital marketing such as social media to market their products/services|0.83|0.76|
|Implement sales tactics such as taking time to understand customer needs|0.82|0.69|
|Participate in activities to increase awareness of the market segment to stimulate demand|0.82|0.74|
|Do research on suppliers to ensure that they are getting the stock/materials for the best price|0.82|0.63|
|Introduce or improve products/services to provide more benefits to customers|0.82|0.71|
|Initiate promotions of products/services to get people to buy more or to attract new customers|0.82|0.72|
|Have a salesforce mainly focused on increasing the top line revenues of the company|0.81|0.74|
|Develop partnerships, where the firm may benefit from additional advertising and cross-promotions|0.81|0.75|
|Develop better packaging material, content and designs to attract customers|0.81|0.71|
|Implement sales tactics, such as push strategies, e.g. cold calling and door-to-door sales|0.81|0.71|
|Encourage word of mouth by putting referral and rewards systems in place|0.81|0.76|
|Do research on competitors by visiting businesses similar to theirs|0.81|0.71|
|Do research on marketing dynamics such as assessing the market opportunities of the products/services|0.81|0.71|
|Use marketing tactics such as changing the prices of products/services to increase total sales|0.81|0.69|
|Contact a customer after he/she bought a product/service to ask if he/she was satisfied with the purchase|0.80|0.70|
|Assessing the margins and profitability of products/services they currently offer|0.80|0.68|
|Create opportunities for endorsements by people of influence to friends/family, by nonprofits to supporters|0.79|0.71|
|Use digital sales such as allowing customers to use digital transactions to pay for products/services|0.76|0.64|
|Use in-store demonstrations and sample products or road shows and events to showcase products|0.75|0.71|
|Use digital marketing such as a 3rd party e-commerce platforms to sell products/services|0.72|0.66|
|Use digital marketing such as running their own business website|0.70|0.73|
|CAC Registration|0.69|0.65|
|Use digital sales such as selling products/services directly on their own business website|0.67|0.64|
|Other: Market Research|0.62|0.45|
|Other: Digital Marketing/Sales|0.61|0.46|
|<br>Other: Sales Tactics|0.61|0.45|
|Other: MarketingTactics|0.59|0.51|
|Source: administrative data from dashboard on activities submitted by insourcing workers and outsourcing s<br>Proportions are conditional on taking up the intervention.|ervice providers.||

38
borrowing from banks or issuing stocks. From the point of view of investors, investing in corporate bonds can be less risky than buying stocks because of the seniority of bonds in the case of firm bankruptcy, but it is riskier than bank deposits for the reasons that the bank can diversify its loans and corporate bonds usually lack government insurance that bank deposits enjoy implicitly or explicitly. Correspondingly, the expected return to corporate bonds is usually lower than that to stocks but higher than deposit interest rates.

# **III.1.2   Large and small banks**

Plenty of evidence shows that there exists a type of specialization based on bank size in the banking sector. Large banks tend to shy away from small businesses but rather focus on large businesses, while small banks specialize in lending to small businesses<sup>1</sup> . This specialization suggests that the distribution of banks of different sizes can be an important dimension for our understanding of financial structure and economic development in addition to the mix of banks and financial markets.

As we mentioned above, the size of banks affects their capability for risk diversification. Small banks with very limited assets cannot afford to make large loans; otherwise they would have to bear much higher risk resulting from concentrated investments. Thus small banks can only make small loans. Large banks have more capability to make large loans while achieving better risk diversification. Since the transaction cost for making a loan is, at least to some degree, independent of loan size, large banks understandably prefer making loans to large firms rather than small ones for transaction cost consideration.

The specialization based on size is also because small banks and large banks have different comparative advantage in serving different types of enterprises. The difference is rooted in the agency problem within the bank and its influence on the efficiency of banks in producing and using information. Such agency problems can exist between owners and management, between bank officers at higher levels and the local staff of the bank. Due to organizational

> 1 Please see evidence in Nakamura(1994), Berger and Udell (1995, 1998), Jayaratne and Wolken(1999), etc.

11
1

# CONTENTS

|1.<br>Introduction|
|---|

|2.|External Shocks|4|
|---|---|---|
|2.1<br>|Commodity Prices<br>|4|
|2.2|Measurement of External Schocks|6|
|3. P|ublic Revenues and Expenditures|10|
|3 1|Structural Level of Public Revenues<br>Implict Taxes<br>|10<br>11|
||Explicit Taxes<br>|12|
||Structural Public Revenues|14|
|3.2|Structural Surplus|15|
|3.3|Composition of Public Expenditures|18|
||Flows of Public Expenditures|18|
|3.4|Simple Principles for Government Consumption|2C|
||Application of the Principles of Efficient<br>Public Consumption|21|
|4.|Impacts of Fiscal Policy|23|
|4.1|Price Level and Real Exchange Rate|23|
|4.1.<br>4.1.|1 Relative Prices in the Boom<br>2.Impact on the Real Exchange Rate|24<br>25|
|4.2.|The Balance of Payments|34|
|4.3|Saving and Investment|41|
|APPE|NDICES|46|

# APPENDICES

REFERENCES 64
Some studies have surveyed existing literature analyzing the relationship between infrastructure and economic growth (e.g., Munnell 1992<sup>3</sup> ; Gramlich 1994<sup>4</sup> ; Button 1998; Elburz et al. 2017). While the survey of Button (1998) examined the links between public capital and the role of endogenous growth processes, Elburz et al. (2017) offer new insights on variation in the empirical results investigating public investment infrastructure and regional growth. Elburz et al. (2017) conduct a meta-analysis of 42 studies published during the 1995-2014 period. The metaanalysis reports the following: (i) studies that employ data from the United States are more likely not to register a positive relationship between public infrastructure and economic growth; (ii) results differ across the studies due to difference in infrastructure measurement used, analytical methods, geographical scale of the study, and (iii) analysis that introduces interregional, interstate and interprovincial public infrastructure is likelier to yield negative effects, suggesting spillovers impact these investments.

Several studies report that whether or not infrastructure investment boosts economic growth depends on the stage of economic development of a country. In developed economies where infrastructure is not a constraint for economic development, infrastructure development may not furnish an economic growth effect. On the other hand, in countries where lack of infrastructure is a barrier to economic growth, the relationship between infrastructure investment and economic growth is strong (Sanchez-Robles 1998; Esfahani and Ramı́rez 2003). Examining the economic growth effect of public investment through a cross-country data, Sanchez-Robles (1998) shows that the indicator of infrastructure investment is positively and significantly correlated with economic growth in the sample of 19 Latin American countries. With an analysis using a panel of 75 countries around the world, Esfahani and Ramı́rez (2003) finds that the contribution of infrastructure services to GDP is substantial and, in general, exceeds the cost of provision of those services.

> 3 Munnell (1992) is the earliest review of infrastructure and economic growth issue; since the literature was at its infancy level, the study only highlights the importance of further research in this area.

> 4 This paper is also similar to Munnell (1992) but it provides more details on the methodological framework used to analyze the issue.

15
in the budget reference price used for the OPFR – the 2005 budget was based on revenues calculated at a still conservative $30 per bbl, compared with a reference price of $25 per bbl used for the 2004 budget. For 2006 the reference price was increased once again, to $35 per bbl.

Figure 5 a) Non-oil primary balance to No-GDP ratio and b) Growth in consolidated expenditure in $..

<!-- Start of picture text --> Non-oil Primary Balance to non-oil GDP Expenditure growth in current $<br>Percent<br>-15 3.5<br>1999 2000 2001 2002 2003 2004 2005 2006<br>-20 3.0<br>-25<br>2.5<br>-30<br>2.0<br>-35<br>1.5<br>-40<br>1.0<br>-45 1999 2000 2001 2002 2003 2004 2005 2006<br><!-- End of picture text --> There is also evidence of domestic payments arrears to contractors of N 275 billion and pension arrears under the pay-as-you go system of about N 100 billion (about 6 percent of non-oil GDP), indicating that the non-oil primary deficit to non-oil GDP ratio might be up to 6 percentage points higher than recorded.<sup>4</sup> Finally, the failure to fully pass on crude oil price increases to consumers resulted in an implicit subsidy of 4.7 percent of non-oil GDP for 2005<sup>5</sup> , which is a drain on resources that will persist for every year domestic energy prices fail to reflect the high world price of oil. The non-oil primary deficit in 2005, therefore, is much higher - nearly 51 percent of non-oil GDP, if one accounts for payment arrears and for implicit fuel subsidies, the combined effect of which amounts to nearly 11 percent of non-oil GDP.

Altogether the record is still mixed. The rapid increase in the non-oil deficit and increasing offbudget deficit items of several percentage points indicate that stricter adherence to the oil price fiscal rule, together with continued fiscal tightening, is critical to avoid a slide back into the spending sprees

> 4 While technically speaking, the stock of these arrears should be added to public debt, rather than deficit, it still represent past spending that has not been included in past level of fiscal deficits.

> 5 Note that the smaller IMF estimate of the implicit subsidy reflects the decision of the regulatory authority as of August 26, 2005 to allow gasoline prices to increase by 25 percent. See IMF (2005), pp.11., Country Report No.05/432, December 2005, entitled "Nigeria: Request for a Two-Year Policy Support Instrument - Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Nigeria"

9
speed increases trade by 1.9 percent. On the contrary, the results suggest that faster Internet in the importing country is associated to lower trade. These results are driven mainly by the decrease in the extensive margin of trade. In fact, in contrast with the Internet adoption of the importer and exporter, download speeds do not significantly affect the intensive margin of trade as measured by the average value of exports. The coefficients in column (4) are not significantly different from zero. The results for the extensive margin of trade are in line with the main results presented above. The estimates in column (6) indicate that a 10 percent increase in the download speed increases the extensive margin by 1.9 percent. On the other hand, faster Internet in the importing country induces a reduction in the number of product traded: a 10 percent increase in speed reduces the extensive margin of trade by 1.4 percent. As already explained above, the intuition for this is that faster Internet in the importing countries allows to screen better sellers of a good and import fewer products from them but larger values.

**Table 7: Effects of Internet Speed on Trade**

|VARIABLES|(1)<br>ln(Tota|(2)<br>l export|(3)<br>ln(Averag<br>expo|(4)<br>e value of<br>rts)|(5)<br>ln(Number<br>expo|(6)<br>of product<br>rted)|
|---|---|---|---|---|---|---|
|Internet adoption<br>exporter (log)|0.198***||0.0165||0.181***||
||(0.0247)||(0.0213)||(0.0134)||
|Internet adoption<br>importer (log)|0.0465*||0.0678***||-0.0214*||
||(0.0243)||(0.0212)||(0.0128)||
|Exporter’s download<br>speed (log)||0.188***||-0.00304||0.191***|
|||(0.0171)||(0.0153)||(0.00854)|
|Importer’s download<br>speed (log)||-0.156***||-0.016||-0.140***|
|||(0.0165)||(0.0149)||(0.00816)|
|GDP exporter (log)|0.557***|0.595***|0.419***|0.442***|0.139***|0.153***|
||(0.0353)|(0.0327)|(0.0306)|(0.029)|(0.0189)|(0.0176)|
|GDP importer (log)|0.237***|0.324***|0.382***|0.419***|-0.144***|-0.0953***|
||(0.0353)|(0.0327)|(0.0306)|(0.029)|(0.0191)|(0.0177)|
|Observations|75,381|75,381|75,381|75,381|75,381|75,381|
|R-squared|0.885|0.888|0.764|0.764|0.881|0.89|
|Year FE|Yes|Yes|Yes|Yes|Yes|Yes|
|Country-pair FE|Yes|Yes|Yes|Yes|Yes|Yes|

Standard errors are clustered at the country-pair. *** p<0.01, ** p<0.05, * p<0.1 14
Regarding macroprudential policy making, CSEEBs report some success in using the stress testing tools to convince policy makers to react to financial sector imbalances including in the area of monetary policy adjustments. Nevertheless, more efforts in this respect are required, including institutionalized policy responses to alarming stress-tests results before they materialize. Stress testing should be seen as a continuous communication between financial stability staff and banks, including stress testing capacity building and meetings of financial stability staff with risk managers of commercial banks. Ideally, this communication would take place during regular on-site inspections in order to economize the resources of both commercial banks and central banks.

Concerning the institutional arrangements for macroprudential stress testing and its impact on macroprudential policy adjustments, the discussions of CSEECBs’ country experience in international fora<sup>35</sup> hint that separation of micro and macroprudential policy makes the whole system of financial sector supervision more susceptible to influence of the financial sector lobby. Further, there is a general institutional problem concerning cooperation of all public institutions and respective institutions’ departments involved in financial stability oversight, including cross border information sharing and cooperation. This includes sharing of confidential information effectively and on a timely basis between macroprudential supervision and microprudential supervision and public credit registry, and improved cross-border information exchange to effectively capture and supervise consolidated risk of banking groups and the associated risk transfers and regulatory arbitrage.

> 35 Some of the most recent discussions among the CSEECBs facilitated by the World Bank took place in November 2009 in Prague and May 2010 in Thessaloniki.

25