Cristian Alonso, Mr. Andrew Berg, Siddharth Kothari, Mr. Chris Papageorgiou, and Sidra Rehman
This paper considers the implications for developing countries of a new wave of technological change that substitutes pervasively for labor. It makes simple and plausible assumptions: the AI revolution can be modeled as an increase in productivity of a distinct type of capital that substitutes closely with labor; and the only fundamental difference between the advanced and developing country is the level of TFP. This set-up is minimalist, but the resulting conclusions are powerful: improvements in the productivity of “robots” drive divergence, as advanced countries differentially benefit from their initially higher robot intensity, driven by their endogenously higher wages and stock of complementary traditional capital. In addition, capital—if internationally mobile—is pulled “uphill”, resulting in a transitional GDP decline in the developing country. In an extended model where robots substitute only for unskilled labor, the terms of trade, and hence GDP, may decline permanently for the country relatively well-endowed in unskilled labor.
This paper documents recent labor market performance in the Latin American region. The paper shows that unemployment, informality, and inequality have been falling over the past two decades, though still remain high. By contrast, productivity has remained stubbornly low. The paper, then, turns to the potential impacts of various labor market institutions, including employment protection legislation (EPL), minimum wages (MW), payroll taxes, unemployment insurance (UI) and collective bargaining, as well as the impacts of demographic changes on labor market performance. The paper relies on evidence from carefully conducted studies based on micro-data for countries in the region and for other countries with similar income levels to draw conclusions on the impact of labor market institutions and demographic factors on unemployment, informality, inequality and productivity. The decreases in unemployment and informality can be partly explained by the reduced strictness of EPL and payroll taxes, but also by the increased shares of more educated and older workers. By contrast, the fall in inequality starting in 2002 can be explained by a combination of binding MW throughout most of the region and, to a lesser extent, by the introduction of UI systems in some countries and the role of unions in countries with moderate unionization rates. Falling inequality can also be explained by the fall in the returns to skill associated with increased share of more educated and older workers.
International Monetary Fund. Western Hemisphere Dept.
This 2017 Article IV Consultation highlights that Argentina’s government has made important progress in restoring integrity and transparency in public sector operations. These policy changes have put the economy on a stronger footing and corrected many of the most urgent macroeconomic imbalances. Private consumption strengthened in 2017, supported by greater real wages and buoyant credit growth. With stronger domestic demand, the trade surplus turned into a deficit and the current account deficit increased. Annual inflation has declined from its peak in 2016, but remained relatively resilient and inflation expectations moved up, prompting the central bank to raise interest rates. Going forward, GDP growth is expected to consolidate, inflation inertia will slowly subside, and the fiscal deficit will gradually fall.
This 2011 Article IV Consultation—Selected Issues paper focuses on estimating potential output and the output gap and spillovers from agriculture in the case of Uruguay. It introduces additional economic information and theory to estimate potential output, shedding some light on the discussion of current monetary and fiscal policies. The objective is to take advantage of economic data to disentangle the most recent economic performance by introducing multivariate techniques. The paper also presents an overview of the labor market and pension system of Uruguay.
We account for the appreciation of the real exchange rate in Mexico between 1988 and 2002 using a two sector dynamic general equilibrium model of a small open economy with two driving forces: (i) differential productivity growth across sectors and (ii) a decline in the cost of borrowing in foreign markets. These two mechanisms account for 60 percent of the decline in the relative price of tradable goods and explain a large fraction of the reallocation of labor across sectors. We do not find a significant role for migration remittances, foreign reserves accumulation, government spending, terms of trade, or import tariffs.
The first section of this paper is an attempt to examine the interest rate channel of monetary policy transmission in Moldova and to estimate the strength and the speed of the interest rate pass-through. The next section provides a background on Moldovan financial markets, liquidity conditions, and the current framework of monetary policy. The following section sets out the formal model used to estimate the strength and the speed of the pass-through, and the last session discusses results.
Mr. Jeffrey R. Franks, Miss Randa Sab, Ms. Valerie A Mercer-Blackman, and Roberto Benelli
Following some historical background, this paper describes how corruption is manifested in Paraguay. The paper distinguishes between factors that explain the growth performance of Paraguay since 1960 (where corruption does not directly enter as a significant factor) and factors that explain the relative level of income of Paraguay in the past 40 or 50 years compared with other countries. It then illustrates how Paraguay's weak institutions may have led to long-term growth below its potential. Finally, the authors briefly consider how Paraguay could improve its institutions. To the extent that prudent policies and the willingness to consider the adoption of international best practices will exert pressure for change in Paraguay, a gradual improvement of institutional quality will ensue, which is necessary for sustained long-run growth.
Ms. Gabriela Inchauste, Ms. Ana Corbacho, and Ms. Mercedes Garcia-Escribano
Using urban household surveys, we constructed a panel dataset to study the effects of the Argentine macroeconomic crisis of 1999-2002 with the aim of (1) identifying the most vulnerable households, (2) investigating whether employment in the public sector and government spending served to decrease vulnerability, and (3) understanding the mechanisms used by households to smooth the effects of the crisis. Households whose heads were male, less educated, and employed in the construction sector were more vulnerable to the crisis, experiencing larger-than-average declines in income and higher dispersion. Households whose heads were employed in the public sector were more protected from the crisis, although higher public spending did not serve to decrease their vulnerability. A significant source of vulnerability was linked to changes in employment status, and we studied the determinants of the probability of being unemployed and of becoming unemployed. Last, we found that households were unable to perfectly smooth income shocks. Given these results, there is room for broadening social safety nets, particularly in the form of public works programs.
This 2001 Article IV Consultation highlights that the economy of Spain grew by more than 4 percent annually during 1997–2000—reflecting strong consumption, competitive exports, wage moderation, and supply conditions enhanced by structural reforms. Annualized real GDP growth was about 2 percent in the third quarter of 2001, compared with 2.5 percent and 3 percent, respectively, in the second and first quarters. Industrial production has been decreasing during most of 2001, and in November stood about 1 percent lower than a year before.