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21. Public Expenditure Policy in Bolivia: Growth and Welfare

Author:
Carlos Gustavo Machicado, Paul Estrada, and Ximena Flores
Publication Date:
05-2010
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
It has been widely documented that fiscal policy can promote economic growth, when it is based on an efficient provision of pubic capital. But little work has been done, in Bolivia, in relation to the macroeconomic and sectoral impacts of increasing public investment in infrastructure. This paper develops a Dynamic Stochastic General Equilibrium (DSGE) model for a small open economy with five sectors: Non-tradable or services, importable or manufacturing, hydrocarbons, mining and agriculture. The model is parameterized and solved for the Bolivian economy and several interesting scenarios are simulated by changing government expenditures, taxes, country risk, Total Factor Productivity, effectiveness of public capital and terms of trade. This analysis is relevant for the Bolivian economy, because the government is using fiscal policy as one of its main tool to attack poverty and aims to put public investment as the foremost instruments to promote growth and welfare.
Topic:
Infrastructure, Economic Growth, Fiscal Policy, and Public Investment
Political Geography:
South America and Bolivia

22. The changing role of the international community in the MDG achievement in Bolivia

Author:
Massimiliano Calì and Luis Carlos Jemio
Publication Date:
05-2010
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
Millennium Development Goal number 8 (MDG8) concerns those external flows (Official Development Assistance, trade and debt relief) that ought to help developing countries achieve the MDGs by 2015. This paper reviews the role of these MDG8- related external flows in the case of Bolivia. Riding on high international prices for its major exports, and on fiscal expansion, remittances and debt forgiveness, Bolivia has experienced solid economic performance in the past few years. This economic performance coupled with the recent increase in social public expenditures by the government has increased the likelihood that the country will achieve all of the MDGs by 2015, except probably for MDG 2. These advances have been achieved in a period of radical change in Bolivia’s dependence on MDG8-related external flows. The composition of external finance in public expenditure has shifted from domination by ODA and debt forgiveness in the first half of the decade to domination by trade, mainly through revenues from hydrocarbon exports. Our findings support the idea that the provision of additional financial resources may not be the priority with regard to organising support to MDG achievements. Spending efficiently and effectively seems to be a more important area for support in Bolivia. As far as trade is concerned, Bolivia already enjoys good market access in its main markets, thus better access through lower non-tariff barriers may be more relevant than improving access in terms of tariffs. Moreover access to markets would be easier if Bolivia were better integrated with world markets, with its regional neighbours in particular. This calls for the support of the international community through aid for trade (AfT), which has instead been worryingly dwindling in recent years. Finally, we argue that MDG8 could be pursued in Bolivia through support for improving access to technology and access to affordable drugs.
Topic:
Debt, Millennium Development Goals, Economy, Trade, and Development Aid
Political Geography:
South America and Bolivia

23. Social Impacts of Climate Change in Brazil: A municipal level analysis of the effects of recent and future climate change on income, health and inequality

Author:
Lykke E. Andersen, Soraya Román, and Dorte Verner
Publication Date:
07-2010
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
The paper uses data from 5,507 municipalities in Brazil to estimate the relationships between climate and income as well as climate and health, and then uses the estimated relationships to gauge the effects of past and future climate change on income levels and life expectancy in each of these municipalities. The simulations indicate that climate change over the past 50 years has tended to cause an overall drop in incomes in Brazil of about four percent, with the initially poorer and hotter municipalities in the north and northeast Brazil suffering bigger losses than the initially richer and cooler municipalities in the south. The simulations thus suggest that climate change has contributed to an increase in inequality between Brazilian municipalities, as well as to an increase in poverty. The climate change projected for the next 50 years is estimated to have similar, but more pronounced effects, causing an overall reduction in incomes of about 12 percent, holding all other things constant. Again, the initially poorer municipalities in the already hot northern regions are likely to suffer more from additional warming than the initially richer and cooler municipalities in the south, indicating that projected future climate change would tend to contribute to increased poverty and income inequality in Brazil.
Topic:
Climate Change, Health, Income Inequality, and Social Impacts
Political Geography:
Brazil and South America

24. Effects of the Global Financial and Economic Crisis on the Bolivian Economy: A CGE Approach

Author:
Martin Cicowiez and Carlos Gustavo Machicado
Publication Date:
08-2010
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
This paper analyses the impact of the Global Financial Crisis on the Bolivian economy. The PEP 1-1 Standard Model has been employed to analyze the effects of a reduction in (i) the world export prices of mining and agriculture, (ii) the world demand of textiles, and (iii) transfers to households (i.e., remittances) from abroad. The model has been calibrated to a new 2006 SAM for Bolivia. The households have been disaggregated according to their location (urban and rural) and ethnicity (indigenous and non-indigenous). The factors of production have been disaggregated into skilled and unskilled labor, capital, and natural resources. Not surprisingly, our results highlight the relevance of the decrease in the export price of natural gas in explaining the negative effects of the Global Financial Crisis.
Topic:
Financial Crisis, Gas, Economy, Forecast, and Simulation
Political Geography:
South America and Bolivia

25. Insights from Bolivia’s Green National Accounts

Author:
Luis Carlos Jemio and Lykke E. Andersen
Publication Date:
12-2010
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
The purpose of the present paper is to demonstrate the usefulness of Green National Accounting by drawing out some interesting insights from the Integrated Environmental and Economic Accounts recently elaborated by the Institute for Advanced Development Studies for the case of Bolivia. The paper uses the Green National Accounts to show the importance of environmental inputs in 7 different productive sectors and compares the corresponding natural resource rents to the level of producer taxes in each sector. The paper also analyses the evolution of total productive capital, in order to judge whether Bolivia’s current development model can be considered sustainable. The paper finished with recommendations about interesting extensions that can be made to the Green National Accounts.
Topic:
Development, Environment, Natural Resources, and Economy
Political Geography:
South America and Bolivia

26. Bolivian Sub-national Revenues: A Review

Author:
Beatriz Muriel H.
Publication Date:
02-2010
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
This papers reviews main topics concerning sub-national revenues (intergovernmental transfers and taxes) and discusses some policy options to develop own sub-national revenues. The review covers the political-legal framework and the fiscal outcomes, finding that: i) intergovernmental transfers policies have expanded over time, generating inequity problems, principally at the departmental level; ii) sub-national revenues depend mostly on intergovernmental transfers; this has generated high levels of vertical imbalances, mainly for department governments whose revenues rely mostly on the hydrocarbons sector; and iii) lack of adequate tax policies that promote fiscal effort and equity led to large horizontal imbalances in municipal per capita tax collection, unrelated to poverty or human development differences. In this regard, policy options were discussed to increase own sub-national revenues, taking into account political and social discussions, the economic, fiscal and legal base, and relevant tax principles. The main recommendations are: i) to promote in-kind contributions (materials and labour) at the municipal level, especially in poor rural municipalities; ii) to improve municipal tax administration supporting the continuation of the RUAT’s work and improving the registry with the new census; and iii) to evaluate the possibility of redefining the RC-IVA as a personal income tax shared between the central government and the departments.
Topic:
Tax Systems, Fiscal Policy, Decentralization, and Revenue
Political Geography:
South America and Bolivia

27. Non-agricultural labor from rural farmers in Bolivia: An analysis of determinants and effects

Author:
Lykke E. Andersen, Beatriz Muriel, and Horacio Valencia
Publication Date:
04-2009
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
This paper analyses non-agricultural work supplied by rural households in Bolivia. It is shown that roughly 50% of all rural households complement their incomes through non-agricultural work, but that households in the lowlands are more likely to do so than households in the highlands. Since non-agricultural work pays several times better than agricultural work, access to this source of complementary income constitutes an important opportunity to escape rural poverty.
Topic:
Agriculture, Development, Poverty, Rural, and Labor Market
Political Geography:
South America and Bolivia

28. The Global Financial Crisis: Effects on Bolivia

Author:
Luis Carlos Jemio and Osvaldo Nina
Publication Date:
05-2009
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
The global financial crisis is expected to have a negative impact on the Bolivian economy. Effects will transmit into the economy through lower export prices and quantities, reduced amount of remittances and depressed foreign direct investment (FDI) flows. These shocks will bring about deficits in the current account and fiscal balances, foreign exchange reserves losses, sluggish economic growth and higher unemployment rates. The latest data available show that the economy is already experiencing the effects of the economic downturn, in the form of decreased exports revenues, sharp reductions in the rates of growth of foreign of exchange reserves and bank lending and a tendency towards a redollarisation of financial assets and liabilities. The Bolivian economy, however, is better prepared, at least in the short run, to cope with the negative effects of the crisis. The commodity export boom experienced between 2005 and 2008 has permitted the country to run sizable external and fiscal surpluses and accumulate foreign exchange reserves. The financial system has exhibited more prudent behaviour in recent years, by not expanding credit too much and increasing investments in highly liquid public bonds. Therefore, although banks are expected to be affected by the global financial crisis, they have high liquidity ratios and are not extremely exposed to risk. The capacity of the Bolivian economy to offset the negative effects of the global crisis will depend on several factors, such as the severity and duration of the crisis and, above all, the quality of the policies that policymakers will implement to cope with the crisis. The government faces several trade-offs in implementing policies in order to cope with the effects of the crisis. The central bank, for instance, is committed to maintaining a fixed exchange rate, in order to reduce inflationary pressures and to avoid a re-dollarisation of the financial system. However, a fixed exchange rate policy has already brought about an exchange rate appreciation, which is hurting competitiveness of tradable activities. Furthermore, the government has room to implement countercyclical fiscal policies, by resorting to the deposits accumulated in the central bank during the export boom years. During 2009, the government is planning to expand public investment and to increase direct transfers to the population. However, these policies are not likely to offset the negative effects that the crisis will have on growth and employment. More efforts should be made to improve the quality of public spending, in order to maximise its impact on economic growth, employment creation and poverty reduction.
Topic:
Development, Financial Crisis, Economy, and Exports
Political Geography:
South America and Bolivia

29. Reforms and Counter-Reforms in Bolivia

Author:
Luis Carlos Jemio, Fernando Candia, and José Luis Evia
Publication Date:
06-2009
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
Towards the end of the 1970s and beginning of the 1980s, Bolivia experienced a period of deep economic and political crisis, resulting from the international economic shocks that hit the country at the time and from the large levels of foreign indebtedness the country had acquired during the 1970s. The crisis was characterized by hyperinflation, continuous drops in GDP, economic uncertainty and political volatility. Starting in 1985, after a change in government, Bolivia embarked in a comprehensive program of structural reforms aimed at stabilizing the economy and at removing the structural constraints which precluded faster economic growth and increases in productivity. The reform package was implemented over a period of time which began in 1985 and lasted for approximately 20 years. The reform policies comprised measures such as the opening of the economy to foreign trade; price, exchange rate and interest rate liberalizations; fiscal adjustments; central bank independence; instauration of a financial regulation and supervision system; capitalization and privatization of public enterprises; pension reforms; decentralization of the public administration; strengthening of key public institutions, (e.g. the internal revenue and customs offices, and the national road administration), among the most noticeable.
Topic:
Economics, Reform, Trade, and Liberalization
Political Geography:
South America and Bolivia

30. Misallocation and Manufacturing TFP in the Market Liberalization Period of Bolivia

Author:
Carlos Gustavo Machicado and Juan Cristóbal Birbuet
Publication Date:
08-2009
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
This paper analyzes productivity levels, dispersion and growth in the Bolivian Manufacturing Sector during the Market Liberalization Period: 1988-2001. These years are characterized first, by a period of macroeconomic stabilization and 1st Generation Reforms (1988-1993), second, by a period of privatization and 2nd Generation Reforms (1994-1997) and third, by a Post-reforms period (1998-2001). The 1st and 2nd Generation Reforms were framed in line with the Washington Consensus and their main objectives were to guarantee macroeconomic stability, to improve the efficiency and allocation of resources in the economy and to promote economic growth with fairness. We show that in contrast to what was expected, productivity in the manufacturing sector decreased steadily. We compute Total Factor Productivity (TFP), for the first time, using firm-level data and in addition we break down this measure in productivity per se and resource misallocation. We find that both issues contributed to the decline in productivity and if resource misallocation were eliminated, the gains in productivity would have been in the order of 60 percent, but the trend of productivity along time would have been the same, which means that there are also structural problems that affect productivity in Bolivia. In addition, we evaluate TFP considering exporting firms, size of firms, age of firms and geographical location.
Topic:
Markets, Macroeconomics, Manufacturing, and Liberalization
Political Geography:
South America and Bolivia