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41. Analysis of the Hydrocarbon Sector in Bolivia: How Are the Gas and Oil Revenues Distributed?

Author:
Christian Velasquez-Donaldson
Publication Date:
06-2007
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
This report analyzes the importance of the hydrocarbon sector in Bolivia. The oil and gas sector currently represents a vital component of the Bolivian economy, accounting for 7 percent of the GDP in term of production and more than 30 percent of total government income. In addition, the hydrocarbon sector not only represents an important economic sector but also a political and social instrument for negotiations, mobilization and social participation. The hydrocarbon sector in Bolivia also plays a strategic geopolitical role in South America as it has the second largest reserves of natural gas in the region after Venezuela. However, the current Bolivian nationalization process has placed this privileged position of the country into question as Bolivia is trying to undo twenty years of neo-liberal policies with the adoption of more nationalistic policies, assuming the control of the sector and challenging the international community and the private sector to benefit its population. The report also exposes that the important hydrocarbon revenues are not evenly distributed across the country’s regions. The most important instruments of taxation, royalties and the IDH, are creating a disequilibrium implying that regions with large populations get considerably fewer resources than less populated regions. In addition, the current distribution system, which is based on political criteria with some regional notion of fairness, is discriminatory in the allocation of resources with out taking into account poverty criteria. In a poor country like Bolivia with a strong political framework on poverty alleviation, the lack of poverty criteria in the distribution system of such significant resources makes 1.5 million poor people from La Paz get fewer resources than 300 thousand poor people from Pando in terms of per capita distribution ($16 dollars per capita in La Paz vs. $600 dollars per capita in Pando). The report has found that the distribution system of the hydrocarbon revenues needs serious changes to be more efficient and accomplish the goal of poverty reduction. The current system of revenue allocation creates significant per capita inequalities between regions and exacerbates the regional dependency on central transfers that depends on exhaustible and unstable hydrocarbon production (92 percent of the prefecturas’ revenues and 66 percent of the municipalities’ revenues come from government transfers). In addition, the decentralization process of the country has several weaknesses. It does not allow local governments to create their own tributary policies and generate their own resources, with exception of municipalities that to some extent can administrate and collect two regional taxes defined by the central government. This disequilibrium has the potential to seriously threaten the unity of the country as a nation. This situation will encourage producing regions to push for a large degree of decentralization in order to take advantage of the enormous inflows of resources that the sector is generating. In addition, non-producing regions will push for a significant share of those large resources given the severe degree of poverty in the country. This leads to two important questions to ask; first, who owns the natural resources, producing regions or the central government, and second, how those revenues should be distributed? In general, those questions are hard to answer and in most cases the answers have significant political notions. In this aspect, the report presents results of a hypothetical calculation in which we combine to some extent the notion that producing regions have the right to a share of the revenues as does the central government. Because producing regions have solid arguments to claim ownership, like natural heritage and social cost reimbursement, we found undesirable and unviable the idea of completely draining those resources from them. Nonetheless, the central government also has significant arguments to have a share of those revenues, like income stability, fiscal equilibrium and macroeconomic considerations. Therefore, we found it important that the central government should benefit from a share of the natural wealth. However, the results of the hypothetical exercise presented in this report have the objective of opening the debate and dialogue for needed changes in the Bolivian hydrocarbon distribution system rather than suggesting a definitive answer for a distribution system in Bolivia.
Topic:
Oil, Natural Resources, Gas, Revenue Management, and Hydrocarbons
Political Geography:
South America and Bolivia

42. Informality and Productivity in Bolivia: A Gender Differentiated Empirical Analysis

Author:
Lykke E. Andersen and Beatriz Muriel
Publication Date:
07-2007
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
This report analyzes gender differences in informality and productivity in urban Bolivia. Rural Bolivia is excluded from the analysis for three reasons: 1) informality in rural areas is close to 100% for both men and women2 , 2) farming is a family business and it is impossible to tell if one family member is more productive than another, and 3) data on productivity and profitability is too unreliable in rural areas. The urban labor market in Bolivia can be divided into 4 main sectors: 1) the public sector, 2) the formal private sector, 3) self-employed informals, and 4) informal workers. Although incomes are generally higher in the public sector and in the formal private sector, there is a strong preference in Bolivia for being informally self-employed. Two thirds of both men and women in urban areas respond that they would prefer to be self-employed rather than a salaried employee,3 and few see any advantage of becoming formal under the current institutional set-up.4 Currently, half of all economically active women in urban areas are informally selfemployed, while this is the case for only one third of men. This implies that women are actually closer to the desired state than men, according to their own preferences. The real problem for women is not that they are informally self-employed, but rather that the profitability of their informal enterprises is low. On average, monthly profits of female micro-entrepreneurs is about 40% lower than those of male micro-entrepreneurs.5 This report uses quantitative information from about 600 micro and small enterprises to break down and understand this gender gap in profitability, and the results show that almost the whole gap is due to the fact that women operate their businesses on a much smaller scale (with less productive capital and fewer employees) than men. Why do female entrepreneurs operate on a smaller scale? One partial explanation is that they do not want to grow, because the business then would loose some of the features that make a micro-business particularly attractive for women (not to depend on others, to be able to care for children simultaneously, flexible working hours, and daily revenues). When asked about what they consider the ideal number of employees for their business five years into the future, the average for women is 6.9 compared to 9.2 for men. Single women are generally a bit more ambitious than married or cohabiting women (the first would on average like 5.3 additional employees, whereas the latter only wants 4.2 extra employees),6 which suggests that family obligations may be one of the reasons why women prefer to keep their businesses at a relatively small scale.
Topic:
Economy, Productivity, Gender, and Informality
Political Geography:
South America and Bolivia

43. Corruption, privatisation and the distribution of income in Latin America

Author:
Antonio Rodriguez and Carlyn Ramlogan
Publication Date:
11-2007
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
This paper presents some new evidence on income inequality in Latin America over the period 1980-1999, examining in particular the relationship between corruption, privatisation and inequality. Using a panel data methodology, we find that a reduction in corruption is associated with a rise in inequality. This suggests that while privatisation removes industries from government influence and government corruption, it worsens income inequality as new owners strive for efficiency and profits. The paper highlights the fact that structural reform policies aimed primarily at achieving positive and increasing growth rates do not adequately address the income distribution problem.
Topic:
Corruption, Privatization, Income Inequality, and Data
Political Geography:
South America and Latin America

44. The Role of the Natural Resource Curse in Preventing Development in Politically Unstable Countries: Case Studies of Angola and Bolivia

Author:
Saraly Andrade and Joaquin Morales
Publication Date:
11-2007
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
For about three decades now, development economics researchers have consistently claimed that third world resource-rich countries were not developing as well and/or as fast as they were expected to, given that their natural resources endowment was considered a great opportunity for development. The phenomenon of underperformances concerning primary commodity exporters relative to non resource-rich countries has been often referred to as to the “Natural Resource Curse”. The authors use an historical and political approach to the manifestations of the curse in the specific cases of Angola and Bolivia, both resource abundant countries, but suffering among the lowest development standards in their respective continents. In chapter one, the authors make a quick review of the literature explaining both causes and manifestations of the Resource Curse. The authors go beyond the classical Dutch Disease explanations and show how natural resources lead to behaviours of looting, rent-seeking and civil confrontations. In chapter two, the authors present the framework where they adjust the “African Anti-growth Policy Syndromes” described by Paul Collier to the specific case of the Natural Resource curse. In addition, they add some considerations of the negative effect of natural resource extraction by analysing externalities on environment, education and inequalities. Chapters three and four analyse the case studies of Angola and Bolivia respectively, emphasizing the role of historical context explaining policy behaviour and the critical impact of unexpected windfalls and sudden price collapses. The authors find that natural resources could sustain long lasting conflicts, but that conditions of fractionalization of society determine the possibility of conflict. A country divided in two rigid political factions is more prone to internal conflict, like in Angola, whether in countries where frontiers between blocks are blurried or the country is multi-polar, like in Bolivia, the risks of long-lasting civil war seem less important. Apart from conflict, the authors show that lack of institutions and inequality make of natural resources a source of political instability that has far more impact on economic performances than other factors.
Topic:
Civil War, Development, Natural Resources, and Rent-seeking
Political Geography:
South America, Angola, Bolivia, and Africa

45. Labor Mobility in Bolivia: On-the-Job Search Behavior of Public and Private Sector Employees

Author:
Lykke E. Andersen and Bent Jesper Christensen
Publication Date:
01-2006
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
Labor market frictions are even more pervasive in developing countries than in Western industrialized economies. In spite of this, stochastic models of frictional markets have rarely been applied to developing countries. In this paper, we estimate structural parameters of both a simple and an extended job separation model with the purpose of understanding constraints in the labor market in Bolivia. The results confirm the hypothesis that skilled labor is scarce in Bolivia, while unskilled labor is abundantly available. This implies that skilled employees shop around for alternative employment opportunities and quit their jobs when a better opportunity arises. The quit rate among skilled employees in the private sector is much higher than the quit rate among skilled employees in the public sector. The reverse is true for the lay-off rate, and together this suggests that the private sector has difficulties maintaining its skilled labor. The private sector might try to improve its capacity to retain skilled employees by increasing wages, but the wage sensitivity parameters estimated in this paper suggest that this is not going to work – skilled employees in the private sector do not seem to reduce their on-the-job search in response to higher wages.
Topic:
Development, Employment, Mobility, and Labor Market
Political Geography:
South America and Bolivia

46. Natural Gas and Inequality in Bolivia after Nationalization

Author:
Lykke E. Andersen, Johann Caro, Robert Faris, and Mauricio Medinaceli
Publication Date:
08-2006
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
The high oil prices and the sharp increases in royalties mean that the natural gas boom in Bolivia has become very important for the economy. This paper uses a Computable General Equilibrium (CGE) model to assess the impacts of this boom on key macroeconomic variables as well as the distribution of incomes in the society. From a macroeconomic perspective, the natural gas boom is a blessing, adding around 1 percentage point to GDP growth rates for at least a decade, and sharply increasing government revenues available for public spending and investment. However, the poorest segments of the population (rural small-holders and urban informals) suffer actual reductions in their real incomes, compared to the counterfactual scenario without the gas boom. This means that the natural gas boom not only causes an increase in inequality but also an increase in poverty. The paper finishes with some policy recommendations on how to counteract the negative side effects of the natural gas boom.
Topic:
Gas, Inequality, Macroeconomics, and Nationalization
Political Geography:
South America and Bolivia

47. How Best to Use the Extraordinary Natural Gas Revenues in Bolivia? Results from a Computable General Equilibrium Model

Author:
Lykke E. Andersen
Publication Date:
12-2006
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
The high oil prices and the sharp increases in royalties mean that the natural gas boom in Bolivia has become very important for the economy, and particularly important as a source of government revenues. Using a CGE model, Andersen et al (2006) show that the natural gas boom is likely to boost GDP growth by about 1 percentage point per year. However, if the government continues with past spending and investment patterns, the boom is also likely to have a very adverse effect on the income distribution, so much so that the poorest half of the population is likely to experience absolute reductions in their real income levels compared to a scenario without gas boom. The present paper explores alternative uses of natural gas revenues in the CGE model to see if a better outcome can be engineered.
Topic:
Economics, Gas, Inequality, and Revenue Management
Political Geography:
South America and Bolivia

48. Towards a More Employment-Intensive and Pro-Poor Economic Growth in Bolivia

Author:
Luis Carlos Jemio and Maria del Carmen Choque
Publication Date:
12-2006
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
The reform program and growth pattern exhibited by the Bolivian economy in the last decade did not favour employment creation and consequently not an effective reduction of poverty. During the last decade, those sectors where the bulk of employment is concentrated, presented the lowest growth rates of GDP, labour productivity and real incomes. The present paper analyzes in detail the two sectors where the bulk of employment and poverty is concentrated (agriculture and the urban informal sector) in order to determine the critical constraints to improvements in productivity, employment generation, and reductions in poverty.
Topic:
Poverty, Reform, Employment, and Economic Growth
Political Geography:
South America and Bolivia

49. Macroeconomic Policies to Increase Social Mobility and Growth in Bolivia

Author:
Lykke E. Andersen, Alice J. Brooks, and Alejandro F. Mercado
Publication Date:
07-2004
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
Poverty in Bolivia continues to be among the highest in Latin America despite decades of concerted national and international efforts to reduce it. Bolivia has meticulously followed the recommendations of the Washington consensus at the same time as external aid has been generous and foreign direct investment has boomed. Nevertheless, average productivity and incomes remain at the same low level as they were 50 years ago. This paper suggests that the failure of previous development policies is due to a lack of social mobility in the country. Without social mobility, there is little incentive for people to invest in human and physical capital, and without investment there cannot be productivity growth. In addition, the lack of social mobility implies an inefficient use of human capital, and it hinders the construction of efficient social mechanisms for redistribution and consumption smoothing over the life-cycle.
Topic:
Development, Poverty, Public Policy, Macroeconomics, and Social Mobility
Political Geography:
South America and Bolivia

50. Trade, FDI, Growth and Poverty in Bolivia

Author:
Lykke E. Andersen, Osvaldo Nina, and Dirk Willem te Velde
Publication Date:
07-2004
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
After several decades of “state-capitalism” characterized by import substitution policies, Bolivia implemented in 1985 a New Economic Policy (NEP) following neo-liberal ideas of free trade, privatization, and liberalization of capital flows. It was hoped that the opening up of the economy would attract foreign direct investment (FDI) which in turn would help modernize Bolivian industry, improve productivity, increase exports, stimulate growth, and reduce poverty. This paper investigates to what extent this actually happened.
Topic:
Development, Poverty, Foreign Direct Investment, Inequality, and Trade
Political Geography:
South America and Bolivia