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					               Tenth Annual Inter-American Seminar on Economics



        The NBER held its “Tenth Annual Inter-American Seminar on Economics”

in Santiago, Chile on November 21 and 22, 1997. Organizers Sebastian

Edwards, NBER and University of California, Los Angeles, and Harald Beyer,

Centro de Estudios Públicos, chose the following papers for discussion:

        Harald Beyer, Patricia Rojas, and Rodrigo Vergara, Centro de Estudios

Públicos, “Trade Liberalization and Wage Inequality in Chile”

        Eduardo M. Engel, NBER and Universidad de Chile, and Alex Galetovic

and Claudio Raddatz, Universidad de Chile, “Taxes and Income Distribution in

Chile: Some Unpleasant Redistributionist Arithmetic”

        Discussants: José de Gregorio and Osvaldo Larrañaga, Universidad de

Chile

        Ana Flávia Machado, Minas Gerais Federal University, and Ricardo

Paes de Barros and Rosane Silva Pinto de Mendonça, Instituto de Pesquisa

Económica Aplicada, “Inequality Among the Poor: Occupational Strategies and

Gender Differences”

        Leonardo Gasparini, Universidad de la Plata, “Measuring Unfairness in

the Distribution of a Good: An Analytical Framework and an Application for

Education and Health in Argentina”

        Discussants: Dante Contrareras, Universidad de Chile and Cristián Aedo,

ILADES

        Raquel Bernal and Mauricio Cardenas, FEDESARROLLO, and Jairo

Nunez and Fabio Sánchez, National Planning Department of Colombia,

“Unemployment, Inflation, and Income Distribution in Colombia”
        Nora Lustig and Miguel Székely, “ „Hidden‟ Trends in Poverty and

Inequality in Mexico”
       Discussants: Francisco Rosende, Universidad Católica, and Ricardo

Paredes, Universidad de Chile

       Jeffrey D. Sachs, NBER and Harvard University, and Andrew Warner,

Harvard University, “Natural Resource Booms and the Theory of the Big Push”

       Edward E. Leamer, NBER and University of California, Los Angeles,

“Latin American Income Inequality: A Heckscher-Olin Approach”

       Anne Harrison, NBER and Columbia University, and Gordon H. Hanson,

NBER and University of Texas, “Who Gains from Trade Reform? Some

Remaining Puzzles”

       Discussants: Pablo Serra and Rodrigo Fuentes, Universidad de Chile

       Sebastian Edwards, and Daniel Lederman, Johns Hopkins University,

“The Political Economy of Unilateral Trade Liberalization: The Case of Chile”

       Beyer, Rojas, and Vergara explore the impact of trade liberalization on

income distribution in Chile and conclude that trade openness increased wage

inequality. Their research also indicates that the recent decline in wage inequality

in Chile can be attributed to the relative increase in the number of college

graduates there.

       Engel, Galetovic, and Raddatz quantify the distributional effects of the

Chilean tax system and assess the sensitivity of the distribution of income to

changes in the tax structure and tax rates. They find that even radical

modifications, such as raising the value added tax from 18 percent to 25 percent,

or substituting a 20 percent flat tax for the current progressive income tax, have

only a slight effect on the aftertax distribution of income. In contrast, targeting

expenditures, and changing the level of the average tax rate, are far more

important determinants of the income distribution. Moreover, the high-yield but
slightly regressive value added tax reduces inequality far more than the

low-yield, strongly progressive income tax.
       De Barros, Machado, and Mendonça report that the low educational

level of the Brazilian population has been identified repeatedly as one of the

main determinants of the country‟s high poverty levels. Yet while the

improvement of educational indicators has been considered the country‟s most

urgent goal in fighting structural poverty, it is important to note that this solution is

necessarily very slow. Further, other mechanisms operate on the Brazilian labor

market, such as “occupational insertion,” which permits even poorly educated

workers to earn income that places them outside the poverty pool.

       How concerned are various societies about the distribution of certain

goods, chiefly basic education and health? Gasparini discusses a way of

measuring unfairness in the distribution of any particular good. The consumption

of the good is determined by both “socially acceptable” and “socially

unacceptable” sources of differences in individual consumption. “Unfairness” in

the distribution of a good is related to the dispersion in the values of conditional

expectations across individuals. Using data for Argentina, Gasparini calculates

“unfairness indexes” for both health services and education levels.

       Bernal, Cardenas, Nunez, and Sanchez explore the relation between

macroeconomic conditions and urban income distribution in Colombia. They

show that unemployment and inflation have significant negative effects, while

growth in manufacturing output and improved conditions in rural areas of the

country have positive effects on income distribution. As a result, the recent

combination of high unemployment, overvalued currency, and low overall

economic growth in Colombia have resulted in greater inequality. The authors

also find that unemployment and inflation have an adverse effect on education

levels of the poor. Thus, macroeconomic instability is detrimental for the
accumulation of human capital, which affects the distribution of income in the

long term.
      Lustig and Székely analyze the evolution of poverty and inequality in

Mexico between 1984 and 1994. Using the information from the four existing

Income-Expenditure Household Surveys for the period under consideration, the

authors find that overall poverty and inequality rose during the adjustment years,

and it remained practically unchanged during the incipient and frustrated

recovery of the early 1990s. However, these aggregate trends hide important

differences. While aggregate poverty and inequality remained almost unaltered

between 1989 and 1994, a significant proportion of the poorest of the poor were

worse off. In particular, poverty (extreme and moderate) increased in the primary

sector, among rural workers, and in the backward areas of the Southern and

Southeastern regions in Mexico. Also, while inequality among nonwage income

sources declined, wage inequality showed a significant increase.

      Sachs and Warner revisit the theory of the big push and related ideas

about economic development in the 1950s. From the perspective of these

theories, one would think that a large boom in natural resource output could

provide the big push, stimulating industrialization and economic growth. But the

authors present a big push model in which this is not necessarily the case. They

also present preliminary evidence that commodity booms in Latin America in

general have not stimulated faster growth.

      Leamer suggests that the multifactor Heckscher-Ohlin model, using three

or more factors -- such as raw labor, arable land, natural resources, and physical

and human capital — can serve as a foundation for studying the consequences

of abundance of natural resources and arable land. As such, it can help us to

answer important questions about Latin America. His analysis suggests that

some types of natural resources actually limit the return on human capital and
contribute to the high Gini coefficients that are endemic to Latin America.

      Harrison and Hanson argue that there are three unresolved issues with
regard to the impact of trade reform: 1) many results linking trade reform to long-

run growth are surprisingly fragile; 2) trade reform has only a small impact on

employment in developing countries; 3) there seems to be a relationship

between trade reform and rising wage inequality in developing countries.

Focusing on the 1985 Mexican trade reform, they observe that wage inequality

rose after the reform, which is puzzling in a Heckscher-Olin context, since

Mexico had a comparative advantage in producing low-skill- intensive goods.

      Edwards and Lederman analyze the political and economic

circumstances surrounding Chile's unilateral trade liberalization. Between 1975

and 1979, Chile eliminated all quantitative restrictions and exchange controls,

reduced import tariffs from an average of over 100 percent to a uniform 10

percent, and implemented other reforms. The authors examine the role played

by the "reform team," investigate some of the distributive consequences of the

reforms, and analyze the mechanisms the government used to maintain a

minimum level of support for the liberalization process.

				
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