2021 Conference on Economic Research
Monday, November 1
Responsible Sourcing? Theory and Evidence from Costa Rica
Alonso Alfaro Ureña / Benjamín Faber / Cecile Gaubert / Isabela Manelici / José P. Vásquez
Responsible Sourcing (RS) requirements by multinational enterprises (MNEs) impose minimum standards on worker compensation, benefits, working conditions and other production practices at their suppliers worldwide. We develop a quantitative general equilibrium model to study the incidence of RS on firms and workers in sourcing origin countries. We build a new database covering the near-universe of RS rollouts by more than 400 MNE affiliates in Costa Rica (CR) since 2009. We find significant negative effects on the sales and employment of exposed suppliers, and positive effects on the earnings of their workers. Overall, we find that RS policies by MNEs in CR have increased domestic welfare, and that the gains are concentrated among initially low-wage workers, reducing inequality.
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Firm Export Dynamics in Interdependent Markets
Alonso Alfaro Ureña / Juan Manuel Castro / Sebastián Fanelli / Eduardo Morales
Firms exhibit persistence in their export destinations and these destinations tend to be similar to their home market or to other export destinations of the firm. To account for these patterns in firms' export decisions, we develop a dynamic model featuring country-specific fixed and sunk export costs and allow the fixed costs that a firm pays to export to a country in a period to depend on which other countries the firm exports to in the same period. Sunk costs and complementarities across countries in fixed export costs jointly imply that a firm's export decision in a country and period will impact its export decisions in any other country in any future period. Using a novel solution algorithm and detailed data for the period 2005-2015 on the export choices of the universe of manufacturing firms located in Costa Rica, we study the importance that cross-country complementarities play in determining firms' export decisions.
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Analysis of Productive Linkages of Multinational Companies Attracted to Costa Rica by CINDE
Grace Huertas Morales / Kerry Loaiza Marín / Laura Ortiz Coto
This study describes backward productive linkages and their economic determinants for foreign companies attracted by CINDE, and other companies in the special regime in Costa Rica. The production chain is measured as the ratio of the value of real local purchases to the number of workers in these companies. Information from the Registry of Economic Variables of the Central Bank of Costa Rica is used to characterize these linkages between 2008 and 2017. Using various econometric specifications based on unbalanced panel data, evidence is found that foreign companies attracted by CINDE and other companies in Free Zones have more linkages than local companies. Purchases of non-tradable goods and services are concentrated among local suppliers operating under the definitive regime. On the other hand, it is mainly foreign companies that operate in the country under the special regime that supply tradable goods and services to multinationals.
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Minimum Wages and Firm Dynamics: Evidence from Costa Rica's Occupational-Based System
Jonathan Garita GaritaThis paper analyzes the firm dynamics of adjustment to higher minimum wages using Costa Rica's occupation-specific minimum wage setting. I assemble rich administrative data covering the universe of workers and firms in the 2006-2017 period to construct firm-level measures of compliance cost and estimate the impact of differential exposure to the minimum wage on firm outcomes at several year horizons. The analysis yields two important results: First, minimum wages induce firms to increase their labor shares, but with a negative and persistent impact on their profitability. The positive effect on the labor shares moderates as firms reduce their employment levels and expand their capital stocks. Second, raising minimum wages has a detrimental impact on aggregate employment dynamics by reducing firm entry, with an estimated adverse effect on employment of 0.8 percent due to the missing entrants associated with the policy.
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Tuesday, November 2, 2021
Monetary Policy and the Credit Channel
José Pablo Barquero Romero / Kerry Loaiza Marín
The existence, strength, direction and possible asymmetries in the transmission of the monetary policy rate (MPR) to the real economy through the credit channel are evaluated, using data collected by the General Superintendency of Financial Entities on the universe of credits. Markov regime change models are used to evaluate the existence, determinants and moments in which this channel is active. In addition, Structural and Smooth VAR models are used to estimate the differentiated impact of the MPR on economic activity and credit when the channel is active or inactive. Results indicate a positive impact on the economic activity of the MPR when the channel is active, but no impact when it is inactive. Evidence also indicates that reserve requirements are an additional instrument for activating the credit channel. It was also found that prior to the pandemic (end of 2019) the channel was deactivating.
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Impact of COVID-19 Restrictions in Costa Rica: A Local Approach
José Pablo Barquero Romero / Esteban Méndez Chacón / Carlos Segura Rodríguez
During the COVID-19 pandemic, Costa Rican Government implemented measures to impede mobility, aiming to reduce the number of infections and deaths caused by the disease. However, these measures harm economic activity and employment. This study analyses the effects by municipality of these restrictions, both on economic activity and health outcomes. We collect data on the sanitary alerts and restrictions announced by the government from March 15th, 2020 to July 31st, 2021 and use electricity consumption to approximate economic activity. We corroborate that these restrictions resulted on a reduction of the number of infections and deaths related to COVID-19, but that they caused a significant reduction on commercial electricity consumption, which we linked to the effects of these measures on economic activity.
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An Analysis of Purchasing Power Parity Among OECD Countries
Diana Van Patten Rivera
An examination of the country's PPP-adjusted aggregate price level compared to other regions of the world does not create a red flag with respect to Costa Rica being particularly expensive. This is true even when comparing Costa Rica with the OECD. The picture is very different when disaggregating price levels and conducting a study by product category. An analysis of the most expensive categories in the country, and the products that compose them, indicates that high costs might be linked to market concentration, little competition and the regulatory framework that surrounds the industries in these groups. Despite the country being relatively cheap in multiple categories, high prices in key industries with high concentration of producers may have contributed to the general notion of Costa Rica as an expensive country. In particular, many of the goods in expensive categories are part of the basic food basket. This impacts the most vulnerable population the most, as it allocates a greater percentage of its income to spending on food. Thus, increasing the degree of competition could disproportionately benefit low-income people, and help reduce real income inequality in the country.
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Engel´s Law and the Price Level Measurement in Costa Rica
César Ulate Sancho / Diana Van Patten Rivera
Engel's Law establishes that the proportion of income devoted to food is inversely related to real household income. This law suggests that the movements in the participation in the food budget could serve as an indicator of the movements in the real income of a household. Based on this law, and using data from the National Household Income and Expenditure Survey and the National Household Survey, this paper makes an estimate that allows us to infer how similar the movements in the price index and in the percentage of household income spent on food are, while controlling for household characteristics and changes in food prices.
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Wednesday, November 3
Historical Analysis of the Real Exchange Rate in Costa Rica
Alonso Alfaro Ureña / Catalina Sandoval Alvarado
The Real Exchange Rate (RER) is a relative price in the economy that affects the allocation of resources and economic activity, reflecting conditions that affect competitiveness in international trade. Its analysis and interpretation must be carried out in a complementary way with internal and external macroeconomic variables. In this paper, the RER in Costa Rica is analyzed from a historical perspective for the period between 1957 and 2020, together with the trajectory of its long-term macroeconomic fundamentals and the exchange rate regime in force at each moment in time. Additionally, reconstructed historical data is used to estimate the equilibrium real exchange rate (ERER) using the Behavioral Equilibrium Exchange Rate (BEER) approach. It is found that the fundamentals of the ERER have varied substantially in ways that affected the RER in different directions, and that the latter has generally followed a path consistent with the equilibrium dictated by its macroeconomic fundamentals.
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Equilibrium Real Exchange Rate in the Presence of a Structural Change
Carlos Brenes Soto / Susan Jiménez Montero / Carlos Segura Rodríguez
Estimates of the equilibrium real exchange rate for Costa Rica are presented based on the Fundamental Equilibrium Real Exchange Rate and Desirable Equilibrium Real Exchange Rate methodologies. In these estimations we include a structural change variable to capture the effect of the 2008-2009 financial crisis, which was found to be significant. The main result of the analysis is that the real effective exchange rate has been close to its equilibrium value. However, there have been two moments in which we find some deviation. First, between 2012 and 2016 we estimate a real appreciation as a result of sovereign debt issuances on international markets. Second, although its long-term effects are not incorporated in the analysis, we estimate that the crisis caused by COVID-19 has resulted in a currency real depreciation.
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