The second workshop of the IV Development Week of the University of Navarra's Navarra Center for International Development focused on topics related to macroeconomics and countries at development. The activity took place at the campus in Madrid from IESE Business School and, among other topics, addressed issues such as the influence of monetary policy on the recovery of countries in an interdependent world and the resilience of markets in the face of the crisis.

The first speaker was Sebastian Edwards Full Professor of Economics International at the University of California-Los Angelesco-director of the National Bureau of Economic Research's 'Africa Project'. and former Chief Economist for Latin America at the World Bank.

In his lecture, 'Monetary Policy and Recovery in an Interdependent World', he questioned whether, as traditional theory suggests, countries with flexible exchange rates have historically been able to pursue a truly independent monetary policy. Professor Edwards argued that to the extent that central banks take into consideration the policies of other central banks, monetary policy will not be fully independent.

In his work he used data from three Latin American countries with flexible exchange rates -Chile, Colombia and Mexico- to analyze the extent to which changes in reservation Federal policy are transmitted to fees domestic policy interest rates. The results of report, covering the period between January 2000 and June 2008, indicate that at least for these three countries there is a fairly high Degree of "policy contagion".

The following discussion paper, at position de Eduardo Cavalloeconomist of the Inter-American Development Bank developmenteconomist, dealt with 'Precautionary Strategies and Household Saving'. He started from the assumption that experts usually explain saving as a precautionary motive - to mitigate unexpected adversities in future income - so that in countries with higher macroeconomic volatility and risk, private saving should be higher. Against this, he indicated that data shows a negative correlation between risk and private savings in cross-country comparisons, especially in nations at development. 

In the work he presented at Development Week he provided a plausible explanation for this disconnect between theory and empirical evidence, based on a more complete model for different modes of 'precautionary' behavior by private agents, in cases where institutions are weaker and labor informality prevails. In such environments, household saving decisions are intertwined with firms' investment decisions. 

Company size and professional qualifications

Next, Pedro Gomes researcher of the Carlos III University of Madridpresented the working paper 'Human Capital and the Size Distribution of Firms'. He explained that countries that have relatively fewer workers with Education secondary education have smaller firms, because the lack of skilled professionals limits the growth of more productive companies. According to agreement with the researcher, the two factors that influence the availability of skilled workers are the level educational of the workforce work and the large public sectors that primarily hire the individuals with the best training.

For research a Economics model was created with a government and private business where production requires both skilled and unskilled jobs. Workers with secondary Education are critical, insofar as they can perform both types of work. The research revealed that the level of Education and employment in the public sector accounted for 40-45% of the differences between the U.S. and Mexico in average company size, GDP per capita, and GDP per hour worked. It also showed that the impact of public employment on skill premiums and productivity measures depend on the bias of skill in public procurement.

Nathalie Pouokamof the International Monetary Fund (IMF), spoke about 'A Political Economy Theory of Growth'. In her intervention she started from the standard neoclassical growth model , which predicts that the economies at development will eventually catch up with the more prosperous economies. But, according to agreement with the IMF expert, while the case of Asian countries supports this growth model , economic stagnation in sub-Saharan Africa and Latin America calls for a different theory that can explain both growth 'miracles' and 'tragedies'.

In this sense, his paper predicts that, under the same conditions, the economies that are most likely to grow are those with the strongest political institutions: those that are least likely to suffer a coup d'état or fall under a dictatorship. However, the relationship between dictatorship and growth predicted by model is not linear: even if there is a chance that the country is under dictatorship, growth depends on the citizens. 

Effects of commodity price shocks.

Leandro Medina, economist at the International Monetary Fundwas the next speaker, with the discussion paper 'The Effects of Commodity Price Shocks on Fiscal Aggregates in Latin America'. In it he presented a work on the effects of commodity price shocks on fiscal revenues and expenditures in Latin America between 1995 and 2013.

According to the results obtained, the fiscal aggregates of Latin American countries increase in response to positive commodity shocks, although there are differences between countries. While in Venezuela fiscal variables show the greatest sensitivity to such shocks -expenditures were significantly higher than revenues-, at the other extreme is Chile, where expenditures barely respond to such fluctuations.

From agreement with the IMF specialist, this divergence in performance may be related to fiscal rules: government expenditures in countries with fiscal rules are less responsive to commodity price shocks.

Risk factors for emerging economies

The closing remarks were made by Liliana Rojas-Suárez, Senior Researcher at the Center for Global Development workshop Liliana Rojas-Suarezsenior researcher at the Center for Global DevelopmentThe presentation was closed by Liliana Rojas-Suárez, senior researcher at the Center for Global Development, consultant to the World Bank, the International Monetary Fund and administrative office General Iberoamericana, and president of committee Latin American Financial Affairs (CLAF). Her intervention was entitled 'As the Global Cycle Turns: How Resilient are Emerging Markets to Take the Hit?'.

First, he identified the three main global risk factors that are not fully reflected in financial variables and affect emerging market economies. The first of these is the temporary creation of liquidity for international capital markets, which stems from the combination of fees very low interest rates in developed economies and increased regulations affecting international banks.

Second, there is the overconfidence of international investors in their ability to anticipate the timing and path of the Federal reservation increase in interest fees rates, which exacerbates the vulnerabilities of emerging markets to sudden and/or large changes in U.S. policy fees.

And the third risk has to do with greater-than-expected financial fragilities in China and the consequent greater-than-expected slowdown in economic growth in the medium term deadline to correct these problems.

After identifying these risks, Rojas-Suárez analyzed the resilience of emerging economies in the face of major external shocks associated with them. He did so through the following variables: a country's ability to cope with tighter financial conditions and the ability of the authorities to quickly implement countercyclical policies.

Following the analysis, he offered the following conclusions: the BRICS countries (Brazil, Russia, India, China and South Africa) have significantly weakened their relative position; and many Latin American countries are not as resilient as before. In contrast, emerging European countries have improved their ranking relative to other emerging markets. On the other hand, status in Asia is a mixed bag, although several countries in the region have declined in strength.

About Development Week

Development Week is a congress on Economics of development organized annually by NCID. This group of research belonging to Institute for Culture and Society (ICS) of the University of Navarra seeks scientific solutions -viable and sustainable- to situations of extreme poverty in countries in Africa, Asia and Latin America. To achieve this, it focuses on three lines: the quality of public and private institutions in each nation, technology transfer and migration.