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Francisco A Gallego
Assistant Professor of Economics, Catholic University of Chile
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Documentos de Trabajo 2010 Feb;
CEO Compensation among Firms Controlled by Large Shareholders: Evidence from Emerging Markets
Using a novel data base for three emerging markets, we find that the type of large shareholder matters for CEO compensation. In particular, we find a compensation premium of about 30 log points for professional (not controller-related) CEOs working i... expand abstractn firms controlled by a family compared to firms controlled by other large shareholders. The premium cannot be explained away by standard firm characteristics, observable executive skills (e.g., education or tenure), or the compensation of the CEO in herformer job. The premium comes mostly from family firms with absent founders and when sons are involved. collapse abstract
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Working Papers ClioLab 2010 Feb;
Skill Premium in Chile: Studying Skill Upgrading in the South
The evolution of the skill premium (i.e., the wage differential between skilled and unskilled workers) has interest from at least two perspectives: it is a rough measure of inequality among workers of different qualifications and provides information... expand abstract on the characteristics of the development process of the economy. In this paper, I investigate empirically the evolution of the skill premium in Chile over the last 40 years. After some fluctuations in the 1960s and 1970s, the skill premium increased in the 1980s and has remained roughly constant since then. The data suggest that this evolution is an outcome of a significant increase in relative demand for skilled workers in the 1980s and 1990s and a sizeable increase in the relative supply in the 1990s. Sectoral evidence shows that, after controlling for sector and time effects, (i) the relative demand increased faster in the same industries in Chile than in the US and (ii) the correlation is stronger for tradable industries and non-tradable industries that are intensive in imported capital, as expected. This result is consistent with a number of theories that link skill up- grading in developed and developing countries. To try to disentangle among these theories, I present time series evidence suggesting that, after controlling for other determinants of skill premium, not only there is a positive correlation between skill premium in Chile and in the US but also the size of the correlation is consistent with the Acemoglu (2003a) model of endogenous technological choice in which new technologies are produced in developed countries (like the US) and adopted in developing economies (like Chile). collapse abstract
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Working Papers ClioLab 2010 Feb;
Sudden Stops, Financial Frictions, and Labor Market Flows: Evidence from Latin America
Sudden stops and international financial crises have been a main feature of developing countries in the last three decades. While their aggregate effects are well known, the disaggregated channels through which they work are not well explored yet. In... expand abstract this paper, we study the sectoral responses that take place over episodes of sudden stops. Using job flows from a sectoral panel dataset for four Latin American countries, we find that sudden stops are characterized as periods of lower job creation and increased job destruction. Moreover, these effects are heterogeneous across sectors: we find that when a sudden stop occurs, sectors with higher dependence on external financing experience lower job creation. In turn, sectors with higher liquidity needs experience significantly larger job destruction. This evidence is consistent with the idea that dependence on external financing affects mainly the creation margin and that exposure to liquidity conditions affects mainly the destruction margin. Overall, our results confirm the large labor market effects of sudden stops, and provide evidence of financial conditions being an important transmission channel of sudden stops within a country, highlighting the role of financial frictions in the restructuring process in general. collapse abstract
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FINANCIAL STRUCTURE IN CHILE: Macroeconomic Developments And . . .
The objectives of this paper are, first, to describe the developments in Chilean financial markets at the macroeconomic level and, then, to examine their effects at the level of firms. After reviewing the main government policies towards financial ma... expand abstractrkets in the last three decades, the paper describes the remarkable changes and progress in the banking sector and in various types of capital markets (bond, stock, pension and insurance markets) during the same period. This is done by evaluating changes in financial markets size, activity, and efficiency. Second, the paper analyzes the changes in both the access to financial markets and the financing (balance-sheet) decisions in a sample of Chilean firms. The sample consists of 79 firms that are quoted in the stock market and for which annual balance sheet data for the period 1985-1995 are available and complete. The paper estimates and tests econometrically three issues. The first is whether the firms' reliance on internal funds for investment has decreased in the more financially open period of the 1990s relative to the 1980s and, thus, whether investment has been more responsive to changes in the q-value of the firm. The second examines whether financial liberalization and the development of the banking, stock and bond markets at the aggregate level have affected the importance of debt relative to equity and the maturity of debt in the balance sheet of firms. The third studies the extent to which firm-specific and aggregate financial market developments have impacted on firm growth, measured by the percentage increase in operational revenues. In general, we conclude that financial developments at the macro level have indeed had an impact on the firms' access to capital markets, their financial structure, and their rate o... collapse abstract
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Documentos de Trabajo 2009 Feb;
School Choice in Chile: Looking at the Demand Side
How do parents choose among schools when they are allowed to do so? In this paper, we analyze detailed information of 70,000 fourth-graders attending about 1,200 publicly subsidized schools in the context of the Chilean voucher system. We model the s... expand abstractchool choice of a household as a discrete choice of a single school, based on the random utility model developed by McFadden (1974) and the specification of Berry, Levinsohn, and Pakes (1995), which includes choice-specific unobservable characteristics and deals with potential endogeneity. Our results imply that households value some attributes of schools, with the two most important dimensions being test scores and distance to school. Interestingly, at the same time, our results suggest there is a lot of heterogeneity in preferences because the valuation of most school attributes depend on household characteristics. In particular, we find that while proximity to school is an inferior attribute, test scores is a normal attribute. We present evidence that our results are mainly driven by self-selection and not by school-side selection. As a nal check, we compute the average enrollment elasticity with respect to all school attributes and find that higher elasticities are correlated with higher supply of the attribute, especially in the case of test scores-enrollment elasticities for private schools. collapse abstract
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Working Papers ClioLab 2009 Feb;
Good, Bad and Ugly Colonial Activities: Do They Matter for Economic Development?
Levels of economic development vary widely within countries in the Americas. We argue that part of this variation has its roots in the colonial era. Colonizers engaged in different economic activities in different regions of a country, depending on l... expand abstractocal conditions. Some activities, such as mining and sugar cultivation, were “bad” in the sense that they depended heavily on the exploitation of labor and led to a low development path, while “good” activities led to a high development path. We show that areas with bad colonial activities have lower output per capita today than areas with good colonial activities. Areas with high pre-colonial population density also do worse today. Moreover, the positive effect of “good” activities goes away in areas with high pre-colonial population density. We attribute this to the “ugly” fact that colonizers used the pre-colonial population as an exploitable resource, thereby also leading to a low development path. Our results suggest that differences in political representation and in the current ethnic composition of the population (but not differences in human capital or income inequality) could be the intermediating factors between colonial activities and current development. collapse abstract
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Working Papers ClioLab 2009 Feb;
Christian Missionaries and Education in Former Colonies: How Institutions Mattered
Using cross-country data for about 70 countries and regional data for about 180 African provinces, we show that competition between Protestant and Catholic missionaries increased schooling in former colonies. Our evidence implies that Protestant miss... expand abstractionaries increased schooling in Catholic countries by more than Catholic missionaries, but we cannot reject the hypothesis that the effect of Protestant and Catholic missionaries on educational outcomes was similar when missionaries of both denominations faced the same legal and institutional treatment, We interpret these result in the context of an economic rationale in which different institutions created differences in competitive pressures faced by Catholic and Protestant missionaries. collapse abstract
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Working Papers ClioLab 2009 Feb;
Christian Missionaries and Education in Former African Colonies: How Competition Mattered
Using regional data for about 180 African provinces, we find that measures of Protestant missionary activity in the past are more correlated with schooling variables today than similar measures for Catholic missionary activity, as previous papers hav... expand abstracte suggested. However, we find that this effect is mainly driven by differences in Catholic areas (ie. areas in which Catholic missionaries were protected from competition from Protestant missionaries in the past). This is not surprising because most former Catholic colonies had a number of restrictions to the operation of Protestant missionaries that benefited Catholic missionaries. Therefore, our results are consistent with an economic rationale in which dierent rules created differences in competitive pressures faced by Catholic and Protestant missionaries. collapse abstract
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Documentos de Trabajo 2008 Feb;
On the Determinants and Implications of School Choice: Semi-Structural Simulations for Chile
This paper studies the implications of school choice in the context of the Chilean quasivoucher system. We use information of school choices of about 80,000 students that lived in the Metropolitan Area of Santiago in Chile in 2002 and the results of ... expand abstractthe discrete choice model estimated in Gallego and Hernando (2008) to perform a number of exercises aimed at quantifying what we call the “value of choice” (i.e. how much do households gain from a school choice system?) against a number of counterfactuals that restrict school choice in several dimensions (geographic choice, the existence of top ups, and the supply of voucher schools). We also (i) analyze the effects on socioeconomic segregation of students and (ii) study the potential effects of introducing a non-flat voucher that is decreasing in students’ SES. Our results suggest that overall, school choice seems to be valuable to households, but there is a lot of heterogeneity in its value. In some simulations, school choice is regressive (as when lotteries are used to allocate students to current schools; or when we consider the effects of the increase in the supply of voucher schools) and in other progressive (when students are allowed to choose outside the county in which they live). Interestingly, policies that restrict the use of top ups to the voucher do not seem to reduce segregation in a significant way. This contrasts with the introduction of a differentiated voucher, which would mostly benefit the poor and even compensate them for loses from some dimensions of school choice observed in particular groups. collapse abstract
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Working Papers ClioLab 2008 Feb;
Historical Origins of Schooling: The Role of Democracy and Political Decentralization
Why does schooling attainment vary widely across countries? Why are differences in schooling attainment highly persistent? I show that cross-country differences in schooling are related to political institutions, such as democracy and local democracy... expand abstract (political decentralization), which are affected by colonial factors. By using the number of native cultures before colonization as an instrument for political decentralization, I show that, after controlling for the causal effect of income, the degree of democratization positively affects the development of primary education, whereas political decentralization has a positive and significant impact on more advanced levels of schooling. collapse abstract
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Policy Research Working Paper Series 2008 Feb;
Good, bad, and ugly colonial activities : studying development across the Americas
Levels of economic development vary widely within countries in the Americas. This paper argues that part of this variation has its roots in the colonial era. Colonizers engaged in different economic activities in different regions of a country, depen... expand abstractding on local conditions. Some activities were"bad"in the sense that they depended heavily on the exploitation of labor and created extractive institutions, while"good"activities created inclusive institutions. The authors show that areas with bad colonial activities have lower gross domestic product per capita today than areas with good colonial activities. Areas with high pre-colonial population density also do worse today. In particular, the positive effect of"good"activities goes away in areas with high pre-colonial population density. The analysis attributes this to the"ugly"fact that colonizers used the pre-colonial population as an exploitable resource. The intermediating factor between history and current development appears to be institutional differences across regions and not income inequality or the current ethnic composition of the population. collapse abstract
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Working Papers Central Bank of Chile 2006 Feb;
Skill Premium in Chile: Studying the Skill Bias Technical Change Hypothesis in the South
The evolution of the skill premium (i.e., the wage differential between skilled and unskilled workers) in an economy has interest from at least two perspectives: the evolution of the skill premium is a rough measure of inequality among workers of dif... expand abstractferent qualifications and provides information on the characteristics of the development process of the economy. In this paper, I investigate empirically the evolution of the skill premium in Chile over the last 40 years. After some fluctuations in the 1960s and 1970s, the skill premium increased in the 1980s and has remained roughly constant since then. A simple accounting framework suggests that this evolution is an outcome of a significant increase in relative demand for skilled workers in the 1980s and 1990s and a sizeable increase in the relative supply in the 1990s. Next, I explain the evolution of the relative demand for skilled labor in Chile in the context of the Acemoglu (2003a) model of endogenous technological choice where new technologies are produced in developed countries (like the US) and adopted in developing economies (like Chile). Macro evidence and sectoral evidence confirm the main theoretical prediction of the model: patterns of skill upgrading in Chile have followed the evolution of the same variable in the US. collapse abstract
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Applied Economics 2005 Feb; 37(7)
Building confidence intervals for band-pass and Hodrick--Prescott filters: an application using bootstrapping
This article generates innovative confidence intervals for two of the most popular de-trending methods: Hodrick--Prescott and band-pass filters. The confidence intervals are obtained using block-bootstrapping techniques for dependent data. GDP trend... expand abstract growth and output gap intervals for the G7 economies are used as examples. This new methodology increases the usefulness of these filters by overcoming the absence of confidence intervals. collapse abstract
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Working Papers Central Bank of Chile 2005 Feb;
Exchange Rate Interventions and Insurance: Is “Fear of Floating” a Cause For Concern?
Fear of floating” is one of the central empirical characteristics of exchange rate regimes in emerging markets. However, while some view “fear of floating” in terms of the optimal ex post monetary response to external shocks, protecting balance sheet... expand abstracts and avoiding inflation, others have argued that from an ex ante perspective such a policy leads to private sector underinsurance against sudden stops. A commitment to floating during potential crises would increase the incentives of the private sector to conserve international liquidity. This paper develops a model of the optimal exchange rate regime when both ex ante and ex post concerns are present. Since it is only “fear of floating” during potential sudden stops which undermines insurance, we reexamine the data on exchange rate regimes for evidence that exchange rate flexibility is state-contingent. We find most emerging markets exhibit non-contingent policies with a uniformly low level of flexibility, which together with an absence of substituteinsurance policies supports the claim that greater exchange rate flexibility during sudden stops would be desirable for such countries. However, more recent floats with intermediate levels of credibility exhibit little state contingency because of a uniformly high degree of flexibility. More established floats with high credibility exhibit statecontingent regimes, retaining a capacity for discretionary intervention, but floating during potential crises. Exchange rate flexibility is associated with increased private sector hoarding of dollar assets and reduced incidence of sudden stops. Together the evidence suggests that the insurance benefits to floating for emerging markets can be substantial and that the credibility of the monetary policy framework is central to successful implementation of this policy. collapse abstract
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Econometric Society 2004 Latin American Meetings 2004 Feb;
School Choice, Incentives, and Academic Outcomes: Evidence from Chile
This paper examines the effects of inter-school competition on student outcomes by using exogenous variation in the availability of private schools in Chile. Given that naïve estimates of the effects of competition on student outcomes are biased by... expand abstract endogenous entry of schools, this paper uses variation in the number of Catholic priests per capita in different school markets, as an exogenous determinant of the supply of private schools. Results suggest that greater competition significantly raises both test scores and the productivity of schools. There is also evidence that the effects of school choice are significantly larger for students attending subsidized private schools, and insignificant or even negative for students attending public schools facing softer budget constraints collapse abstract
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Working Papers Central Bank of Chile 2004 Feb;
General Equilibrium Dynamics of External Shocks and Policy Changes in Chile
This paper develops a macroeconomic general-equilibrium model fully parameterized for the Chilean economy. The model’s basic relations are derived from intertemporal optimization by a group of rational forward-looking agents. The model also adds crit... expand abstractical real-world features – such as short-run wage rigidities and a group of myopic agents – that generate deviations from the frictionless fullemployment equilibrium of the unconstrained neoclassical paradigm. The model is numerically simulated to illustrate the dynamics of Chile’s economy in response to the external shocks and policy shifts that led to the 1998-99 recession. collapse abstract
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Computing in Economics and Finance 2003 2003 Feb;
Building Confidence Intervals for the Band-Pas and Hodrick-Prescott Filters: An Application using Bootstrapping
No abstract is available for this item.
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Working Papers Central Bank of Chile 2003 Feb;
Building Confidence Intervals for the Band-Pass and Hodrick-Prescott Filters: An Application Using Bootstrapping
This article generates innovative confidence intervals for two of the most popular de trending methods: Hodrick-Prescott and Band-Pass filters. The confidence intervals are obtained using block-bootstrapping techniques for dependent data. As an examp... expand abstractle, we present GDP trend growth and output gap intervals for the G7 economies. This new methodology will increase the usefulness of these filters by overcoming the absence of confidence intervals. collapse abstract
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Working Papers Central Bank of Chile 2002 Feb;
Competencia y Resultados Educativos: Teoría y Evidencia para Chile
This paper presents a theoretical model and empirical estimations to evaluate the effects of competition on school quality. Empirical estimations, using roughly 5,000 Chilean schools in the 1994-1997 period and econometric techniques robust to endoge... expand abstractneity, support the theoretical model and show a positive and relevant effect of competition on the results of public-subsidized schools. The effects are bigger for the fraction of public-subsidized schools that are private, because they have incentives more directly related to academic performance. collapse abstract
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Working Papers Central Bank of Chile 2002 Feb;
The Golden Period for Growth in Chile: Explanations and Forecasts
Economic growth in Chile since the mid 1980s has been remarkable for its high level and persistence. This paper attempts to shed light on the factors behind it and analyze the extent to which they can be sustained in the future. The first part of the... expand abstract paper presents some stylized facts. Taken together, they suggest that the jump in growth was driven by policies and macroeconomic conditions that affected the economy’s overall productivity. The second part of the paper considers the recent empirical growth literature to examine the extent to which a cross-country approach can explain Chile’s growth. We formulate and estimate – using techniques suited for dynamic models of panel data— a basic model containing the most popular variables in the literature. Our basic model allows us to explain about 45% of the change in the growth rate between 1970-85 and 1986-1998, which was 4.74%. When we expand the basic model to include the quality of the political system and governance, the comprehensiveness and compl ementarity of policy reforms, and the availability of public services and infrastructure, we can explain 73% of the growth improvement. The last part of the paper starts the evaluation of possible new growth sources for Chile by, first, projecting the country’s growth rate for the next decade under various assumptions and, second, proposing some areas with potentially large returns. collapse abstract
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Cuadernos de Economía-Latin American Journal of Economics 2001 Feb; 38(113)
Household Saving in Chile (1988 and 1997): Testing the Life Cycle Hypothesis
Saving behavior at the household level in Chile has not been analyzed in recent decades. Based on 1988 and 1996-1997 Chilean microeconomic evidence (Household Budget Survey), this article studies household saving behavior. The analysis is extended to... expand abstract incl collapse abstract
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Working Papers Central Bank of Chile 2001 Feb;
Estimaciones de los Determinantes del Ahorro Voluntario de los Hogares en Chile (1988 Y 1997)
This paper develops a multivariate analysis in order to study the determinants of the household saving rate. For this purpose, the paper uses two microeconomic databases for 1988 and 1996-1997. The main results of the paper support the conventional e... expand abstractxplanations of saving rates: more than 60% of the variation of saving rates explained by the estimated model is related to age (consistently with the Life Cycle Hypothesis) and temporary income (consistently with the Permanent Income Hypothesis). The results also give some support to more recent extensions of the classic theories (for instance, related to the impact of wealth and human capital on saving decisions). Finally, the evidence points out that the effects of some institutions (like credit markets and mandatory saving for retirement) change with different macroeconomic environments. collapse abstract
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Working Papers Central Bank of Chile 2001 Feb;
El Ahorro y el Consumo de Bienes Durables Frente al Ciclo Económico en Chile: ¿Consumismo, Frugalidad, Racionalidad?
This paper studies empirically the relation between household economic saving (including durable good purchases) and the business cycle using Chilean data. The data show that the relation between household saving and the business cycle is given by th... expand abstracte durable consumption dynamics.Consequently, a group of econometric regressions are made in order to study the connections between both kinds of goods. This is the first paper that empirically tests the implications of the permanent income hypothesis (PIH) and the liquidity constraint approach. Several interesting results emerge: first, the strong and weak implications of the PIH are rejected; second, liquidity constraints are moderate and affect both durable and non-durable goods; and, third, Chilean consumers do not smooth consumption because liquidity constraints are binding and not because they are non-rational. collapse abstract
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Working Papers Central Bank of Chile 2001 Feb;
Trends and Cycles in Real-Time
This paper compares the results of applying several detrending methods to the Chilean monthly economic activity index (IMACEC) that arise from using real-time data sets. We show that data revisions are extremely important and that they can lead to sy... expand abstractstematically inconsistent estimates of the trend component. Furthermore, most of the filters commonly used to detrend time series in practice, are highly unstable and unreliable for end-of-sample estimation. collapse abstract
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Working Papers Central Bank of Chile 2000 Feb;
Evolución del Consumo y Compras de Bienes Durables en Chile, 1981-1999
This paper presents a methodology to build series of purchases, consumption, and stocks of durable goods for the Chilean economy in the 1981-1999 period. The estimated series -both nominal and real- are presented in quarterly and annual frequencies. ... expand abstractIn addition, the paper explores the differences in their dynamic structure with regards to the evolution of non-durable consumption, interest rates, real wages, employment, and real output. collapse abstract
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