Working Papers

CEMFI publishes two series of research papers: Working Papers and Master Theses. The Working Papers series contains research work from full-time professors and PhD students.

  • [1601]

    Monica Martinez-Bravo, Priya Mukherjee, Andreas Stegmann

    The Non-Democratic Roots of Elite Capture: Evidence from Soeharto Mayors in Indonesia


    Democracies widely differ on the extent to which powerful elites and interest groups retain in uence over politics. While a large literature argues that elite capture is rooted in a country's history, our understanding of the determinants of elite persistence is limited. In this paper, we show that the way in which democratic transitions unfold is a key determinant of the extent of elite capture. We exploit a natural experiment that occurred during the Indonesian transition: Soeharto-regime mayors were allowed to finish their terms before being replaced by new leaders. Since mayors' political cycles were not synchronized, this event generated exogenous variation in how long old-regime mayors remained in their position during the democratic transition. Districts with longer exposure to old-regime mayors experience worse governance outcomes, higher elite persistence, and lower political competition in the medium-run. The results suggest that slower transitions towards democracy allow the old-regime elites to capture democracy.

  • [1602]

    Anatoli Segura, Javier Suarez

    How excessive is banks’ maturity transformation?


    We quantify the gains from regulating maturity transformation in a model of banks which finance long-term assets with non-tradable debt. Banks choose the amount and maturity of their debt trading off investors’ preference for short maturities with the risk of systemic crises. Pecuniary externalities make unregulated debt maturities inefficiently short. The calibration of the model to Eurozone banking data for 2006 yields that lengthening the average maturity of wholesale debt from its 2.8 months to 3.3 months would produce welfare gains with a present value of euro 105 billion, while the lengthening induced by the NSRF would be too drastic.

  • [1603]

    Manuel García-Santana, Enrique Moral-Benito, Josep Pijoan-Mas, Roberto Ramos

    Growing like Spain: 1995-2007


    Spanish GDP grew at an average rate of 3.5% per year during the expansion of 1995-2007, well above the EU average of 2.2%. However, this growth was based on factor accumulation rather than productivity gains as TFP fell at an annual rate of 0.7%. Using firm-level administrative data for all sectors we show that deterioration in the allocative efficiency of productive factors across rms was at the root of the low TFP growth in Spain, while misallocation across sectors played only a minor role. Cross-industry variation reveals that the increase in misallocation was more severe in sectors where government infl uence is more important for business success, which represents novel evidence on the potential macroeconomic costs of crony capitalism. In contrast, sectoral di erences in nancial dependence, skill intensity, innovative content, tradability, or capital structures intensity appear to be unrelated to changes in allocative eciency. All in all, the observed high output growth together with increasing firm-level misallocation in all sectors is consistent with an expansion driven by a demand boom rather than by structural reforms.

  • [1604]

    Xavier Giné, Monica Martinez-Bravo, Marian Vidal-Fernández

    Are labor supply decisions consistent with neoclassical preferences? Evidence from Indian boat owners


    This paper studies the labor supply of South Indian boat owners using daily labor participation decisions of 247 boat owners during seven years. We test the standard neoclassical model of labor supply and find that boat owners' labor participation depends positively on expected earnings but also on recent accumulated earnings, albeit weakly. Participation elasticities with respect to expected earnings range between 0.8 and 1.3 and about -0.05 and -0.01 with respect to changes in recent income. While recent earnings affecting participation is at odds with the standard neoclassical model, the magnitude of the effects is small, suggesting that the neoclassical model is a good approximation of the labor supply behavior of boat owners in southern India.

  • [1605]

    Manuel García-Santana, Josep Pijoan-Mas, Lucciano Villacorta

    Investment Demand and Structural Change


    The sectoral composition of growing economies is largely affected by the evolution of the investment rate outside the balanced growth path. We present three novel facts consistent with this idea: (a) the value added share of manufacturing within investment goods is larger than within consumption goods, (b) the standard hump-shaped profile of manufacturing with development is much more apparent for the whole economy than for the investment and consumption goods separately, and (c) the investment rate displays a hump with development similar to the one of the value added share of manufacturing. Using a standard multi-sector growth model estimated with a large panel of countries, we find that this mechanism is especially important for the industrialization of several countries since the 1950's and for the deindustrialization of many Western economies since the 1970's. In addition, it explains a substantial part of the standard hump-shaped relationship between manufacturing and development, which has been a challenge for theories of structural transformation under balanced growth. Finally, the different composition of investment and consumption goods can also explain up to half of the decline in the relative price of investment since 1980.

  • [1606]

    Manuel Arellano, Richard Blundell, Stéphane Bonhomme

    Earnings and Consumption Dynamics: A Nonlinear Panel Data Framework


    We develop a new quantile-based panel data framework to study the nature of income persistence and the transmission of income shocks to consumption. Log-earnings are the sum of a general Markovian persistent component and a transitory innovation. The persistence of past shocks to earnings is allowed to vary according to the size and sign of the current shock. Consumption is modeled as an age-dependent nonlinear function of assets, unobservable tastes and the two earnings components. We establish the nonparametric identification of the nonlinear earnings process and of the consumption policy rule. Exploiting the enhanced consumption and asset data in recent waves of the Panel Study of Income Dynamics, we find that the earnings process features nonlinear persistence and conditional skewness. We confirm these results using population register data from Norway. We then show that the impact of earnings shocks varies substantially across earnings histories, and that this nonlinearity drives heterogeneous consumption responses. The framework provides new empirical measures of partial insurance in which the transmission of income shocks to consumption varies systematically with assets, the level of the shock and the history of past shocks.

  • [1607]

    Manuel Arellano, Stéphane Bonhomme

    Nonlinear Panel Data Methods for Dynamic Heterogeneous Agent Models


    Recent developments in nonlinear panel data analysis allow identifying and estimating general dynamic systems. In this review we describe some results and techniques for nonparametric identification and flexible estimation in the presence of time-invariant and time-varying latent variables. This opens the possibility to estimate nonlinear reduced forms in a large class of structural dynamic models with heterogeneous agents. We show how such reduced forms may be used to document policy-relevant derivative effects, and to improve the understanding and facilitate the implementation of structural models.

  • [1608]

    Gerard Llobet, Jorge Padilla

    The Inverse Cournot Effect in Royalty Negotiations with Complementary Patents


    It has been commonly argued that the decision of a large number of inventors to license complementary patents necessary for the development of a product leads to excessively large royalties. This well-known Cournot-complements or royaltystacking effect would hurt efficiency and downstream competition. In this paper we show that when we consider patent litigation and introduce heterogeneity in the portfolio of different firms these results change substantially due to what we denote the Inverse Cournot e ect. We show that the lower the total royalty that a downstream producer pays, the lower the royalty that patent holders restricted by the threat of litigation of downstream producers will charge. This effect generates a moderation force in the royalty that unconstrained large patent holders will charge that may overturn some of the standard predictions in the literature. Interestingly, though, this effect can be less relevant when all patent portfolios are weak making royalty stacking more important.


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