Volume 13 (2022): Issue 1 (January 2022)

This study considers the economic impact of coronavirus disease 2019 (COVID-19) on commercial enterprises in four Central American countries – El Salvador, Guatemala, Honduras, and Nicaragua. At the time of analysis, neither the pandemic nor its economic consequences had fully run their course. It is not, therefore, a definitive analysis, but it is important to try to draw important lessons as soon as possible. The main focus of the study was the initial impact on labor markets. The analysis was based on World Bank Enterprise Surveys undertaken before the outbreak of COVID-19 and follow-up surveys on the effects of the pandemic, also undertaken by the World Bank (Source: Enterprise Surveys, The World Bank, http://www.enterprisesurveys.org). These were combined with data on both government containment measures and rates of morbidity and mortality. The use of enterprise data to analyze labor market issues has some limitations but also many strengths. The data are useful for analyzing the consequences for gender equality in employment. Since the demand for labor is a derived demand, firm-level data provide a clear link to labor market effects. The pandemic has caused a significant loss in sales for many firms. This has created a loss of liquidity, which, in turn, has caused some firms to reduce employment, working hours, and wages. Government containment measures necessary to save lives, such as temporary workplace closures, have added to the burden for both firms and employees. The study starts by using the surveys to identify the important stylized facts. Although some issues are already well documented anecdotally through media reports, this method provides a more evidence-based approach. It also helps identify several issues, such as the impact on gender equality, which has received less journalistic attention. The study is further supported by a regression analysis (ordinary least squares and seemingly unrelated regression equations models) of several key outcomes (changes in sales, employment, the share of females in employment, and expectations of firm survival). A limitation of such an analysis at any enterprise level is heterogeneity and, consequently, a risk of sample selection bias. To provide robustness checks, we use a matching approach. The results suggest that a significant proportion of surviving firms are vulnerable to permanent closure. The ability of firms to retain labor depends on sales, which are affected by both the pandemic itself and the government containment measures. Only a small proportion of firms have received government support, and there is evidence that it could help both firm survival and the retention of labor. There is some doubt whether the four countries have the institutional capacity to provide effective support. If such doubts prove well founded, then support may need to be externally driven.

This paper explores the impact of refugees on the size of the underground economy in 28 European Union countries over the period from 1998 to 2017. It applies a nonlinear methodology by employing dynamic panel threshold estimations. The main findings uncover a nonlinear connection between refugees and the informal economy with an inverted V-shape and a different magnitude of effects depending on the share of the refugee population. The underground economy is stimulated at a low level of refugee inflows (where immigrants make up <0.572% of the total population). Large inflows compress the underground economy, which increases competition in the labor market based on lower labor costs. Economic growth and international trade play a crucial role in reducing the size of the informal economy. Equally importantly, coherent unemployment policy and adequate regulation of illegal immigrants support this process.

Using United States Census data between 1970 and 2017, we analyze the economic assimilation of subsequent arrival cohorts of Mexicans and Central Americans by comparing their earnings and employment probability to those of natives with similar age and education. We find that, on average, these immigrants started with an earnings gap of 40–45% and eliminated half of it within 20 years of arrival. Recent cohorts that arrived after 1995 performed better than earlier cohorts in that they had smaller initial earnings gaps and faster convergence. Additionally, the most recent cohorts entered the United States without an employment rate disadvantage, and they surpassed natives within 10 years. We also find that Mexicans and Central Americans working in the construction sector and those living in nonenclave and urban areas had faster earnings convergence than the others.

The impact of remittances on households left behind by migration is ambiguous a priori due to competing income and substitution effects. We offer new evidence on the effect of remittances on household investment decisions. We enrich our analysis using microdata from five sub-Saharan African countries, different investment alternatives, and different remittance sources. We use a recursive bivariate probit model and imperfect instrumental variable approaches to account for endogeneity concerns. We find that remittances increase the likelihood of human, physical, and social capital investment in most of our sample countries. We also find that remittance sources have a notable influence on household investment decisions. Finally, we explore three potential mechanisms: income effect, substitution effect, and migration expectations. We find that the income effect of remittances mainly drives the positive effect on capital investment. However, we also find evidence of substitution effect by left-behind household members and migration expectations in some countries. We contribute to the ongoing debate on the effect of remittances on capital investments, and our results shed light on the heterogeneous effect of remittance in the literature.

The recent mass migration of Venezuelans to Colombia has become a focal point for economists interested in the labor market effects of migration in developing countries. Existing papers studying this migration wave have consistently found negative effects on the hourly wages of native Colombians, which are most concentrated among less-educated natives working in the informal sector. However, the magnitude and significance of this wage effect varies substantially across papers. I explore the potential specification choices that drive this variation. Differences in how migration is measured are particularly important: exclusion of a subset of migrants from the migration measure, according to characteristics such as time of arrival, amounts to an omitted-variable bias that will tend to inflate the estimated wage effect. In my own analysis based on the total migration rate across 79 metropolitan areas and by using an instrument based on historical migrant locations, I estimate a native hourly wage effect of −1.05% from a 1 percentage point increase in the migrant share or an effect of −0.59% after controlling for regional time trends, alongside little-to-no effect on native employment. Native movements across occupation skill groups and geography are small and do not play a meaningful role in mitigating local wage effects. Wage effects are also larger in cities that have a higher baseline informality rate and lower ease of starting a business.

Unlike previous empirical studies, this paper investigates the contemporaneous and lagged impacts of international remittances on poverty alleviation using data for 65 low- and- middle-income countries from 2002 to 2016. By using two-stage least square (2SLS) regression analysis, this study establishes that, in general, international remittances per gross domestic product (GDP) significantly mitigate poverty. On average, a 10-percentage-point increase in remittances will lead to a similar decrease in the poverty headcount ratio at USD 1.90 a day, a 4.8-percentage-point decline in poverty gap ratio at USD 1.90 a day, and a 6.7-percentage-point reduction in the poverty gap ratio at USD 3.20 a day. This result remains robust with the inclusion of political factors in the model. Moreover, the system-generalized method of moments (SGMM) estimations found that the contemporaneous effects of international remittances are much more substantial than their lagged effects. This indicates that most of the poverty alleviation role of remittances is contributed by its direct effect on increasing the wealth index of recipient households rather than the spillover effect on other members of the community. Therefore, we strongly suggest that efforts be made to improve the remittance infrastructures, especially in recipient countries, and the development of cooperatives in the enclaves of migrant workers to spread the beneficial effects of remittances to all members of society.

This paper investigates the direct and the indirect roles of migrant transfers in the saving behaviors of the Latin America and Caribbean (LAC) countries during the period 1997–2018. Using the autoregressive distributed lag (ARDL) panel estimation technique, the results based on the Pooled Mean Group approach provide strong evidence of the importance of inward remittances to savings. On average, an increase in inward remittances by 1% leads to about 0.10% increase in savings ceteris paribus, but the effect is quantitatively larger in the short-run than in the long-run, albeit more significant in the latter case. Quite outstanding here is the observation of the detrimental role of remittances on savings in the long-run once governance quality in aggregate and disaggregated forms are controlled for, suggesting possible adverse effects of remittances for economic development in the long-run. Nevertheless, macroeconomic stability as well as institutional quality, foreign direct investment (FDI), and foreign aid were found to be important moderators of the remittances–savings linkage. For the latter two variables, emphasis is on complementarity rather than substitutability between remittances, aid, and FDI. While in the short-run remittances appear to perform better in enhancing savings in countries where an improvement in corruption control is visible, political rights and civil liberties compliment migrant transfers in propelling savings in the long- and short-runs, respectively. Moreover, remittances are found to play a major role in ameliorating the adverse effects of the financial crisis on savings, just as they are observed to function as a lifeline to savings in countries with increasing macroeconomic instability in form of inflation, in the long-run. The findings are robust to the use of alternative estimation techniques. Policy recommendations are suggested.

We examine households’ temporary international migration response when faced with shocks in rural Kyrgyzstan. Using a household fixed effects model, we find that while a drought shock increases migration, a winter shock reduces migration. We argue that this difference is because of the trade-off between two effects of a shock for a household: loss of income and increase in the need for labor services. Migration increases when the former effect of a shock dominates and it reduces when the latter effect dominates. We explore these mechanisms further, and find that when households have easier access to informal finance the migration response is muted only for shocks for which the adverse income effect dominates. These findings provide evidence in favor of our proposed mechanisms through which shocks affect migration.

This study examines the impact of the Sierra Leone civil war on household expenditure inequality. The paper exploits three rounds of household survey data for Sierra Leone in an attempt to estimate the impact of the conflict on the distribution of household welfare over both short-run and long-run periods. The empirical approach uses RIF measures based on the Gini index and also provides estimates of treatment effects at selected quantiles of the unconditional household expenditure distribution. The key findings reveal that localities subject to a protracted period of occupation by rebel forces experienced a sharp reduction in household expenditure inequality in the immediate aftermath of the conflict with most of the contraction evident at the top end of the distribution.