DANIEL MEJIA, University of the Andes (Colombia) - Department of Economics
Email: danmejia81@hotmail.com

This paper develops a model of the war against illegal drugs in both producer and consumer countries. The paper studies the trade-off faced by the government of the drug consumer country between prevention policies (aimed at reducing the demand for drugs) and enforcement policies (aimed at reducing the production and trafficking of drugs), and shows how the optimal allocation of resources between these two alternatives depends on the key parameters of the model. We use available data for the war on drugs in Colombia, and against consumption in the U.S., to calibrate the unobservable parameters of the model, such as the price elasticity of demand for cocaine; the effectiveness of prevention and treatment policies; and the relative effectiveness of interdiction efforts.

EMMANUEL SKOUFIAS, World Bank
Email: eskoufias@worldbank.org
MISHEL UNAR, affiliation not provided to SSRN
TERESA GONZALEZ-COSSIO, affiliation not provided to SSRN

The authors use the unique experimental design of the Food Support Program (Programa Apoyo Alimentario) to analyze in-kind and cash transfers in the poor rural areas of southern states of Mexico. They compare the impacts of monthly in-kind and cash transfers of equivalent value (mean share 11.5 percent of pre-program consumption) on household welfare as measured by food and total consumption, adult labor supply, and poverty. The results show that approximately two years later the transfer has a large and positive impact on total and food consumption. There are no differences in the size of the effect of transfer in cash versus transfers in-kind on consumption. The transfer, irrespective of type, does not affect overall participation in labor market activities but induces beneficiary households to switch their labor allocation from agricultural to nonagricultural activities. The analysis finds that the program leads to a significant reduction in poverty. Overall, the findings suggest that the Food Support Program intervention is able to relax the binding liquidity constraints faced by poor agricultural households, and thus increases both equity and efficiency.

MELISSO BOSCHI, University of Perugia - Department of Economics, Finance, and Statistics, University of Essex - Department of Economics
Email: melissoboschi@libero.it
ALESSANDRO GIRARDI, Institute for Studies and Economic Analyses (ISAE), University of Rome - Tor Vergata - Department of Economics and Institutions
Email: a.girardi@isae.it

This paper quantifies the relative contribution of domestic, regional and international factors to the fluctuation of domestic output in six key Latin American (LA) countries: Argentina, Bolivia, Brazil, Chile, Mexico and Peru. Using quarterly data over the period 1980:1-2003:4, a multi-variate, multicountry time series model was estimated to study the economic interdependence among LA countries and, in addition, between each of them and the three world largest industrial economies: the US, the Euro Area and Japan. Falsifying a common suspicion, it is shown that the proportion of LA countries' domestic output variability explained by industrial countries' factors is modest. By contrast, domestic and regional factors account for the main share of output variability at all simulation horizons. The implications for the choice of the exchange rate regime are also discussed.

ROLANDO AVENDANO, Organization for Economic Co-Operation and Development (OECD)
Email: rolando.avendano@oecd.org
GØRIL BJERKHOL HAVRO, Central Bank of Norway
Email: gbhavro@ambolt.no
JAVIER SANTISO, Organization for Economic Co-Operation and Development (OECD)
Email: javier.santiso@oecd.org

Growing trade with China and India offer an array of new export opportunities for Latin America, yet it also poses new challenges. Heightened demand for raw materials accentuates the need for industrial diversification, while the new competition environment raises the stakes for investment in infrastructure and innovation.