This study examines the long-run relationships and short-run adjustment dynamics among financial inclusion, unemployment, poverty, and public debt in Nigeria using annual time series data spanning 1990 to 2023. Given the non-stationary nature of the variables, the analysis employs the Augmented Dickey–Fuller unit root test, Johansen cointegration technique, Fully Modified Ordinary Least Squares (FMOLS), and Vector Error Correction Model (VECM) within a multivariate time-series framework. The results confirm that all variables are integrated of order one and exhibit a stable long-run equilibrium relationship. The FMOLS estimates indicate that financial inclusion and public debt are negatively associated with unemployment in the long run, while poverty is positively associated with unemployment. The VECM results further reveal the presence of short-run adjustment dynamics toward the long-run equilibrium following temporary shocks. These findings highlight the interconnected nature of financial inclusion, fiscal conditions, and social welfare indicators in shaping labour market outcomes. The study contributes to the literature by providing a unified empirical framework that captures both equilibrium relationships and dynamic adjustments among key macroeconomic variables in Nigeria. Policy implications should be interpreted within the context of long-run macroeconomic coordination rather than direct causal effects, particularly with respect to financial inclusion strategies, debt management, and poverty reduction efforts.
This study investigates the determinants of financial literacy among women entrepreneurs in Pakistan’s informal sector and its implications for their entrepreneurial success. Using data from five districts in Punjab, a Bayesian hierarchical logistics model estimated through Hamiltonian Monte Carlo (HMC) and the No-U-Turn Samplers (NUTS) was applied for robust interference. Results show that 55-59 % of respondents were financially literate, with an overall mean of 61 %. Education, access to credit, and business facilities were positively associated with financial literacy, whereas gender-related constrains and lack of formal education had negative effects. Cultural constrained showed mixed influences, and multiple roles had a slight positive impact. The findings highlight the need for targeted financial literacy programs, focusing on budgeting, financial management, and investment skills, to enhance women’s entrepreneurial capacity and support inclusive economic development.
This paper develops an open-economy model with banks operating under monopolistic competition, two types of credit subject to credit risk—corporate and mortgage—and Basel-type capital requirements. The model is calibrated and estimated using Bayesian methods and Peruvian data. The estimated model is then used for historical shock decompositions, variance decompositions, and impulse response analysis following monetary and fiscal shocks. It also serves to evaluate the effects of regulatory frameworks such as the IRB approaches under Basel II and III.
This paper seeks to explore developments in the Latin American financial system over the last decade by analyzing the factors that determined non-performing loans during 2015-2024 and, above all, by showing that banks responded differently depending on internal and external factors. We explore financial and macroeconomic variables for Brazil, Colombia, Chile, Mexico, and Peru. Specifically, when we split the sample, the results are heterogeneous, with some variables affecting non-performing loans more than others. The split is based on the pandemic, which led to structural changes in the performance of the financial system in emerging countries.
Hyman Minsky's financial instability hypothesis provides a theoretical framework to understand the emergence of endogenous crises in modern economies and how capital flows amplify accumulated imbalances and exacerbate financial constraints in economic units. This inquiry operationalizes the Financial Instability Hypothesis within the Colombian non-listed manufacturing sector through the estimation of discrete-state dynamics and distributional sensitivities. The methodological design constructs two distinct fragility taxonomies to interrogate the determinants of the Hedge, Speculative, and Ponzi classifications. The first specification applies an open-economy cash-flow model derived from Castro (2011), which explicitly internalizes the valuation effects of nominal exchange rate fluctuations on debt service obligations. The second taxonomy, grounded in Nishi (2019), evaluates solvency through the interaction of a flow-based profitability margin and a stock-based liquid asset buffer. To parse the transmission of meso-level economic impulses, the analysis deploys multinomial logit models equipped with a Mundlak correction for correlated random effects alongside recentered influence function regressions. Estimation outputs from the first model confirm that the deterioration of the interest coverage ratio functions as the primary determinant to the Ponzi state, while pre-existing dependence on imported capital acts as a specific transmission channel for currency shocks. The margin-of-safety specification reveals that stock-based liquidity buffers absorb solvency shocks effectively, rendering specific currency exposure variables redundant as predictors of distress. Finally, the dynamic analysis uncovers a temporal asymmetry where contemporaneous sectoral expansions ameliorate immediate default risk through the revenue channel, whereas lagged growth accumulation is associated with the endogenous generation of future fragility. This validates the core thesis of Minsky's framework: that stability breeds instability.
The present study responds to the following question: What factors determined the location of manufacturing industries in Peruvian regions for the years 1963 and 1974? Using the data of the Economic Censuses conducted in 1963 and 1974 by the Peruvian government, we evaluate the factors that influenced the location decisions. For this aim, we apply the methodology proposed by Midelfart-Knarvik et al. (2000, 2001), which integrates in a model the factors that the Heckscher-Ohlin (H-O) and the New Economic Geography (NEG) theories consider important to explain industrial location decisions. Among them, they consider the influence of the regional endowment of resources and the intensity of their use in industries (H-O theory), as well as the influence of the market potential and the backward or forward linkages between industries or the economies of scale in industries (NEG theory). Our findings indicate that for this period of analysis in Peru, the factors related to agricultural endowment, electrical energy, financial capital (components related to the H-O theory), backward linkages and the economies of scale (components related to the NEG theory) were influential in determining the industrial location decisions of the manufacturing sector across regions. The results also indicate that the two components associated with the NEG theory have the highest weighted impact on manufacturing location decisions. Another relevant aspect is that our findings allow us to partially understand the agglomeration of industries in some regions, particularly in the capital of the country, Lima.
This paper examines how business environment distortions and informal competition contribute to the persistence of low-scale formal firms in Peru. Using data from the 2015 National Enterprise Survey, the analysis estimates an ordered probit model with instrumental variables to assess these effects. Results show that limited access to working-capital credit and competition from informal businesses increase the probability of being a micro enterprise by 18 and 16 percentage points (pp), respectively. Likewise, complex tax regulations increase this probability by 10 pp, while inadequate infrastructure and institutional weaknesses raise it by 8 pp. However, simultaneous improvements in credit access, tax simplification, and institutional and infrastructure quality could reduce the share of micro enterprises by 39 pp while increasing the shares of small and medium/large enterprises by 27 and 12 pp, respectively.
Following the outbreak of the COVID-19 pandemic, most economic indicators experienced an increase in observed volatility, reducing the accuracy of nowcasting econometric models. In this paper, we propose a new specification for a mixed-frequency dynamic factor model used to nowcast the quarterly GDP growth rate of the Spanish economy –the Spain-STING–. With the aim of improving the predictive capacity of the model, we consider three proposals: (i) the relationship between the indicators and the estimated common factor is now contemporaneous, and not leading for some of the indicators; (ii) the variance of the common component is estimated by a stochastic process to allow it to vary over time; (iii) the set of variables is revised with the aim of including only those that add the most relevant information to the nowcast of the quarterly GDP growth rate. All these three modifications imply a notable improvement in the nowcasting performance during the period after the COVID-19 pandemic, while maintaining the accuracy obtained before it. These proposals could be also useful to revise other forecasting models.
Corporations with persistently negative profitability, excessive leverage, and declining real revenue growth, are colloquially referred to as "zombie firms" due to their economically unviable nature. Such financially distressed entities operate in both developed economies and emerging markets. This paper quantifies the financial performance of zombie firms within Colombia's petrochemical cluster using a five-component methodology. The research applies a probit regression, a comparative analysis of financial constraint indices, an investment-cash flow sensitivity model, a corporate flow of funds analysis, and a cash flow sensitivity of cash model. The probit model establishes that indebtedness, minimal asset tangibility, and inadequate operating cash flow function as the primary statistically determinant predictors of zombie status. The comparative analysis of financial constraint indices confirms the superior discriminatory power of the Whited-Wu index over the Kaplan-Zingales and Size-Age alternatives for classifying these corporations. Furthermore, the investment-cash flow sensitivity model establishes that zombie firms systematically curtail capital expenditures in response to their distressed nature, a behavior not observed in their solvent counterparts. The corporate flow of funds analysis derives a structural explanation: an inability to generate internal cash flow and volatility in working capital primarily cause the financing deficit of underperforming entities, whereas these factors are not determinant for solvent corporations. Finally, the cash flow sensitivity of cash model confirms that a precautionary motive dictates the cash accumulation policies of zombie firms, a behavior absent in financially viable entities.
This study examines the impact of the 2017 El Niño phenomenon on per capita expenditures on health and education among rural households in the northern coastal region of Peru. We use household-level panel data from 2015 to 2019, along with district-level precipitation data. A difference-in-differences (DiD) model is proposed to compare households affected by the phenomenon with those that were not affected. The results show that the 2017 El Niño phenomenon had a negative effect on per capita expenditures on health and education for the affected rural households, possibly driven by a negative shock to agricultural income. Consequently, the findings suggest that individuals in affected households have reduced access to the benefits of acquiring health and education services, increasing their vulnerability to health risks and cognitive skill development challenges.
This paper examines the ability of Peruvian households to smooth consumption in the face of job loss and family business failure shocks, using the weak form of the permanent income hypothesis. The analysis distinguishes between ex ante mechanisms-such as insurance coverage and access to formal credit markets-and ex post responses adopted after a shock occurs. The results show that: (i) on average, households are able to smooth consumption; (ii) this ability is concentrated among those with access to the formal financial system, although some smoothing was also observed during the pandemic among households with informal savings; (iii) households tend to smooth spending on essential categories, such as food and health, but not on non-essential items including clothing, education, and leisure; in the case of health, smoothing is observed only when households have insurance coverage; and (iv) eight types of ex post coping strategies are evaluated, most of which help mitigate consumption losses-particularly multiple jobholding and government transfers. The findings also reveal substantial heterogeneity: higher-income households benefit from broader access to financial instruments, including severance savings, while lower-income households face more limited options and display weaker smoothing capacity.
This paper investigates the relationship between fiscal policy composition and long-run economic growth by extending the classic Alesina–Rodrik framework. We develop a dynamic model that distinguishes between capital-augmenting public investments (such as infrastructure) and labor-enhancing expenditures (including human capital development), both financed through a wealth tax. Our central hypothesis is that an optimal allocation of public spending exists which maximizes the net return on capital and thereby supports sustained growth. However, political pressures—stemming from heterogeneous factor endowments and median voter preferences—can drive fiscal policies away from this efficiency benchmark, leading to suboptimal tax rates and spending compositions that may even trigger growth traps. By employing comparative statics and equilibrium analysis, we demonstrate how redistributive forces influence the choice of fiscal instruments, ultimately affecting aggregate productivity and capital accumulation. The findings offer novel theoretical insights into the trade-offs between redistribution and growth, underscoring the critical importance of aligning fiscal composition with underlying production technologies to achieve both efficient and politically feasible outcomes.
This paper presents a macroeconomic model that replicates the key stylized facts of the Peruvian economy, namely the strong dependence of private investment and GDP on mineral export prices, within a framework where the Central Reserve Bank of Peru (BCRP) operates under a dirty float regime and the Ministry of Economy and Finance (MEF) follows fiscal rules that endogenize public spending. The model is designed for undergraduate students and instructors of economics and builds on the work of Dancourt (2009), Dancourt & Mendoza (2016), and Mendoza (2019).
We study honesty using a two-player deception game, where players are required to report the group they belong to. The payoffs depend on the decisions of each pair of players, with lying yielding the highest individual payoff. Exploiting a between subjects design, we examine the effect of time (delay and pressure) and information (about the decisions of her peers) on lying and investigate whether these effects differ by gender. Using a sample from two private universities in Peru, we find that, on average, participants lie less in the delay treatment compared to the time pressure treatment, and that only the time pressure treatment shows a differential effect by gender. Additionally, we observe heterogeneity between the two colleges in both cases. Among the numerous potential correlates we analyze, the propensity to follow rules, risk aversion, loss aversion, guilt, and beliefs about others' honesty all influence individual honesty.
Empirical studies suggest that credit constraints prevent the development of Micro and Small Enterprises (MSEs). This study contributes to the analysis by exploring whether higher regional financial development affects the creation and growth of MSEs in Peru. Based on four cross-sectional databases, mainly the 2018 National Household Survey on Living Conditions and Poverty, this paper finds that there is a positive impact on entrepreneur profits; however, the effect is negative on the likelihood of running a business. Interactions between informality and financial frictions may explain this result. Informal financing emerges as an alternative in this context. This study addresses endogeneity issues by using the number of commercial bank branches per 1,000 inhabitants in 1995 as an instrument of the degree of regional financial development in 2018.
Through a correspondence study in Peru between July and September of 2021, we analyze the probability of Peruvian and Venezuelan applicants receiving callbacks to participate in a second stage of a job selection process. We studied the difference in the response rate by nationality, and tested potential mechanisms to reduce it, like holding a temporary residence permit (PTP) or having previous work experience in Peru. We find evidence of discrimination towards Venezuelan immigrants, as they have 4 percentage points less probability of receiving a callback than their Peruvian counterpart (a 43% difference with the control group rate). While previous work experience in Peru offsets the gap, holding a PTP does not attenuate employment discrimination.
We study the short term effects of an experiment which transitioned conditional cash transfer beneficiaries from receiving benefits in cash at temporary payment modules to receiving benefits through account deposits on women’s status, work and financial inclusion. The experiment was implemented in the context of the Mexican Prospera program in 150 communities in the state of Hidalgo. Our results suggest an immediate and important positive impact of the transition to deposits on women’s control of resources in the household.
Welfare measures and their assessment involve a set of indicators that, as economic thought evolves, are subject to critique. Nonetheless, the ultimate debate focuses on the quality of life and the conditions fostered by each economy. Using data from the period 1993 to 2019, this paper presents an analysis of the current account and terms of trade, highlighting the significance of these variables, as they encompass important flows and contribute to shaping market conditions and the resulting benefits. The study employs both Vector Error Correction (VECM) and Structural Vector Error Correction (SVECM) models to explore the interplay between external dynamics and their effects on the economy. The findings reveal that an export price shock has an expansive effect on investment, yet its impact on savings becomes marginally significant over time. Unexpected shocks on investment are roughly 38% reliant on external factors, of which an average of 32% is attributable to export prices, underscoring the tight correlation between investment and international market dynamics. Notably, the results indicate that external dynamics primarily exert short-term effects. Consequently, despite periods of robust growth, reduced unemployment, and poverty reduction, these indicators have not proven to be sustainable in Peru.
Peru is among the countries hardest hit by the COVID-19 pandemic, experiencing significant losses in terms of lives and well-being. This study examines the income, expenditure, and savings patterns of Peruvian households amidst the pandemic, with a focus on rural/urban and formal/informal differences. Additionally, we analyze shifts in consumption, particularly regarding food and health expenditures. Utilizing data from the National Household Survey (ENAHO), we conducted a multi-period analysis at the quarterly level spanning 2019-2021, with the prepandemic quarter as the reference point. Our findings reveal substantial disparities between rural and urban areas, as well as within these segments based on the formal or informal employment status of household heads, regarding income, expenses, savings, and shifts in consumption patterns. While all segments experienced income reductions, rural households recovered swiftly but maintained reduced food consumption. Formal workers experienced less income loss and did not dissave, whereas urban informal workers were most affected in terms of income and food deprivation. Finally, we discuss how these findings can inform public policy discussions in Peru, particularly related to social protection.
We develop the first climate risk Stress Test for the Peruvian financial system following a topdown approach. Focusing on the microeconomic channel, we evaluate how heavy rainfall and droughts, under a scenario of pure physical risk, will marginally affect the probability of default (PD) of borrowers by 2050. Using information from the Credit Registry, the National Oceanic and Atmospheric Administration (NOAA), and CMIP6 precipitation projections (37 modeling groups), we calibrate the marginal impacts differentiating by economic sector and geographical location. We find that, on average, by December 2050, the probability of default of the Peruvian financial system would increase by 4.9% with respect to December 2020. By geographic area, borrowers located on the northern coast (Piura, Lambayeque) and the southern highlands (Ayacucho, Cusco) would be negatively affected by heavy rainfall, while the rainforest (Madre de Dios, Ucayali) would be negatively affected by droughts. Moreover, the economic sectors affected by heavy rainfall or droughts would be agriculture, commerce, and transportation & communications.
