This paper evaluates the degree of consumption insurance enjoyed by Latin American and Caribbean countries, with respect to various reference areas, by estimating a parameter expressing the sensitivity of a country's consumption growth to a measure of idiosyncratic shocks to income. The paper surveys common econometric implementations of consumption insurance tests. The author proposes some econometric procedures in order to detect the actual presence of international risk sharing, as well as to assess the relative impact of idiosyncratic versus aggregate shocks. The evidence suggests that Latin American and Caribbean economies have been hit by non-diversifiable income shocks, that idiosyncratic risk is relatively more important than aggregate risk, and that some countries in the region appear to enjoy a certain amount of international risk diversification. The paper also identifies some macroeconomic factors that may be responsible for a higher or lower degree of risk pooling (such as international openness, financial depth, and credit availability). The findings show that the financial development of an economy is a crucial factor in determining the amount of risk sharing opportunities, as well as public expenditure. The preliminary results also suggest that trade openness and shocks to terms of trade play an important role in determining the degree of insurability of such risks.

The aftermath of the global financial crisis has reshaped world growth and demand patterns, leading to a two-speed recovery, with slow growth in industrial countries and fast growth in emerging markets. This new global scenario is defining a constellation of global macroeconomic conditions that has very different implications for subsets of countries in Latin America and the Caribbean. The report conveys three key messages: first, in this new global economic environment, key structural characteristics of Latin American and Caribbean countries are defining two quite different regional clusters in terms of opportunities and challenges ahead. Second, substantial changes in trade and capital flow patterns, as well as in the international financial architecture, are already taking place and will impact the regional clusters in different ways. Third, economic policy design will have to accommodate these differences in order to ensure widespread and stable growth.

Dated April 1995

The 2018 Macroeconomic Report, A Mandate to Grow, revisits the growth debate that has been raging in the region for the past half century. Viewing the debate from this long-term perspective allows for a focus on the structural factors that have prevented Latin America and the Caribbean from reaching the growth potential required to keep pace with faster growing regions and to fulfill the aspirations of its population.

Outward migration has been an important phenomenon for countries in Latin American and the Caribbean (LAC), particularly those in Central America and the Caribbean. This paper examines recent trends in outward migration from and remittances to LAC, as well as their costs and benefits. For the home country, the negative impact from emigration on labor resources and productivity seems to outweigh growth gains from remittances, notably for the Caribbean. However, given emigration, remittance flows play key financing and stabilizing roles in Central America and the Caribbean. They facilitate private consumption smoothing, support financial sector stability and fiscal revenues, and help reduce poverty and inequality, without strong evidence for harmful competitiveness effects through shifts in the real exchange rate.