Scielo RSS <![CDATA[Latin american journal of economics]]> vol. 50 num. 2 lang. es <![CDATA[SciELO Logo]]> <![CDATA[<b>THE REAL OPTIONS APPROACH TO VALUATION</b>: <b>CHALLENGES AND OPPORTUNITIES</b>]]> This paper provides an overview of the real options approach to valuation mainly from the point of view of the author who has worked in this area for over 30 years. After a general introduction to the subject, numerical procedures to value real options are discussed. Recent developments in the valuation of complex American options has allowed progress in the solution of many interesting real option problems. Two applications of the real options approach are discussed in more detail: the valuation of natural resource investments and the valuation of research and development investments. <![CDATA[<b>FINANCE, GROWTH, AND INSTITUTIONS IN LATIN AMERICA</b>: <b>WHAT ARE THE LINKS?</b>]]> Using a panel of 16 countries during the 1961-2010 period, we find that financial development has a positive significant effect on economic growth in the long run for high-income countries but a negative significant effect for low-income countries. When studying the determinants of financial development, we find that higher financial openness and lower country risk are associated with greater financial development. The financial risk index has a positive significant effect on financial development, while the economic risk index has a negative significant effect. In addition, lower foreign debt and better socioeconomic conditions increase financial development. <![CDATA[<b>FOREIGN INVESTMENT AND WAGES</b>: <b>A CROWDING-OUT EFFECT IN MEXICO</b>]]> The purpose of this article is to determine the impact of foreign direct investment (FDI) on a country's overall economy rather than simply the sectors receiving such investment. The strategy consisted of adopting a crowding-in/crowding-out approach to Mexico's total capital volume in the 1993-2010 period. The substitutability of foreign and local capital implies a lower-than-expected economic dynamism. Using a dynamic panel analysis, a negative relationship was found between FDI and the general wage. Throughout the analysis, firm size stands out as a key variable in explaining the impact of FDI. <![CDATA[<b>THE RELATIONSHIP BETWEEN ENERGY CONSUMPTION AND GDP</b>: <b>EVIDENCE FROM A PANEL OF 10 LATIN AMERICAN COUNTRIES</b>]]> We estimate the elasticity of the long-run relationship between energy consumption and GDP for 10 countries in Latin America from 1971 to 2007. We employ Pedroni's (1999, 2004) panel cointegration test to determine if such a long-run relationship exists. Westerlund's (2006) cointegration test for panel data is used to estimate the slopes of the long-run relationship variables. These findings provide empirical guidance for policies to promote energy conservation and efficiency. Cointegration between the two variables is found to exist in both directions. This paper discusses the energy dependence of some countries and describes potential implementation of energy conservation policies in others. <![CDATA[<b>INCOME AND WEALTH DISTRIBUTION WITH PHYSICAL AND HUMAN CAPITAL ACCUMULATION</b>: <b>EXTENDING THE UZAWA-LUCAS MODEL TO A HETEROGENEOUS HOUSEHOLDS ECONOMY</b>]]> This paper proposes a dynamic economic model with wealth accumulation and human capital accumulation with endogenous education. In addition to learning by education like in the Uzawa-Lucas model, we also consider Arrow's learning by producing and Zhang's learning by consuming (creative learning) in the human capital accumulation equation. We simulate the model to demonstrate the existence of equilibrium points and motion of the dynamic system. We also examine how effects of changes in the propensity to receive education, the population, the propensity to save, and the education sector's total productivity will alter the paths of the economic dynamics. <![CDATA[<b>POLARIZATION AND THE MIDDLE CLASS IN URUGUAY</b>]]> Some approaches to measuring the middle class are based on an arbitrary definition such as income quartiles or the poverty line. Foster and Wolfson have recently developed a methodology without arbitrariness. We apply this tool and a complementary method-the relative distribution approach-to analyze the evolution of the middle class and polarization in Uruguay during the 1994-2004 and 2004-2010 periods. During the first period, characterized by increasing income inequality, the middle class declines and income polarization increases. In the second period, which includes the recovery from the 2002 downturn, we find that the middle class increases and polarization decreases.