Date of Award

Fall 12-14-2011

Degree Type


Degree Name

Doctor of Philosophy (PhD)



First Advisor

Jorge L. Martinez-Vazquez

Second Advisor

Erdal Tekin

Third Advisor

Klara Sabirianova Peter

Fourth Advisor

Francois Vaillancourt


This dissertation comprises two essays. While the topics of both essays are different both are interrelated on the base of economic development. The first essay examines ethnic wage gaps on segmented labor markets with evidence from Latin American countries. The second essay revisits the determinants of fiscal decentralization with an emphasis on the role that geography plays in determining fiscal decentralization. The first essay contributes to limited literature on ethnic wage gaps in Latin America. It examines ethnic wage gaps for workers in formal and informal labor markets. Using data from Latin American countries we estimate and examine across-ethnic wage gaps for informal and formal markets, their changes over time, factors that explain their differences, and the wage gap distribution. More specifically, we verify that different ethnic wage gaps do exist across formal and informal markets; they behave differently not only at their means but also along the wage distribution. The results indicate that higher ethnic wage gaps in informal sectors exist not only on average but also throughout the distribution. In addition, we find that wage gaps have declined significantly over the last 10 years. we explain this by examining changes in the prices of institutional factors and changes in human capital endowments. The distributional analysis shows a decrease in the unexplained component, especially in the top part of the distribution. The second essay contributes to the existing literature on the determinants of fiscal decentralization by motivating theoretically and exploiting in depth the empirical relevance that geography has as a determinant of fiscal decentralization. The relationship between decentralization and geography is based on the logic that more geographically diverse countries show greater heterogeneity among their citizens, including their preferences and needs for public goods and services provisions. Communications and physical distance are also a very important issue and play a key role on the effect of geography over time. (Lora et. al., 2003) argue geography plays a key role in economic and social development, as well as in the institutional design of the countries; yet, this effect could be enhanced (or diminished) in the presence of better physical infrastructure or communications. The theoretical model in this paper builds on the work by Arzaghi and Henderson (2002) and Panizza (1999). For the empirical estimation, we use a panel data set for approximately 91 countries for the period 1960-2005. Physical geography is measured along several dimensions, including elevation, land area and climate. We construct a geographical fragmentation index and test its effect on fiscal decentralization. In addition, we interact the geographical fragmentation index with time-variant infrastructure variables in order to test the effect that infrastructure and communications have on the relationship between geography and fiscal decentralization. For robustness, we construct Gini coefficients for in-country elevation and climate. We find a positive and strong correlation between geographical factors and fiscal decentralization. We also find that while the development of infrastructure (in transportation, communications, etc.) tends to reduce the effect of geography on decentralization, this effect is rather small and mostly statistically insignificant, meaning that the impact of geography survives over time. The strategy has additional value because geography may be used as an instrument for decentralization in future econometric estimations where decentralization is used as an explanatory variable, but may be suspected to be endogenous to the economic process being studied (economic growth, political instability, macroeconomic stability, income distribution, etc.).