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P.Krugman (1992) in ‘The counter counter revolution in
the theory of economic develoment’ says:
¨In the 1950’s there was a rich field of research called
Development Economics. Its main purpose was that of
understanding why some countries are so much rich than
others and to propose policies to increase their rate of
economic growth. Such field of study no longer exists. ¨.
Globelics as an inter-disciplinary community studying social,
institutional and economic change.
• Globelics research agenda has now come full circle into what
Krugman called the High Development Theory Agenda of the
1950´s. It has returned to the likes of Hirschman or Myrdal or
Weber, bringing back to central stage institutions, public
goods,the environment and social inclusión, which
neoclassical growth theory had left out in an attempt to
describe growth as an equilibrium process.
• Evolutionary economics – and Globelics –have managed to
change the focus, but growing on the basis of natural
resources, securing environmental sustainability and caring
for social inclusion bring up many new questions which new
generations of the Globalics community will have to address
in the future.
GLOBELICS 2014,
Addis Ababa, Ethiopia.
A new visit to Development Economics in the present age
of natural resource based economic growth
Macro and micro lessons from the Latin American experience.
JORGE KATZ
[email protected] or [email protected]
FEN,University of Chile
October 2014.
Issues to be discussed
•
•
•
•
•
•
1.´Stylized facts´ concerning the Latin American scenario.
2.Independently of the macropolicy regime LA countries have not been ‘catching
up’ with the developed world in terms of GDP per capita.
3 Conclusion: equilibrium macro ´fundamentals´ are necessary, but not sufficient
for ‘catching up’. They reduce macro uncertainty but do not induce sustainable
growth with equity.
4.Growth has shifted from manufacturing to natural resource based sectors, but
Dutch Disease and Tragedy of the Commons problems have emerged.
5.Sustainable and equitable growth demands policy interventions building up local
capabilities, environmental sustainability and social inclusiveness, but this has to
come within the constraint of balanced macro ‘fundamentals’. How can it?.
6.A tax reform is necessary to provide resources for public goods. The current
Chilean policy experiment has to be seen as from this perspective: a tax reform
collecting 3% of GDP and a long term program to improve quality of education.
A short visit to received growth theory.
Received theory reflects two quite different research agendas dealing
with the determinants of economic growth. The two agendas do not
speak to each other.
On the one hand, the neoclassical equilibrium growth agenda,
initiated by R.Solow (Nobel Prize 1988) in the 1950’s and thereafter
advanced by New Growth Theory scholars. It is inspired in Newtonian
physics. On the other hand, the neo-Schumpeterian agenda initiated
by C.Freeman, R.Nelson, B.A.Lundval and else, inspired in Darwinian
natural selection
Both agendas have difficulties to deal with natural resource based
growth, were ´commons´, environmental sustainability, collective
action and government regulation play a key role determining the
efficiency, environmental sustainability and social inclusiveness of
development processes. Evolutionary Economics – mostly build upon
stylized facts coming from the sphere of manufacturing - yet has to
bring on board the economic, technological and institutional features
of natural resource based growth and the dialogue between
economics and ecology.
Lets begin by reviewing Latin American ‘stylized facts’
• 1.Per capita GDP has not ´converged´ to OCDE levels.(12 and 35 thousand
U$S respectively, and much higher structural heterogeneity.
• 2. Ratio of GDP per capita between upper to lower quintile is 20-25 times
in LA as against 6-8 times in OECD countries.
• 3.The rate of capital formation is lower than in the 1970’s.
• 4.Macroeconomic volatility is high, higher than in the 1970´s.
• 5.The economy has restructured into natural resource based sectors &
services
• 6.Terms of trade have improved due to the ‘China effect’, but impact upon
low and medium tech domestic manufacturing is negative, and increasing.
• 7. Increasing imports of K goods, low domestic R&D & productivy growth
• 8. New macro and micro problems - ‘Dutch Disease’ and ‘Tragedy of the
Commons’ – have emerged associated to natural resource based growth.
• 9. The new growth regime involves the outward expansion of the natural
resource exploitation frontier but lacks institutions for environmental
protection and for social inclusiveness.
GDP Per Capita Relative to the United States
(PPP at current prices)
80
Taiwan
70
60
50
Korea
40
30
Argentina
Chile
20
10
0
Source: Penn Tables. A.Heston et.al. Univ. of Penn.
Brasil
Income per capita ´lags behind´ OECD countries
50000
45000
current international dollars
40000
35000
Argentina
30000
Brazil
Chile
25000
Mexico
20000
Denmark
15000
Finland
10000
Ireland
Korea, Republic of
5000
year
Source: Astorga & Katz, in Dutrenit and Sutz.
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
0
Latincapital
America:
Gross capital
formation
, 1970-2011
Gross
formation
LA 1970-2011
(En porcentajein
del PIB)
27
25
23,5
23
21,3
21
18,5
19
17,6
17,6
17
Fuente: Basado en datos de CEPAL.
Source:R.french davis
9
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
15
TPF in Latin American .
(Aravena et.al. Cepal, 2006)
5
4
3
2
1
0
-1
-2
-3
1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004
PTF sin ajustar
PTF ajustada
Differences in TPF across LA countries.
(Aravena et.al. ECLAC, 2006)
6
5
4
3
2
1
0
Argentina
Bolivia
Brasil
Chile
Colombia
Costa Rica
1950 - 2005
Capital
Trabajo
PTF
Ecuador
Mexico
Peru
Venezuela
The typical regional scenario
Ilustasted by the Chilean case
Productivity growth is very low
Latin American macro volatility.
(Macro volatility induces a ´defensive´micro of low I and R&D expenditure)
Figure I.2
Latin America (19): GDP and aggregate demand, 1990-2004
(annual growth rates, %)
8
6
4
-2
-4
GDP growth
Aggregate demand growth
Source: R.Ffrench Davis
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0
1990
2
CHANGES IN INDUSTRIAL STRUCTURE RESULTING FROM
TRADE LIBERALIZACION AND MARKET DE-REGULATION
POLICIES.
Argentina
1970 1996
Brasil
1970 1996
Chile
1970 1996
Colombia
1970 1996
México
1970 1996
I
15.6
13.1
18.8
22.8
14.9
10.2
10.7
10.5
13.3
13.9
II
9.9
12.1
9.9
8.7
7.7
2.0
2.9
6.5
5.5
10.8
III+IV
36.2
45.7
35.8
42.4
43.2
56.2
45.7
51.2
46.8
46.5
V
38.2
29.0
35.5
26.1
34.2
31.6
40.7
31.8
34.4
28.8
I
II
III+IV
V
Metalworking
activities.
(Machinery
and equipment)
Industria
metalmecánica
(excluyendo
automóviles,
CIIU 381,382,383,385);
Vehicles
Equipo
de transporte (CIIU 384)
Alimentos,
bebidas yprocessing
tabaco (CIIUindustries
311,313,314); (en el caso chileno, CIIU 372 ha sido excluido);
Natural resource
Foodstuffs,
forestry,
mining, acuaculture,
horti and
fruticulture,
gas341,
and351,
oil, etc
. 355, 356, 371, 372)
y IV
Industrias
procesadoras
de recursos
naturales
(CIIU,
354,
Low skilled
labour intensive
industries.
etc.)323, 324, 331, 332, 342,
Industrias
“tradicionales”
intensivas
en mano(Shoes,
de obra clothing,
(CIIU 321, 322,
352, 361, 362, 369, 390.
Source: ECLAC, UN
Commodity prices 2000-2011
(Is China a ´bubble´ or a new model of the world economy?)
250
80%
Var. interanual (eje derecho)
200
60%
Índice
40%
150
20%
0%
100
-20%
50
-40%
Source: R.Jenkings
I 11
III 10
I 10
III 09
I 09
III 08
I 08
III 07
I 07
III 06
I 06
III 05
I 05
III 04
I 04
III 03
I 03
III 02
I 02
III 01
I 01
III 00
-60%
I 00
0
Unit labor costs 100=2000
200.0
Colombia
175.0
Brasil
Chile
150.0
125.0
Perú
Uruguay
100.0
Argentina
75.0
50.0
Argentina
Brasil
Chile
Colombia
Perú
Uruguay
Source: R.Frenkel and M.Rapetti.
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
25.0
The Real exchange rate vis a vis US. has worsened
275.0
250.0
225.0
200.0
175.0
Argentina
150.0
125.0
Uruguay
100.0
Chile
Perú
Colombia
75.0
Brasil
50.0
Argentina
Brasil
Chile
Colombia
Perú
Uruguay
Source: (R.Frenkel and M.Rapetti, 2011)
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
25.0
Low R&D expenditure as a % of GDP, and scarce incidence
upon domestic productivity growth.
4
3.95
3
2.68
2
1
0
0.43 0.69
1.14 1.34
Alternative macroeconomic policy regimes have not been
capable of inducing ´catching up´.
• Brazil and Chile opted for an ´inflation targeting´ regime in the
2000´s. Argentina instead opted for a high and competitive
real exchange rate (RER) regime.
• Brazil y Chile suffered the appreciation of the exchange rate
and increasing commoditization of their production and
exports. Argentina expanded growth and employment all
across but could not keep inflation at bay. X’s came from ‘old’
plants, without much new investment.
• None of the three countries managed closing up the relative
productivity gap with the international frontier. Macro policies
seem to be a necessary, but not a sufficient condition for that.
Argentina: exchange rate management after the 2002
devaluation.
Source: Katz & Bernat,2011
The expansion of Exports.
(Argentina, Brasil Chile)
170
Argentina
160
Brazil
Chile
159,4
150
141,6
138,2
140
134,9
129,6
130
133,1
120
110
138,1
128,7
124,2
119,0
116,3
138,4
131,8
120,8 121,0
134,6
132,2
125,4
125,4
123,2
105,0
100,0
100
90
2003
2004
2005
2006
2007
2008
Source: Katz & Bernat, 2011
2009
2010e
Annual inflation rate, Argentina, Brazil and Chile.
25%
23,1%
22,0%
Argentina
20%
Brazil
Chile
15%
10%
13,8%
13,0%
12,3%
9,8%
9,3%
7,8%
7,6%
6,1%
5,7%
5% 3,7%
3,7%
2,4%
7,1%
5,9%
4,5%
5,6%
4,3%
3,1%
2,6%
2,5%
1,1%
0%
-1,4%
-5%
2003
2004
2005
2006
2007
2008
2009
2010e
After 2006 Argentina could not avoid moving into an inflationary regime
and could not substain its previous exchange rate policy
Neither Argentina, nore Brazil or Chile, managed to close the
relative productivity gap in manufacturing
60
ARG
BRA
MEX
COL
PER
CHI
50
40
30
20
98
96
94
92
90
88
86
84
82
80
78
76
74
72
70
10
On the other hand, the gap has been closing up in natural resource
based sectors which now represent the ‘new modernity’
1. Agricultural products :
Soybean, wheat, maize.(Argentina, Brazil, Bolivia, Paraguay, Uruguay)
2. Mining activities. (Chile, Bolivia).
3. Oil and gas.(Ecuador, Colombia).
4. Aquaculture. (Chile)
5. Forestry products (Chile, Brazil, Uruguay).
6. Horto, fruticulture & wine.(Argentina, Chile, Uruguay), show :
New ´state of the art´ facilities have been erected
featuring new process and production organization
technologies. Subcontracting activities and KIBS have
expanded and sophisticated natural resource based
´clusters´ are rapidly growing.
Soybean production (Tons) and productivity (Tons/acre).
Comparative perspective
1995-1996
2006-2007
Producction
Tons
Argentina
Brazil
China
India
EEUU
12.480
24.150
13.500
4.476
59.174
46.500
59.000
16.200
7.690
86.770
Harvested
Area . Acre
Argentina
Brazil
China
India
EEUU
5.980
10.950
8.127
4.817
24.900
15.900
20.700
9.300
8.100
30.190
Yield per
acre.
Argentina
Brazil
China
India
EEUU
2.087
2.205
1.661
0.929
2.376
2.925
2.850
1.742
0.947
2.874
Source: USDA
But: expanding the natural resource exploitation frontier
is having major environmental consequences
Salmon farming in Chile as an example.
000 round tons
600
500
400
300
200
100
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Norway
Chile
UK
Canada
Faroe Island
Australia
Overexploitation of pristine waters has brought about
a negative response from the ecology.
Summing up : what are the major questions ahead?
Lets mention four of them:
I. How to deal with China’s threat?.
. China is today the major source of demand for natural resource based
industrial commodities. It affects world prices and terms of trade.
. China is today a major source of supply of low and medium tech industrial
goods. The trade balance has become strongly negative.
. China is now entering energy and capital markets, taking agricultural land on
lease, exploring gas and oil reserves, and else. How to deal with this?
. China is by far the more important trade partner in LA today, with a GDP
elasticity in the order of 0.3 for most countries in the region.
. China is presently changing its long term priorities favouring domestic
consumption rather than investment and exports. What impact can we
expect this to have upon natural resource based Latin American exporters?.
II. How to deal with a more volatile world environment,
III With a local policy regime that only cares for short term financial equilibrium
IV. How to deal with the problems imposed by a natural resource based growth model
1.
2.
3.
4.
5.
6.
Trade liberalization forced the return to natural comparative advantages
leaving less space for macroeconomic policies aiming at ´catching up´.
The ´inflation targeting´ regime –adopted out of ´fear of inflation´ and
traying to attract FDI – only cares for short term financial equilibrium.
The apreciation of the exchange rate has deteriorated the competitive
position of emerging nations.
Capital goods imports have substituted for local machinery prodution
and also for R&D efforts.
Environmental protection has deteriorated due to natural resource
overexploitation.
Manufacturing activities have lost share in GDP and the expansion of the
natural resource exploitation frontier with scarce provision of public
goods is having negative consequences upon the environment and also
upon social inclusivness.
Monetary, fiscal and exchange rate policies are needed
to sustain the RER, but resources are also needed
for ‘industrial’ and social policies.
• A competitive RER is needed for growth but it affects the
rate of inflation.
• For such reason fiscal and monetary interventions are
needed in terms of countercyclical interventions
• These interventions should aim at maintaining the global
balance of the economy, but resources are needed to
address the building up of local capabilities and foreign
competitiveness, on the one hand, and improving social
equity, on the other.
• This demands coordination between short and long term
policies keeping inflation at bay and also caring for building
up domestic capabilities and improving social inclusion.
An interesting option : the current Chilean experiment.
Short term equilibrium and long term change
1. The present Chilean policy experiment appears
as an interesting attempt to bring together both
these aspects : a tax reform that collects around
3% of GDP to be used to improve Education.
But:
2. The FT and The Economist have mottled it ‘the
new mediocrity’. Is it casual? The question then
emerges :
3. How can structural change and social inclusion
be attained in a democratic setting and in the
present ideological environment?
Globelics as an inter-disciplinary community studying social,
institutional and economic change.
• Globelics research agenda has now come full circle into what
Krugman called the High Development Theory Agenda of the
1950´s. It has returned to the likes of Hirschman or Myrdal or
Weber, bringing back to central stage institutions, public
goods,the environment and social inclusión, which
neoclassical growth theory had left out in an attempt to
describe growth as an equilibrium process.
• Evolutionary economics – and Globelics –have managed to
change the focus, but growing on the basis of natural
resources, securing environmental sustainability and caring
for social inclusion bring up many new questions which new
generations of the Globalics community will have to address
in the future.